During an economic downturn, the government spends money it doesn’t have by borrowing. As people lose their jobs, the government spending increases, thereby taking up the slack in demand caused by the layoffs.
Technically, we’ve been out of recession for a few years, but his year the deficit should be over a trillion dollars. That’s because the demand for goods and services is remarkably low due to the redistribution of income and wealth from the 99 to the 1 percent over the last three decades.
Thirty years ago, the 1 percent received about 8 percent of all income generated in the USA. That figure had held steady, more or less, from 1940 or so until the ascendency of Ronald Reagan as president.
Think about this; the four decades from 1940 to 1980 created the greatest number of jobs in US history, had budget surpluses now and then, and saw the standard of living for most Americans rise. That was in an economy half the size of today’s economy. That’s because the demand for goods and services was strong because the 99 percent had more money to spend.
Nowadays, the 1 percent has legislatively stolen about 27 percent of all US income, and during the last two years, those people have legislatively robbed the rest of us of 93 percent of total income growth.
Look at the numbers closely. From 1940 to 1980, 100 percent of national income minus the 8 percent for the 1 percent left 92 percent of national income for the rest of us to spend on stuff, which created jobs through effective demand. Nowadays, 100 percent of national income minus 27 percent for the rich gives the rest of us 73 percent to spend.
That has left the demand for goods and services extremely weak, which is why the economy is so sluggish. The economy, however, is most likely in a state of slow motion collapse. The only things stopping the economy from a rapid collapse are the New Deal (Social Security, unemployment insurance, etc…), the Great Society Programs of President Lyndon Johnson (food stamps, etc…) and the federal deficit. Those programs create demand.
To stop the economy from imploding because of a lack of demand, the government has been forced to borrow money and find ways to spend it to take up the slack caused by the redistribution of income from the 99 to the 1 percent. That includes borrowing to sustain unemployment insurance and food stamps.
That’s the reason for the size of the federal deficit in a very large nutshell.
One other point should be made. Politicians from Wall Street Obama to Wall Street Mitt from John Boehner to Nancy Pelosi know this, and so does the media, but nobody’s going to say a word to the 99 percent.
John Hively's Blog: News and Analysis of the War Against the Middle Class 