politicomind

Much of the current concerns of our economy is the balancing of the budget.

Let me submit the backstory of the budget before we discuss.

In 1930 John Maynard Keynes produced a revolutionary perspective of the American government and the economy. Before Keynes's theory it was the practice of the US government to almost always balance the budget except in cases of war, at which time the government had to over spend to survive. Yet in peace time the government would insist on keeping a balanced budget. Yet, the depression occurred and no one exept Keynes had an answer to get out of the depression.

Keynes assessed that the government facing a decreased amount of tax revenue also then spent less, but of course this is what Keynes claimed was wrong. Rather than spend less, John Maynard claimed that the government should spend more, it should give money to the poor, pay for housing, help house the homeless, provide more healthcare, and even as a gimmick build up the military, all of which would create more jobs in the form of more food production, more housing repairs or building, or simply more bomb building and gun making. This stimulation to the economy would create an upward spiral of more money to industry, creates more jobs, which creates more tax revenue with creates more money to give to the poor, who will then stimulate industry, which creates jobs, which creates even more tax revenue. Okay. It's called the Keynesian model, and its about 96% effective. The only way its not effective is if the poor get the money and save if and don't spend it. But usually the poor are so poor they have to spend it to survive. This is precisely why food stamps are food stamps so that the person can't save the money.

Now let's bring this to today's economy. Today our government is allowed to overspend. Yet, its allowed to overspend in good times or bad times as it sees fit. Some economists say that overspenind in good times contributes to inflation as well as keeps the GDP growing. And other economists claim that if we stop overspending the GDP will slow down and lead to an eventual depression which we will have to spend our way out of anyway.

brewmenn

Sounds great in theory, but the problem is that eventually the bills come due. When times are good you need to pay back, so that you can over spend when times are bad.

agaglio

Get rid of the federal reserve system and we will find sweet equilibrium. If we destroyed the federal reserve system, there wouldn't be any depressions.

As Allen Greenspan said,

Iriemon

I think that is a little closer to what Keyenes argued. When times are good there should be a surplus, run deficits when times are bad.

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Matthew 5:9

Iriemon

Spending or overspending does not cause inflation. Overall inflation is caused by overexpansion of the money supply.

I have not heard many economist argue that if we stop overspending the GDP will decrease.

Iriemon

Because there weren't any depressions before the Fed? Au contraire.

agaglio

Depressions before the federal reserve system were caused by the creation and destruction of the Bank of the U.S. Once again, the government's fault. I'm not arguing that small recessions are impossible in a free market, I'm saying that in every major depression, the government is at fault.

P.S. what ta hell is your avatar?

128shot

Ludwig Von Mises predicted the depression around 1928 before Keynes even came along with his theory after the fact.


Murry N. Rothbard wrote a book on it, actually.


The book is here online (believe it or not, for free) at

http://www.mises.org/rothbard/agd.pdf

rathi

The Great Depression was not primarily caused by governmental issues. Several factors were involved, but the primary cause was the buying on margin and speculation in the stock market.

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He'd be right at home on some ancient battlefield, swinging an axe into somebody's face.

agaglio

Your statements are contradictory. The government caused the over speculation when the Federal Reserve System charged low interest rates. So ya, it was the governments fault.