The Instigator
Subutai
Pro (for)
Winning
3 Points
The Contender
Duncan
Con (against)
Losing
0 Points

Government Stimulus Is the Best Way to Get Out of a Recession

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Post Voting Period
The voting period for this debate has ended.
after 1 vote the winner is...
Subutai
Voting Style: Open Point System: 7 Point
Started: 12/17/2013 Category: Economics
Updated: 3 years ago Status: Post Voting Period
Viewed: 1,342 times Debate No: 42389
Debate Rounds (4)
Comments (8)
Votes (1)

 

Subutai

Pro

I am interested to see if Duncan wants to defend the statement he made in the comments. I know this current resolution is a slight deviation from the first resolution, but this current resolution is a consequence of the former. Please read everything below before accepting, as you will need to post your opening arguments in round 1.

Full Resolution

Government stimulus is the best way for an economy to get out of a recession.

BoP is on pro.

Definitions

Government stimulus: "A package of economic measures put together by the government to stimulate a floundering economy. The objective of a stimulus package is to reinvigorate the economy and prevent or reverse a recession by boosting employment and spending."[1]

Best: "Most satisfactory, suitable, or useful; most desirable."[2]

Recession: "A significant decline in activity across the economy, lasting longer than a few months."[3]

Rules

1. A forfeit or concession is not allowed.
2. No semantics, trolling, or lawyering.
3. All arguments and sources must be visible inside this debate.
4. Debate resolution, definitions, rules, and structure cannot be changed without asking in the comments before you post your round 1 argument. Debate resolution, definitions, rules, and structure cannot be changed in the middle of the debate.

Voters, in the case of the breaking of any of these rules by either debater, all seven points in voting should be given to the other person.

Debate Structure

Round 1: Presentation all arguments by con
Round 2: Presentation of arguments by pro and rebuttal by con
Round 3: Rebuttal by pro and defense of original arguments by con
Round 4: Defense of original argument by pro. To make for an even number of rounds between both debates, con should only post, "No argument will be posted here as agreed."

Sources

[1]: http://www.investopedia.com...
[2]: http://www.thefreedictionary.com...
[3]: http://www.investopedia.com...
Duncan

Con

I don't usually do formal debates, but when I do, I find difficulty sticking to structures. Nevertheless, I am here to prove how the most satisfactory conclusion to escape recession. I will be using Keynesian Economics to show this, and I will use the example of Ireland, my country, which has recently regained some of its economic sovereignty.

Let me first set the scene for my example. Due to a total lack of regulation (and some corruption), Ireland enters a massive recession. As the Troika essentially buy our sovereignty and our debt, they inflict Austerity on us. With constant taxes and mortgages, people begin to spend less. As less people spend money, businesses fail, workers become unemployed, they require welfare and spend less, which damages businesses even further. Reducing expenditure was an economic bombshell for the Irish economy. Now, Ireland has become to improve partially.The Troika left last Saturday, hopefully for good. But spending has yet to increase. Banks are afraid to lend and people still struggle with mortgages, up to and over 300,000 euros. Until people have the extra money, they will will have no discretionary spending. Business will be slow to pick up and the economy will remain overly cautious for a long time.

http://www.ictu.ie...

http://www.telegraph.co.uk...

I propose a government stimulus as a solution to recession. (If you try to use the US as an example; I doubt the US can ever pay back that debt with out a write off of some kind. And perhaps they don't need to pay it off, only so much as to pay off interest. ) Now, if the government of a country introduces stimulus packages, such as tax reductions, sources of employment etc., much more people will have a larger disposable income, and will be able to buy more goods and services. The increase in demand will create more employment, and further increase the disposable incomes of consumers, as well as reducing costs of unemployment benefits. Any borrowing required will soon be accounted for by the increase in revenue. Remember, a debt is not the end of the world if you can pay it off. Of course, I don't just propose the packages; the government should also regulate the economy to ensure spending is encouraged in ways that are reliable, this way, the economy can pick up, while preventing the causes of the previous recession. It was a credit bubble in Ireland. Now, we have a new Central Bank regulator who will do his job properly.

To conclude for now, While cuts can be a way to escape recession, it is a much slower process and it does not satisfy or benefit the people in recession as it lowers their standard of living, whereas Government Stimulus is a much more desirable, beneficial and fast method of escape. See you next round.

Duncan
Debate Round No. 1
Subutai

Pro

I would like to thank Duncan for presenting his arguments.

I. Capital Accumulation

At its heart, a recession results from a loss in total capital. Since capital is the accumulated wealth that is owned by business enterprises or individuals and that is used for the purpose of earning profit or interest, a decrease in capital means a decrease in economic activity, which is the very definition of a recession. Accumulating capital itself is known as saving, which is essentially spending not used for personal consumption. Saving is essential for the production of consumer goods, and with it, everything that goes on before retailing a product.

With that, "...economic recovery requires that the economic system rebuild its stock of capital and that to be able to do so, it needs to engage in greater saving relative to consumption. This is what will help to restore the supply of credit and thus help put an end to financial failures based on a lack of credit. Recovery also requires the freedom of wage rates and prices to fall, so that the presently reduced supply of capital and credit becomes capable of supporting a larger volume of employment and production. Recovery will be achieved by the combination of more saving, capital, and credit along with lower wage rates, costs, and prices. In addition, recovery requires the rapid liquidation of unsound investments."[1]

What government stimulus does is further reduce the amount of capital in the economy when the cause of the problem is too little capital to begin with, the result being that the recession is worsened. "The reason that stimulus packages cause a further loss of capital is that their starting point is the consumption of previously produced wealth. That wealth is part of the capital of the business firms that own it. The stimulus programs offer money in exchange for this wealth and capital. But the money they offer does not come from the production of any comparable wealth by the government or those to whom it gives money — wealth which has had to be produced and sold and thus put into the economic system prior to the withdrawal that now takes place. The starting point for the government and its dependents is an act of consumption, which means a using up, a loss of previously existing wealth in the form of capital... any fresh production and employment that results [from government stimulus] is incapable by itself of replacing the capital that was consumed in starting the process."[1]

Basically, government stimulus cannot create new capital out of the already existing capital. It also encourages consumption when saving is needed for the needed capital accumulation.

II. Broken Window Fallacy

Economics, because of its nature to work with institutions that yield significant amounts of power, is a discipline that has a number of fallacies. One of them is the broken window fallacy, or the tendency for economic policies to be judged only on their short-term and immediately foreseeable consequences. As Henry Hazlitt puts it, however, "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups." Government stimulus is one of the prime examples of how this fallacy is rampant in economic policy.[2]

To begin, government stimulus leaves long-term costs that that outweigh the short-term "benefits": "Finally, any attempt at “stimulus” leaves a long-term cost after any short-term benefits have long dissipated... fiscal deficits have only a short-run expansionary impact on growth and then become negative. Thus, constantly increasing deficits result in persistently low economic growth and an exploding ratio of public debt to GDP."[3]

Further, the effects on employment can give an example for how government stimulus helps some at the expense of others: "Any jobs supposedly created by the government are actually stolen by the government from someplace else or sometime else. That is, the government can create jobs in an industry through subsidizing it, but jobs will be lost in other industries not receiving such beneficial treatment. Government deficit spending that creates jobs now comes at the expense of fewer jobs during the times when the government runs a surplus. Jobs are shifted through time, but over time there is no net gain."[4]

The Government cannot create capital or wealth - all that government does in enacting a stimulus bill is divert capital from more efficient enterprises to less efficient enterprises under the guise of "increased spending", when the real importance is in increased capital. Further, it follows that for every job the government "creates", another job is lost. Overall, at best, stimulus can only achieve the same level of output as if private industry had been allowed to work; and most likely, the government's stimulus will be less efficient, meaning that the recession will be worsened instead of improved.

III. Empirical Evidence

Economic truths can be established through axioms, but it is many times argued that empirical evidence is needed to show the validity of an economic argument.

For example, the most current US economic stimulus is a prime example of this: "...The administration’s promise that the [ARRA] would keep unemployment rates from reaching 8.8 percent and would create some 3 million jobs - 90 percent of them in the private sector - did not materialize." Further, "From 2008 to 2009, the ratio of the deficit to Gross Domestic Product (GDP) rose from 3.2 percent to 9.9 percent. This 6.7 percent massive dose of fiscal stimulus represented the largest deficit burst since 1942.... If demand-side stimulus worked, the economy’s growth today should be China-esque." But, it hasn't. It has been the slowest recovery in modern (post-WWII) history."[5]

Government stimulus creates debt - there is no question of that. However, debt itself, especially in large debt-to-GDP ratio amounts, can slow economic growth because of the need for large taxation to even make minimum interest payments. There are countless examples of countries that experienced stagnating economies as a result of large amounts of debt.

Sources

[1]: http://mises.org...
[2]: Hazlitt, Henry. Economics in One Lesson.
[3]: http://www.forbes.com...
[4]: http://www.forbes.com...
[5]: http://reason.org...
Duncan

Con

I will give my rebuttal in the order of Pro's points listed.

1; The aim of government stimulus in this case is to escape recession, as swiftly and as beneficially as possible. What happens afterwards is of little importance to this topic. If a recession is a decline in economic activity, and saving does not cause economic activity, rather, the inverse. When wage rates decrease as you have explained as part of your plan for escape (a la Adam Smith), you forget that as the wages of employees decrease, they spend and save less, lowering both economic activity and saving. This system may work, but it is hardly a beneficial system to those who experience the lower wages.

2; Firstly;
Round 1: Presentation all arguments by con
Round 2: Presentation of arguments by pro and rebuttal by con
Round 3: Rebuttal by pro and defense of original arguments by con
Round 4: Defense of original argument by pro. To make for an even number of rounds between both debates, con should only post, "No argument will be posted here as agreed."

Surely the Broken Window Fallacy belonged in round 3, but regardless, creating a deficit is not the end of the world. Most countries will always owe some other country, all that is required is to pay the interest at least. Now, the debate topic is Government Stimulus Is the Best Way to Get Out of a Recession, not that it is the best way to promote long term growth. If I had to make an analogy, it would be that a stimulus is like a cortisone (steroid) where saving is simply having a balanced diet. In a recession (a medical emergency), you need the more extreme and short term solution to minimize short term suffering. By giving industries a boost to restart economic activities, you begin the circular flow of money once more and money begins to flow again, the multiplier effect creating new wealth.

3; I would say that America is a bad example for this debate. Firstly, the amount of debt in America is far greater than any other debt in the world, increasing by the thousands every second. This debt was mainly the product of several long term wars and is such a seriously massive debt that I dare call their condition depression, or at least it will be in the future. The issue is that nothing can get America out of its debt (save for a default or a write off), so the American Government will never have capital saved, always requiring it for spending. To save this money, they will need to either increase income or cut spending. To earn money, you will need to first supply money, (a cash injection), which does not fit into savings, so the next option, cutting spending must be used. In the previous example I gave, Austerity was not an optimal solution, and caused a great deal of hardship upon the Irish population. America is not a proper example due to the immense scale of its debt, which no mortal power can remove within a human lifetime.

http://www.brillig.com...

All in all, I would say the debate comes down to rival economic theories. Adam Smith as your economist and John Maynard Keynes as mine. As the saying goes, if you took every economist in the world, and lined them up head to foot, you still wouldn't reach a conclusion.

See you next round,

Duncan
Debate Round No. 2
Subutai

Pro

I would like to thank Duncan for presenting his refutations. Before I begin, I would like to mention that I just discovered that the positions in this debate are mixed up. I should be con and my opponent should be pro. That should address the structure problem we've been having.

I. Capital Accumulation

My opponent's entire refutation rests on ideas that I already cautioned against in my opening round. To sum it up, saving helps restore the line of credit, the loss of which was the cause of the recession to begin with. It's not like money that is saved is not used in the economy: "It is simply channeled elsewhere than into consumer goods. Financial institutions that accept such deposits lend them to customers who invest in their businesses. This is the process of creating the capital that is the sine qua non of sustainable, long-term economic growth."[1]

My opponent is right in arguing about decreased consumption and lower wages, but, as I mentioned in the last round, that is required for a healthy recovery: "Recovery also requires the freedom of wage rates and prices to fall, so that the presently reduced supply of capital and credit becomes capable of supporting a larger volume of employment and production." In other words, while in certain terms, some economic statistics trend down because of saving, they are all necessary in the end for a strong economy afterwards.[2]

What my opponent is committing the broken window fallacy again - you can see what immediate consumption rewards. The apparent problem with saving is that you can't immediately see the rewards that it brings. However, that doesn't make immediate consumption any better of a fix for a recession than saving is, and as I think you can tell from my arguments, saving is better, because again, it is not only the immediately seeable consequences that are the ones you should judge your policy by.

II. Broken Window Fallacy

As I've explained numerous times, the best solution is the one that take into account the long-term effects and every conceivable consequence. But I don't think I have to retreat my argument to that. As I've also explained numerous times, saving puts more capital into the economy, whereas government stimulus does not: "The starting point for the government and its dependents is an act of consumption, which means a using up, a loss of previously existing wealth in the form of capital... any fresh production and employment that results [from government stimulus] is incapable by itself of replacing the capital that was consumed in starting the process."[2]

For, "...the government's 'creation' of jobs via public works programs (or any number of stimulus-driven enterprises) it does so at the expense of the tax-payer via higher taxes or inflation and that 'spending' which would have otherwise gone to new fridges or iPads is removed and this does nothing to significantly improve aggregate demand." In other words, while saving puts money into the economy, all stimulus does is spend money that was already in the economy, making the stimulus worth pretty much nothing to the economy. Government stimulus cannot create wealth.[3]

III. Empirical Evidence

America may be bad because of its already large amounts of debt, but it's somewhat a consequence of the government stimulus over the years.

To begin, there is evidence that lower savings rates lowers recession recovery: "America’s personal savings rate declined some 56 percent over the past 50 years from 1963-2012... From 1960 to 2007, the U.S. economy had seven recessions, and the annual rate of growth of real GDP during the 12 quarters following these recessions was 4.2 percent... In contrast, during the 12 quarters following the trough in the second quarter of 2009, the average annual rate of growth of real GDP was 2.2 percent. After three years of recovery, the cumulative growth of real GDP was 6.3 percentage points lower than the average value for the earlier post-1960 recessions." So higher savings rates help economies get out of recession quicker than low savings rates because saving puts capital back into the economy.[4]

As for debt, while debt is also bad in the long term, debt is also bad in the short term when in comes to economic recovery: "Recent research confirms the dangers posed by high levels of government debt. Reinhart, Reinhart, and Rogoff examined over 110 years of economic data to conclude that advanced economies whose debt levels reach 90 percent of GDP face much slower economic growth. In 2009, Carmen Reinhart and Rogoff wrote This Time Is Different, a book The Economist called “a magisterial work on the causes and consequences of crises stretching back 800 years. Their conclusions were based on a vast new accumulation of cross-country data, covering 66 countries across all regions of the world and spanning eight centuries. This dataset made it possible to study country debt episodes and crises much more comprehensively. Reinhart, Reinhart, and Rogoff’s recent work on the impact of high public debt on growth and interest rates is based on this groundbreaking dataset."[5][6][7]

In other words, there is empirical evidence that higher savings rates and lower debt rates help an economy to recover faster from a recession than lower savings rates and higher debt rates. Debt is bad not only in the long term, but in the short term (affecting the current recession) as well.

Conclusion

Overall, government stimulus does not and cannot create capital. Saving is the best thing for restoring the line of capital that caused the recession, and therefore will bring the economy back on track. Government spending just reappropriates what was already being used to revive the economy.

Sources

[1]: http://www.fee.org...
[2]: http://mises.org...
[3]: http://www.zerohedge.com...
[4]: http://mises.org...
[5]: http://www.heritage.org...
[6]: Reinhart, Reinhart, and Rogoff, “Public Debt Overhangs.”
[7]: http://www.economist.com...
Duncan

Con

I will refrain from thanking my opponent again, as it only seems to come off as boot-licking upon review.

1; The reason that I chose Ireland as an example is because Ireland was a country that used saving as a method to escape recession. But it was not beneficial to the nation. Austerity was a harsh system that caused mass emigration, most notably the most skilled workers. The Banks have regained their credit, but refuse to lend to anyone, afraid that it may lead to another crisis. The focus of this debate is not which is the best long term solution, it is which is most beneficial. Yes, it may only be a short term solution, but as I have said before, government stimulus is an immediate solution to a problem. It is most important to the taxpayers, as they can keep jobs and earn income, improving their standard of life. In this way, I would say that this method is more beneficial, as it is the most satisfactory, suitable, or most desirable. solution. The people has regained their disposable income and can continue to afford luxury goods, healthcare and essentials.

2; I am answering the question, the title of the debate, according to your definitions. If a recession is a drop in economic activity, and beneficial results are ones most satisfactory, then even if short lived, the spending of the government to escape recession is a more beneficial answer. I never argued it was most efficient, but you never pointed out how saving, removing money from the economic system, could benefit the everyday worker. Officially, Ireland is out of recession. But that hasn't changed the standard of living for many mortgage holders. Shops still close down and people still emigrate. While it may be more stable, it most certainly deprives the benefits of not being in recession anyway.

3; I will simply restate why Ireland is a better candidate for discussion. It actually followed savings as a means of escaping, This means it is an example of how the system is implemented fairly, as I doubt America would escape recession with saving. America has such a large debt, due to their "debt ceiling" allowing them to borrow endlessly and blame it on the President when necessary. The country spends more than it has, and has been doing so for so long, I doubt anyone alive today will live to see the end of the US recession. At least I'll be in my 70s when Ireland actually pays its debts off.

In conclusion, government stimulus is a short but merry method of escaping recession, which is all the debate title ever asked for. I wish I could have used another economic example, but I don't know enough about Portugal or Spain, and I'm not sure Greece even has a functioning government right now, so we both produce one example.

This brings to the end of the debate, at least for me. I will leave my final round empty as per the agreements of the debate, and so I would like to to thank my opponent for this debate and also thank the viewers who take the time out during Christmas to vote on these debates.

Merry Christmas,

Duncan.
Debate Round No. 3
Subutai

Pro

I would like to thank Duncan for this debate.

I. Capital Accumulation

While it is true that banks often sit on capital, we have to understand why banks sit on their capital. "The main factor of instability in the modern banking system is the present paper standard, supported by the existence of the central bank and fractional reserve lending." It is instability that causes banks to sit on their capital.[1]

The other argument my opponent makes is in actually stating that only the short term benefits should be considered in the best plan for getting out of a recession. Even assuming that were true, the plan is still myopic, and is bound to repeat itself over and over again - I explained this in the broken window fallacy argument. However, I don't have to concede even the short term: "Despite the fact that what the economic system needs for recovery is saving and the accumulation of new capital, to replace as far as possible the capital that has been lost, the effect of stimulus packages is further to reduce the supply of capital, and thus to worsen the recession or depression... any fresh production and employment that results is incapable by itself of replacing the capital that was consumed in starting the process... The starting point for the government and its dependents is an act of consumption, which means a using up, a loss of previously existing wealth in the form of capital." In other words, government stimulus, at best, cannot fix the economy any faster than it would have naturally recovered (all other things being equal), and likely causes capital decumulation, which makes the recession worse, obviously making the plan not even good in the short term.[2]

My opponent continues to commit the broken window fallacy, and it is with that that I will proceed to the next argument.

II. Broken Window Fallacy

The same problem here: "In reality, nearly all Americans either invest their savings by purchasing financial assets such as stocks and bonds (which finances business investment), or by purchasing non-financial assets such as real estate and collectibles, or they deposit it in banks (which quickly lend it to others to spend). The money is used regardless of whether people spend or save.Government cannot create new purchasing power out of thin air. If Congress funds new spending with taxes, it is simply redistributing existing income. If Congress instead borrows the money from domestic investors, those investors will have that much less to invest or to spend in the private economy. If Congress borrows the money from foreigners, the balance of payments will adjust by equally reducing net exports, leaving GDP unchanged. Every dollar Congress spends must first come from somewhere else."[3]

What my opponent is doing here still only looking at what the person who got the government stimulus bought. He fails to take into account what the person who paid for the stimulus did not buy. Say the receiver gets $100 - that money can only come by taxing $100 out of the economy, which leaves a net zero "injection" of money into the economy. It will not net benefit the everyday worker - all it does is inefficently redistribute money, which makes the recovery worse.

III. Empirical Evidence

Even assuming that my opponent's objections to my earlier arguments were valid (which they aren't, because again, it is partially government stimulus that got America into the problem in the first place), Ireland is recovering, and better than many economies in Europe because of its large amounts of saving.

I will close with this: "A Journal of Macroeconomics study discovered that the coefficient of the additive terms of the government-size variable indicates that a 1% increase in government size decreases the rate of economic growth by 0.143%."[3][4]

Conclusion

Even though the broken window fallacy was one of my arguments, my opponent pretty much committed it throughout the entire debate, both in arguing that the short term is the most important factor in an economic plan, and my only stating the immediate benefits of such a plan, while not considering the more unforeseen costs of such a plan. Capital accumulation is the only way an economy gets back on track, and government stimulus stalls, and even reverses this trend, making the recession worse.

Sources

[1]: http://mises.org...
[2]: http://mises.org...
[3]: http://www.heritage.org...
[4]: James S. Guseh, "Government Size and Economic Growth in Developing Countries: A Political-Economy Framework," Journal of Macroeconomics, Vol. 19, No. 1 (Winter 1997), pp. 175-192.

NOTE: Source 4 was quoted from source 3.
Duncan

Con

No argument will be posted here as agreed.
Debate Round No. 4
8 comments have been posted on this debate. Showing 1 through 8 records.
Posted by Jacob60rt 3 years ago
Jacob60rt
Thank you
Posted by Subutai 3 years ago
Subutai
@Jacob60rt: Burden of proof.
Posted by Jacob60rt 3 years ago
Jacob60rt
What is BOP?
Posted by Duncan 3 years ago
Duncan
You're forgetting Government Spending; Austerity isn't helping us out of the Recession, we need to spend to escape it. We need an injection of money to spend, a la Keyenes.
Posted by LesNibbs 3 years ago
LesNibbs
one more thing
spending and saving , being just as important.... if you quantify that and saving say 1 trillion a month equates spending of 1 trillion a month, then as per free market principles of supply and demand the money you have saved would remain unused (loaned out by bank) for a period which would result in you getting a lower interest rate return on your money than if spending outstripped saving which would mean your money would be in greater demand, in essence
I saved money in the bank, I would rather that spending outstripped saving because my money in the bank would be in great demand and my return (interest rate) would be higher.
Posted by LesNibbs 3 years ago
LesNibbs
got to continue
in a recession you have inflation which decreases the buying power of a dollar

So if the majority in a society saves and not spends for 3 quarters you have a recession, higher unemployment/businesses closing/sometimes higher interest rates/less govt spending and the money you have saved becomes of less value because of inflation.
And no I dont want to accept your challenge.
Posted by LesNibbs 3 years ago
LesNibbs
clarification sorry saved in a bank account.... you might not spend it.... but the bank loans it out or uses it itself on things as currency speculation or share trading so even if you save it yourself it it still spent by a 2nd party.
Posted by LesNibbs 3 years ago
LesNibbs
Macro or microeconomics

Interesting 3 quarters of negative growth is a recession, to have economic growth you have to have spending and in respect of saving (money in the mattress) if it is a bank account then it is spent as in used, i think the only way your argument wins if the money is put in the mattress because if it is saved (in a bank account) then it is ultimately spent
1 votes has been placed for this debate.
Vote Placed by Magic8000 3 years ago
Magic8000
SubutaiDuncanTied
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Total points awarded:30 
Reasons for voting decision: Con's argument was the acclaimed success of Ireland. It would have been more convincing if he had way more than one example. It's a small sample size, one example on its own isn't convincing. Pro's two arguments are essentially arguing that the long term harms outweigh the short term benefits. He also presented evidence showing the US stimulus failed. Con came back and said stimulus was only a short term boost. But the resolution is "Government Stimulus Is the Best Way to Get Out of a Recession" not "Government Stimulus Gets us Out of a Recession". Con essentially conceded that it's not the best for long term, which as Pro states commits a broken window fallacy. Con never rebutted that. Con said America is a bad example for determining stimulus effects. Pro showed the reasons Con gave was somewhat because of stimulus. Con just said Ireland is a better candidate. But Pro showed this was because of saving. Pro had the better arguments.