Keynesian policies at work! Shrinking deficit

[PeshakJang]

:hmm: Grandpa, what brought us out of the great depression?
:awe: World War 2 did. The government spent billions of dollars to ramp up production of everything.
:hmm: Would that work in today's recession? We could do something useful like upgrade the electrical infrastructure until the economy is going again.
:awe: Nope, it won't work because the government is wasteful and building things never stimulates the economy.

Not really... the departure from the gold standard is generally believed to have done the most to bring the world out of the depression, and that happened well before the start of WWII. WWII significantly helped unemployment, and is considered the end of the great depression, but to say "WWII brought us out of it" is just wrong.

That, and the mentality during that time period was much different than today. People sacrificed and the government was kept reasonably small. People didn't look tot he government for hand-outs and free services like they do today. Comparing the governments of the WWII era and of today, as you are doing, is not going to win you any arguments.

 

[daishi5]

:hmm: Grandpa, what brought us out of the great depression?
:awe: World War 2 did. The government spent billions of dollars to ramp up production of everything.
:hmm: Would that work in today's recession? We could do something useful like upgrade the electrical infrastructure until the economy is going again.
:awe: Nope, it won't work because the government is wasteful and building things never stimulates the economy.

World war 2, we used those bombs to blow up the competitions infrastructure. Bombing someone else's factories is a great way to make your own factories more profitable. Also, from everything I have seen on world war 2, America's recovery from the GD was from an increase in total GDP, but at the same time, all the GDP increase was going to the war. Americans were actually being payed less real income, with rationing for the war the people had less, and made sacrifices. So, the big spending on the war may have raised GDP, but it did so while at the same time making the people poorer.

 

[blackangst1]

What's the difference between these two?

1. Stimulating the economy by borrowing money to start and fight a war.
2. Stimulating the economy by borrowing money to build and improve infrastructure.

Nothing, assuming infrastructure gets built and improved. Maybe next year....

 

[Genx87]

:hmm: Grandpa, what brought us out of the great depression?
:awe: World War 2 did. The government spent billions of dollars to ramp up production of everything.
:hmm: Would that work in today's recession? We could do something useful like upgrade the electrical infrastructure until the economy is going again.
:awe: Nope, it won't work because the government is wasteful and building things never stimulates the economy.

Pent up demand fueled the country post WWII. During the war people had money but couldnt buy a lot of consumer items due to rationing for the war effort. Also lets not forget we employed about 12-15 million men in the armed forces. Today if we were to attempt something similar our armed forces would be 30 million standing.

Anyways the war was unsustainable and we came out of the war the only major power to have an intact infrastructure and industrial base. It isnt as simple as saying we spent the equivalent of 3 trillion dollars in 4 years and thatis why we finally recovered from the GD 15 years after it started.

 

[StageLeft]

I had somehow never considered that after WWII the US was the only major power without a beaten down infrastructure but it certainly had to have helped its post-war dominance. I think we need another European war. Bring China and Japan into it, too; cull the compeition. Actually this time who really cares what Russia does.

 

[Genx87]

I had somehow never considered that after WWII the US was the only major power without a beaten down infrastructure but it certainly had to have helped its post-war dominance. I think we need another European war. Bring China and Japan into it, too; cull the compeition. Actually this time who really cares what Russia does.

I have heard rumblings China and Russia fighting over sparsly populated Siberia for oil and resources is a real possibility. With India and China set to become super power status in the next 30 years. I dont see how those two with a common border dont ignite at least one major war.

 

[Fern]

http://www.salon.com/technology/how...3/the_incredible_shrinking_deficit/index.html



The stimulus worked! How about them apples?

I'm actually a moderate. I don't think you grasp economics, what part of spending money to make money don't you understand? Obama's stimulus package worked! The Deficit is shrinking.

Increasing the national debt doesn't matter when:
1) You're in a recession
2) Your nominal GDP is expanding relative to spending (it is)
3) The government is investing in public goods (infastructure, education,healthcare)

Well, you and I are reading this article quite differently.

Looks to me like they are talking about projections, or their estimates.

So they spent less money on TARP than they originally estimated and jump to the conclusion this means the Stim package was a success?

Maybe it just means their estimates were wrong (too conservative)?

Besides, it's a bit early to tell how the fiscal 2010 year is actually going to end up.

BTW: As far as the stimulous goes, it want to attribute the estimate of $300 B less in debt to the stimulous you need demonstrate how the stimulous itself is responsible for that. You'd also need to demonstrate how the stimulous was a 'good bang for the buck'. Any fool with $800 B can stimulate the economy unless they pile the money up burn it. You could just hand it out on the streets, it's gonna get spent.

Fern

 

[Fern]

What's the difference between these two?

1. Stimulating the economy by borrowing money to start and fight a war.
2. Stimulating the economy by borrowing money to build and improve infrastructure.

Number 1 actually happened (wars), and number 2 didn't?

There was damn little infrastructure in the stimulous, even those on left like Chris Matthews complain about that. Of that we did get, it was 'shovel ready' projects which mostly means the states were going to do it anyway it's just now they used fed funds instead of going further into debt.

E.g., North Carolina used fed funds for their projects they were going to do anyway and diverted those state funds elsewhere to shore up our state budget. This is widely known here in NC.

Fern

 

[Throckmorton]

World war 2, we used those bombs to blow up the competitions infrastructure. Bombing someone else's factories is a great way to make your own factories more profitable. Also, from everything I have seen on world war 2, America's recovery from the GD was from an increase in total GDP, but at the same time, all the GDP increase was going to the war. Americans were actually being payed less real income, with rationing for the war the people had less, and made sacrifices. So, the big spending on the war may have raised GDP, but it did so while at the same time making the people poorer.

Where does money go when you spend it on war? It doesn't get burned or flushed down a toilet... it goes to the personnel and the people building equipment.

 

[Throckmorton]

Number 1 actually happened (wars), and number 2 didn't?

There was damn little infrastructure in the stimulous, even those on left like Chris Matthews complain about that. Of that we did get, it was 'shovel ready' projects which mostly means the states were going to do it anyway it's just now they used fed funds instead of going further into debt.

E.g., North Carolina used fed funds for their projects they were going to do anyway and diverted those state funds elsewhere to shore up our state budget. This is widely known here in NC.

Fern

If the state and local governments use the federal money for projects they were "going to do anyway" and spend the original money to pay other peoples' salaries, how is that NOT the same thing as the stimulus directly saving jobs? 1+1=2, no matter how you do the math. This whole "aha but technically blah blah blah" stuff the right is pulling is just intentionally misleading.

 

[Slew Foot]

What's the difference between these two?

1. Stimulating the economy by borrowing money to start and fight a war.
2. Stimulating the economy by borrowing money to build and improve infrastructure.

3. Stimulating the economy by borrowing money to bailout bankers and pay people to not work for 2 years.

 

[Throckmorton]

3. Stimulating the economy by borrowing money to bailout bankers and pay people to not work for 2 years.

I think you have stimulus and bailout confused...

 

[sandorski]

Less government spending, less taxes, more money in business/consumers pockets so they can stimulate the economy by having more money to spend in the actual economy, instead of magically producing more debt instead. The loony left doesn't like that because the welfare state, and entitlement crowd still don't have money to spend, and less people are indebted to the state.

During periods of Economic Growth, you are Correct. During times such as these, you are Incorrect.

 

[sandorski]

Keynesian economics also call for tax cuts during economic downturn. GWB was more a Keynesian than Obama is.

fail

 

[woolfe9999]

No, not confused at all, I'm just waiting for you to give Bush props for his stimulus package like you do Obama.

The "stimulus package" was not a Bush creation. You have your terms mixed up. But since you want to talk about TARP and who gets credit, let's do that. Of course Mr. Bush deserves credit for starting that program, because it was absolutely necessary. Obama, who voted for and supported it in the Senate, and more importantly, chose to continue the program after taking office rather than canning it which many wanted him to do, also deserves credit. And he particularly deserves credit because the program was and is incredibly unpopular politically. It cost Obama in polls and approval ratings to continue that program but he did it anyway because it was necessary. Bush, on the other hand, while he deserves credit for doing the necessary thing, had absolutely nothing to lose politically for doing it.

- wolf

 

[nonlnear]

Don't overstate the political cost of TARP to Obama. Its timing was such that even though he had a hand in its expedited renewal, it couldn't hurt his Presidential run. Most of the popular resentment will be long passed by the time Obama contemplates another campaign. In the meantime, it has guaranteed him something much more politically valuable than public opinion: the approval of the banks and their cronies. The value of this (mostly) silent force in American politics can not be understated.

For all the media buzz about approval ratings, they don't mean jack shit until it's time to wind up for 2012. It's just something for the media to fill airtime with in lieu of substantial reporting. What do you talk about when you don't have investigative stories digging up real content? Why don't we lead with the results of 5000 random phone calls to people who for the most part don't have a clue about anything? Brilliant!

 

[Fern]

If the state and local governments use the federal money for projects they were "going to do anyway" and spend the original money to pay other peoples' salaries, how is that NOT the same thing as the stimulus directly saving jobs? 1+1=2, no matter how you do the math. This whole "aha but technically blah blah blah" stuff the right is pulling is just intentionally misleading.

There's no "techincally" etc to it. We're talking about infrastructure.

Before the stim was passed we heard an awful lot from the left about our decaying infrastructure, old bridges etc. Remember the partisanship when the I-35 bridge collasped?

So far other than repaving (whoop de do) not much, if any, infrastructure spending has been seen.

BTW: You're assuming the states would have laid these people off instead of going into more debt. Then there's the whole question of whether saving some gov jobs is all that worthy. It's the private sector that produces GDP, not the public. You're spending alot of money for a short term solution, it just delays the inevitable. To keep/support those state jobs you're gonna have to get the private sector going, there no way around it.

Fern

 

[Fern]

The "stimulus package" was not a Bush creation. You have your terms mixed up. But since you want to talk about TARP and who gets credit, let's do that.
-snip-
- wolf

I'm pretty sure Bush had a stimulous package passed in 2008. He may be referring to that.

Fern

 

[shira]

Ideally, but in practice a lot of stimulating the economy seems to be nothing more than trying to charge a battery via a solar cell and the light to charge that cell is from a light bulb drawing energy from the battery you're trying to charge. I always get a huge kick out of politicians talking about how some new job that is paid for with public funds will create a new tax payer. It's a monumental face palm.

One advantage to using tax dollars to fund jobs in a time of severe economic distress is that goods or services are produced, increasing GDP. That's a hell of a lot better than simply transferring welfare funds to help someone subsist and getting nothing in return.

Free markets are a good thing, but they're not all things. A fact that the far-right right always forgets.

 

[Fern]

One advantage to using tax dollars to fund jobs in a time of severe economic distress is that goods or services are produced, increasing GDP. That's a hell of a lot better than simply transferring welfare funds to help someone subsist and getting nothing in return.
-snip-

Agreed,

However, government jobs don't produce GDP. They absorb money from the private sector.

Fern

 

[Deeko]

Keynes had an idea for his day, but conservatives don't like any deficit spending.

Unfortunately, we cannot have currency without debt.

Ok...hold on a second. I stop reading the thread after this, so pardon me if this has been addressed.

Conservatives don't like any deficit spending?

Who are these conservatives?

Certainly not the ones in office. "Conservatives" have driven up gigantic deficits for decades. The "hero" of most conservatives was one of the biggest deficit spenders compared to the GDP of all time.

 

[woolfe9999]

Agreed,

However, government jobs don't produce GDP. They absorb money from the private sector.

Fern

How do they absorb money from the private sector when the government jobs are created with deficit spending rather than from tax dollars? Isn't that the idea of fiscal stimulus?

Moreover, when a government employee receives a paycheck, where is the government employee spending his or her money? That's also the idea of stimulus.

- wolf

 

[daishi5]

Where does money go when you spend it on war? It doesn't get burned or flushed down a toilet... it goes to the personnel and the people building equipment.

When you spend money on war, it goes to people who did not produce anything for other citizens to consume, so it increases the number of consumers without increasing the number of producers. In effect, it would decrease the real income of all the citizens who had jobs before the war, all other things held constant.

 

[daishi5]

How do they absorb money from the private sector when the government jobs are created with deficit spending rather than from tax dollars? Isn't that the idea of fiscal stimulus?

Moreover, when a government employee receives a paycheck, where is the government employee spending his or her money? That's also the idea of stimulus.

- wolf

There are two forms of deficit spending, borrowing and creating money out of thin air. When they borrow money, through bonds for example, other parties buy the bonds, which removes the money they spent on the bond from the private sector. When they create money from thin air, it is normally inflationary, which reduces the real purchasing power of the private sector. Creating money out of thin air lowers the real value of the money the private sector holds without affecting its nominal value, and is a hidden method of taking their money.

 

[Fern]

How do they absorb money from the private sector when the government jobs are created with deficit spending rather than from tax dollars? Isn't that the idea of fiscal stimulus?

Moreover, when a government employee receives a paycheck, where is the government employee spending his or her money? That's also the idea of stimulus.

- wolf

In terms of what the gov employee does with his/her money, there is no difference between them and a private sector employee so I see that as irrelevent.

Eventually gov sector jobs must be paid for with taxes, even if it's debt now.

My other answer was mentioned above: Gov borrowing sucks up funds otherwise available for the private sector.

Fern