Government borrowing is good as long as the returns are bigger than the interest rate, adjusted for risk tolerance. Interest rates are fairly easy to figure out here: just plug in the rate investors are demanding for Treasury securities of whatever maturity you want to finance your borrowing with.
But what about the returns? The best number here is GDP growth (or GDP decline prevented), factoring in all taxation required to pay for the borrowing. But note that I’m not talking about % GDP growth. That compares GDP growth with prior-year GDP. The relevant comparison is $ GDP growth compared with $ government spends to finance it. As long as GDP growth, discounted for risk, is greater than the interest rate required to finance a stimulus, government debt is good.
There’s no “hidden tax” here. There’s an interest rate that you eventually have to pay back, out of the GDP growth you’ve created. When taxes go up to pay for the borrowing, then you do have a GDP loss. But it’s coming out of an expanded GDP, and as long as that expansion was more than the interest rate, that’s a net gain.
… does one measure what portion of $ GDP is attributable to the marginal borrowing?
Just like you would with any investment.
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p>Figure out what the economic stimulus benefit of particular forms of spending or tax cuts is based on how those kinds of spending/tax cuts have affected teh economy in the past and any special benefits or detriments likely to happen now. Economists make these kinds of predictions all the time; it’s just a matter of figuring out which economists are right.
In our times, the right wing Republicans have increased the deficits in order to give tax cuts to the rich and to finance evil, unjust, undeclared wars, such as the war against Iraq. Iraq has NEVER attacked us in the time period between the first settlement of Jamestown, VA until today.
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p>And what do a lot of people in the Democratic Party push for?
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p>Now that they are in power, they push to reduce the deficit.
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p>So the right wing gets to spend tax money on their priorities. And the Democrats, when they return to power because the public can’t stand it anymore, don’t do anything for the poor or unemployed. Instead, they reduce the deficit and continue the undeclared wars without starting new ones. They become the “stop and maintain” group that makes the right wing’s policies sustainable over time.
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p>The tea partiers/freeper boneheads make a lot of talk about the “children and grandchildren” paying of the deficit.
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p>They never talk about what kind of nation these children will get.
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p>They never talk about how these children will get a job when unemployment is 10%.
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p>They never talk about how the broke young people will afford medical care.
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p>They never talk about reducing college expenses.
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p>And, most of all, they never talk about the treasonous trade deals that send jobs from the United States to third world slave pens to save on labor costs.
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p>I say, to hell with all of this.
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p>Have the government directly hire LOTS of unemployed people for infrastructure and research drives. Yes, this would be government make-work. It worked in the first Great Depression, and it will work now.
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p>Don’t settle for the current health care bill. Get Medicare for All. This way, the poor sick get treated and do not die because they don’t have money for treatment.
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p>Get rid of trade deals that make companies rich (using slave labor). This nation became INDUSTRIAL because of tariffs that made it cheaper to make it here in the USA rather than import it from abroad. These tariffs were pushed by Abraham Lincoln, Thaddeus Stevens (R-PA) and others. In addition to being protectionist, Stevens was militantly anti-slavery and a true friend to African Americans.
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p>The critics will always call Democrats “red, communist/socialist” and all the rest of it regardless of what is done.
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p>Why not have a jobs program that gives paychecks to out of work people? This group would be a fired up base for Democrats, and would cancel out GOP votes in a non-presidential election year. It would be both good politics AND the right thing to do.
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p>Remember that voters vote, not media gasbags.
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Just digging holes and filling them in it’s going to help the economy. Investments both in the private and public sector need returns and our debt is getting out of control. Sooner or later you have to pay it back. If the lenders realize you can’t – they won’t loan it – look at the recent events in Greece.
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p>
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p>Generally the positive thing about the private sector is if they make too many bad decisions with capital they go out of business. Unless you are GM or BOA.
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p>Our debt is getting to high, I worry about debt as a percentage of GDP.
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the government prints the money, dude.
The government overprints money – you get nasty inflation.
the federal reserve prints money… and helps save the economy from falling off the cliff.
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p>I’m not exactly calling for the government to just wildly spend money without worrying about where that money’s coming from, I’m just saying that there’s some balance to this. The fear of inflation is often greatly inflated… and many economists will admit as much.
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p>Some inflation is good, even if (and perhaps particularly when) there’s a small to moderate debt problem like we have now. We know more about this kind of stuff now than we did, say, in the early 1900s. There are a lot of things this country has been irresponsible about when it comes to the economy — inflation hasn’t been one of them, quite the opposite in fact.
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p>I’m much more worried about the wild-wild west of derivatives and wall street gambling than I am the inflation bogeyman. As a person who’s lived on a pretty meager income the past year and has had some long stretches of bad unemployment post college, I can attest to the fact that I’m having way more trouble paying my college loans than I am a loaf of bread. A little inflation won’t hurt me, most other people or the government.
Maybe printing money will save of from the government pension crisis – an entire other issue.
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p> But I started having to pay for my own bills in the early 1980’s high inflation is very scary – even scarier then our current situation. I had a car loan at 21% – I think housing mortgages where 18% – talk about a bad economy. As far as I’m concerned it was worse than now.
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Not surprising for a conservative. But inflation is good for people who owe money. Inflation means the real impact of the debt is a lot less. If you have a 21% interest rate and inflation is 10%, this is equivalent to a 14% interest rate at standard 3% inflation.
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p>If the bank raises the interest rate by 7% when inflation increases by 7%, you’re getting the same deal as you would have before, because money is losing value at a faster pace.
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p>Now, if you were the bank giving out those loans, inflation would be pretty scary. But as the debtor, it isn’t.
High inflation helps those who owe money, in this case, the government. They are able to repay a debt with dollars that are worth far less than when they borrowed them.
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p>However, if you are retired and living on a fixed income you could be in a world of hurt. Your payments continue to come as they always have, yet the cost of the goods you need increase rapidly leaving you with far less purchasing power.
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p>The ultimate spiral that rapidly rising inflation can cause where no one allows people or companies to pay on credit or borrow money is a result we do not want to see.
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p>Limited inflation can help the government pay down its debt (monetize it) but the trick will be keeping inflation at a level where it helps the government but does not unduly harm American citizens or businesses. Overall, not a great position in which to find oneself.
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p>I will end with a piece of advice, if you know rapid inflation is coming, and it is terribly hard to predict, borrow as much as you can for as long as you can. Debtors do much better in inflationary times than do savers.
But most retirees don’t really live on a fixed income. Social Security has cost of living adjustments. And the rich ones have investment income. That may not keep pace with inflation, but if they’re making enough money to make social security COLAs irrelevant, I’m not going to shed any tears over their financial problems.
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p>Now, the potential contraction of credit is a bigger problem, and that’s why the government should pay down its debt and fight inflation during economic expansion.
I notice in your graphs that the debt actually didn’t come down much at all during the flush decades of the 50s and 60s. What happened is GDP went up.
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p>How did we grow GDP so dramatically? A huge part of it was public investments. That’s what World War II, and the interstate highways, and the massive growth in suburban and western infrastructure were.
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p>Nobody proposes “digging holes and filling them in.” We don’t even need to build new stuff. Just fix the old stuff!
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p>Infrastructure repair has short term and long-term returns. Short-term, its effect multiplies as the contractors, their employees, and their suppliers all start spending that cash with businesses who then spend that cash etc. etc. Long-term it facilitates economic activity in all the ways infrastructure is supposed to do, plus it saves more costly fixes down the road.
That’s right.
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p>I SCREAM for a much larger Keynesian stimulus NOW. We need jobs that give people paychecks NOW and to invest in the infrastructure and technologies of the future.
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p>The United States, in the Democratic and Republican Parties, does not have parties in a European sense. Rather, they are catch-all groupings for access to the ballots.
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p>Too many people of both “Parties” and no party are pushing to reduce the deficit while not pushing for more stimulus for jobs. This is the wrong way to go.
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p>Also, this year, monetary inflation is down. In monetary terms, if anything, we have DEFLATION, as prices tend to go down when nobody can afford to buy anything.
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p>The priority now should be stimulus and jobs, not budget balancing.
I agree that the priority should be jobs. Inducing the private sector to grow and create new tax paying jobs. In addition, we still have around 2/3’s of the original stimulus bill (originally $787 billion now $862 billion) left to spend, so I say let’s spend that on infrastructure now.
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p>We need to get people back to work so that they can start saving for retirement, investing in their future and paying taxes. Then the government can get to cutting the deficit and getting a handle on the massive growth in unfunded liabilities at all levels (municipal, state and federal).
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p>The message about jobs needs to keep being sent to representatives at all levels as they seem to keep losing focus on the need for jobs with whatever flavor of the day suits them. Its quite simple, its the jobs, stupid (not you).
If the economy is really coming back the Fed’s should cut the stimulus package and apply it to deficit reduction.
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p>Interesting analysis from “Reason Magazine”
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p>http://reason.com/archives/200…
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p>All I’ve seen from the current stimulus package is the repaving of 495 for like the 3 time in 5 years.
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is that anything more than minor repairs require lead time, sometimes years of lead time. Surveying, engineering, contracting, subcontracting, materials planning, doing the work, inspecting it, and finally reopening it can take years.
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p>I’m not arguing against it — just pointing out that a 4 year bridge project might only spend $2 mil the first year, $5 mil the second year, $20 mil the third, and $3 mil the final year. If you want stimulus now, you’ve just committed $30 mil to get $2 mil of immediate stimulus.
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p>Not all jobs are quite like the one I’ve described, but it’s not uncommon either.