Re: Crappy economy direct result of stupidity in Congress thanks to deficit c...
The way I see it, the govt. is doing the same thing to try and correct
the nations economic problems by the same method that got most
Americans in financial trouble,,,,,Which is by overextending themselves
and robbing Peter to pay Paul.
Borrowing and printing more money to try and correct the real problem isn't
going to change anything. It just prolongs the inevitable imo. So, in four
years we'll still be in the same economic situation we're in now,,maybe worse.
And if Mitt get's elected he'll be in the same boat O was in when he took over.
Which is, he'll be lucky if he can stop the snowball from continuing to roll
downhill, much less push it back up towards the top.
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 Reply to alectric - Msg #2276636 - 06/02/2012 21:19
Re: Crappy economy direct result of stupidity in Congress thanks to deficit cutti...
It's really not as simple as you make it out to be.
Let's talk about government spending during times of recession. If the government had a surplus it would be one thing, but the government has to borrow the money to spend. When they borrow the money, they have to pay interest, so what they net to spend is the amount they borrow minus the interest. The fact that they have to borrow necessarily crowds out business borrowing since there are a limited number of investors and some will opt for the government bonds. So instead of government spending as a stop gap measure until the private sector kicks in, you've now prolonged the recession to some extent because the very businesses that want to borrow have to compete with government borrowing.
Secondly, government spending will inevitably led to non-productive use of the money. For example, while our roads and bridges need to be repaired, this doesn't add to our productivity in any significant way because the roads and bridges we have are adequate (for an emerging economy like China, building roads and bridges on the other hand will lead to significant improvements in productivity because they have so few to begin with). So the money that is borrowed never gets fully returned to the treasury because what is spent is consumed and doesn't return more than 100% to the treasury through increased productivity (whatever you borrow robs from future economic activity unless you invest it in such a way that future economic activity exceeds what you borrow plus interest).
Now it is true that government programs do employ people and they do pay taxes but only a fraction of the money spent by the government (maybe 15%) is returned by each taxpayer. Furthermore, government spending can lead to misallocation of funds. A prime example is the solar panel industry. Government money was pumped into these companies as a part of the stimulus but the fact of the matter is China can build them cheaper. These technologies have been around for a long time and the US doesn't have a lock on innovation that would overcome China's cheap labor. Besides that solar is just not competitive with natural gas fired plants and nuclear energy. It's a noble goal to wean ourselves from foreign oil, but it does nothing to stimulate the economy when it's not more productive than what we already have.
The reason our economy is so sluggish is that low interest rates and the capital gains exemption on home sales caused a bubble in home prices and homeowners began to use their equity as an ATM machine. Government officials from the President on down were promoting home ownership as a means to build wealth. So too many homes were built and too much was borrowed. This lead to a bubble of epic proportions and most of that borrowed money was spent on cheap goods from China. So not only was future economic activity brought into the present and wasted on consumption, it was sent to China ensuring that the money would not reverberate through the US economy the way it has in the past. What appeared to be a vigorous economy was in fact a mirage. Demand was never the result of increasing net worth; it was simply debt-driven. So now we are in the future, but the future economic activity we would have now was enjoyed in the last decade.
We had a better chance during the Great Depression of government spending working because America was just industrializing and there were many emerging technologies on the horizon that could improve productivity, and yet the economy did very little in response to government programs. It was the focused effort of the war effort and the Marshall Plan that followed which ultimately led to a turnaround and it was only because Europe was in shambles and we came through the war virtually unscathed that we could immediately put our factories to work resupplying Europe. I don't see what we can do to rally this country today. With baby boomers retiring in droves, taking their demand for goods and services, and with smaller generations following them, I don't see a turnaround anytime soon no matter who is elected. |
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