US gubmint shutdown + default + subprime sequel?

[Fisherking]

not forgetting its close association with supply side economics:

http://en.wikipedia.org/wiki/Laffer_...side_economics

taxation at a level over 40% has been shown to have a serious impact on long-term growth potential.

http://ime.bg/uploads/OptimalSizeOfGovernment.pdf

And this part tell us that government trying to spend us out of problems doesn’t work either:

An empirical analysis of the data from 23 OECD countries (Gwartney et al.20) shows
a strong negative relationship between both (a) the size of government and GDP
growth and (b) increases in government expenditures and GDP growth. A 10
percentage point increase in government expenditures as a share of GDP is
associated with approximately a one percentage point decline in the growth rate of
real GDP. An analysis of a larger data set of 60 countries reinforces the conclusions
reached by analyzing the OECD countries. After adjustment for cross-country
differences in the security of property rights, inflation, education, and investment,
higher levels of government spending as a percentage of GDP exert a strong
negative impact on GDP growth.

[Vladimir]

Spending out of a recession doesn't help but it makes a nice band-aid while the economy heals.

[Lemur]

Spending out of a recession doesn't help but it makes a nice band-aid while the economy heals.

Um, government spending is supposed to be a "band-aid while the economy heals." That's the whole concept. Government spending doesn't create long-term wealth; everybody knows that, or ought to. But when demand dries up, the only entity that can temporarily soften the blow is the guvmint.

Per ejemplo, the last jobs report was dismal. Not because the private sector didn't grow -- it did -- but because all of the states and counties are slashing their payroll as stimulus funds go bye-bye. This suggests that now is not the greatest of all possible times to dig into fiscal austerity.

I've said it before and I'll say it again: America has a short-term growth problem and a long-term debt problem. There's no reason why we can't address both in turn. Going gonzo in debt right now strikes me as counterproductive. Of course, if now is the only time we can address debt, then we'll do what we gotta do. I guess the combination of a recession and a Dem administration makes this the time to do it? Hmm.

I read somewhere that Germany has a sixteen-year plan to deal with restructuring its debt and deficits. Knowing the krauts, I expect they'll pull it off flawlessly. Calling for a balanced budget right now, on the other hand, strikes me as calling for another recession.

Cutting spending endangers the recovery. Significantly raising taxes endangers the recovery. Most economists would say that this is the time when you take a deep breath and deal with deficits until the economy is back on track. We'll see how this plays out, however Maybe our economy can handle constriction in the federal state and county guvmint budgets. Maybe. If so, then release the doves and put John Philip Sousa on the gramaphone.

[Centurion1]

Um, government spending is supposed to be a "band-aid while the economy heals." That's the whole concept. Government spending doesn't create long-term wealth; everybody knows that, or ought to. But when demand dries up, the only entity that can temporarily soften the blow is the guvmint.

Per ejemplo, the last jobs report was dismal. Not because the private sector didn't grow -- it did -- but because all of the states and counties are slashing their payroll as stimulus funds go bye-bye. This suggests that now is not the greatest of all possible times to dig into fiscal austerity.

I've said it before and I'll say it again: America has a short-term growth problem and a long-term debt problem. There's no reason why we can't address both in turn. Going gonzo in debt right now strikes me as counterproductive. Of course, if now is the only time we can address debt, then we'll do what we gotta do. I guess the combination of a recession and a Dem administration makes this the time to do it? Hmm.

I read somewhere that Germany has a sixteen-year plan to deal with restructuring its debt and deficits. Knowing the krauts, I expect they'll pull it off flawlessly. Calling for a balanced budget right now, on the other hand, strikes me as calling for another recession.

Cutting spending endangers the recovery. Significantly raising taxes endangers the recovery. Most economists would say that this is the time when you take a deep breath and deal with deficits until the economy is back on track. We'll see how this plays out, however Maybe our economy can handle constriction in the federal state and county guvmint budgets. Maybe. If so, then release the doves and put John Philip Sousa on the gramaphone.

This is if you believe in a Keynesian economic policy which the USA has subscribed to for decades. This does not make it right.

Government spending is like band aid infected with AIDS

[Subotan]

This is if you believe in a Keynesian economic policy which the USA has subscribed to for decades. This does not make it right.

whaaaaaattt

[Centurion1]

whaaaaaattt

Through the 1950s, moderate degrees of government demand leading industrial development, and use of fiscal and monetary counter-cyclical policies continued, and reached a peak in the "go go" 1960s, where it seemed to many Keynesians that prosperity was now permanent. In 1971, Republican US President Richard Nixon even proclaimed "we are all Keynesians now".[18] However, with the oil shock of 1973, and the economic problems of the 1970s, modern liberal economics began to fall out of favor. During this time, many economies experienced high and rising unemployment, coupled with high and rising inflation, contradicting the Phillips curve's prediction. This stagflation meant that the simultaneous application of expansionary (anti-recession) and contractionary (anti-inflation) policies appeared to be necessary, a clear impossibility. This dilemma led to the end of the Keynesian near-consensus of the 1960s, and the rise throughout the 1970s of ideas based upon more classical analysis, including monetarism, supply-side economics[18] and new classical economics. At the same time, Keynesians began during the period to reorganize their thinking (some becoming associated with New Keynesian economics); one strategy, utilized also as a critique of the notably high unemployment and potentially disappointing GNP growth rates associated with the latter two theories by the mid-1980s, was to emphasize low unemployment and maximal economic growth at the cost of somewhat higher inflation (its consequences kept in check by indexing and other methods, and its overall rate kept lower and steadier by such potential policies as Martin Weitzman's share economy).[19]

There was a lack of consensus among macroeconomists in the 1980s. However, the advent of New Keynesian economics in the 1990s, modified and provided microeconomic foundations for the neo-Keynesian theories. These modified models now dominate mainstream economics.

FDR also obviously followed to a form of Keynesian economics as well. I never said any of the people using it were necessarily purists nor that it was an unbroken chain of proponents of the theories of Mr. Keynes but at least some form of Keynesian policy was used. There was a break in the 80's when it fell out of favor following the economic failures of the 1970's and altered theories came to prominence in the 1990's till now which I believe would alone constitute the term "decades"

so yeah....... pretty easy stuff to find out on your own so that you don't have to be corrected trying to correct me.

[Subotan]

It has only become mainstream within the past three years or so. Prior to that point, from about 1982 onwards, "Keynesian" was practically a pejorative.

[Xiahou]

Um, government spending is supposed to be a "band-aid while the economy heals." That's the whole concept. Government spending doesn't create long-term wealth; everybody knows that, or ought to. But when demand dries up, the only entity that can temporarily soften the blow is the guvmint.

Do you think that still applies if all the additional government spending is borrowed money? Think about it- deficit spending means the government must sell bonds to spend the money. To sell bonds, someone has to be buying bonds. Buying treasury bonds ties up money that could otherwise have been invested elsewhere in the economy.

If the additional spending was coming from a government "rainy day" fund, I think what you say would be correct. But all the borrowing is bound to have a crowding out effect on private investments.

[Lemur]

Government spending is like band aid infected with AIDS

Vivid!

[D]eficit spending means the government must sell bonds to spend the money. To sell bonds, someone has to be buying bonds. Buying treasury bonds ties up money that could otherwise have been invested elsewhere in the economy.

Sure, this is something economists have been arguing about for decades. Remember when it looked like we'd be buying back all of them government bonds in the '90s? There was a lot of panic about what effect not having government debt would do. Seems so naive and quaint at this reserve.

Absolutely, government debt gobbles up some investment capital. What effect does this have? Who knows? People buy bonds for stability, so I would imagine that a lot of that money would pour into other "safety" investments. Commodities would probably shoot up, as would muni bonds.

If I had to choose between deficit spending intended to prop up the economy vs. doing nothing (or worse, a 44% unplanned constriction in fed funds), I'd pick the deficit. For now. Long-term it's unsustainable, of course, but nobody in their right mind is arguing that we should continue deficit spending indefinitely. Short term problem: growth. Long-term problem: debt.