Deficit Spending- Please Explain the Logic

[bkholdem]

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Deficit spending is a way to moderate the business cycle during down periods, it is not meant to be continuous.

A recession is very hard to get out of. Factories don't produce because consumers aren't buying. Consumers aren't buying because they've been laid off by the factories. The system has stalled, and needs a jump start. The government steps in and buys on credit, or by printing money. The factories now have orders, so they hire people. People have pay checks, so they start buying again. Once the system is rolling again, government retracts and pays off its debts.

There may be inflation due to the government spending. This is considered a tradeoff -- you try to moderate it.

Deficit spending worked brilliantly when World War II ended the Depression. It keeps the economy pumped even now, because going into the red with defense spending is indistinguishable from Keynesian deficit spending.

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But wouldn't we be basically hozed even if saints were the ones that were in power with the money supply? When you say 'trade off' what sacrifices do the people who are pulling the strings make? It seems like they are getting the best of it, or is there such a thing as a free lunch?

[bkholdem]

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If you are starving, have no money, and have a credit card with a high credit limit, deficit spending makes sense so that you can survive for a while, get a job, then pay back the money, right?



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How on earth would adults wind up in such a situation? And if they did, don't you think that something went terribly wrong? Should then not examine what put them in such a situation and do everything they can to prevent winding up in a similar situation in the future?

Why does your story start with someone being broke and jobless?

[mjkidd]

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Well, inflation will bail us out eventually.

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Hmmm...so, in an inflationary economy, should we be using credit cards to finance things like, hmmmm gambling...since inflation will eventually bail us out?

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You'd have to have a hell of a gambling problem to affect inflation...

[Bill Haywood]

[ QUOTE ]
But wouldn't we be basically hozed even if saints were the ones that were in power with the money supply? When you say 'trade off' what sacrifices do the people who are pulling the strings make? It seems like they are getting the best of it, or is there such a thing as a free lunch?

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I would never suggest that Keynesianism does not conform to the interests of elites who pursue it. I was just trying to explain the theory.

Okay, you have a huge pile of potatoes in one city, a huge crowd of hungry people in another, and a huge pile of gold coins in a third city. This system has the pieces to work -- producers, consumers, and an exchange medium. But trade will not commence until you find a way to get the gold loaded on wheels headed for potato land. Keynesianism is not redistribution -- it's a way to get supply and demand back in balance.

[tolbiny]

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I would like to be able to quit being a fiscal conservative but I can't figure out how deficit spending is good.

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Deficit spending works like this.

Imagine you 70 years old and take out a $1,000,000 loan, live it up for 5 years and die at 75. That would be pretty sweet. Of course no one will loan you that mill if they think you won't repay it so you convince your son to co sign. Maybe you guilt him into it. Of course when he is 70 now he needs a cosigner as well, so he goes after his son. But his son says no. But since your a senior citizen you and your friends vote, and your Grandson (being under 18 doesn't). So you pass a bill making your grandson liable for the loans you receive. Sounds pretty great huh? Deficit spending works because creditors think that the next generation will continue to pay off the debt. Deficit spending stops working when a time comes that a generation is either unable or unwilling to pay it off, no more creditors = no more spending.

[bkholdem]

[ QUOTE ]
[ QUOTE ]
But wouldn't we be basically hozed even if saints were the ones that were in power with the money supply? When you say 'trade off' what sacrifices do the people who are pulling the strings make? It seems like they are getting the best of it, or is there such a thing as a free lunch?

[/ QUOTE ]

I would never suggest that Keynesianism does not conform to the interests of elites who pursue it. I was just trying to explain the theory.

Okay, you have a huge pile of potatoes in one city, a huge crowd of hungry people in another, and a huge pile of gold coins in a third city. This system has the pieces to work -- producers, consumers, and an exchange medium. But trade will not commence until you find a way to get the gold loaded on wheels headed for potato land. Keynesianism is not redistribution -- it's a way to get supply and demand back in balance.

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And punching someone in the nose is a way to get my emotions back in balance/

[bkholdem]

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I would like to be able to quit being a fiscal conservative but I can't figure out how deficit spending is good.

[/ QUOTE ]

Deficit spending works like this.

Imagine you 70 years old and take out a $1,000,000 loan, live it up for 5 years and die at 75. That would be pretty sweet. Of course no one will loan you that mill if they think you won't repay it so you convince your son to co sign. Maybe you guilt him into it. Of course when he is 70 now he needs a cosigner as well, so he goes after his son. But his son says no. But since your a senior citizen you and your friends vote, and your Grandson (being under 18 doesn't). So you pass a bill making your grandson liable for the loans you receive. Sounds pretty great huh? Deficit spending works because creditors think that the next generation will continue to pay off the debt. Deficit spending stops working when a time comes that a generation is either unable or unwilling to pay it off, no more creditors = no more spending.

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Thank you. Someone explaining the reality in plain and simple terms. I was beginning to think I would need a PhD in economics to figure it out (guess some people want to intentionally deceive me).

[tolbiny]

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Deficit spending worked brilliantly when World War II ended the Depression

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HAHAHAHAHAHA.......HA.

Standard of living during WW2 for the average person was as bad, or worse than during the depression. WW2 reduced unemployment, but you still couldn't buy [censored] with the money you were paid. The GD didn't end until several years after ww2.

[TomCollins]

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[ QUOTE ]
If you are starving, have no money, and have a credit card with a high credit limit, deficit spending makes sense so that you can survive for a while, get a job, then pay back the money, right?



[/ QUOTE ]

How on earth would adults wind up in such a situation? And if they did, don't you think that something went terribly wrong? Should then not examine what put them in such a situation and do everything they can to prevent winding up in a similar situation in the future?

Why does your story start with someone being broke and jobless?

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It's actually smart now. Before, it was smart to save up maybe 6 months worth of expenses readily available in case of losing your job or some other bad situation. I don't need to do this anymore, since I can rely on credit in such a situation, and invest the money I would otherwise save on something giving me a higher interest rate.

It was an extreme case. But people lose their jobs and have mortgages and kids. Let's use that case if it makes you happier. You have a 50k a year job, a few rugrats, and a mortgage. You get laid off due to downsizing. You can easily find a job within 6 months. It's worth it to use debt to pay for immediate expenses rather than get a job McDonalds which prevents you from looking for another job (or extends the amount of time it takes to find a good job).

[bkholdem]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
If you are starving, have no money, and have a credit card with a high credit limit, deficit spending makes sense so that you can survive for a while, get a job, then pay back the money, right?



[/ QUOTE ]

How on earth would adults wind up in such a situation? And if they did, don't you think that something went terribly wrong? Should then not examine what put them in such a situation and do everything they can to prevent winding up in a similar situation in the future?

Why does your story start with someone being broke and jobless?

[/ QUOTE ]

It's actually smart now. Before, it was smart to save up maybe 6 months worth of expenses readily available in case of losing your job or some other bad situation. I don't need to do this anymore, since I can rely on credit in such a situation, and invest the money I would otherwise save on something giving me a higher interest rate.

It was an extreme case. But people lose their jobs and have mortgages and kids. Let's use that case if it makes you happier. You have a 50k a year job, a few rugrats, and a mortgage. You get laid off due to downsizing. You can easily find a job within 6 months. It's worth it to use debt to pay for immediate expenses rather than get a job McDonalds which prevents you from looking for another job (or extends the amount of time it takes to find a good job).

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What is the upside of deficit spending for productive responsible adults who proactively anticipate and avoid crisis?

Are you telling me it is wise to not have liquid assets? The government is doing me/us a favor by spending money it does not have?