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The Keynes Paradox

DanT
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5/31/2012 12:42:46 PM
Posted: 4 years ago
Keynesian economics is based on a paradox. Keynes proposed that when private sector consumption decreases, that the government must increase consumption in order to make up for the loss. The paradox is that by increasing government consumption, taxes must also be increased; the money does not come from thin air, it comes from the taxation of the private sector. When one taxes the private sector one decreases consumption.

In other words, in order to make up for the lack of consumption in the private sector, the government must increase their consumption, which means more taxes, which creates less consumption in the private sector. Since there is less consumption in the private sector due to taxation, the government must increase their consumption, which means more taxes, which means less private sector consumption, and so on and so on.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
darkkermit
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5/31/2012 12:45:59 PM
Posted: 4 years ago
At 5/31/2012 12:42:46 PM, DanT wrote:
Keynesian economics is based on a paradox. Keynes proposed that when private sector consumption decreases, that the government must increase consumption in order to make up for the loss. The paradox is that by increasing government consumption, taxes must also be increased; the money does not come from thin air, it comes from the taxation of the private sector. When one taxes the private sector one decreases consumption.

In other words, in order to make up for the lack of consumption in the private sector, the government must increase their consumption, which means more taxes, which creates less consumption in the private sector. Since there is less consumption in the private sector due to taxation, the government must increase their consumption, which means more taxes, which means less private sector consumption, and so on and so on.

The key is that the government uses deficit spending.
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DanT
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5/31/2012 1:07:31 PM
Posted: 4 years ago
At 5/31/2012 12:45:59 PM, darkkermit wrote:
At 5/31/2012 12:42:46 PM, DanT wrote:
Keynesian economics is based on a paradox. Keynes proposed that when private sector consumption decreases, that the government must increase consumption in order to make up for the loss. The paradox is that by increasing government consumption, taxes must also be increased; the money does not come from thin air, it comes from the taxation of the private sector. When one taxes the private sector one decreases consumption.

In other words, in order to make up for the lack of consumption in the private sector, the government must increase their consumption, which means more taxes, which creates less consumption in the private sector. Since there is less consumption in the private sector due to taxation, the government must increase their consumption, which means more taxes, which means less private sector consumption, and so on and so on.

The key is that the government uses deficit spending.

There is two ways the paradox can work

Decrease in private consumption > recession > increase in government consumption > deficit > increase in taxes > decrease in private consumption
http://www.debate.org...

or

Decrease in private consumption > recession > increase in government consumption > deficit > increase in government debt > increase in interest rates > increase in private debt > decrease in private consumption
http://www.debate.org...

personally I think the second paradox is more destructive than the first.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
darkkermit
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5/31/2012 1:18:48 PM
Posted: 4 years ago
here's a thought:

Government expenditures occur -> defit spending occurs -> stimulates private sector -> no need for deficit spending -> decrease government expenditures -> surplus

Keynesian economics isn't a "long run" solution but is a countercyclical policy to dampen business cycles.
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DanT
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5/31/2012 1:28:23 PM
Posted: 4 years ago
At 5/31/2012 1:18:48 PM, darkkermit wrote:
here's a thought:

Government expenditures occur -> defit spending occurs -> stimulates private sector -> no need for deficit spending -> decrease government expenditures -> surplus

Keynesian economics isn't a "long run" solution but is a countercyclical policy to dampen business cycles.

It does not create new money, it simply redistributes money. It does nothing to increase consumption within the private sector. The government is simply spending the private sector's money for them, and the private sector has less money to spend as a result.

Say 100 people spend $1000 a year, $100,000 total. Now say they decreased their spending to $500 a year, making a total private consumption of $50,000. The government comes in and takes $500 from each of those 100 people, and spends $50,000, and the private sector now spends $0, while the government spends $50,000. The government did not increase consumption, they simply redirected where the consumption was taking place.

If I have a bottle of water, and I pored it into an empty bottle, I don't have 2 bottles of water.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
DanT
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5/31/2012 1:29:19 PM
Posted: 4 years ago
At 5/31/2012 1:28:23 PM, DanT wrote:
At 5/31/2012 1:18:48 PM, darkkermit wrote:
here's a thought:

Government expenditures occur -> defit spending occurs -> stimulates private sector -> no need for deficit spending -> decrease government expenditures -> surplus

Keynesian economics isn't a "long run" solution but is a countercyclical policy to dampen business cycles.

It does not create new money, it simply redistributes money. It does nothing to increase consumption within the private sector. The government is simply spending the private sector's money for them, and the private sector has less money to spend as a result.

Say 100 people spend $1000 a year, $100,000 total. Now say they decreased their spending to $500 a year, making a total private consumption of $50,000. The government comes in and takes $500 from each of those 100 people, and spends $50,000, and the private sector now spends $0, while the government spends $50,000. The government did not increase consumption, they simply redirected where the consumption was taking place.

If I have a bottle of water, and I poured it into an empty bottle, I don't have 2 bottles of water.

fixed
"Chemical weapons are no different than any other types of weapons."~Lordknukle
DanT
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5/31/2012 1:33:01 PM
Posted: 4 years ago
Again if they don't tax, than they pay in bonds. If they pay in bonds, they are increasing the debt, which increases private debt through an increase of interest. By increasing private debt, one decreases private consumption.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
DanT
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5/31/2012 1:34:31 PM
Posted: 4 years ago
At 5/31/2012 1:33:01 PM, DanT wrote:
Again if they don't tax, than they pay in bonds. If they pay in bonds, they are increasing the debt, which increases private debt through an increase of interest. By increasing private debt, one decreases private consumption.

a debt is nothing more than a promise to pay in the future. Ultimately taxes would have to be raised.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
darkkermit
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5/31/2012 1:38:25 PM
Posted: 4 years ago
At 5/31/2012 1:28:23 PM, DanT wrote:
At 5/31/2012 1:18:48 PM, darkkermit wrote:
here's a thought:

Government expenditures occur -> defit spending occurs -> stimulates private sector -> no need for deficit spending -> decrease government expenditures -> surplus

Keynesian economics isn't a "long run" solution but is a countercyclical policy to dampen business cycles.

It does not create new money, it simply redistributes money. It does nothing to increase consumption within the private sector. The government is simply spending the private sector's money for them, and the private sector has less money to spend as a result.

Say 100 people spend $1000 a year, $100,000 total. Now say they decreased their spending to $500 a year, making a total private consumption of $50,000. The government comes in and takes $500 from each of those 100 people, and spends $50,000, and the private sector now spends $0, while the government spends $50,000. The government did not increase consumption, they simply redirected where the consumption was taking place.

If I have a bottle of water, and I pored it into an empty bottle, I don't have 2 bottles of water.

Except the government doesn't increase tax revenues. They simply allow deficit spending to occur until the recession is over.

Is this really that hard of a a concept for you?

Anybody who calls himself a keynesian and says "oh we should increase taxes and government spending at the same time" is simply a fake keynesian who doesn't know what the hell he is talking about. Keynesian, in theory is not about increasing the size of the government in the long run.
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DanT
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5/31/2012 1:41:07 PM
Posted: 4 years ago
At 5/31/2012 1:38:25 PM, darkkermit wrote:
At 5/31/2012 1:28:23 PM, DanT wrote:
At 5/31/2012 1:18:48 PM, darkkermit wrote:
here's a thought:

Government expenditures occur -> defit spending occurs -> stimulates private sector -> no need for deficit spending -> decrease government expenditures -> surplus

Keynesian economics isn't a "long run" solution but is a countercyclical policy to dampen business cycles.

It does not create new money, it simply redistributes money. It does nothing to increase consumption within the private sector. The government is simply spending the private sector's money for them, and the private sector has less money to spend as a result.

Say 100 people spend $1000 a year, $100,000 total. Now say they decreased their spending to $500 a year, making a total private consumption of $50,000. The government comes in and takes $500 from each of those 100 people, and spends $50,000, and the private sector now spends $0, while the government spends $50,000. The government did not increase consumption, they simply redirected where the consumption was taking place.

If I have a bottle of water, and I pored it into an empty bottle, I don't have 2 bottles of water.

Except the government doesn't increase tax revenues. They simply allow deficit spending to occur until the recession is over.

Is this really that hard of a a concept for you?

Anybody who calls himself a keynesian and says "oh we should increase taxes and government spending at the same time" is simply a fake keynesian who doesn't know what the hell he is talking about. Keynesian, in theory is not about increasing the size of the government in the long run.

Again, a deficit spending increases the debt, and an increase in debt decreases consumption. Eventually the government would have to increase taxes in order to decrease the debt.

Is this really that hard of a a concept for you?
"Chemical weapons are no different than any other types of weapons."~Lordknukle
darkkermit
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5/31/2012 1:41:35 PM
Posted: 4 years ago
At 5/31/2012 1:33:01 PM, DanT wrote:
Again if they don't tax, than they pay in bonds. If they pay in bonds, they are increasing the debt, which increases private debt through an increase of interest. By increasing private debt, one decreases private consumption.

Yes, but its for future taxes. Yes the private sector WILL have less to spend in the future. But that's the cost of getting out of the recession is a "weaker" boom. Keynesian economics is meant to smooth the bumps of business cycles.
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DanT
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5/31/2012 1:47:31 PM
Posted: 4 years ago
At 5/31/2012 1:41:35 PM, darkkermit wrote:
At 5/31/2012 1:33:01 PM, DanT wrote:
Again if they don't tax, than they pay in bonds. If they pay in bonds, they are increasing the debt, which increases private debt through an increase of interest. By increasing private debt, one decreases private consumption.

Yes, but its for future taxes. Yes the private sector WILL have less to spend in the future. But that's the cost of getting out of the recession is a "weaker" boom. Keynesian economics is meant to smooth the bumps of business cycles.

OMFG why can't you understand this concept?

Increase in deficit spending increases the debt. An increase in the debt, decreases the credit rating, an increases interest for private debts, which adds to private debts, and decreases consumption.

Simply because taxes are not raised till a future date, does not mean that current consumption is not effected!

Furthermore, you are claiming that it is OK to create a larger problem for the future, so long as the current problem is fixed. Do you honestly believe creating a larger recession 5 years from now is the solution to the recession today? If so I have a bridge to sell you.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
darkkermit
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5/31/2012 2:01:03 PM
Posted: 4 years ago
At 5/31/2012 1:47:31 PM, DanT wrote:
At 5/31/2012 1:41:35 PM, darkkermit wrote:
At 5/31/2012 1:33:01 PM, DanT wrote:
Again if they don't tax, than they pay in bonds. If they pay in bonds, they are increasing the debt, which increases private debt through an increase of interest. By increasing private debt, one decreases private consumption.

Yes, but its for future taxes. Yes the private sector WILL have less to spend in the future. But that's the cost of getting out of the recession is a "weaker" boom. Keynesian economics is meant to smooth the bumps of business cycles.

OMFG why can't you understand this concept?

Increase in deficit spending increases the debt. An increase in the debt, decreases the credit rating, an increases interest for private debts, which adds to private debts, and decreases consumption.

First off, you never addressed this at all. You just added it in.

In terms of the above. Increasing the debt does not equal increasing the credit rating. The credit rating is determining through a number of factors. The debt has been increased many times before, surpassing the current debt, and it was only under Obama in which the credit rating decreased. This credit rating

Also, you stated that the credit rating will increase the interest rate for private debt. This is not empirically tested:
http://www.ritholtz.com...

The government is spending precisely because its in a liquidity trap. A liquidity trap occurs in which interest rates are low and government spending will not crowd out the private sector, BECAUSE THE PRIVATE SECTOR ISN'T INVESTING!!!

Simply because taxes are not raised till a future date, does not mean that current consumption is not effected!

Furthermore, you are claiming that it is OK to create a larger problem for the future, so long as the current problem is fixed. Do you honestly believe creating a larger recession 5 years from now is the solution to the recession today? If so I have a bridge to sell you.

Who says the problem has to be larger in the future? The government can raise taxes in the future, during an economic boom, in which people won't be affected as much from the policy. Do you not take a mortage or student loan because "omgz debt, i'll be screwing myself in the future".
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TheOrator
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5/31/2012 2:01:38 PM
Posted: 4 years ago
Yeah, unfortunately Keynesian economics gets more credit than it's due. The belief that the private sector needs to be stimulated is an error in itself when it has been proven to fluctuate, but I hadn't actually thought about the impact the government would have on the private sector in that respect.
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Contra
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5/31/2012 2:39:46 PM
Posted: 4 years ago
At 5/31/2012 1:18:48 PM, darkkermit wrote:
here's a thought:

Government expenditures occur -> defit spending occurs -> stimulates private sector -> no need for deficit spending -> decrease government expenditures -> surplus

Keynesian economics isn't a "long run" solution but is a countercyclical policy to dampen business cycles.

This. It smooths out the bumps of recessions.
"The solution [for Republicans] is to admit that Bush was a bad president, stop this racist homophobic stuff, stop trying to give most of the tax cuts to the rich, propose a real alternative to Obamacare that actually works, and propose smart free market solutions to our economic problems." - Distraff

"Americans are better off in a dynamic, free-enterprise-based economy that fosters economic growth, opportunity and upward mobility." - Paul Ryan
DanT
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5/31/2012 2:55:55 PM
Posted: 4 years ago
At 5/31/2012 2:01:03 PM, darkkermit wrote:
At 5/31/2012 1:47:31 PM, DanT wrote:
At 5/31/2012 1:41:35 PM, darkkermit wrote:
At 5/31/2012 1:33:01 PM, DanT wrote:
Again if they don't tax, than they pay in bonds. If they pay in bonds, they are increasing the debt, which increases private debt through an increase of interest. By increasing private debt, one decreases private consumption.

Yes, but its for future taxes. Yes the private sector WILL have less to spend in the future. But that's the cost of getting out of the recession is a "weaker" boom. Keynesian economics is meant to smooth the bumps of business cycles.

OMFG why can't you understand this concept?

Increase in deficit spending increases the debt. An increase in the debt, decreases the credit rating, an increases interest for private debts, which adds to private debts, and decreases consumption.

First off, you never addressed this at all. You just added it in.

Not true, look at what you replied to. Are you illiterate, or just plain stupid?

I also posted this picture, showing illustrating the paradox.
http://www.debate.org...

In terms of the above. Increasing the debt does not equal increasing the credit rating.
The credit rating is determining through a number of factors. The debt has been increased many times before, surpassing the current debt, and it was only under Obama in which the credit rating decreased. This credit rating


I'm talking more in line of the credibility of the US dollar. The higher the debt, the more the US dollar is devalued, and therefore an increase in price as well as privet interest.

The higher the debt become, the less credible the US dollar is in the markets. Banks may raise interest due to foresight from the debt, and businesses would raise market prices.

Also, you stated that the credit rating will increase the interest rate for private debt. This is not empirically tested:
http://www.ritholtz.com...

That chart is pretty vague. It does not say what it means by "interest rates"; does it mean public, private, student loans, housing loans, or ect.

By the looks of the chart's curve, it looks like it's referring to public interest not private interest.

The government is spending precisely because its in a liquidity trap. A liquidity trap occurs in which interest rates are low and government spending will not crowd out the private sector, BECAUSE THE PRIVATE SECTOR ISN'T INVESTING!!!

It does not work that way in real life.
Simply because taxes are not raised till a future date, does not mean that current consumption is not effected!

Furthermore, you are claiming that it is OK to create a larger problem for the future, so long as the current problem is fixed. Do you honestly believe creating a larger recession 5 years from now is the solution to the recession today? If so I have a bridge to sell you.

Who says the problem has to be larger in the future? The government can raise taxes in the future, during an economic boom, in which people won't be affected as much from the policy. Do you not take a mortage or student loan because "omgz debt, i'll be screwing myself in the future".

There would be no economic boom. Keynesianism does not work.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
darkkermit
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5/31/2012 3:42:45 PM
Posted: 4 years ago
At 5/31/2012 2:55:55 PM, DanT wrote:
At 5/31/2012 2:01:03 PM, darkkermit wrote:
At 5/31/2012 1:47:31 PM, DanT wrote:
At 5/31/2012 1:41:35 PM, darkkermit wrote:
At 5/31/2012 1:33:01 PM, DanT wrote:
Again if they don't tax, than they pay in bonds. If they pay in bonds, they are increasing the debt, which increases private debt through an increase of interest. By increasing private debt, one decreases private consumption.

Yes, but its for future taxes. Yes the private sector WILL have less to spend in the future. But that's the cost of getting out of the recession is a "weaker" boom. Keynesian economics is meant to smooth the bumps of business cycles.

OMFG why can't you understand this concept?

Increase in deficit spending increases the debt. An increase in the debt, decreases the credit rating, an increases interest for private debts, which adds to private debts, and decreases consumption.

First off, you never addressed this at all. You just added it in.

Not true, look at what you replied to. Are you illiterate, or just plain stupid?

I also posted this picture, showing illustrating the paradox.
http://www.debate.org...

I actually didn't see that. I just saw your original argument, in which you did change it later on.


In terms of the above. Increasing the debt does not equal increasing the credit rating.
The credit rating is determining through a number of factors. The debt has been increased many times before, surpassing the current debt, and it was only under Obama in which the credit rating decreased. This credit rating


I'm talking more in line of the credibility of the US dollar. The higher the debt, the more the US dollar is devalued,

The dollar can lose its value, but that's all dependent on a number of factor. More important is its ability to pay back the debt. Stating that you are in debt now does not mean "omgz, he'll never pay back the debt". Can you really prove that the corresponding loss of the dollar is enough to decrease private spending consumption? No you can't.

and therefore an increase in price as well as privet interest.

I've already showed you how private interest rates have not been changing much at all.

The higher the debt become, the less credible the US dollar is in the markets. Banks may raise interest due to foresight from the debt, and businesses would raise market prices.

Do you realize how low interest rates are right now?
I'm looking at my bank loan information right now:
https://www.navigantcu.org...
http://ncu.mortgagewebcenter.com...

OMG, so high!!! Do you own a bank account? Do you notice how ridiculously small the interest rate you get?

Also, you stated that the credit rating will increase the interest rate for private debt. This is not empirically tested:
http://www.ritholtz.com...

That chart is pretty vague. It does not say what it means by "interest rates"; does it mean public, private, student loans, housing loans, or ect.

By the looks of the chart's curve, it looks like it's referring to public interest not private interest.

The above are all interconnected to one another. The other main factor is risk.


The government is spending precisely because its in a liquidity trap. A liquidity trap occurs in which interest rates are low and government spending will not crowd out the private sector, BECAUSE THE PRIVATE SECTOR ISN'T INVESTING!!!

It does not work that way in real life.

That's the whole freaking bases of Keynesian economics. Yes it is. How do you think recessions persist in the first place? Don't you realize that if businesses were investing then the interest rate would not be so low in the first place?

Simply because taxes are not raised till a future date, does not mean that current consumption is not effected!

Furthermore, you are claiming that it is OK to create a larger problem for the future, so long as the current problem is fixed. Do you honestly believe creating a larger recession 5 years from now is the solution to the recession today? If so I have a bridge to sell you.

Who says the problem has to be larger in the future? The government can raise taxes in the future, during an economic boom, in which people won't be affected as much from the policy. Do you not take a mortage or student loan because "omgz debt, i'll be screwing myself in the future".

There would be no economic boom. Keynesianism does not work.

Right, like the US wasn't paying off its debt after WWII. Like there was no economic expansion after the Great Depression. No we are still in the great depression.
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Contra
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5/31/2012 3:50:05 PM
Posted: 4 years ago
Right, like the US wasn't paying off its debt after WWII. Like there was no economic expansion after the Great Depression. No we are still in the great depression.

A prime example, Gov't stimulated the economy during WW2, and the extreme debts were paid off after the war ended and the US entered the strong economy. Taxes were raised, but the effects were minimal over the long run. Initially they hurt, in 1948 to a degree, but only for a short time.

Overall, Keynesian economics then primed the pump for the strong following decade of broad prosperity in the 1950s.
"The solution [for Republicans] is to admit that Bush was a bad president, stop this racist homophobic stuff, stop trying to give most of the tax cuts to the rich, propose a real alternative to Obamacare that actually works, and propose smart free market solutions to our economic problems." - Distraff

"Americans are better off in a dynamic, free-enterprise-based economy that fosters economic growth, opportunity and upward mobility." - Paul Ryan
darkkermit
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5/31/2012 4:07:39 PM
Posted: 4 years ago
At 5/31/2012 4:03:51 PM, twocupcakes wrote:
You borrow money in a recession and plan on paying it back in a boom.

THANK YOU!!!! Paradox resolved.
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twocupcakes
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5/31/2012 4:43:37 PM
Posted: 4 years ago
I'm talking more in line of the credibility of the US dollar. The higher the debt, the more the US dollar is devalued, and therefore an increase in price as well as privet interest.

Not really. When the USA borrows money, it increases the demand for the US dollar. This is a capital inflow and will contribute to the increase in the value of the USD. Of course, when the USA pays it back this will be a capital outflow.

The higher the debt become, the less credible the US dollar is in the markets. Banks may raise interest due to foresight from the debt, and businesses would raise market prices.

True, but investors are very confident in the USA. The USA can borrow a lot of money without the credit rating being drastically affected.

There would be no economic boom. Keynesianism does not work.

Why is there no boom? The market naturally fluctuates and a boom is expected. There is every reason to expect a boom.
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5/31/2012 4:57:35 PM
Posted: 4 years ago
At 5/31/2012 4:03:51 PM, twocupcakes wrote:
You borrow money in a recession and plan on paying it back in a boom.

Excuse me if I'm wrong.

Debts lower consumer confidence and drag our economy down. So wouldn't this mean we would not get as large of a boom, and eventually start the cycle Dan is talking about?
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darkkermit
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5/31/2012 5:01:38 PM
Posted: 4 years ago
At 5/31/2012 4:57:35 PM, 16kadams wrote:
At 5/31/2012 4:03:51 PM, twocupcakes wrote:
You borrow money in a recession and plan on paying it back in a boom.

Excuse me if I'm wrong.

Debts lower consumer confidence and drag our economy down. So wouldn't this mean we would not get as large of a boom, and eventually start the cycle Dan is talking about?

Not necessarily. It could and couldn't. Who knows what the whims of the masses think. Even If it did, you don't know If the lowered investment rates offset the government spending.
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Contra
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5/31/2012 5:09:04 PM
Posted: 4 years ago
At 5/31/2012 5:01:38 PM, darkkermit wrote:
At 5/31/2012 4:57:35 PM, 16kadams wrote:
At 5/31/2012 4:03:51 PM, twocupcakes wrote:
You borrow money in a recession and plan on paying it back in a boom.

Excuse me if I'm wrong.

Debts lower consumer confidence and drag our economy down. So wouldn't this mean we would not get as large of a boom, and eventually start the cycle Dan is talking about?

Not necessarily. It could and couldn't. Who knows what the whims of the masses think. Even If it did, you don't know If the lowered investment rates offset the government spending.

Furthermore, debt drove the economy in the 1980s on consumer debt and easy credit. The federal deficit probably helped the economy by increasing military spending then stimulated local auto plants as well.
"The solution [for Republicans] is to admit that Bush was a bad president, stop this racist homophobic stuff, stop trying to give most of the tax cuts to the rich, propose a real alternative to Obamacare that actually works, and propose smart free market solutions to our economic problems." - Distraff

"Americans are better off in a dynamic, free-enterprise-based economy that fosters economic growth, opportunity and upward mobility." - Paul Ryan
mongeese
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5/31/2012 5:19:59 PM
Posted: 4 years ago
DanT, the effect you're recognizing is crowding out, which negates a portion of the increase in aggregate demand caused by lower taxes and increased spending. However, aggregate demand still ultimately increases.

http://www.freeeconhelp.com...

When's the last time you took a course in macroeconomics?
darkkermit
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5/31/2012 5:22:48 PM
Posted: 4 years ago
At 5/31/2012 5:19:59 PM, mongeese wrote:
DanT, the effect you're recognizing is crowding out, which negates a portion of the increase in aggregate demand caused by lower taxes and increased spending. However, aggregate demand still ultimately increases.

http://www.freeeconhelp.com...

When's the last time you took a course in macroeconomics?

You a keynesian supporter?

I believe the theory is valid although don't support some its implication.
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mongeese
Posts: 5,387
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5/31/2012 5:31:53 PM
Posted: 4 years ago
At 5/31/2012 5:22:48 PM, darkkermit wrote:
At 5/31/2012 5:19:59 PM, mongeese wrote:
DanT, the effect you're recognizing is crowding out, which negates a portion of the increase in aggregate demand caused by lower taxes and increased spending. However, aggregate demand still ultimately increases.

http://www.freeeconhelp.com...

When's the last time you took a course in macroeconomics?

You a keynesian supporter?

No, although that doesn't prevent me from at least understanding the theory.
darkkermit
Posts: 11,204
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5/31/2012 5:37:33 PM
Posted: 4 years ago
At 5/31/2012 5:25:50 PM, FREEDO wrote:
Why don't we just kill a few people and take all their money?

You always give the most brilliant solutions:
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twocupcakes
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5/31/2012 5:54:20 PM
Posted: 4 years ago

Excuse me if I'm wrong.

Debts lower consumer confidence and drag our economy down. So wouldn't this mean we would not get as large of a boom, and eventually start the cycle Dan is talking about?

I don't really think so. Most Americans don't even know what the USA debt is. It does lower lender confidence (people who lend money to the USA), which would result in higher interest rates for the USA. However, the USA is regarded as a very safe investment compared to other countries, and usually gets low interests rates.