Politicians will often make promises or suggest policies that sound good, but in fact might be very bad for the economy in certain circumstances. Pick any two of the following promises a politician might make and explain the economic circumstances in which that promise would actually be very bad for the economy. Then, explain what a more responsible promise for that issue might be. (8pts…4pts for each promise)
PROMISE 1: A balanced US government budget / reduced deficit and national debt PROMISE 2: Tax cuts
PROMISE 3: New government spending and programs (could be anything…more spending for the military, for health care, for education, for roads/bridges…anything…)
PROMISE 1: A balanced US government budget / reduced deficit and national debt
In certain circumstances, a promise to balance the US government budget or reduce the deficit and national debt might be very bad for the economy. One such circumstance is during an economic recession or downturn. When the economy is struggling, businesses are not investing, and consumers are not spending as much, a strategy of aggressively reducing the deficit can actually exacerbate the economic downturn.
During an economic recession, government spending plays a crucial role in stimulating the economy and preventing a prolonged recession or depression. If a politician focuses solely on balancing the budget or reducing deficits during this time, it could result in decreased government spending, which means less money flowing into the economy. This reduction in spending can cause a further decrease in overall demand, leading to layoffs, business closures, and a deeper recession.
A more responsible promise for this issue in such circumstances could be to prioritize short-term economic recovery initiatives. This can include measures like increased government spending on infrastructure projects, job creation programs, and targeted stimulus packages. These initiatives can help boost consumer and business confidence, increase spending, and ultimately lead to economic growth, which in turn can contribute to reducing the deficit and national debt in the long run.
PROMISE 2: Tax cuts
While tax cuts may sound appealing to many individuals and businesses, there are circumstances in which they can be detrimental to the economy. One such circumstance is when the government is already facing significant budget deficits or has a high level of national debt. Implementing tax cuts without careful consideration of the economic circumstances can lead to worsening fiscal conditions.
If the government implements tax cuts without an accompanying reduction in government spending, it can result in decreased revenue and increased deficits. This could lead to a further expansion of the national debt, which can have long-term negative consequences for the economy, such as higher interest payments, reduced investor confidence, and limited fiscal flexibility in the future.
A more responsible promise for this issue in such circumstances could be to consider targeted tax cuts or tax reform that encourages specific economic activities. For example, tax cuts could be implemented for small businesses or industries that have the potential to generate significant job growth or innovation. By focusing on targeted tax cuts rather than across-the-board reductions, the government can stimulate economic growth while minimizing the negative impact on the deficit and national debt. Additionally, any tax cuts should be carefully balanced with necessary reductions in government spending to ensure long-term fiscal sustainability.