Balanced Budget Controversies Republican vs Democrat Solutions - Essay Example

Recent developments which have resulted from the effects of the Economic Recession have led to an increase in the controversy surrounding the amendment to include provisions of a balanced budget into the US constitution. The divide has been particularly pronounced between the Democrats and the Republicans. These debates while launched from allegedly economic perspectives have undertones of political policies which these parties are trying to protect. There are three main arguments in the balanced budget debate; the traditionalist approach; the Ricardian view; and the view that a balanced budget does not represent an accurate measurement of fiscal policy.

The traditionalist view argues that budget deficits at present will lead to a weakening of the economy in future lading to lower investment, higher domestic interest rates which affect exports and ultimately a reduction in longer term economic growth. The Ricardian perspective takes a trade in perspective on the balanced budget issue. The logic of the Ricardian view is that budget deficits today represent higher future taxes. The perspective assumes that since citizens acknowledge future higher taxes they adjust their savings and spending accordingly leading to little effect on long term growth.

The third position believes that while the government may influence spending saving and investment, the effect of the budget deficit is not the only measure of the fiscal policy effect on these variables (Joyce 122). While the two main sides in the debate accrue to the various fiscal debates, the truth is more rooted in political considerations. Both the two parties are interested in winning over or retaining their voting districts through the offering of tax breaks, and incentives. The issue of the budget deficit has different interpretations by think tanks and political Parties.

The Republican Party is the most vocal in calling for an amendment that would put forth a constitutional cap on federal spending in order to match expenditure. The suggested amendment put forth by the Republicans is to restrict government expenditure to 18% of income (Jansson 268). The view of the Republican Party takes the traditionalist view in assuming that higher taxes have a negative effect on longer term economic growth by reducing national savings, investment and exports. The main thrust of the Republican Party argument is mainly on the effect of the increase of a budget deficit on future generations.

The thrust of the argument is that since a budget deficit reduces investment, it results to a decrease in future productivity impacting long term economic growth (Joyce 139-141). Republicans are thus for the scaling down of social programs or their total abolition as they deem them unnecessary burdens on the economy. The Democratic Party on the other hand adopts both the Ricardian and fringe approaches regarding a balanced budget. The argument of the Democratic Party is that citizens acknowledge the effects of a budget deficit and hence save and spend accordingly.

The Democratic Party also does not believe that the budget deficit is the only variable in fiscal policy outcomes. The Democrats are for cuts in the budget which are distributed over a span of ten years as opposed to the fixed cap (Jansson, 21-219). The perspective believes in the crowding in effect whereby the expenditure by government leads to output demand leading to capital investment. While the Republicans argue that