When we talk about the growth of the US economy, we measure it by GDP or Gross Domestic Product. The formula for that is as follows:
GDP = private consumption + gross investements + government spending + )exports - imports)
GDP = private consumption + gross investements + government spending + )exports - imports)
So if the government is running a deficit, we start talking about cutting spending by the government. We might cut spending on any number of things from medicare to education to defense, but that spending is money that is contributed to the overall economy. That money helps fuel business from producing better workers through education, building new roads where businesses can be located, and paying government employees who then spend some of that money in the economy (private consumption).
It is important to recognize that if you cut (for example) $50 billion from government spending, you are not getting $50 billion in return. You are actually reducing the GDP and directly affecting the tax dollars the government receives as well as investments in the growth of the economy.
At times like this, it makes sense to find ways to trim unnecessary expenditures, but keep in mind that cuts also reduce the GDP, which reduces growth and reduces jobs.
For a more in depth explanation of this, here is a great article from Kash Mansori, and here is a more entertaining list of reasons we need the government.
It is important to recognize that if you cut (for example) $50 billion from government spending, you are not getting $50 billion in return. You are actually reducing the GDP and directly affecting the tax dollars the government receives as well as investments in the growth of the economy.
At times like this, it makes sense to find ways to trim unnecessary expenditures, but keep in mind that cuts also reduce the GDP, which reduces growth and reduces jobs.
For a more in depth explanation of this, here is a great article from Kash Mansori, and here is a more entertaining list of reasons we need the government.
Finally, here is a chart from Econ Intersect about the contributers to growth in recent quarters.
