Does the Deficit Matter?

[LuciferSam]

It's not that black and white. Governments accumulate debt during downturns, that's expected. There are key questions like how much debt should be accumulated, for how long should government run deficits, and what should the money be spent on in order to get the best ROI. Another question to answer is how will the government unwind the debt after the economy recovers, and what interest will the government have to pay on the debt.

The interest on our national debt is currently running about 400 billion a year. By the time Obama's first term is over, it'll likely be pushing towards around 750 billion a year. The federal government only takes in about 2.4 trillion annually. (It is currently slated to spend over 4.2 trillion in 2011!)

Krugman says we need to deficit spend to get out of this, but really, we already are by a factor of two, and because we've been doing this for so long we're approaching a maximum limit, a point of no return where interest potentially outstrips revenue.

That's why a recovery by business, even a jobless one, with increased profitability, would be of benefit. More tax revenue for the government. Deficit reduced. That's the theory.

 

[30ashopper]

That's why a recovery by business, even a jobless one, with increased profitability, would be of benefit. More tax revenue for the government. Deficit reduced. That's the theory.

Sure, we'd all take any kind of recovery we can get right now right? Question is what will those businesses produce, and who will buy their products? We've just experienced a once in a century failure - a consumer and business credit bubble that popped. With 2/3rds of the economy driven by consumer spending, with consumers completely tapped out with no money to spend, loads of debt and no credit.... ? I don't have the answers, the future looks really bleak.

The federal government can help by getting consumers and businesses back on firmer financial footing... but hey, guess what, the Federal Government is broke and deep in debt too! We're all screwed!

 

[LuciferSam]

Sure, we'd all take any kind of recovery we can get right now right? Question is what will those businesses produce, and who will buy their products? We've just experienced a once in a century failure - a consumer and business credit bubble that popped. With 2/3rds of the economy driven by consumer spending, with consumers completely tapped out with no money to spend, loads of debt and no credit.... ? I don't have the answers, the future looks really bleak.

The federal government can help by getting consumers and businesses back on firmer financial footing... but hey, guess what, the Federal Government is broke and deep in debt too! We're all screwed!

We need to think positive. "We're all screwed except me", something like that. Not very inspirational , is it?

 

[idlewind]

We need to think positive. "We're all screwed except me", something like that. Not very inspirational , is it?

You are on the right track. The recovery starts with each one of us doing what we can. Saving a decent amount to provide capital resources for business, buying American if possible, voting for individuals who will support responsible government spending and reasonable taxes and lowering our expectations of what all governments will do for us and increasing our efforts in our communities to help others.

 

[GoodWitch58]

it seems to me (and economics is not my area) that we need to be producing something in this country...but what are we producing?

As Shopper says, it is a consumer driven economy, but almost all of what we buy comes from somewhere else...our manufacturing jobs will never come back the way they were post WWII IMO; so, who is working on producing innovative "stuff"?

We seem stuck in the last century mindset. It's as though we have not prepared for the global economy; have not prepared for the world to be a smaller place due to the instant communication;
and so have no vision of what we will look like in the next 50 years.

We don't have a clue where we are going; so, it doesn't matter which road we take...or, we don't have a clue where we're going, so we are stuck at the intersection unable to make a decision....

Rather ironic that while we stumble along, trying to regain something that has already passed us by, we are spending billions in money and precious young lives trying to build Iraq and Afghanistan into....what?

 

[beachFool]

it seems to me (and economics is not my area) that we need to be producing something in this country...but what are we producing?
QUOTE]

http://www.nytimes.com/2009/02/20/business/worldbusiness/20iht-wbmake.1.20332814.html

More than you think.

But manufacturing in the United States is not dead or even dying. It is moving upscale, following the biggest profits and becoming more efficient, just as Henry Ford did when he created the assembly line to make the Model T car.
The United States remains by far the world's leading manufacturer by value of goods produced. It hit a record $1.6 trillion in 2007 - nearly double the $811 billion of 1987. For every $1 of value produced in China factories, the United States generates $2.50.
So what is made in the U.S.A. these days?
The United States sold more than $200 billion worth of aircraft, missiles and space-related equipment in 2007, and $80 billion worth of autos and auto parts. Deere, best known for its bright green and yellow tractors, sold $16.5 billion worth of farming equipment last year, much of it to the rest of the world.

 

[Lynnie]

Reagan's alleged success was primarily due to actions of the Federal Reserve, whose chairman Paul Volker was a Carter appointee.

Yep. However, the fundamentals of what America wanted at that time was apparently less government. It could have been any Capitalist who won in 1980; it just happened to be Ronald Reagan. As the article points out, even Jimmy Carter (who is a very nice man) was not successful in working with Congress then......even Dems were tired of their ways.

 

[ugabuga]

The recovery starts with each one of us doing what we can. Saving a decent amount...

The Catch-22 is that if all Americans saved in a responsible manner, it would be bad for the overall economy.

The basic question seem to be
should we spend ourselves out of the bad economy?
or
should we save ourselves out of the bad economy?
??????

 

[GoodWitch58]

it seems to me (and economics is not my area) that we need to be producing something in this country...but what are we producing?
QUOTE]

http://www.nytimes.com/2009/02/20/business/worldbusiness/20iht-wbmake.1.20332814.html

More than you think.

But manufacturing in the United States is not dead or even dying. It is moving upscale, following the biggest profits and becoming more efficient, just as Henry Ford did when he created the assembly line to make the Model T car.
The United States remains by far the world's leading manufacturer by value of goods produced. It hit a record $1.6 trillion in 2007 - nearly double the $811 billion of 1987. For every $1 of value produced in China factories, the United States generates $2.50.
So what is made in the U.S.A. these days?
The United States sold more than $200 billion worth of aircraft, missiles and space-related equipment in 2007, and $80 billion worth of autos and auto parts. Deere, best known for its bright green and yellow tractors, sold $16.5 billion worth of farming equipment last year, much of it to the rest of the world.

Thanks, Buz. So, the things we are producing are those things that "regular" people don't buy often or at all...so, the perception is that we aren't making many things--because the masses don't buy them or see them...maybe.
And perhaps that accounts for the disconnect we often see between Americans and people from other countries. Those from outside the US see the Deere tractors and construction equipment coming from the US and see us as productive: we here in the US see the Kubota and have a different perception.

I still think that we need more Research and Development for those things that are more innovative...what do you think?

Interesting that much of what's in the list above has to do with military needs.

 

[Rita]

I still think that we need more Research and Development for those things that are more innovative...what do you think?

I wish we would jump on the opportunity for research and development of clean energy. Subsidize these areas to some extent. If subsidies and tax breaks can be obtained by oil companies why not for clean energy R & D? Maybe plants could be built in areas such as Louisiana where many have lost livelihoods due to the oil catastrophe. The workforce and need is there as well as other areas that have been hit hard, like Michigan.
Just support it and move it forward instead of letting other countries take the reins. Some of Denmark's windmill technology came from an American innovator years ago who couldn't get it supported here.
I would be interested in seeing where this might go: American Energy Innovation Council Unveils "Business Plan for America's Future"
Bill Gates' American Energy Innovation Council Unveils "Business Plan for America's Future" | Fast Company


Interesting that much of what's in the list above has to do with military needs.

This popped out at me also. It helps my state of Texas I guess but may also be looked at by some as a reason for staying in conflicts.

.