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- USFG deficits increase private investment-debt allows for crowding in effect
- Deficit Spending spurs private sector wealth
Aff—Turn—Stimulus GoodDeficit Spending stimulate the economy-Empirics proveAmy 7(Douglas, Professor of Politics at Mount Holyoke College, The Deficit Scare: Myth vs. Reality”, Government is good, http://www.governmentisgood.com/articles.php?aid=30&p=3) Conservatives are also wrong when they argue that deficit spending and a large national debt will inevitably undermine economic growth. To see why, we need to simply look back at times when we have run up large deficits and increased the national debt. The best example is World War II when the national debt soared to 120% of GDP – nearly twice the size of today’s debt. This spending not only got us out of the Great Depression but set the stage for a prolonged period of sustained economic growth in the 50s and 60s. Massive investments were made in science and technology, American workers were re-trained and re-employed, private investment was encouraged, and consumer purchasing power was increased. That 25-year post-war economic boom, with the most rapid increase in living standards in our history, would not have happened without the stimulus of all this deficit spending. History also shows that balancing the budget does not necessarily ensure a spurt of economic growth. In fact, in most periods when we have not had deficits, such as the 1990s, this was followed by an economic recession.6 So there is clearly little historical evidence to show that deficits and debt inevitably hurt economic growth. But what about the conservative argument that public spending “crowds out” private investment, to the detriment of economic growth? They maintain that if the government is borrowing a lot money, that is money that the private sector cannot invest to increase its production and productivity. This has to undermine economic growth, right? The answer is “No, not necessarily.” As most economists point out, government spending also has a “crowding in” effect that actually encourages more private investment. That is because much of the money that the government borrows and spends goes to the private sector. Private industry must then prepare to provide the various goods and services demanded by the government – such as weapons systems, green energy systems, new roads and schools, etc. In order to do this, these businesses must invest in new production facilities and greater productivity. This “crowding in” effect thus helps to mitigate any negative effects that public borrowing has on the private sector by indirectly encouraging more private investment and business growth. Investing in America’s Future But there is even a more important issue here – one often brought up by Joseph Stiglitz, a Nobel Prize winning economist. He argues that deficit spending, when it is done right, can be a major stimulus to economic growth and actually lower long term government debt.7 When economic growth is back on healthy terms, this leads to increased tax revenues, which eventually lessen the need for government to borrow money. For Stiglitz, the key is to spend that deficit money on things like education, technology, and infrastructure that lay the groundwork for future economic expansion. We will not remain competitive with other countries for long if we don’t have decent roads, efficient airports, adequate clean water supplies, and sufficient school facilities. Recently the American Society of Civil Engineers estimated that over the next five years it would take at least $1.6 trillion to bring our national infrastructure into an acceptable state. These are huge investments that the private sector is unwilling to make. Going into debt to pay for these things is a good investment in our collective futures. We also need government to invest in emerging technologies that are vital to our economic prospects. We are falling behind many other countries in our public investments in high-speed rail, modern telecommunications technology, and an advanced electricity grid. Another area that will drive economic expansion in the future is green technology and alternative energy. Left to itself, the market has not been leading us in that direction. Several other countries, including China and Germany, have been spending billions in public funds to encourage consumers and industry to jump on the green technology bandwagon, and they are already beginning to reap the economic rewards of this strategy. We are trailing badly in this vital economic area and we are unlikely to catch up without substantial investments by our government. USFG deficits increase private investment-debt allows for crowding in effectThoma 11 (Mark, Mark Allen Thoma is a macroeconomist and econometrician and a Professor of Economics at the Department of Economics of the University of Oregon, “Government Deficits: The Good, the Bad, and the Ugly”, May 22 2011, http://www.cbsnews.com/news/government-deficits-the-good-the-bad-and-the-ugly/) The first thing to recognize is that deficits are not always bad. When the economy goes into recession, deficit spending through tax cuts or the purchase of goods and services by the government can stop the downward spiral and help to turn the economy back around. Thus, deficits can help us to stabilize the economy. In addition, as the economy improves due to the deficit spending the outlook for businesses also improves, and this can lead to increased investment, an effect known as crowding in. Deficits also allow us to purchase infrastructure and spread the bills across time similar to the way households finance the purchase of a car or house, or the way local governments finance schools with bond issues. This allows us to purchase infrastructure that we might not be able to afford if it had to be financed all at once (this can also force future generations who benefit from the spending to share the construction costs). Finally, deficits can be used to finance wars, but whether this is a good or a bad depends upon your view of whether the war is just. So let's turn to the bad next. Deficit Spending spurs private sector wealthHarvey 12 (John, American Professor of Economics at Texas Christian University. Harvey, a post-Keynesian economist, considered a heterodox school of thought, publishes accessible editorials and content to the field's study, Forbes, 7/18/2012, http://www.forbes.com/sites/johntharvey/2012/07/18/why-you-should-love-government-deficits/) What the above means is this: government deficits create private sector wealth, while government surpluses drain it. There is no trickery here. When the federal government spends in deficit, it does so by putting financial assets, usually in the form of Treasury bills, in the hands of the public; when it spends in surplus, the net quantity of Treasury bills held by the public declines. Thus, federal government deficits not only create the extra demand necessary when the economy is at less than full employment (which is what I have argued many times in this blog; please see for example Why You Should Learn to Love the Deficit: Federal Budget Fallacies and The Horror Movie That Is Fiscal Responsibility) but it puts money in the bank, too. And the US could never be forced to default on the debt because it is denominated in dollars (see Who Should Really Be Downgraded, the USA or S&P?, Downgrade Part II: More Evidence of the Ignorance of S&P, or Alan Greenspan). Furthermore, this is exceedingly unlikely to be inflationary under current conditions–indeed, it has not been (for more on what does and does not cause inflation, see here: Money Growth Does Not Cause Inflation and What Actually Causes Inflation). So, next time you hear Obama or Romney talking about reducing the deficit, be sure you put that into the proper context. They are talking about draining your savings account! That’s hardly a sound policy when we have over 12 million unemployed. Directory: wp-content -> uploads -> 2014 2014 -> For want of a nail 2014 -> Stop Militarizing Law Enforcement Act of 2014 2014 -> Ihbb asian Championships 2014 middle school bowl Round 4 First Quarter 2014 -> Ihbb european Championships 2014 Bowl Round 4 First Quarter 2014 -> International History Bee and Bowl 2013-14 Asian Division Question Set Bowl Round Six 2014 -> United states patent and trademark office 2014 -> Coffs harbour eisteddfod vocal syllabus 2014 -> Listen News Programs Schedule pledge now 2014 -> Slow club announce third album complete surrender Download 0.74 Mb. Share with your friends:
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