Does government spending stimulate the economy or hurt it?
Does government spending stimulate the economy or hurt it?
Does government spending stimulate the economy or hurt it?
It hurts... and it doesn't even help the economy in the long run either. The money is so much for efficiently spent by the people, instead of feeding it to an endless money dump a.k.a. the federal government.
Does government spending stimulate the economy or hurt it?
When there is a recession, or depression, and there is no money being spent in the private market, government spending can shorten the recession by getting the markets moving again.
from our own experience in how government spending for the war during the Great Depression helped bring us out of it
just as our stimulus spending prevented us from continuing on our path in 2007 to another Great depression
...America’s greatest depression fighter was Warren Gamaliel Harding. An Ohio senator when he was elected president in 1920, he followed Woodrow Wilson who got America into World War I, contributed to the deaths of 116,708 Americans, built up huge federal bureaucracies, imprisoned dissenters and incurred $25 billion of debt, for which he has been much praised by historians.
Harding inherited the mess, in particular the post-World War I depression – almost as severe, from peak to trough, as the Great Contraction from 1929 to 1933, that FDR inherited and prolonged. Richard K. Vedder and Lowell E. Gallaway, in their book Out of Work (1993), noted that the magnitude of the 1920 depression "exceeded that for the Great Depression of the following decade for several quarters." The estimated gross national product plunged 24% from $91.5 billion in 1920 to $69.6 billion in 1921. The number of unemployed people jumped from 2.1 million in 1920 to 4.9 million in 1921...
Harding’s Budget and Accounting Act of 1921 provided a unified federal budget for the first time in American history. The act established (1) the Bureau of the Budget with a budget director responsible to the president, and (2) the General Accounting Office to help cut wasteful spending.
In the fall of 1921, Harding’s Secretary of Commerce Herbert Hoover prompted him to call a Conference on Unemployment. Hoover wanted government intervention in the economy, which as president he was to pursue when he faced the Great Depression a decade later, but Harding would have none of it. Good thing, since Hoover’s policies were to prolong the Great Depression...
Federal spending was cut from $6.3 billion in 1920 to $5 billion in 1921 and $3.2 billion in 1922. Federal taxes were cut from $6.6 billion in 1920 to $5.5 billion in 1921 and $4 billion in 1922. Harding’s policies started a trend. The low point for federal taxes was reached in 1924. For federal spending, in 1925. The federal government paid off debt, which had been $24.2 billion in 1920, and it continued to decline until 1930...
With Harding’s tax cuts, spending cuts and relatively non-interventionist economic policy, the gross national product rebounded to $74.1 billion in 1922. The number of unemployed fell to 2.8 million – a reported 6.7% of the labor force – in 1922. So, just a year and a half after Harding became president, the Roaring 20s were underway! The unemployment rate continued to decline, reaching a low of 1.8% in 1926 – an extraordinary feat. Since then, the unemployment rate has been lower only once in wartime (1944), and never in peacetime.
"The seven years from the autumn of 1922 to the autumn of 1929," wrote Vedder and Gallaway, "were arguably the brightest period in the economic history of the United States. Virtually all the measures of economic well-being suggested that the economy had reached new heights in terms of prosperity and the achievement of improvements in human welfare. Real gross national product increased every year, consumer prices were stable (as measured by the consumer price index), real wages rose as a consequence of productivity advance, stock prices tripled. Automobile production in 1929 was almost precisely double the level of 1922. It was in the twenties that Americans bought their first car, their first radio, made their first long-distance telephone call, took their first out-of-state vacation. This was the decade when America entered ‘the age of mass consumption.’"...
except that, of course, the government has to raise that money by taxation or borrowing.
on the contrary, the US did not recover from the Great Depression until the 1950's; we went through a growth boom when government dramatically cut spending following the succesful conclusion of WWII.
:lamo: HOW???
let's see, what is the most successful handling of such a recession in the last century of American history?
oh, i remember, it was the Harding Administration
It was raised by borrowing as the decsion was made to provide tax cuts instead of paying for it.
Once the economy has fully recovered we should cut spending
and raise taxes to pay down the debt
just as we did after we recovered after the Great Depression. This approach resulted in the strongest half century for the midddle class in our history
"the years of the Great Depression (1929–1939)
Henry Morgenthau said:"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong ... somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises ... I say after eight years of this Administration we have just as much unemployment as when we started ... And an enormous debt to boot!"
I would agree with you that as soon as we conclude our wars we should drasicatically cut spending. Our military spending could easily be cut by 4/5 and still be the most powerful military force on the planet. And of course the tax cuts for the rich will have to end if we are to ever get serious about paying down our national debt.
[/quote]"The verdict of history has been severe on Harding. Despite Harding's landside victory, he is considered by many historians to have been the worst Ameican president. A recent biographer thinks that Harding should be related higher. He thinks the affair with Nan Britton, which he disputes, was responsible to a great extent for Harding's reputation. [Dean] HPC might put Bucannan and Hoover ahead of him. Despite the financial scandals, there is no evidence that Harding was personally involved. While Harding was undeniably a poor president, he did little actual damage -- unlike Bucannan and Hoover. Precisely where Hardingb ranks in the Pantheon of American presidents is debateable. That he ranks near the bottom most historians would agree. One historian writes, "The presidency of Warren G. Harding began in mediocrity and ended in corruption." [Fass]
Warren Harding
it was definitely raised by borrowing. massive borrowing. borrowing on a scale never before seen.
government borrowing, of course, serves (like all government spending) to divert resources from productive uses, to unproductive ones. the act of borrowing takes money out of the economy before one puts it back in, but inevitably government puts it back in less where it will produce economic growth, and more where politicians want to spend money.
see, that's the problem. as long as we keep spending like this, the economy will never fully recover.
because it's the spending that's the problem
except of course that raising taxes won't raise revenue, it will just depress growth which will impede revenue.
:lol: the 1970's were that awesome? i seem to remember reading about stagflation, gas lines, shortages, price controls.... yeah, everything was peachy.
the American economy did not reach the level that it was at in 1929 until 1953. Thanks to FDR's Stupid Policies.
even Keynes though the guy was a loony fool. the man used to set the price of gold based off of what felt lucky.
cutting the military spending by 4/5ths produces an instable world that wrecks trade and destroys our economy.
the entitlements are the ones driving the debt crises. now, and more and more as we look into the next 15 years. they are ultimately what must be trimmed.
a good chart. but it seems to decieve, and suggest that unemployment was somehow decreasing under Obama.
cut taxes, cut spending, pay down debt = watch the economy boom.
Does government spending stimulate the economy or hurt it?
Does government spending stimulate the economy or hurt it?
The PEOPLE don't spend money they've borrowed from China, AND their debts aren't passed down to their grand children.
Clearly government spending, which today means borrowing, is far more harmful.
It doesn't even come close to the amount we've borrowed to pay for the tax cuts and wars for the rich and it wouldn't have even been necessary if the last administration hadn't screwed up the economy so badly.
Tell me about it, we went through the same thing for two terms of the last president.
Once our economy has fully recovered, we need to drastically cut spending and eliminate the tax cuts for the rich.
I've never heard economists say that spending money hurts the economy in a recession.
If you are worried about the debt, eliminate the tax cuts to the rich.
Its both spending and reducing our income that created the problem and the problem won't be fixed by addressing one without the other.
Our history shows just the opposite.
You have forgotten about the useless war and the oil embargo that that brought that on?
No, it still leaves us with the most powerful military on the planet.
I don't see it that way:
Thanks for your opinion. I'll go with the facts.
When there is a recession, or depression, and there is no money being spent in the private market, government spending can shorten the recession by getting the markets moving again. This is the course proscribed by most economists and from our own experience in how government spending for the war during the Great Depression helped bring us out of it, just as our stimulus spending prevented us from continuing on our path in 2007 to another Great depression. Instead, things have improved so much the Republicans are proposing giving the rich more tax cuts.
FDR tried to spend his way out of the great depression, and failed. WW2 ended up bailing us out
...THE DEPRESSION OF 1946
Historically minded readers may be saying, "There was a Depression in 1946? I never heard about that." You never heard of it because it never happened. However, the "Depression of 1946" may be one of the most widely predicted events that never happened in American history. As the war was winding down, leading Keynesian economists of the day argued, as Alvin Hansen did, that "the government cannot just disband the Army, close down munitions factories, stop building ships, and remove all economic controls." After all, the belief was that the only thing that finally ended the Great Depression of the 1930s was the dramatic increase in government involvement in the economy. In fact, Hansen's advice went unheeded. Government canceled war contracts, and its spending fell from $84 billion in 1945 to under $30 billion in 1946. By 1947, the government was paying back its massive wartime debts by running a budget surplus of close to 6 percent of GDP. The military released around 10 million Americans back into civilian life. Most economic controls were lifted, and all were gone less than a year after V-J Day. In short, the economy underwent what the historian Jack Stokes Ballard refers to as the "shock of peace." From the economy's perspective, it was the "shock of de-stimulus."
If the wartime government stimulus had ended the Great Depression, its winding down would certainly lead to its return. At least that was the consensus of almost every economic forecaster, government and private. In August 1945, the Office of War Mobilization and Reconversion forecast that 8 million would be unemployed by the spring of 1946, which would have amounted to a 12 percent unemployment rate. In September 1945, Business Week predicted unemployment would peak at 9 million, or around 14 percent. And these were the optimistic predictions. Leo Cherne of the Research Institute of America and Boris Shishkin, an economist for the American Federation of Labor, forecast 19 and 20 million unemployed respectively — rates that would have been in excess of 35 percent!
What happened? Labor markets adjusted quickly and efficiently once they were finally unfettered — neither the Hoover nor the Roosevelt administration gave labor markets a chance to adjust to economic shocks during the 1930s when dramatic labor market interventions (e.g., the National Industrial Recovery Act, the National Labor Relations Act, the Fair Labor Standards Act, among others) were pursued. Most economists today acknowledge that these interventionist polices extended the length and depth of the Great Depression. After the Second World War, unemployment rates, artificially low because of wartime conscription, rose a bit, but remained under 4.5 percent in the first three postwar years — below the long-run average rate of unemployment during the 20th century. Some workers voluntarily withdrew from the labor force, choosing to go to school or return to prewar duties as housewives.
But, more importantly to the purpose here, many who lost government-supported jobs in the military or in munitions plants found employment as civilian industries expanded production — in fact civilian employment grew, on net, by over 4 million between 1945 and 1947 when so many pundits were predicting economic Armageddon.
Household consumption, business investment, and net exports all boomed as government spending receded. The postwar era provides a classic illustration of how government spending "crowds out" private sector spending and how the economy can thrive when the government's shadow is dramatically reduced....
Anytime legislation interferes with the forces of the market recovery tends to be delayed. The invisible hand does work, sometimes less regulation works better, especially during recessions. Is the law of supply and demand perfect, no. However, spending does not work. You can't dig yourself out of a hole.
8 years of war in Iraq cost less than the Stimulus
and that's just the stimulus, that's not counting the massive federal deficits of this year or last; both of whom were larger than the "stimulus" bill. don't get me wrong, the wars were expensive; but they weren't as big as the expansions under Obama
ah. so once we are up in the air we will see if we can take off from the ground? so long as spending remains as large a % of the economy as it is, we won't fully recover.
eliminating the tax cuts to the rich won't bring in much (if any) extra revenue.
if you repeal the bush tax cuts for the rich that will (again, statically, which is to say hopelessly optimistically, scoring) get you $80Bn a year.
our deficit is $1.6 Trillion a year. you could literally confiscate 100% of every dollar earned by those making $100K and above and it wouldn't be enough to cover our current spending, much less the entitlements explosion.
on the contrary; recessions that were met by increased government spending and intervention tend to take longer to recover. those that are met by decreaed government spending and intervention (or nothing) recover quicker. for ease, compare the market crashes of 1920 and 1929, and the market crashes of 1987 and 2008. doing nothing or (better) cutting spending and taxes gets us out of recession; spending keeps us in.
inflation was a deliberate policy - no war brought on price controls, and unemployment was higher than it is today. tell me more about this "strongest time in our history" that gave rise to the "misery index"
1. i think it's hilarious that you answer points about FDR's failures by claiming success for Obama's Stimulus
2. Obama's stimulus didn't create 3 million jobs
which is immaterial. the question isn't whether or not we are the most powerful, the question is whether we are a defacto hegemon. loss of that centralizing and stabilizing world force is what i'm talking about, not invasion.
WW2 ended up bailing us out.
Perhaps there would be truth to your statement.......if all evidence didnt prove it was an outright lie........
Unemployment Rate Since Obama's "Stimulus/Jobs Bill"
......and yet there are those that still believe in the fantasy of Government Stimulus via massive government spending.......
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The three trillion dollar war
The cost of the Iraq and Afghanistan conflicts have grown to staggering proportions
"Because there are so many costs that the Administration does not count, the total cost of the war is higher than the official number. For example, government officials frequently talk about the lives of our soldiers as priceless. But from a cost perspective, these “priceless” lives show up on the Pentagon ledger simply as $500,000 - the amount paid out to survivors in death benefits and life insurance. After the war began, these were increased from $12,240 to $100,000 (death benefit) and from $250,000 to $400,000 (life insurance). Even these increased amounts are a fraction of what the survivors might have received had these individuals lost their lives in a senseless automobile accident. In areas such as health and safety regulation, the US Government values a life of a young man at the peak of his future earnings capacity in excess of $7 million - far greater than the amount that the military pays in death benefits. Using this figure, the cost of the nearly 4,000 American troops killed in Iraq adds up to some $28 billion....
...From the unhealthy brew of emergency funding, multiple sets of books, and chronic underestimates of the resources required to prosecute the war, we have attempted to identify how much we have been spending - and how much we will, in the end, likely have to spend. The figure we arrive at is more than $3 trillion... A $3 trillion figure for the total cost strikes us as judicious, and probably errs on the low side. Needless to say, this number represents the cost only to the United States. It does not reflect the enormous cost to the rest of the world, or to Iraq."
Cutting taxes for the rich without cutting spending is what got us into this trouble to begin with.
It all began in 1981 under the Reagan Administration. Spending has to be cut before we reduce revenues or we just end up with more debt. We have 30 years of experience to show is this is true. When they decide to cut the spending for our optional wars and the rich start paying their fair share again,
It did increase revenue when they were raised under Clinton. We went from a budget deficit to a budget surplus.
I agree we need to eliminate tax loopholes, then we need to look at targeted tax cuts to those that actually produce jobs and not to continue to give money to someone just because they are rich.
Most of that is due to health care costs. Eventually we will have to go to National health care like the rest of the first world nations to address that problem. We have the most expensive health care system in the world and it is completely unaffordable.
SS is an easy fix. Just lock the funds and raise the Cap.
I'll go with the economist's assessment thanks.
...Some excellent work on this topic has come from Valerie Ramey of the University of California, San Diego. Ramey finds a government-spending multiplier of about 1.4 — a figure close to what the Obama administration assumed, but much smaller than the tax multiplier identified by the Romers. Similarly, in recent research, Andrew Mountford (of the University of London) and Harald Uhlig (of the University of Chicago) have used sophisticated statistical techniques that try to capture the complicated relationships among economic variables over time; they conclude that a "deficit-financed tax cut is the best fiscal policy to stimulate the economy." In particular, they report that tax cuts are about four times as potent as increases in government spending.
Perhaps the most compelling research on this subject is a very recent study by my colleagues Alberto Alesina and Silvia Ardagna at Harvard. They used data from the Organization for Economic Cooperation and Development to identify every major fiscal stimulus adopted by the 30 OECD countries between 1970 and 2007. Alesina and Ardagna then separated those plans that were in fact followed by robust economic growth from those that were not, and compared their characteristics. They found that the stimulus packages that appeared to be successful had cut business and income taxes, while those that evidently did not succeed had increased government spending and transfer payments.
The data in the Alesina-Ardagna study are mostly European; only a small portion comes from the United States. But the evidence leads to conclusions that are very similar to those from Mountford and Uhlig's work using American data. These conclusions are also consistent with the work of Ramey and the Romers, which looked at the historical record to identify multipliers. There appears to be a growing body of evidence, then, suggesting that taxes may be a better tool for fiscal stimulus than conventional models have indicated....
The bygone middle-class golden era
“Dubbed ‘median wage stagnation’ by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. [...]
Have you noticed the what the thread topic happens to be?
Thanks for your opinion.
Please reference our responsibility to control the world through hegemony in the Constitution. There is no such thing. We are only charged with providing for the common defense.
I'll go with the economist's assessment thanks.
...Some excellent work on this topic has come from Valerie Ramey of the University of California, San Diego. Ramey finds a government-spending multiplier of about 1.4 — a figure close to what the Obama administration assumed, but much smaller than the tax multiplier identified by the Romers. Similarly, in recent research, Andrew Mountford (of the University of London) and Harald Uhlig (of the University of Chicago) have used sophisticated statistical techniques that try to capture the complicated relationships among economic variables over time; they conclude that a "deficit-financed tax cut is the best fiscal policy to stimulate the economy." In particular, they report that tax cuts are about four times as potent as increases in government spending.
Perhaps the most compelling research on this subject is a very recent study by my colleagues Alberto Alesina and Silvia Ardagna at Harvard. They used data from the Organization for Economic Cooperation and Development to identify every major fiscal stimulus adopted by the 30 OECD countries between 1970 and 2007. Alesina and Ardagna then separated those plans that were in fact followed by robust economic growth from those that were not, and compared their characteristics. They found that the stimulus packages that appeared to be successful had cut business and income taxes, while those that evidently did not succeed had increased government spending and transfer payments.
The data in the Alesina-Ardagna study are mostly European; only a small portion comes from the United States. But the evidence leads to conclusions that are very similar to those from Mountford and Uhlig's work using American data. These conclusions are also consistent with the work of Ramey and the Romers, which looked at the historical record to identify multipliers. There appears to be a growing body of evidence, then, suggesting that taxes may be a better tool for fiscal stimulus than conventional models have indicated....
The bygone middle-class golden era
“Dubbed ‘median wage stagnation’ by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. [...]
Have you noticed the what the thread topic happens to be?
Thanks for your opinion.
Please reference our responsibility to control the world through hegemony in the Constitution. There is no such thing. We are only charged with providing for the common defense.