The U.S. government is expected to report a budget deficit of $1.6 trillion for the fiscal year ending Sept. 30, a figure that is actually quite small, according to former Labor Secretary Robert Reich.
In fact, even more government spending is needed to get the U.S. economy going again, says the Clinton-era figure.
“It strikes me as alarmingly small,” Reich said on his blog.
“I'd prefer the government run a larger deficit. With unemployment and underemployment still rising, consumers still pulling away from the malls, business investment still in the basement, and exports still dead, the federal government has to spend more — and the deficit has to be larger — in order to get people back to work.”
New figures show hefty government spending could push the overall national debt, now more than $11 trillion, to close to $20 trillion in 10 years. The debt is the total sum the government owes, while the deficit is the yearly gap between revenues and spending.
According to Reich, public spending as a percentage of the overall size of the U.S. economy has been large in the past and the economy always found a way to rebound.
In other words, cuts to public spending have never been as helpful to overall economic health as have the increased public spending that create jobs and ultimately, growth, specifically around the Second World War.
“Economic growth kicked in big time, and reduced the debt as a proportion of the economy to manageable levels,” says Reich.
Reich’s point about growth vs. spending could tested soon enough. Richard W. Fisher, president and chief executive of the Federal Reserve Bank of Dallas, says The Great Recession is finally over and the economy is in recovery.
"We're beginning to see indicators that we're coming out of this," Fisher told the Dallas Morning News, meaning consumer confidence is up and so are housing prices.
But it's too early to break out the pom-poms and get really excited.
The job market isn't going to reheat any real time soon, Fisher said.
"I think it will be a while before businesses rehire or increase pay. They're all going to be very, very conservative on that front until they feel comfortable that we have a global economy that is proceeding. I think that will take some time," Fisher told the newspaper.
Not everyone is so optimistic. Take economist Nouriel Roubini, who said in June that the recession would go on for another nine months.
He may have tempered his doom-and-gloom forecast, but it's still not good.
“There is a big risk of a double-dip recession,” Roubini wrote in his column in the Financial Times this week.
Policymakers must find a way to exit stimulus-fueled economic policies without hurting growth, while at the same time deal with rising oil, food and energy costs that could also hamper growth. Otherwise, the economy will grow and then dip again.
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