U.S. Deficit Hits $374.2B, Setting Record...Your thoughts?

[Bryan330i]

But you can also argue that Dan will use the $50k he makes to purchase cosumer goods.

Good point Tom. Dan's 50K paycheck is far more in economic imact than $50k.

 

[Bryan330i]

Indeed, and unless he's stuffing his matteress, he probably will. But the $50K he spends is simply redistribution of the original 50k that the IRS collected. All of Dan's "work" is wasted. The basis of all economies is refining raw materials. Dan's IRS job does not refine raw materials or provide any other benifit to the economy.

But Dan's paycheck does. He buys a house, car, clothes, has a bank account (a HUGE money multiplier effect due to low hold percentages of deposits). Only 50k of taxes are being redistributed at the point of the issuance of the paycheck, but watch out when he goes to the bank and starts spending, the economic impact of that $50k shoots way up in multiples very quickly.

 

[cyberlox]

I don't beleive that our current President is capable of getting the economy in control. I feel that he is interested in his personal agenda more so than the well being of the country. The deficit is climbing beyond control and yet He is still asking for more aide for his current situations. Yes our economy is stimulated by every dollar that is spent here and not abroad. Therefore if people here are still losing jobs, then in turn our economy will continue to slide...

 

[PuShAkOv]

The best thing that this country can do now is get someone like Bill Clinton in the presidential office. Economic boom was mostly due to the internet generation coming to life, but his positive attidute and his political agenda really brought this country on high ground.

When you think of Bush you think of war. When you think of Clinton you think of sex. Now what would make you want to go out and hire sexy workers? You decide.

 

[wileycoyote]

The theory of the multiplier effect is valid, but you fail to consider the economic cost of Dan's IRS salary. We agree on the front side of Dan's spending. Every dollar Dan is paid must come from somewhere. If Dan works for the IRS, his salary is a pure expense to all businesses (the argument that without Dan, taxes would not be paid is anothe issue). However, if Dan works for any "for profit" company the cost of his salary is actually returned to economy as an increase in GDP.

Almost all government employees are an expense to the economy. This is indisputeable fact. The question is how many government employees do we really need? In Los Angeles County, the six larges employers are government agencies accounting for more than 60% of all jobs. Taxes, in general, are an absolute expense to businesses. Reduceing expenses improves efficency, which causes the economy to grow.

 

[BMWlover]

The Multiplier effect is true but it is too naive to apply to complex economic realities.
Firstly, there is a salient time gap between government spending (I) and
its outcome - demand (D): you can't get the effect of government spending right after
increasing it.

What if you can have the benefits of government spending 5 years later?
Like CEOs, economists seldom think applying multiplier effect (mostly Keynesian side)
to the economy - too late to prove they are right. Thus, applying basic multiplier
theories to the current economics situation is somewhat inappropriate.

Secondly, monetary market and international trade can influence our economy dramatically.
Exchange rate or FDA can be rather more important than the multiplier effect.

Thirdly, many US factories are located in China and other foreign countries.
Direct government spending can increase US infrastructure but the effect to
the production company and demand is not decided.

I think we need to compare the economic policy of Regan and Clinton for getting implications.
Reganomics is a kind of supply-side economic policy: They argued reducing tax
rate can increase economic growth. However, this was proved to be inefficient to the US
economy.

Mr.Bush's tax cut policy is similar to Reganomics in a sense. Future? Never know...
However, one thing for sure is that Reganomics is failed. Bushnomics?
remains to be seen...

The thing people do not realize about government spending is the multiplier effect. Those in politics talk of government spending like it's a bad word. Why??? Because they know the average American has little economic knowledge and would never understand the multiplier effect of money throughout the economy. They see it more like their own checkbook and when the money is gone, it’s gone. The truth is that the impact of economic benefit is exponentially greater than the spending. PROVIDED!!!! the spending is on US interests here and works for the benefit of the US people. Cut a $50k per year employee and you have cut far more than $50k from the economy. Shift $20billion from the US economy, well, you have just taken exponentially more from the US citizens.

Multiplier Effect

Initial increase in government spending results in increased income
Increased income [disposable income] is either:
Spent
Saved

That part which is spent [Marginal Propensity to Consume] flows back into the circular flow as consumption.

That part which is saved [Marginal Propensity to Save] flows back to the government

This process continues until the additional savings is equal to the initial increase in government spending

Total impact on spending is greater than the initial increase in government spending

The multiplier tell how much total spending increases as a result of the additional increase in government spending

MULTIPLIER = 1/[1 - MPC] = 1/MPS

 

[Bryan330i]

Okay, but there is no way to ignore the multiplier effect. All economic forecasting considers more than just the dollar paid to an employee. It is just there, it’s the way spending in the economy works. A dollar spent is simply not just a dollar, any economist would agree with that. How to calculate it is perhaps a different story, but nonetheless, it's still there.

 

[Bryan330i]

I think we need to compare the economic policy of Regan and Clinton for getting implications.
Reganomics is a kind of supply-side economic policy: They argued reducing tax
rate can increase economic growth. However, this was proved to be inefficient to the US
economy.

Mr.Bush's tax cut policy is similar to Reganomics in a sense. Future? Never know...
However, one thing for sure is that Reganomics is failed. Bushnomics?
remains to be seen...

I don't think there is a proven case of supply-side (Reaganomics) that has ever been effective. Its like "build it and they will come" , even without demand [fake] [???1] . It looks like Bush is following the same path but with a "rebate" to boost some spending on the bottom.

 

[BMWlover]

Sure, if a supply-driven policy is to be effective, the policy should continue
more than 3-4 years. However, we can't do that constantly.
That's why the supply-side policy was said to be ineffective.

Furthermore, Iraq war was a clear burden for the government spending.
We need a president who has a business mind. Though Mr.Bush used to be the CEO
of Houston pro-baseball team, his recent decisions were against economy I think.

I don't think there is a proven case of supply-side (Reaganomics) that has ever been effective. Its like "build it and they will come" , even without demand [fake] [???1] . It looks like Bush is following the same path but with a "rebate" to boost some spending on the bottom.

 

[wileycoyote]

It is my opinion that the reason Reganomics failed is that it merely shifted the tax burden. From the simplest to the most complex economies, the only real economic growth is achieved through improved efficeincy. An increase in government spending ultimately means an increase in taxes. An increase in taxes mean a decrease in efficeincey (given the size of our current government). Keynes's infamous quote, "In the long run, we are all dead" only show's his short sightedness. Increased government spending, tax cuts that shift the burden (including borrowing), etc. for the sake of stimulating the econommy is pure foolishness. Government investment in the things that improve the framework for business is the long term solution. The childish economic policies of the past 50 years have been offset by the incredible technological advancements that have allowed economic growth despite these policies.