Does the Deficit Matter?

[ugabuga]

Paul Krugman & others says the way out of the down economy is for the Federal government to spend/spend/spend, putting $ in hands that will spend it again, etc., multiplying its power & stimulating the economy. The other point of view is that spending is already way out of control & we need to cut spending & eliminate budget deficits. This latter point of view seems to have the most resonance with voters at the moment. Krugman says picking the Hoover approach vs the FDR approach will make things worse & put us into an economic death spiral. I wish I knew enough about economics to make an informed decision. I'd welcome any insights you might have.

 

[Lynnie]

You have the Communist Approach, Socialist Approach and the Capitalist Approach, which is what Reagan did called The Supply Side Theory. This gives the individual iniative to produce since there is less government intervention.
After The Great Depression, Keynes was popular, but only for a short period - this is the one in which the Government controls basically everything - the belief is spend, spend, spend, tax, tax, tax. And, in the middle is the Monetary or Federal Reserve Policy, where the Fed controls growth by tightening and loosening credit to the member banks.

I like Reagan's method.

 

[Here4Good]

There is an excellent recap of Reaganomics here, by one of it's architects (and yet he shows very little bias, if you ask me):

Reaganomics, by William A. Niskanen: The Concise Encyclopedia of Economics | Library of Economics and Liberty

While that administration did wonders for the top tax rates, they also blew the lid off of defense spending - and really, what is that except stimulus for your contributors?

The fascinating thing, in the context of our current problems, is that the author says that there was no "Reagan Revolution": no major programs were cut, no agencies abolished - this was a policy of incremental changes, across the board.

It's also fascinating that the Democratic Congress, who really did not get along with Jimmy Carter, had already decided by the end of the Carter administration that tax cuts and deregulation were a good thing, so Reagan did not have to fight very hard to get those items rolling (in fact, they were already rolling when he took office).

 

[scooterbug44]

I think the deficit matters - because it is so out of control.

It's like charging something on a credit card - okay to do it once or occasionally when you are in a bind, but it starts to cripple you financially when you have a huge balance accruing interest.

 

[idlewind]

The spending of the 30's did not bring the county out of the depression, WWII did. Examine the economic indicators for the 30's to see for yourself. Government borrowing sucks money from the economy and makes it harder for small businesses to borrow the money needed to expand. No expansion=no new jobs.

 

[LuciferSam]

You have the Communist Approach, Socialist Approach and the Capitalist Approach, which is what Reagan did called The Supply Side Theory. This gives the individual iniative to produce since there is less government intervention.
After The Great Depression, Keynes was popular, but only for a short period - this is the one in which the Government controls basically everything - the belief is spend, spend, spend, tax, tax, tax. And, in the middle is the Monetary or Federal Reserve Policy, where the Fed controls growth by tightening and loosening credit to the member banks.

I like Reagan's method.

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

 

[LuciferSam]

The spending of the 30's did not bring the county out of the depression, WWII did. Examine the economic indicators for the 30's to see for yourself. Government borrowing sucks money from the economy and makes it harder for small businesses to borrow the money needed to expand. No expansion=no new jobs.

Yes it was the spending of the 40s, a large public works program known as WWII. Isn't it the case that our deficits were the largest in history at that time, as a percentage of GDP?

 

[idlewind]

Yes it was the spending of the 40s, a large public works program known as WWII. Isn't it the case that our deficits were the largest in history at that time, as a percentage of GDP?

The difference is that the WWII spending led to huge increases in manufacturing jobs in the core industries: steel, machinery, textiles, energy etc. etc. NAFTA and other trade agreements engineered by both poltical parties have gutted these industries and so the huge spending this time is not leading to an increase in industry which is where the bulk of the traditional blue-collar, decent wages and benefits jobs come from. Rather then suing Arizona Obama should work on killing the unfair trade agreements and level the playing field for our industry.

 

[LuciferSam]

The difference is that the WWII spending led to huge increases in manufacturing jobs in the core industries: steel, machinery, textiles, energy etc. etc. NAFTA and other trade agreements engineered by both poltical parties have gutted these industries and so the huge spending this time is not leading to an increase in industry which is where the bulk of the traditional blue-collar, decent wages and benefits jobs come from. Rather then suing Arizona Obama should work on killing the unfair trade agreements and level the playing field for our industry.

The need for blue collar jobs will continue to decline, because manufacturing keeps getting more and more automated. We could continue to have a jobless recovery, until industry changes enough to create a whole new category of jobs.

 

[30ashopper]

Paul Krugman & others says the way out of the down economy is for the Federal government to spend/spend/spend, putting $ in hands that will spend it again, etc., multiplying its power & stimulating the economy. The other point of view is that spending is already way out of control & we need to cut spending & eliminate budget deficits. This latter point of view seems to have the most resonance with voters at the moment. Krugman says picking the Hoover approach vs the FDR approach will make things worse & put us into an economic death spiral. I wish I knew enough about economics to make an informed decision. I'd welcome any insights you might have.

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.