The Instigator
Pro (for)
0 Points
The Contender
Con (against)
4 Points

Federal deficits are necessary to a growing US economy.

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Voting Style: Open Point System: 7 Point
Started: 8/7/2014 Category: Economics
Updated: 2 years ago Status: Post Voting Period
Viewed: 649 times Debate No: 59920
Debate Rounds (5)
Comments (3)
Votes (1)




Round 1 is acceptance. Round two is constructive argument, round three is constructive extension and rebuttal, round 4 rebuttal only, round 5 closing argument with no introduction of new evidence or argument. No videos or photos (images of charts acceptable)Pro position is the hypothesis that: Federal deficits provide private sector financial surpluses without which it is impossible to sustain trade deficits or consumption and investment spending under conditions of economic growth.


I shall accept this debate in opposition to Pro's Hypothesis. I wish Pro the best of luck and hope we may provide a solid debate.
Debate Round No. 1


Economic growth is currently defined as an increase in gross domestic product, which we measure as the sum of spending on four different sorts of things: consumption spending, investment spending, government spending, and net foreign spending (exports minus imports, or the difference in what foreigners spend into our economy than we spend into theirs).

Because economic growth is defined as growth in GDP, and GDP is defined as the amount we spend in the four ways described above, economic growth is an increase in spending.

Money is required (obviously) to support spending: it's what is spent. A higher level of economic activity requires a greater amount of money in circulation, or bad things begin to snowball. Spending is not, however, the only thing we do with money. We also save it. Money that is saved is not necessarily invested in anything that creates economic growth. Money is often invested in financial assets which do not result in the payment of wages nor in the production of real goods, and so does not contribute to the growth of GDP. Saving is seen as virtuous in popular culture but, economically, saving is simply money that is received as income which is not spent on real goods or services.

The amount of money in circulation, then, must satisfy two demands: the demand for spending and the demand for saving.

A persistent trade deficit creates additional demand on the money supply. The purchase of more imports in relation to exports results in more American money being sent overseas than is received from foreign countries for what we export. That money goes overseas with the trade deficit is simply gone. We no longer have it. If it is not replaced, then money must be supplied from some other source in order to maintain the increased levels of spending which constitute an increase in GDP.

There are only three possible sources of money: government can create it, banks can create it through lending, or we can obtain it from foreign countries by exporting more than we import. Let's look at each of these sources to determine which are supportive of economic growth.

We maintain a persistent trade deficit, so there isn't any realistic possibility of obtaining money for growth through a positive trade balance. The trade deficit is one of the sources of leakage which create the need for new money.

Banks also can create money through lending, which they do by expanding their balance sheets. This provides us with liquidity in the short term, which is indeed necessary if we are to spend. Every dollar created by bank lending carries with it a dollar in debt obligation, however, so such money creation is merely temporary.

This would not be a problem if lenders charged no interest, but they do charge interest. While bank lending creates money which can be used for investment or consumption spending, it does not create the money required to pay the interest on the loan. When the loan is retired, the interest paid on it necessarily had to come from some other source. Bank lending, therefore, begs the question. It creates a perhaps necessary liquidity in the moment, but it creates no net financial assets to the enduring benefit of the private sector. Because it creates an increasing obligation to pay interest, bank lending as a sole source of money is unsustainable. The money to pay bank interest must ultimately have some source other than the banks themselves.

This leaves government to create the money necessary for growth, by default. There simply is no other source.

A deficit on government's part is an excess of spending over taxation. The more that government spends in relation to what it taxes, the more money circulates in the economy. Government has the legal authority to issue money. In modern times, no nation uses a commodity (such as gold) as money, nor does it "back" its money with any commodity. Most modern nations retain to themselves the sole legal authority to create money (the nations of the Eurozone are an exception: they have surrendered that authority to the European Union).

The method used for money creation is deficit spending, which is followed by central bank action to realize the money associated with that spending in the country's banking system.

Deficits and sovereign debt are not the same thing. It's important to understand the difference in order to understand the process of government money creation. In accounting for things, we make two very different sorts of measurements: measures of stocks, and measures of flows.

Measurements of stocks tell us how much of a thing is in a pile. The national debt is the measure of a stock.

Measurements of flows tell us how much of a thing moves between providers and recipients. Deficits (and surpluses) are flows.

Stocks are static things, snapshots in time. Flows are dynamic, telling us about change.

When we look at the national debt, it's the sum of all federal deficits. In order to pay off the national debt, we would have to reverse all of the deficits of the past, creating large enough surpluses over a long enough time that the "pile" of debt would disappear.

To understand how this works, it's helpful to look at the economy as being divided into three sectors: the private sector, the federal government, and the foreign sector (that is, everybody else in the world).

Since a deficit is a flow of money, there must be a corresponding surplus somewhere to match the deficit. If someone is running a deficit, it means they are sending money to some other party. The party receiving the money is running a surplus. All surpluses and all deficits must, therefore, sum to zero: to the penny.

If government runs a budget deficit, then, another sector must be running a surplus. Somebody else is receiving the money that government is spending. The government deficit has to be somebody elses surplus, and the surplus has to be received by the private sector. The government's deficit must be, therefore, a surplus to the private sector.

The private sector is in a more complex situation than the government is. The private sector deals not only with government, but with the foreign sector. We've already established that we run a trade deficit, so the private sector is in deficit if the government"s budget is balanced.

The only way the private sector can retain a surplus, since it runs a trade deficit, is if government spends more than it taxes by an amount at least as large as the trade deficit. That's not ideology, it's an accounting identity. Just to break even (not to grow, just to keep from bleeding), government must deficit spend.

If the private sector has any desire to save, then the money it saves (that is, the money it funnels into the financial sector) must be replaced as well. We can now add to our demand for government deficits an amount of money equal to the desire of the private sector to save (money saved or sent overseas cannot be spent to add to GDP). The amount of money that Americans "desire to save" includes the amount of money they must give to the financial sector in interest payments on money they have borrowed from banks.

We now require that the government deficit equal the trade deficit plus the private sector demand for savings, or GDP cannot remain stable. If GDP is to grow, then government deficits must be even larger than that.

Money must come from somewhere if it is to be spent, and spending is how we measure economic growth. An increase in spending is, by definition, economic growth. The only way we can achieve that is to replace the money lost to our trade deficit, to savings, and to the financial sector (including all the money we pay in bank interest) via federal deficit spending.

Only by creating a flow of money from government into the private sector can economic growth be sustained, and the only method for doing that is federal deficits.


Thank you Pro.

The science of economics is designed to answer the question "how do humans satisfy their needs." Every human has a utility schedule with personal desires, and humans trade with each other in attempts to live "better" lives. This is nothing more than basic economics; economic growth occurs when people are continuously satisfied. Government deficits to increase everyone"s happiness (and thus "grow the economy") falls flat when one considers how the government crowds investment and/or distorts the market in another way to pay for it"s gift.

The first way in which governments can have deficits is by borrowing the needed funds. What this does, however, is reduce the supply of loan-able funds to the private sector and essentially add an unnecessary middleman; this is without even considering that the government will use taxes, inflation, or more loans to pay for ones it occurs now. Seeing as how Pro has decided not to use borrowing as a method for increasing the deficit, this is barely important, but important enough to add as existing.

The second way, by which Pro obviously prefers, is to increase the money supply starting at the national level with money borrowed from the central bank at an almost 0% interest rate. This inflationary way seems great; the "debt" is to an institution that cannot exist without the State, GDP increases because of the counting of government spending before new money prices affect what the real GDP looks like, and the visible tax rate does not raise a hair. Or so it would seem.

One way in which the State retains its aura of being voluntary (and simultaneously helping friends of the budget committee)is by paying more for a good or service than the private market would. This makes economic sense in that the needs of the State supposedly outweigh the needs of the masses, and it makes political sense in that the business will be far more likely to want the regime that makes him rich to stay in power. However, this distorts the market in whatever the government is buying; hence, the seeds are sowed.

Once the new-money is spent, the first receivers have more, and they increase demand, creating rising prices. As the money is spent, though, sellers become more wise as to how much people will pay, until we get to the working poor and the retired, two groups of people who will not see a rise in income related with the rise in costs. Hence, the panacea of government deficit spending fueled by inflation only hurts the most vulnerable.

In addition, this distortion from market actors haggling over prices up and down the chains of production results in resources going to means that do not necessarily satisfy consumer wants; things will look great as employees are paid with inflated money, but eventually the boom ends, and a revaluation of what exists will occur economy wide as consumers, surprise, don"t actually want the array of goods the distorted market produced.

Thus, because ultimately deficit spending is inflationary, which leads to a distorted market and a bust as consumers choose not to buy what the distorted market offers, deficit spending by governments is not in the best interests of the average citizen.

I turn this debate back over to Pro for the first round of rebuttal and extension of positive arguments.
Debate Round No. 2


LETeller forfeited this round.


First, I would like to extend my wish that Pro be all right, as I am sure Pro would not want to have given up her last round of positive arguments without unforeseen circumstances. I shall start by defending a point Pro would likely bring up; deflation may well be caused by savings and/or loss of money overseas in the case of a non-fiat currency such as gold or silver. Deflation is a good thing; it will reduce the price of almost all material factors across the board, making finished goods significantly cheaper. It will also help the retired on more fixed income and reward savers with more for their money to purchase. Some, including Pro, may claim that such deflation will also work on labor; however, labor is a service offered for profit by the laborers, and the demand for it continues to raise the price. Even now, with a minimum wage, less than 5% of all people working in the United States work legally at or below the minimum wage [1]. Essentially, deflation from saving or in the case of a commodity currency going overseas for imports is a positive point in my case.

Second, I would like to counter some of Pro"s Arguments. If listed out, her argument looks like this.
P1: Economic Growth is measured by GDP.
P2: GDP does not increase if spending does not increase.
C1: Spending must increase to increase GDP.

P1: Saving, being neither spending or investing, does not increase GDP.
P2: A U.S. trade deficit means more U.S. dollars are leaving the United States.
C2: Money that is saved or sent overseas does not increase the GDP.

P1: Government can create the money lost by savers and overseas exchange
P2: When the government runs a deficit, the private sector runs a surplus.
C3: Government can run a budget deficit and increase GDP.

C1: Spending must increase to increase GDP.
C2: Money that is saved or sent overseas does not increase the GDP.
C3: Government can run a budget deficit and increase GDP.
CF: Government should run budget deficits equal to or greater than money saved or spent overseas to boost the economy.

If Pro has a contention with this formulation, she may state so. I have contentions with at least 4 arguments, and shall explain why.

"When government is running a budget deficit, the private sector is gaining a surplus." Government does not actually produce any resources (unless it is a completely socialized sector of the economy, which the U.S. thankfully shies away from). All governments may do is shift the resources in existence. As can be understood from the posts in Round 2, the main method of government deficit spending will be to increase inflation by borrowing from the Federal Reserve. As I stated in my Round 2 arguments, inflation allows government to spend on what the actors of government wants, and it shifts where funds go in the private sector by giving the first receivers an incredible boost in purchasing power compared to all other citizens of the United States; as this point has yet to be contended, I will not spend more time on it.

The entire argument for C2 is fallacious. Saving will remove dollars from the GDP, but that is only because the resources or services the saver would like to buy are not yet available; it is not use spending to increase/maintain the current production structure if such a structure is not producing what consumers want. Also, saving makes each dollar purchase more; the savers are helping the spenders gain more produce for their money, and this works to make factors of production cheaper as well, leading to economic growth.

In the case of foreign trade, the manner in which Pro describes it is not how the real world operates today, and the argument would still be false when considering non-fiat currencies. Today States control the power to print fiat currencies, and they are used all over the world.When one wishes to trade American corn for, say, French wine, the two grocers separated by the Atlantic have to exchange their home currencies (dollars and euros) for the foreign currencies, before buying from the farmer in America or the Vineyard owner in France. If one purchaser, say the grocer in France, has dollars leftover, the grocer has choices; save the money, invest the money, exchange the money for euros or another currency, or exchange it for more American goods. Should the exchange option be taken, then the new owner of the dollars will have the same four choices. In the case of purchasing, America gets its dollars back. In the case of investment, it will be only with a company that accepts american dollars; the U.S. would gain more investments from which to maintain or expand the factors of production. If the grocer saved it, then it is still making American dollars more valuable, in which case we should be thanking our foreign customers.

Lastly, Pro puts the cart before the horse in the matter of GDP; while it is a measure often used for calculating economic growth, it is only a measure of spending; it is not really a good measure of all "stuff" being produced and focuses far too heavily on consumer spending rather than looking at the stages of production that produces said goods. For an example, consider the greatest leap forward in human welfare, the Agricultural Revolution 10,000 years ago. During that time, many hunter-gatherer societies became agricultural societies, gaining a surplus of food and exploding population wise. If there were a "Gross Domestic Food Production" indicator back then, we would see that the agricultural societies were consuming far more food than the Hunter-Gatherer societies. It would not follow that the sovereigns of the city-states should eat more to boost the economy, though, because it is not eating the food (or spending) that increases real wealth; rather, greater production allows for more consumption. A steady deflation, brought about by the very saving Pro wishes to counter, allows more people to produce with decreasing prices for the factors of production, and does not lead to the mal-investments infaltion encourages.

In short, Pro does not have a case, thus her resolution that federal deficits are good for the U.S. economy should not pass. I await Pro"s defense.

Debate Round No. 3


LETeller forfeited this round.


Pro has forfeited round 4. I am willing for Pro to make an argument in the last round both for her case and against mine in the last round, as opposed to the rules she has set out, so long as I am also allowed the ability to defend my own claims in the last round with rebuttals.
Debate Round No. 4


LETeller forfeited this round.


Arguments extended.
Debate Round No. 5
3 comments have been posted on this debate. Showing 1 through 3 records.
Posted by cheyennebodie 2 years ago
The only reason the weazle politicians get away with spending our money at that rate is because VERY few people understand big money. A seven inch high stack of $1000.00 bills would be 1 million dollars. A billion would be about 50 stories high.A trillion would be about 110 miles.The federal debt at this time is about 2000 miles high. About the distance from Los Angeles to Indianapolis..It is not a question if America will collapse, but when.
Posted by Vajrasattva-LeRoy 2 years ago
I'd like to add this:
One of you claimed that deficit spending by politicians produces a surplus of $.
That, of course, is nonsense.
Deficits are RED INK.
Since creditors, generally speaking, expect to get their $ back with interest,
deficits not only cannot produce $ surpluses, they produce HIGHER Deficits.

Politicians, etc. , Steal $ from the taxpayers, etc. , out of the economy.
Posted by Vajrasattva-LeRoy 2 years ago
It's obvious that neither of you have any idea of what you're writing about.
There's no such thing as "luck" .
You apparently don't even know what Deficit means.
Deficits are debts, red ink, the opposite of money.
Deficits can't be spent. They aren't assets. They aren't free gifts. They aren't flows of $.
"Investing" in deficits doesn't make sense.
People who loan out $ generally expect to get it back, with interest.
You can't get money, surpluses, investment funds, a growing economy, etc. , by borrowing $ or running deficits.
Reality just doesn't work like that
You just go further & further in Debt.

Real $ isn't something that can be created, in that sense.
(If pieces of pretty green paper were real $, all we'd have to do is print up lots of green paper & we'd all be rich. )
Again, Reality just doesn't work like that.

"Governments" don't exist. Free people, Free societies, free countries, like This one, don't Have such things. There are no such things as "government debts" , "federal debts" , "national debts" , "state debts" , "city debts" , etc.
Obama & his Gang apparently have an OFFICIAL Debt of over $17.6 Trillion, & Going Up.
Economic experts, such as Professor Laurence Kotlikoff of Boston University, claim that, because of their Unfunded & Off-Budget Obligations & Liabilities, their ACTUAL Debt is over $235 Trillion, & Going Up.
They have virtually ZERO $ for anything whatsoever.
Other politicians all over the world are also having SEVERE Budget Problems.
Only Crazy, Stupid, Crooks would promote Deficit Spending ...
1 votes has been placed for this debate.
Vote Placed by bladerunner060 2 years ago
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Total points awarded:04 
Reasons for voting decision: How very unfortunate that Pro decided to abandon this debate. Conduct for the forfeits, arguments for the lack of response to Con's counter. As always, happy to clarify this RFD.