Deficit Spending

[WorldTraveller]

How well does our government do at generating a profit (running a surplus)?

Not well at all.

[TakeYouToTasker]

Pump priming doesn't have a great track record, and making defecit payments to either create demand or pay the bills doesn't create growth. The only scenario I can see where it would be productive would be the rare situation where a government project is necessary to facilitate business (like building a canal) and for some reason those who would utilize it are too numerous and unable to work together to build it.

When Lincoln implememted Henry Clay's "American System", the goal of which was to have the government construct a series of canals and rails running across the country, it bankrupt every single state which undertook it. It was only salvaged by private purchase and reconnsruction in the private sector. Infact, the only new construction venture that succeded was the only wholely private venture.

[WorldTraveller]

Pump priming doesn't have a great track record, and making defecit payments to either create demand or pay the bills doesn't create growth. The only scenario I can see where it would be productive would be the rare situation where a government project is necessary to facilitate business (like building a canal) and for some reason those who would utilize it are too numerous and unable to work together to build it.

Generally I agree with you, however I do think there are things that the government can invest that can lead to surpluses. R&D, Infrastructure, grants towards economic development that could include jobs retraining programs. There are a number of things, but the idea of spending money just to create demand, and create jobs, any jobs, as long as it's a job from my perspective is.... well......

 

 

Retarded

[TakeYouToTasker]

Not well at all.

Then it stands to reason that if well invested spending is required for a deficit spending sparked economic surge to take hold, but our government has a long standing history of poor investments and overspending in sectors where their is no real demand, that deficit spending does not help the economy.

Edited July 25, 2012 by TakeYouToTasker

[WorldTraveller]

Then it stands to reason that if well invested spending is required for a deficit spending sparked economic surge to take hold, but our government has a long standing history of poor investments and overspending in sectors where their is no real demand, that deficit spending does not help the economy.

Generally speaking, that's been the case.

[Rob's House]

When Lincoln implememted Henry Clay's "American System", the goal of which was to have the government construct a series of canals and rails running across the country, it bankrupt every single state which undertook it. It was only salvaged by private purchase and reconnsruction in the private sector. Infact, the only new construction venture that succeded was the only wholely private venture.

You're preaching to the choir. Some of my favorite examples are the RRs that the government gets credit for. I'm sure it's nothing you don't already know, at least in principle, but Burt Folsom's "The Myth of the Robber Barrons" is a great read. It was eye opening for me.

 

This is why when I hear people pitching high speed rail I ask why, if it's such a good idea, why aren't businesses tripping over each other in a rush to cash in on it? I never get replies.

Edited July 25, 2012 by Rob's House

[TakeYouToTasker]

You're preaching to the choir. Some of my favorite examples are the RRs that the government gets credit for. I'm sure it's nothing you don't already know, at least in principle, but Burt Folsom's "The Myth of the Robber Barrons" is a great read. It was eye opening for me.

 

This is why when I hear people pitching high speed rail I ask why, if it's such a good idea, why aren't businesses tripping over each other in a rush to cash in on it? I never get replies.

The Golden Gate Bridge is my favorite example, because it's trotted out so often.

 

The truth is that the government refused to allow the bridge to be built, said it couldn't be done, wouldn't sell the land required, and once they did, dragged their feet and put up roadblocks for five years, regardless of the fact that there wasn't a nickle of federal dollars to be involved:

 

"Construction did not go as smoothly as planned. It takes another FIVE years for the government and the architects to come to agreement on the design. Furthermore, Federal contractor unions wanted the contracts to build the bridge and stalled the government on the issue, demanding they take action to halt construction unless they got the contract. Fortunately, local authorities insisted that as part of the contract only local labor would be used instead of Federal union contracts, insuring the area had work during Depression era unemployment."

 

At this point the stock market crashed:

 

"The Golden Gate committee now has trouble issuing the bond needed for the construction of the bridge, even though the citizens of the surrounding area had put up their own personal lands and farms as collateral. It takes 3 more years and the wealthy President and founder of Bank of America, A.P. Giannini, to personally buy the 35 million dollar bond which he then finances through the bank. Without the bank and the intervention of private industry fueled by personal wealth, again the bridge would not have been built. By 1937 the bridge is completedand [architect Joseph] Strauss delivers the bridge 1.7 million UNDER budget, using local non-union labor and private contractors."

Edited July 25, 2012 by TakeYouToTasker

[GG]

It's a valid theory that spending more than tax receipts in a downturn prevents a bigger downturn, which can be argued is a good thing for society to dampen the shock. But people are delusional if they think "deficit spending" stimulates net economic growth.

[Park]

It's a valid theory that spending more than tax receipts in a downturn prevents a bigger downturn, which can be argued is a good thing for society to dampen the shock. But people are delusional if they think "deficit spending" stimulates net economic growth.

Did deficit spending on world war two lead to an end of great depression?

 

And didn't Ronald Reagan's economy grow on deficit spending, to list just two examples?

 

Or were those just coincidences?

[TakeYouToTasker]

Did deficit spending on world war two lead to an end of great depression?

 

And didn't Ronald Reagan's economy grow on deficit spending, to list just two examples?

 

Or were those just coincidences?

M04r 3c0n0mIcz prz!!!

[Park]

M04r 3c0n0mIcz prz!!!

Macro

[TakeYouToTasker]

Macro

No, no, no. You don't have the privlidge of entering into a discussion about economics with me until you revisit the first thread we engaged in, and act like a reasonable adult. I don't do free consulting, and I've already given you my price. Until then you're a frustrated spectator.

[fjl2nd]

I'm not a believer in absolutism, I don't usually see things from a black or white lens, I happen to believe there are many shades of grey in between. Point being that I believe in some cases deficit spending makes sense, in others I believe less so. However what is more important is how that money is spent, if you are spending money simply to add aggregate demand to the economy that has no lasting impact in an economy with many structural deficiencies, then its akin to flushing money down the toilet, except that you have to pay interest on that money and in some cases brings you that much closer to facing a debt disaster.

 

If you have an economy that has your run-of-the-mill downturn, then yeah, adding a little demand to the economy, with the caveat that it efficiently and sufficiently does add demand to the economy relative to the amount spent, would make sense to me. But in this latest downturn, there were so many inefficiencies with this Stimulus Bill, that it was almost a complete waste. Proof is in the pudding, look at the economy, ever since the sugar high of the stimulus wore off, we've been steadily trending down. Reason being, because we never addressed our structural labor market woes.

 

I missed this thread until now.

 

Great post. I agree with most of what you said here. I don't subscribe to one economic theory, though I do lean towards Keynesian Eocnomics slightly. Deficit spending in a downturn in usually a good thing, but sometimes it is not enough - 2009 is a prime example. It was obvious that the economy was in really bad shape, and a lot of things needed to repaired. The Recovery Act was good, but more needed to be done with banking, housing, and tax reform afterwards.

 

Like you said, the stimulus began to wear off and nothing was fixed structurally with the economy. Growth is very weak and things aren't looking exactly great for the rest of the year.

 

The bad part about all of this is American politics. Nothing is going to get done until at least November after the elections.

[GG]

Did deficit spending on world war two lead to an end of great depression?

 

And didn't Ronald Reagan's economy grow on deficit spending, to list just two examples?

 

Or were those just coincidences?

 

You're an idiot.

[Rob's House]

I missed this thread until now.

 

Great post. I agree with most of what you said here. I don't subscribe to one economic theory, though I do lean towards Keynesian Eocnomics slightly. Deficit spending in a downturn in usually a good thing, but sometimes it is not enough - 2009 is a prime example. It was obvious that the economy was in really bad shape, and a lot of things needed to repaired. The Recovery Act was good, but more needed to be done with banking, housing, and tax reform afterwards.

 

Like you said, the stimulus began to wear off and nothing was fixed structurally with the economy. Growth is very weak and things aren't looking exactly great for the rest of the year.

 

The bad part about all of this is American politics. Nothing is going to get done until at least November after the elections.

I'm starting to think you're not as aligned with modern liberals as you think you are. As an Econ major who has no doubt been inundated with Keynes, I'd recommend giving Milton Friedman's "Capitalism & Freedom" a read. It's just under 200 pages, so it's an easy read, & does an excellent job of explaining free private enterprise economies. I challenge all libs to read & fully understand it and then challenge it. For many it's over their heads but given your background you'll probably get a lot out of it. Even if you don't come to agree with him you'll at least have a lot better understanding of the counter-arguments to your views than your professors ever intended for you to have.

Edited July 27, 2012 by Rob's House

[WorldTraveller]

I'm starting to think you're not as aligned with modern liberals as you think you are. As an Econ major who has no doubt been inundated with Keynes, I'd recommend giving Milton Friedman's "Capitalism & Freedom" a read. It's just under 200 pages, so it's an easy read, & does an excellent job of explaining free private enterprise economies. I challenge all libs to read & fully understand it and then challenge it. For many it's over their heads but given your background you'll probably get a lot out of it. Even if you don't come to agree with him you'll at least have a lot better understanding of the counter-arguments to your views than your professors ever intended for you to have.

Or Friedrich Hayek

[fjl2nd]

I'm starting to think you're not as aligned with modern liberals as you think you are. As an Econ major who has no doubt been inundated with Keynes, I'd recommend giving Milton Friedman's "Capitalism & Freedom" a read. It's just under 200 pages, so it's an easy read, & does an excellent job of explaining free private enterprise economies. I challenge all libs to read & fully understand it and then challenge it. For many it's over their heads but given your background you'll probably get a lot out of it. Even if you don't come to agree with him you'll at least have a lot better understanding of the counter-arguments to your views than your professors ever intended for you to have.

 

I'll have to check out the book. Like I said before, I don't subscribe exclusively to one economic theory. I'm familiar with a lot of Friedman's views, but I'll have to give it a read.

 

And as I said in another thread, my professors had a very wide range of views. There was only one Keynesian and I had no classes with him.

Edited July 27, 2012 by fjl2nd

[TakeYouToTasker]

Economics in One Lesson, by Henry Hazlitt does a better job in my opinion, Rob, because it's much more general and comes across as a 101 class taught by your favorite professor. With that said, the Freidman title you recommend is excellent as well.

[TPS]

As GG said, deficits act as countercyclical stimulus: they grow during recessions and help prevent a worse downturn; they shrink during expansions as more people are working and paying taxes. Deficits themselves can become a problem if the ratio of debt/deficits to gdp is rising. The big issue currently is to reverse that rising trend.

 

Government deficit spending has created a tremendous amount of wealth, especially during war time. Businesses selling to the government make huge profits, and the bonds issued by government to finance the deficits is a safe liquid asset held (mainly) by the private sector.

[dayman]

I just chuckle when Reaganites talk about the evils of deficit spending. Historically since 1980 when Reagan won on the antitax, antiregulation, antigovernment platform that the Republicans have adopted the greatest accomplishment was not to reduce the size of government but simply to stop paying for it. But for some reason it will be different w/ Mitt Romney today...IDK why but I guess it will...

 

If the Tea Party really wanted a hero would it be Reagan? I really don't see why.

 

What if I suggested there was a theorhetical President that had 4 surplus budgets, actually began to pay DOWN the debt, eliminated 16 thousand pages of federal regulations, cut taxes on the middle class, reduced welfare rolls by lamost 60 percent, reduced the size of the fedeeral work force to the lowest level since 1960, pulled 7.7 million people out of poverty (compared to the 77,000 Reagan pulled out of poverty), and all while seeing the economy produce tons of jobs (92 percent increase in the private sector, largest increase in 50 years)?

 

Does that sound like someone that the Tea Party could get behind? So long as I keep his name out of that paragraph it kind of does. Also so long as I don't mention that we did actually spend (gasp) quite a bit in that time on things that returned value.

 

Anyway it is a tangent all I'm saying is that when I see people who in some topics love Reagan so much discussin things in here I can't help but chuckle. I don't hate Reagan btw, but I do prefer the unamed President I described above. I'm sure you all know who I'm talking about though and my God what a terrible man he was.

Edited July 27, 2012 by TheNewBills