The vast majority of the time, when unemployment is at the long run trend (if it goes above this then the fed cuts interest rates to bring it to there) then budget deficits are a bad thing, as they crowd out the private sector. However in a situation where the fed has interest rates at zero and there is cyclical unemployment, then budget deficits are a good thing, as there is a liquidity trap so the excess savings are borrowed by the federal government which spends them, there are spare resources (as unemployment is not just structural in this case- there are people who could be working but aren't) so the private and public sector are not in competition here. This is why fiscal policy in the US has been completely wrong-headed since jan 2010 when Obama declared that we needed a spending freeze and basically accepted that the Republicans were correct about deficit reduction and yielded to the know-nothings. The short-run budget deficit is not a problem right now (indeed things would be much better if we increased it by spending anotter $150bn or so in a state aid program to rehire the schoolteachers laid off and get local infrastructure projects moving again- this would probably get us to around the long-term unemployment level again), it will continue to go away as unemployment rate falls to the long run levels (reducing mandatory spending and increasing tax revenue) the medium to long term budget position is questionable, but Obamacare and some of the medicare savings should help significantly with slowing down the rate of rising healthcare costs (everything would be much better if we went to single payer though- or even just allowed a public option) We will also need to increase taxes in the long term due to changing demographics.
I never liked deficits until Reagan and Cheney assured me they were good. Or, if deficits were not good, at least they did not matter. Now the snot-faced Republican whippersnappers are telling me that deficits are bad. Not only bad, but B-A-D. Who's a guy to believe if he can't believe stone-cold, rock-ribbed Republicans like Reagan and Cheney?
Federal Deficits are only bad if the economy is in full employment with maximum revuneu generation whereas federal deficits are generally deemed good fiscal policy when the economy is in a recession or depression.
Federal deficits are caused by borrowing, but who has to pay to debt? The debt is paid by stealing from society, which is immoral, hence deficits are bad.
More precisely it's stealing from our kids and grandkids who will have to service that debt. Which, IMHO, is immoral as you say. I would however, add a caveat, which is that if a deficit to help people through bad times is paid off relatively soon, that's fine. Or if society as a whole is benefited by more than the cost of the deficit, fine. But I got a problem if you're going to leave the deficit/debt to future generations to pay for.
Why when a person earns $50K/year and they spend/commit $100K/year is this 'bad'? At the end of 10 years they have earned $500K yet spent $1mil...$500K of deficit spending when they only earn $50K/year. The US spends ~$450 BILLION per year in debt interest when the US income is ~$2.5-$3 trillion. The US receives zero for this annual debt interest payment. Both the person and the nation, as long as they always spend more than their income, will allow debt and service to that debt to perpetually increase. Bottom line; Unless the nation is facing a critical situation which 'temporarily' justifies deficit spending, then deficit spending as SOP is greedy and self-serving! Instead of personal sacrifice and change today, our greedy behavior can justify passing along debt to the next several generations to pay for our excesses of today...and this is simply pathetic and used to be un-American...
Why? None of our ancestors thought of us when they were using up most of our resources and polluting the rest in doing so. (*)(*)(*)(*) my kids and grandkids, they can take care of themselves, just like I've always had to. Our descendants are another abstract constituency which always votes for the pol making the speech, like the "unborn". A "decent concern for future generations" would have us never using anything as we have to save it for those yet to come. We live in TODAY not the future and in the long run we are indeed, all dead. Hey, maybe THAT'S the reason for the continuing popularity of the zombie genre. They're not metaphors for consumers, They're metaphors for our kids, and their kids, and theirs, on and on, ad infinitum. They do fit the bill, they can't be killed because they're not alive in the first place and they want nothing but, basically, to eat us
This is the essence of the problem with economics today, economics courses fail to acknowledge the reality of how money is created and by whom. The US government can never run out of money, it is impossible. I am sure you have heard of the MMT movement, there is a wonderful blog called New Economic Perspectives that dives deeply into the ideas you are mentioning here. - - - Updated - - - I cannot believe that someone on a blog actually understands money. Well done sir, you are absolutely correct.
Whoa, wait a minute. Reagan PROVED that deficits do not matter. Or so says Dick Cheney. Are you saying Reagan and Cheney are un-American?
I know it's been a few years, but I'm still trying to figure out why Bush43 was in such a major hurry to give away the virtually balanced budget of Clinton's last two years. We could've started paying down the debt. At the time, Bush said he didn't want to pay 'pre-payment penalties'. I gotta believe there was much more to it than that.
There are going to be economic consequences if we don't pay down the debt. Printing 16 trillion dollar bills to pay off the debt would affect each held dollar equally. Sounds better than trying to tax our way out of debt. Printing dollars is a tax on everybody's dollars, but it is flat and equitable.
It's not flat. It taxes those who have dollars and subsidizes those who have debts. Right or wrong, it is what it is. You're average skilled and well employed homeowner paying a mortgage would fare pretty well, as would the poor. Those sitting on large piles of cash or holding large amounts of debt would be hurting. When the rich go broke, the job market will have a huge adjustment to make. This will affect the middle and lower class negatively. It would happen pretty quickly, but it would take a little time for the adjustments to get made. Bottom line, the rich would work harder and smarter and be rich again eventually.(unless the government takes over everything to "stabilize" the economy) The poor would get inflated out of their debt but would have to go to work because increased handouts cannot possibly match the inflation rate. The retired would be screwed unless they retired with property and assets or had family to support them. And our debtors(China) would be pissed off at us and be tempted to start a war for reparations of lost debt value. The US would most likely split up in the turmoil as a result of all of the chaos and finger pointing. Choose wisely where you live.
You assume that the federal government actually pays off the debt via taxes. Those days are long gone my friend. We simply have a line of credit with ourselves paying ourselves in money created by ourselves. There is no real need to pay off the debt at all.
Not clear who you are talking to here...but if your comment is about the $450 billion per year debt interest payment, and you can't understand why this is a problem or issue, then I'm guessing in your world $450 billion is just mouse-nuts and meaningless. However, in reality, in the federal government, this $450 billion and climbing payment must be made before most other expenditures, and we get zero for this! It's not even clear what we got for the debt money we spent? Don't you believe that $450 billion could be better spent on US infrastructure instead of pissing it down the drain?
When you owe someone more than you can pay even the interest on the loan, is that bad? When you're not only not paying down interest but ADDING to the principal of the loan you cannot pay, is that still worse? When you pay your debts, accomplish your goals for the period in question (more or less), and have money left over, is that not a good thing?
They are only bad if there's no way to pay for them. Surpluses can be good during times of economic growth, but deficits are the norm during times of recession or lagging growth.
Not necessarily. There's plenty of inefficiencies in the markets without any government intervention. Sometimes, government is able to decrease inefficiencies. People who live in black and white worlds who rely on all encompassing statements usually are unable to see the world through a real world, colored lenses.
If interest rates doubled, say to what they were around 1980, the cost alone to service the expected debt in 2017 would top a trillion dollars alone. This in turn would create an inflation rate, or cost of products to increase. The Federal Government TODAY, has 122T$ of future obligation, not including interest, so any so called surplus would be applied to those obligations. What this basically means is that if we have no surplus for 20-30 years, no increase in that liability, no further overspending the budget or we spend only what taxes produce....in 20 years our debt could be about 140T$. I know what's likely..Do you? http://www.usdebtclock.org/
The US needs to stop using deficit spending as SOP...in national emergencies no problem but as SOP it's pathetic and self-serving...
It's a problem when the dollar has lost quite a bit of it's value. It used to be backed by gold, and now it's backed by GDP, which is sketchier and less liked. Yeah, America has huge infracstructure and the best technology in many sectors, great acadamia, much money, but it's not solid like gold. It'll come to haunt us when we China and other countries and organzations money and we can't pay them back, and interest piles on. Other countires won't do any more loans to us, or want to deal us. They get angry, and it hurts our economy, as they do sanctions. Countires look for other partners rather than "bankrupt" America. The dollar loses value, as it already has. Many coperations are already heading to booming China or shipping over seas. Partly though it's their own greed.
When the dollar was backed by gold, economies were more volatile. Again, I'd like to hear why gold standard believers won't talk about inflation during specie backed currency.
In order to stabilize the debt, a combination of reduction of spending to less than is being taken in and an increase in the GDP. The only way this is even possible, is to establish a budget, not with expected income, but with the previous years income (zero based). Then cutting regulations (Federal/States) for major sector job producers like energy with a serious cut in taxes imposed on all business, currently 35%, along with a six month moratorium on overseas held funds. This would likely start (the day announced) a chain reaction for all money held off shore, to planed or implemented expansion (depending on taxes on profits, which would be easily made up with other taxes like income or dividend). The House of Congress, charged to authorize spending, could virtually do this by themselves, but having short 2 year election cycles are not going to, but could and probably be re-elected in most districts. As for "emergencies", where would you draw the line. When Sandy struck the NE US, most economist suggested 20-30B$ would serve the purpose, the Governors wanted and got 80B$ and I'd suggest less than 10B$ went to the effected people. If they had given 2-3B$ to the Red Cross alone, I'd bet more folks would have been helped, in a tenth the time.
