US government deficits and debt amid the great recession: what the evidence shows
This paper examines three sets of major questions regarding the current US government's fiscal deficit and outstanding debt, tied to the 2009 economic stimulus programme, the American Recovery and Reinvestment Act (ARRA). First, I consider the claim that high levels of government borrowing drive up interest rates. These high rates then produce a heavy burden of government debt as well as heavy inflationary pressures. The evidence reviewed regarding each of these concerns demonstrates that none have emerged as serious matters since the enactment of the ARRA. Given this conclusion, the paper then questions why the ARRA did not then succeed in generating a strong economic recovery. I advance three primary reasons for the failure of the ARRA to achieve a strong recovery: (i) the ARRA relied too heavily on tax cuts as a means of bolstering private spending; (ii) household wealth declined dramatically during the recession, tied to the collapse of the financial bubble, and this in turn weakened the willingness of households to increase spending; and (iii) credit markets were locked up, especially for smaller businesses, despite the highly expansionary monetary policy stance adopted by the Federal Reserve. Building on these findings, I then develop a series of policy proposals aimed at promoting both a strong recovery in the short term and at reducing any remaining structural deficit issues in the longer term. The short-term programme focuses on extending loan guarantees, especially to small businesses, and taxing the excess reserves held by commercial banks. The longer-term agenda focuses on reducing government costs for health care and the military, and on increasing revenue through establishing taxes on financial market transactions. Copyright The Author 2012. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 36 (2012)
Issue (Month): 1 ()
|Contact details of provider:|| Postal: |
Fax: 01865 267 985
Web page: http://www.cje.oupjournals.org/Email:
|Order Information:||Web: http://www.oup.co.uk/journals|
When requesting a correction, please mention this item's handle: RePEc:oup:cambje:v:36:y:2012:i:1:p:161-187. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.