Call me old-fashioned, but the New Deal worked pretty damned well and I think we’d do well to return to it more than we have.
Specifically, there’s a lot of infrastructure projects we could fund, both in repairs of existing infrastructure and creation of new infrastructure, and that’s been shown to be a wonderful way to inject money directly were it’ll do the most good: People who spend more than they invest, because, while investment is necessary, it just doesn’t move money through the economy as quickly, and to beat a deflationary funk you need money with a high velocity.
Yes, this necessarily involves deficit spending. The people who think deficit spending is dishonest or evil need to get the fuck over it: It’s the only way out of a recession. We’ve known this for decades. It isn’t controversial among the people who know what they’re talking about.
So, to circle back around, high-velocity money can be considered “hot” in some senses, so “hot money” isn’t money that depreciates faster than inflation, it’s money that’s being spent on goods and services.
Keynes promoted the theory that deficit spending was OK when the economy was slow, to get it moving. Then, the good times would allow the government to repay the money it borrowed to spend earlier.
The problem, is of course, the politicians took the first bit to heart, but never seemed to recognized when they were in the second state. it was always time to spend.
Not sure about the Australian experience, but the North American experience was that the inflation seemed to be slowly increasing over the 1970’s. (In 1968, the minimum wage was $0.90; When I started college in 1973, minimum wage had just gone up to $1.85; by 1977, it had reached $3.50) It took some fairly abrupt measures (prime rate near 20% for a while) to reign in this inflation.
Were there significant deficits during the Truman Administration? How about Ike? Or JFK? Or even LBJ? What happened to the budget under Bill Clinton? Is “never” an appropriate adverb in your sentence?
I know! Lets tell everyone in the country that if they go out and buy a new car while getting rid of their old one, the government will give them a subsidy. But the program is time-limited, buy now or miss out.
Crazy idea, though. It would never… wait-I remember now.
Several central banks in Europe have introduced a negative interest rate on the balances which commercial banks hold with teh central bank. Such negative rates were first introduced by the central banks of Denmark and Switzerland; they have, later, also been introduced by the European Central Bank, which manages the euro and currently has an interest rate of -0.3% on banks’ central bank balances. So far, however, hardly any bank passes this negative rate on to its own depositors.
Note that there are a few surpluses among the modest deficits from the CBO data graphed near the bottom. From 1946 to 1960 there 7 surpluses; Then there is a tiny tiny surplus in 1969, which maybe we can attribute to LBJ - but otherwise LBJ is into deficit territory, IIRC a result of spending heavily on both war and peace for his “Great Society”. While I applaud the idea of helping the poor, it set the tone for future rampages against the taxpayers’ piggybank. Also, there is a tiny surplus in 1960 which I assume is due to Eisenhower, not JFK - So yes, JFK did do nothing but deficits.
To be fair, Clinton did manage the discipline of a balanced budget for 4 years out of 8, in the midst of a booming economy - thus making Clinton economically the singular greatest president since Eisenhower. That’s an anomaly of the last 4 decades of spending.
I deliberately wrote “significant deficits” rather than “deficits.” Your own graph should demonstrate that the deficits of the 1960’s were almost trivial. Indeed if you Google for a graph of debt-to-GDP ratio, the most relevant statistic, you’ll see that ratio* fell almost steadily from the end of World War II to the mid 70’s,* stayed steady under Carter, began its rise under Ronald Reagan.
And, [nitpick], the apparent claim that the President who balances the budget is automatically the greatest economically is simplistic.
“Wrong”. The word you’re looking for is “wrong”, probably with an “idiotically” prepended to it.
Deficits serve an important purpose economically, as I’ve already mentioned: They’re a way for governments to shorten and reverse recessions through stimulus. They serve other purposes as well, most notably the creation of safe, highly-regarded investment instruments usually called government bonds. Simply put, part of the government’s debt, and therefore part of its deficit, is being used to give people a place to invest their money so it is neither sitting in a vault (or zero-interest checking account) nor is it dependent on the fate of a specific company, investment firm or otherwise.
Foreign sales of government debt serve even more important interests: They tie other countries’ economies to our own, disincentivizing war, especially since they’re denominated in our currency, which only has value to the extent they can use it to buy our export goods.
Finally, sovereign debt isn’t like household debt. It doesn’t necessarily have to be paid off, just serviced, because the sovereign isn’t going to die. (For the purposes of this post, a sovereign is a government. For the purposes of this post, a government is what holds elections, not what gets thrown out as a result of them. For the purposes of this post, trying to “correct” my terminology will make you look like an ass.) As long as creditors keep getting paid, the debt is an asset, and more debt can be created. If someone who is going to die in a few decades tries this, they’ll reach a point where the creditors figure that they’ll die before they can pay it all off, and no new credit will be extended, so no new debt can be created.
TL;DR: Whenever someone tells you that sovereign debt is like household debt, smile, nod, and back away from the crazy person.
I have never understand US conservatives being so obsessed with the debt when they claim to be the business friendly party. Leveraging growth through dept is basic basic stuff in any MBA course. A company that can increase growth faster than the interest rate they pay on a loan is going to do that, and in fact you can argue they have to do that it in order to maximise shareholder value. As as long as they can keep growth above interest rates, increasing debt is a good thing. Its not hard to understand.
As long as the US dollar remains the worlds most dominant currency, the debt is a non-issue because you can inflate away the debt if you really have to. Thats not going to change anytime soon, total value of USD in circulation is 3 times more than the next currency, the euro. Yes I know thats a pretty weak stat for the “strength” of a currency but it gives some indication.
Unfortunately, it’s not just the occasional crazy person who does this.
I would bet that were I to poll all my Facebook friends, a solid 40-60 percent would cling to the household budget analogy as if it’s as obvious as breathing.
These are people who have responsible positions in society, influence others (by raising children, for example), and vote.
This misconception is pervasive and it needs to be addressed in a comprehensive way, because it does affect public policy. You can’t just quietly back away and expect things to work out for society.
I did know that. But I’ve got two Warnings already.