Living within your means sounds reasonable enough. Families do it, state and local governments are constitutionally required to, and corporations do too. Long-term needs—a new house, capital infrastructure projects, or plant and equipment—can easily be financed through debt, which would be repaid over the useful life of what was financed. So, why not the Federal Government?
Quite frequently, however, national governments are often confronted with large financial needs—natural disasters, lasting recessions, widespread pandemics, wars, etc—which must be addressed, even though they were not budgeted for. And, as we saw during the recent financial crisis (4Q07-1Q09), the Government needed to pump money into infrastructure as well as state coffers. If the Administration did not act, the results would have been even more catastrophic.
Our Federal Government has an advantage in that it controls both fiscal (budgetary) and monetary (the money supply) policy. Fiscal policy enables the Government to adjust tax brackets (with Congress’ approval), manage the Federal Budget and arrange for emergency funding. Monetary policy is the set of tools by which the Federal Reserve (our central bank) manages interest rates, thus causing the economy to accelerate or slow-down,
For the most part, the Obama Administration has done a reasonably good job in managing the Economy since he entered Office, on January 20, 2009. During mid-October of 2008, President George W, Bush said that America was staring down into a financial abyss. And six weeks after Obama’s Inauguration, the economy started to recover: the stock and bond market began to solidify; the Gross Domestic Product consistently reported positive quarters; and Unemployment began a long-term decline
According to the IMF, the U. S. is the only major economy that has continued to rise since The Great Recession, although not as quickly as we would like. During this period, the Administration has reduced the Federal Deficit, as well as the Federal Debt. It’s important to note that much of these accomplishments were made without sufficient assistance from the Republican—or Opposition—Party.
Generally, a National Governments should consider raising taxes and building a surplus when the Economy is strong, and lower taxes and even engage in deficit spending when the Economy is weak. Unfortunately, sometimes political ideology interferes with proven economic methods and common sense.