http://economix.blogs.nytimes.com/2012/12/14/the-trade-off-between-economic-growth-and-deficit-reduction/?gwh=71258D0F6B190AC798B0339D41114F9D
She argues that low government spending on goods and services has severely impacted the slow growth in GDP. She notes the IMF study which Dr. Mckinney directed us to about fiscal multipliers in output and unemployment as well. So why are policy makers so concerned with cutting budgets when spending increases could help bring the economy out of recession? What are the benefits to these cuts? What is the strongest argument for keeping spending down? Does it have to do with actual economic implications or merely political gains?
"Residential investment is still depressed as a result of overbuilding during the 2004-8 housing boom and the tsunami of foreclosures that followed. Large losses in household wealth, deleveraging from excessive debt, weak growth in wages and household income, and a decline in labor’s share of national income to a historic low have combined to constrain consumption growth. Wobbly consumer confidence and the concentration of most income gains at the top of the income distribution have also contributed."
"Weak investment demand cannot be explained by low profits and high taxes: the profit share of national income has hit a historic peak and taxes on investment income are at historic lows."
"By the same logic, the $600 billion of revenue increases and spending cuts scheduled for next year — the so-called fiscal cliff — would have large negative effects on demand, output and employment and would reduce future potential output as well.The fiscal cliff packs a powerful punch: there will be 3.4 million fewer jobs by the end of 2013 if Congress allows these policies to take effect."
As we have talked about in class, decisions made by politicians are more often political then economical. That being said, in the case of large deficits, it would make sense to the voting public that the government would need to cut down spending. If the government would say increase spending and things do not immediately improve, the opposing political party would rip them apart in the media and shatter any hopes of their re-election. Its all political
ReplyDeleteI completely agree with Travis. I find it rather unfortunate that those we elect to represent us put their own reelection interests before the interests of the people they represent. That being said, I think our government is in a pickle no matter what they do. Increased spending my help jumpstart the economy. But then our debt would continue to grow, which is also a big problem. I do hope a successful solution is reached soon either way.
ReplyDeleteI agree with both statements. Even if low government spending, "on goods and services has severely impacted the slow growth in GDP." I think the deficit issue is more important and needs to taken care of. Once we are more balanced with our debt issue, we can possibly think about jump starting the economy with Tyson's ideas.
ReplyDeleteTravis, great point. Unfortunately the consequences of the "political" decisions being made affect the entire nation. The government has to make some decisions with "economics" being the basis of that decision or many lives will be negatively impacted.
ReplyDeleteI can't agree with Travis more. The other problem with huge government spending is, to increase the GDP by one percent government spending has to increase by about 4%. The national debt is so high and growing at alarming rate that further spending will make the debt situation worse.
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