At 9/27/13 11:47 PM, AmateurPsychonaut wrote:
Well yes, clearly if the government cuts their spending it will have a greater effect on the debt.
The thing this is what Greece did, and their debt became worse because their revenue declined due to the negative effect on the economy.
Sure, there may have been no effect yet, but what is to happen in the future, as the debt continues to increase and increase? Eventually, someone is going to come calling for their money.
The thing is we are paying it back, the US government remains the only real safe investment. Also keep in mind most of our debt is owned by private individuals and foreign debt only makes up a smaller percentage of it.
I will agree with you in the handling of an economic boom. There are times when taxes need to be raised in an effort to curb inflation. To increase government spending in a recession is, to me, counterproductive.
Increasing government spending either creates jobs or it gives it to people who then spend it which creates jobs.
I respectfully disagree.
The best bet is to follow the Austrian School model of allowing the free market to regulate credit expansion, and allowing it to clear out bad investments accordingly. All political attempts to handle a recession do is lengthen the duration of the recession, and then pass the bill on to the next generation, and the next one, and the next one. Just take a look at the response of the Harding Administration to the Depression of 1920-21 for examples of the successes of the Austrian School.
Most of the depression was under Wilson's term (the President does not take office until January 21st a year after the election, this depression lasted until July so Harding wasn;t the only one responsible). It was a rather special recession regardless caused by a large cut in defense spending and the economy's readjusting to peace time production. Essentially there was a recession because a flood of soldiers came home looking for work, this caused the average wage to spiral downwards causing prices to decreases. When prices are lower producers don't like to sell, but since wages were also pretty low it eventually fixed itself out and people were back on track towards healthy inflation. All Harding did was let Hoover gather a conference of all the leaders of the economy to work together and a huge anti-Austrian school tactic of passing more tariffs. This is vastly different from the Great Depression or the 2008 crisis.
With regards to the current credit problems, the Austrians have been raising red flags and predicting the collapse for years. Keynesians asserted over and over that there was no credit problem, and the politicians followed them instead. Now, here we are.
As far as I know all I've ever heard from the Austrians was "hyperinflation coming soon, invest in gold its price will store the value of your money as its value increases!", well gold kinda failed as the price began to decrease recently and no hyperinflation occurred. As for credit, what exactly do you mean? The Credit Card system works just fine, if you mean the housing crisis well that was another can of worms. That was the Free Market allowing for a few people to get rich while they crash the economy. If I understand it correctly, investment and commercial banks merged, these banks then began to make home loans and then begin to make more loans to riskier and riskier investments all so that they may take over their homes. The banks did this without that many people noticing by getting crediting agencies to label those investments as safe. Since homes were constantly increasing in value this would make the banks net worth go up. Then when the banks took over too many homes they began to get into a huge supply increase, causing their prices to decrease. Right before this the CEO's gave themselves millions of dollars in bonuses in an attempt to siphon as many funds as they could before their banks went in the shitter.
This was coupled with a huge increase in the price of gas which caused stagflation in places like California. In general though saying things like "the Banks will fail", "the economy is going to go into a recession" or "mass unemployment in the future" is like saying "there's going to be a hurricane somewhere on the East Coast" or "there's going to be a massive natural disaster killing many people somewhere in America" or "A President will be elected who people don't like", yah it's going to happen because it tends to happen alot. You can find similar people like Lyndon LaRoche the anti-semitic crazed conspiracy theorist saying things like "the banks will fail".
Now this had little to do with either economic ideology, banks thought that they thrive from taking the assets of people who had in the past declared bankruptcy and make huge profits. The government wasn't spending money in the economy for this to happen nor was it really doing anything (people argue that it was the fact that the government was not enforcing its regulations and shooting down the people who tried to sue these corporations for their violations of these regulations that caused the crisis though but that can go either way).
But this isn't disproving what I said, this isn't the Keynesian school v. Austrian, what I was saying was that Keynesian economics were so good that every modern school of economics is at least influenced by them. I mean obviously not everyone believes everything Keynesian economics espouses, but they do argue conclusions based off of them. By this I mean Supply Side economics are still Keynesian, it's just instead of calling for more government spending they instead call for government support of industries, giving them tax breaks, removing regulations etc. so that they decrease the cost of production and allow them to produce more all the while decreasing inflation. It's hard to explain this without a Aggragate Supply graph but that's outside the point.
