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A deficit is necessary in a recession

Benshapiro
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4/29/2014 2:58:03 PM
Posted: 2 years ago
A deficit meaning that the government spends more money on a yearly basis than it receives in tax revenue.

Our economy is driven by consumer consumption and accounts for 70% of our GDP. During a recession, businesses don't like to expand or hire new employees because of a liquidity trap. Businesses anticipate a decrease is aggregate demand because of the recession. Thus, decrease in demand prolongs recessionary effects throughout the entire economy.

Our government borrows money by selling securities to domestic and international investors. Of course, this adds to the national debt because they are borrowing money with the promise of eventually paying interest. But during a recession, efficient government spending (infrastructure, increased gov. job wages, etc.,) all combat the liquidity trap that occurs during a recession and gets the economy up to speed much quicker because it provides more demand for private industry goods and services because people have more wages. The higher one's wage is, the more goods and services he demands. Higher wages via government spending means that businesses would need to hire more employees to keep up with this increased demand. By hiring more employees, the unemployment rate drops. According to Okun's law, a 1% decrease in the unemployment rate leads to a 2% increase in real GDP output.

The danger of allowing too much government borrowing is 1) the government borrowing so much money that it drives up interest rates for private businesses wanting to borrow and 2) the inability of the government to pay back their debt because the interest reaches a point of unsustainablility.

The "crowding out effect" is what I had described in the first scenario. But during a recession, businesses have an aggregate decrease in demand due to the liquidity trap and the real interest rate is lower. The relationship between interest rate and borrowed funds is shown by the loanable funds model. In increase in aggregate borrowing means that interest rates will increase, whereas a decrease in aggregate borrowing means that interest rates will decrease. The government can substitute the spending that would've occurred from private businesses without increasing the interest rate because private businesses are borrowing less due to the recession.

Our national debt is about $17 trillion and that sounds like a scary number. What's more important than the nominal number though, is our ability to pay back our national debt. Our GDP (the value of goods and services that we produce in 1 year) is about $16.6 trillion. Our debt/GDP ratio is just above 100%. We've had a larger debt/GDP ratio just after world war 2 at 120% and we went on to produce a surplus during the Clinton admin. Also, Japan has over a 200% debt/GDP ratio and has the third largest economy in the world (if you don't consider the EU) and surpassed our debt/GDP ratio in the 90's.

Thus, due to the liquidity trap and the benefits of economic stimulus via government spending outweighing the costs, it's necessary to have a deficit during a recession.
Benshapiro
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4/29/2014 3:20:58 PM
Posted: 2 years ago
You may ask, well what about quantitative easing?

Quantitative easing is the process of our government buying government bonds for the sake of targeting the interest rate. There is an inverse relationship between bonds and the interest rate and "quantitative easing" is just large government purchases of bonds each month (about $70 billion). By keeping interest rates low, this encourages people to borrow because low interest rates are desirable. By borrowing money and spending it, the economy is stimulated by consumer spending.

One major thing that most people don't take into consideration is that the U.S. Dollar is the world's reserve currency. Meaning that since we're the world's largest economy, other countries must hold our currency if they wish to trade with us. By expanding our money supply through quantitative easing, the debts we owe to other countries that invest in our dollar is effectively reducing the real dollar amount that we need to pay them back.
progressivedem22
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4/30/2014 6:24:13 PM
Posted: 2 years ago
All I can say is, I agree. And it's great to see someone else on this forum -- amid all the libertarian filth that frequents it -- who actually has genuine knowledge of economics.
Jifpop09
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5/2/2014 4:31:38 PM
Posted: 2 years ago
I had included this theory into many of my debates, but its impossible explaining to people how deficits can be good. I'll use this as a guideline for future explanations
Leader of the DDO Revolution Party
sadolite
Posts: 8,842
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5/3/2014 8:55:04 AM
Posted: 2 years ago
The most dangerous phrase in the language is, "We've always done it this way."

Grace hopper
It's not your views that divide us, it's what you think my views should be that divides us.

If you think I will give up my rights and forsake social etiquette to make you "FEEL" better you are sadly mistaken

If liberal democrats would just stop shooting people gun violence would drop by 90%
Jifpop09
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5/3/2014 9:07:00 AM
Posted: 2 years ago
At 5/3/2014 8:55:04 AM, sadolite wrote:
The most dangerous phrase in the language is, "We've always done it this way."

Grace hopper

Its you again............................................
Leader of the DDO Revolution Party
DanT
Posts: 5,693
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5/3/2014 12:26:44 PM
Posted: 2 years ago
At 4/29/2014 2:58:03 PM, Benshapiro wrote:
A deficit meaning that the government spends more money on a yearly basis than it receives in tax revenue.

Our economy is driven by consumer consumption and accounts for 70% of our GDP.
That is not true... Historically consumption has accounted at least 70% of the GDP, but it is not fixed at 70%. That statement is over perpetuated and very misleading.
During a recession, businesses don't like to expand or hire new employees because of a liquidity trap.

A liquidity trap occurs when the interest rate is too low, and during a recession (a deflationary period when the price falls below the expected price level) the interest rate increases. The FED keeps the interest rate artificially low in an attempt to revive the economy, and promote economic growth.

The utility of money is maximized when the interest rate is at or around zero. The liquidity trap theory postulates that after this point the monetary demand becomes perfectly elastic, so any increase in money will hurt the economy.

The reasons businesses stop hiring during a recession is because it is no longer profitable, due to sticky wages and sticky prices. During a recession businesses must downsize in order to reduce the deadweight loss caused by the surplus.

Businesses anticipate a decrease is aggregate demand because of the recession. Thus, decrease in demand prolongs recessionary effects throughout the entire economy.

Not necessarily. You are focusing solely on the supply now. If the demand increases despite those expectations, it will result in an economic boom, where the price is greater than the expected price. This will increase the supply's expectations, therefore continuing the cycle of boom > bust > boom.

Our government borrows money by selling securities to domestic and international investors. Of course, this adds to the national debt because they are borrowing money with the promise of eventually paying interest. But during a recession, efficient government spending (infrastructure, increased gov. job wages, etc.,) all combat the liquidity trap that occurs during a recession and gets the economy up to speed much quicker because it provides more demand for private industry goods and services because people have more wages.

Government spending = Deficit Spending + Taxes

Assuming a liquidity trap exists, it would combat the liquidity trap by increasing the interest rate. An increase in the interest rate would however decrease investments, thereby hurting economic growth.

The alternative to this would be an increase in taxation, which would hurt private consumption. Likewise an increase in debt would increase mandatory spending, therefore resulting in either an increased the tax burden on the future taxpayer or a perpetually increasing debt.

The higher one's wage is, the more goods and services he demands.
Not necessarily. Two people can have the same expenditures with different levels of income.
A consumer's discretionary income is not necessarily proportional to their discretionary spending. In fact, many low income earners prioritize discretionary spending over nondiscretionary spending. Increasing one's discretionary income, assuming one has a discretionary income, may result in greater savings rather than greater consumption.

For example, let's say an employee makes $8/h, increasing his wage by $1/ hour will not necessarily increase consumption, as it would only increase his income by $40/week (assuming a 40 hour work week). That $40 would likely be saved rather than spent. If you increase the wage to $10/hour (a $2/hour increase), you may see an increase in his personal consumption by $40-60/week. Again, any increase in consumption would most definitely be disproportional to the increase in income.

Higher wages via government spending means that businesses would need to hire more employees to keep up with this increased demand.
Output is not solely the product of labor, it is the product of both capital and labor. Assuming higher wages result in increased consumption, which is not a given, the disproportional increase in consumption could be satisfied simply by increasing capital.

By hiring more employees, the unemployment rate drops.

By increasing wages, the unemployment rate rises, because there is an increased preference for labor over leisure, and a decreased marginal revenue product of labor.

According to Okun's law, a 1% decrease in the unemployment rate leads to a 2% increase in real GDP output.

The danger of allowing too much government borrowing is 1) the government borrowing so much money that it drives up interest rates for private businesses wanting to borrow and 2) the inability of the government to pay back their debt because the interest reaches a point of unsustainablility.

The "crowding out effect" is what I had described in the first scenario. But during a recession, businesses have an aggregate decrease in demand due to the liquidity trap and the real interest rate is lower.
Again, the postulated liquidity trap occurs during periods of low interest rates, hence during an economic boom.
The relationship between interest rate and borrowed funds is shown by the loanable funds model. In increase in aggregate borrowing means that interest rates will increase, whereas a decrease in aggregate borrowing means that interest rates will decrease. The government can substitute the spending that would've occurred from private businesses without increasing the interest rate because private businesses are borrowing less due to the recession.

It would be good to differentiate between nominal and real interest rates. The loanable fund model determines the real interest rate, whereas the monetary supply determines the nominal interest rate. There is a negative relationship between the bond price and the nominal interest rate, therefore an increase in the supply of bonds would cause an increase in the nominal interest rate. Increasing the nominal interest rate without increasing the real interest rate would result in a surplus of loanable funds, thereby increasing savings and decreasing investments.

Our national debt is about $17 trillion and that sounds like a scary number. What's more important than the nominal number though, is our ability to pay back our national debt. Our GDP (the value of goods and services that we produce in 1 year) is about $16.6 trillion. Our debt/GDP ratio is just above 100%. We've had a larger debt/GDP ratio just after world war 2 at 120% and we went on to produce a surplus during the Clinton admin. Also, Japan has over a 200% debt/GDP ratio and has the third largest economy in the world (if you don't consider the EU) and surpassed our debt/GDP ratio in the 90's.

Gotta love number games. The Debt/GDP ratio has nothing to do with the dangers of debt. If a sovereign country's debt gets too high it can cause other countries to lose faith in their economy, and thus cause a reduced demand for bonds and a loss of faith in the currency. You cannot judge the US economy based on the Japanese economy, because it is not the same economy; they are too completely different markets. Their economy is too different from ours in regards to what they produce, and who the consumers are.

The government is under no obligation to repay its debts, other than the social impact of doing business with other entities. We repay debts, so that we can continue to borrow, an can continue to trade.

Thus, due to the liquidity trap and the benefits of economic stimulus via government spending outweighing the costs, it's necessary to have a deficit during a recession.

You are sadly mistaken. During recessions it is required that we reduce spending on all levels.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
Benshapiro
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5/3/2014 4:12:55 PM
Posted: 2 years ago
"That is not true... Historically consumption has accounted at least 70% of the GDP, but it is not fixed at 70%. That statement is over perpetuated and very misleading."

This is a pedantic argument. I've never stated that GDP was "fixed at 70%." The point is, that historically and presently, consumption spending continues to be the key driver of economic growth. If you disagree with that statement provide some facts. Here is a statistic from 2013 showing that consumption spending accounts for about 70% of GDP (68.752%).
http://research.stlouisfed.org...

"A liquidity trap occurs when the interest rate is too low, and during a recession (a deflationary period when the price falls below the expected price level) the interest rate increases. The FED keeps the interest rate artificially low in an attempt to revive the economy, and promote economic growth.

The utility of money is maximized when the interest rate is at or around zero. The liquidity trap theory postulates that after this point the monetary demand becomes perfectly elastic, so any increase in money will hurt the economy."


I don't disagree with anything that you've written above, but a liquidity trap is simply the inactivity of consumption in a pro-consumption environment. The liquidity trap doesn't occur because of low interest rates, but, because a liquidity trap occurs, interest rates are lowered fighting off this effect.

The reasons businesses stop hiring during a recession is because it is no longer profitable, due to sticky wages and sticky prices. During a recession businesses must downsize in order to reduce the deadweight loss caused by the surplus.

The reason businesses cut labor costs is because these businesses aren't receiving the same amount of demand for goods and services prior to the recession. Demand for their goods and services = gross revenue to pay and hire their employees. How did you go from talking about sticky wages and sticky prices and attributing those factors to downsizing due to deadweight loss caused by the surplus of labor?

The reason that businesses cut labor costs is because they have decreased revenue to budget costs with. If consumers have decreased demand for a business' goods and services, and that's where these businesses earn their revenue, they would need to cut labor costs to put demand and supply of labor in equilibrium to maximize profit. Businesses' operate to maximize profit.

Not necessarily. You are focusing solely on the supply now. If the demand increases despite those expectations, it will result in an economic boom, where the price is greater than the expected price. This will increase the supply's expectations, therefore continuing the cycle of boom > bust > boom.

I said "Businesses anticipate a decrease in aggregate demand because of the recession. Thus, decrease in demand prolongs recessionary effects throughout the entire economy." How does that pertain to the supply side? We aren't talking about an individual business possibly experiencing increased demand after a recession but the macro-economy and aggregation of business' as a whole.

Government spending = Deficit Spending + Taxes

Assuming a liquidity trap exists, it would combat the liquidity trap by increasing the interest rate. An increase in the interest rate would however decrease investments, thereby hurting economic growth.

The alternative to this would be an increase in taxation, which would hurt private consumption. Likewise an increase in debt would increase mandatory spending, therefore resulting in either an increased the tax burden on the future taxpayer or a perpetually increasing debt.


You are making an incorrect assertion that the higher the interest rate is, the more this combats a liquidity trap. This is not true at all. A liquidity trap is the lack of consumer spending despite a pro-consumption environment. People's unwillingness to spend isn't BECAUSE of low interest rates. This just doesn't make economic sense in the slightest. An increase in the interest rate would only hurt certain kinds of riskier investments, not risk-free investments like treasuries and bonds. The reason why the stock market has been booming is in large part due to QE because investors are moving money out of savings and risk-free investments because the projected profit (taking into account risk factors) is higher in the stock market than in other investments.

"The higher one's wage is, the more goods and services he demands. . ."

"Not necessarily."

You haven't given any reason to believe that the macro economy would behave based on the hypothetical scenario of an individual saving more or the same irrespective of how much they earn. Consumer spending habits are classified as "Marginal propensity to Consume." It is true that the higher one's wage is, typically they consume less. This is NOT equivalent to mean a constant or lesser amount of consumption despite an increase in income, but rather, more consumption at a decreasing pace proportional to their income increase. So if Joe has an MPC of 0.85 it means he spends 0.85 cents of every dollar he earns. If Joe's salary increases from $30,000 to $35,000 and his MPC drops to 0.83, his spending still nominally increases from $25,500 to $29,050 = $3,550 spending increase. Due to the money multiplier, this additional spending will further stimulate the economy. Now, obviously this is an example, but I leaned on the conservative side. MPC's in the real world aren't so sensitive to such a small increase in a lower income bracket.

"Output is not solely the product of labor, it is the product of both capital and labor. Assuming higher wages result in increased consumption, which is not a given, the disproportional increase in consumption could be satisfied simply by increasing capital."

It is true that output is not solely the output of labor, but capital still requires maintenance, upkeep, or monitoring of this capital meaning that people still need to be employed to work for a capital-intensive business. The macro-economy is a mixture of labor and capital intensive employers. Also, higher wages DO result in increased consumption on the macro-level. If everybody in America is given $1,000 do you think nobody would spend it?

By increasing wages, the unemployment rate rises, because there is an increased preference for labor over leisure, and a decreased marginal revenue product of labor.

The increased demand that businesses would receive (from government spending in the form of consumer wages) would offset labor costs in order to maximize their profit potential. If a business has 3 employees but can't keep up with demand to sell their products, the opportunity cost is the loss of businesses because labor can't sufficiently meet demand. An equilibrium between labor and demand is where businesses will maximize profit even if it means they need to hire more employees.

"Again, the postulated liquidity trap occurs during periods of low interest rates, hence during an economic boom."

You're falsely attributing low interest rates with a liquidity trap and it isn't necessary to only occur in a period of low interest rates.

"Increasing the nominal interest rate without increasing the real interest rate would result in a surplus of loanable funds, thereby increasing savings and decreasing investments."

Again, due to QE, people are investing in the stock market, not letting their money sit in savings.

"The Debt/GDP ratio has nothing to do with the dangers of debt. If a sovereign country's debt gets too high it can cause other countries to lose faith in their economy. . ."

The U.S is the world's reserve currency and world's largest economy. Other countries must hold our currency to trade with us. Given that we're #1, they do invest in us. We've had a 120% debt/GDP ratio before
Benshapiro
Posts: 3,966
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5/3/2014 4:19:49 PM
Posted: 2 years ago
Ran outta space.

. . . If a sovereign country's debt gets too high it can cause other countries to lose faith in their economy, and thus cause a reduced demand for bonds and a loss of faith in the currency. You cannot judge the US economy based on the Japanese economy, because it is not the same economy; they are too completely different markets. Their economy is too different from ours in regards to what they produce, and who the consumers are.

It is true that Japan has a much higher saving's rate than those in the U.S, but my point was specifically related to the misconceptions of a high nominal debt before explaining debt/GDP ratio and related that to Japan's high debt/GDP ratio for the sake of conceptualizing the nonsense argument that we're in danger of collapsing with our current debt/GDP ratio. We've had 120% debt/GDP ratio after WWII and reduced that to a surplus, so why would our current debt/GDP ratio around 100% be seen as unsustainable? Also, the U.S. is the world's largest economy and the world's reserve currency. Other countries must hold our currency to invest and trade with us. The worry that suddenly no one will want to invest in us is baseless hogwash.


You are sadly mistaken. During recessions it is required that we reduce spending on all levels.


Well so far you haven't given any evidence of how decreased spending stimulates a consumer-driven economy. I'll wait. . .
Blade-of-Truth
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5/3/2014 4:46:44 PM
Posted: 2 years ago
At 4/30/2014 6:24:13 PM, progressivedem22 wrote:
All I can say is, I agree. And it's great to see someone else on this forum -- amid all the libertarian filth that frequents it -- who actually has genuine knowledge of economics.
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sadolite
Posts: 8,842
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5/3/2014 6:27:44 PM
Posted: 2 years ago
At 5/3/2014 9:07:00 AM, Jifpop09 wrote:
At 5/3/2014 8:55:04 AM, sadolite wrote:
The most dangerous phrase in the language is, "We've always done it this way."

Grace hopper

Its you again............................................

Yes we can run the nations debt into infinity. Just what is the magic GNP to debt ratio where it will be impossible to increase it any more? 300% 500% 1000% 10,000% 1,000,000% We as a nation are on a fast track to increase it every year with no plan or end in sight. When will entitlements and discretionary spending have to be slashed to lower it? Or are we going to tax everyone to death? As you well know, cutting entitlements makes you a hater a bigot and a racist. Interesting conundrum. Tax everyone to death and destroy the tax revenue base or slash entitlements and be a hater. I see no hope.
It's not your views that divide us, it's what you think my views should be that divides us.

If you think I will give up my rights and forsake social etiquette to make you "FEEL" better you are sadly mistaken

If liberal democrats would just stop shooting people gun violence would drop by 90%
Benshapiro
Posts: 3,966
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5/3/2014 6:31:39 PM
Posted: 2 years ago
At 5/3/2014 6:27:44 PM, sadolite wrote:
At 5/3/2014 9:07:00 AM, Jifpop09 wrote:
At 5/3/2014 8:55:04 AM, sadolite wrote:
The most dangerous phrase in the language is, "We've always done it this way."

Grace hopper

Its you again............................................

Yes we can run the nations debt into infinity. Just what is the magic GNP to debt ratio where it will be impossible to increase it any more? 300% 500% 1000% 10,000% 1,000,000% We as a nation are on a fast track to increase it every year with no plan or end in sight. When will entitlements and discretionary spending have to be slashed to lower it? Or are we going to tax everyone to death? As you well know, cutting entitlements makes you a hater a bigot and a racist. Interesting conundrum. Tax everyone to death and destroy the tax revenue base or slash entitlements and be a hater. I see no hope.

"The danger of allowing too much government borrowing is 1) the government borrowing so much money that it drives up interest rates for private businesses wanting to borrow and 2) the inability of the government to pay back their debt because the interest reaches a point of unsustainablility."

Given that we haven't reached either condition, the benefits of deficit spending during a recession outweigh the costs.
sadolite
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5/3/2014 6:37:38 PM
Posted: 2 years ago
At 5/3/2014 6:31:39 PM, Benshapiro wrote:
At 5/3/2014 6:27:44 PM, sadolite wrote:
At 5/3/2014 9:07:00 AM, Jifpop09 wrote:
At 5/3/2014 8:55:04 AM, sadolite wrote:
The most dangerous phrase in the language is, "We've always done it this way."

Grace hopper

Its you again............................................

Yes we can run the nations debt into infinity. Just what is the magic GNP to debt ratio where it will be impossible to increase it any more? 300% 500% 1000% 10,000% 1,000,000% We as a nation are on a fast track to increase it every year with no plan or end in sight. When will entitlements and discretionary spending have to be slashed to lower it? Or are we going to tax everyone to death? As you well know, cutting entitlements makes you a hater a bigot and a racist. Interesting conundrum. Tax everyone to death and destroy the tax revenue base or slash entitlements and be a hater. I see no hope.

"The danger of allowing too much government borrowing is 1) the government borrowing so much money that it drives up interest rates for private businesses wanting to borrow and 2) the inability of the government to pay back their debt because the interest reaches a point of unsustainablility."

Given that we haven't reached either condition, the benefits of deficit spending during a recession outweigh the costs.

Now that you have stated the obvious I'll ask again, what is the magic ratio. We are clearly as a nation going to reach it as there is no plan to reduce but only increase it until the end of time. So I guess it is infinity.
It's not your views that divide us, it's what you think my views should be that divides us.

If you think I will give up my rights and forsake social etiquette to make you "FEEL" better you are sadly mistaken

If liberal democrats would just stop shooting people gun violence would drop by 90%
Benshapiro
Posts: 3,966
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5/3/2014 7:04:05 PM
Posted: 2 years ago
At 5/3/2014 6:37:38 PM, sadolite wrote:
At 5/3/2014 6:31:39 PM, Benshapiro wrote:
At 5/3/2014 6:27:44 PM, sadolite wrote:
At 5/3/2014 9:07:00 AM, Jifpop09 wrote:
At 5/3/2014 8:55:04 AM, sadolite wrote:
The most dangerous phrase in the language is, "We've always done it this way."

Grace hopper

Its you again............................................

Yes we can run the nations debt into infinity. Just what is the magic GNP to debt ratio where it will be impossible to increase it any more? 300% 500% 1000% 10,000% 1,000,000% We as a nation are on a fast track to increase it every year with no plan or end in sight. When will entitlements and discretionary spending have to be slashed to lower it? Or are we going to tax everyone to death? As you well know, cutting entitlements makes you a hater a bigot and a racist. Interesting conundrum. Tax everyone to death and destroy the tax revenue base or slash entitlements and be a hater. I see no hope.

"The danger of allowing too much government borrowing is 1) the government borrowing so much money that it drives up interest rates for private businesses wanting to borrow and 2) the inability of the government to pay back their debt because the interest reaches a point of unsustainablility."

Given that we haven't reached either condition, the benefits of deficit spending during a recession outweigh the costs.

Now that you have stated the obvious I'll ask again, what is the magic ratio. We are clearly as a nation going to reach it as there is no plan to reduce but only increase it until the end of time. So I guess it is infinity.

Truthfully, experts don't know the tipping point ratio. What's important to note are the benefits of deficit spending during a recession while keeping in mind that we've reduced a 120% debt/GDP ratio to a surplus and currently maintain the world's largest economy and world's reserve currency.
progressivedem22
Posts: 1,304
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5/3/2014 7:05:34 PM
Posted: 2 years ago
At 5/3/2014 6:37:38 PM, sadolite wrote:
At 5/3/2014 6:31:39 PM, Benshapiro wrote:
At 5/3/2014 6:27:44 PM, sadolite wrote:
At 5/3/2014 9:07:00 AM, Jifpop09 wrote:
At 5/3/2014 8:55:04 AM, sadolite wrote:
The most dangerous phrase in the language is, "We've always done it this way."

Grace hopper

Its you again............................................

Yes we can run the nations debt into infinity. Just what is the magic GNP to debt ratio where it will be impossible to increase it any more? 300% 500% 1000% 10,000% 1,000,000% We as a nation are on a fast track to increase it every year with no plan or end in sight. When will entitlements and discretionary spending have to be slashed to lower it? Or are we going to tax everyone to death? As you well know, cutting entitlements makes you a hater a bigot and a racist. Interesting conundrum. Tax everyone to death and destroy the tax revenue base or slash entitlements and be a hater. I see no hope.

"The danger of allowing too much government borrowing is 1) the government borrowing so much money that it drives up interest rates for private businesses wanting to borrow and 2) the inability of the government to pay back their debt because the interest reaches a point of unsustainablility."

Given that we haven't reached either condition, the benefits of deficit spending during a recession outweigh the costs.

Now that you have stated the obvious I'll ask again, what is the magic ratio. We are clearly as a nation going to reach it as there is no plan to reduce but only increase it until the end of time. So I guess it is infinity.

A few years ago Paul Krugman estimated that a stimulus about three times larger than it was would have been enough to recover $1.2 trillion in lost demand per annum. Just recently, when he "debated" -- and I use that word loosely -- Joe Scarborough, he suggested an additional $300 billion per year. So, the answer is $300 billion.
sadolite
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5/3/2014 7:14:16 PM
Posted: 2 years ago
At 5/3/2014 7:05:34 PM, progressivedem22 wrote:
At 5/3/2014 6:37:38 PM, sadolite wrote:
At 5/3/2014 6:31:39 PM, Benshapiro wrote:
At 5/3/2014 6:27:44 PM, sadolite wrote:
At 5/3/2014 9:07:00 AM, Jifpop09 wrote:
At 5/3/2014 8:55:04 AM, sadolite wrote:
The most dangerous phrase in the language is, "We've always done it this way."

Grace hopper

Its you again............................................

Yes we can run the nations debt into infinity. Just what is the magic GNP to debt ratio where it will be impossible to increase it any more? 300% 500% 1000% 10,000% 1,000,000% We as a nation are on a fast track to increase it every year with no plan or end in sight. When will entitlements and discretionary spending have to be slashed to lower it? Or are we going to tax everyone to death? As you well know, cutting entitlements makes you a hater a bigot and a racist. Interesting conundrum. Tax everyone to death and destroy the tax revenue base or slash entitlements and be a hater. I see no hope.

"The danger of allowing too much government borrowing is 1) the government borrowing so much money that it drives up interest rates for private businesses wanting to borrow and 2) the inability of the government to pay back their debt because the interest reaches a point of unsustainablility."

Given that we haven't reached either condition, the benefits of deficit spending during a recession outweigh the costs.

Now that you have stated the obvious I'll ask again, what is the magic ratio. We are clearly as a nation going to reach it as there is no plan to reduce but only increase it until the end of time. So I guess it is infinity.


A few years ago Paul Krugman estimated that a stimulus about three times larger than it was would have been enough to recover $1.2 trillion in lost demand per annum. Just recently, when he "debated" -- and I use that word loosely -- Joe Scarborough, he suggested an additional $300 billion per year. So, the answer is $300 billion.

So the govt can add 300 billion over and above what it spends the previous year every year until the end of time?
It's not your views that divide us, it's what you think my views should be that divides us.

If you think I will give up my rights and forsake social etiquette to make you "FEEL" better you are sadly mistaken

If liberal democrats would just stop shooting people gun violence would drop by 90%
progressivedem22
Posts: 1,304
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5/3/2014 7:18:50 PM
Posted: 2 years ago
At 5/3/2014 7:14:16 PM, sadolite wrote:
At 5/3/2014 7:05:34 PM, progressivedem22 wrote:
At 5/3/2014 6:37:38 PM, sadolite wrote:
At 5/3/2014 6:31:39 PM, Benshapiro wrote:
At 5/3/2014 6:27:44 PM, sadolite wrote:
At 5/3/2014 9:07:00 AM, Jifpop09 wrote:
At 5/3/2014 8:55:04 AM, sadolite wrote:
The most dangerous phrase in the language is, "We've always done it this way."

Grace hopper

Its you again............................................

Yes we can run the nations debt into infinity. Just what is the magic GNP to debt ratio where it will be impossible to increase it any more? 300% 500% 1000% 10,000% 1,000,000% We as a nation are on a fast track to increase it every year with no plan or end in sight. When will entitlements and discretionary spending have to be slashed to lower it? Or are we going to tax everyone to death? As you well know, cutting entitlements makes you a hater a bigot and a racist. Interesting conundrum. Tax everyone to death and destroy the tax revenue base or slash entitlements and be a hater. I see no hope.

"The danger of allowing too much government borrowing is 1) the government borrowing so much money that it drives up interest rates for private businesses wanting to borrow and 2) the inability of the government to pay back their debt because the interest reaches a point of unsustainablility."

Given that we haven't reached either condition, the benefits of deficit spending during a recession outweigh the costs.

Now that you have stated the obvious I'll ask again, what is the magic ratio. We are clearly as a nation going to reach it as there is no plan to reduce but only increase it until the end of time. So I guess it is infinity.


A few years ago Paul Krugman estimated that a stimulus about three times larger than it was would have been enough to recover $1.2 trillion in lost demand per annum. Just recently, when he "debated" -- and I use that word loosely -- Joe Scarborough, he suggested an additional $300 billion per year. So, the answer is $300 billion.

So the govt can add 300 billion over and above what it spends the previous year every year until the end of time?

No, and no one is suggesting that. All we're saying is, the stimulus was too small and ran out too quickly, but we need to boost aggregate demand right now while median wages are down and have yet to recover to precrisis levels -- in fact, they're accelerating at historic lows -- U6 is still high, long-term unemployment is up, etc. etc. But we only want stimulus in the short run. Prolonged deficit spending is something that hardly anyone would ever advocate for. But acknowledging that the deficit is a long-term problem is crucial to fixing it. If you were to start indiscriminately cutting right now, all you'd do is emulate Europe: shrink the economy so much that the deficit as a percentage of GDP rises.
sadolite
Posts: 8,842
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5/4/2014 9:42:07 AM
Posted: 2 years ago
At 5/3/2014 7:18:50 PM, progressivedem22 wrote:
At 5/3/2014 7:14:16 PM, sadolite wrote:
At 5/3/2014 7:05:34 PM, progressivedem22 wrote:
At 5/3/2014 6:37:38 PM, sadolite wrote:
At 5/3/2014 6:31:39 PM, Benshapiro wrote:
At 5/3/2014 6:27:44 PM, sadolite wrote:
At 5/3/2014 9:07:00 AM, Jifpop09 wrote:
At 5/3/2014 8:55:04 AM, sadolite wrote:
The most dangerous phrase in the language is, "We've always done it this way."

Grace hopper

Its you again............................................

Yes we can run the nations debt into infinity. Just what is the magic GNP to debt ratio where it will be impossible to increase it any more? 300% 500% 1000% 10,000% 1,000,000% We as a nation are on a fast track to increase it every year with no plan or end in sight. When will entitlements and discretionary spending have to be slashed to lower it? Or are we going to tax everyone to death? As you well know, cutting entitlements makes you a hater a bigot and a racist. Interesting conundrum. Tax everyone to death and destroy the tax revenue base or slash entitlements and be a hater. I see no hope.

"The danger of allowing too much government borrowing is 1) the government borrowing so much money that it drives up interest rates for private businesses wanting to borrow and 2) the inability of the government to pay back their debt because the interest reaches a point of unsustainablility."

Given that we haven't reached either condition, the benefits of deficit spending during a recession outweigh the costs.

Now that you have stated the obvious I'll ask again, what is the magic ratio. We are clearly as a nation going to reach it as there is no plan to reduce but only increase it until the end of time. So I guess it is infinity.


A few years ago Paul Krugman estimated that a stimulus about three times larger than it was would have been enough to recover $1.2 trillion in lost demand per annum. Just recently, when he "debated" -- and I use that word loosely -- Joe Scarborough, he suggested an additional $300 billion per year. So, the answer is $300 billion.

So the govt can add 300 billion over and above what it spends the previous year every year until the end of time?

No, and no one is suggesting that. All we're saying is, the stimulus was too small and ran out too quickly, but we need to boost aggregate demand right now while median wages are down and have yet to recover to precrisis levels -- in fact, they're accelerating at historic lows -- U6 is still high, long-term unemployment is up, etc. etc. But we only want stimulus in the short run. Prolonged deficit spending is something that hardly anyone would ever advocate for. But acknowledging that the deficit is a long-term problem is crucial to fixing it. If you were to start indiscriminately cutting right now, all you'd do is emulate Europe: shrink the economy so much that the deficit as a percentage of GDP rises.

"deficit spending is something that hardly anyone would ever advocate for. " I think it is being advocated because the govt has failed to make a budget for the last 6 years. That means unlimited deficit spending for as far as the eye can see. The govt talks sht about a budget yet it never makes one. Seems to me it's been spending trillions beyond this 300 billion number. Still nothing to show for it.
It's not your views that divide us, it's what you think my views should be that divides us.

If you think I will give up my rights and forsake social etiquette to make you "FEEL" better you are sadly mistaken

If liberal democrats would just stop shooting people gun violence would drop by 90%
progressivedem22
Posts: 1,304
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5/4/2014 10:05:15 AM
Posted: 2 years ago
At 5/4/2014 9:42:07 AM, sadolite wrote:
At 5/3/2014 7:18:50 PM, progressivedem22 wrote:
At 5/3/2014 7:14:16 PM, sadolite wrote:
At 5/3/2014 7:05:34 PM, progressivedem22 wrote:
At 5/3/2014 6:37:38 PM, sadolite wrote:
At 5/3/2014 6:31:39 PM, Benshapiro wrote:
At 5/3/2014 6:27:44 PM, sadolite wrote:
At 5/3/2014 9:07:00 AM, Jifpop09 wrote:
At 5/3/2014 8:55:04 AM, sadolite wrote:
The most dangerous phrase in the language is, "We've always done it this way."

Grace hopper

Its you again............................................

Yes we can run the nations debt into infinity. Just what is the magic GNP to debt ratio where it will be impossible to increase it any more? 300% 500% 1000% 10,000% 1,000,000% We as a nation are on a fast track to increase it every year with no plan or end in sight. When will entitlements and discretionary spending have to be slashed to lower it? Or are we going to tax everyone to death? As you well know, cutting entitlements makes you a hater a bigot and a racist. Interesting conundrum. Tax everyone to death and destroy the tax revenue base or slash entitlements and be a hater. I see no hope.

"The danger of allowing too much government borrowing is 1) the government borrowing so much money that it drives up interest rates for private businesses wanting to borrow and 2) the inability of the government to pay back their debt because the interest reaches a point of unsustainablility."

Given that we haven't reached either condition, the benefits of deficit spending during a recession outweigh the costs.

Now that you have stated the obvious I'll ask again, what is the magic ratio. We are clearly as a nation going to reach it as there is no plan to reduce but only increase it until the end of time. So I guess it is infinity.


A few years ago Paul Krugman estimated that a stimulus about three times larger than it was would have been enough to recover $1.2 trillion in lost demand per annum. Just recently, when he "debated" -- and I use that word loosely -- Joe Scarborough, he suggested an additional $300 billion per year. So, the answer is $300 billion.

So the govt can add 300 billion over and above what it spends the previous year every year until the end of time?

No, and no one is suggesting that. All we're saying is, the stimulus was too small and ran out too quickly, but we need to boost aggregate demand right now while median wages are down and have yet to recover to precrisis levels -- in fact, they're accelerating at historic lows -- U6 is still high, long-term unemployment is up, etc. etc. But we only want stimulus in the short run. Prolonged deficit spending is something that hardly anyone would ever advocate for. But acknowledging that the deficit is a long-term problem is crucial to fixing it. If you were to start indiscriminately cutting right now, all you'd do is emulate Europe: shrink the economy so much that the deficit as a percentage of GDP rises.

"deficit spending is something that hardly anyone would ever advocate for. " I think it is being advocated because the govt has failed to make a budget for the last 6 years. That means unlimited deficit spending for as far as the eye can see. The govt talks sht about a budget yet it never makes one. Seems to me it's been spending trillions beyond this 300 billion number. Still nothing to show for it.

You just completely straw-maned my view. I said PROLONGED deficit spending is not something anyone would advocate for because the deficit is a long-term problem.

The government just passed a budget. Have you not been paying attention? http://www.washingtonpost.com...

And I don't even know what to say about the rest of your post. You have absolutely no grasp of the facts and nothing you have said is true -- any validity your post may have had hinged on my statement not including the word "prolonged." So not only are you clueless on economics; your comprehension skills need work.
sadolite
Posts: 8,842
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5/4/2014 10:26:57 AM
Posted: 2 years ago
At 5/4/2014 10:05:15 AM, progressivedem22 wrote:
At 5/4/2014 9:42:07 AM, sadolite wrote:
At 5/3/2014 7:18:50 PM, progressivedem22 wrote:
At 5/3/2014 7:14:16 PM, sadolite wrote:
At 5/3/2014 7:05:34 PM, progressivedem22 wrote:
At 5/3/2014 6:37:38 PM, sadolite wrote:
At 5/3/2014 6:31:39 PM, Benshapiro wrote:
At 5/3/2014 6:27:44 PM, sadolite wrote:
At 5/3/2014 9:07:00 AM, Jifpop09 wrote:
At 5/3/2014 8:55:04 AM, sadolite wrote:
The most dangerous phrase in the language is, "We've always done it this way."

Grace hopper

Its you again............................................

Yes we can run the nations debt into infinity. Just what is the magic GNP to debt ratio where it will be impossible to increase it any more? 300% 500% 1000% 10,000% 1,000,000% We as a nation are on a fast track to increase it every year with no plan or end in sight. When will entitlements and discretionary spending have to be slashed to lower it? Or are we going to tax everyone to death? As you well know, cutting entitlements makes you a hater a bigot and a racist. Interesting conundrum. Tax everyone to death and destroy the tax revenue base or slash entitlements and be a hater. I see no hope.

"The danger of allowing too much government borrowing is 1) the government borrowing so much money that it drives up interest rates for private businesses wanting to borrow and 2) the inability of the government to pay back their debt because the interest reaches a point of unsustainablility."

Given that we haven't reached either condition, the benefits of deficit spending during a recession outweigh the costs.

Now that you have stated the obvious I'll ask again, what is the magic ratio. We are clearly as a nation going to reach it as there is no plan to reduce but only increase it until the end of time. So I guess it is infinity.


A few years ago Paul Krugman estimated that a stimulus about three times larger than it was would have been enough to recover $1.2 trillion in lost demand per annum. Just recently, when he "debated" -- and I use that word loosely -- Joe Scarborough, he suggested an additional $300 billion per year. So, the answer is $300 billion.

So the govt can add 300 billion over and above what it spends the previous year every year until the end of time?

No, and no one is suggesting that. All we're saying is, the stimulus was too small and ran out too quickly, but we need to boost aggregate demand right now while median wages are down and have yet to recover to precrisis levels -- in fact, they're accelerating at historic lows -- U6 is still high, long-term unemployment is up, etc. etc. But we only want stimulus in the short run. Prolonged deficit spending is something that hardly anyone would ever advocate for. But acknowledging that the deficit is a long-term problem is crucial to fixing it. If you were to start indiscriminately cutting right now, all you'd do is emulate Europe: shrink the economy so much that the deficit as a percentage of GDP rises.

"deficit spending is something that hardly anyone would ever advocate for. " I think it is being advocated because the govt has failed to make a budget for the last 6 years. That means unlimited deficit spending for as far as the eye can see. The govt talks sht about a budget yet it never makes one. Seems to me it's been spending trillions beyond this 300 billion number. Still nothing to show for it.


You just completely straw-maned my view. I said PROLONGED deficit spending is not something anyone would advocate for because the deficit is a long-term problem.

The government just passed a budget. Have you not been paying attention? http://www.washingtonpost.com...

And I don't even know what to say about the rest of your post. You have absolutely no grasp of the facts and nothing you have said is true -- any validity your post may have had hinged on my statement not including the word "prolonged." So not only are you clueless on economics; your comprehension skills need work.

"Congress has passed a two-year budget agreement that sets spending levels through the end of 2015, meaning that members of the House and Senate can justifiably dismiss the budget President Obama unveiled Tuesday as irrelevant."

I understand economics just fine, you have a reality problem.
It's not your views that divide us, it's what you think my views should be that divides us.

If you think I will give up my rights and forsake social etiquette to make you "FEEL" better you are sadly mistaken

If liberal democrats would just stop shooting people gun violence would drop by 90%
progressivedem22
Posts: 1,304
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5/4/2014 10:31:19 AM
Posted: 2 years ago
At 5/4/2014 10:26:57 AM, sadolite wrote:
At 5/4/2014 10:05:15 AM, progressivedem22 wrote:
At 5/4/2014 9:42:07 AM, sadolite wrote:
At 5/3/2014 7:18:50 PM, progressivedem22 wrote:
At 5/3/2014 7:14:16 PM, sadolite wrote:
At 5/3/2014 7:05:34 PM, progressivedem22 wrote:
At 5/3/2014 6:37:38 PM, sadolite wrote:
At 5/3/2014 6:31:39 PM, Benshapiro wrote:
At 5/3/2014 6:27:44 PM, sadolite wrote:
At 5/3/2014 9:07:00 AM, Jifpop09 wrote:
At 5/3/2014 8:55:04 AM, sadolite wrote:
The most dangerous phrase in the language is, "We've always done it this way."

Grace hopper

Its you again............................................

Yes we can run the nations debt into infinity. Just what is the magic GNP to debt ratio where it will be impossible to increase it any more? 300% 500% 1000% 10,000% 1,000,000% We as a nation are on a fast track to increase it every year with no plan or end in sight. When will entitlements and discretionary spending have to be slashed to lower it? Or are we going to tax everyone to death? As you well know, cutting entitlements makes you a hater a bigot and a racist. Interesting conundrum. Tax everyone to death and destroy the tax revenue base or slash entitlements and be a hater. I see no hope.

"The danger of allowing too much government borrowing is 1) the government borrowing so much money that it drives up interest rates for private businesses wanting to borrow and 2) the inability of the government to pay back their debt because the interest reaches a point of unsustainablility."

Given that we haven't reached either condition, the benefits of deficit spending during a recession outweigh the costs.

Now that you have stated the obvious I'll ask again, what is the magic ratio. We are clearly as a nation going to reach it as there is no plan to reduce but only increase it until the end of time. So I guess it is infinity.


A few years ago Paul Krugman estimated that a stimulus about three times larger than it was would have been enough to recover $1.2 trillion in lost demand per annum. Just recently, when he "debated" -- and I use that word loosely -- Joe Scarborough, he suggested an additional $300 billion per year. So, the answer is $300 billion.

So the govt can add 300 billion over and above what it spends the previous year every year until the end of time?

No, and no one is suggesting that. All we're saying is, the stimulus was too small and ran out too quickly, but we need to boost aggregate demand right now while median wages are down and have yet to recover to precrisis levels -- in fact, they're accelerating at historic lows -- U6 is still high, long-term unemployment is up, etc. etc. But we only want stimulus in the short run. Prolonged deficit spending is something that hardly anyone would ever advocate for. But acknowledging that the deficit is a long-term problem is crucial to fixing it. If you were to start indiscriminately cutting right now, all you'd do is emulate Europe: shrink the economy so much that the deficit as a percentage of GDP rises.

"deficit spending is something that hardly anyone would ever advocate for. " I think it is being advocated because the govt has failed to make a budget for the last 6 years. That means unlimited deficit spending for as far as the eye can see. The govt talks sht about a budget yet it never makes one. Seems to me it's been spending trillions beyond this 300 billion number. Still nothing to show for it.


You just completely straw-maned my view. I said PROLONGED deficit spending is not something anyone would advocate for because the deficit is a long-term problem.

The government just passed a budget. Have you not been paying attention? http://www.washingtonpost.com...

And I don't even know what to say about the rest of your post. You have absolutely no grasp of the facts and nothing you have said is true -- any validity your post may have had hinged on my statement not including the word "prolonged." So not only are you clueless on economics; your comprehension skills need work.

"Congress has passed a two-year budget agreement that sets spending levels through the end of 2015, meaning that members of the House and Senate can justifiably dismiss the budget President Obama unveiled Tuesday as irrelevant."

I understand economics just fine, you have a reality problem.

Actually, you're hopeless on economics, I'm afraid, because you don't understand the difference between a temporary stimulus and a mandatory baseline. But it's ok: You're only with the other 99.999% of the country.

And I provided a second link for a reason:

"Reuters) - President Barack Obama on Thursday signed a compromise budget that reduces the risk of another government shutdown and a defense bill that cracks down on sexual assault in the military and smooths the path for transferring detainees from the U.S. prison in Guantanamo Bay, Cuba."

http://www.reuters.com...
DanT
Posts: 5,693
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5/4/2014 12:16:26 PM
Posted: 2 years ago
At 5/3/2014 4:12:55 PM, Benshapiro wrote:
"That is not true... Historically consumption has accounted at least 70% of the GDP, but it is not fixed at 70%. That statement is over perpetuated and very misleading."

This is a pedantic argument. I've never stated that GDP was "fixed at 70%." The point is, that historically and presently, consumption spending continues to be the key driver of economic growth.

This claim makes no sense. You are essentially saying, because private consumption accounts for 70% of aggregate consumption, private consumption is the key driver in economic growth. GDP is not a measure of economic growth, it is a measure of aggregate consumption. GDP = Private Consumption + Investments (i.e. Consumption of New Physical Assets) + Government Spending (i.e. Public Consumption) + Exports (i.e. Foreign-Local Consumption) -Imports (i.e. Local-Foreign Consumption)

The GDP was never intended to serve as a measure of economic growth, and only equals aggregate output when Aggregate supply and demand are in equilibrium (which has never happened).


"A liquidity trap occurs when the interest rate is too low, and during a recession (a deflationary period when the price falls below the expected price level) the interest rate increases. The FED keeps the interest rate artificially low in an attempt to revive the economy, and promote economic growth.

The utility of money is maximized when the interest rate is at or around zero. The liquidity trap theory postulates that after this point the monetary demand becomes perfectly elastic, so any increase in money will hurt the economy."


I don't disagree with anything that you've written above, but a liquidity trap is simply the inactivity of consumption in a pro-consumption environment. The liquidity trap doesn't occur because of low interest rates, but, because a liquidity trap occurs, interest rates are lowered fighting off this effect.

So, "the liquidity trap occurs because the liquidity trap occurs?" Yeah that makes tons of sense... If you don't really think about it. Why don't you explain what causes the liquidity trap, and what the mechanisms are? You can't, because you are just regurgitating something you heard, you don't fully understand the claims you are perpetuating.

The liquidity trap occurs when prevailing interest rates are at or around zero, and therefore the monetary demand is perfectly elastic, according to the liquidity preference theory. This renders monetary policy ineffective, because changes in the monetary supply would not effect the monetary demand. The low interest rates cause people to save money, and causes the demand for bonds to drop.

A major issue with the liquidity trap is that it assumes the demand for money is determined by a liquidity preference. The liquidity preference states that as the interest rate rises the opportunity cost of holding cash rises, so people convert their cash into assets, and when the interest rate falls the opportunity cost of holding assets rises so people convert their assets into cash.

A major issue with the liquidity preference is that it states that the interest rate is determined by the cash/asset preference, which is in turn determined by the interest rate.

A better theory would be the time preference, which states that the demand for money is determined by the utility of holding money now as opposed to the future. In other words; if next week I am expected to make $1,000 in discretionary income, but this week my nondiscretionary income is not enough to cover my nondiscretionary spending, I will borrow money to cover my nondiscretionary spending this week and pay it off next week using my discretionary income. On the opposite end, if I make $1,000 in discretionary income this week, but next week I am expected to have a nondiscretionary deficit, I will likely keep that extra income liquid so that I can spend it next week.

This solves the mutual determination issue of the liquidity preference, but it blows the liquidity trap theory clean out of the water.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
DanT
Posts: 5,693
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5/4/2014 12:22:29 PM
Posted: 2 years ago
At 5/4/2014 12:16:26 PM, DanT wrote:
At 5/3/2014 4:12:55 PM, Benshapiro wrote:
"That is not true... Historically consumption has accounted at least 70% of the GDP, but it is not fixed at 70%. That statement is over perpetuated and very misleading."

This is a pedantic argument. I've never stated that GDP was "fixed at 70%." The point is, that historically and presently, consumption spending continues to be the key driver of economic growth.

This claim makes no sense. You are essentially saying, because private consumption accounts for 70% of aggregate consumption, private consumption is the key driver in economic growth. GDP is not a measure of economic growth, it is a measure of aggregate consumption. GDP = Private Consumption + Investments (i.e. Consumption of New Physical Assets) + Government Spending (i.e. Public Consumption) + Exports (i.e. Foreign-Local Consumption) -Imports (i.e. Local-Foreign Consumption)

The GDP was never intended to serve as a measure of economic growth, and only equals aggregate output when Aggregate supply and demand are in equilibrium (which has never happened).


"A liquidity trap occurs when the interest rate is too low, and during a recession (a deflationary period when the price falls below the expected price level) the interest rate increases. The FED keeps the interest rate artificially low in an attempt to revive the economy, and promote economic growth.

The utility of money is maximized when the interest rate is at or around zero. The liquidity trap theory postulates that after this point the monetary demand becomes perfectly elastic, so any increase in money will hurt the economy."


I don't disagree with anything that you've written above, but a liquidity trap is simply the inactivity of consumption in a pro-consumption environment. The liquidity trap doesn't occur because of low interest rates, but, because a liquidity trap occurs, interest rates are lowered fighting off this effect.

So, "the liquidity trap occurs because the liquidity trap occurs?" Yeah that makes tons of sense... If you don't really think about it. Why don't you explain what causes the liquidity trap, and what the mechanisms are? You can't, because you are just regurgitating something you heard, you don't fully understand the claims you are perpetuating.

The liquidity trap occurs when prevailing interest rates are at or around zero, and therefore the monetary demand is perfectly elastic, according to the liquidity preference theory. This renders monetary policy ineffective, because changes in the monetary supply would not effect the monetary demand. The low interest rates cause people to save money, and causes the demand for bonds to drop.

A major issue with the liquidity trap is that it assumes the demand for money is determined by a liquidity preference. The liquidity preference states that as the interest rate rises the opportunity cost of holding cash rises, so people convert their cash into assets, and when the interest rate falls the opportunity cost of holding assets rises so people convert their assets into cash.

A major issue with the liquidity preference is that it states that the interest rate is determined by the cash/asset preference, which is in turn determined by the interest rate.

A better theory would be the time preference, which states that the demand for money is determined by the utility of holding money now as opposed to the future. In other words; if next week I am expected to make $1,000 in discretionary income, but this week my nondiscretionary income is not enough to cover my nondiscretionary spending, I will borrow money to cover my nondiscretionary spending this week and pay it off next week using my discretionary income. On the opposite end, if I make $1,000 in discretionary income this week, but next week I am expected to have a nondiscretionary deficit, I will likely keep that extra income liquid so that I can spend it next week.

This solves the mutual determination issue of the liquidity preference, but it blows the liquidity trap theory clean out of the water.

Benshapiro I would also urge you to reread what I wrote, because your wall of text was nothing but one big straw man. Once you revise your reply to be relevant to what I said (preferably with a lower character limit so I only have to reply once), I will respond. As is, I don't even have to respond to refute it, because it has no relevance to what I said.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
sadolite
Posts: 8,842
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5/4/2014 12:32:02 PM
Posted: 2 years ago
At 5/4/2014 10:31:19 AM, progressivedem22 wrote:
At 5/4/2014 10:26:57 AM, sadolite wrote:
At 5/4/2014 10:05:15 AM, progressivedem22 wrote:
At 5/4/2014 9:42:07 AM, sadolite wrote:
At 5/3/2014 7:18:50 PM, progressivedem22 wrote:
At 5/3/2014 7:14:16 PM, sadolite wrote:
At 5/3/2014 7:05:34 PM, progressivedem22 wrote:
At 5/3/2014 6:37:38 PM, sadolite wrote:
At 5/3/2014 6:31:39 PM, Benshapiro wrote:
At 5/3/2014 6:27:44 PM, sadolite wrote:
At 5/3/2014 9:07:00 AM, Jifpop09 wrote:
At 5/3/2014 8:55:04 AM, sadolite wrote:
The most dangerous phrase in the language is, "We've always done it this way."

Grace hopper

Its you again............................................

Yes we can run the nations debt into infinity. Just what is the magic GNP to debt ratio where it will be impossible to increase it any more? 300% 500% 1000% 10,000% 1,000,000% We as a nation are on a fast track to increase it every year with no plan or end in sight. When will entitlements and discretionary spending have to be slashed to lower it? Or are we going to tax everyone to death? As you well know, cutting entitlements makes you a hater a bigot and a racist. Interesting conundrum. Tax everyone to death and destroy the tax revenue base or slash entitlements and be a hater. I see no hope.

"The danger of allowing too much government borrowing is 1) the government borrowing so much money that it drives up interest rates for private businesses wanting to borrow and 2) the inability of the government to pay back their debt because the interest reaches a point of unsustainablility."

Given that we haven't reached either condition, the benefits of deficit spending during a recession outweigh the costs.

Now that you have stated the obvious I'll ask again, what is the magic ratio. We are clearly as a nation going to reach it as there is no plan to reduce but only increase it until the end of time. So I guess it is infinity.


A few years ago Paul Krugman estimated that a stimulus about three times larger than it was would have been enough to recover $1.2 trillion in lost demand per annum. Just recently, when he "debated" -- and I use that word loosely -- Joe Scarborough, he suggested an additional $300 billion per year. So, the answer is $300 billion.

So the govt can add 300 billion over and above what it spends the previous year every year until the end of time?

No, and no one is suggesting that. All we're saying is, the stimulus was too small and ran out too quickly, but we need to boost aggregate demand right now while median wages are down and have yet to recover to precrisis levels -- in fact, they're accelerating at historic lows -- U6 is still high, long-term unemployment is up, etc. etc. But we only want stimulus in the short run. Prolonged deficit spending is something that hardly anyone would ever advocate for. But acknowledging that the deficit is a long-term problem is crucial to fixing it. If you were to start indiscriminately cutting right now, all you'd do is emulate Europe: shrink the economy so much that the deficit as a percentage of GDP rises.

"deficit spending is something that hardly anyone would ever advocate for. " I think it is being advocated because the govt has failed to make a budget for the last 6 years. That means unlimited deficit spending for as far as the eye can see. The govt talks sht about a budget yet it never makes one. Seems to me it's been spending trillions beyond this 300 billion number. Still nothing to show for it.


You just completely straw-maned my view. I said PROLONGED deficit spending is not something anyone would advocate for because the deficit is a long-term problem.

The government just passed a budget. Have you not been paying attention? http://www.washingtonpost.com...

And I don't even know what to say about the rest of your post. You have absolutely no grasp of the facts and nothing you have said is true -- any validity your post may have had hinged on my statement not including the word "prolonged." So not only are you clueless on economics; your comprehension skills need work.

"Congress has passed a two-year budget agreement that sets spending levels through the end of 2015, meaning that members of the House and Senate can justifiably dismiss the budget President Obama unveiled Tuesday as irrelevant."

I understand economics just fine, you have a reality problem.

Actually, you're hopeless on economics, I'm afraid, because you don't understand the difference between a temporary stimulus and a mandatory baseline. But it's ok: You're only with the other 99.999% of the country.

And I provided a second link for a reason:

"Reuters) - President Barack Obama on Thursday signed a compromise budget that reduces the risk of another government shutdown and a defense bill that cracks down on sexual assault in the military and smooths the path for transferring detainees from the U.S. prison in Guantanamo Bay, Cuba."

http://www.reuters.com...

Ya, money barrowed well spent. That will get the private sector tax base all excited.
It's not your views that divide us, it's what you think my views should be that divides us.

If you think I will give up my rights and forsake social etiquette to make you "FEEL" better you are sadly mistaken

If liberal democrats would just stop shooting people gun violence would drop by 90%
progressivedem22
Posts: 1,304
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5/4/2014 12:39:02 PM
Posted: 2 years ago
At 5/4/2014 12:32:02 PM, sadolite wrote:
At 5/4/2014 10:31:19 AM, progressivedem22 wrote:
At 5/4/2014 10:26:57 AM, sadolite wrote:
At 5/4/2014 10:05:15 AM, progressivedem22 wrote:
At 5/4/2014 9:42:07 AM, sadolite wrote:
At 5/3/2014 7:18:50 PM, progressivedem22 wrote:
At 5/3/2014 7:14:16 PM, sadolite wrote:
At 5/3/2014 7:05:34 PM, progressivedem22 wrote:
At 5/3/2014 6:37:38 PM, sadolite wrote:
At 5/3/2014 6:31:39 PM, Benshapiro wrote:
At 5/3/2014 6:27:44 PM, sadolite wrote:
At 5/3/2014 9:07:00 AM, Jifpop09 wrote:
At 5/3/2014 8:55:04 AM, sadolite wrote:
The most dangerous phrase in the language is, "We've always done it this way."

Grace hopper

Its you again............................................

Yes we can run the nations debt into infinity. Just what is the magic GNP to debt ratio where it will be impossible to increase it any more? 300% 500% 1000% 10,000% 1,000,000% We as a nation are on a fast track to increase it every year with no plan or end in sight. When will entitlements and discretionary spending have to be slashed to lower it? Or are we going to tax everyone to death? As you well know, cutting entitlements makes you a hater a bigot and a racist. Interesting conundrum. Tax everyone to death and destroy the tax revenue base or slash entitlements and be a hater. I see no hope.

"The danger of allowing too much government borrowing is 1) the government borrowing so much money that it drives up interest rates for private businesses wanting to borrow and 2) the inability of the government to pay back their debt because the interest reaches a point of unsustainablility."

Given that we haven't reached either condition, the benefits of deficit spending during a recession outweigh the costs.

Now that you have stated the obvious I'll ask again, what is the magic ratio. We are clearly as a nation going to reach it as there is no plan to reduce but only increase it until the end of time. So I guess it is infinity.


A few years ago Paul Krugman estimated that a stimulus about three times larger than it was would have been enough to recover $1.2 trillion in lost demand per annum. Just recently, when he "debated" -- and I use that word loosely -- Joe Scarborough, he suggested an additional $300 billion per year. So, the answer is $300 billion.

So the govt can add 300 billion over and above what it spends the previous year every year until the end of time?

No, and no one is suggesting that. All we're saying is, the stimulus was too small and ran out too quickly, but we need to boost aggregate demand right now while median wages are down and have yet to recover to precrisis levels -- in fact, they're accelerating at historic lows -- U6 is still high, long-term unemployment is up, etc. etc. But we only want stimulus in the short run. Prolonged deficit spending is something that hardly anyone would ever advocate for. But acknowledging that the deficit is a long-term problem is crucial to fixing it. If you were to start indiscriminately cutting right now, all you'd do is emulate Europe: shrink the economy so much that the deficit as a percentage of GDP rises.

"deficit spending is something that hardly anyone would ever advocate for. " I think it is being advocated because the govt has failed to make a budget for the last 6 years. That means unlimited deficit spending for as far as the eye can see. The govt talks sht about a budget yet it never makes one. Seems to me it's been spending trillions beyond this 300 billion number. Still nothing to show for it.


You just completely straw-maned my view. I said PROLONGED deficit spending is not something anyone would advocate for because the deficit is a long-term problem.

The government just passed a budget. Have you not been paying attention? http://www.washingtonpost.com...

And I don't even know what to say about the rest of your post. You have absolutely no grasp of the facts and nothing you have said is true -- any validity your post may have had hinged on my statement not including the word "prolonged." So not only are you clueless on economics; your comprehension skills need work.

"Congress has passed a two-year budget agreement that sets spending levels through the end of 2015, meaning that members of the House and Senate can justifiably dismiss the budget President Obama unveiled Tuesday as irrelevant."

I understand economics just fine, you have a reality problem.

Actually, you're hopeless on economics, I'm afraid, because you don't understand the difference between a temporary stimulus and a mandatory baseline. But it's ok: You're only with the other 99.999% of the country.

And I provided a second link for a reason:

"Reuters) - President Barack Obama on Thursday signed a compromise budget that reduces the risk of another government shutdown and a defense bill that cracks down on sexual assault in the military and smooths the path for transferring detainees from the U.S. prison in Guantanamo Bay, Cuba."

http://www.reuters.com...

Ya, money barrowed well spent. That will get the private sector tax base all excited.

$680 billion this year, $540 billion next year. The deficit is falling -- and only came into existence because stupid people in the Bush Administration decided to blow through a $200 billion Clinton surplus on tax cuts, two wars, defense contracts, a prescription drug benefit that paid out wholesale drug prices, and a recession. What's your issue again?

It's laughable: I give you the facts, so you start scolding about the deficit. I'm all for addressing it: how about we raise taxes? We had much higher taxes under Eisenhower, Kennedy et al. and yet the economy boomed.
Benshapiro
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5/4/2014 1:56:01 PM
Posted: 2 years ago
DanT I literally don't have enough room to reply when every response you give is pedantic.

Specifically and succinctly, tell me why you disagree with the statement that we should have deficit spending during a recession.
Benshapiro
Posts: 3,966
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5/4/2014 2:13:41 PM
Posted: 2 years ago
Also saying that "GDP is not a measure of economic growth . . ." Is probably the most backwards argument I've heard you give yet.
progressivedem22
Posts: 1,304
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5/4/2014 2:48:49 PM
Posted: 2 years ago
At 5/4/2014 2:13:41 PM, Benshapiro wrote:
Also saying that "GDP is not a measure of economic growth . . ." Is probably the most backwards argument I've heard you give yet.

If he said that GDP wasn't an accurate measure of economic well-being of the average person, or not a plausible or reasonable measure of overall economic health, he'd be right. I thought Bhutan got it right: Gross National Happiness haha. I'll post an article a bit later if I find the time. It's some really interesting stuff.
sadolite
Posts: 8,842
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5/4/2014 6:11:07 PM
Posted: 2 years ago
Ah yes it's Bushes fault. But Bush or any President can't authorize spending so that would make Congress responsible so in turn that would make who has controlled Congress over the last 10 years responsible.
It's not your views that divide us, it's what you think my views should be that divides us.

If you think I will give up my rights and forsake social etiquette to make you "FEEL" better you are sadly mistaken

If liberal democrats would just stop shooting people gun violence would drop by 90%