Deficits don't Matter

"Deficits only matter when the spending can not keep up with the growth" ?????

Isnt that what a deficit is? Spending without growth! Magic...

We need long term, real growth. Not short term, artificial growth. Hasnt anyone learned that if we solely rely on government to borrow and print the prosperity of the economy that eventually we will need to go back to the government for more money? Like we are now? And on top of that, why would the world of productive people trade their currency for a currency who's country simply prints its money and gives it to people.

People in other countries have to produce to become wealthy, here our government gives it out to people. How long do you think thats going to last?

 

Please explain to me the difference between "real" growth and "artificial" growth. Wealth is created when someone creates a good or service of value to someone. It does not make the slightest difference whether that person is being paid by the government, a corporation, or is self employed. Economic growth tends to be self sustaining once it gets started. The boom and bust cycle is due to feed back mechanisms within the economy. Stimulus is designed to break the cycle of negative feed back and kick start the positive feed back cycle.

A bunch of nice sounding bumper sticker slogans that have little to nothing to do with reality is not a substitute for real understanding of economics.

 

Yeah I forgot, clearly the resources that government uses come from the magic pixie tree, just collect the pixie dust and sprinkle it on yourself and everything you will ever want will come into existance.

 

Wow, terrible response.

Real growth happens in a private market. Artificial growth happens when a 3rd party introduces supplemental growth, hence the word "stimulus." Considering you dont understand the difference between "real" and "artificial", I strongly question your assessment of "real understanding of economics." If you had any historical knowledge, you would understand that "booms and busts" occur as a result of artificial growth. Bubbles are created when markets are reinforced as a result of artificial market signals, such as stimulus programs and/or regulations.

The point is, once the government money runs out, more is needed. The economy can not recover without an industrial base. We can not build infrastructure without an industrial base. We can not afford to erode the value of the dollar because there is already too little savings/capital to create new jobs.

The government is not there to "stimulate" the economy. It should enforce laws accross the board, regardless of the consequences of doing so.

Your explanation has a historical life of roughly 30 years, in which the government has had the ability to take on massive deficits in order to "better" society and "help" the economy. Well here we are, what a (*)(*)(*)(*) hole thanks to what you consider "real economic understanding."

You are the economic bumper sticker, not me.

 

No, the resources the government uses for stimulus comes from unused economic capacity, which is unused because people are afraid to spend money because they're afraid they could lose their job because people aren't spending money.

 

Rofl!

Are you serious??

You think people on mass are hoarding money because they are scared to spend it??

Clearly delusional! Why do american consumers have 12+ trillion of debt?? Is it because they have money? Or is it because they are scared of spending money?

The stimulus is not for unused economic capacity, its for the inability to sustain economic capacity.

We have no savings, thus we have no capital, thus we have no sustainable jobs. When a government uses stimulus, it erodes the value of savings. At the same time, people who propose stimulus also propose spending, not saving. Stimulus jobs are unsustainable when you lack the capital in the first place. The government screwed up, and the people let it happen.

 

(Raises an eyebrow) So, if you're the one with the deep historical knowledge of economics, kindly explain to me exactly what "artificial market signals" were responsible for the Tulip Mania of the 1630's? Perhaps Keynes traveled back in time three centuries to further his evil plot?

Speculative bubbles are not the same thing as the business cycle, although bubbles bursting do often trigger larger downturns. And both the business cycle and bubbles have been around a whole heck of a lot longer then stimulus policies.

And as for where we are thanks to what I consider real economic understanding, the Keynesian model was adopted during the great Depression and has been used ever since. Every President since FDR has turned to stimulus when faced with a recession, including Nixon, Ford, Reagan, and both Bush's. And the result is that before 1929, the Us economy spent 45% of the time in recession. After 1945, it's spent 15% of the time in recession.
http://www.nber.org/cycles.html

So, you're welcome.

 

The fact we have no savings is because of the federal reserve and the welfare state, both social and corporate. The federal reserve inflates the currency and the government taxes normal people 50-60% of their income to either give it to people who have made bad personal choices or businesses who have made poor economic choices.

If we had low inflation, cost of goods would not rise unless because of supply and demand factors. If we retained more income, we could save on a much greater scale. Our trade deficit also contributes to the erosion of savings because money is not being retained within the country, it is leaving the country and being saved in a foreign banks.

 

Ok, so what is logical? That over the past 100 years, or economic problems are a result of a MORE free market approach? or a Keynesian approach? Considering we have had Keynesian and not Austrian, I know what to blame. The fact that a policy could take a country and ruin it in 50 years is enough evidence for me, it seems like Keynesians are fighting an uphill battle in the rain.

We arent talking about speculative bubbles. We are talking about bubbles which were created due to the governmental policy of bail outs and stimulus which started occuring in the mid 1990's. Tulip mania is pure speculation, but the NASAQ bubble, to the Housing Bubble, were created as a result of governmental policy in either bailing out industry or lowering interest rates (aka stimulus).

To talk about something that happened 300 years ago with tulips and equate that discussion as being relevant to this one is bold I must admit.

Guess what the next bubble is as a result bail outs and stimulus over the past 30 years? A DOLLAR BUBBLE, which is now being expressed through the price of gold. Once the bubble pops and everyone finds out that the dollar is only worth a fraction of what is perceived, it will result in worldwide rejection of the dollar. Why? Because thats historically accurate.

Thanks Keynesian economics! Youre my friend!

 

Ok, Artificial market signals are signals which arise in the market as a result of a 3rd entity (aka the government) introduces percieved value into the market which does not actually exist. This causes institutions as well as consumers to act "artificially" as in "different" than if there were no stimulus.

 

Hey, you're the one claiming that bubbles and the business cycle are caused by stimulus. The simplest way to disprove such a claim is to show that bubbles and the business cycle long, long predate any sort of stimulus policy. And if ruining the economy consists of reducing recessions from happening 45% of the time to 15% of the time, I'll take more ruination, please. Unless you want the economy to go back to spending half the time in recession. The Austrian school had its day in the late 19th and early 20th century. And it gave us the Great Depression. Keynesian policies simply work better, and have been shown consistently by 80 years of history to work better.

Why in the world would you interpret absurdly high gold prices as a bubble in the value of the dollar? That's completely illogical. High gold prices means that the value of the dollar is low compared to gold, not the other way around. I do happen to agree that gold prices are in a bubble, and when it bursts the value of gold will crash and all the people who think that gold is magic will lose their shirts. Honestly, who in their right mind buys gold when we have deflation? That's just nuts.

 

No silly, a stimulus only works when tax money is funneled to campaign giving corporations.

Geesh!! You have Keynes turning in his grave. Why on earth would politicians help us, unless we have billions to give to them in this years election cycle? Let me check, nope, not a cent to spare. Sorry.

 

Deficits don't matter? Your last name would not be Cheney would it?

 

We used to believe that we couldn't have high inflation along with high unemployment.

And then the stagflation of the 1970s came along. At the time, Keynesian theory stated that inflation and recession were mutually exclusive.

Now, apparently, we are back to believing that dogmatic Keynesian macroeconomic theory is valid again.

 

What's interesting is that Keynes himself made a neoclassical argument regarding deficits and inflation.

Here are some quotes from Keynes on 1920s Europe (Germany at the time was the Wienmar Republic):

"The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance."

"In Germany the total expenditure of the Empire, the Federal States, and the Communes in 1919-20 is estimated at 25 milliards of marks, of which not above 10 milliards are covered by previously existing taxation. This is without allowing anything for the payment of the indemnity. In Russia, Poland, Hungary, or Austria such a thing as a budget cannot be seriously considered to exist at all. Thus the menace of inflationism described above is not merely a product of the war, of which peace begins the cure. It is a continuing phenomenon of which the end is not yet in sight."

Yet, here we are somehow. Thinking that deficits don't mater.

 

http://hotair.com/archives/2011/08/...ding-4-trillion-to-national-debt-unpatriotic/
Barack Obama gives his opinion of deficits (as long as your name is Bush, it seems). The idea is that you need to go crazy spending (spending debauchery, as it was called) to ease the pain of unemployment and
puny economic growth is insanity and shows a jaw dropping ignorance of economic reality.

 

Deficits DO NOT matter. The last republican administration said so.

 

It comes from the banking system just like when you take a loan out. So yes, govt spending does magically appear in our accounts.

That's why it's hilarious when people claim there is crowding out happening when the Govt spends. Lol.

 

Yeah and surely the money created out of thin air does not bid up prices and steal resources from original note holders right?

 

See, Democrats and Republicans CAN agree on somethings.

 

Well there ya go! So keep the printing presses rolling and the cash flowing. The republicans agree. Deficits don't matter. The current right wing criticism of Obama and the debt can be retired, since he's not doing anything different than the GOP's boy did. Excellent!

 

Inflation is more money chasing the same or relatively less amount of goods. So what if more money creates more goods??

What if our produces are willing to produce more if there was MORE money.

Ever think about that?

 

Oh for crying out loud, deficits are always evil, inflation is always evil, is that as deep an economic analysis as you guys are capable of? Come on, you're not that dumb. Get off your lazy butts and actually use those brains of yours! Simplistic ideology is for small children, you can do better.

Yeees, high inflation is bad. A low rate of inflation is good. Deflation is very bad in any quantity. Inflation is like temperature - way too cold is just as bad as way too hot. An expanding economy needs an expanding money supply to service it. Normally, an inflation rate of around 2% - 3% is considered to be about right, and inflation for 2011 was 3.16%. 2009 saw 0.34% deflation. So inflation is not high, and does not seem to be in danger of getting too high. And the Fed is constantly monitoring inflation - that's pretty much their job - and if it looks like inflation may become a problem they will take action to head it off.

Normally, inflation and growth are more or less correlated. Most of the time a weak economy means low inflation or deflation, and high inflation means an overheated economy. Stagflation occurs under unusual circumstances, usually when there is a supply shock that both reduces production and jacks up prices. The oil shocks of the 70's did this, setting off a wage price spiral that was only broken when the Fed drastically raised interest rates and contracted the money supply. This ended inflation, and at the same time sent the economy into the deep recession of the early 80's.

Generally speaking, deficits have a stimulative effect when the economy is in a downturn. Deficits only become a problem when they are continued into times of prosperity, or when maintained over long periods of time. And since balancing a budget that is in deficit spending necessarily means cutting spending and raising taxes, it will always be a short term drag on the economy. This has been demonstrated time and time again, most drastically in 1937, when Congressional Republicans successfully pressured FDR into drastically cutting spending in order to balance the budget. The economy immediately tanked, unemployment jumped by five points, and years of recovery from the Great Depression were undone in a matter of months.

The bottom line is that classical laissez faire economics gave us an economy that spent 45% of the time in recession, Keynesian economics has reduced that to 15%. Keynesian economics simply works better.

 

Wouldn't that be inflation? That is low right now. Jobs is job 1.

 

You are confusing conservatives with the GOP. For the love of Pete, there is nothing conservative about politicians like "W", McCain, or Romney.