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Your inability to make 'comment' gives you away.Originally Posted by onalandline
Yes, the economy can be "jump started"
yes, but only if the country is not already deep in debt
in some instances, but not in others
No, compounding interest must be repaid, and the future taxes will be more harmful
Your inability to make 'comment' gives you away.
Analyst
There is a few schools of thought on that, and a long history of prescriptive application of both stimulus and austerity in times of economic distress. It is important to recognize that these prescriptions address two different problems brought about be economic recession. Austerity addresses the problem of declining government revenues only. Stimulus addresses the larger problem of low demand in the economy as a whole.
First of all, let's look at what austerity is. Austerity is essentially the confiscation of government revenues for debt repayment. This directed use of a large portion of tax monies causes domestic government spending to decline even more drastically than the reduction of revenues brought about by economic retraction would cause. As a result of the loss of government spending in the domestic economy, economic activity declines further and with that, tax revenues. This spirals out of control as the government scrambles with ever drastic cuts to meet fixed debt repayment targets while tax revenues shrink faster than the economy. The end result is a shrunken nation which, on average, will take a decade of economic growth (once its economy begins to grow again) to recover to its previous economic position. For nations like Greece and Spain, 4 years into their austerity prescriptions with no end in sight, GDP will not begin to grow again until 2015 at the soonest and recovery to previous GDP is not predictable.
Austerity can turn a mild economic recession, where an economy shrinks by a few percent and quickly recovers over a period measured in months into an economic depression where the economy shrinks by 20-30% over a few years and economic recovery is measured in decades.
Now, lets look at what stimulus is. Stimulus is government deficit spending to suddenly and drastically increase demand across the economy in times of declining private sector demand.
Government stimulus spending can increase demand and consumption throughout the private sector, jump starting economic recovery. The amount of demand increase depends on where the government spends the money. Where government spending does the most is in direct job creation by spending on items like infrastructure and the like. Where government spending generates the least stimulus is by temporarily reducing marginal taxes. There are a few reason's for this. For one thing, direct job creation tend to maximize the multiplier effect. Large temporary tax cuts become tiny tax cuts in individual pay checks which does little to change spending habits. An extra $10 in a weekly pay check for 100million will not change spending habits much but 1,000,000 new jobs can quickly increase consumption.
It is a big mistake to reduce aggregate demand by drastically reducing government spending when the economy is not growing, as per Keynes. It is also a big mistake to not have a surplus when the economy is growing, also as per Keynes. In the 1990s the US was on the right track. The economy was growing, the deficit was eliminated and the debt reduced a little. In the 2000s US fiscal policy went off the rails. The economy was booming but the government was running a deficit and the national debt tripled. When the economy crashed in 2008, which was inevitable, the very same people who ignored the debt and deficit throughout the 2000s suddenly became deficit hawks and blamed it all on failed Keynesian economics.
The only thing that failed Keynes was the republican party. They have blamed him for their misdeeds and have sabotaged every government attempt to get the economy growing again. If they gain control in the next election you can be sure of only two things, more tax cuts and even bigger deficits. Then they will let a democrat get elected and try to blame it all on him, just like they did with Carter, tried to do with Clinton, and are trying to do with Obama.
Guru
This is just one more reason why it is a BAD thing for a government to get into debt in the first place. It can be difficult and problematic to ever pay the debt back.
Yes, but what to do when the government never saved a surplus, and then a recession comes?
Perhaps, but what happens when the recession itself was [in large part] due to too much stimulus (both private and from government) in the first place? Will even more stimulus help?
Is it not, in a way, healthier for the economy to be allowed to deflate if it had formed a bubble? It seems like governments are trying to prop up housing prices and mortgage securities that are not real. This does not seem sustainable or healthy to me.
Last edited by Anders Hoveland; Jun 08 2012 at 02:44 PM.
You'd have to assume that we can understand government expenditure purely in terms of macroeconomic fiscal policy. We cannot. Consider an economy that invests heavily in tertiary education. We've seen a recent study that finds university education is worth ten times to the economy what it actually costs to the government. Such investment is of course worthwhile and 'debt for growth' becomes a jolly good idea.
Reagan was one of the best we have had last century. I know you libs despise him.
"The problem is, is that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion dollars for the first 42 presidents — number 43 added $4 trillion dollars by his lonesome, so that we now have over $9 trillion dollars of debt that we are going to have to pay back — $30,000 for every man, woman and child. It’s irresponsible. It’s unpatriotic!" - Barack Hussein Obama
Guru
I voted no, but the real cost has not been proven yet. It is obvious the current spending has had little effect as normal growth after a recession is much more robust. The next bubble may be a world credit bubble. The more in debt a country is, the worse off it will be. We have not seen yet if the long term debt will prove to be a drag on the economy so the jury is still out on that. Only time will tell, so it is prudent to be cautious, both fiscally and with claims of doom and failure.
The gun control crusade today is like the Prohibition crusade 100 years ago. It is a shared zealotry that binds the self-righteous know-it-alls in a warm fellowship of those who see themselves as fighting on the side of the angels against the forces of evil. It is a lofty role that they are not about to give up for anything so mundane as facts-- or even the lives of other people. ~ Thomas Sowell
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I'm not a liberal so you've gone off on one there. It does amuse me, however, that right wingers- by celebrating Ron- are also celebrating a particularly inefficient form of Keynesianism.
You could fool anyone with your posts then.
There was a lot more we liked about Reagan.
Last edited by onalandline; Jun 09 2012 at 11:23 AM.
"The problem is, is that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion dollars for the first 42 presidents — number 43 added $4 trillion dollars by his lonesome, so that we now have over $9 trillion dollars of debt that we are going to have to pay back — $30,000 for every man, woman and child. It’s irresponsible. It’s unpatriotic!" - Barack Hussein Obama
Socialism and liberalism are incompatible. Bit obvious really.
Try to keep to the thread's topic. Why do you think the right tolerated Ron's inefficient form of Keynesianism? Easily fooled perhaps?There was a lot more we liked about Reagan.
Things are much worse today. Obama is a complete failure. Jobs were created during the Reagan years.
"The problem is, is that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion dollars for the first 42 presidents — number 43 added $4 trillion dollars by his lonesome, so that we now have over $9 trillion dollars of debt that we are going to have to pay back — $30,000 for every man, woman and child. It’s irresponsible. It’s unpatriotic!" - Barack Hussein Obama
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