Political Economy

Government spending and the Federal Debt are like thieves

Debt driven government spending is like taking things off the shelve at the store and not having to pay for it. Well in some abstract theoretical sense the Federal government tax payers, do have to pay for the spending but since the debt is being pushed out  ad infinitum, then lets be honest we really we do not. Watch this video, although it is about something else the point is made.

Everyone is watching and letting others get away with it. It is unfair. It is, what it is, steeling from honest people and business without paying for it. The Federal Debt is a perpetuity, that is an annuity that has no end, as debt is rolled over.

Why the debt affects the economy?

  • Crowding out effect – Which is a reduction in private consumption and investment that occurs because of an increase in government borrowing. When the government borrows, this decreases available funds that entrepreneurs could use for business as well as disposable income consumers have for themselves.  It results in higher interests for borrowing for the private sector. Aggregatae demand is stuck at a lower level. So even if the government does pay back the debt it does not come without cost. This is contrary to Keynesian thinking. But as we know now Keynes was wrong about most everything in economic and  worse had an influence on the political process.
  • Government spending does not help out the poor – Look at Greece for example. A small country of 12 million people got billions and billions of EU bailouts. If that money was given directly to the people each person would get a lot of money I do not know like a few hundred thousand dollars each) and they could spend it to stimulate the economy. But instead the common people in Greece are complaining it was stolen by government officials. This is partially true. I was there. Greek people are poor, except the ones that have large houses and yachts usually with government connections. In the USA you can say it is something different but it is not. Large business who have the special interest and it is a form of feudalism.
  • I know people in the public sector – Not one would I hire personally.

I hope that the debt ceiling is not raised. Either steep real cuts in government spending, like 50% or the government should default. I know this is crazy talk and it is. But government spending and the federal debt is steeling from the poor and giving to the rich.

 

 

Related Posts

Posted

in

by

Mark Biernat

This is my Youtube Channel: EconLessons

Comments

5 responses to “Government spending and the Federal Debt are like thieves”

  1. Adam

    The size of the government is too big and is diluting production but in a fiat monetary system when you have a trade deficit I do not think that it is possible to have balance budget without reducing the money supply.The issuance of new money from the Treasury precedes the borrowing. Unless congress is suicidal the US can not default since it prints its own currency and it has no foreign denominated debt. Reducing the total budget % to GDP such as the period of Reagan presidency to the end of President Clinton last term appears to have work very well.

    But despite a lower total budget there needs to be a deficit of about 3% or so of the total GDP to supply more or less an equivalent economic growth.

    In such a system as the US the debt will not be the problem but the currency certainly.

    Reply
    1. Mark Biernat

      Agreed that default would not be the best solution. However, why not just a balanced budget amendment?

      This would be clear. Every year, not even every four years the budget must legally be balanced or run a surplus. There are very few things the Federal government does that free enterprise can not do more efficiently. I think people have a tolerance for debt but there are many successful companies that run with zero debt. UPS for example (a company I used to work at) never had any debt for like the first 50 years of its growth.

      Another company like PerfectWord a Chinese company has never had debt. I have a micro company and I could have gotten special EU loans and money as I live in a developing country, but I choose not to and pay cash. If I do not have the cash I do not spend.

      When I buy my house I want to pay cash. It might not be a 1/2 million dollar home but it is a very conservative way to do things and you do not get in trouble. My life is fine. Not all debt is bad but people need to start with the idea of a balance budget year to year and get things under control.

      Then and only then when things are under control you can evaluate the cost benefits of each project and take credit is needed. But right now we are in a black hole and I do not see any way out unless something radical is done in Washington like a balanced budget amendment or a shut down of the US government except for essential personal. You know Belgium has not had a government in over a year and nothing happend.

      Reply
  2. Adam

    “Why not just a balanced budget amendment?”

    Mark I agree that we need accountability in Government but that may be a oxymoron to start with.

    I think that we are witnessing the last and fatal bubble of all time. The “Big Government Bubble”

    It looks more every day like an economic depression deferral and transfer than a recovery.

    Terrible malinvestments of the “to big to fail” have been transfered to the FED (Toxic assets),the fudging of “mark-to-market accounting”, the change of status of financial institutions in order to make there credit rating appear good, the artificially low (next to 0% rates) re-capitalizing losing banks that benefit from the spread making international carry trades and moving money out side the US and funding other economies.At the end of the day where has the trillion dollars black hole gone ? Two billion dollars moves in to Afghanistan every week and California needs about 8 billion dollars. They even lost a plane full of $100.00 bills for a total of 6.5 Billions. http://www.latimes.com/news/nationworld/world/la-fg-missing-billions-20110613,0,4414060.story

    There is no way to make a big Government accountable.
    The Government that governs least is definitively the government that governs best.

    Reply
    1. Mark Biernat

      Ronald Reagan came very close to passing a balanced budget amendment but congress did not have the stomach for it. The next plan of action was to try to go around the people blocking fiscal responsibility and call a constitutional convention. This plan also failed but both came very close.

      In this crisis people are calling for it as it seems government can not do anything unless they have to. However, people like Paul Krugman rallies the troops to oppose it.

      Paul Krugman, a stubborn Keynesian has been an outspoken critic of a balanced budget amendment. Why? Because he only looks at one side of the equation and still thinks GDP = C+I+G. That is when C or consumption is down, turn the dials and nobs up on G that is, government spending, and I or investment will follow with child like simplicity.

      He has done a lot to revive the idea of a Keynsian “liquidity trap”. Now Krugman is an economist with good intentions. However, as an economist his ideas have seriously hurt society and a lot of energy and effort goes into countering his misguided ideas.

      For example, he believes in a classic Keynsian liquidity trap. He advocates expansionary government and fiscal spending as the way a modern country can lift itself up by their own boot straps and return to prosperrity. This is nuts. He is like the emperor with new clothes. He is so well respect that everyone is afriad to tell him he is would be better being a science fiction writer than an economist. In fact they prasie him.

      His ideas are nonsense. Economics is about free indivduals doing trading with each other. Misguided people like Krugman are perpeturaing the ‘big government bubble’. I think the unless there is a radical change in course by Washington, the only thing that will create a resposible government again is a second waves of busts that would sink the USA further. I do not know if this will happen, and but it could. It would be nice if they did it by themselves with a balanced budget amendment, instead of sinking further.

      On the bright side if the housing market continues to slide, people like office workers and waitresses and normal people will be able to afford houses.

      The missing 6.5 billion is true, it is a fact. But almost unbelievable. How does 6.5 billion dollars go missing without a trace. But I think there are many cases like this on a smaller scale that add up to even more.

       

      Reply
    2. Mark Biernat

      I do not like to be too pessimistic or a doomsayers but here is a Wall Street Journal article that puts things in perspective.
      http://online.wsj.com/article/SB10001424052702304657804576401883172498352.html
      That is debt service will exceed our ability to pay the debt no matter that the budge deal is.

      Reply

Leave a Reply