The federal budget in the United States is the subject of tremendous political consternation. It has been at the center of many fights between Republicans and Democrats over the last few decades, and for some, it defines their entire political ideology. The government has a working budget, but it can sometimes go over that budget with deficit spending or under that budget with a surplus. How the US deals with its budget can have an influence on the current macroeconomic trends in the country. Beyond that, the current macroeconomic trends can have an impact on how the budget is handled at the end of the day. These things have an interrelationship that one must understand in order to truly understand American policy toward budgets.

The government budget relates to macroeconomics in a number of different ways. Importantly, certain forms of spending can help to stimulate the economy and produce long-term growth. One of the elements of production is infrastructure. In order for companies to produce more, they need better roads, airports, seaports, and other instruments of business. Without these advances, companies are limited in what they can produce, and aggregate supply in the economy will be decreased. Within the federal budget, one can find many examples of spending that is designed to enhance the long-term standing of the economy through the improvement of infrastructure. This can be seen in presidential efforts like a stimulus bill that puts people to work. Going back into history, one can look at the Works bill by Roosevelt and see spending that was directly related to rebuilding the crumbling roads and bridges that had afflicted the country. When those things are in place, companies are able to get the supplies they need. They are also able to reduce their own shipping costs and improve the efficiency of their supply chain on the whole. Spending in the federal budget that is geared toward improvements in infrastructure allow for advances in GDP growth in a country, and set the stage for solid long-term performance, as well.

Importantly, the federal budget also provides certain incentives for work, which helps to keep down the federal unemployment rate. There is a general agreement among economists that an economy where people are working and producing is one that is likely to be productive for the country over the long run. While there is a general understanding that people like to work, the government can also use subsidies to encourage these things. In fact, when looking at the federal budget—both on the spending side and the taxation side—one can see that the government tends to tax the things it wants to eliminate from society and it tends to subsidize the things it thinks are productive in society. There are plenty of government incentives to work that can be found within the federal budget. For one, there is an earned income tax credit that has been very helpful in bringing working families above the poverty line. The earned income tax credit allows people to pay very little in tax and even provides a payout to them depending upon the rest of their tax situation. Working on the assumption that it is better to have these people actively involved in the economy as opposed to being on the outside looking in, the government provides incentives to ensure that people who are poor are looking for work rather than hoping to take advantage of other forms of government spending for not working.

In looking at the federal budget, one can understand that some forms of spending are designed to fulfill dual purposes. Government and policy, it seems, are tasks in which leaders must keep in mind all of the varying goals of society before moving forward with a proposal. In this line of thinking, one might look at the SNAP benefits that are contained in a very small part of the budget. SNAP, or the federal food stamp program, gets tremendous amounts of attention among those who would like to blame very poor people for the problem with the American economy. In truth, SNAP constitutes a very small amount of American spending, and it is a good example of the dual goals of government. In spending, the government can be looking to both stimulate the economy and ensure that there is more consistency and continuity in the economy. Beyond that, there are important social goals that relate to the macroeconomics of the situation but cannot be measured in macroeconomic terms. For instance, food stamp spending serves the dual goals of ensuring that kids and families have the food they need to survive and develop while also providing a stimulus for farmers, grocery stores, and other providers. By budgeting this money into the federal government’s yearly spending plan, congress provides more support for those stores that sell to people on SNAP. All of a sudden, stores have a captive customer base that must buy an item because it is a necessity. They also have a captive consumer base because not all stores accept the items, and because SNAP benefits are not like cash, people must spend them on specific things at specific places. At the end of the day, two primary goals are accomplished through this budgetary approach. For one, people are less likely to fall into deep, abject poverty, and on top of that, segments of the economy receive an infusion of cash to ensure that growth and consistency are promoted.

The national debt and its implications on the overall economy are also major concerns that must be accounted for if one wants to understand the debate around the federal budget. When the government spends more than it takes in through tax revenue, the government adds to the debt. The US debt has been growing significantly over the years, and each year, the US has to pay a significant amount in interest to service its debt. This debt is held in multiple places. American citizens hold some of the debt, as they have purchased treasury bonds that add to the debt. Foreign companies and governments hold much of it, too, which is a major concern to some. Importantly, the national debt has many different interest rate components. The government borrows at different rates in any given year, and it must try to keep the rates down in order to keep down the amount of money it is essentially throwing away through interest payments. Importantly, interest rates have been quite low over the last two decades in comparison with rates from the 1980s. This means that the US has borrowed money at lower rates. Even though the US has engaged in tremendous deficit spending, it has managed to keep itself afloat largely because these lower interest rates provided the ability for the country to not lose out on too much. Looking at the overall economy, there is concern that it will cost much more in the future to service the debt, and this could lead to sluggishness overall in the US economy.

One of the ways that this might lead to sluggish grown in the US economy is because foreign investors look at things like the percentage of GDP to national debt in order to determine how smart it is to invest in a country. If a country has a national debt amount that outpaces its GDP in a given year, there is much more risk associated with investing in that country. This is the situation the US is currently encountering. Currently the national debt is more than the GDP on a percentage basis. There is nothing particularly good about this, as it means that foreign investors are skeptical of the US. While the US is the gold standard in foreign investment for many reasons—mostly the stability and predictability of the government and the foreign investment friendly policies overall—there has been some additional doubt of late because of how the federal budget policies have had a major impact on those factors. Some senators and others within the government have held the government hostage because they do not want to raise the debt ceiling. Over the last few years, these fights have led to discussions like those over “fiscal cliffs,” the word one might use to describe what would happen if the country went on without an agreement on the budget. Because of political disagreements over spending and over the philosophy behind the US government, macroeconomic trends have been disrupted. The US has been in danger of being downgraded by the major ratings agencies in regard to its ability to pay back its debts, and faith in the US government to maintain its long-standing tradition of making payments on its debt have been eroded by the politics of the last few years. In short, many political trends have played a role in creating the current macroeconomic situation, and though none of the damage has been major enough to displace the US as one of the world’s foremost economies, the overly strong position has been threatened in ways that are unique.

The current government budget policies reflect the societal understanding that functional finance, while not seemingly smart on the surface, actually has benefits for a national economy. Many people look at the situation with the American budget and argue that America should behave like a household. The country should, they say, only spend what it receives and not engage in any kind of deficit spending. This fails to take into account the complex ways in which a macroeconomic situation can play out in a country, though. One of the ways in which countries grow their economies is by having full employment. With full employment, two good sides of the coin are working in concert to produce a solid result. For one, people are working, so there is likely to be more production, which can lead companies to being able to fulfill the aggregate supply needs of the country at large and even in the world in a more globalized economy like the one the US currently uses. Beyond that, full employment means that people are working and receiving payment for their work. This helps to enhance demand for products, and it can push more production in the country. When workers are being paid, they can put their money right back into the economy, spending along the way. This is good on both sides and provides the opportunity for the economy to operate with maximum efficiency. Often, to do this, the country has to pay a price, and that price comes in the form of deficit spending and a national debt. This cost is not small. The debt is large, and the interest payments are a significant chunk of the budget. If the economy continues to grow, though, because of decisions made to spend even when there is a deficit, then the economy wins over the long haul.