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"US is forced to re balance spending, stifling growth and economic activity in order to keep debt in line." How does the American governments NOT spending mone

"US is forced to re balance spending, stifling growth and economic activity in order to keep debt in line." How does the American governments NOT spending money stifle growth?

dragonwriter 11y ago
> How does the American governments NOT spending money stifle growth? The same way any other market participant (or set of market participants) not spending the same amount of money reduces growth compared to what it would be if they did. Activity that isn't happening in the economy is directly a reduction in the size of the economy.
URSpider94 11y ago
The US government not spending money looks like: -- Hiring freezes, or even furloughs or layoffs -- Delays in capital projects (new buildings, bridges, airports) This means less money in the pockets of employees, as well as less money to contractors, who have less money to pay their employees and suppliers, and so on. If people have less money, then they can't spend as much money, and thus the economy grows less fast, or stops growing.
exelius 11y ago
Government spending on capital projects generally causes an increase in economic activity. The government initiates economic activity, which causes companies to hire more workers, invest in new equipment, purchase supplies, etc. That all eventually makes its way into peoples' pockets, where they spend the money and throw it back into the economy. Capital projects tend to have an outsized impact because much of the economic activity required to build them wouldn't be practical to source from outside the US (you would never buy concrete from China, for example). Furthermore, assuming the capital projects filled a gap in the economy, they may make it easier to do business such that companies can operate with reduced costs relative to global competition. That would be a secondary effect from having improved infrastructure, but it would be much longer-lasting than the primary effects.
ancap 11y ago
In theory the government would have to reallocate money from something else in order to pay a higher interest rate. Thus they are not really spending any less. In practice the Federal Reserve takes up some of the burden by buying up Treasuries. You're general idea, though, is correct. Government spending is a burden on the economy. It reallocates resources away from the market. The main metric which is supposed to measure the health of an economy, GDP, is faulty in part because it includes government spending.
roymurdock 11y ago
Think about it in terms of investment. Did you go to college? If so, you spent a lot of money in order to grow your future earnings. You invested in yourself. The government needs to spend on education, healthcare, R&D, infrastructure, etc. in order to grow future income.
logfromblammo 11y ago
You typically have to be a Keynesian (or related school of economics) to believe that. Governments get their spending cash from taxation and political control of the monetary authority. In order to exert economic influence, they first have to take some away from the actual producers of marketable goods and services. Thanks to the way money works, if they don't expand the amount of currency in circulation by spending what they created by fiat, the value remains with the producers, who continue measuring their prices by the smaller amount in circulation. In metaphorical terms, no one can listen to what you want to say if you do not speak. The one and only way that government spending can produce more growth than ordinary individual spending is by ordering construction or repair of capital infrastructure that benefits multiple businesses who would individually be unable to justify the expense of the improvement. Business A and business B are competitors, and they would both benefit from roads that connect them to a highway network. A is unwilling to assume the expense of building a road to the highway unless A could exclude B from it. B feels the same way about A. If either notices the other building a road, they know that money is not available for other purposes, so whoever makes the first move could lose market share thanks to a strategic counter-move. Instead, government G takes somewhat less than the full amount needed for one road from each, to build a single public road that serves both equally. Both businesses get their road to the highway, but neither had to pay the full expense individually. Growth occurs by breaking the Nash equilibrium that was preventing it. That's the ideal case. Usually, government spending is no smarter than handing a wad of cash to the village idiot, so it has no greater effect on growth than ordinary consumer spending, minus the deadweight loss. Also, if G takes a full road's worth of economic influence or more from both A and B, and builds only one complete road or just a partial road with it, neither A nor B is any better off. In order to promote growth, the government spending has to buy something of actual value to the public, at a lower cost than the sum of costs that individuals would pay for the bits of the "something" that benefit each of them most. The public usefulness of a "something" is often a matter of opinion, so the "growth" thing is almost pointless to argue about.
- xenadu02 11y ago
  Yours is an extremely simplistic and naive view of how the real economy works. Government spending can be a net gain or drag on an economy but it can be a big boost in certain circumstances: 1) When the private market is retracting the government can offset that somewhat and create a "softer" landing. This prevents over-shooting on the underside (think the Great Depression). The lower interest rates are the better the bang-for-the-buck you get from government spending. When the world is clamoring to give you their money at negative interest rates (paying you to take a loan!) you'd be a fool not to pull the trigger on every capital project and bit of maintenance you can... which of course since we are so full of Republicans in the US we have been fools and haven't taken nearly as much advantage of the situation as we should have. As rates rise we'll end up doing the same projects in the future but pay higher interest rates to do them. 2) In an environment of excess capital (e.g. where the top 1% have most of the money) there is far too much cash looking for a productive place to invest and too few good investments. Again in that environment the government can do a lot of good by confiscating the capital (temporarily as you'll see) and giving it to the bottom 95%, ideally as free money with no strings attached. The vast majority of it will be spent, returning directly to the 1% who held it in the first place. The overall velocity of money will increase. This is the exact same thing as SF being dragged down by high rents writ large (if rent were reasonable I would personally create a job by hiring a nanny; instead that money goes to my landlord's retirement account where it chases all the other dumb money looking for yield) Government spending (and high taxes) can be a drain under different circumstances: 1) If there is a deficit of capital to finance good ideas or productive businesses, the economy can benefit from lowering taxes on the 1% to free up capital. One could argue this was the case when income taxes were 90+% during the supposed "golden post war era" that today's idiots fondly recall with rose-colored glasses. 2) If spending is done via printing money or the overall debt load is too high then you can cause high inflation which has its own negative effects. If your debt is denominated in a currency you don't control (or in gold) then this can be a double-whammy and cause hyperinflation. Government in general can be well-run and more efficient then the market when you are talking about absolute necessities and natural monopolies (like health care or roads), assuming you were willing to pay good salaries and benefits to attract the best workers and don't try to outsource everything. None of that applies to today's US or state governments... we pay like crap and purposefully use contractors for everything. It doesn't work well anywhere else, why would that work for government?
spikels 11y ago
Growth is just change in total spending (= total selling). Less spending by one of the biggest spenders means less growth. The is the essence of "fiscal policy"[1]. Of course much of this is offset by the the need to fund this spending through borrowing, taxes or printing money (i.e. inflation) - at least eventually. [1] https://en.m.wikipedia.org/wiki/Fiscal_policy https://en.m.wikipedia.org/wiki/Fiscal_policy

"US is forced to re balance spending, stifling growth and economic activity in order to keep debt in line." How does the American governments NOT spending money stifle growth?

dragonwriter 11y ago

> How does the American governments NOT spending money stifle growth? The same way any other market participant (or set of market participants) not spending the same amount of money reduces growth compared to what it would be if they did. Activity that isn't happening in the economy is directly a reduction in the size of the economy.

URSpider94 11y ago

The US government not spending money looks like: -- Hiring freezes, or even furloughs or layoffs -- Delays in capital projects (new buildings, bridges, airports) This means less money in the pockets of employees, as well as less money to contractors, who have less money to pay their employees and suppliers, and so on. If people have less money, then they can't spend as much money, and thus the economy grows less fast, or stops growing.

exelius 11y ago

Government spending on capital projects generally causes an increase in economic activity. The government initiates economic activity, which causes companies to hire more workers, invest in new equipment, purchase supplies, etc. That all eventually makes its way into peoples' pockets, where they spend the money and throw it back into the economy. Capital projects tend to have an outsized impact because much of the economic activity required to build them wouldn't be practical to source from outside the US (you would never buy concrete from China, for example). Furthermore, assuming the capital projects filled a gap in the economy, they may make it easier to do business such that companies can operate with reduced costs relative to global competition. That would be a secondary effect from having improved infrastructure, but it would be much longer-lasting than the primary effects.

ancap 11y ago

In theory the government would have to reallocate money from something else in order to pay a higher interest rate. Thus they are not really spending any less. In practice the Federal Reserve takes up some of the burden by buying up Treasuries. You're general idea, though, is correct. Government spending is a burden on the economy. It reallocates resources away from the market. The main metric which is supposed to measure the health of an economy, GDP, is faulty in part because it includes government spending.

roymurdock 11y ago

Think about it in terms of investment. Did you go to college? If so, you spent a lot of money in order to grow your future earnings. You invested in yourself. The government needs to spend on education, healthcare, R&D, infrastructure, etc. in order to grow future income.

logfromblammo 11y ago

You typically have to be a Keynesian (or related school of economics) to believe that. Governments get their spending cash from taxation and political control of the monetary authority. In order to exert economic influence, they first have to take some away from the actual producers of marketable goods and services. Thanks to the way money works, if they don't expand the amount of currency in circulation by spending what they created by fiat, the value remains with the producers, who continue measuring their prices by the smaller amount in circulation. In metaphorical terms, no one can listen to what you want to say if you do not speak. The one and only way that government spending can produce more growth than ordinary individual spending is by ordering construction or repair of capital infrastructure that benefits multiple businesses who would individually be unable to justify the expense of the improvement. Business A and business B are competitors, and they would both benefit from roads that connect them to a highway network. A is unwilling to assume the expense of building a road to the highway unless A could exclude B from it. B feels the same way about A. If either notices the other building a road, they know that money is not available for other purposes, so whoever makes the first move could lose market share thanks to a strategic counter-move. Instead, government G takes somewhat less than the full amount needed for one road from each, to build a single public road that serves both equally. Both businesses get their road to the highway, but neither had to pay the full expense individually. Growth occurs by breaking the Nash equilibrium that was preventing it. That's the ideal case. Usually, government spending is no smarter than handing a wad of cash to the village idiot, so it has no greater effect on growth than ordinary consumer spending, minus the deadweight loss. Also, if G takes a full road's worth of economic influence or more from both A and B, and builds only one complete road or just a partial road with it, neither A nor B is any better off. In order to promote growth, the government spending has to buy something of actual value to the public, at a lower cost than the sum of costs that individuals would pay for the bits of the "something" that benefit each of them most. The public usefulness of a "something" is often a matter of opinion, so the "growth" thing is almost pointless to argue about.

xenadu02 11y ago
Yours is an extremely simplistic and naive view of how the real economy works. Government spending can be a net gain or drag on an economy but it can be a big boost in certain circumstances: 1) When the private market is retracting the government can offset that somewhat and create a "softer" landing. This prevents over-shooting on the underside (think the Great Depression). The lower interest rates are the better the bang-for-the-buck you get from government spending. When the world is clamoring to give you their money at negative interest rates (paying you to take a loan!) you'd be a fool not to pull the trigger on every capital project and bit of maintenance you can... which of course since we are so full of Republicans in the US we have been fools and haven't taken nearly as much advantage of the situation as we should have. As rates rise we'll end up doing the same projects in the future but pay higher interest rates to do them. 2) In an environment of excess capital (e.g. where the top 1% have most of the money) there is far too much cash looking for a productive place to invest and too few good investments. Again in that environment the government can do a lot of good by confiscating the capital (temporarily as you'll see) and giving it to the bottom 95%, ideally as free money with no strings attached. The vast majority of it will be spent, returning directly to the 1% who held it in the first place. The overall velocity of money will increase. This is the exact same thing as SF being dragged down by high rents writ large (if rent were reasonable I would personally create a job by hiring a nanny; instead that money goes to my landlord's retirement account where it chases all the other dumb money looking for yield) Government spending (and high taxes) can be a drain under different circumstances: 1) If there is a deficit of capital to finance good ideas or productive businesses, the economy can benefit from lowering taxes on the 1% to free up capital. One could argue this was the case when income taxes were 90+% during the supposed "golden post war era" that today's idiots fondly recall with rose-colored glasses. 2) If spending is done via printing money or the overall debt load is too high then you can cause high inflation which has its own negative effects. If your debt is denominated in a currency you don't control (or in gold) then this can be a double-whammy and cause hyperinflation. Government in general can be well-run and more efficient then the market when you are talking about absolute necessities and natural monopolies (like health care or roads), assuming you were willing to pay good salaries and benefits to attract the best workers and don't try to outsource everything. None of that applies to today's US or state governments... we pay like crap and purposefully use contractors for everything. It doesn't work well anywhere else, why would that work for government?

spikels 11y ago

Growth is just change in total spending (= total selling). Less spending by one of the biggest spenders means less growth. The is the essence of "fiscal policy"[1]. Of course much of this is offset by the the need to fund this spending through borrowing, taxes or printing money (i.e. inflation) - at least eventually. [1] https://en.m.wikipedia.org/wiki/Fiscal_policy https://en.m.wikipedia.org/wiki/Fiscal_policy