Cutting the deficit leads to recessions
- Thread starter DT4K
- Start date
didn't read the article yet, but I did study a little about Keynesian economic theory back in FDR's time...
Basically if the economy is good, you raise taxes and decrease government spending, and when the economy starts to go bad you lower taxes and increase spending. This way the economy never really gets too bad, since we saved up taxes during the good time. BUT, if we don't tax during good times (ie the 90s boom) then the economy soars, and is immediately followed by a sharp recession that is just as intense as the economic boom. And, its hard to get out of.
Basically if the economy is good, you raise taxes and decrease government spending, and when the economy starts to go bad you lower taxes and increase spending. This way the economy never really gets too bad, since we saved up taxes during the good time. BUT, if we don't tax during good times (ie the 90s boom) then the economy soars, and is immediately followed by a sharp recession that is just as intense as the economic boom. And, its hard to get out of.
Hmm... well after looking at the article I don't really agree with this guy... you have to have a balance of spending (investing in the economy) when times are tough, and taxing and reduced spending during good times...
If you don't, then yeah you'll get a nice soaring economy, for a time, but then it'll receed to make up for it. I'd much rather have a stable economy that was never really really great at any point, but then never really receeded either.
If you don't, then yeah you'll get a nice soaring economy, for a time, but then it'll receed to make up for it. I'd much rather have a stable economy that was never really really great at any point, but then never really receeded either.
Of course recession follow cuts in deficits. Deficits are cut in the good time and recession have to occur after a booming economy.
if you give Joe Millionaire, not one but TWO tax cuts in a row, well generally rich ppl already have a very low propensity to spend, if the tax cut had been just for the middle class then that would be better, as paying interest alone on $7t debt hinders future govt spending.
consumer debt (average joe's credit card) hit a record high of $2 trillion, on top of $7 trillion in national debt, 1/2 of which is held by foreigners. we'll see who owns this country soon enough.
consumer debt (average joe's credit card) hit a record high of $2 trillion, on top of $7 trillion in national debt, 1/2 of which is held by foreigners. we'll see who owns this country soon enough.
- Jan 21, 2002
- 6,944
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This is another topic, but cutting taxes for the rich is a good thing. They are the one's who pay the vast majority of the taxes and they are the ones who create jobs.
Rich people have a very low propensity to spend?
That is not true.
You are off a little on your 1/2 figure. It is actually 22% of the national debt that is owned by foreigners.
This is an outright lie and in order to prove it, I want to you look at what happened in Canada between 1991 and 2004. In 1991-2 only Italy was worse than Canada economy wise. The goverment was running deficits to the order of 8% of GDP! Between 93-96 the finance minister agressively cut the deficit and started repaying the debt. By the late 90s, there were surpluses of ~1% and the economy was booming. In fact, in 2001-2002 Canada was outperforming all the G7 nations. It took SARS, Madcow and to slow the economy down last year to 2%, but this year its expected to be at least 4% (assuming no repeat of last year's disasters).
I am sure you're familiar with Counterexample. You can see now why the guy is lying.
I've always though that keeping the cost of durable goods low would always be more effective at helping the economy get ahead. If you think about how much you spend on things like gas and food items(core), they can have a volumnous effect on how much extra money you can use to buy non-core items. The disposable income mind you. If you look at the trend over the last two years, and why the tax cuts have been unsucessful for the most part you can see the correlation. Gas prices are again heading into record levels. Bush is "concerned" about pricing rising above $2 a gallon. hmmmmm this would be a good time for leadership here! In effect taking more and more out of your disposable income. Contrast that with the ~70% price increase for natural gas in many parts of the US, then the tax cuts did little more than to pay off the utility bill and fill your gas tank. Not giving you much more money in both the shoert term and the long term, to add to your disposable income. That was already something that you had to do though, since you can't get to work without gas. You certainly have to pay your utilities also. As example where I'm living there have been two price increases in the past year. The first one in fact was horrendus, with some services costing you double or more. Instead of cutting taxes, they should focus on going after the largest monopoly in the US, the oil corporations and price fixing. Also look at the gouging that has been going on. The US gets most of its oil from inside the US and very little from OPEC, so why does OPEC have so much control over the gas prices we see?
CaptnKirk
Lifer
- Jul 25, 2002
- 10,053
- 0
- 71
The falacy in the 'Tax Cuts to the Rich Creates Jobs', is that the rich are tightwads and cheepskates.
Without exception, each and every person that I have known that I would consider to be wealthy was
in fact a scheming and self serving money hoarder. Talk a big line and let someone else pay for things,
or expect that they would get something of value for free because their ego made them think that they
were indispensable and important enough that they deserved even more things without them paying.
Give the tax cut to them, they just pocket it and continue hoarding the extra money to make themselve more.
Now if the companies that they own were to be given a tax gredit based on incentives, they might allow their
company to hire some workers in a federally funded, tax incremental way, providing that they themselves can
benefit even more from the program, if their company can't spend the extra - say $ 20,000 per employee per year,
and if the Government offset for 5 employees who's wages would total $ 100,000, plus benefits such as healthcare
would not place at least $ 50,000 into the company while providing additional tax breaks to the company that exceed
the total wages paid and the cost of services provided, they won't do it, as there is not enough additional profit.
Sorry, Bubba - thats the facts when dealing with most of the wealthy, they didn't get wealthy from spending,
only from passing the cost to someone else while they packeted all that they could while being cheap.
Money spent is only for their own their own gratification and egotistical satisfaction.
How many 'Rich' does he know ? you might ask yourself.
The answer to that is over a couple of hundred,
not everyone of them, but a bunch. (200 to 300 typically)
Without exception, each and every person that I have known that I would consider to be wealthy was
in fact a scheming and self serving money hoarder. Talk a big line and let someone else pay for things,
or expect that they would get something of value for free because their ego made them think that they
were indispensable and important enough that they deserved even more things without them paying.
Give the tax cut to them, they just pocket it and continue hoarding the extra money to make themselve more.
Now if the companies that they own were to be given a tax gredit based on incentives, they might allow their
company to hire some workers in a federally funded, tax incremental way, providing that they themselves can
benefit even more from the program, if their company can't spend the extra - say $ 20,000 per employee per year,
and if the Government offset for 5 employees who's wages would total $ 100,000, plus benefits such as healthcare
would not place at least $ 50,000 into the company while providing additional tax breaks to the company that exceed
the total wages paid and the cost of services provided, they won't do it, as there is not enough additional profit.
Sorry, Bubba - thats the facts when dealing with most of the wealthy, they didn't get wealthy from spending,
only from passing the cost to someone else while they packeted all that they could while being cheap.
Money spent is only for their own their own gratification and egotistical satisfaction.
How many 'Rich' does he know ? you might ask yourself.
The answer to that is over a couple of hundred,
not everyone of them, but a bunch. (200 to 300 typically)
but if you combine tax-cuts for the supply side with inflation-threat then you get the rich who will NEED to invest in order to hold their money.
i think the bush plan is absolutely amazing!
It started before the bubble and kept going after the bubble burst.
here is a bit of data
Canada
GDP (% real change pa)
5.39
4.53
1.50
3.37
USA
GDP (% real change pa)
4.11
3.75
0.25
2.45
this is 1999-2002.
As you can see, cutting deficits and debt most certainly did not lead to a recesion.
Invariably, the only time you are going to cut into the deficit is when the economy is doing really really well, not surprising that such a period is followed by a recession now is it.
sandorski
No Lifer
- Oct 10, 1999
- 70,808
- 6,362
- 126
That article is oversimplistic BS. It has nothing to do with Deficits/NoDeficits and has everything to do with pumping money into the Economy, which surprise surprise is a stimulus. That said, yes, when a government seeks to Balance the Budget or eliminate a Deficit, there is a period of decreased Economic Activity as the Economy adjusts to Decreased Government spending.
The Longer Term result though is a much better Economy. Though there is more than a Finite amount of $s in the Economy, there is not an Infinite amount at any given time. Certainly the Government can increase the Amount at any time, it must weigh the risk of adding more against the benefit of adding more. Add too much and the Value of the $ tumbles negating the Benefit of more. How does this pertain to Deficits? If the Government is running Deficits, it has to borrow from the Pool of available $s, the same Pool that Private Enterprise and Consumers borrow from. If the Government takes too much from the Pool, Private Enterprise and Consumers have less available for them to borrow. As the Pool of available $s shrinks, Interest Rates increase, simple Supply and Demand.
Since the Fed controls the Interest Rate, can't they keep Interest Rates low? Yes and No. The Fed only controls the Interest Rate that Financial Institutions pay for borrowing from the Fed. Interest Rates for Private Enterprise and Consumers are always higher and, unlike the Government, Financial Institutes can not Risk borrowing as freely as the Government, they need to make a Profit and not overextend themselves. This causes the Pool of $s to be increasing more expensive for Private Enterprise and Consumers due to Governments running Deficits. As borrowing for Private Enterprise and Consumers increases, their willingness to borrow/spend decreases having a negative effect on the Economy.
Deficits are Government Interference in the Free Market System! As Governments compete for the Pool of $s, they impede Private Enterprise and Consumers ability to Borrow/Spend. This is why endless Deficits are damaging and why Canada's Economy has performed so well for so long even though traditionally a US Recession meant a Canadian Recession delayed by a few months. That didn't happen this last time around. Growth slowed, but the Economy continued to grow.
The Longer Term result though is a much better Economy. Though there is more than a Finite amount of $s in the Economy, there is not an Infinite amount at any given time. Certainly the Government can increase the Amount at any time, it must weigh the risk of adding more against the benefit of adding more. Add too much and the Value of the $ tumbles negating the Benefit of more. How does this pertain to Deficits? If the Government is running Deficits, it has to borrow from the Pool of available $s, the same Pool that Private Enterprise and Consumers borrow from. If the Government takes too much from the Pool, Private Enterprise and Consumers have less available for them to borrow. As the Pool of available $s shrinks, Interest Rates increase, simple Supply and Demand.
Since the Fed controls the Interest Rate, can't they keep Interest Rates low? Yes and No. The Fed only controls the Interest Rate that Financial Institutions pay for borrowing from the Fed. Interest Rates for Private Enterprise and Consumers are always higher and, unlike the Government, Financial Institutes can not Risk borrowing as freely as the Government, they need to make a Profit and not overextend themselves. This causes the Pool of $s to be increasing more expensive for Private Enterprise and Consumers due to Governments running Deficits. As borrowing for Private Enterprise and Consumers increases, their willingness to borrow/spend decreases having a negative effect on the Economy.
Deficits are Government Interference in the Free Market System! As Governments compete for the Pool of $s, they impede Private Enterprise and Consumers ability to Borrow/Spend. This is why endless Deficits are damaging and why Canada's Economy has performed so well for so long even though traditionally a US Recession meant a Canadian Recession delayed by a few months. That didn't happen this last time around. Growth slowed, but the Economy continued to grow.
So basically he is saying the economy cannot sustain itself without government borrowing money and pumping it into the economy. I wanna see which "conservatives" on this board sign on to this idea.
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