Follow up: is it realistically achievable ever again, and should it even be a goal to be concerned with?
In: Economics
Well, the dollar’s value has gone down about 98% since 1913.
Some folks won’t be happy until it’s worthless.
What’s another 98% decrease?
The missing part of your question is whether it would be a good idea to balance the federal budget. It would not. The federal debt is the wellspring of our currency: dollars are literally made out of federal debt. The system is set up to ensure that there are some controls on the number of dollars in the world but that the number can grow as needed to support a growing economy.
If you balanced the budget somehow (as Bill Clinton nearly did), then there would be no new dollars created that year. That, in turn, would have bad consequences for the market economy as a whole.
Before we moved to a debt/fiat based economy, we used precious metals as the basis of the currency. That led to difficulty as the amount of money in the world was dependent on the luck of prospectors and miners, rather than on how many dollars were actually needed to keep industry moving. There were a series of disastrous “business cycles” with booms followed by terrible crashes — culminating in the Great Depression. We nearly had another of those in 2008, but the existence of a debt economy meant that the Fed could generate dollars quickly to replace the currency lost by the collapse of several large banks. That kept the recession from turning into another Great Depression.
So balancing the federal budget would open the world up to more business cycles and depressions, which would not be good. You don’t want to go there.
By not cutting taxes too deep.
The US cycled between small deficits and small surpluses for most of its existence. There were some blow-ups in the debt when they had to spend a ton of money all at once (Great Depression, WWII, etc.) but, on average, annual taxes roughly covered normal operating costs.
However, starting in about the late 70s/early 80s, “trickle down economics”, famously called “voodoo economics” because its complete bullshit, took hold in political circles in the US. This is the idea that if you cut taxes on the very wealthy (capital owners) then they’ll invest that in business growth and the taxes on the growth will be big enough to offset the initial loss. So the US has been merrily cutting aggregate taxes for about 50 years now, without any equivalent cuts in spending. This created a structural deficit, because the trickle down theory doesn’t work…the people keeping the money *don’t* reinvest enough to make up for the tax revenue loss.
During the end of Clinton’s presidency the Dot Com bubble fueled incredible tax revenue at a time of relatively low military spending (Cold War over, War on Terror hadn’t started) and low entitlements spending (Baby Boomers hadn’t retired), which was *just* enough to erase the deficit and run a balanced budget. But that was a perfect storm of positivity…as soon as the bubbles burst it was back to deficits.
In the old days, it achieved it by being small, and because to overspend our money meant economic disruption, because our money was backed by gold that could steadily leak out of the country. Less gold in the country meant lots of unemployment. More recently, in the late 1990s and early 2000s, by sharply cutting military spending amidst strong economic growth.
Whether it’s a goal worthy of achievement again is a really big question. One thing to note is that the USA has a tendency towards acquiring debt whether the federal government borrows or not. That’s because we pay out of the country more than is paid in, partly through trade, and partly through other means. The other side of that coin is that we have to then receive an equal amount of investment flowing into the country from abroad, as the countries that get dollars from us look to secure them as reserves by investing them in dollar-denominated financial assets. Most of that investment takes the form of debt.
So for example, in the late 1990s and early 2000s when we achieved a budget surplus, the nation as a whole actually *increased* its overspending relative to production. Since the government wasn’t borrowing, the mandatory inflow of investment had to find assets in the private sector to buy up. A lot of that was Dot Com stocks and, later on and to a much greater degree, American real estate debt. This would foment a couple of major economic crashes here in the USA when way too much capital flowed into undeserving industries.
Now, that’s not a given every time we cut the deficit. But as long as we maintain a *current account* deficit, meaning a net outflow of payments and a corresponding *capital account surplus,* meaning a net inflow of investment, we will acquire debt either publicly or privately. I would argue the government is a much better sink for the world’s capital than the private sector.
By electing a Democrat. No joke. Look at the historical data on the last president’s to Reagan and you’ll see that Republicans RUIN the budget and Dems always bring us back.
Vote for Democrats… seriously
For all their complaining about needing to balance the budget, deficits, and slashing government spending the Republicans historically are actually responsible for the majority of the current government debt. Republicans slash taxes and run horrible deficits while increasing government spending rather than cutting it significantly as they promise.
The biggest drivers for raising the debt in the past several decades are lowering taxes and wars which the Republicans have been responsible for a lot of.
The War on Terror was mostly financed with debt.
While the *Trickle Down Economics* started by Reagan and continued by the Republican party is complete BS that’s been proven to not work. All it does is give rich people more money at the expense of everyone else, and the worst part is they know it and keep pitching it as a solution anyway.
If you want a balanced budget in government and less government debt, tax the rich and corporations more, remove tax loopholes, prevent them from offshoring profits, curb defense spending, and stop bombing other countries.
You also have to raise the minimum wage, which increases overall tax revenue and lowers dependence on social programs like food stamps. The biggest consumer of social welfare dollars is actually Walmart, Amazon, and the like who take advantage of poverty level wages and don’t pay benefits.
Many of the answers are pretty good to directly answer the question, but leave out something important about money creation as you might think all money is from govt debt without one big picture point. It is important to note that much money creation also happens from consumers and businesses taking out loans from banks. I think it goes something like: Your car loan is a bank borrowing money from the local fed at a low interest rate to pay the car dealership and essentially arbitraging that into a higher interest loan to you secured by right of repo and deficiency in case of default.
As an aside, the banking lobby then takes what amounts to a subsidized profit margin and plows it into political campaigns to the point that by 2005, even the federal bankruptcy law was written almost exclusively by lobby lawyers for ABA bank lobby. For all of their whining about Washington elites, and not that their voters know or care to find out, but it was R appointed judges who destroyed most anti-corruption laws leading up to the bankruptcy heist and then Citizens United. Heil lobbyists, amirite?
You simply turn the dial that controls income and the dial that controls expenses till the two balance.
Governments want to plead poverty because they want a ready excuse as to why they can’t do things like healthcare or school lunches. They would much rather slash corporate taxes or hand another trillion to the black box defense industry.
You are getting some…biased answers here.
Tax revenue isn’t the problem. [See this chart](https://fred.stlouisfed.org/series/FYFRGDA188S)–tax revenue as a % of GDP since WWII is actually relatively stable. It goes up and down for recessions/expansions but we aren’t starved for revenue. You can play with the data–I used % of GDP to iron out issues with inflation and to map along with economic activity, but pretty much any chart will be relatively similar.
(Tellingly, the average over Reagan’s admin really isn’t all that different than any other decade.)
By the same token…[spending also really hasn’t changed all that much](https://fred.stlouisfed.org/series/FYONGDA188S), either.
So, a few points:
1. Right now, the deficit doesn’t really matter. Our debt to GDP ratio is still pretty healthy by governance standards. We have a *long* way to go before there are actual, structural problems…
2. …which will probably happen with Social Security. Once the boomers go full in on SSI, we’re losing both their revenue from taxes and also jacking up the spending. I don’t know if it’s enough to break anything but it’s not great.
3. The debt seems alarming but that’s mostly because of its size. Doing things like “hey, every second [insert some mind-boggling high number] is added to the debt” doesn’t also do the same thing for, say revenue, which is also mind-bogglingly high. Most people just don’t have a frame of reference.
4. Generally speaking, despite not being balanced, the actual “structural” deficit each year tends to not be that big. The main problem is spending for huge projects–recently, that’s the pandemic, the 2009 crisis, and the Iraq War/War on Terror. Before that was the S&L bailout, Vietnam…you get the idea.
5. Since everyone else is being a bit partisan, I will too–the only reason that Lyndon Johnson didn’t bust the budget to pay for Vietnam is because he just printed money instead, causing (in part) the inflation issues of the 1970s. You don’t get credit for causing a different problem. And, yeah, Clinton balanced the budget, while Reagan and the Bushes didn’t…but neither did Obama, or Trump, or Biden. It’s quite the bipartisan habit.
To answer your question, it’s just a “simple” (mathematically, not politically) thing of cutting spending a little and raising taxes a little. Oddly, raising taxes for the rich–what most people in this sub probably support–wont’ do a whole lot, just because there aren’t *that* many rich people.
I don’t want to say it’s not a problem–it is, because (ultimately) we want to pay it back. It’s better to tackle it now than later. But from a structural, year-over-year, functioning government standpoint, we’re nowhere near this being a problem.
> ELI5: How in the world did the US Federal government ever achieve a balanced budget
raised taxes on rich people
> and how can they go about ever doing it again?
raise taxes on rich people
> should it even be a goal to be concerned with?
Not particularly. Long-run structural deficits are fine within broad limits. Even if you care about it, what you would want is a cyclically balanced budget running deficits in recessions and surpluses in boom years, and not an annually-balanced budget. Those are about as bright as a small appliance bulb.
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