Is more debt worth Keynesian policy?

Discussion in 'Economics & Trade' started by Anders Hoveland, Jun 7, 2012.

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Is getting into debt worth stimulating the economy?

  1. Yes, the economy can be "jump started"

    5 vote(s)
    25.0%
  2. yes, but only if the country is not already deep in debt

    0 vote(s)
    0.0%
  3. in some instances, but not in others

    2 vote(s)
    10.0%
  4. No, compounding interest must be repaid, and the future taxes will be more harmful

    13 vote(s)
    65.0%
  1. Anders Hoveland

    Anders Hoveland Banned

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    Can getting into debt to "stimulate" the economy be beneficial?
     
  2. Reiver

    Reiver Well-Known Member

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    This is nonsensical question. Keynesian policy would actually be about reducing debt (with austerity, by destroying growth, actually increasing debt problem)
     
  3. Anders Hoveland

    Anders Hoveland Banned

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    Unless a country has previously held on to budget surpluses to cultivate a savings account, it will not be possible to pursue Keynesian policy in a recession (increasing government spending) without increasing debt in the near term.

    The debate is whether government spending can actually create growth, and whether any increase in taxes collected from this growth are greater than the future taxes that will be necessary to pay off the debt.

    And one more question- Why does the government need to spend more money than it already is spending? Some countries are already spending large quantities of money, and have been doing so continuously, yet they have entered into a recession. Perhaps the problem was that they spent too much money during the good times? In which case, is spending even more money during the bad times really the appropriate remedy?
     
  4. Reiver

    Reiver Well-Known Member

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    Again, you're simply confusing ideological outcome (which impacts on, for example, expenditure through its impact on a social welfare function) with economic reality. We know, for example, that unemployment does indeed destroy human capital and therefore restricts future production possibility

    Again, you simply ignore what has happened. Following a collapse engineered by neo-liberalism we're now seeing austerity generate double dip recession problems. Restricting government expenditure has indeed harmed growth. If one wants to reduce debt one first uses government to demand manage in order to attempt to maintain employment levels.

    Your thread's question is nonsensical
     
  5. Anders Hoveland

    Anders Hoveland Banned

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    You seem to be arguing for an increase in government spending. How exactly can this be accomplished without either
    1. prior savings (which most countries do not have)
    2. increasing taxes
    3. borrowing more money
    ???

    Or are you trying to say that the benefits of getting into more debt will be accrued so fast that the debt can be almost immediately payed off ?
    Otherwise I just do not see how your posts are not nonsensical.
     
  6. Reiver

    Reiver Well-Known Member

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    Wrong again! I've simply referred to how your initial question is a load of tosh. The use of Keynesianism, for example, can be associated with understanding how to reduce debt. We see that with austerity which has been associated by increases in debt as irrational policies further harm the economy. Perhaps you've been corrupted by neo-Keynesianism and the use of the Phillips Curve to suggest some social welfare function 'unemployment-inflation' choice can be chosen as a permanent option? Time to catch up if that's the case as that stuff is old hat
     
  7. Anders Hoveland

    Anders Hoveland Banned

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    For the purpose of this thread, then, define what you mean by 'Keynesianism' and 'Austerity'. I understand (perhaps not?) your basic criticism of austerity and support of keynesianism, but what policy exactly do you support? Could it not be argued that a country is already pursuing a keynesian stimulus policy, without having to increase its spending even more?
     
  8. Reiver

    Reiver Well-Known Member

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    Austerity is a right wing dogmatic reaction that kicks economic rationality in the teeth. Keynesianism? Its a diverse school with various sub-schools that offers an understanding of capitalism. Originally based on the work by Keynes, it integrates numerous disciplines (e.g. behavioural economics) within economics to provide macroeconomic conclusion. A post-Keynesian, for example, will be able to refer to firm pricing policy to understand how instabilities can be magnified.

    I'm a socialist. I don't 'support' Keynesianism. I merely acknowledge its importance in stabilising an economic paradigm prone to crisis. The point is not to croak 'in my opinion', its for you to realise that your original question just doesn't make sense
     
  9. onalandline

    onalandline Well-Known Member Past Donor

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    Large Changes in Fiscal Policy: Taxes versus Spending:

    Executive Summary:

    Executive Summary

    We examine the evidence on episodes of large stances in fiscal policy, in cases of both fiscal stimuli and fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based on tax cuts are more likely to increase growth than those based on spending increases. As for fiscal adjustments, those based on spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based on tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions. We confirm these results with simple regression analysis.

    Read the paper...click here---> Paper.
     
  10. Iriemon

    Iriemon Well-Known Member Past Donor

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    Depends on the circumstances the the purpose of going into debt.

    When the Govt borrows money, that money is generally loaned by wealthy folks (because they have the bulk of the assets). If the money would otherwise not being used in stimulative ways, *and* if the Govt spends it or takes some other action that creates demand for economic activity, and the economy is not otherwise at or near full capacity, then it can stimulate economic growth.

    But if the debt is driven by tax cuts that mostly benefit the same wealthy who are lending the money, then all you are doing is providing more cash to the wealthy by tax cuts who turn around and lend the money to the Govt, then not much is accomplished except adding to the debt.
     
  11. Iriemon

    Iriemon Well-Known Member Past Donor

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    The first question, namely, whether tax cuts or spending increases are more expansionary, is a critical one, and economists strongly disagree about the answer.

    Why does this paper present a better and more accurate analysis and conclusion?
     
  12. onalandline

    onalandline Well-Known Member Past Donor

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    Because your boy in the WH went there.
     
  13. Reiver

    Reiver Well-Known Member

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    Were you at the barricades when Ronnie Reagan and co indulged in Military Keynesianism (twinning military waste with tax cuts)?
     
  14. Anders Hoveland

    Anders Hoveland Banned

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    Apparently Reagan had a different idea of Keynesianism: spend more money and lower taxes, in both the bad times and good! He genuinely believed that this would make the economy grow faster so that more taxes would be collected. However, the record clearly shows that the US Treasury took on much more debt during this time. Despite this, whether "Reaganomics" actually worked is still disputed by some economists to this day.
     
  15. SiliconMagician

    SiliconMagician Banned

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    LMAO

    Why do you act like Market socialism is the only "true path" of economics? If it were, more economists would embrace it. The fact that you reject the world's preeminment economics shows just how insane you really are.

    If rich people don't want to buy up a nation's debt, then it doesn't matter what kind of economics they use. No money, no economy. Greece has already reached that point, the rest of Europe is soon to follow.

    Better a double dip recession from austerity than a complete and total collapse leading to anarchy and commie revolution(like in Greece).
     
  16. Anders Hoveland

    Anders Hoveland Banned

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    The reason I started this thread is because so many professional economists actually believe that a country should get into more debt to stimulate the economy during this world-wide recession. I would even go so far as to say most economists that the academic institutions are turning out. I believe a particular strain of economic ideology has taken a stranglehold in the academic institutions, and that this poses a great danger. It is these economists that are the ones advising naive politicians on economic matters. I do not think most of the public realises the type of beliefs most of these economists actually hold.
     
  17. Reiver

    Reiver Well-Known Member

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    I don't. Its merely an economic pardigm that embraces individualism and achieves greater economic efficiency. Its also something easily defended with valid economics. That's not something we can say with the OP, given its a deliberate corruption of Keynesian comment.
     
  18. onalandline

    onalandline Well-Known Member Past Donor

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    For the record, No. I was attending primary school, playing with my friends in the evenings and weekends, and vacationing with my parents and siblings during school breaks and summer.

    Diversion tactics once again.
     
  19. Reiver

    Reiver Well-Known Member

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    Just trying to get comment out of you (a rather difficult business!). What do you think of Ronnie Military Keynesianism? Does it grieve you?
     
  20. onalandline

    onalandline Well-Known Member Past Donor

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    No, I am living in the present, and looking to the future.
     
  21. Reiver

    Reiver Well-Known Member

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    Your inability to make 'comment' gives you away.
     
  22. unrealist42

    unrealist42 New Member

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    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.
     
  23. Anders Hoveland

    Anders Hoveland Banned

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    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.
     
  24. Reiver

    Reiver Well-Known Member

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    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.
     
  25. onalandline

    onalandline Well-Known Member Past Donor

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    Reagan was one of the best we have had last century. I know you libs despise him.
     

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