Thanks, Ramira, for keeping the discussion on track. “Ideal” is pretty meaningless in the real world. “Utility” and “effectiveness” are more helpful than extreme terms (at either extreme).
I want to emphasize that not one thing i have written is saying that whatever the current American debt levels are or the current american spending is is correct in its size or its focus. I have only written about the correct economic framework for the analysis that is well proven.
It is empirically a fact from over 100 years of good data, and several hundred of the reasonable data that different countries can manage quite high levels of debt for long periods of time and the debt has been useful, but others by the poor management have done very poorly even with the modest levels of the debt.
These are historical economic facts
Economics sucks as any sort of science. Why didn’t you or most anyone else see the 2008 housing crisis coming? I did. People were obviously spending above their means as was obvious to anyone that was paying attention. It is like watching a drunk juggler trying to walk across a fire pit on a balance beam. It may work many times in a row but things aren’t going to to pretty when it fails (and it will).
I am lucky that I didn’t fall for it but countless others did. What is to stop 18 or 20 TRILLION dollars in debt to collapse the world economy tomorrow. Wouldn’t it have been much better if the most powerful and wealthy country on earth just spent within its means and didn’t try to roll the dice risking the life stake of our children and grandchildren?
Not about the US, but the OP might benefit from watching this…it’s a YouTube video about Japan’s Debt Problem Visualized. Basically, it goes through the mechanisms of how government debt works, and how it can get out of control. It doesn’t actually say you need to balance the budget, but explains why you don’t want it to get out of control.
The solution is dead simple. All you have to do is spend within your means like we have throughout most of history except since the 1980’s onward. You don’t have to worry about it after that because spending within your means is never a bad idea.
You can make it as complicated as you want but that is really all it boils down to. I know you like to make it seem more complicated than it really is but most economists have an abysmal record when it comes to anticipating recessions and depressions.
That is completely fictional as a pretended account of the historical record in the usage of the debt and more the usage of the sovereign debt.
The history of sovereign debt is clear.
So you want to engage in non-factual moralizing. Very good, but it is non factual and has not any basis in the historical record.
It is an irrelevant opinion to the historical record.
Myself, I am not a housing economist, but in the financial sector there were many of the traditional economists.
Among the actual technical economists, it is an assertion from ignorance you make, Dr. Robert Schiller and those supporting and around his school of analysis well identified the serious potential risk of a housing bubble working from the historical ratios and the historical datas.
the marketing people, they did not like this and the financial engineering people, drawing not from the world of the economics but from the physics and the pure maths, they felt that their great risk models had conquered uncertainty. But that is the drunkness of the speculation and the investment bankers, it is not the economics.
However, these are questions of the prediction of a specific timiing and incident, which is not the subject of the analysis.
So since you are determined to engage in the non factual moralizing and making the assertions without any good foundation in the documentary historical record, adieu.
For the record, and I use the United Kingdom because the long historical data record in an easy graphical form is easily available from a reputable source, here is the United Kingdom debt-to-GDP ratio fromthe year 1692 to present. The UK has the very robust data unlike many countries, for many centuries.
If there is a lesson, it is the sweeping moralizing statements about the government debt as I reacted are without any factual historical foundation.
None of this is true. It’s not simple. That’s nowhere near “all you have to do.” There’s no analysis on whether deficit/surplus national spending is beneficial that breaks at the '80s. There are plenty of things to worry about. That’s nowhere near what it boils down to.
For example, if you are in a recession, sticking to surplus spending policies can ruin the national economy and the lives of your people for years. Leaving a debt for your children and grandchildren to pay for may very well be in their benefit.
The idea that deficits and debts are wrong just because they are deficits and debts is blinkered idiocy. “Spend within your means” when it comes to deciding the policy of a giant economic actor is nothing but a dumb slogan that says exactly fucking zero about what the best policy is at any particular time.
OK, as I always tell my kids, I love being proven wrong. I am a well known non-idiot in certain circles but I am always willing to learn more.
Can anyone explain why spending more than you take in is a rational choice at any level? What are the benefits and risks? I am not a dumb person but it sounds like I am being talked down to by a used car salesmen that is about to screw me.
You can insult me all all want but not a single person in this thread has given evidence why I should believe anything they say other than academic hypothetical than has failed miserably even in recent years. Somehow it isn’t confidence inspiring to someone like me that is interested in reality more than fiction.
First of all, you’re the one who has filled this thread with counter-factual claims. Why should we humor your demands for proof that what you’re saying is not true? Why shouldn’t the burden be on you to prove that what you’re saying is true?
Second, is this thread really the only event in your life where you have been given even the remotest opportunity to find answers to these questions? I can’t believe that a well-known non-idiot can come to this point in life if he or she has sincerely sought answers to the question “why do governments run spending deficits” during the existence of the internet.
I’m being sarcastic not because it’s illegitimate to come to the SDMB and sincerely ask such a question, but because of the attitude behind your posts. Everything you say here is evidence not that you lack the personal resources to understand this issue without the help of people in this thread, but that you’ve actively resisted understanding it.
You’re pretty lucky that at least one participant in this thread has already offered some of the most basic answers in general terms. It doesn’t look to me like you’ve seriously considered what she’s saying. I’m pretty confident that you’re smart enough to understand these issues and on your own come to the conclusion that this is not a “simple” issue.
Consider some simple questions: Why do people take loans, ever? Why do businesses take loans, ever? Why does the law allow the taking and giving of loans, ever? How might the answers to this question apply to a national economy? Are there any significant differences between a household and a national economy that might be relevant to this question? Try to prove yourself wrong; if you’re sincere, you might find that the answers aren’t as easy as you have claimed.
[QUOTE=Shagnasty]
Can anyone explain why spending more than you take in is a rational choice at any level?
[/QUOTE]
Certainly. You want to build something today that will benefit you tomorrow but you won’t have funds for it for a decade. So, you borrow the money today, build the thing tomorrow and begin benefitting from it immediately while paying it off over time. This is, you know, how you bought your house…or your car. Or myriad other things. In terms of a government it’s certainly more complicated…you have other ways to spends and other ways to borrow than your average citizen or even your average corporation. You can manipulate your currency, sell bonds or other treasury instruments and borrow from yourself in effect.
The problem comes in when you do this to often and too much, not in doing it at all. It’s completely rational for a government to spend more than they take in for certain things…in fact, it’s essential in many cases.
Right. The US was never in deficit before the 1980s.
• Except when the US went into debt to fight the Revolutionary War.
• And to fight the War of 1812.
• And (big one) to fight the Civil War.
• And to respond to the Great Depression.
Or heck, take a look at the charts here: The Long Story of U.S. Debt, From 1790 to 2011, in 1 Little Chart
The eighties were not a sudden break from two centuries of idyllic debt-free federal existence.
Ramira, how do you respond to the story of the Canadian bond issue which almost failed, mentioned earlier? Canada was 30 minutes away from not receiving the money it needed to retire a previous bond series. That sounds to me like a potential problem developing rapidly? If it had gone the other way, there would likely have been instant austerity measures coupled with tax increases.
I would respond that you have a somewhat inaccurate journalistic story in the details and that the small and the marginal Canadian bond market is not a thing comparable to the US treasury, the German Bund in the attention, in the liquidity and in the usage.
It is a small pear being compared to a large basket of apples and off of the jouralistic account.
Yes, you cite several extraordinary circumstances during which the U.S. incurred large deficits, and when those previous crises were over, we started paying down the debt. The eighties were different in that there wasn’t a war or depression to fight. To the extent that we were suffering from the bad economy of the late-seventies, surely Reagan or Bush the Elder should have recognized when things had recovered.
The eighties weren’t a break from a debt-free past, but they were when we started running up debt during the good times as well as the bad.
My biggest short term concern with this is that the Fed is borrowing money for effectively nothing, the interest on the debt is still about 7%. If - I should I type “when” - interest rates rise, that interest on the debt is going to skyrocket. Then the percentage of the budget that is interest on the debt goes to 10, 20, 30%, it will certainly begin to eat into other programs - medical, SS, defense - then we have issues.
No.
You are confused.
The average interest rate on the US federal debt is as of 30 april 172.28%, decreased from same period 2016 of 2.3% average across all debt.
You seem to be confusing the percentage of the federal revenues going to interest rate service with the interest rate on the debt.
My point was (and I should have been more clear) is that only 7% of the federal budget goes to pay the interest on the debt, at a time when the interest rates are at an all time low, and have been so for sometime. If/when the time comes that the Fed actually has to pay what have been normal interest rates to borrow money to fund the debt, that 7% portion will drastically increase, creating pressure on the other budget items.