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FISCAL DRAG

13 May, 2015 - 10:20

The automatic stabilizer of nondiscretionary fiscal policy creates surpluses in periods of prosperity. Such surpluses may however be acting as an impediment or drag on further economic growth (if such growth is desirable).

As part of the very desirable programs under the New Deal, social security was enacted. At that time, however, the retirees qualifying for payments were few while the contributions were collected on all salaries. At that time, social security prevented a faster recovery of the economy from the great depression.