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"Spending cuts now would be worse for the economy than tax increases now" According to whom? You do realize that these are cuts to government spending, right?
by webXL 15y ago
"Spending cuts now would be worse for the economy than tax increases now"
According to whom? You do realize that these are cuts to government spending, right? How does government get money to spend? It taxes or borrows (taxes in the future). Therefore, a dollar not spent by the government (in a monopolistic, corporatist manner) is a dollar more for the private sector to spend (in a more competitive, efficient manner). If this wasn't true, the government would be the sole provider of all goods and services. Even if the private sector wasn't more efficient in allocating resources, the economy would only be hurt in the long term by that loss of efficiency, not any immediate loss of economic growth, because the spending just shifted from public to private.
- latch 15y agoPaul Krugman. Edit (my own thoughts): I'm a fiscal conservative. However, I believe that a problem with your point of view is that, while the private sector might be more efficient with that dollar, the fundamental problem is that it might not spend it (or at least, not all of it). In tough economic times, companies reduce spending. They try to wait out the storm. On an individual basis, this makes sense. In these times, the government can help balance this out by actively spending money.
- webXL 15y agoUnless I put that dollar under my mattress, it will be spent by someone, provided that we have stability in the banking system and regulatory structure (i.e. not yet, but getting there). With inflation, however, I'd be a fool not to spend it or earn interest on it (let someone else spend it, or let a bank finance the federal debt with it). How does the government know what the correct level of spending for a given company is? How does government know how to "balance this out"?
- deleted 15y ago[deleted]
- latch 15y agoI'm not an economist, I can't answer any of your questions. I can tell you though that there's some historical data available (both at home, dating back to the great depression) and abroad (japan's lost decade) to base these types of decision on. My guess is that they spend in increments until they feel/observe that they have it right. Maybe they don't do a great job, but modern history seems litered with the impact of spending paralysis. Also, I just don't believe that a company investing money into some financial vehicle is more effective at creating growth than government spending. That's just taking it too far for me. Spending often needs to be directed, in a manner the private sector just can't do.
- jeffreymcmanus 15y agoIt's not "tough economic times" for big businesses right now. They are turning in record profits.
- mikeryan 15y agoJohn Maynard Keynes
- webXL 15y agoYes, I know about the Keyensians. If spending cuts are bad and tax hikes are good, then why not go all out? Why only $800B for the stimulus? Why not $8 trillion? We'd surely get the necessary loans with a 1.5 multiplier, right? The truth is that if there was a 1.5x multiplier, we would have had a much larger stimulus and it would be made permanent.
- jeffreymcmanus 15y agoIt doesn't matter whether the private sector is more efficient or not (although you can argue that Wall Street was almost comically inefficient during the credit meltdown of 2008). Government doesn't exist to be the most efficient actor in an economy. It exists to invest in the things that the market cannot or will not provide -- public safety, military, education, transportation, and so on.
- intended 15y agoBut the funny part is, that $ would not be spent in america. Why would you when the more efficient outlays of capital, and most likely growth areas, are in other countries? Given 1) Free flows of liquidity. 2) Alternative higher growth areas and economies Why wouldn't corporations take every penny and put them where they would get the most return? Because of some patriotic duty?