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You can't spend your way out of a recession

You can't spend your way out of a recession


  • Total voters
    70
Completely disagree. In fact, spending is the ONLY way to get out of a recession. A recession is pretty much defined by the lack of spending.
 
Completely disagree. In fact, spending is the ONLY way to get out of a recession. A recession is pretty much defined by the lack of spending.

I don't know about only. The market in theory should figured itself out and end a recession. It just is going to take a long, long time.

But anyone who says you can't merely needs to look at China right now to see they are wrong.
 
I don't know about only. The market in theory should figured itself out and end a recession. It just is going to take a long, long time.

Even when the market figures it out on its own, it does so by spending more money. Government spending can end the recession faster. It's absolute madness for the government to tighten its belt during a recession, as that deprives the economy of public spending when private spending has already ground to a halt. The government needs to spend MORE during a recession.
 
Truthfully it depends on the reason behind the recession, how much saving the country has that is experiencing the recession and a few other issues

A country that is in a recession that has very little saving, or is deeply in debt then spending your way out of a recession is futile as the recession will just reappear when the country can no longer borrow money

If the country has a high savings rate then yes, it can spend its way out of a recession
 
Somebody change my vote to Disagree, my bad.

Look, recessions are the result of a lack of money. If consumers dont spend, somebody has to fill the gap until the market equilibrium of demand/supply comes back. This can be a controversial question for many reasons. Some people would disagree with me, and in some respects i agree with there oppositions, but when it falls down to it a government needs to draw a line on where spending and borrowing starts and where it finishes in a recession. Governments, especially big ones, tend to forget to draw the line where it ends, but never forget to draw the line where it starts.
 
Are you talking exclusively about government spending here, or spending in general?
 
As for consumers; just be careful you can cover your arse when you buy things or borrow things. If we do that collectively, we can avoid recessions altogether:)
 
Are you talking exclusively about government spending here, or spending in general?

Both. But primarily government. Some users here think that government spending cannot end a recession.

I present China right now as evidence they are wrong.
 
Both. But primarily government. Some users here think that government spending cannot end a recession.

I present China right now as evidence they are wrong.

What kind of government spending, specifically, do you think can end a recession?
 
What kind of government spending, specifically, do you think can end a recession?

Virtually ANY government spending will help the economy in the short term, as long as it gets money into the economy quickly. But the most effective things IMO are increasing/lengthening unemployment benefits, providing direct assistance to state governments, and ready-to-go infrastructure improvements.
 
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Virtually ANY government spending will help the economy in the short term, as long as it gets money into the economy quickly.

Even welfare spending? Paying people to be less productive will help the economy?
 
Even welfare spending? Paying people to be less productive will help the economy?

Absolutely. Welfare recipients spend money on consumer goods and services too. And when we have double-digit unemployment, I wouldn't worry too much about people being less productive. There are plenty of people who would love to work who can't find a job.
 
Absolutely. Welfare recipients spend money on consumer goods and services too.

Hm. So if it's just a matter of getting money to people, wouldn't tax cuts be more effective, in that people would be able to actually choose what their money is being spent on?
 
Both. But primarily government. Some users here think that government spending cannot end a recession.

I present China right now as evidence they are wrong.

China is also a phony economy right now. It won't be too long until they crash. Until time can prove either of us right/wrong.
 
Hm. So if it's just a matter of getting money to people, wouldn't tax cuts be more effective, in that people would be able to actually choose what their money is being spent on?

Both tax cuts AND government spending are effective at stimulating the economy in the short term. Which is more effective depends on who is getting the money and the circumstances of the recession.
 
What kind of government spending, specifically, do you think can end a recession?

That depends on the recession. A recession caused by a credit crisis would indicate that money needs to be first spent in shoring up the financial sources of credit and compensating for the decline in money velocity and MPS.

A recession caused by a steep decline in a specific industrial area would indicate spending in that area.

In some ways, the idea of trickle down is valid as we saw with Reagan's expansion of the military which caused large corporate profits in the defense industry. That in turn caused the defense contractors to expand their own production causing suppliers to expand. And so on and so forth. As more workers are hired, more money flows into the economy through their spending of wages. Eventually the MPS, if high, takes over.

Credit crisis are some of the worst as they hit the very essence of what drives modern economies. Like it or not, modern economies are largely built upon houses of cards. Remove credit and much of that house falls to pieces. Only a relative few large corporations these days don't rely upon financing. And how many people do you know that bought their house without financing? Hell, most people can't even do that with a car.
 
China is also a phony economy right now. It won't be too long until they crash. Until time can prove either of us right/wrong.

Your point isn't valid. Whether or not they crash is irrelevant. China is showing you can stimulate your economy with government financing. Their failure to do it properly does not invalidate my argument. And China isn't a phony economy. Unstable yes, but not phony.

And people who claim that government spending cannot build an economy should visit South Korea.
 
Completely disagree. In fact, spending is the ONLY way to get out of a recession. A recession is pretty much defined by the lack of spending.

If that were the answer, then we would already be out of this recession, rather than looking at another big decline in the second half of 2010.
 
Your point isn't valid. Whether or not they crash is irrelevant. China is showing you can stimulate your economy with government financing. Their failure to do it properly does not invalidate my argument. And China isn't a phony economy. Unstable yes, but not phony.

And people who claim that government spending cannot build an economy should visit South Korea.

It can get you out of a recession, but government spending will just lead to another bubble. In this sense, you're not really spending your way out of a recession. You're just delaying the inevitable.
 
The government cannot spend the broader economy out of a recession. A recession ends when the broader economy starts to grow again. However, the government can spend the economy out of a deeper recession than it otherwise would have been. The problem though is that when the government spends money as economic stimulus it:

1. Is usually slow to get stimulus out into the broader economy.

2. Is usually inefficient in how it tries to stimulate the economy because of all the political considerations that go into how the money is allocated and spent.
 
If that were the answer, then we would already be out of this recession,

Huh? From an economic perspective, we ARE already out of the recession. The economy grew at its fastest pace in several years in the second half of 2009.

apdst said:
rather than looking at another big decline in the second half of 2010.

I see. And what crystal ball did you use to predict the state of the economy in the second half of 2010? Not even the best investors in the world can do that. If they could, there would be some trillionaires.
 
It can get you out of a recession, but government spending will just lead to another bubble. In this sense, you're not really spending your way out of a recession. You're just delaying the inevitable.

I think that's a negative way of looking at it; it presumes that the bust, rather than the boom, is the natural state of affairs. I think it's more accurate to say that by spending more and taxing less during a recession, you're smoothing out the economic cycle.
 
Spending what one has to get out a recession is one thing. but spending what you don't have, is another matter all together. Just printing more money solves nothing.
 
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