As you are well aware, having completed the chapter 13, the federal government can use fiscal policy to increase or decrease aggregate demand and equilibrium output. Hypothetically, if the federal government were to run a budgetary deficit, aggregate expenditures would increase as would equilibrium output. A budgetary surplus would have the opposite effect. But, in the last 60 years, there have been far more deficits than balanced budgets and surpluses put together. The federal government runs budgetary deficits whether there is inflation, full employment, unemployment — whatever! There are many reasons. The most important one, though, is that fiscal policy is not strictly an economic tool. The federal budget is determined by members of Congress for, as it turns out, members of Congress. It seems that Congresspersons are using the federal budget as a political tool to assure their reelection year after year. It’s a pretty effective strategy because they usually do get reelected. Senator Byrd from West Virginia, for example, was a member of the Senate from 1959 until he died in office in 2010 at age 92. Who wants to work that long? Senator Strom Thurmond of South Carolina (1956 2003) held on to his Senate position until he died at the age of 100. I dunno — must be a fun and monetarily rewarding job. But let’s not focus on why they want to serve for so long, let’s look at how they’re able to serve for so long. Turns out, members of Congress are able to use our money (and that of our offspring, even those who are not born yet, so they are unable to protest) to buy votes for themselves. They do this by submitting bills that cause an injection of federal spending into the particular economy of their constituents. In the case of a senator, that would be a state. For a representative — his/her congressional district. The federal spending stimulates the local economy, creating jobs, making people happy, and motivating them to send their guy back to Washington. When the government run out of tax dollars to spend, they don’t stop doing it — they just borrow the money. The federal government borrows money by printing and selling U.S. Government bonds, some of it to the people like you and me — the general public, some of it to other countries, like China, and some of it to the Federal Reserve System (the Fed — which we’ll get to in the next section). The Fed gets the money to buy the bonds by printing it. When the federal government racks up a debt, it must pay it back and pay interest on the public debt to the bond holders. As the borrowing continues, the public debt mounts up, as does the proportion of the federal budget that goes to paying the interest. The recurring Congressional issues about the debt ceiling concerns the ability of the Treasury to pay the interest on the public debt. Currently, the public debt is about 18 trillion dollars. That’s $18,000,000,000,000. A thousand thousand is a million. A thousand million is a billion. A thousand billion is a trillion. Check out this YouTube video to visualize a trillion dollars. Pretty scary stuff, especially when you multiply that by 17! Whew, thats a lot of dollars, how will we ever pay it off? To see the current public debt, go to: http://www.treasurydirect.gov/NP/debt/current It’s actually pretty easy for a Congressperson to slip these bills through. They’re called earmarks. They can simply be attached to other bills. Then the entire Senate or House of Representatives will vote on the bill as a package — earmarks and all. In 2009, for example, Senator Kit Bond (R-MO), attached an earmark for the production of 2.5 billion dollars worth of C-17 cargo planes, the need for which was rejected by the Pentagon! Although assembled in California, the most of the parts for the planes would be assembled at the Boeing plant in St. Louis. What a coincidence! Here’s your assignment. Do a little research on the Internet and describe an earmark that seems to be used by the Congressperson to get reelected, rather than for the good of the country. Identify the Congressperson responsible for the earmark, what the earmark was for, and why you believe that it was attached for the purpose of getting the Congressperson reelected rather than being for the benefit of the country. A quality response would be between 250 and 350 words. If you have questions about this assignment, post them to the Mechanics and Logistics forum on the DISCUSSION BOARD. Let’s save this forum for content.
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