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If the deficit is 3.8% of GDP [1] and growth is only 2.9% [2] during a supposed economic "boom", something is wrong. [1] https://www.usgovernmentdebt.us/federa

If the deficit is 3.8% of GDP [1] and growth is only 2.9% [2] during a supposed economic "boom", something is wrong. [1] https://www.usgovernmentdebt.us/federal_deficit_percent_gdp https://www.usgovernmentdebt.us/federal_deficit_percent_gdp [2] https://www.reuters.com/article/us-usa-economy/u-s-economic-growth-in-2018-misses-trumps-3-percent-target-idUSKCN1QH0HO https://www.reuters.com/article/us-usa-economy/u-s-economic-...

opportune 8y ago
I think our current deficit spending is dumb, but I don't actually see a problem mathematically with this. Assuming we only pay 2% interest on that debt, that's 0.076% of GDP to service the debt from this year. If the new GDP growth is taxed at just 10%, then we have 0.29% of GDP in new taxes. So that's a 4x ROI correct? (of course, the assumption here is that there is no better way to spend that money and that the deficit spending is fully responsible for the GDP growth to begin with...) So theoretically it's not going to break the bank even though many people like me think it's unnecessary
- moorhosj 8y ago
  ==Assuming we only pay 2% interest on that debt== Where does this come from? the 10-year bond rate was closer to 3% for most of 2018 [1]. ==So that's a 4x ROI correct== You can't calculate ROI with an I. In this case, that is the 3.9% of GDP mentioned. Going forward, we may gain more tax revenue than we would pay in debt servicing each year, but that ignores the initial investment we made. In reality, you would need to show that the present value of your annual tax revenues (0.29% of GDP - 0.076% of GDP) is larger than the 3.9% of GDP invested initially. [1] https://www.thebalance.com/interest-on-the-national-debt-4119024 https://www.thebalance.com/interest-on-the-national-debt-411...
  - opportune 8y ago
    It doesn't matter, 2% or 3% is just splitting hairs. I also apparently underestimated the percent of US GDP going to federal taxes; it's around 19%, not 10%. So there is still more a lot more new tax money coming in than is necessary to service the new debt. "3.9% of GDP invested initially" How is this investing 3.9% of GDP? It costs 0$ in investment for the government to issue new bonds. The only way federal debt costs the country is in the interest spent on servicing it. As long as the tax base increases faster than the interest spent on servicing debt (and also accounting for population growth) there is no economic problem with increasing the federal debt. And again, I am not arguing that the things we are spending the government money on are rational. I think we could do a lot better by cutting military spending and increasing funding for non-military research and infrastructure without deficit spending (which is certainly possible). But technically the current deficit spending is not unsustainable
    - moorhosj 8y ago
      Nobody said it was unsustainable. The point is that if you have to borrow almost 4% of your GDP to generate growth of only 3% of GDP, your underlying economy is not performing strongly enough to support itself. That we can’t escape deficit-fueled growth in a supposedly “booming economy” is a scary sign for future economic hiccups.
- rohit2412 8y ago
  I think that assumption makes sense if you don't think of the system as a closed loop. What if the increase in GDP happened only because you borrowed money and spent it? What if you don't spend an equivalent amount next year, and that increase in GDP went away? In this case, you want the money borrowed to be paid off completely by the taxation on increased gdp. Which would be 1.03 * 3.8%=3.914% of gdp (deficit to be paid back next year) to equal 0.19 * 2.9%=0.551% (tax collection on increased GDP) of gdp, which it is very far from. Add the fact that the increased GDP is normally as welfare/income of poor people, which is taxed less. This of course leads to main question. Is the growth sustainable? If the govt borrowing+spending go away tomorrow, would the GDP not contract? If yes, Then this growth was unsustainable and was debt fueled.

opportune 8y ago

I think our current deficit spending is dumb, but I don't actually see a problem mathematically with this. Assuming we only pay 2% interest on that debt, that's 0.076% of GDP to service the debt from this year. If the new GDP growth is taxed at just 10%, then we have 0.29% of GDP in new taxes. So that's a 4x ROI correct? (of course, the assumption here is that there is no better way to spend that money and that the deficit spending is fully responsible for the GDP growth to begin with...) So theoretically it's not going to break the bank even though many people like me think it's unnecessary

moorhosj 8y ago
==Assuming we only pay 2% interest on that debt== Where does this come from? the 10-year bond rate was closer to 3% for most of 2018 [1]. ==So that's a 4x ROI correct== You can't calculate ROI with an I. In this case, that is the 3.9% of GDP mentioned. Going forward, we may gain more tax revenue than we would pay in debt servicing each year, but that ignores the initial investment we made. In reality, you would need to show that the present value of your annual tax revenues (0.29% of GDP - 0.076% of GDP) is larger than the 3.9% of GDP invested initially. [1] https://www.thebalance.com/interest-on-the-national-debt-4119024 https://www.thebalance.com/interest-on-the-national-debt-411...
- opportune 8y ago
  It doesn't matter, 2% or 3% is just splitting hairs. I also apparently underestimated the percent of US GDP going to federal taxes; it's around 19%, not 10%. So there is still more a lot more new tax money coming in than is necessary to service the new debt. "3.9% of GDP invested initially" How is this investing 3.9% of GDP? It costs 0$ in investment for the government to issue new bonds. The only way federal debt costs the country is in the interest spent on servicing it. As long as the tax base increases faster than the interest spent on servicing debt (and also accounting for population growth) there is no economic problem with increasing the federal debt. And again, I am not arguing that the things we are spending the government money on are rational. I think we could do a lot better by cutting military spending and increasing funding for non-military research and infrastructure without deficit spending (which is certainly possible). But technically the current deficit spending is not unsustainable
  - moorhosj 8y ago
    Nobody said it was unsustainable. The point is that if you have to borrow almost 4% of your GDP to generate growth of only 3% of GDP, your underlying economy is not performing strongly enough to support itself. That we can’t escape deficit-fueled growth in a supposedly “booming economy” is a scary sign for future economic hiccups.
rohit2412 8y ago
I think that assumption makes sense if you don't think of the system as a closed loop. What if the increase in GDP happened only because you borrowed money and spent it? What if you don't spend an equivalent amount next year, and that increase in GDP went away? In this case, you want the money borrowed to be paid off completely by the taxation on increased gdp. Which would be 1.03 * 3.8%=3.914% of gdp (deficit to be paid back next year) to equal 0.19 * 2.9%=0.551% (tax collection on increased GDP) of gdp, which it is very far from. Add the fact that the increased GDP is normally as welfare/income of poor people, which is taxed less. This of course leads to main question. Is the growth sustainable? If the govt borrowing+spending go away tomorrow, would the GDP not contract? If yes, Then this growth was unsustainable and was debt fueled.