What makes people think cuts in government spending boost the economy? (1 Viewer)

[David_N]

Question for discussion. Where has this idea come from?
C+I+G+(E-I)
How does cutting G when the economy is experiencing slow growth help anything?
For example, here is Australia:
Australia enters the deflation league of sorry nations | Bill Mitchell – billy blog

The smug Australian government – conservative to the core, dishonest on a daily basis, running a daily scare campaign that all that matters is the fiscal deficit and how our AAA rating from the (corrupt) rating agencies will be lost if we don’t record a fiscal surplus as soon as possible. It fails to mention that we have around 15 per cent (at least) of our willing labour resources not being utilised at present. It fails to mention that inequality and poverty is on the rise. And now, the Australian Bureau of Statistics has told us that this is a government that has finally plunged the nation into a deflationary spiral.

Pathetic.

Meanwhile, in Spain:
Spanish government discretionary fiscal deficit rises and real GDP growth returns | Bill Mitchell – billy blog

On March 31, 2016, the Instituto Nacional de Estadística (Spain’s National Statistics Institute) published the latest quarterly non-financial accounts for the institutional sectors and the data for the – General Government Sector – revealed a 56,608 million euro deficit for Spain’s government sector.
That is equivalent to 5.2 per cent of GDP, much larger than the 4.2 per cent that the last deal with the European Commission stipulated (as above).
As El País reported:
Spain’s 2015 public deficit came in at 5.2% of gross domestic product (GDP) … The €56.6 billion shortfall means that Spain has exceeded its target of 4.2% of GDP agreed with the European Commission by around €10 billion …
Still, 2015 was also a year in which economic growth surpassed all forecasts and tax revenues jumped significantly.

The article doesn’t draw out the obvious causality – higher fiscal deficits courtesy of higher social spending in the regions, higher expenditure on health services, and some large scale public infrastructure projects have driven the higher growth.
Win-Win.
Why call the rise in the deficit above the fiscal rules as “exceeding gloomiest forecasts” just goes to show the bias in the reporting.

I don't even need to discuss the failure of Austerity and the horrific actions of the IMF.

 

[David_N]

And for the record: Tax cuts for individuals who spend most of their income will indeed lead to a boost in consumption, which does boost the economy. But this will contribute to a larger deficit, which isn't a bad thing.

 

[David_N]

Japan is an example of what happens when an economy desperately needs sales and people to stop saving.
When easing gets hard | The Economist
Stupid stuff like this...
+

Since introducing an interest rate of -0.1% on excess bank reserves..

THIS ISN'T GOING TO MAKE BANKS LEND!
Japan helps show the failure of relying on Monetary Policy.

Worse, Japan is once again mired in deflation.

Not so easy to get Inflation..

All in all, the power of the BoJ to overcome structural imbalances in Japan’s economy seems to be diminishing. Large firms have continued to add to their hoards of cash. They now hold close to ¥250 trillion ($2.2 trillion) in cash, a massive 50% of GDP. Capital investment by firms is 7% below its level eight years ago and the gap between corporate cashflow and investment is at record levels, notes Richard Katz of the Oriental Economist, a newsletter.

Nor have firms raised wages much in spite of a tight job market. Pay rises in the order of 5-10% this year are required to boost household consumption, economists argue. Instead, workers at large firms are on track to receive a lower pay rise—an average hike in overall base pay and seniority-related pay of 2.19%—than they did in the previous two years.

 

[Moderate Right]

Question for discussion. Where has this idea come from?
C+I+G+(E-I)
How does cutting G when the economy is experiencing slow growth help anything?
For example, here is Australia:
Australia enters the deflation league of sorry nations | Bill Mitchell – billy blog

View attachment 67200707
Pathetic.

Meanwhile, in Spain:
Spanish government discretionary fiscal deficit rises and real GDP growth returns | Bill Mitchell – billy blog

I don't even need to discuss the failure of Austerity and the horrific actions of the IMF.

I don't think anyone actually ever said that cuts in spending boost the economy but we do need to get our financial house in order and not run up debt that becomes an ever larger percentage of the spending we have. We're just lucky right now that interest rates are low. Austerity is a big word. If we keep our financial house in order true austerity won't be needed. Just because we cut spending a small degree doesn't really mean we are practicing austerity. Austerity was forced on Greece because they had no other choice. They had already gone past the point where their bubble burst. If they had been fiscally responsible in the first place they wouldn't have needed austerity and don't go giving me any crap about how that situation is different.

 

[David_N]

I don't think anyone actually ever said that cuts in spending boost the economy but we do need to get our financial house in order and not run up debt that becomes an ever larger portion of the spending we have. We're just lucky right now that interest rates are low. Austerity is a big word. If we keep our financial house in order true austerity won't be needed. Just because we cut spending a small degree doesn't really mean we are practicing austerity. Austerity was forced on Greece because they had no other choice. They had already gone past the point where their bubble burst. If they had been fiscally responsible in the first place they wouldn't have needed austerity and don't go giving me any crap about how that situation is different.

I unblocked you to respond to this.

I don't think anyone actually ever said that cuts in spending boost the economy

Really? Good to know that you agree.

but we do need to get our financial house

The us government, as a currency issuer, is not like a household. Household debt is a very real burden, government debt? Not so much.

not run up debt that becomes an ever larger portion of the spending we have.

We control how much interest we give to individuals who hold bonds, and it's a political choice to slash other spending. No real constraint.

We're just lucky right now that interest rates are low

The fed controls interest rates.

Austerity is a big word.

No, Pseudopseudohypoparathyroidism is a big word. Austerity is a disease.

If we keep our financial house in order true austerity won't be needed.

Go here: http://www.debatepolitics.com/gover...-going-bankrupt-medicare-social-security.html

Just because we cut spending a small degree doesn't really mean we are practicing austerity.

Who said we're practicing austerity to the degree that other countries are?

Austerity was forced on Greece because they had no other choice.

Err, they could've abandoned the euro and moved to their own currency. Or the IMF could stop decimating Greece and other countries.

If they had been fiscally responsible in the first place they wouldn't have needed austerity and don't go giving me any crap about how that situation is different.

If they had never given up their ability to control their own currency, they'd be in a much better spot.

 

[Fenton]

Question for discussion. Where has this idea come from?
C+I+G+(E-I)
How does cutting G when the economy is experiencing slow growth help anything?
For example, here is Australia:
Australia enters the deflation league of sorry nations | Bill Mitchell – billy blog

View attachment 67200707
Pathetic.

Meanwhile, in Spain:
Spanish government discretionary fiscal deficit rises and real GDP growth returns | Bill Mitchell – billy blog

I don't even need to discuss the failure of Austerity and the horrific actions of the IMF.

Spain already has entire ghost towns with infrustructure and a few airports that were built during the height of Spains property bubble.

All empty, never used.

Its a example of the Keynesian " build it and they will come '' mentallity run amok.

Spain's Ciudad Real airport sold at auction for €10,000 - BBC News

 

[David_N]

Spain already has entire ghost towns with infrustructure and a few airports that were built during the height of Spains property bubble.

All empty, never used.

Its a example of the Keynesian " build it and they will come '' mentallity run amok.

Spain's Ciudad Real airport sold at auction for €10,000 - BBC News

What does this have to do with the fact that Spain's Gdp growth has returned thanks to an increase in its fiscal deficit? And you can't deny that those projects that are now abandoned did indeed lead to thousands employed, etc, etc.. Now, what makes you think Keynesians believe anything of what you claim? Than again, you argue from ideology and simply scream TEXAS TEXAS TEXAS.

 

[Fenton]

What does this have to do with the fact that Spain's Gdp growth has returned thanks to an increase in its fiscal deficit? And you can't deny that those projects that are now abandoned did indeed lead to thousands employed, etc, etc.. Now, what makes you think Keynesians believe anything of what you claim? Than again, you argue from ideology and simply scream TEXAS TEXAS TEXAS.

You screamed Texas, 3 times, not me and I base my ideology on what works which is more than I can say for you.

Yea its easy to increase GDP, just spend yourself into another Soverign debt crisis, just load the banks back up with worthless bonds, create more empty towns with unused infrastructure.

Arbitrary spending "to increase aggregate demand " led to Spains ghost towns and airports, the last thing they need is more empty streets and apartment buildings.

And GDP our of context is a piss poor way to judge the health of a economy. Even MMTers should understand that.

 

[David_N]

You screamed Texas, 3 times, not me and I base my ideology on what works which is more than I can say for you.

Yea its easy to increase GDP, just spend yourself into another Soverign debt crisis, just load the banks back up with worthless bonds, create more empty towns with unused infrastructure.

Arbitrary spending "to increase aggregate demand " led to Spains ghost towns and airports, the last thing they need is more empty streets and apartment buildings.

And GDP our of context is a piss poor way to judge the health of a economy. Even MMTers should understand that.

You screamed Texas, 3 times, not me and I base my ideology on what works which is more than I can say for you.

What works? Supply side economics doesn't work.

Yea its easy to increase GDP, just spend yourself into another Soverign debt crisis, just load the banks back up with worthless bonds, create more empty towns with unused infrastructure.

What debt crisis are we facing?
What worthless bonds? There's a reason they're in demand.
Nothing wrong with some empty towns..

Arbitrary spending "to increase aggregate demand " led to Spains ghost towns and airports, the last thing they need is more empty streets and apartment buildings.

So they focus on repairing existing infrastructure/other initiatives. Infrastructure spending isn't perfect, but you can't deny the benefits of those few ghost towns/airports for the workers and businesses providing the materials.

And GDP our of context

What's out of context?

 

[pdog]

And for the record: Tax cuts for individuals who spend most of their income will indeed lead to a boost in consumption, which does boost the economy. But this will contribute to a larger deficit, which isn't a bad thing.

Not necessarily, you could increase taxes on those with a lower propensity to consume to offset the tax decrease on those with a higher propensity to consume. The net tax "revenue" remains the same, but consumption would increase.

 

[David_N]

Not necessarily, you could increase taxes on those with a lower propensity to consume to offset the tax decrease on those with a higher propensity to consume. The net tax "revenue" remains the same, but consumption would increase.

I'm talking about something like suspending the payroll tax.

 

[Moderate Right]

I unblocked you to respond to this.

Really? Good to know that you agree.

The us government, as a currency issuer, is not like a household. Household debt is a very real burden, government debt? Not so much.

We control how much interest we give to individuals who hold bonds, and it's a political choice to slash other spending. No real constraint.

The fed controls interest rates.

No, Pseudopseudohypoparathyroidism is a big word. Austerity is a disease.

Go here: http://www.debatepolitics.com/gover...-going-bankrupt-medicare-social-security.html

Who said we're practicing austerity to the degree that other countries are?

Err, they could've abandoned the euro and moved to their own currency. Or the IMF could stop decimating Greece and other countries.

If they had never given up their ability to control their own currency, they'd be in a much better spot.

Same old broken record but I'm flattered that you had me blocked. Just proves that you want to ignore the truth and live in your own little fantasy world.

 

[David_N]

Same old broken record but I'm flattered that you had me blocked. Just proves that you want to ignore the truth and live in your own little fantasy world.

I've addressed every one of your points. If you don't want to debate, that's fine...

 

[faithful_servant]

You screamed Texas, 3 times, not me and I base my ideology on what works which is more than I can say for you.

Yea its easy to increase GDP, just spend yourself into another Soverign debt crisis, just load the banks back up with worthless bonds, create more empty towns with unused infrastructure.

Arbitrary spending "to increase aggregate demand " led to Spains ghost towns and airports, the last thing they need is more empty streets and apartment buildings.

And GDP our of context is a piss poor way to judge the health of a economy. Even MMTers should understand that.

Dave is using his usual tactics of cherry-picking, taking facts out of context and assuming correlation equals causation. He leaves out little details like the fact that cuts in gov't have a LONG TERM effect and only focuses on the short term. He ignores the fact that gov't's do not create wealth, they simply move it around and GDP is about the movement of wealth, not the creation of wealth.

 

[pdog]

Spain already has entire ghost towns with infrustructure and a few airports that were built during the height of Spains property bubble.

All empty, never used.

Its a example of the Keynesian " build it and they will come '' mentallity run amok.

Spain's Ciudad Real airport sold at auction for €10,000 - BBC News

Can we get past the fact that our entire infrastructure is in dire NEED of overhaul before we talk about hyperbole like this? Further isnt' a bubble exactly that? A bubble? I suppose you could partly blame the government in the creation of that bubble, but the bubble wasn't caused by deficit spending.

 

[Fenton]

What works? Supply side economics doesn't work.

What debt crisis are we facing?
What worthless bonds? There's a reason they're in demand.
Nothing wrong with some empty towns..

So they focus on repairing existing infrastructure/other initiatives. Infrastructure spending isn't perfect, but you can't deny the benefits of those few ghost towns/airports for the workers and businesses providing the materials.

What's out of context?

Supply side does work. Millions of Americans and thousands of bussineses voting with their feet and moving here, to the GREAT state of Texas prove that Supply side works.

Using incentives to increase private sector investment which leads to job creation is beyond the comprehension of someone who thinks that a Nation could and should spend its way to prosperity

NY and California are both trying to emulate Texas's supply side iniatives by giving tax breaks to Companies that relocate there . NY gives a 10 year tax break to Companies that relocate there so dont tell me Supply side doesn't work, of course it does

And Spain spending led to more than just a few ghost towns. Politicians were actually prosecuted which is what should have happened here.

 

[Moderate Right]

I've addressed every one of your points. If you don't want to debate, that's fine...

I've heard it all before, many times. The trouble is you guys think that we don't understand your views so if you keep on repeating them then maybe it will eventually sink in to us. It doesn't ever occur to you that we do understand your views and dismissed them as poppycock. But, that doesn't stop you from regurgitating the same old stuff over and over again. All of this stuff has been debated over and over numerous times and both sides are still at square one. We will never convince each other of the error of their ways.

 

[pdog]

I'm talking about something like suspending the payroll tax.

oh sure - arguably one of the dumbest things our government does...taxing labor.

 

[fmw]

I'm not sure people think reduced government spending helps the economy. What they fear is that the temporary advantages of government overspending will finally come to an end and the ensuing crash will be miserable. It doesn't matter who prints the money. You cannot pick money from trees forever. It is not a sustainable activity. Just look at the what has happened to countries who have seen a loss in confidence in their currency.

What does help the economy is a reduction in taxation because it leaves more money in the hands of taxpayers who can spend in a sustainable way. The left wing economics will eventually hurt us badly. It can't be otherwise.

 

[pdog]

I don't think anyone actually ever said that cuts in spending boost the economy but we do need to get our financial house in order and not run up debt that becomes an ever larger percentage of the spending we have. We're just lucky right now that interest rates are low. Austerity is a big word. If we keep our financial house in order true austerity won't be needed. Just because we cut spending a small degree doesn't really mean we are practicing austerity. Austerity was forced on Greece because they had no other choice. They had already gone past the point where their bubble burst. If they had been fiscally responsible in the first place they wouldn't have needed austerity and don't go giving me any crap about how that situation is different.

Can you explain what getting "our financial house in order" entails and how it will benefit our economy?

 

[David_N]

Supply side does work. Millions of Americans and thousands of bussineses voting with their feet and moving here, to the GREAT state of Texas prove that Supply side works.

Using incentives to increase privaye sector investment which leads to job creation is beyond the comprehension of someone who thinks that a Nation could and should spend its way to prosperity

NY and California are both trying to emulate Texas's supply side iniatives by giving tax breaks to Companies that relocate their . NY gives a 10 year tax break to Companies that relocate there so dont tell me Supply side doesn't work, of course it does

And Spain spending led to more than just a few ghost towns. Politicians were actually prosecuted which is what should have happened here.

"Great state of Texas." There's a thread about Texas you should dig up..
Jesus, we have a massive amount of excess capital, and businesses are hoarding dollars. A decrease in taxes isn't going to magically spark investment.

 

[David_N]

Dave is using his usual tactics of cherry-picking, taking facts out of context and assuming correlation equals causation. He leaves out little details like the fact that cuts in gov't have a LONG TERM effect and only focuses on the short term. He ignores the fact that gov't's do not create wealth, they simply move it around and GDP is about the movement of wealth, not the creation of wealth.

Ok, demonstrate evidence of the "long term effect."

 

[pdog]

I'm not sure people think reduced government spending helps the economy. What they fear is that the temporary advantages of government overspending will finally come to an end and the ensuing crash will be miserable. It doesn't matter who prints the money. You cannot pick money from trees forever. It is not a sustainable activity. Just look at the what has happened to countries who have seen a loss in confidence in their currency.

What does help the economy is a reduction in taxation because it leaves more money in the hands of taxpayers who can spend in a sustainable way. The left wing economics will eventually hurt us badly. It can't be otherwise.

I understand the fear. What I don't understand is the actual mechanism that would cause such a thing to occur. I can think of no instance where "confidence" is the driving factor for currency value.

 

[pdog]

Supply side does work. Millions of Americans and thousands of bussineses voting with their feet and moving here, to the GREAT state of Texas prove that Supply side works.

Using incentives to increase private sector investment which leads to job creation is beyond the comprehension of someone who thinks that a Nation could and should spend its way to prosperity

NY and California are both trying to emulate Texas's supply side iniatives by giving tax breaks to Companies that relocate there . NY gives a 10 year tax break to Companies that relocate there so dont tell me Supply side doesn't work, of course it does

And Spain spending led to more than just a few ghost towns. Politicians were actually prosecuted which is what should have happened here.

Can I ask you a question? We agree on what inflation is right? To much demand chasing to little productivity? Can we agree on that? Can we also agree that inflation can happen sectoraly?

 

[humbolt]

Dave is using his usual tactics of cherry-picking, taking facts out of context and assuming correlation equals causation. He leaves out little details like the fact that cuts in gov't have a LONG TERM effect and only focuses on the short term. He ignores the fact that gov't's do not create wealth, they simply move it around and GDP is about the movement of wealth, not the creation of wealth.

All very true regarding the OP. I'm still wondering exactly what "people" the OP might be referring to. I don't know of a soul who believes what is described.