Reducing Federal Spending is Beneficial to the Economy
Debate Rounds (3)
I'm happy that this topic has been posted as economics is something I care deeply about. The value of discourse about economic systems is key to developing a better understanding of how economies work, so I look forward to the next two rounds :)
First, Americans don't understand the debt. We sit around and take politicians words about economics as if they understand our economy. Many claim that we should fear China, because our country is like a mortgage, if we don't pay back the dollars spent, China will come take them. This is not true for a few reasons. Governments don't need to pay back their debt, we just need to grow the economy at a faster rate than we grow our debt. This is not hard. The Fed does this through low interest loans to banks, who return the favour to consumers. Also, America holds most of America's debt. People buy up bonds, USFG debt, at a cost and get repaid that cost plus interest over time, this has been common practice in governments for a long time. This is a two-way street. America also buys up debt from other countries, and, because of interest rates, America makes more money off of debt borrowing than it loses. Once we accept that trading debts and securities is a key part to modern economic systems, we can see that the debt directly creates a major aspect to our economy. Krugman outlines more details to these arguments in the article listed below, if you're interested.
Second, hbtara, makes this claim that the debt is something that we have to deal with; it's a problem that needs to be solved. If you cross-apply the above points, you will see that the debt is good and is something that is managed by top economists to provide economic growth.
There was also a symantics error regarding the world deficit. My opponent has claimed the New Deal policies and others have stacked up to a deficit that we now face. The deficit and the debt are two different things. The deficit is an annual shortfall on spending vs revenues and the debt is the sum of all our budget shortfalls or balances. The policies and spending from the 1930's are not a part of our current deficit.
Next, my opponent makes this claim that democrats have been proven wrong by modern economists about how government spending helps the economy. Not only does my opponent not cite any specific economists, articles or credentials, s/he fails to provide any warrants or empirical evidence. Here are some counter-warrants: the stimulus package from a few years ago cost about $600b. This money went to banks and investors to create/maintain jobs and sustain our GDP. Estimates put the GDP amount saved by the stimulus at between 3.5 and 10%. Considering that in a good year the economy grows about 3-5% and that we were still in a recession after the packages, it is safe to say that the stimulus package prevented a recession. This means that deficit spending prevented a depression.
Next hbtara claims that New Deal policies did not get us out of the depression, the war did. However s/he is wrong for a few reasons: First, the New Deal policies created an infrastructure necessary to maintain the American war machine. Without the policies, the war effort would have been impossible. Even if you don't buy that, the war was still government spending, financed by the same bond system we use today. This means that deficit spending pulled us out of the depression.
Hbtara makes this claim that the debt is something that we have to deal with, however, I would like to see how exactly it is we have to deal with it, what problems it is causing, warrants for all of these and how it relates to the resolution provided. The same goes for his point about big government. I don't want buzzwords, I want actual argument.
Understand that fear of the debt and deficit spending leads to bad policy making. In December of 2011 the United States entered what is called a 'liquidity trap' meaning that we could print near infinite money to combat unemployment and bolster the economy without feeling the effects of over-inflation. We did print a lot of money and we did stiffle unemployment, however it was not as effective as it could have been.
In 1937 the Roosevelt administration was faced with the choice of spending more money to bolster the economy or to combat the debt. They chose to combat the debt. This is known as the "Mistake of 1937" and is considered the reason that New Deal policies were not perfectly successful.
This debate is about Keynesian economics. I have provided warrants from both the early 20th century and the early 21st century about why the debt is not something that harms the economy, but rather something that helps it. I look forward to the next round.
In response to you're first point, you're right: Americans' fear of China is irrational. The whole school of thought that China is "stealing jobs" tends to be perpetuated by conservative politicians, who fail to address the fact that General Motors is one of the biggest manufacturers in China. Outsourcing, anyone? But I digress.
The policies from the 1930's have influenced the policies of today, but again you are right, they are not the exact same policies. However, it has been shown that the New Deal reduced the unemployment rate by about 2%, while manufacturing jobs created by WWII reduced the unemployment rate much more significantly. Manufacturing jobs were not originally part of the New Deal policies, they were a lucky side effect of the war.
In response to your comment about the stimulus package, said stimulus is generally regarded as a failure. It's benefits to the economy were minimal, and it frankly failed to live up to the hype. The stimulus package was supposed to keep the unemployment rate under 8%, but since then, the unemployment rate has risen to around 9.5%. In an article by Time Magazine, Spencer Green states, "A little over a month ago, the Administration said the stimulus bill had created or saved 150,000 jobs. That's a far cry from the 3 million to 4 million jobs that Romer and Bernstein foresaw back in January." The stimulus package was intended to create jobs in the heath-care and alternative-energy industries, but these industries were predicted to grow anyways. The money should have gone to manufacturing, where the demand is currently far less than what it was pre-recession, and is where many of the jobs were lost. The point of Keynesian economic theory is to basically create demand for a struggling industry. It now seems foolish to be trying to support jobs in an already growing industry, while many of unemployed Americans have been laid off from manufacturing jobs, and that is all they are qualified for. You can read the rest of the article here, if you are interested: http://www.time.com....
Next, America's small government was what first spurred the government to start employing Keynesian economics. Due to the idea American government is rather small, the government feels they are able to afford to increase taxes and spending without any significantly harmful side-effects. However, as Chris Edwards points out, this is no longer true, "Some analysts say that America can afford to increase taxes and spending because it is a uniquely small-government country. Alas, this is no longer the case. Data from the Organization for Economic Cooperation and Development (OECD) show that federal, state, and local government spending in the United States this year is a huge 41 percent of GDP." Edwards points out why this is so devastating when he says, "Historically, America's strong growth and high living standards were built on our relatively smaller government" . As the American people can now see, this strong growth has significantly decreased with the expansion of the government. The decrease in America's living standards is directly proportional to the increase in government spending. The only solution, therefore, is to cut this spending significantly. This will allow our economy to thrive once more, without the burdens of uncontrollable spending.
Also, continued deficit spending is not only unsustainable, but is disastrous over the long term. The theory which supports the idea of deficit spending being unsustainable is backed up by Joann M. Weiner in her article, "What's So Bad About a 1.4 Trillion Dollar Deficit?". Weiner explains, "When asked [what's so bad about a 1.4 trillion dollar deficit], Maya C. MacGuineas, president of the Committee for a Responsible Federal Budget (CRFB), said, ‘Nothing for one year.' However, as a committed deficit hawk, she warned that ‘if deficits even close to that large last over the next years, it is very likely creditors will demand higher interest rates, which in turn could derail the economic recovery.' While justifying deficit spending during a recession, the CRFB has routinely argued that the U.S. government is on an unsustainable deficit path. It has projected that the ongoing deficit spending, largely on Medicare and Medicaid, will push public debt to 300 percent of national income in just three generations." This long-term spending-spree has proved disastrous for the United States' economy, and therefore has been equally disastrous for American citizens as well.
Because deficit spending is so unsustainable, it is actually economically sound to reduce federal spending, which will increase the stability and strength of the economy. In "From Spending to Cuts, While the Economy Stalls", Obama is quoted as saying … ‘[this act] begins to lift the cloud of debt and the cloud of uncertainty that hangs over the economy'." By reducing this "cloud of uncertainty", the American people will be more confident in investing their money, which will increase economic growth. Mark Hinkle, Chairman of the Libertarian Party, said, "The best thing Congress could do right now is to cut spending sharply. That would be good for both our short-term and long-term economic health."
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