Deficit Spending and Economic Theory.

A lot has recently been made about Deficit Spending: Isn't Trump betraying decades of conservative belief? Wasn't much made about the US Debt? Well, we should look at the past few years of the Obama Administration to get a view of the larger picture here: Even though the GOP Congress had halted a significant amount of new spending, spending overall continued to increase. In other words, even if the Congress had continued to halt new spending, the overall deficit would have continued to increase.

I studied under an Economics Major(INTL-Business). Between my studies, and Akiphit's postings(I miss that dude), my economic theory had evolved over the years. Essentially, the main issue isn't even the National Debt or even Deficit Spending. More important, is the debt-to-GDP ratio.

The spending expenditures that were met through the 80's-to-early 2000's were acceptable(as well as other prior expenditures before) because our GDP was much, much higher than our percentage of debt. Now, for all those laymen: GDP=Gross Domestic Product. Our spending, our production, etc. All economic activity can be referred to as GDP. And Debt is obviously incurred from spending. To put it in laymen's terms: We were MUCH more economically productive than any debts incurred.

But during the Bush years(and actually even under Carter-Reagan), our once very wide gap between GDP-Debt was shrinking. And shrinking at a stunningly quick rate. By 2012, our GDP-Debt was at 100%. In other words, we incurred as much debt(waste) as our production.

This is the real heart of America's underlying problems. Not so much how much America is spending, but how little VALUE it's getting out of its spending.(So I agree with Dems on the military parade. As cool as it'd be, it's not exactly helping this problem here.)

So, what is the solution? A huge part of the problem with the Keynes economic theory, is that Keynes did not differ from wasteful spending and spending. He just advocated all kinds of spending, period. It's time for a modern day modification of Keynes's economic theory.

The US needs to reduce wasteful spending, while at the same time increasing all engines of economic activity. So for example, student debt is taking up a HUGE portion of US Wealth in this country. Same thing with derivatives, etc. Can you imagine if we got rid of that? Student Debt forgiveness would yes, be expensive. But it would be one of the biggest things we can do for the economy. Young Americans would be free to buy homes, etc. It would spur positive economic activity.

But let's go a step forward: Not just forgiving the debt, but embracing Free secondary education.(Or at the very least, shrinking administrative 'overpay' and charging these kids thousands.). Again, I know it's 'expensive' but it's an actual investment. And the investment in their education will be significant.

I know what some conservatives will think: "If these kids have the government as their nanny, they won't value the education as much as if they paid for it." I disagree. All we have to do then, at worst is quantify which degrees will be covered and which won't. But we don't even have to be that authoritative. We can release a study of the most productive degrees and have the students choose from there.

But the bottom line is that instead of billions of dollars in waste(debt, derivatives), let's spend billions of dollars on ensuring their education and opportunities. I look to Finland, for inspiration on how to move forward with their own crisis. They forgave the loans, they crushed the banks. In much the same way, Housing reform should take that same manner and same approach. If we give Homeowners a clean slate, they will be able to put that money back in the economy.

Investing in a country's well being is not, and never was cheap. But neglecting the country has proven to be more costly, giving us more debt than a forward-progress financial plan for the US. I propose a 10-year budget proposal, rather than the weak 2-year one that Congress floated. That's how serious I am about our economy.

 

Excellent post, I too have an economic background.

Keynes was misinterpreted by mainstream economists, the neo-classicals. Keynes was even quoted by Roosevelt's secretary as he left a private meeting saying, "he is the dumbest man I've ever met." (paraphrased)

Proper interpretation of Keynes is now Post-Keynesian Economics. It's primary interpretation for the solution to the Great Depression is that Keynes said expectations of the future and LESS uncertainty are what is needed to improve the economy. Roosevelt and neo-classicals couldn't quantify expectations or uncertainty so they made an invalid interpretation that would fit, ie, spending.

If you look closely at Trump's OVERALL economic plans, I think Keynes would approve.

Steve

 

What happened with me in my studies(It was an online university) is that I struggled with non-course related bullcrap. Art, Computers(which was SO less about computers and more about Excel spreadsheets and things like that. Had it been about actual Computers, even novice programming I might've actually passed it. I couldn't work a spreadsheet to save my life) and then mathematics, which I was cursed at(it's stunning, really. Going through up to age 9, math was my best subject. But then, for a sudden reason it changed. I was highly proficient in reading and my math skills declined.) Eventually, I went from a 3.8 GPA all the way to being disqualified and now I have the monkier of some college.

Would I go back? I'm afraid of if I go back, will I be obligated to pay those damn loans? And being both unemployed and with limited disability income I wouldn't want to risk myself legally. Of course, my intention was to make it big so I could pay them but things rarely go as planned lol.)

On that note of 'expectations of the future and less uncertainty'. That's why a longer-term budget plan(like my proposed 10 years) would be so perfect. Businesses would feel confident that the laws wouldn't change every year. There'd be a constant and businesses could plan accordingly. Hell, we can better utilize the Chamber of Commerce to get daily input on both small/big businesses on a path that works for them.

In my studies, I really do believe the economy has to be micromanaged, yet in a way that does allow for the freedom and enterprise system to flourish. I coined my theory: Mixed-Economic theory.(Well, a Mixed Economy isn't exactly my theory per say but it ended up being my preference between Open and Closed economies.)

 

Some good points but I disagree with student debt relief. A free higher education encourages kids taking classes and getting degrees in fields that are fun and feel good but don't add anything to our economy. If you have to pay for your education you are more likely to persue a degree that will land you a good job making good money so you can pay for your education.

 

I agree that Keynesian types verses capitalism types can get too rigid and as capitalist as I am there's room for a little Keynes here and there but done in a smart way as the OP suggest.

 

I don't know why we really care about Keynes anymore. Yes he was a giant in the field of economics and has influenced it hugely. But why not look at what current economists tend to say instead? It doesn't run that contrary to what Keynes said before really, deficits in recessions, balanced budgets in good times. With some caveats, monetary policy has been shown to be just as effective if not more so than fiscal. Bernanke, Yellen etc. have done a good job at the Fed. When the economy was sluggish with interests rates at the ZLB and QE in effects then deficit spending made sense. Now it does not.

Trump/Republicans blowing another hole in the deficit/total debt etc. makes no economic sense. Nor would Democrats doing it for their pet projects (such as free higher ed, when there are better ways to do this instead of effectively giving a huge government handout to middle class people).

 

Is that ideologically-induced dogma, or do you have actual empirical evidence?

My personal experience is that young folks in need, when given academic opportunity, are far more apt to advantage their particular abilities in pursuit of opportunities for financial reward, contributing to the general prosperity of the nation.

Of course, some might dismiss teaching and social services as low-paying fields and, consequently, "fun and feel good" vocations.

 

Well Keynes was an ardent capitalist, so there's room for a whole lot of Keynes. Most people's conception of Keynes seem to run antithetically to what Keynes actually wanted politically. He was a liberal (in the European sense, not American), didn't want huge government and so on, believed in markets etc.

 

I would agree that many people today pushing Keynesian economics seem to think it is all about government spending and little or nothing to do with a market based economy and I'm probably guilty of responding to them rather than what Keynesian economics truly is. Unfortunately though perception is reality and I'm forced into that position when talking to leftist who think they are Keynesian.

 

We have a shortage of people educated in math, science and engineering that is forcing us to import better educated foreigners. A free education would only exaserbate that problem.

 

That is unless of course a significant portion of would-be students take math, science and engineering(I feel ashamed to have contributed to the math problem. lol) As far as engineering, I never really gave it a thought. At first it was politics, but then when my mom got laid off I was thinking: Why would I want a 9-to-5 job and have someone dictate whether I'm hired or fired or not? I wanted to own my own business. But then for someone as poor as me, I'd need a product, loans, etc.

One way or another, I feel like I want to break through. I want to make a positive name for myself. Even if it's never political, I don't care. As long as I can lead a self-sufficient life.

But Germany has a free education program, and I can't speak for them but it looks like they have plenty of Germans contributing to the local economy.

 

I don't think even people genuingely pushing vulgar Keynesianism are really pushing for an economy that isn't market based. But this is just all side really, any sort of government spending gets labelled Keynesianism by both sides, or healthcare systems that still use plenty of market mechanism (e.g. Germany) get labelled socialist by those on the right. When they do actually get to leftist politics then they aren't even pushing vulgar Keynesianism, I haven't really come across people advocating for workers to control the means of production while thinking they're pushing keynesian ecnomics.

It'd help if you posted some evidence (a research paper of some kind) that showed there was a shortage in these subjects or that having highly educated foreigners immigrate is a problem. Or that a free education exacerbates the problem (does Germany have a problem with the number of engineers it has with very cheap tertiary education for instance?)

 

Sweet. I think what many commentators miss is the condition of the economy in relation to spending by the government. During the 2007 financial and economic meltdown Government Expenditures increased as a percentage of GDP because Consumer Spending and Investment fell dramatically. Drops in consumption (demand) caused unemployment to rise. TARP under Bush and continued under Obama in an effort to stem the impact of unemployment through extension of unemployment benefits, tax cuts, and allocation of funds to the states for "shovel ready projects" All this took place after the government created the first trillion dollar deficit in 2007.

The Federal Reserve ran up the deficit by bailing out banks and financial institution to prevent the collapse of global financial markets (not a popular move). Both Bush and Obama administrations allocate $50 billion to save GM and Chrysler because no private investment capital was forthcoming. In the end, government made $5 billion of interest on collections from the bailout of banks, autos, and insurance companies. Fast forward.

It took nearly ten years for increase deficits to bring jobs back to 5% unemployment. In the meantime the National Debt nearly doubled. This was the cost of the greatest economic meltdown since the Great Depression. Many economists, myself included, make a strong case that without our safety nets, we were in a depression. Now what?

By 2016, Budget deficits had shrunk by half and the economy was on a firmer footing. Now would be the time to rein in spending and think about ways to increase receipts (taxes) to reduce the National Debt (Keynesian economics} and increase Consumption. Instead, we have done the opposite - tax cuts aimed at wealthy Americans and an increase in the budget deficits. The impact on consumption accounts is unknown. This will likely result in a substantial increase in interest on bonds to finance the new debt.

As to your comments on our investment in education as an investment in America, I couldn't agree more. I would only add that community colleges and trade schools must be part of this. I also believe, with civil engineers, that we are $2-3 trillion in arrears on our infra-strucure. Both great ways to invest in America, unfortunately, we are out of money.

 

Agreed. Free education, no such thing! Someone is eventually going to foot the bill for educators, and those learning institutions and that burden will fall squarely on the taxpayers, so where exactly is the plus side? As it stands today many rural areas and even large cities struggle with public school(s) funding with the tax revenue now, so the answer is obvious, raise tax's on people that are already struggling just to fund existing costs of public education.

 

It gets confusing when you see several off-shoots of Keynes today, each having their own political biases. But the key idea that I think is Keynes' own and best is higher expectations of the future and LESS uncertainty. And that can be applied to many aspects of the economy such as monetary economic theory.

Steve

 

Why blame Trump? Do you not agree that at some point in time the U.S. must R&R its crumbling infrastructure? Do you think it will cost more today then it will in 10 years? The point is, the longer you wait to address this "MUST DO" the more it will cost due to rising cost of labor and materials! With that said, who really deserves the blame for deficit if that deficit is incurred from infrastructure spending, not Trump! We just waved goodbye to a President that added almost nine trillion to the debt and our cities, roads, water, gas and gov building look no better today then they have 50 years ago, Trumps fault?

If Trump were to add to the deficit and debt to create jobs to rebuild America's infrastructure that deficit and shortfall would be better money spent than the last five Presidents before him!

 

Germany also has a very good trade school program we could emulate. Not everyone needs a college education.

 

The left that calls itself Keynesian is anti corporation and wants to take their money to let government "invest" instead of those who earned it. That's how the corrupt Keynesian economics.

As for your other question:

Washington, D.C. – May 17, 2016 – The U.S. will be dependent on foreign workers to fill future STEM jobs, according to analysis of the third annual U.S. News/Raytheon STEM Index, unveiled today at usnews.com/stemindex.

While the 2016 STEM Index shows increases in STEM degrees granted and STEM hiring, America continues to have a shortage of STEM workers. There were 30,835 additional STEM graduates and 230,246 additional STEM jobs from 2014-2015.

"While our universities are producing more STEM graduates, many of these students are foreigners on temporary visas," said Brian Kelly, editor and chief content officer of U.S. News. "Despite significant public and private investment, we are still not developing an American STEM workforce to fill the jobs of the future. It's clear that we need to focus our efforts on getting more kids, particularly women and African-Americans, interested in pursuing STEM at a young age."

https://www.usnews.com/info/blogs/p...o-depend-on-foreign-workers-to-fill-stem-jobs

 

Apparently, you have no empirical evidence to support your opinion that "A free higher education encourages kids taking classes and getting degrees in fields that are fun and feel good but don't add anything to our economy."

 

There are many problems with how the government underwrites student loans. For one, there is no consideration of value. The government will underwrite student loans regardless of what the university charges and whether the education has any actual value. For example, should the government underwrite a 4 year degree in medieval studies for $100,000?

What is lacking in the USA is an upper educational system focused on usable and marketable knowledge and skills.

 

The problem is, education doesn't guarantee a job! In todays cookie cutter education system thousands of young adults are graduated and sent out to compete for the same area of expertise! One thing, some graduates score higher than other and in a employer market the delusion of "guarantee" becomes even more apparent! So why would we as taxpayers want to finance thousands of Data Analyst for 100's of job openings that 75% of their fellow grads scored higher in? So essentially the free education only served to produce a very small number to fill a very small market and those we clearly spent 5-10 years of funding on are now out matched and end up flipping burgers anyway!

 

I never claimed to have empirical evidence. I'm just going on a lifetime of observation and common sense. If you have a plethora of kids going to college because it's free and easier than getting a job and growing up you will in turn have a plethora of liberal arts majors.

 

Agreed. That would be similar to tech schools, but on a higher level of training. Universities were originally intended to be a universal education not necessarily to focus on future employment, or training. The worst example we have today are the liberal arts degrees with a fast track program.

Steve

 

A crude measure such as the stem index is not particularly useful. The general consensus is that there is shortage in some areas, not others and generally not overall. Many STEM grads do not work in STEM fields. http://issues.org/wp-content/uploads/2013/11/art_p62.jpg

See here for a relatively good breakdown:

https://www.bls.gov/opub/mlr/2015/article/stem-crisis-or-stem-surplus-yes-and-yes.htm

Page 9 here:

http://users.nber.org/~sewp/papers/nsb revisiting stem 4-15.pdf

"But those policy proposals that call for more math and science education, aimed at increasing the number of scientists and engineers, do not square with the educational performance and employment data that we have reviewed. Our review of the data finds not only little evidence to support those positions and, in fact, the available evidence indicates an ample supply of students whose preparation and performance has been increasing over the past decades."

https://www.urban.org/sites/default/files/publication/46796/411562-Into-the-Eye-of-the-Storm.PDF

https://spectrum.ieee.org/at-work/education/the-stem-crisis-is-a-myth

http://issues.org/29-4/what-shortages-the-real-evidence-about-the-stem-workforce/


Basically it's a bit of a myth. Of course we need more scientists, right? They can invent things and spur technological progress and whatever else. These are tough rigorous subjects and we don't want to be left behind technologically and so on. Labour markets surrounding these things tell a different story. If only a solution to spurring growth was quite as simple as 'more people in STEM'.