Seems to me that if a President, in the midst of a recession, takes the viewpoint of, "F** fiscal responsibility, f*** the national debt, I am going to pull this country out of its current recession no matter what," *that a recession is pretty easy to get out of. You implement the following:
(1) Lower most taxes;
(2) Increase most governmental spending;
(3) Stimulus this and that;
(4) Have the Fed lower interest rates;
(5) Implement some way to rein in the inflation resulting from 1# through 4# so as to not have runaway inflation;
and you’re all set. Although 4# may be at odds with “keeping inflation in check.”
If a President says, “I don’t care if I increase the national debt by $5 trillion or $10 trillion, I simply want us pulled out of this recession,” isn’t pretty much any economic hole something that America can be dug out of - at least short-term? Long-term, of course, the consequences would be felt, but in the short term wouldn’t this jump-start any stock market and economy?
No, not necessarily. In the short term, people would feel flush with cash, but to the extent that they spend it on buying (say) flat screen TVs made in China, and champagne produced in France, they are not doing a huge amount to stimulate the US economy, other than that relatively small part of it which occupies itself with handling and retailing imported electrical goods and fine wines. And, of course, the more open an economy is, the truer this is.
Of course, this cuts both ways. People in China and France become more prosperous, and this may help the US if they use their prosperity to buy more of what the goods and services that the US produces for the world.
In short, the more open the world’s economies become, the more the effect of purely local or national stimulus efforts gets diffused.
Yes, but the judgment may be that it’s a price worth paying. It costs to avoid the recession now, but in the long run it may cost more not to avoid it.
Only if you have a very flexible understanding what “a bit” means.
The point about a Ponzi scheme is that you make promises to investors that can only be honoured with funds contributed by later investors. And those funds can only be attracted by making promises that can only be honoured with funds contributed by still more investors. And the number of investors has to grow steadily. And since there are a finite number of investors in the world, this can’t happen without limit. And when new investors can no longer be attracted, insolvency is inevitable.
Right. A state doesn’t have to make promises to attract investors, because it has tax-raising powers. Therefore, the same dynamic is not at work. States routinely enter into commitments that they will satisfy out of future tax revenue, even if it’s only hiring someone in a permanent position. The risk is that the legislature will simply refuse to grant the taxes necessary to meet the obligations. If a state undertakes obligations to that extent, its reflected in a downgrading of the state’s credit rating.
Several months ago we had a Doper advocating “Modern Monetary Theory”, which is pretty much what OP is recommending, or asking about. Advocates of this theory insist that they would take measures to control inflation, though I see no clear details.
Most important, as UDS implies in #2, is to achieve a balance between production and consumption. The purpose of domestic stimulus is to increase domestic production. If you give $1000 to each unemployed person and they spend it on imported goods while remaining unemployed (or even becoming unproductively employed), you’ve merely increased problems; you need — let’s oversimplify here — Joe the Unemployed Plumber to spend his $1000 domestically on the underexploited charms of Sally the Unemployed Hooker. Sally will then spend her windfall domestically … on plumbing repairs.
Increasing production, and increasing living standards should be the highest priorities. Price stability is important — mainly because high inflation leads to uncertainties which degrade the efficacy of business and production decisions — but not as important as boosting the real economy.
In regards to point #2 in the OP, the government already spends so much money that any additional would hardly suffice. Look at all of the additional spending after 2008 and at best it prevented the recession from getting worse but it didn’t help improve the economy for a couple of years.
I think that’s a difference without a distinction, isn’t it? If stimulus measures mean that what would have been a -3% GDP growth rate is instead a -1% GDP growth rate, that’s every bit as beneficial as stimulus measures which mean that what would have been a -1% growth rate instead becomes a +1% growth rate. (In fact I’d argue that its possibly more beneficial.)
The financial crisis of 1929 was followed by five years of the worst Depression in U.S. history. The financial crisis of 2008 was followed, not long later, by seventy-two months of uninterrupted job growth. That’s a record, buddy.
I hope I don’t get a Moderator Warning for suggesting that someone may be unenthusiastic about the facts.
Depends what is causing the recession.
No idea what you mean by (3)
The president does not control the Fed it is independent.
The Fed would run out of room to lower interest rates pretty quick and would have to resort to other measure to stimulate the economy monetarily.
This could work short term if the reason for the recession was a shortfall in demand.
The problem would be the people who the US is borrowing money from would want to be paid back at some point. Thus you would need a very strong austerity program as soon as the recession ended which would be politically unpopular. If you blow out the debt everytime there is a recession and then don’t pay back the money during the good times then you get Greece.
It really depends on the cause of the recession. However, the biggest issue would be finding people to buy that debt assuming there are any better options. Why would someone buy debt at low interest rates from a country whose leader says fuck fiscal responsibility, and whose monetary policy is not formed by independent people?
Except that literally none of those issues are under the control of the President. The 2009 stimulus bill was limited in its size due to political pressure, and a third of the value of the bill was tax cuts in an attempt to bring Republican support.
In the end, the stimulus certainly did help things somewhat, but had Obama decided sometime later, “F*** the deficit, let’s do a second stimulus of a trillion dollars,” I doubt it would have passed Congress.
See puddleglum’s post for some reasons why this probably isn’t a good idea. Spending only pays for itself if it pays for itself. Simply borrowing and spending can get you out of a recession, but then once the spending binge ends whatever you spent it on has to start paying for itself or you are worse than when you started. It’s like putting your mortgage payment on your credit card.
Or they pay down their debts with the found money, which is what usually happens.
Leaving aside (1) the issue as to who actually takes these actions (which presumably would have to be conducted by the President, Congress, and the Fed working in concert), and (2) how much money is actually borrowed ($5-10 trillion sounding fairly astronomical), isn’t this fairly mainstream economic theory on what actions should be taken to pull a country out of a recession?
I mean, I think back 30 years to* Ferris Bueller’s Day Off*, in which Ben Stein lectured his class on the Hawley-Smoot Tariff Act which, per the movie, “raised tariffs in an effort to collect more revenue for the federal government.” Did it work? Anyone? Anyone know the effects? It did not work, and the United States sank deeper into the Great Depression."
OK, maybe I shouldn’t be learning economic theory from thirty-year-old comedies, but my point is that the idea behind Ben Stein’s monotonic lesson was fairly mainstream: you don’t raise taxes in an attempt to raise government revenues during a recession.
OK, this is a key point.
If government borrowing in an effort to stimulate the economy is a good thing during a recession, then obviously the borrowed money needs to be paid back at some point. The opposite of a recession is a booming economy, and this is when the national debt should be paid off (or at least lowered).
The problem with this is Republicans, who apparently believe that taxes should be lowered during a recession (agreeing with mainstream economic theory), but also seem to think that taxes should be lowered during a booming economy, because we should never have a surplus, and it’s wrong to take in more money than we need, or excess taxes should be refunded to the people, or whatever is the current excuse.
For example, the Bush-era tax cuts, which according to the New York Times were the single biggest contributor to the deficit between 2002 and 2009, continued right through the entire boom years following the recession of the early 2000s. In fact, they were still in effect when the Great Recession started.
This is when I first starting losing faith in Republican economic policy, because it always seemed to boil down to lowering taxes, whether the economy was good or bad, and the national debt has steadily risen, even during boom times.
I remember getting tax rebate checks throughout the 2000s and thinking, “Why are they doing this? We’re no longer in a recession, and we owe trillions of dollars. When does this debt get paid off, if not now?”
I tend to take those employment numbers with a grain of salt. The system is not made to count the underemployed or whose benefits had run out. How enthusiastic are you about the fact that according to the government the unemployment rate was 9% or higher until October 2011? Or that it was above 9.5% until the end of 2010?
Great point. A lot of economists that call themselves Keynesian (all but the like 12 economists of the Austrian school) forget that Keynes said the government should save money during the good times to pay for bad times. Modern day economics is the government should spend/borrow/spend more during good time then spend even more during bad times.
Well, if it’s true carte blanche, you could declare the recession is over and shoot anyone who disagrees.
It’s a popular economic theory in some parts of the world.
— Joe the Unemployed Plumber to spend his $1000 domestically on the underexploited charms of Sally the Unemployed Hooker. Sally will then spend her windfall domestically … on plumbing repairs.
There was something called the “Great Recession.” I thought we were discussing recovery from recessions, not the cause of recession itself.