Think big deficits cause recessions? Think again!

[DA60]

Modern economics does not boil down to avoiding recessions, it boils down to lessening the amplitude of the economic cycle for a more reasonable path of economic growth by overall trend. So there is avoidance of economic bubbles, and avoidance of massive economic collapses. There can still be expansion and contraction under even the most strict modern day Keynesian principles of economics.

Now, we do not politically bother to listen to those principles which is why we have a realized bubble and pop economic model anyway. Usually at the hands of political stupidity.

It's not just politicians. Listen to many/most economists on tv and they are as seemingly paranoid about recessions as elected officials.

Even the Fed is clearly scared to death of a recession. They did not used to be...but they sure are now (seemingly).

 

[David_N]

It's not just politicians. Listen to many/most economists on tv and they are as seemingly paranoid about recessions as elected officials.

Even the Fed is clearly scared to death of a recession. They did not used to be...but they sure are now (seemingly).

I'm really upset that, after the recent crisis, we're doing absolutely nothing to tackle the causes, hell, private sector debt, if we want to get back to growth we saw in the 90's, will have to reach levels I can't imagine. And at a time when both parties praise deficit reduction..

 

[DA60]

I hear about it all the time.
"The debt is going to kill our kids! We all owe $46,000! If we don't cut this deficit, the private sector will die!"
A surplus can indeed cause a recession, just like a deficit. It all depends on what conditions are like. If we have plenty of unemployed/unused supply, deficit spending is the right thing to do.

You mean in your opinion (and other like minded people)

You cannot know it is the right thing to do...you can only believe.

Just sayin'...


BTW - my opinion is that outside of war or a major disaster, deficit spending is NEVER the right thing to do.

 

[David_N]

You mean in your opinion (and other like minded people)

You cannot know it is the right thing to do...you can only believe.

Just sayin'...

So what's the alternative? Sit around and do nothing? Look, the government is supposed to look out for the general welfare, when people are unemployed, when there are homeless people with open houses everywhere..

 

[OrphanSlug]

It's not just politicians. Listen to many/most economists on tv and they are as seemingly paranoid about recessions as elected officials.

Even the Fed is clearly scared to death of a recession. They did not used to be...but they sure are now (seemingly).

No, they are paranoid about self inducing recessions by doing things that do not make economic sense. There is a difference.

One of the things I will agree to is our Total Debt to GDP shot back up for 2015 Q4 to 104.1%, but our deficit to GDP is still trending flat.

I have no problems evaluating how spending is occurring through various means of government spending by department, but I have major problems with some arbitrary cut to government spending overall without being mindful of the consequences to the economy.

The same point is true though, if we cut government spending without any real indication as to what consumption and investment does then we are self inducing a recession.

 

[Anthony60]

The OP overall suggestion is much too vague, IMO.

That's true. I doubt it is the reduction in debt that is causing a recession. It's like saying if you pay off your mortgage, it will worsen your financial state, and you should really double your mortgage to make things better. It seems to me that the government is just pulling too much money out of the economy, with even less in return that normal.

 

[David_N]

That's true. I doubt it is the reduction in debt that is causing a recession. It's like saying if you pay off your mortgage, it will worsen your financial state, and you should really double your mortgage to make things better. It seems to me that the government is just pulling too much money out of the economy, with even less in return that normal.

A surplus pulls money out, a deficit is the government spending past tax receipts.

 

[DA60]

So what's the alternative? Sit around and do nothing? Look, the government is supposed to look out for the general welfare, when people are unemployed, when there are homeless people with open houses everywhere..

I have stated this many times...recessions end quickest when they are allowed to fix themselves.

Sure, spend a little extra to make sure everyone has adequate food/shelter and medical care while things are rough.

But 'printing' your way out of a recession never works long term.

Look at the three worst recessions/depressions of the last 100 years in America (1920-21 Depression, Great Depression, Great Recession).
The last two saw MASSIVE government intervention and the result was 10 years after the 1929 crash that unemployment was still five times worse then before the crash and the DOW never reached more then 52% of it's pre-crash high. And today you have stagnation and massive income inequality (largely because the Fed artificially propped up the stock market - which helps the wealthy).
The 1920/21 Depression? The government cut tax rates and balanced the post WW1 budget. Result? Both the unemployment rate and the DOW returned to near pre-crash levels within 3 1/2 years and the national debt actually dropped.

The idea that you have to spend your way out if recessions is not supported by history.

 

[Moderate Right]

I swear liberals are so good at digging up stats and forcing puzzle pieces together that don't fit right in order to prove their points.

 

[DA60]

No, they are paranoid about self inducing recessions by doing things that do not make economic sense. There is a difference.

One of the things I will agree to is our Total Debt to GDP shot back up for 2015 Q4 to 104.1%, but our deficit to GDP is still trending flat.

I have no problems evaluating how spending is occurring through various means of government spending by department, but I have major problems with some arbitrary cut to government spending overall without being mindful of the consequences to the economy.

The same point is true though, if we cut government spending without any real indication as to what consumption and investment does then we are self inducing a recession.

No, I am not wrong.

I said they are paranoid about recessions (actually, I typed 'seemingly' paranoid). I did not specify why they are seemingly paranoid.

Since you agree that they are paranoid about recessions...then by your own statement, I am not wrong in that assessment.


As for the rest of your post...I have no idea where that is coming from as I made no mention in the post you quoted of the things you list.

 

[David_N]

I have stated this many times...recessions end quickest when they are allowed to fix themselves.

Sure, spend a little extra to make sure everyone has adequate food/shelter and medical/dental care.

But 'printing' your way out of a recession never works long term.

Look at the three worst recessions/depressions of the last 100 years in America (1920-21 Depression, Great Depression, Great Recession).
The last two saw MASSIVE government intervention and the result was 10 years after the 1929 crash that unemployment was still five times worse then before the crash and the DOW never reached more then 52% of it's pre-crash high. And today you have stagnation and massive income inequality (largely because the Fed artificially propped up the stock market - which helps the wealthy).
The 1920/21 Depression? The government cut tax rates and balanced the post WW1 budget. Result? Both the unemployment rate and the DOW returned to near ore-crash levels within 3 1/2 years and the national debt actually dropped.

The idea that you have to spend your way out if recessions is not supported by history.

They do?
Not according to history.
Look at the amount of time the US stayed in recession before Keynesian thought came to the front. Countercylical fiscal policy works. It's just reality.
It doesn't work long term? Deficit spending by definition is "printing." The government has always run a net deficit. What's the problem?
Alright, I'm with you. 1920-21. Let's look at that one first.
Social Democracy for the 21st Century: A Post Keynesian Perspective: The “Depression” of 1920–1921: The Libertarian Myth that Won’t Die
1920-1921 could hardly be called a "depression," since real output didn't fall close to 10%.

Year | GNP* | Growth Rate
1914 | $414.599
1915 | $443.048 | 6.86%
1916 | $476.498 | 7.54%
1917 | $473.896 | -0.54%
1918 | $498.458 | 5.18%
1919 | $503.873 | 1.08%
1920 | $498.132 | -1.13%
1921 | $486.377 | -2.35%
1922 | $514.949 | 5.87%
1923 | $583.105 | 13.23%
* Billions of 1982 dollars
(Romer 1989: 23).

The recession lasted 18 months, a long one by the standards of post 1945. (Damn keynesians!)

The average duration of US recessions in the post-1945 era of classic Keynesian demand management (1945–1980) and the neoliberal era (1980–2010) has been about 11 months (Carbaugh 2010: 248; Knoop 2010: 13). So far from being some remarkably quick recession that was shorter than post-1945 recessions, it was about 7 months longer than the post-1945 average.

Oh, and about that recession without the gubment...

At 12.29–12.33, Grant says that the recession of 1920 to 1921 was “the last governmentally unmediated major business cycle downturn.” This is untrue. Why? Because the Federal Reserve existed, and engaged in both open market operations and interest rate reductions as a deliberate strategy to stimulate recovery. In particular, by April and May 1921, the Federal Reserve member banks dropped their rates to 6.5% or 6%. In November 1921, there were further falls in discount rates: rates fell to 4.5% in the Boston, Philadelphia, New York, and to 5% or 5.5% in other reserve banks (D’Arista 1994: 62).

From the perspective of libertarian ideologues, it was worse than this, because other government interventions occurred as follows:
(1) a proto-form of quantitative easing by the Federal Reserve in which there were open market operations in late 1921–1922 to aid recovery, and in which the Federal Reserve bought government bonds from November 1921 to June 1922 and tripled its holdings from $193 million in October 1921 to $603 million by May 1922 (a fact even noted by Rothbard 2000: 133).

(2) direct credit allocation by the government “War Finance Corporation” and the “Federal Land Bank system” from early 1921, in which loans were granted to distressed farm cooperatives and other agricultural businesses. In August 1921, the War Finance Corporation corporation even became a rediscount agency for agricultural and livestock producers.

(3) there was even some limited deficit-financed public works, in the form of municipal bonds.
What should be particularly embarrassing for libertarians and Austrians is that all these interventions were known to and described by Rothbard (see Rothbard 2000: 137–138, 191–193).

 

[David_N]

I have stated this many times...recessions end quickest when they are allowed to fix themselves.

Sure, spend a little extra to make sure everyone has adequate food/shelter and medical care while things are rough.

But 'printing' your way out of a recession never works long term.

Look at the three worst recessions/depressions of the last 100 years in America (1920-21 Depression, Great Depression, Great Recession).
The last two saw MASSIVE government intervention and the result was 10 years after the 1929 crash that unemployment was still five times worse then before the crash and the DOW never reached more then 52% of it's pre-crash high. And today you have stagnation and massive income inequality (largely because the Fed artificially propped up the stock market - which helps the wealthy).
The 1920/21 Depression? The government cut tax rates and balanced the post WW1 budget. Result? Both the unemployment rate and the DOW returned to near pre-crash levels within 3 1/2 years and the national debt actually dropped.

The idea that you have to spend your way out if recessions is not supported by history.

Oh god, don't even get me started on the cherrypicking in reference to the great depression. You really don't know what you're talking about.
Here is what we know:
http://www.fdrlibrary.marist.edu/aboutfdr/budget.html
FDR began his presidency promising a balanced federal budget.

From 1933 to 1937, FDR maintained his belief in a balanced budget, but recognized the need for increased government expenditures to put people back to work. Each year, FDR submitted a budget for general expenditures that anticipated a balanced budget, with the exception of government expenditures for relief and work programs.

NOW THIS IS HILARIOUS!

As the economy improved, more Americans were working, and there was an anticipation of increased tax revenues as a result of the recovery. From 1933 to 1937, unemployment had been reduced from 25% to 14% - still a large percentage, but a vast improvement. FDR's reaction was to turn back to the fiscal orthodoxy of the time, and he began to reduce emergency relief and public works spending in an effort to truly balance the budget. The country then lurched into what is now known as the Roosevelt Recession of 1937-1938. Unemployment threatened to rise to pre-New Deal levels, and the economy came grinding to a halt.

LMAO. And what caused it??? Reduced government involvement! Don't you find that hysterical! :lamo

 

[David_N]

I have stated this many times...recessions end quickest when they are allowed to fix themselves.

Sure, spend a little extra to make sure everyone has adequate food/shelter and medical care while things are rough.

But 'printing' your way out of a recession never works long term.

Look at the three worst recessions/depressions of the last 100 years in America (1920-21 Depression, Great Depression, Great Recession).
The last two saw MASSIVE government intervention and the result was 10 years after the 1929 crash that unemployment was still five times worse then before the crash and the DOW never reached more then 52% of it's pre-crash high. And today you have stagnation and massive income inequality (largely because the Fed artificially propped up the stock market - which helps the wealthy).
The 1920/21 Depression? The government cut tax rates and balanced the post WW1 budget. Result? Both the unemployment rate and the DOW returned to near pre-crash levels within 3 1/2 years and the national debt actually dropped.

The idea that you have to spend your way out if recessions is not supported by history.

The income inequality/stagnation goes back to neoliberalism being adopted by both parties and the decimation of labor unions.

 

[David_N]

I swear liberals are so good at digging up stats and forcing puzzle pieces together that don't fit right in order to prove their points.

You're in over your head MR. Go back to your other thread.

 

[Master PO]

Yeah, LOOK at number 6. "The debt was reduced by 36% to 16.2 billion." That's debt free? What was 16.2 billion dollars in 1929 compared to todays dollars???

War decreases unemployment. Massive government spending on public works is also the typical go-to answer to unemployment. But massive government spending increases debt which increases taxation which drains money from the common herd and syphons it into the pockets of the very wealthy. Debt only helps banks and the wealthy, not the economy.

2.25 trillion dollars

 

[Moderate Right]

You're in over your head MR. Go back to your other thread.

Just can't stand the truth now can you? It's cheating when you take puzzle pieces and force them to fit in order to solve the puzzle.

 

[DA60]

Oh god, don't even get me started on the cherrypicking in reference to the great depression. You really don't know what you're talking about.
Here is what we know:
http://www.fdrlibrary.marist.edu/aboutfdr/budget.html
FDR began his presidency promising a balanced federal budget.

NOW THIS IS HILARIOUS!

LMAO. And what caused it??? Reduced government involvement! Don't you find that hysterical! :lamo

:roll:

Spin it all you wish.


A) was ANY statistic I listed erroneous...Yes or no?

B) and what was this magical unemployment rate before the '37/'38 recession? A whopping 14%. Which is still almost 5 times(?!?) worse then it was before the crash. That is how wonderful 7/8 years of massive government intervention under Hoover/FDR did at reducing unemployment.

Unemployment Statistics during the Great Depression

 

[David_N]

Just can't stand the truth now can you? It's cheating when you take puzzle pieces and force them to fit in order to solve the puzzle.

What truth? That deficits can't be linked to any recessions?

 

[DA60]

They do?
Not according to history.
Look at the amount of time the US stayed in recession before Keynesian thought came to the front. Countercylical fiscal policy works. It's just reality.
It doesn't work long term? Deficit spending by definition is "printing." The government has always run a net deficit. What's the problem?
Alright, I'm with you. 1920-21. Let's look at that one first.
Social Democracy for the 21st Century: A Post Keynesian Perspective: The “Depression” of 1920–1921: The Libertarian Myth that Won’t Die
1920-1921 could hardly be called a "depression," since real output didn't fall close to 10%.

The recession lasted 18 months, a long one by the standards of post 1945. (Damn keynesians!)

Oh, and about that recession without the gubment...

Where exactly did I say the government was not involved at all in the 1920/21 Depression?

All I said was they lowered tax rates and balanced the budget...which they did.

In fact, the federal debt dropped over 10% DURING the 1920/21 Depression.

https://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo3.htm

 

[David_N]

:roll:


A) was ANY statistic I listed erroneous...Yes or no?

B) and what was this magical unemployment rate before the '37/'38 recession? A whopping 14%. Which is still almost 5 times(?!?) worse then it was before the crash. That is how wonderful 7/8 years of massive government intervention under Hoover/FDR did at reducing unemployment.

A.) No, but your statistics are a perfect example of misrepresenting the situation.
B.) 14% was a HUGE improvement, and this was with spending by a man who wanted to balance the budget! He actually tried in 37/38 and look what happened! LMAO. Yeah, the intervention really did work! If only they had spent more..

 

[David_N]

Where exactly did I say the government was not involved at all in the 1920/21 Depression.

All I said was they lowered tax rates and balanced the budget...which they did.

Lowering taxes is what should be done. Balancing the budget is not. Anyways, the recession of 1920/21 (Not a depression by any sense of the word) was an anomaly, and still longer then recessions by post 1945 standards.

 

[Ellis_G]

It's not just politicians. Listen to many/most economists on tv and they are as seemingly paranoid about recessions as elected officials.

Even the Fed is clearly scared to death of a recession. They did not used to be...but they sure are now (seemingly).

It's because recessions make economist look like fools, as they've been parroting on for decades now that they can avoid them, or one isn't coming or whatever.

Oh god, don't even get me started on the cherrypicking in reference to the great depression. You really don't know what you're talking about.
Here is what we know:
http://www.fdrlibrary.marist.edu/aboutfdr/budget.html
FDR began his presidency promising a balanced federal budget.

NOW THIS IS HILARIOUS!

LMAO. And what caused it??? Reduced government involvement! Don't you find that hysterical! :lamo

Or the 37-38 recession was due to the natural business cycle? Considering it was 8 years after the 29-30 recession, and we get a recession every 3-9 years.

 

[David_N]

Or the 37-38 recession was due to the natural business cycle? Considering it was 8 years after the 29-30 recession, and we get a recession every 3-9 years.

The 37-38 recession I've already touched on.
You might want to see what caused it:

FDR's reaction was to turn back to the fiscal orthodoxy of the time, and he began to reduce emergency relief and public works spending in an effort to truly balance the budget. The country then lurched into what is now known as the Roosevelt Recession of 1937-1938. Unemployment threatened to rise to pre-New Deal levels, and the economy came grinding to a halt.

 

[Ellis_G]

The 37-38 recession I've already touched on.
You might want to see what caused it:

No, I'm saying it didn't, I'm saying that the recession was just due to the natural business cycle, considering it had been 8 years since the last one. You need to stop think the government has a big impact on the economy, If it did Obama deficit spending $1tn+ per year should have had the economy roaring.

 

[DA60]

A.) No, but your statistics are a perfect example of misrepresenting the situation.
B.) 14% was a HUGE improvement, and this was with spending by a man who wanted to balance the budget! He actually tried in 37/38 and look what happened! LMAO. Yeah, the intervention really did work! If only they had spent more..

So, massive government intervention between the crash of 1929 (when unemployment was 4%) and 1937 (when unemployment was 14%) is your idea of a government policy that 'really did work'? Eight years of a policy that resulted in an unemployment rate almost five times higher? Noted.

And the old 'yeah, but the rate was at 25%'.
Sure it was. Now prove that the rate getting that high had nothing to do with the massive government intervention and that had they stated out of the way (more or less) that the rate would still have gotten that high?
The answer is...you cannot.