William_T._Bianco,_David_T._Canon]_American_Polit

536536 Chapter 15 | Economic Policy

interpretations of economic growth measurements—in particular, the increase in

GDP. These critics argue that a significant part of GDP actually captures a decline in

well-being. For example, if we have to spend billions of dollars putting alarms in our

homes and cars to warn against intruders, this does not signal an improvement in the

standard of living from the time when such alarms were unnecessary. Yet the purchase

of such crime-fighting tools adds to GDP. An ideal measure of economic growth would

distinguish between positive and negative forms of economic activity.^10

Balanced Budgets

Maintaining a balanced budget has been a central economic goal since the 1980s,

when budget deficits skyrocketed (see Nuts & Bolts 15.1). Large deficits, projected to

be $973 billion in 2019, are a concern for several reasons. First, the debt accumulated

over years of running budget deficits takes a big bite out of current spending. About

$390 billion, or 8.7 percent, of the 2019 fiscal year budget is for financing the federal

debt.^11 These dollars went to people and financial institutions that earn interest on the

money that they loaned to the federal government; this money did not pay for a single

uniform for a soldier, highway exit ramp, or student loan. Second, the total federal debt

is a burden on future generations. Each man, woman, and child in the United States

in effect carries more than $47,975 of debt (total debt has grown steadily; see What Do

the Facts Say?). This means that future generations will either have fewer government

services and less generous benefits from programs like Social Security or pay higher

taxes (or a mix of the two). Third, borrowing by the government “crowds out” private

borrowing in the overall economy, because there is a finite pool of dollars that people can

invest. Let’s say you have $1,000 to invest. You could invest it privately and buy stocks or

balanced budget

A spending plan in which the

government’s expenditures are equal

to its revenue.

budget deficit

The amount by which a government’s

spending in a given fiscal year exceeds

its revenue.

FIGURE

15.2

20

30

40

50

0

10

60

70%

1920 1930 1940 1950 1960

Percentage of national wealth held by top 1%

1970 1980 1990 2000 2010

China

France

United Kingdom Russia

United States

Sources: World Inequality Database, “Top 1% National Income Share,” http://www.wid.world.com (accessed 6/28/18).

Wealth Inequality across the World

Economic inequality was higher in Europe than in the United States until the late twentieth century. Today the United States has a

higher income inequality than Europe and China have. What are the factors that have led to increased economic inequality in the

United States?

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