question about deficit spending

[steve2470]

Any time I read or listen to RW'ers, inevitably at some point they rail against deficit spending, along with the household budget comparison (which is totally off, of course). My understanding is that deficit spending is not an issue, unless it reaches very high proportions of GDP. I know it was very high during WW2 but I'm guessing no one dared to make it an issue back then ?

Am I correct here ? I'm not an economist, hence the sincere question. Thanks in advance!

Steve

[geek tragedy]

1. In grossly oversimplified terms

deficit spending is good/necessary during economic down times (creates demand for goods and jobs), and bad when the economy is going well (creates inflation and asset bubbles).

Which is why states need to keep it as an option, but not passing stupid stuff like balanced budget amendments and also not defaulting on their debts so they can borrow and engage in deficit spending.

[steve2470]

2. yes that was my understanding, thank you! nt

[on point]

4. One reason why Bush tax policies were a disaster!

Rather than paying down the debt while times were good (remember debt free in 5 years from Clinton budget surplus??), he ran up the debt by reducing taxes (Supply side foolishness), THEN piled a couple of trillion of new debt on top of that with the criminal, stupid Iraq war. All the while proclaiming 'debt doesn't matter' - Cheney

Then the conservatives complained when the economy tanked, and needed the spending, that the debt was too high already!

What a bunch of economic idiots!

[Travis_0004]

3. short term high defecit spending is not a problem

During WW2, defecit spending was high, but it was also short term

The problem comes when the debt is high and the interest payments are unaffordable.

[Yupster]

5. Right now our debt (not deficit) is around $ 18 trillion

Interest rates are very low and have been for seven years.

If all interest rates magically went up 3 % which wouldn't be that much, the interest payments on $ 18 trillion would be $ 540 billion a year. You can see what a disaster that would be for the US budget. Things aren't that bad as much of the US debt is in 10 year notes or 30 year bonds so they won't go up overnight, but the numbers have reached bad levels and they go up every year.

Here's a chart from wiki comparing the debt levels of many countries. We don't look too good.

On DU a day or so ago there was a lot of defending the Greeks for letting their debt levels go so high because they didn't know any better and were just doing what they bankers told them to do.

Well, we know what we're doing and we're letting our levels get higher and higher while we call for more government spending and more tax cuts. Are we going to blame the bankers too when our levels hit the breaking point?

Anyway, here's the chart.

https://en.wikipedia.org/wiki/List_of_countries_by_public_debt

[Adrahil]

6. Well, Keynes says....

That deficit spending is good in economic down times. But that in good times, it's best to eliminate it, since it's parasitic, and you're essentially allocating part of the budget to fund the investing class, which he considers a market distortion. A manageable structural debt is not dangerous, but it DOES essentially publicly fund the profits of investors. You can decide for yourself if that's a good idea.

[PoliticAverse]

7. Deficit spending isn't an issue until borrowers suspect you aren't going to pay it back...

then they stop lending you money at reasonable rates and people realize they will
actually have to pay fully for the things they want as well as pay back the money
borrowed at increased interest rates.

Note that the WW2 GDP/debt ratio is somewhat misleading as the economy was disrupted.

https://en.wikipedia.org/wiki/List_of_countries_by_public_debt

[Orsino]

8. Households can go bankrupt through a few years of bad decisions.

It takes a lot more decision, bad on a scale beyond the rwach of households, and for a lot more years, to bankrupt a nation.

[Taitertots]

9. Deficit spending is just a failure to properly tax the rich

Too often the deficit spending discussion is clouded by the exclusion of the role of taxes in deficit spending.

We should follow neo-Keynesian macro spending policies. AND Keynesian spending should be funded by progressive taxation.