Carl Icahn has accused the Republicans of being too obsessed with the deficit. He believes that Republicans should spend more.
Republican on the Counter, On to Savings and Expenditure
The Republicans believe that the Government should be held accountable for public spending and be seen to spend taxes in a responsible manner.
They have accused President Obama of adding more to the National Debt than any other president and feel that the federal government is fundamentally broken financially and structurally.
The Republicans aim to make the Government more efficient by:
- Balancing the budget – they plan to balance the budget within ten years by cutting spending, changing tax codes, and paying off the national debt
- Abolish Obamacare – Republicans feel that by abolishing Obamacare they will create better health solutions through free choice and better affordability
- Stronger national defense – there are plans to improve funding, equipment, training, and compensation
- Secure Futures – make improvements to Medicare, ensure disability and employment insurances are more secure, as well as preventing spending from the Social Security Trust Fund
- There are also plans to restore federalism, as well as cutting waste and corporal welfare while also improving accountability
Icahn’s stance on the economy and spending
Icahn has said that while a business would go bankrupt if it owes too much money, the same rules do not apply to the United States because a country is not a company.
While Icahn is not advocating that the Government go on a spending spree, he does believe that it should focus more on fiscal stimulus and less on the deficit.
The lack of a financial boost and the need to keep interest rates low has created a wealth gap which in turn has created a bubble.
Icahn has said that unless fiscal stimulus is achieved then the markets will face a ‘day of reckoning.’ He believes that Donald Trump will do what is necessary to save the US economy.
So, which direction is right for the economy? Should we be concentrating on fiscal stimulus or deficit reduction?
Fiscal Stimulus: Advantages and Disadvantages
Fiscal stimulus can be an effective way to improve living standards and defend capital markets. However, there is a chance that ineffective measures could make the economy worse.
The success or failure of fiscal stimulus entirely depends on the policies adopted. There is the added complication that while financial help may improve some areas of the economy, it could negatively impact other areas.
Deficit Reduction: Advantages and Disadvantages
The deficit needs to reduce. If this doesn’t occur, then not only will investors lose confidence in the country’s economy, but it will also result in future generations facing higher interest rates on our debts.
On the other hand, in a recession, the private sector concentrates on saving and paying off their debts. This leads to lower consumption and investment in the private sector. If the Government also cuts spending, then this creates an even bigger fall in demand.
Deficit reduction requires strong economic growth if it is to be effective.
There are positives and negatives towards both fiscal stimulus and deficit reduction. On one hand fiscal stimulus can improve economic growth however while doing this, it must not cause damage to other areas of the economy. Deficit reduction can improve the national debt but only if there is economic growth.
Carl Icahn stated that there needs to be some middle ground, and the above advantages and disadvantages of both fiscal stimulus and deficit reduction would meet with his approval.
It would appear that it would be best to increase spending in certain areas as this would improve growth, and cut back spending in other sectors which would then reduce the deficit.
If it is this simple, however, why is this not considered an option? Is this just too much of an idealistic solution?
The toughest decision would be where to cut and where to spend. Everyone has areas where they passionately feel money should be focused, whether that is more money spent on education or more on welfare. Depending on the level of the deficit it may not be possible to please everyone.
Will the Republicans ruin the economy?
Based on the Republican stance as outlined, there is very little focus on increasing public spending and more focus on accountability and balancing the budget. They have committed to increasing spending in areas like the military, but not elsewhere.
It would be premature for anyone to decide whether or not the Republicans will or won’t ruin the economy. It would seem, however, that focusing only on one element won’t fix the economy.