Guys its not secret that this administration has been pretty wreckless with its spending. Not making necessary cuts and in fact increasing government spending in a huge variety of areas like education, prescription drugs for the elderly and a host of other issues, have led to a few record deficits ...
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01-19-2008, 11:26 PM
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| Administrator  libertarian Oklahoma 
| A substantial downside to deficit spending...especially now...Stimulus anyone? Guys its not secret that this administration has been pretty wreckless with its spending. Not making necessary cuts and in fact increasing government spending in a huge variety of areas like education, prescription drugs for the elderly and a host of other issues, have led to a few record deficits and in subsequent years decreasing deficits, but deficits none the less. Running a substantial deficit for a year or two as this administration did is not a large problem for our economy. Running a large deficit and further increasing government programs and spending required on these programs is a problem. The excuse has been a shrinking deficit, that we have the money to do this. Well the deficit has been shrinking steadily for several years. The estimated 2007 deficit is about 160 billion dollars. That is a deficit of 1.1% of GDP. Figure in war spending and its closer to 270 Billion or about 1.8% of GDP. Totally sustainable for the long term and while I'd prefer no deficit it is not a huge problem in and of itself. However, the prior years of 3%, 4% and 5% deficits have posed a problem. The economy appears to be sliding into a recession as others have mentioned in a few threads. It remains to be seen if we'll have an actual recession and if we do, just how bad will things get? I tend to think a fairly mild recession is definately on the way. The problem is due to massive deficit spending in the past and the fact that we are still running a deficit (albeit a small one) really limits governments ability to spend in order to increase aggregate demand and pull us through a short recession. There's no doubt we'll pull through the recession with or without increased government spending, but there is also little doubt that an increase in government spending during times of recession can greatly soften the blow of an economic recession. In times of economic gain running deficits can have negative impacts the economy but many don't pay attention because things are great! The economy could have grown slightly faster in 03/04/05/06/07 had we not been running a deficit. Spending in deficit during times of economic progress result in a crowding out of the private sector on available capital that businesses could better use. Now that the brief economics lesson is over, the point is this... We experienced a good economic boom in the last few years and yet we continued to spend money we didn't have running up the national debt. This has greatly decreased our ability to limit the effects of this upcoming or current recession. Our 2008 deficit would have probably been somewhere in the 50 to 100 billion dollar range had the economy grown similar to FY2007. However 2008 will probably be slightly worse which will probably result in a deficit of 200 to 300 Billion, figure in war spending, tack on another 50 to 100B. Again not a huge deficit given our GDP will be somewhere in the area of 15 trillion dollars. However, the problem comes in with economic stimulus. The administration is kicking around the idea of giving 800 dollars per head of household or 1600 dollars per married couple in economic stimulus. The problem is not with the proposed stimulus, nor am I opposed to giving tax payers some of their hard earned money back. The problem is the position this stimulus puts us in. This 150 billion dollar stimulus plan will require additional deficit spending. This would bring total deficit spending estimates (including the war) for the year up to 475 to 525 billion dollars. Even with a 15 billion dollar GDP that is teetering on the brink of unsustainable. Throw in something unforseen like a natural disaster and a terrorist attack and we are right back to a greater than 3% deficit. NOT GOOD! Had we kept spending under control, had we just been hovering around the break even point they could DOUBLE the size of this stimulus package which would actually do a LOT more good than a 1% GDP stimulus package. Futhermore, had the deficit been better controlled in years past and had the debt been at 52 to 55% of GDP instead of the 63 or 64% its at now we'd have even more leeway should we really need some emergency spending on the order of 4 or 5% of GDP. Another perfect example of why deficit spending is so dangerous especially when it is NOT necessary. It makes us less nimble and flexible in times when we really could use the deficit spending to aid in briefly stabalizing the economy. I would much prefer this administration, democrats and republicans fix the long term problems with our tax system, economy and government than simply throwing "stimulus" at us whenever they feel the need. More specifically the government helped get us into this housing mess they need to help get us out. Not by bailing out corporations or individuals but coming up with real solutions to the problems they were primarily responsible for creating. I didn't even mention the downsides deficit spending has on the value of the dollar...completely different subject but something for everyone to think about here's a link to an article on last years budget deficit The Deal: Bush's budget numbers - Sep. 4, 2007 Last edited by 6SpeedTA95; 01-19-2008 at 11:48 PM.. | ||||
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01-20-2008, 08:04 PM
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| Braccae tuae aperiuntur.  Reform Party NJ
| My knowledge of the economy is not as great as yours. It's almost intimidating to respond to such well thought out posts, but this thread deserves a bump and a response... It is my view and understanding that the economy has not been doing all that bad. Bush inherited a recession much like what the upcoming president is going to have to deal with. His tax cuts helped bring in much more revenue to our nation than if he had just increased taxes and on top of that it helped revitalize the economy. It was a good thing and a good move. The economy itself was doing very well, but the Republicans were spending like drunk sailors and ruining it. The overspending is the reason I supported the Democrats in 06. I remember having a conversation with Ballz on IM and he asked me if I really wanted the Dems to take over in 06. I said yes because we need to get the spending under control. He asked if I thought they'd really curb spending. I responded by saying something along the lines of "they can't do any worse than the GOP is doing now." He laughed. He had the last laugh... The Republicans and now the Democrats are actively harming our economy with all this spending. Whoever the next president is needs to take into consideration the economy. It appears Hillary and Edwards just have no fucking clue and will only make the situation much worse. Most of the Republicans don't seem to have their heads screwed on straight regarding this issue either. Whoever we support to run our country in 08 better have a solid understanding of where we're at and where our country is going. Blaming the rich or overtaxing a specific group is not a solution. We need to stop electing the status quo and people who have been tainted by years of political corruptness. We need someone who is willing to work with both the Democrats, th Republicans the business owners, the consumers, and all of America in order to make change. Pitting one group against another, blaming and choosing sides, etc is not the way to handle the situation. It's a shame so many politicians prefer polarization to results. | ||||
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01-21-2008, 12:48 AM
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| Policy Wonk  Pragmatist NEIA
| Your frame is wrong from the start. You're pointing out education and health for the elderly specifically as what is causing this problem? How about starting with warmongering and blatant cronyism? | ||||
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01-21-2008, 09:50 AM
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| Administrator libertarian Oklahoma
| Originally Posted by bheld No my premise isn't wrong not even close. We're spending more on education in real dollars and inflation adjusted than at any point in our history and guess what, schools are getting worse. This no child left behind is a damned joke, period.
Prescription drugs for the elderly was a bad move especially the way in which they rolled it out, employers basically dropped their plans because the government pays for all of it. Their original 240 billion dollars over 10 years quickly turned to 1.1 TRILLION dollars over 10 years. Democrats were against this from the start as was I and they were right on this issue. The war as you correctly point out is expensive, but this thread isn't about the war its about the economic downside to this administrations economic policy. | ||||
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01-21-2008, 10:45 AM
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| Master Debator Election Moderator  Democrat Omaha, NE
| If I am understanding correctly..... we are saying that we can curb a recession with temporary govt. deficit spending, but because of the deficit spending that we have maintained the last 5-6 years we are in a position that makes it difficult to try to avoid the potential oncoming recession. I remember when clinton left office we were on a down turn of sorts..basically coming back to reality after the dot com boom. Then 9/11 happens and we lost a shit ton of money, pushing our economic situation down further. We pushed out huge tax cuts and increased govt. spending to curb that economic blow...essentially doing the same thing that you imply we would need to do now to curb a recession. (if im understanding correctly) Could it be argued that we have already been doing that and simply delayed the inevitable? Could it be argued this "growth" was basically artificially created by this extra spending that had already taken place? With that could we say the economy is really not as strong as we are trying to make it out to be, since it is relying on govt. spending to maintain its growth? I would also argue the economic strenghts we are experiencing are only affecting a small percentage of americans, most of which are involved with wall street. The rest, or around 70% of americans, feel we are already in a recession. Perception is reality. Haven't we already seen with history that a "cut and spend" policy is not a solution to an economic problem, but a mere band-aid of sorts? Eventually the band-aid soaks up as much as it can, but then what? We never addressed the problem in the first place. Perhaps we should just let the infection run its course and let our economy heal itself naturally. Though most major financial institutions are predicting a recession, they are predicting a mild one. Perhaps we should save the tax rebate band-aid for a more serious infection, so that way if we do run in to major complications we still have something to fall back on without putting us further and further in to debt. Given our current national debt of 9.2 trillion dollars and current financial obligations, I would also question that any deficit spending would be sustainable for a long period of time regardless of its percentage of GDP. We already have 300+ billion in interest alone, keep adding 100-200 billion a year on the debt, we get more and more interest, and it just keeps snow balling. You will also have a hard time convincing me it is fiscally responsible to go backwards every year, even if it is only 1-2% of the GDP. In the end I would say that economics is not and never will be as black and white as the text books make it out to be. The laffer curve, economics 101 stuff... its economic theory... but not always economic reality. There are so many variables to account for and it is so incredibly unpredictable. In most cases I would say that running a balanced budget with something like 200 billion a year allocated to paying off our debt would be the most desirable budget in my opinion. Especially during a time of economic prosperity for the country. Will it dampen the prosperity? Sure, but we are in this position now because of cut and spend. Just imagine the tax cuts we could put forward if we didn't need 300-400 billion a year for interest on our debt, or the trillion dollars blown in Iraq. | ||||
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01-21-2008, 11:17 AM
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| Banned  Conservative Government is another way to say Better Than You
| Originally Posted by bheld Because education and health is a permanent fixture in our government at this point. Your 'warmongering' or 'croneyism' are not. More money has been spent on the former than the latter, and the latter is a very small drop in the bucket in comparison. Don't blind yourself with things you want to see.
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01-21-2008, 12:00 PM
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| Policy Wonk Pragmatist NEIA
| Originally Posted by 6SpeedTA95 Government spending isn't the problem. Government mismanagement is the problem.
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01-21-2008, 12:13 PM
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| Banned Conservative Government is another way to say Better Than You
| Originally Posted by bheld Mismanagement of excessive spending!
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01-21-2008, 12:16 PM
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| Master Debator Election Moderator Democrat Omaha, NE
| Originally Posted by ballz2wallz It is still a huge amount of money, not worthy of simply dismissing. It also leads to other expenditures, like 30 billion in "aid" to israel.
I would recommend taking your own advice and don't blind yourself. If you look at it while being truly objective you would recognize the enormous waste in spending across the board...on militarism or otherwise. War mongering has been happening since the end of WW2. We have dispatched our soldiers around the world every year since then in some capacity regardless of administration. Bosnia, Grenada, Korea, Vietnam, Cuba, Beirut, Panama, etc. | ||||
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01-21-2008, 12:17 PM
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| Bush Crime Family = Terrorists  Paleolibertarian
| Originally Posted by DosEquis
Well said. | ||||
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01-21-2008, 12:19 PM
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| Banned Conservative Government is another way to say Better Than You
| Originally Posted by DosEquis Are you suggesting we become isolationist then?
Military spending isn't a problem with me. It's what the government SHOULD be doing. Solving the problems of its citizens is not. | ||||
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01-21-2008, 12:25 PM
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| Liberty, now and forever  Libertarian Party DFW
| Originally Posted by ballz2wallz you're creating a false dilemma. There are options between "world police"/"interventionist policy and "isolationist policy"
__________________ “The sacred rights of mankind are not to be rummaged for among old parchments or musty records. They are written, as with a sunbeam, in the whole volume of human nature, by the hand of the divinity itself; and can never be erased.” --Alexander Hamilton--  | ||||
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01-21-2008, 01:26 PM
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| Administrator libertarian Oklahoma
| Originally Posted by DosEquis Great post, I'll take this paragraph by paragraph....
You hit the nail on the head here, temporary deficit spending by the government can soften the blow and limit the impact of a recession. The last 6 or so years of our governments fiscal policy has decreased our flexibility to thwart oncoming recessions unless we want to impact the debt even more than we already are. Yes you're correct, things began to soften in 2000 and really we entered a recession in 2001. Spending and tax cuts helped pull us out of that recession quicker than status quo. It definately can be argued that some growth was a result of deficit spending. In fact the recessions impact was dampened substantially by the combination of tax cutting and deficit spending. The problem with that theory over a longer course (12 months + once the economy is growing again) is that it is pretty well established that deficit spending during economic booms actually hampers growth. It creates a "crowding out" or an ineffecient distribution of capital throughout the economy. Crowding out is basically where the government begins to spend so much money that they are soaking up cash and market liquidity with government spending. Which we've seen over the last few years. Ideally government runs a surplus when the economy is doing well, it pays down debt and this provides flexibility during recessions and keeps plenty of capital and cash available for the free market. Are we in a recession yet? Could be, we'll have to see what the economic numbers look like in a few weeks then they are published. But to say that only a few are benefiting would be wrong. Unemployment is still very low which means the majority of us have jobs. There's also a shortage of skilled labor in the country, which means if you're educated you can probably find a nother job very easily. Recent statisticas from the wall street journal say that current unemployment among those with a bachelors degree is 1.8%. I tend to agree that cut and spend policy can be a problem over the long term, we're seeing part of that now with the governments decreased flexibility to deal with economic issues that face the nation today. Cutting taxes is almost certainly a good thing, but to what point? There is a thing called law of diminishing returns. We can cut taxes and see increased receipts but how long can taxes go before this ceases to be? I believe after extensive reading in the area that somewhere around 20% to 25% under our current tax system would be the lowest point you'd want to put the top bracket. The problem at this point isn't the tax cuts, its the increased entitlements and government spending. This president, this administration and the congress/senate that was republican controlled for years did nothing to fix welfare, medicare, medicaid, social security, in fact they increased requirements on a few of these areas and by not fixing them they increased our future obligations (time value of money and compound interest). These increases in spending along with the do nothing attitude are the problem, not the tax cuts. So you're this cut taxes and increase spending mentality doesn't work for the long term. I would't call it a complete failure but it definately complicates matters. The problem with this argument is that there is sustainable debt. The debt has grown substantially through almost every administration but it has dropped as a % of GDP. In 1960 I believe the debt was about 200 billion dollars, but that was 50% of GDP. Today that debt is 9.2 trillion dollars or roughly 63% of GDP. Worse but not doom and gloom worse. You have to look at the big picture with regard to the national debt, not simply the number. I'm not making excuses for the debt or the spending I think its abhorrent, but measuring debt and deficits as a % of GDP is the best way to measure them. The US economy has historically averaged more than 3% growth per year which is why 3% is considered sustainable (this includes any unpaid interest on the debt). We could drastically shrink the debt if we simply refused to deficit spend more than 1% in boom years. I think we should run a surplus in boom years, deficit in slow years, they could accomplish this by giving people money back to spend like they're considering now. The problem with the current plan is it has no way of addressing the unbalanced budget when things get better. On your last paragraph I agree that things are never black and white and one of the big problems with economic theory is the "ceteris paribus" or all things being equal. Nothing is ever equal in the real world. But one thing you can be sure of, is if taxes go up, government will find a way to spend the money the tax history in this and other countries shows that. So I'm not for raising taxes. I'm for fixing the problems we have by controlled and responsible spending. I agree we need to pay off our debt and I dont really see how this would impact the prosperity of the nation, it frees us up for future economic issues. And you're right if the debt was 10% of GDP we'd have the ability to afford substantial tax cuts for individuals and businesses. | ||||
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01-21-2008, 02:42 PM
| #14 | ||||
| Master Debator Election Moderator Democrat Omaha, NE
| Originally Posted by ballz2wallz No. That is a false choice and you know it.
The money spent should be for national defense, not offense. It should not be a free meal ticket, but it has a far greater responsibility to the problems of its citizens than it does to the problems facing the people of Israel or otherwise. We have the largest and most powerful consumer base in the world and that should be our first weapon. No nation building, no preemptive war, no entangling alliances. | ||||
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01-21-2008, 03:13 PM
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| Banned Conservative Government is another way to say Better Than You
| Originally Posted by DosEquis Sometimes the best defense is a good offense.
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01-21-2008, 03:48 PM
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| Administrator libertarian Oklahoma
| Originally Posted by ballz2wallz I agree with you on that and I dont think that Dos disagrees. I think the point he was making was that there is a middle ground.
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