Growing the economy

[csbrown28]

I it possible to to shrink the debt and grow the economy?

If so, how?

 

[DA60]

Canada slashed their huge deficit in the 90's and ran 13 years of surpluses...and their economy did generally great during that time.

Clinton balanced the budget and the economy did well.

Whereas Japan has run one massive deficit after another for decades and what has it got them? The famous 'lost decade' which is becoming 'the lost generation', a stock market not even half of what it was in 1990, at least four times as many negative GDP quarters as America has had since the early 90's AND roughly 45% of their federal taxes goes just towards debt servicing. They are so desperate that they have their Central bank actually buying huge amounts of stocks directly (through ETF's) to try and pump up the markets.

I will not debate these facts as it is clear that many/most people that love deficits have INCREDIBLY closed minds on the subject...the effort would be wasted.

But this idea that some/many people have that you have to run deficits to grow an economy is absolute nonsense and proven wrong by history time and time and time again.

 

[PIPEWRENCH]

I it possible to to shrink the debt and grow the economy?

If so, how?

Absolutely. Just imagine everyone going out and getting a loan for a car, house, remodel their house, and then also buying as much as possible on their credit cards till they are all maxed. It would be a year or two of steak and lobster until everyone maxed out. The economy would grow more than any time in recorded history.

The problem is nothing is free and at some point someone has to pay. Unfortunately that year of two or even longer depending on the amount of time it took to max out your debt will end. Then someone has to pay. The spending years are the good times and the pay back are the bad times. We have been doing this over and over for more than a hundred years.

The gold act of 1933 was a pay back. The dollar was devalued by over 50% basically taking half the wealth from every person in this country.

This current collapse goes back to the the good times of easy credit that led to the housing collapse. The fed this time printed a bunch of money that devalued the dollar to pay for it.

If you happen to live in the good times when the government is allowing everyone to charge than you are fortunate. If you are stuck in the times of paying back then you get screwed.

 

[ttwtt78640]

Of course it is. Borrowing is not, in and of itself, a bad thing - the distinction is how that borrowed money is being used. Borrowing to simply support current consumption is vastly different than borrowing to create more infrastructure. If I were to borrow to get all sorts of cool home entertainment toys then that is far different than if I were to borrow to buy tools or to expand my workshop making me more productive.

 

[Baralis]

I it possible to to shrink the debt and grow the economy?

If so, how?

How? It may not be popular or the way to go but you did not add any stipulations.

Cap income to 2 million a year, everything above that is taxed 100%

This would achieve two things, It would raise tax revenues by a large margin but for those not wanting to send their money into the IRS they could take the other option and that is to spread (pay) that money out among others that make less than 2M, people who are much more likely to spend a great deal of that money, thus boosting the economy and lowering out deficit.

 

[joG]

I it possible to to shrink the debt and grow the economy?

If so, how?

Run a large surplus, when the economy booms, like it did under Clinton.

 

[joG]

Canada slashed their huge deficit in the 90's and ran 13 years of surpluses...and their economy did generally great during that time.

Clinton balanced the budget and the economy did well.

Whereas Japan has run one massive deficit after another for decades and what has it got them? The famous 'lost decade' which is becoming 'the lost generation', a stock market not even half of what it was in 1990, at least four times as many negative GDP quarters as America has had since the early 90's AND roughly 45% of their federal taxes goes just towards debt servicing. They are so desperate that they have their Central bank actually buying huge amounts of stocks directly (through ETF's) to try and pump up the markets.

I will not debate these facts as it is clear that many/most people that love deficits have INCREDIBLY closed minds on the subject...the effort would be wasted.

But this idea that some/many people have that you have to run deficits to grow an economy is absolute nonsense and proven wrong by history time and time and time again.

Clinton should have run a large surplus. That would have helped slow the dot.com buildup and we would not be in the situation we are in.

 

[csbrown28]

So the public taking on additional debt to finance consumer spending is "growth"?

When the government "borrows" The private sector is the beneficiary of that spending. When the private sector borrows from banks to finance its spending the net between the private sector households and private sector businesses is zero, it has to be. When taking into account interest, it's negative. If there is "growth" in the economy when the government is reducing debt it has to be coming from exports or somewhere else. If the private sector overspends it must deleverage and during this time consumption will fall just as it rose during it's borrowing binge. I suspect that if we eliminated government spending and exports, we'd find very little per-capita growth. Futhermore when the private sector borrows and the government is reducing or eliminating spending, then this results in an increase in the demand for capital. This would in turn cause interest rates to rise only exacerbating the problem.

In the case of Canada, I suspect that it's lowering its debt is due to increased exports over the same time. When pouring over Canadian statistics there is a lot to mull though and either side of a healthy/unhealthy outlook for Canada can find evidence to their position. I find the most compelling piece of evidence in the fact that the Full time employment rate for men 25-54 which was close to 86% in 1990 has never exceeded that number since and is down 7% since 1990. Canada is a reasonably small population reliant primarily on a single export, that being energy. There are lots of other mitigating factors including the surge in it's population, immigration and women entering the workforce. Sterilizing these statistics over time is hard, getting consensus on what leveling out the numbers over time taking into account changing demographics is close to impossible.

 

[Absentglare]

I it possible to to shrink the debt and grow the economy?

If so, how?

All income falls under the FIT including capital gains and dividends.

FIT rates lowered. Tax deductions removed. Tax code simplified. Overall revenue still increases to just exceed current spending.

Welfare reform- need to stop drawing these lines where benefits get cut off. Government forces companies to demonstrate profit margins. In some industries with large profit margins (like Comcast), set up the government to compete with companies like Comcast by employing welfare recipients. Employ the unemployed to put these businesses in check. Temporary expenditure to set up, should pay for itself pending tactful deployment in profitable sectors.

 

[Reformedfindlay]

Sure, eliminating waste while not slashing even a penny of anything that goes into investing for the future (education, infrastructure, etc.).

I would argue that if we were running deficits because we invest A LOT in to our future, then deficits would be great for the economy, as opposed to being austere and having surpluses but not investing in the future.

A lot of it comes down to waste vs invest

Deficits aren't bad by virtue of being deficits, nor are surpluses good by virtue of being surpluses.

 

[csbrown28]

Sure, eliminating waste while not slashing even a penny of anything that goes into investing for the future (education, infrastructure, etc.).

I would argue that if we were running deficits because we invest A LOT in to our future, then deficits would be great for the economy, as opposed to being austere and having surpluses but not investing in the future.

A lot of it comes down to waste vs invest

Deficits aren't bad by virtue of being deficits, nor are surpluses good by virtue of being surpluses.

Surpluses are by definition, the Government taking more money in than it spends back into the economy as a percentage of GDP. Is there a broad instance of where your claim with regard to surpluses would be true?

Edit: My unstated assumption is the Government's surplus is the private sector's deficit. Given that we are a net importer, exports won't help as they have in Canada.

 

[OrphanSlug]

I it possible to to shrink the debt and grow the economy?

If so, how?

Of course it is possible. It just becomes more of a challenge when you run an economic model dependent upon government spending, which tends to push that spending to the point of adding new debt no matter what the condition of the economy (or, where we are in the economic cycle.) The question then becomes what is the design of the economic policy that tends to ensure continued debt in economic models dependent on the government.

Are we talking about economic policy that is designed to prop-up and/or boost short-term demand with stimulus spending? The general idea being that GDP can be accounted for by increasing government spending (G) as an effort to boost aggregate demand, eventually the economic model improves suggesting short term additions to debt. Or, so the theory goes.

Alternatively, are we talking about some derivative of supply side economics where if wealth is boosted and/or encouraged to invest then everyone else does well (the so called "trickle down theory" sometimes in concert with austerity measures?) The general idea being that if wealth is confident in the economic model, investment will lead to boosted GDP via private investment (I.) Again, or so the theory goes.

Our inherent problem is government economic policy tends to be more about political benefit than economic theory, so handling aggregate demand concerns becomes secondary at best. That is another way of saying that today's Democrats are no more about Keynesian Economics than Republicans are about alternative economics. It is all a game of pandering to political support and ultimately votes, and that gets in the way of sound economic policy.

That basic fact explains why we tend to add to Total Debt (usually Debt held by the Public) no matter who controls the White House, who controls Congress, what the Fed is doing, and wherever we are in the economic cycle. We add to debt during contraction, recession, at the point of Trough, during the recovery, well into expansion, and of course right up to the point of the next economic peak. Debt, debt, and more debt just for good measure. Complements of a Fiat Money System, that inherently allows for monetary value degrade to handle persistent debt spending demands. The average growth trend line of our economic model then is mostly irrelevant, and has in itself been dependent upon government spending going back decades now. Again, no matter if times are good or not so good. There is always a political reason to go into more debt without it really being sound economically (or fiscally.)

Our real challenge then is getting to a point where GDP growth is not entirely dependent upon government spending every single year to handle our bubble and pop economic model. That is a real challenge and presents a real departure from whatever ole (D) and (R) tells you is sound economic policy.

I would argue that our real economic growth is how well we set conditions for entrepreneurship and employee hiring, and it means considering what Keynes was saying (as in what he was really saying... not what today's Democrats and Liberals try to tell you about deficit spending all the time, debt does no matter, micro-manage the economy, and all the other nonsense that Keynes never actually said.)

 

[gdgyva]

How? It may not be popular or the way to go but you did not add any stipulations.

Cap income to 2 million a year, everything above that is taxed 100%

This would achieve two things, It would raise tax revenues by a large margin but for those not wanting to send their money into the IRS they could take the other option and that is to spread (pay) that money out among others that make less than 2M, people who are much more likely to spend a great deal of that money, thus boosting the economy and lowering out deficit.

so you just want to steal from anyone making more than 2 million a year

isnt that nice

:shock:

 

[csbrown28]

How? It may not be popular or the way to go but you did not add any stipulations.

Cap income to 2 million a year, everything above that is taxed 100%

This would achieve two things, It would raise tax revenues by a large margin but for those not wanting to send their money into the IRS they could take the other option and that is to spread (pay) that money out among others that make less than 2M, people who are much more likely to spend a great deal of that money, thus boosting the economy and lowering out deficit.

I can't imagine anything but total chaos with something like this. First, creating alternative ways to hide your income would become the largest industry in the US, second, I could see other simply leaving the economy and going where caps don't exist.

 

[csbrown28]

Of course it is possible. It just becomes more of a challenge when you run an economic model dependent upon government spending, which tends to push that spending to the point of adding new debt no matter what the condition of the economy (or, where we are in the economic cycle.) The question then becomes what is the design of the economic policy that tends to ensure continued debt in economic models dependent on the government.

Are we talking about economic policy that is designed to prop-up and/or boost short-term demand with stimulus spending? The general idea being that GDP can be accounted for by increasing government spending (G) as an effort to boost aggregate demand, eventually the economic model improves suggesting short term additions to debt. Or, so the theory goes.

Alternatively, are we talking about some derivative of supply side economics where if wealth is boosted and/or encouraged to invest then everyone else does well (the so called "trickle down theory" sometimes in concert with austerity measures?) The general idea being that if wealth is confident in the economic model, investment will lead to boosted GDP via private investment (I.) Again, or so the theory goes.

Our inherent problem is government economic policy tends to be more about political benefit than economic theory, so handling aggregate demand concerns becomes secondary at best. That is another way of saying that today's Democrats are no more about Keynesian Economics than Republicans are about alternative economics. It is all a game of pandering to political support and ultimately votes, and that gets in the way of sound economic policy.

That basic fact explains why we tend to add to Total Debt (usually Debt held by the Public) no matter who controls the White House, who controls Congress, what the Fed is doing, and wherever we are in the economic cycle. We add to debt during contraction, recession, at the point of Trough, during the recovery, well into expansion, and of course right up to the point of the next economic peak. Debt, debt, and more debt just for good measure. Complements of a Fiat Money System, that inherently allows for monetary value degrade to handle persistent debt spending demands. The average growth trend line of our economic model then is mostly irrelevant, and has in itself been dependent upon government spending going back decades now. Again, no matter if times are good or not so good. There is always a political reason to go into more debt without it really being sound economically (or fiscally.)

Our real challenge then is getting to a point where GDP growth is not entirely dependent upon government spending every single year to handle our bubble and pop economic model. That is a real challenge and presents a real departure from whatever ole (D) and (R) tells you is sound economic policy.

I would argue that our real economic growth is how well we set conditions for entrepreneurship and employee hiring, and it means considering what Keynes was saying (as in what he was really saying... not what today's Democrats and Liberals try to tell you about deficit spending all the time, debt does no matter, micro-manage the economy, and all the other nonsense that Keynes never actually said.)

The question wasn't meant to be that complicated, though I appreciate your in-depth response.

If the government is reducing its spending and the private sector wishes to continue growth, then it must borrow or give up services.

States would also be impacted as a reduction in spending by the government would lead to need for high taxes to maintain services or eliminate services. Lastly a state could increase state-to-state exports. This of course might help resource rich (natural and intellectual) states like CA and TX, but in the aggregate would be a net negative across the economy.

If spending is someone else's income, than it stands to reason that the last place left for "growth" is private sector spending fueled by borrowing (a larger portion of which will go to taxes, if the state is to maintain its spending on services), or exports.

It seems that growth without government deficit spending is as unsustainable of not more so since the states have no power of the creation of the currency. The desire for services won't decline, but the availability will with the only answer being private sector borrowing, which come at much higher cost than government debt and can only be financed by future productivity. When deleveraging happens at the private level, productivity will sink and the deflationary spiral would begin.

Your concerns, it seems to me, seem to be on how to manage the risk that comes with a booming economy.

 

[OrphanSlug]

The question wasn't meant to be that complicated, though I appreciate your in-depth response.

If the government is reducing its spending and the private sector wishes to continue growth, then it must borrow or give up services.

States would also be impacted as a reduction in spending by the government would lead to need for high taxes to maintain services or eliminate services. Lastly a state could increase state-to-state exports. This of course might help resource rich (natural and intellectual) states like CA and TX, but in the aggregate would be a net negative across the economy.

If spending is someone else's income, than it stands to reason that the last place left for "growth" is private sector spending fueled by borrowing (a larger portion of which will go to taxes, if the state is to maintain its spending on services), or exports.

It seems that growth without government deficit spending is as unsustainable of not more so since the states have no power of the creation of the currency. The desire for services won't decline, but the availability will with the only answer being private sector borrowing, which come at much higher cost than government debt and can only be financed by future productivity. When deleveraging happens at the private level, productivity will sink and the deflationary spiral would begin.

Your concerns, it seems to me, seem to be on how to manage the risk that comes with a booming economy.

Look at it this way. If spending were less than tax revenues, then the only borrowing going on would be what government ran trust funds have to engage in as a matter of law. Meaning government could still spend and impact GDP (the G part of the GDP equation) when there is aggregate demand fault.

Your inherent problem is the assumption that all current spending is for "services" that we cannot live without and/or the economy would somehow suffer without. Sure, there is some give and take here but the bottom line is not all government spending and/or economic policy resulting in debt year on year is necessary all the time. There is reasonable economic condition that suggests government is not responsible for proping up GDP.

But our economic model has become accustom to expected growth all the time. It is the reason that 2% growth does not feel like growth at all, 4% seems amazing, and flat growth feels like economic collapse. Dependency on government spending irregardless of the status of the economy suggests better policy is to break that dependence and thus giving us a better chance to decide when running deficits is acceptable and when it is not, and when adding debt is acceptable and when we should avoid doing so.

 

[csbrown28]

Look at it this way. If spending were less than tax revenues, then the only borrowing going on would be what government ran trust funds have to engage in as a matter of law. Meaning government could still spend and impact GDP (the G part of the GDP equation) when there is aggregate demand fault.

Your inherent problem is the assumption that all current spending is for "services" that we cannot live without and/or the economy would somehow suffer without.

Suffering? I would simply say that there would be business that wanted to get don't that would be constrained from doing so due to a lack of fiscal resources. The difference between the two would be forever lost productivity. That would only matter if there were people who wanted to work but could not due to a lack of employment.

But our economic model has become accustom to expected growth all the time. It is the reason that 2% growth does not feel like growth at all, 4% seems amazing, and flat growth feels like economic collapse. Dependency on government spending irregardless of the status of the economy suggests better policy is to break that dependence and thus giving us a better chance to decide when running deficits is acceptable and when it is not, and when adding debt is acceptable and when we should avoid doing so.

Well it would seem that an increase of 105,000 net people entering the workforce per month (2012 stat), growth is necessary. Add to that productivity gains, that is, doing the same amount of work with fewer people, would also increase the need for growth simply to maintain the standard of living.

 

[csbrown28]

All income falls under the FIT including capital gains and dividends.

FIT rates lowered. Tax deductions removed. Tax code simplified. Overall revenue still increases to just exceed current spending.

Net income is reduced when you tax, but gross income remains the same. Reducing taxes doesnt put more money in the system, it allows money already in the system to stay in the system in the hands of individuals and corporations. Simplifying the tax code, while I think it's a great idea doesn't increase the amount of money in the system, it simply puts a lot of accountants out of work. The people that used to pay for accountants can now buy something else.

Moving on.

Let's say you cut the tax rates in 1/2 . For 2013 Federal income taxes were $1.6 trillion dollars.

Now first and foremost you need to consider that vast majority income taxes are paid by the top 10% and the rest are paid by those in the ~50-90th percentile. Those in the bottom 50% pay no taxes and those at the very bottom get some money back. So lowering taxes will do little to grow the economy in any tangible way. Even if you put money into the hands of the top 10%, very little of that money results in increased demand.....And actually, if I were being picky, the bottom 40% pay -9.1% in tax increasing the burden on the system by $160bn dollars, but no matter.

Having said that, let's run with the idea that the economy now has $800 million more than it would have because we slashed taxes and simplified the tax code.

If the federal government is reducing the debt it's forced to run a surplus....To run a surplus it would have to eliminate $680 billion dollars in deficit spending for 2013 just to break even. Just for fun let's say the government runs a $1 surplus and pay's it on the federal debt. This would eliminate $680 billion dollars in spending...Oh, crap, but wait, you advocated reducing taxes. Now in fairness I chose to slash by 1/2, but whatever number you choose, 1/2. 1/3, 1/8th, you have to add that back in as part of next year's deficit. So in order to run a surplus your going to have to eliminate spending equal to whatever tax cut you want to give.

Oops...What about the trade deficit? That results in $471 billion net dollars leaving the economy and without deficit spending (i.e. borrowing by the selling of US Treasuries) you have another close to 1/2 trillion net dollars leaving the economy.

Now as I said in other posts, that $680 billion employs a lot of people. Think of all the money that goes to the states you had to eliminate in order to run a surplus, I just Googled it and for the year 2011 the federal Government spent $607 billion dollars in grants to the states. That's a lot of jobs and that will force states to either raise taxes or slash programs and maintenance on public assets, resulting in, higher taxes or massive layoffs.

There is no growth in an economy that eliminates deficit spending. OS seemed to be arguing that we didn't need to buy all the crap we do now, leading to a reduction in spending, but all reductions in spending eliminate the need for jobs. Spending is somes income. All I see is a shrinking economy given the replies in this post.

Have I missed something??

Private sector debt? Sure, in the sort term the private sector could borrow the money the government isn't spending, and sure in the short term this could result in growth, but a few years at best, over the long term, when those loans are repaid at much higher interest than the federal government pays for it's debt, people will deleverage and when they do the system will collapse without deficit spending.

Welfare reform- need to stop drawing these lines where benefits get cut off. Government forces companies to demonstrate profit margins. In some industries with large profit margins (like Comcast), set up the government to compete with companies like Comcast by employing welfare recipients. Employ the unemployed to put these businesses in check. Temporary expenditure to set up, should pay for itself pending tactful deployment in profitable sectors.

Does this grow government in the face of reduced government spending?

 

[OrphanSlug]

Suffering? I would simply say that there would be business that wanted to get don't that would be constrained from doing so due to a lack of fiscal resources. The difference between the two would be forever lost productivity. That would only matter if there were people who wanted to work but could not due to a lack of employment.

Well it would seem that an increase of 105,000 net people entering the workforce per month (2012 stat), growth is necessary. Add to that productivity gains, that is, doing the same amount of work with fewer people, would also increase the need for growth simply to maintain the standard of living.

Your issue with the argument is the difference between increases in spending as a means to ensure constant spending per capita vs. simply more spending per capita. The former suggests what you are talking about with any population growth, as that occurs then raw spending goes up to keep spending per capita roughly the same. The latter is what really happens, increases in government size and scope where spending per capita goes up, meaning economic system dependency on debt based government spending goes up.

And speaking of maintaining a standard of living, there is no government social safety net to handle some economic fault that keeps up with this concept. Not a single one. They may try and make plenty of adjustments over the year, but none have kept up with CPI or PCE based inflation math.

The basic problem is still the same. To grow the economy means to encourage its activity thus speak to business activity and entrepreneurship, to encourage dependence on government does the exact opposite causing more economic lag than benefit.

 

[fmw]

I it possible to to shrink the debt and grow the economy?

If so, how?

By bringing manufacturing and jobs back home. Incentives and import duties can help in the effort. The problem with our economy started 30 years ago when we started sending our jobs and money to other countries. There won't be any meaningful economic growth until that trend is reversed.

 

[laska]

I think my tax plan below would bring in very high economic growth and high government revenues.

No deductions, no joint filing, no payroll taxes.
$0-$12,000----0%
any additional net income between $12,000-$40,000----10%
any additional net income between $40,000-$100,000----20%
any additional netincome between $100,000-$250,000----28%
any additional net income above $250,000----38%

0% inheritance tax
0% corporate tax
eliminate any taxes companies pay on SSI, Medicaid, unemployment insurance
eliminate the need for companies to provide employee health insurance by each state going to a single payer catastrophic/cash and charity for minor stuff
tax capital gains like regular income at the 10/20/28/38% rates except when companies offer stock to raise money and then have a 15% rate


States:
0% income tax
0% corporate rate
tax carbon at real costs
tax unhealthy stuff at real cost such as non whole foods and beverages, cigarettes, alcohol, etc
raise other revenue through sales tax(no value added taxes) and property tax

 

[laska]

The combination you need is to lower costs on business yet raise taxes on individual's with high incomes. The problem is those on the Right and Left only want to do half of that so we never get that combination.

 

[csbrown28]

Your issue with the argument is the difference between increases in spending as a means to ensure constant spending per capita vs. simply more spending per capita. The former suggests what you are talking about with any population growth, as that occurs then raw spending goes up to keep spending per capita roughly the same. The latter is what really happens, increases in government size and scope where spending per capita goes up, meaning economic system dependency on debt based government spending goes up.

And speaking of maintaining a standard of living, there is no government social safety net to handle some economic fault that keeps up with this concept. Not a single one. They may try and make plenty of adjustments over the year, but none have kept up with CPI or PCE based inflation math.

The basic problem is still the same. To grow the economy means to encourage its activity thus speak to business activity and entrepreneurship, to encourage dependence on government does the exact opposite causing more economic lag than benefit.

So in all honesty I'm not certain where you're going with your first two paragraphs. I'm sure the misunderstanding is mine......If you care to, could you say that another way?

Far as you're last sentence, how much of the $680bn deficit is spent on entitlements? Which is what I assume you mean when you say dependence. Can you explain in more detail what you mean by "lag"?

 

[csbrown28]

I think my tax plan below would bring in very high economic growth and high government revenues.

No deductions, no joint filing, no payroll taxes.
$0-$12,000----0%
any additional net income between $12,000-$40,000----10%
any additional net income between $40,000-$100,000----20%
any additional netincome between $100,000-$250,000----28%
any additional net income above $250,000----38%

0% inheritance tax
0% corporate tax
eliminate any taxes companies pay on SSI, Medicaid, unemployment insurance
eliminate the need for companies to provide employee health insurance by each state going to a single payer catastrophic/cash and charity for minor stuff
tax capital gains like regular income at the 10/20/28/38% rates except when companies offer stock to raise money and then have a 15% rate


States:
0% income tax
0% corporate rate
tax carbon at real costs
tax unhealthy stuff at real cost such as non whole foods and beverages, cigarettes, alcohol, etc
raise other revenue through sales tax(no value added taxes) and property tax

Is this an answer to the OP? You think you can pay down the debt and that this tax plan will still allow for economic growth?

 

[csbrown28]

By bringing manufacturing and jobs back home. Incentives and import duties can help in the effort. The problem with our economy started 30 years ago when we started sending our jobs and money to other countries. There won't be any meaningful economic growth until that trend is reversed.

Bringing jobs home has the net effect of reducing imports and increasing exports. Is that your solution to the OP to become a net exporter?