Your views on deficit spending

Just wanted to have a little discussion on deficit spending. I personally, as my dad is an economist, understand that operating in the red actually stimulates the economy and the propaganda politicians put out about it is stupid.

Before I go further into detail and provide some evidence, I want to hear other opinions.

 

So wait..

what's good about a weaker value of the dollar?

 

I have a couple of hundred dollar bills in my bathroom buddy here in the U.K, it makes very good toilet paper.

Soft, strong and thoroughly absorbent.

 

The real fiscal problem is not the deficit, but the amount of money that gets spent. In the long run, if the marginal benefit does not outweigh the marginal cost, the short-run stimulus provided by the deficit spending is meaningless.
The statement that deficit spending is justifiable since it provides an economic stimulus is a false representation of Keynesian economics. Deficit spending is justified only if it is a by-product of countercyclical fiscal policy; that hasn't been the case for the last few years.

 

It certainly stimulates the economy in the short term. People buy more, security prises rise, people are more wealthy. But it results in over-consumption and inflation. US inflation is being absorbed by Cheap Chinese Goods and the amazing productivity and efficiency of Chinese manufacturing sector. It is stimulating Chinese economy, not the US economy... Manufacturing jobs are shifting to China, and services sector is outsourcing work to India, China, Vietnam, Thailand, Cambodia and other Asian countries.

In the long term, dollar would lose value, and corporations the world over would certainly shift to Euro, sooner rather than later.

American buying power would be reduced, and the bubble would burst. And once that happens, the property prises crash, the stock markets go kaboom, and the life savings of millions of Americans get wiped out.


Whatever proof you have, please share it. It would make an interesting reading I hope.

 

But you will agree that deficit spending can be done without any majore problems correct?

 

I am not a Clinton supporter... at all. But he was good for our country economically I think. I don't think minor deficit is a huge problem. However, we're seeing effects of inflation and global issues economically at the expense of the huge deficit we are currently in.

 

I would stop getting economic advice from your Dad. Keynesian economics has been proven to be a failed concept.

Why is it that people are incapable of grasping the concept that deficit spending is either paid by;

1) borrowing
2) monetary inflation
3) transferring balances from trusts into general revenue

1. You can never borrow indefinitely. This is just basic common sense. At one point, your costs to service the debt outstrip the marginal benefit.

2. Monetary inflation destroys the currency, and creates domestic price inflation, as well as devaluation of savings. Savings are the basis of capital, the foundation of capitalism.

3. Transferring balances creates a deferred crisis, as is coming with the future entitlement obligations of the government.

Anyone who tries to reason that consuming beyond your production is sustainable and desirable, needs to get their head checked.

 

For decades since the enormous debts run up from WWII the US has run deficits of various amts.

Over the long term the economy has only expanded. I don't need theory to ascertain that deficit spending seemed to work. In fact over the long term, I don't care what theory you tend to ascribe....that deficit spending stimulates the economy or whatever.....the US economy was going gangbusters, always on expanding and overcoming various cyclical slow/recessionary periods.

It seems that the size of the deficit, enormous rising costs in basic commodities such as oil, and extraordinarily large and dynamically growing international economy, and vast deficits are now having drastically negative impacts on the US economy.

On top of that ever larger amounts of debt are being held overseas by nations that are anything but in sync with our own interests and possibly aggressive competitors for economic strength and resources. (China).

That puts an extraordinary level of risk on top of the amount of debt being held.

Of further interest I've never understood this theory connected to the value of deficit spending being good and productive for the economy. Deficit spending is spending by the govt. If the govt was running large positive balances and no deficit and spending money....it would have the same impact as spending while running a deficit. Its simply govt spending.

Theoretically it makes no sense to me to live on debt.

At this juncture the size and scope of debt is having a serious negative impact on the American economy. There is no visable viable way in which current govt programs can cut this debt. The economic policies of the current administration added several trillion onto existing debt and current policies going forward will dramatically increase that level.

The serious cyclical slowdown (potential recession) will dramatically effect this situation in a worsening fashion. Moreover competitiveness from around the world puts crimps and limits on opportunities for growth and dynamic economic improvement. These limitations are real and they counter the typical Reagonian philosophy that there will be new growth with tax cuts, new profits and more economic activity driving ever more taxes in total to cover debt.

This clearly is a time where the American govt needs to tackle the debt issue.

How to deal with it is in the details and making decisions about priorities. One thing I'd do is move the military and expenditures out of Iraq. What a horrible mistake and expense in lives, a drain on military strength and an enormous drain on the budget.

I'd look hard at the military budget in its entirety. How can we spend so much more than the rest of the world...and seemingly get so little value.

Of interest if one took total estimated military expenditures and divided by the number of soldiers within the active and reserve military......the US spends something in the realm of in excess of $200,000/soldier. China on the other hand spends something in the range of $20,000/soldier.

Some nations with high expenditures per soldier include Great Britain and Japan and with about $100,000 and $140,000 respectively. France, with a relatively high overall expenditure rate and significantly more soldiers than Britain spends about $50-60,000/soldier.

Why are we spending so much....and so crazily much more than the rest of the world and what are we spending it on.

I'd be looking at that.

Social security, medicare and medicaid are the social programs that suck up much of the fed budget. Those 3 items and the military expenditures dwarf all other issues. Stuff that gets talked about all the time, such as earmarks are teeny teeny drops in the bucket relative to these issues. Things like earmarks are great for political debate and have no serious consequence when it comes to serious and significant budget reduction.

I'm for tackling the budget issues.

 

Cheap Chinese Goods are good for america. Because they are cheap american can buy more goods or save money, more so then if they were built in say the United States which would care a higher price tag because of labor expense. Cheap Chinesse goods raise the standard of living for americans.

 

Artificially. The Chinese are paying the productive costs, without the consumptive gains to underwrite our standard of living. If they ever decide to live like us, it's going to be a whole new ballgame. Right now, they're basically feeding the heroin addict mainline. It will be disastrous when they pull the supply for their own domestic consumption.

If you had a man servant who ironed your clothes, polished your shoes, cooked your meals and cleaned your house working for pennies, you might be enjoying a higher standard of living, but you are doing so at your man servant's cost (sacrifice).

 

Actually they are starting to live like us, which is why commodity prices are at record high's because of the China Effect. Don't forget that China is in the same economic stage as we were 100 years ago moving away from an agriculture economy to an industrial economy and that transformation with a billion people is going to take some time to complete.

As for the servant would he be better off without a job begging for food?

 

Two totally unassociated positions in one sentence.

They are not starting to live like us. You're clueless about conditions on the ground in China.

Maybe he would be better off working for more money. Maybe he would be better off on welfare, than polishing someone's shoes for a subsistence living. Maybe he would be better off starting his own business.

It's arrogance to think that without an American to exploit their labor, these people would starve. Arrogance and ignorance.

 

My dad received his doctorate of economics at clemson university. He teaches economics at john hopkins, a prestigious school. I would think he would have a better economical understanding than an online forum poster, although I don't know your college backgrounds.

I do not know exactly how he explained it to me, but I can ask him tommorow and see what he meant (maybe he meant something different).

But I assure you I would rather get economic advice from someone who is a doctor in that field than you..

 

Bush is the President, you think I should get advice from him on how to run a country?

I'm sorry if I was disrespectful towards your dad. But as you explained it, the idea is foolish IMO. I'd be happy to discuss it further if it wasn't fully explained.

 

Deficit spending only appears to work because it has been helped by other factors, particularly the Chinese willingness to sacrifice their masses to produce cheap goods for the United States. Deficit spending does help the economy in the short-run, but I don't think there are many economists that will say it can be maintained. It weakens our currency, which will weaken our spending power abroad in all countries that don't artificially peg their currency to ours.

Bush has been a strong believer in deficit spending as opposed to raising taxes. We are now on the verge of paying for Bush's beliefs. The fact is, foreign countries now have a lot of control over the stability of the American economy. For most of them, it is in their best interests to keep the American economy healthy, but if they started to turn on us they could hurt us very badly with some economic warfare, and there isn't much we could do about it.

The Bush strategy is currently "spend to delay a crisis," but by increasing deficit spending it just makes the potential crisis bigger and bigger. The president who finally does the responsible thing by cutting the deficit spending will end up getting blamed for triggering the crisis, even though its been out-of-control spending over the past 7 years that built it up.

 

I think the key is that it is not sustainable. It might work in limited, short term instances. The problem is that politicians do not have the resolve to limit it to short term, one off events. It has become a bad habit with no thought to the long term consequences.

 

DiscussNow, using your Dad's credentials in such away is known as an 'appeal to authority'. It is a fallacy with regard to logic and is a mistake to base your opinion on an issue simply by taking the opinion of an authority figure - even if it is your father.

There are plenty of other economic professors with the equivalent credentials of your father who completely disagree with him and take the opposite argument.

http://en.wikipedia.org/wiki/Appeal_to_authority

 

Personally I love when politicians talk about recessions, I'm currently 19 year old and may just be lucky and arrogant but when "recessions" have happened in my life time it simply means the stock market is crashing briefly, which is when I invest all of my money, then wait for our economy to be in "good shape" which means that something bad is about to happen so I sell.