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Thread: What makes people think cuts in government spending boost the economy?

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    What makes people think cuts in government spending boost the economy?

    Question for discussion. Where has this idea come from?
    C+I+G+(E-I)
    How does cutting G when the economy is experiencing slow growth help anything?
    For example, here is Australia:
    Australia enters the deflation league of sorry nations | Bill Mitchell – billy blog
    The smug Australian government – conservative to the core, dishonest on a daily basis, running a daily scare campaign that all that matters is the fiscal deficit and how our AAA rating from the (corrupt) rating agencies will be lost if we don’t record a fiscal surplus as soon as possible. It fails to mention that we have around 15 per cent (at least) of our willing labour resources not being utilised at present. It fails to mention that inequality and poverty is on the rise. And now, the Australian Bureau of Statistics has told us that this is a government that has finally plunged the nation into a deflationary spiral.
    australia-gdp-growth.jpg
    Pathetic.

    Meanwhile, in Spain:
    Spanish government discretionary fiscal deficit rises and real GDP growth returns | Bill Mitchell – billy blog
    On March 31, 2016, the Instituto Nacional de Estadística (Spain’s National Statistics Institute) published the latest quarterly non-financial accounts for the institutional sectors and the data for the – General Government Sector – revealed a 56,608 million euro deficit for Spain’s government sector.
    That is equivalent to 5.2 per cent of GDP, much larger than the 4.2 per cent that the last deal with the European Commission stipulated (as above).
    As El País reported:
    Spain’s 2015 public deficit came in at 5.2% of gross domestic product (GDP) … The €56.6 billion shortfall means that Spain has exceeded its target of 4.2% of GDP agreed with the European Commission by around €10 billion …
    Still, 2015 was also a year in which economic growth surpassed all forecasts and tax revenues jumped significantly.

    The article doesn’t draw out the obvious causality – higher fiscal deficits courtesy of higher social spending in the regions, higher expenditure on health services, and some large scale public infrastructure projects have driven the higher growth.
    Win-Win.
    Why call the rise in the deficit above the fiscal rules as “exceeding gloomiest forecasts” just goes to show the bias in the reporting.
    I don't even need to discuss the failure of Austerity and the horrific actions of the IMF.
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    Re: What makes people think cuts in government spending boost the economy?

    And for the record: Tax cuts for individuals who spend most of their income will indeed lead to a boost in consumption, which does boost the economy. But this will contribute to a larger deficit, which isn't a bad thing.
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    Re: What makes people think cuts in government spending boost the economy?

    Japan is an example of what happens when an economy desperately needs sales and people to stop saving.
    When easing gets hard | The Economist
    Stupid stuff like this...
    +
    Since introducing an interest rate of -0.1% on excess bank reserves..
    THIS ISN'T GOING TO MAKE BANKS LEND!
    Japan helps show the failure of relying on Monetary Policy.
    Worse, Japan is once again mired in deflation.
    Not so easy to get Inflation..
    All in all, the power of the BoJ to overcome structural imbalances in Japan’s economy seems to be diminishing. Large firms have continued to add to their hoards of cash. They now hold close to ¥250 trillion ($2.2 trillion) in cash, a massive 50% of GDP. Capital investment by firms is 7% below its level eight years ago and the gap between corporate cashflow and investment is at record levels, notes Richard Katz of the Oriental Economist, a newsletter.

    Nor have firms raised wages much in spite of a tight job market. Pay rises in the order of 5-10% this year are required to boost household consumption, economists argue. Instead, workers at large firms are on track to receive a lower pay rise—an average hike in overall base pay and seniority-related pay of 2.19%—than they did in the previous two years.
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    Re: What makes people think cuts in government spending boost the economy?

    Quote Originally Posted by David_N View Post
    Question for discussion. Where has this idea come from?
    C+I+G+(E-I)
    How does cutting G when the economy is experiencing slow growth help anything?
    For example, here is Australia:
    Australia enters the deflation league of sorry nations | Bill Mitchell – billy blog

    australia-gdp-growth.jpg
    Pathetic.

    Meanwhile, in Spain:
    Spanish government discretionary fiscal deficit rises and real GDP growth returns | Bill Mitchell – billy blog

    I don't even need to discuss the failure of Austerity and the horrific actions of the IMF.
    I don't think anyone actually ever said that cuts in spending boost the economy but we do need to get our financial house in order and not run up debt that becomes an ever larger percentage of the spending we have. We're just lucky right now that interest rates are low. Austerity is a big word. If we keep our financial house in order true austerity won't be needed. Just because we cut spending a small degree doesn't really mean we are practicing austerity. Austerity was forced on Greece because they had no other choice. They had already gone past the point where their bubble burst. If they had been fiscally responsible in the first place they wouldn't have needed austerity and don't go giving me any crap about how that situation is different.

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    Re: What makes people think cuts in government spending boost the economy?

    Quote Originally Posted by Moderate Right View Post
    I don't think anyone actually ever said that cuts in spending boost the economy but we do need to get our financial house in order and not run up debt that becomes an ever larger portion of the spending we have. We're just lucky right now that interest rates are low. Austerity is a big word. If we keep our financial house in order true austerity won't be needed. Just because we cut spending a small degree doesn't really mean we are practicing austerity. Austerity was forced on Greece because they had no other choice. They had already gone past the point where their bubble burst. If they had been fiscally responsible in the first place they wouldn't have needed austerity and don't go giving me any crap about how that situation is different.
    I unblocked you to respond to this.
    I don't think anyone actually ever said that cuts in spending boost the economy
    Really? Good to know that you agree.
    but we do need to get our financial house
    The us government, as a currency issuer, is not like a household. Household debt is a very real burden, government debt? Not so much.
    not run up debt that becomes an ever larger portion of the spending we have.
    We control how much interest we give to individuals who hold bonds, and it's a political choice to slash other spending. No real constraint.
    We're just lucky right now that interest rates are low
    The fed controls interest rates.
    Austerity is a big word.
    No, Pseudopseudohypoparathyroidism is a big word. Austerity is a disease.
    If we keep our financial house in order true austerity won't be needed.
    Go here: http://www.debatepolitics.com/govern...-security.html
    Just because we cut spending a small degree doesn't really mean we are practicing austerity.
    Who said we're practicing austerity to the degree that other countries are?
    Austerity was forced on Greece because they had no other choice.
    Err, they could've abandoned the euro and moved to their own currency. Or the IMF could stop decimating Greece and other countries.
    If they had been fiscally responsible in the first place they wouldn't have needed austerity and don't go giving me any crap about how that situation is different.
    If they had never given up their ability to control their own currency, they'd be in a much better spot.
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    Re: What makes people think cuts in government spending boost the economy?

    Quote Originally Posted by David_N View Post
    Question for discussion. Where has this idea come from?
    C+I+G+(E-I)
    How does cutting G when the economy is experiencing slow growth help anything?
    For example, here is Australia:
    Australia enters the deflation league of sorry nations | Bill Mitchell – billy blog

    australia-gdp-growth.jpg
    Pathetic.

    Meanwhile, in Spain:
    Spanish government discretionary fiscal deficit rises and real GDP growth returns | Bill Mitchell – billy blog

    I don't even need to discuss the failure of Austerity and the horrific actions of the IMF.
    Spain already has entire ghost towns with infrustructure and a few airports that were built during the height of Spains property bubble.

    All empty, never used.

    Its a example of the Keynesian " build it and they will come '' mentallity run amok.

    Spain's Ciudad Real airport sold at auction for €10,000 - BBC News
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    Re: What makes people think cuts in government spending boost the economy?

    Quote Originally Posted by Fenton View Post
    Spain already has entire ghost towns with infrustructure and a few airports that were built during the height of Spains property bubble.

    All empty, never used.

    Its a example of the Keynesian " build it and they will come '' mentallity run amok.

    Spain's Ciudad Real airport sold at auction for €10,000 - BBC News
    What does this have to do with the fact that Spain's Gdp growth has returned thanks to an increase in its fiscal deficit? And you can't deny that those projects that are now abandoned did indeed lead to thousands employed, etc, etc.. Now, what makes you think Keynesians believe anything of what you claim? Than again, you argue from ideology and simply scream TEXAS TEXAS TEXAS.
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    Re: What makes people think cuts in government spending boost the economy?

    Quote Originally Posted by David_N View Post
    What does this have to do with the fact that Spain's Gdp growth has returned thanks to an increase in its fiscal deficit? And you can't deny that those projects that are now abandoned did indeed lead to thousands employed, etc, etc.. Now, what makes you think Keynesians believe anything of what you claim? Than again, you argue from ideology and simply scream TEXAS TEXAS TEXAS.
    You screamed Texas, 3 times, not me and I base my ideology on what works which is more than I can say for you.

    Yea its easy to increase GDP, just spend yourself into another Soverign debt crisis, just load the banks back up with worthless bonds, create more empty towns with unused infrastructure.

    Arbitrary spending "to increase aggregate demand " led to Spains ghost towns and airports, the last thing they need is more empty streets and apartment buildings.

    And GDP our of context is a piss poor way to judge the health of a economy. Even MMTers should understand that.
    " If no one among us is capable of governing himself, then who among us has the capacity to govern someone else ? "
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    Re: What makes people think cuts in government spending boost the economy?

    Quote Originally Posted by Fenton View Post
    You screamed Texas, 3 times, not me and I base my ideology on what works which is more than I can say for you.

    Yea its easy to increase GDP, just spend yourself into another Soverign debt crisis, just load the banks back up with worthless bonds, create more empty towns with unused infrastructure.

    Arbitrary spending "to increase aggregate demand " led to Spains ghost towns and airports, the last thing they need is more empty streets and apartment buildings.

    And GDP our of context is a piss poor way to judge the health of a economy. Even MMTers should understand that.
    You screamed Texas, 3 times, not me and I base my ideology on what works which is more than I can say for you.
    What works? Supply side economics doesn't work.
    Yea its easy to increase GDP, just spend yourself into another Soverign debt crisis, just load the banks back up with worthless bonds, create more empty towns with unused infrastructure.
    What debt crisis are we facing?
    What worthless bonds? There's a reason they're in demand.
    Nothing wrong with some empty towns..
    Arbitrary spending "to increase aggregate demand " led to Spains ghost towns and airports, the last thing they need is more empty streets and apartment buildings.
    So they focus on repairing existing infrastructure/other initiatives. Infrastructure spending isn't perfect, but you can't deny the benefits of those few ghost towns/airports for the workers and businesses providing the materials.
    And GDP our of context
    What's out of context?
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    Re: What makes people think cuts in government spending boost the economy?

    Quote Originally Posted by David_N View Post
    And for the record: Tax cuts for individuals who spend most of their income will indeed lead to a boost in consumption, which does boost the economy. But this will contribute to a larger deficit, which isn't a bad thing.
    Not necessarily, you could increase taxes on those with a lower propensity to consume to offset the tax decrease on those with a higher propensity to consume. The net tax "revenue" remains the same, but consumption would increase.

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