U.S. Government Deficit

Most major economists, including former Federal Reserve Chairman Alan Greenspan, agree that the current government deficit is spiraling out of control (Deficit; Economists). A survey of 172 members of the National Association of Business Economics in March this year found 27 percent of them saw the deficit or government spending as the largest short-term threat to the economy. The survey showed that businesses had three major concerns: health care, the aging population and the federal deficit. In a speech at a banking conference in Chicago in May last year, Federal Reserve Chairman Alan Greenspan warned of impending problems in Social Security and Medicare. He told the conference that the country's fiscal prospects were, in his judgment, "a significant obstacle to long-term stability because the budget deficit is not readily subject to corrections by market forces that stabilize other imbalances."

Part of Greenspan's concern is that these huge deficits are coming at a time when the baby boomer generation is getting set to retire in 2008 (Deficit). He told the conference, "We have legislated commitments to our senior citizens, that, given the inevitable retirement of our huge baby boom generation, will create significant fiscal challenges in the years ahead."

There are two basic ways to control a deficit: raise taxes or lower government spending. Neither option is attractive. As the Laffer curve shows, raising taxes works up to a point by increasing government in

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Category: Economics - U