Total Posts:5|Showing Posts:1-5
Jump to topic:

Just asking

Economicsgeniusorsoithink
Posts: 2
Add as Friend
Challenge to a Debate
Send a Message
3/7/2015 3:04:23 AM
Posted: 1 year ago
I like to know if this is true

if you are able to stabilize trade
keep proper tab on inflation in the long run
and the fiscal deficit as % against GDP is kept under the rate of growth(%) of GDP
than what would ensue would be a stable fall of the government debt to GDP and would also bring about more stable economic growth

the reasons i say this is because i noticed that each time American government keeps 1. on borrowing heavily to increase GDP when there is a recession.
2. and than they cut spending drastically when there is an improvement
3. rather than that they should build up stuff like infrastructure, to promote new business etc. to increase GDP further
4. but instead they propagate cut the debt which in time leads to the very same economic patterns that cause the recession again.
Also because GDP is increasing faster than Govt spending and deficit they are able to crowd out the govt rather than the Govt. crowd out the Pvt. sector which too me in the long run gives some good efficiency to improve the country.
ResponsiblyIrresponsible
Posts: 12,398
Add as Friend
Challenge to a Debate
Send a Message
3/7/2015 7:51:31 AM
Posted: 1 year ago
At 3/7/2015 3:04:23 AM, Economicsgeniusorsoithink wrote:
I like to know if this is true

if you are able to stabilize trade
keep proper tab on inflation in the long run
and the fiscal deficit as % against GDP is kept under the rate of growth(%) of GDP
than what would ensue would be a stable fall of the government debt to GDP and would also bring about more stable economic growth

That sounds about right, though how exactly we get to that point is another thing. Generally we'd "stabilize" the fiscal deficit as a consequence of an improving economy, though clearly we aren't there yet--and because of the zero lower bound on nominal interest rates, we can't rely on long-run wage and price flexibility to get us there. Whether deficits are the proper solution is another thing--and I don't generally support them as a means to an end because they're lackluster relative to monetary policy.

As for "stabilizing trade," I'm not quite sure what you mean. There are visible consequences of a trade deficit. For instance, because S - I = NX (savings minus investment equals net exports), a trade deficit means that investment is higher than savings, which has long-run consequences and, all else equal, tends to apply upward pressure on interest rates. But with China continuously devaluing its currency and with the US dollar as a safe-haven asset--even more so in light of Europe's malaise and the impending rate hike coming later this year--we can expect trade deficits to persist. But a trade deficit is equal to a foreign direct investment surplus, so it isn't exactly a bad thing in totality, though I would tend to agree with the argument that allowing the dollar to continue to appreciate is deleterious in the short run.

the reasons i say this is because i noticed that each time American government keeps 1. on borrowing heavily to increase GDP when there is a recession.
2. and than they cut spending drastically when there is an improvement
3. rather than that they should build up stuff like infrastructure, to promote new business etc. to increase GDP further
4. but instead they propagate cut the debt which in time leads to the very same economic patterns that cause the recession again.

The classic Keynesian argument is that the government ought to spend more during recessions and less during expansions, true, but there's a certain logic behind that. The notion is that--at least in this framework--recessions result from a shortfall in demand, so during a recessionary gap we have lower-than-optimal inflation, and during an inflationary gap we have higher-than-optimal inflation, so government spending acts a mechanism to stabilize spending and inflation both to the up and downside.

Now, you're asking why the government doesn't continue to invest after we hit escape velocity and inflation starts to rise? The argument you may often hear is, of course, the fact that it wants to combat inflation, though the Fed generally has that under control--and, after all, inflation is "always and everywhere a monetary phenomenon."

Generally I think the government does and ought to invest in infrastructure even in the longer run, but it can't run a deficit forever, because deficits imply flooding the market with Treasury securities which raise interest rates and choke off investment, as well as increase expectations of future taxes. So, recessions are basically crunch time to bring down deficits--if we can find the money to invest, anyway, than great, though that may be nevertheless be hard.

My own position is that fiscal policy is offset by monetary policy, so stimulus is utterly futile--meaning that any dollar the government spends should be an end in itself, not a means to an end (i.e., I'm not for paying people to dig holes and fill them up again). Infrastructure among other things sounds like a great use of government money, so I could even buy into that argument.

Also because GDP is increasing faster than Govt spending and deficit they are able to crowd out the govt rather than the Govt. crowd out the Pvt. sector which too me in the long run gives some good efficiency to improve the country.

I'm trying to understand this argument--how does the private sector crowd out the government? If GDP is increasing faster than deficits, then great--though both deficits and increased disposable incomes will apply upward pressure on interest rates nevertheless. But I still fail to see how the private sector could crowd out the government. Crowding out in this sense really only means, in the case of deficits, increasing the supply of securities--borrowing opportunities--with a fixed number (or we assume fixed, though who knows in reality?) of lenders, so both the government and private sector will compete in the market for loanable funds, thus raising rates.

I can't see how the private sector could in any way do this unless long rates were to spike due to some spike in risk premia on long-term bonds, which could make government borrowing harder--but even then, why would we care about that when the government can increase taxes, issue money, and nevertheless service the debt? Further, if the private sector actually *did* discourage government borrowing--and this is truly a hypothetical example, as the government isn't exactly a market participant that responds to incentives--then spending would fall, interest rates tend to fall as national savings increases, AD tends to fall, inflation tends to fall, and we expect both risk premia and inflation expectations to fall, thus reversing the "crowding out" effect. So I can't imagine that effect being permanent in the "long run," especially since AD in the long run has no effect on real variables.
~ResponsiblyIrresponsible

DDO's Economics Messiah
Economicsgeniusorsoithink
Posts: 2
Add as Friend
Challenge to a Debate
Send a Message
3/8/2015 10:05:33 AM
Posted: 1 year ago
Your explanation to economy is a bit different to mine, but understand my point of view. If i am wrong pls be forward and tell me whats wrong with my thinking.

1. I am of the understanding the Government is made by us to bring about the objectives of the constitution. I am socialistic in nature and my arguments may be such as well.
2. I am of the view moneys worth is as much as money value given by people and it is a facilitates trade. In the current system around the world the US currency gets its worth a lot from external demand for it to facilitate international deals between different countries rather than our own ability to repay its worth. Its used to judge someone else's worth.
On FDI
In basics a foreign direct surplus means that there is an investment from another country(Eg. china euro foreign companies). This in times of more preferable investment options leads to the demand of the investment itself falling value of investments to reduce the US. So investments in the long run are not a dependable source but should be used only in the short term.
The point now happens that
1.currency would automatically devalue itself against other currencies
or
2.Net exports going positive (hard too see that happen)
or
3.erosion of savings (usually see that in a trade deficit economy)
But id like to think that the Govt. and the currency is not trying to basically encourage an economy in which we could depend on investments like Ireland, Bolivia, UK or India. Cause should say the US dollar lose its relevance as a currency of trade through multilateral treaties of other countries. We would be open to the very instabilities they are right now open too.
So id guess a more stable approach to handle our currency would have to be undertaken because if over time the said usual schools of though may not be applicable for welfare. But they'd make perfect sense if we well could bring about perfect competition between firms and also free trade of all resources.

I mis-used term
" Also because GDP is increasing faster than Govt spending and deficit they are able to crowd out the govt rather than the Govt. crowd out the Pvt. sector which too me in the long run gives some good efficiency to improve the country."
I can only explain through eg
GDP Growth 2%,3%,4%,5%
Fiscal deficit:GDP 1%,2%,3%,4%
The share of Debt to GDP falls continuously. And in the long run may become negligible to the actual size of US economy and can be wiped out.

I at the end of this realize how crazy this sounds and impossible just like free trade, monetary economics and perfect competition.

A question how do you close this forum thingy, like remove it from the web.
ResponsiblyIrresponsible
Posts: 12,398
Add as Friend
Challenge to a Debate
Send a Message
3/8/2015 10:17:11 AM
Posted: 1 year ago
At 3/8/2015 10:05:33 AM, Economicsgeniusorsoithink wrote:
Your explanation to economy is a bit different to mine, but understand my point of view. If i am wrong pls be forward and tell me whats wrong with my thinking.

Sure.

1. I am of the understanding the Government is made by us to bring about the objectives of the constitution. I am socialistic in nature and my arguments may be such as well.

The Constitution is, to my understanding, strictly about negative freedom, but sure.

2. I am of the view moneys worth is as much as money value given by people and it is a facilitates trade.

Agreed.

In the current system around the world the US currency gets its worth a lot from external demand for it to facilitate international deals between different countries rather than our own ability to repay its worth. Its used to judge someone else's worth.

This point I'm trying to understand. Currencies are valued relative to one another, sure, and the US dollar is a safe-haven asset, and a lot of commodities--say, oil--are only denominated in dollars, meaning movements in the dollar's exchange rate have a double whammy effect. But I'm not sure of the main point you're making here.

On FDI
In basics a foreign direct surplus means that there is an investment from another country(Eg. china euro foreign companies).

Yup.

This in times of more preferable investment options leads to the demand of the investment itself falling value of investments to reduce the US. So investments in the long
run are not a dependable source but should be used only in the short term.

I wasn't able to make sense of this. Could you expand on this point?

The point now happens that
1.currency would automatically devalue itself against other currencies

Sure, though there are usually a lot of endogenous factors--monetary policy--pushing up and down on exchange rates, they tend to float with the state of the business cycle.

or
2.Net exports going positive (hard too see that happen)

What is this in reference to?

or
3.erosion of savings (usually see that in a trade deficit economy)

Again, I'm not seeing the reference, but you're right that, because S - I = NX, a net capital inflow means an erosion of savings.

But id like to think that the Govt. and the currency is not trying to basically encourage an economy in which we could depend on investments like Ireland, Bolivia, UK or India. Cause should say the US dollar lose its relevance as a currency of trade through multilateral treaties of other countries. We would be open to the very instabilities they are right now open too.

I'm not understanding this point either. It's not as though the dollar is going to be dropped as a safe-haven asset tomorrow, or ever, or that the value of the dollar is inextricably tied to the US's position in the world--rather it's a consequence thereof. I'm not sure where the instability comes from.

So id guess a more stable approach to handle our currency would have to be undertaken because if over time the said usual schools of though may not be applicable for welfare.

Why do you feel like the current currency regime is unstable? That's what I'm not quite understanding, because the dollar has been appreciating rapidly--recently hitting an 11-year high against the euro.

But they'd make perfect sense if we well could bring about perfect competition between firms and also free trade of all resources.

I'm still not seeing the connection, but obviously perfect competition doesn't necessarily hold in the real world--in fact, it usually (100% of the time) doesn't, at least via the textbook model.

I mis-used term

Which one? Crowding out?

" Also because GDP is increasing faster than Govt spending and deficit they are able to crowd out the govt rather than the Govt. crowd out the Pvt. sector which too me in the long run gives some good efficiency to improve the country."
I can only explain through eg
GDP Growth 2%,3%,4%,5%
Fiscal deficit:GDP 1%,2%,3%,4%
The share of Debt to GDP falls continuously. And in the long run may become negligible to the actual size of US economy and can be wiped out.

Okay, sure, and that's usually what happens--the economy grows faster so not only do deficits shrink in nominal terms, but they become negligible relative to the size of the economy. But I'm not seeing the broader point you're making on sustainability or crowding out.

I at the end of this realize how crazy this sounds and impossible just like free trade, monetary economics and perfect competition.

What's crazy? Growing at a faster rate than accumulating deficits? I don't think that's crazy--it usually happens rather often, and we usually expect it to happen.

A question how do you close this forum thingy, like remove it from the web.

How do you close DDO? That's a....peculiar question.
~ResponsiblyIrresponsible

DDO's Economics Messiah