I for one do not view the deficit as that bad of a thing. Here's the way I look at it:
Cutting Taxes promotes economic growth, which I view as better than not having a deficit. Also, this deficit is not as bad as the deficit of the '80s in comparison on the economy sizes.

Questions of Debate:

1. Is the deficit that bad?

2. What is better: having no deficit or promoting economic growth?

The massive borrowing by the current federal government is stimulating the current economy somewhat. Unfortunately, most of this extra spending is being used for military purposes which has one of the poorest trickle down effects.

The borrowing done now will also have a depressing effect on the economy at some point.

Overall, the deficit spending is a very bad idea. There is not sufficient justification for doing it now. It is big government making itself bigger.

The current deficit spending is very bad. No deficit will promote the economy better.

First of all, if you plan to compare the government's deficit spending and debt to the size of the economy, you'd better be able to back up exactly how the two are related and why that relationship matters at all. Otherwise, you're just throwing a "talking point" out there without really understanding whether the logic is real or faulty.

Also, you haven't shown anything that says that cutting taxes promotes growth. That's your supposition, but outside of cutting taxes in certain areas, I've never seen ANY data that says cutting ANY tax promotes growth. I don't take this supposition as a matter of faith.

To the questions:

1. Yes, deficit spending is usually bad. It sucks up capital used for lending. The lending pool has a finite size at any time. By taking that capital away from banks and investors and using it to fund government operations, you're skewing the amount of economic growth that CAN happen. The larger the deficit, the more this happens. And at the worst possible moment, people will stop lending to you to feed your habit and then what do you do?

Is running a deficit during a recession acceptable? Yes, in a limited way for a limited time. But we haven't been in a recession for a long time and the deficit isn't shrinking. Why is that? Oh, right, because tax cuts do not on their own create balanced budgets.

Let's be clear: Short-term economic growth definitely WILL happen when you create a short-term deficit; unfortunately, deficit spending outside the short-term doesn't seem to affect the economy much.

2. See above. It's faulty logic to think of it as either-or when the very deficits actually impede economic growth in anything other than the very short-term.

1. Yes, the deficit is that bad. It's third worst compared to Bush Sr. and Reagan. So it seems the Republicans have a way of being less than fiscally responsible. The deficit is expected be between $521-477 Billion. Although this is the most in terms of actual money amount, it is not as bad as Reagan when compared to the respective GDP's.

2. Well, as it turns out having a large deficit can drag down the economy. So really we're not getting anywhere. Ideally we could have economic growth and no deficit, like under Clinton. But I know other factors attributed to Clinton's success in the economy besides his policies.



Economic Page

Imagine an individual who has bad credit, e.g., being maxed out on charge cards, scraping together money to pay the power, gas, telephone and water on the shutoff dates, and consistently paying the mortgage late. Is that bad? Of course it is. It means that person, for whatever reason, isn't making it.

Now imagine that person getting a $300 income tax cut. Where is he going to put it? Granted, anywhere he puts it will bring some relief, but there are more needs than that sum of money can address.

Now imagine a country in the same situation.

I think a singnificant and perpetual deficit is most assuredly a bad thing. An annual deficit in bust years, if paid off in boom years, is no problem, and assures continuity of government services and employment. Perhaps instead of forcing budgets to be balanced, we should force government debts to be paid off within 10y of incurring them.

A better solution would be to reduce the swings of the business cycle through tax policies that reduce speculation (the boom), and correstponding adjustments to reality (the bust). Specifically I recommend large taxes on the economic rent of land to reduce real estate speculation, and small taxes on financial transactions, similar to the Tobin tax, to reduce financial speculation.

A small perpetual U.S. national debt allows for a market in US Government Securities, which provides a yardstick on 'risk free' interest rates.

Coincidently I just started a topic regarding the national debt.

George W. Bush's recent tax cuts have promoted growth:

On Jobs:


On the Overall Economy





I agree with you on that, but as shown above, after the tax cuts were implemented the economy has been growing.

I am just curious about this statement made...


Is that true? When my family came back to America the only work available for my husband was DOD contracting. It is one of my husband theories that currently the admin. does not want the economy to get better (at least not that much better) less growth in the private sector means more people will turn to the public sector ...specifically military... for work.

I am also curious has America ever been at war and not suffered a deficit because of it? All this economic data we are given as of late always seems to be devoid of the fact America is at war..two wars in fact. Why all this denial when discussing this country's economic growth or lack of it..why is the word war always missing? Do we forget so easily..are we only reminded when our president repeats it to us? Is that our president's failure for allowing the bulk of America's populous to be asked to give very little in regards to this country's security? That he must always remind us we are at war.

I have to admit even though I benefited I feel the tax breaks were unfair. I feel it is unfair for me to be asked to make very little sacrifice for this country's security while we have men and women making the ultimate sacrifice. Perhaps the tax breaks have benefited some economic growth I dunno..I have always felt this was more of an reelection ploy than it is an economic stimulis.

Yes, Bucket, deficit spending is considered a normal exercise when a nation begins to ramp up for war. Large tax-cuts during that time, however, are not normal and a large reason why we are in the huge hole we are.


I completely agree, and I think President Bush would have had a lot of support by telling the American people, "Look, I know we said we were going to cut taxes. That was before a war was started against us and now we need every resource possible to fight it." Instead, we cut taxes in a lot of areas that have suspect influence on jobs and economic growth, and a record budget deficit to show for it.

Deficit spending, much like tax cuts, *can* have a stimulus effect on the economy. The link to job growth is a tad more spatious unless the spending is specifcally in the creation of jobs (ie, public works programs, TVA, etc). In this case, the largesse of the deficit spending can be accounted for in two areas, the wars in Iraq & Afghanistan (200+ billion), and the Medicare "reform" act (75+ billion). Looking at those two acts, its hard to make any case for growth or jobs out of either, unless you only mean in the Military Industrial Complex.

Nivekelly, the economic indicators and job numbers you present are interesting, but nowhere in your quotes do you indicate deficit spending or tax cuts were responsible for any of it. The only clear evidence I've seen of tax cuts stimulating growth in the past few years was the $300 "rebate" we received, and that was a services/retail side stimulus only. Any jobs created resulting from it were likely retail, which is notoriously minimum wage in most instances.

The 2nd question you pose is a false truth of sorts. You are assuming the two are mutually exclusive when in fact they are not. We had record growth in the 90's and a budget surplus. Deficit spending can act as a stimulus, but not in the fashion our present administration has chosen.

Doc

Dude, quoting Bush's re-election web site is hardly considered providing evidence. Do you think it might be slanted a bit and using statistics that support his actions while ignoring other statistics that don't?

Do you understand that there's a link between a deficit of nearly $500 billion and GDP growth that's 5%?

Do you grasp why unemployment numbers are down while job growth has not kept up with the number of people entering the job market? You might want to check out ALL the unemployment statistics at www.bls.gov, an excellent web site for understanding how job numbers and unemployment numbers are determined.

Again: drop the "talking points" and start looking for real evidence (not just short-term data points) that deficit spending produces the type of long-term growth needed for this country.

And I have a proposal: when any politician or debater mentions "tax cut", let's call it a "services cut" or "deficit spending" and see how much support he/she gets for it.

1. Is the deficit that bad?

Deficit at the levels we currently have is bad. Here's a link showing that we are at levels (as a percentage of GDP) not seen since Truman. Here's another link showing missing jobs. Spending beyond one's means can be a useful short-term strategy. However, as a medium- to long-term strategy, it makes things worse. This is because we not only have to pay off the debt but pay off the associated interest on that debt. Currently, interest rates are low, thus the full impact on the medium-term implications of the debt is hidden. As the economy follows its natural rhythm of rise after fall (which seems to be political party empowerment independent), the interest on the debt becomes a weight pulling against growth.

2. What is better: having no deficit or promoting economic growth?

This is not an either-or question. It depends on the timescale. As a short term strategy, the numbers look better, but you don't get something for nothing. We will have to pay for it. The US itself cannot file for bankruptcy protection: which is tantamount to world economic collapse. But, that is the path we are following.

The party of fiscal responsibility has abrogated its plank. Empirically, Republicans have spent more and increased the size of government more than Democrats. "Talking points" will not change that fact. I find this both ironic and troubling.

Most of the objective data I have seen is that such tax cuts tend to allow for growth at the upper end of the spectrum while leaving the middle and lower end untouched.

There are certainly some 'services' I wouldn't mind seeing cut, most of which qualifies as pork and/or corporate welfare.

Cuts on specific taxes, such as taxes on capital, or buildings, or business property, tend to create growth. However, without some sort of feedback function, the system is unstable, and tends to accellerate wealth & income inequality.

Cuts on taxes do not necessarily mean a decrease in revenue. Sometimes, the economy speeds up more than was lost in taxation, something like a store lowering prices and selling more units at a smaller profit margin, but making more money altogether. Laffer Curve

All tax cuts, as well as improvements in productivity, increase the value of land. Conversely, all taxes fall on the value of land. This generally means that any reduction in taxes is eventually swallowed in increased land prices & rents, rather than increased wages, returns to capital, or reduced prices. Land wealth distribution is much more concentrated than income...while something like 60% of families own their home, the top 5% of entities own something like 90% of the land wealth. Any tax cut necessarily benefits these people & corporations the most.

A tax-shift would have major benefits for accelerating the economy, allowing free trade, stifling speculation, and most importantly, allowing employment and real wages to rise without creating inflation.

Shifting taxes to collect a large portion of the economic rent of land would be hugely progressive while boosting the economy.

DUDE: Below I sourced much of my information.

No. The budget deficit is Not That Bad, It Is Worse than That Bad. When columnists and economists compare the current administration to Reagan and Bush, the budget deficit is That Bad.

But don't take my word for it;
Speeches ignore impending U.S. debt disaster
No mention of fiscal gap estimated as high as $72 trillion
http://www.sfgate.com/cgi-bin/article.cgi?...MNG2S8NOI21.DTL

When conservative talk shows like Scarborough Country talk about the national debt clock, we have reached a bad situation. Do a search on 'budget deficit' and it won't take long to see that many experts are worried about the current situation. It took Reagan and Bush 12 years to accumulate a huge deficit, which W has managed to almost match in just 3 short years. (or has he surpassed the Reagan deficits? - i am not sure.)

Hey, If there is another terrorist attack on Washington, DC, I will be there front & center. I am much more afraid of looming debt, fiscal irresponsibility, and a large depression brewing.

From Pierzen's link --

Well, NK, you indeed did source some of your economic "good news", although some of it is dubious statistics that wouldn't bear close scrutiny.

The thing you didn't do -- as DocLotus pointed out -- is tie any of it to tax cuts or to deficit spending. Perhaps you could clear this up for all of us.

And logophage although I agree with your economic view (actually almost your entire post!), I still want to see someone -- anyone! -- explain why comparing the deficit/debt to GDP matters. I could tie it to my own income and I believe it would be just as meaningful. So... please explain why you think it's meaningful.

Fair enough. I'll try to explain my thinking. The GDP is a somewhat objective measurement of the net worth of a country. As such, it gives a reasonable baseline for the future value of a country's economic status. Moreover, the GDP has the inflation index built in, thus using it in a ratio has reliable present value meaning. In reserve system banking, money is only meaningful when the market "buys into" it as a medium of exchange, thus in some sense it is a measurement of "good faith" in the market itself. A quick googling reveals a reasonable definition of the GDP.

Depends on how it's used. In order to get out of a recession, you must create demand. As demand increases, businesses will start investing again to sell to their growth of consumers. This is the general principle behind Keynisian economics, the government should increase spending (demand) and lower taxes (increasing disposable income, increasing demand) in order to get out of a recession.

If your going to give tax cuts, it is best for the economy to give them in a way that maximizes demand. I do not believe this administration has done that. They gave the most money to people who are the least likely to spend it. Big deficits, little bang.

Aproximately 150,000 jobs must be created every month to keep up with population growth. We are hardly in a economic boom.

Borrowing money to pay for a poorly aimed tax cut could create little or no jobs and result in a huge deficit. Which, it seems, is the current situation we are in.

I will attempt to offer a rebuttal to your figures you have posted, which will be from the top of my head. If later you desire evidence, I will find the links.



A figure of 150,000 new jobs each month is required to take care of the all the new individuals entering the work force. That converts to 1.8 million in 1 year(if my math is correct). So with the 1.7 million jobs created Bush is just breaking even, no net growth,really.



The unemployment rate is calculated in a different manner than jobs created. Jobs created is from companies. Unemployment rate is from households. The majority of economist consider the jobs created(from companies) a more reliable method.



I believe that is a false slant in your 203,000 jobs. 59,000 belonged to June and July, so you make it appear 203,000 jobs were created this month. Only 144,000 were created in August. The 59,000 should not even be associated with the August figure. Another example of slanting the news?



If I am reading your figures correctly you are saying 10% in the past approx. 4 years. That is 2.5% increase each year, which is barely staying with inflation, if at all. I definitely wouldn't call that a RISE in the standard of living.

I found this link which disputes your quote.



In the 1990's the average increase (after adjusting for inflation) was over 1%.

Lastly, nothing is mentioned about a net loss of jobs during the last 3 1/2 years of approximately 900,000. I think it is equal justice to mention that Bush will be the first president since the 1930's to have a net loss of jobs during his presidency.

Ok, I'll agree with your description of the GDP, but you still haven't explained why it provides a valid comparison to the yearly deficit.

A more pertinent comparison would be between GDP and the total debt (now topping 70% of GDP), but that's still not the best comparitor.

I think of the GDP as our country's cash flow at any given time. It's the total of everything we're buying and everything we're selling at any instant in time averaged over a longer period to smooth out the spikes and transactions that take a while to complete.

When you buy a house, the lenders compare your REVENUES (salary) to the debt you want to take on before letting you have that mortgage. Not your cash flow. And the lenders don't want you to take on debt more than 3x your yearly revenues.

Right now, our government's revenues are running just over $1 trillion per year (I'm doing this off the top of my head, but I'm close anyway). Our debt is SIX TIMES that number.

And that's why having any deficit at this point is horrible (to drag our conversation back to the topic for debate). Because to pay off that debt, we'd have to continue with the same taxes and completely shut down the government for 6 years to pay it off. And revenues are not increasing as fast as our deficit (supply-side theory to the contrary), so that ratio of 6 is getting larger.

As I understand it, Real GDP basically accounts for revenue. I'm open to using another measurement but this is an accepted baseline (at least since 1991). Regardless, as long as the calculation is consistent, it is a reliable indicator of economic "receipts" of a country.


Yes, if the ratio is larger, then we have a problem. Even using GDP as the divisor shows this increase. Like you, I'm more than just alarmed at the rate of spending by the US government. And it is Republicans who control both the legislative and executive branches. No matter what these "republicans" say, when looking at the actual record, they have no fiscal responsibility. Republicans are the party of big government and are far from "conservative".

Everyone should realize that you don't get something for nothing; that quick fixes now mean difficult problems later. If one incurs a debt, then one must pay not only the debt but the interest associated with it. When you incur a debt, you're betting that your income (or receipts) will increase faster than your interest during some reasonable time interval (assuming that the bet is "rational" and not lottery style).

Anyway, apart from the calculation, we appear to be in violent agreement as to the conclusion, amf.

For the record, our revenues are nearly $2T ($1.8T in FY2004). Our debt is nearly $7T, the highest it's ever been, though $3T is intragovernmental. We pay close to $400B in debt service each year, and allow private banks to create $2-300B in credit money each year through fractional banking. Our debt is 60% of the GDP, which is half of what we had at the end of WWII. The deficit is not good, and should not have been around so consistently for the last 20 years, however, this year, during a war, it's understandable and not entirely threatening. (Though, wasn't the "Mission Accomplished"?) The National Debt is a worse specter, while probably not ready to bite us yet, needs to be dealt with.

On bank-created credit money: There's some $8T in bank created credit money. If that money were replaced with US Notes (newly printed) and the bank reserve requirement were raised to 100%, we could retire the national debt. Likewise we could expand the money supply by 3-5% each year to maintain a stable dollar value. We'd expand by printing more money. This would save us $400B a year in debt service, and give us $275B a year in new money, to be spent into circulation. This should allow a 1/3 reduction in taxes, accross the board.


http://www.whitehouse.gov/omb/budget/fy2005/tables.html

According to this site, our debt is close to 70% not 60% of the GDP. Yes, we haven't exceeded 100% like right after WWII.


Is this like the War on Drugs? Or the War on Poverty? Or how about the Cold War? We're always in a "war". It doesn't mean we have a blank check; it doesn't mean we can spend beyond our means. The first thing to do is to deal with deficit spending. Hopefully, we can pay off some of the "principal" while we're at it.


Printing more money is not a "magic" solution. It will have a negative effect as well. Think Argentina. If the monetary exchange loses confidence in the US dollar, then this solution will backfire. In fact, we are already seeing some lessening of confidence in US currency. Many companies (non-European) are quoting in euros first.

Like I've been saying over and over: you can't get something for nothing. There is always a price. Shell games may make good political hay but are only superficial.

Then we should probably stop allowing banks to do it by making unsecured loans 10 times the size of their reserves. Though, if the confidence is there under the current system, I believe it would still exist under the proposed system. All that is needed is for the US Government to be willing to accept them to repay debts. The proposal neither expands nor contracts the money supply, and so is non-inflational. The annual future printing of money is sized to coincide with average annual increases in productivity and population, while providing for a small but stable measure of inflation (generally considered a good thing).

Also, firmly believing that TAANSTFL, the price to pay will be more expensive unsecured credit, lack of interest from bank deposits, and cost of services from banks to increase.

Ok, I don't want to take this thread off-topic with SWM's cause du jour of 100% reserves, so I did it over in the topic for it:

What Nonsense!

As for the deficit, sure we could print money to fix it, but that just creates hyperinflation as more money gets pumped into the economy (by paying those loans back, those lenders will then need to push that money back out into the world to make more money, so the money gets too easy to get and we get another bubble of economic activity that bursts with a loud noise). Turning us into one of those banana republics that do the same thing. And destroying our future credit. And trashing our low-interest-rate economy.