Georgetown University’s Newspaper of Record since 1920

The Hoya

Georgetown University’s Newspaper of Record since 1920

The Hoya

Georgetown University’s Newspaper of Record since 1920

The Hoya

Everything in Moderation

President Obama’s administration is stuck between a rock and a hard place. It has to juggle rejuvenating economic growth and keeping a watchful eye on the growing current account deficit. Striking a balance between the two is going to be a challenge, and it could cost Obama his second term.

Job creation – one of the key factors in spurring economic growth – through new hire tax credits and government projects is increasing the budget deficit. This is a calculated increase in the deficit, however. The collapse of the credit markets – and the essential commercial paper market – in the wake of the destruction of the housing market forced the private sector to stop hiring employees and reduce costs by eliminating their work force. The result was that the U.S. gross domestic product – a main factor used to determine economic growth – shrunk. Both former President George W. Bush and President Obama made it a priority to push a stimulus package through Congress to jumpstart the economy. Under the Troubled Asset Relief Program, tax credits were doled out for everything from new homeowners to hiring new employees to energy efficiency. Educational programs, transportation programs and environmental programs all received increased budgets. Even Georgetown got in on the action, receiving $6.9 million in TARP funds to support the construction of the new science building.

The government wanted to keep production strong, albeit artificially, in the hopes that it would create jobs for more people, who would then spend their earnings and restart the economy from the bottom up. This is a very Keynesian understanding of economics – the approach taken by President Roosevelt during the Great Depression, the Japanese during the Lost Decade and the Japanese and French governments during the recent economic downturn.

In addition to priming the pump, the Federal Reserve also decreased interest rates – which was not the case during the Great Depression – making money very cheap. These measures helped the economy return to a sense of normalcy and growth. Despite these measures – and to the chagrin of a president who has promised to reduce the deficit – there still is a sense that the economy needs more stimulus.

The current account deficit is significant because it indicates that more money is leaving the United States than is entering. We are importing more than we are exporting, or we are borrowing more than what we lend. Some debt is good, and there is no set or recognized ratio of debt to overall GDP that signals a serious risk to the future economic growth. But debt in overwhelming quantities will divert future resources from investment in production to paying back what is owed.

During his State of the Union address, Obama announced a plan to freeze government expenditure. Under the plan, all non-national security-related discretionary expenditures would be frozen. Bush’s tax cuts would not be renewed, and taxes on the wealthy would increase. The goal would be to cut the deficit in half by the end of his first term.

These proposals sounded great when they were backed up by applause and standing ovations, but will they actually work? Some say that the GDP estimates on which Obama’s plan is based are too lofty. It is likely that more money is needed, and cost-cutting measures must be accompanied by continued efforts to stimulate the economy. It is critical that Obama strike a balance between these two objectives in order to assure maximum future economic growth and keep his re-election hopes alive.

What does this means for the everyday college student? As members of the demographic from which Obama draws much of his support, young people must stay attuned to his proposals and the implications of his plan on their lives. Will taxation increase in future administrations to account for spending? Will government guaranteed programs like Social Security remain solvent? In addition, we must reign in our spending at an individual level and avoid the individual bad habits that fuel crises on the housing market and elsewhere.

As we enter the professional world and become completely self-supporting, we must learn to live within our means, especially in the long term. We will soon be the generation supporting the government, and it is incumbent upon us to take control of our financial fate.

Saum Ayria is a sophomore in the School of Foreign Service and an editorial assistant for The Hoya.

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