Economics enables us as human beings to be able to make wise choices regarding how we use the scarce economic resources available in the world today. This is true because there is few resources available today than what is demanded by the world. Usually, choice is normally accompanied by costs when analyzed from an economical perspective (Maurice & Thomas 2008). Economic costs can manifest itself in terms of opportunity costs or otherwise, but generally, it represents the price one has to pay for choosing a given economic option. For this reason, there is a strong need to make wise choices in the way we utilize our resources. This cuts across the board, and spreads from personal levels to governmental levels.
The US government for example has been cited as a victim of making poor economic choices in the utilization and distribution of national resources. This is a reason as to why the federal budget has been noted to be out of control in the recent decade. Current national statistics show that the US federal budget deficit has been on an increasing trend over the past decade or so (US Congress, 2010, p. 9841). For instance in the year 2001, the federal budget had been enjoying a surplus of approximately $126 billion, but two years down the line, the federal budget was experiencing a deficit of approximately $400 billion (US Congress, 2010, p. 9841). Most economists note that the budget deficit was caused by increased war on terror while others bluntly blame increased expenditures as the root of the problem. These opinions notwithstanding, this study will dig deeper into the issue and explain how the scarcity of resources and poor economic choices have caused some of the major federal budget problems we witness today.
Impact of Tax Cuts
Tax cuts have been noted to cause significant problems in the US federal budget because they increase the federal budget deficit. Tax cuts (enacted between the periods of 2001 and 2003) are said to apply to people earning below 200,000 for individuals and 250,000 for couples. Many economists are of the opinion that if the tax cuts are expanded over the next ten years, they are going to cause a significant debt burden of over $3.1 trillion (US Congress, 2006, p. 221). Economists point out that limiting the tax cuts to citizens earning below 200,000 and 250,000 is also likely to cause an alternative debt burden of $2.3 trillion in the next ten years (US Congress, 2006, p. 221). Economists also note that expanding the tax cuts to all citizens is going to cost the state approximately $558 billion in the next decade or so (US Congress, 2006,). Though the Obama administration has made significant changes to the current fiscal policies of the government, it is important to note that these tax cuts have significant costs to the fiscal budget of the country, in terms of budget deficits. It is also important to note that even though the state may have the goodwill to improve the livelihood of its citizens (in terms of tax cuts for example); there is an economic cost to pay. For instance, if a group of Americans in a given tax bracket receive tax cuts, then another group in another tax bracket will pay for the cut.
In terms of resource scarcity, the above example shows that state financial resources is in limited supply and choices have to be made on how to use the resource (by first analyzing the impact of available alternatives). If poor resources are made, say, from the above three choices (extending the tax cuts, limiting the tax cuts to citizens between the salary bracket of 200,000 and 250,000 a year and extending the tax cuts to all citizens); then the federal budget will suffer severe problems, in terms of budgetary deficits. This is one of the reasons why federal budget deficits have increased.
High Military Spending
High military spending has been a thorn in the flesh for most Americas in the past few years, considering it has a significant impact on the US federal budget. It is estimated that the total military spending for the US is currently close to 20% of all the total budgetary spending and globally, the US accounts for approximately 40% of all arms spending (Cochran, 2008, p. 90). This kind of high spending has been criticized by a section of congress and a section of Americans who have raised alarm on the significant impact such high military spending has on the government’s ability to sustain varied local programs. This concern is reiterated by Congressman Barney Frank (cited in The Nation, 2009) who notes that:
“The math is compelling: if we do not make reductions approximating 25 percent of the military budget starting fairly soon, it will be impossible to continue to fund an adequate level of domestic activity even with a repeal of Bush’s tax cuts for the very wealthy. I am working with a variety of thoughtful analysts to show how we can make very substantial cuts in the military budget without in any way diminishing the security we need. The American well-being is far more endangered by a proposal for substantial reductions in Medicare, Social Security or other important domestic areas than it would be by canceling weapons systems that have no justification from any threat we are likely to face” (p. 3).
The high federal spending in the military is therefore a significant problem for the sound running of the government and for the ability of the state to continually fund local programs like health care provision, development of infrastructure and its ability to remedy nationwide emergencies. Also, because of the high military spending, America is now very vulnerable to financial arm-twisting from lenders because when the state is spending so highly on its military, it is likely to borrow money to sustain its domestic responsibilities like social security and healthcare. Such kind of high military spending has been shielded by misguided proponents of the trend, who say that the priority of the state in upholding security is high. Most people however don’t realize that high military spending has a significant impact on the federal budget and the ability of the state to undertake several domestic undertakings.
From this analysis, we notice that one choice that government has is to reduce military spending and find alternative and cheaper ways to uphold state security without paying dearly for it. Alternatively, a less viable economic choice is to continue upholding high military spending at the expense of the American people. In this case, the limited financial resource is money and the implication of a poor economic choice is high taxation for the American people which results in deep budget deficits. Comprehensively, to a large extent, military spending has increased federal budget problems since the Bush administration and economically, this is going to dig Americans into a deeper financial problem.
Social Security and Medicare Spending
The US social security and Medicare spending programs are the biggest forms of insurance schemes in the country and also two of the strongest elements with the heaviest impact on federal budget spending. In other words, the two programs are a strain on the financial resources of the federal government because they ultimately influence the capability of the government to undertake other governmental activities. These programs are estimated to have a significant impact on the federal budget as explained by CBO (2002), which notes that:
“When the intragovernmental transfers are excluded, instead of running a combined surplus of $3.3 trillion over the next 10 years, the two programs are expected to run a deficit of $96 billion. Similarly, from 2003 to 2026, instead of running a cumulative surplus totaling $6.5 trillion, as estimated by the Social Security and Medicare trustees, the programs would run a cumulative deficit totaling $6.6 trillion” (p. 2).
How the government runs the two programs ultimately affect the fiscal health of the nation because if social security and health spending are allowed to run concurrently with other types of spending such as military spending; the fiscal budget is expected to suffer significant deficits in the coming few years. Though these programs have been running for a while now (even when the federal budget was at a surplus), there is a strong need to redefine the way the program is being implemented. Health care for example, depends on whether it is discriminatory or nondiscriminatory and bluntly, in both cases, there is a significant impact on the federal budget. The recent healthcare bill signed into law by the Obama administration, in March 2010, is an example of such an instance where the state seeks to provide a universal, nondiscriminatory health care policy for all Americans.
In such a case, the government is faced with the dilemma of making important economic choices on how the state is going to finance such a widespread healthcare scheme. Already, there have been pessimistic sentiments expressed by a section of congress and indeed the American public that there is going to be an even deeper federal budget deficit in the coming few years. However, like it was mentioned earlier in the study, the government has a choice of increasing taxation on a given population group to finance the initiative. This is one choice that the Obama administration has undertaken to finance the scheme, meaning that the government is still sourcing for funds from an already limited source which is tax revenues. Such choices are what characterize the economics of scarcity and limited resources.
It is important that prudent economic choices are made in order to restore back the federal budget to a favorable position. This will be done with increased awareness of the fact that there are limited resources in the country and therefore prudent decisions ought to be formulated to ensure the federal budget does not go out of control (like it has, over the past few years). If such measures are not taken, the possibility of future economic problems escalating will be high because if the federal budget problems are left to persist, there will be a reduction in national savings (for starters). This development will in turn reduce the national investments made by Americans and consequently, the capital stock owned by Americans will decrease; thereby impacting on the growth of future capital outflows meant to benefit Americans. This sort of eventuality can be avoided if the government makes the right economic choices because of the scarcity that exists in utilizing the few financial resources that are available. Such a trend would stop the utopist attitude that has characterized subsequent governments which have plunged the nation into the current federal budget problem.
CBO. (2002). The Impact of Social Security and Medicare on the Federal Budget. Web.
Cochran, C. E. (2008). American Public Policy: An Introduction. New York: Cengage Learning.
Maurice, S., & Thomas, C. (2008). Managerial Economics W/ CD (9th Ed.) New York, NY: McGraw-Hill.
The Nation. (2009). Cut the Military Budget. Web.
US Congress. (2006). Congressional Record, V. 148, Pt. 13, 2002. Washington: Government Printing Office.
US Congress. (2010). Congressional Record. Washington: Government Printing Office.