CDZ How important is spending and debt in government?

Discussion in 'Clean Debate Zone' started by Foxfyre, Mar 25, 2016.

  1. Foxfyre
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    Foxfyre Eternal optimist Gold Supporting Member Supporting Member

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    Both sides accuse the other.

    The Democrats accuse the Republicans of irresponsibly cutting taxes and spending but massively increasing the national debt.

    The Republicans accuse the Democrats of irresponsibly increasing taxes and spending and massively increasing the national debt.

    So which is it? Does cutting taxes and spending increase the debt? Or does more taxes and spending increase the debt?

    And what is most important? Spending on what is considered important? Or the debt?

    How much national debt can we stand?

    And what, if anything, should be done about it? Can be done about it?
     
  2. Foxfyre
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    Foxfyre Eternal optimist Gold Supporting Member Supporting Member

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  3. Dovahkiin
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    Dovahkiin Silver Member

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    You are assuming that a nation sovereign in its own currency with no foreign debts and without a pegged currency is going to die because of treasury securities. How much national debt can we stand? Understand what the "national debt" actually is first. Oh, and Look up Japan's debt to GDP.
     
  4. Dovahkiin
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    Dovahkiin Silver Member

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    When we "spend" on the debt, we are simply crediting accounts. Most of the time, the money created from thin air used to credit the accounts of those who have treasury securities never enters the economy at all. Keep in mind this is all in us dollars.
     
  5. Foxfyre
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    Foxfyre Eternal optimist Gold Supporting Member Supporting Member

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    It is true that only about $5 trillion or so of our $19+ trillion dollar debt, growing by mega millions every single day, is owed to other countries. It is also true that the government can print whatever money it needs to print to pay down any portion of the debt. It doesn't do that because each dollar it creates out of thin air results in a decrease in value of the money already printed. Print enough dollars out of thin air and the value of our money becomes critically devalued and/or even worthless. And then nobody is willing to accept it so the economy collapses, nobody is willing to lend us money that would be paid paid in worthless dollars, and we become a third world country. Greece, Italy et al are relatively small countries that the European Union was able to prop up sufficiently to prevent a major EU recession.

    Who is there to prop up the USA when other countries are no longer willing to lend, there is no way to pay owed entitlements and/or the value of the bonds etc. sold to our own people, and it all ultimately collapses under the weight of its own debt?
     
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  6. 320 Years of History
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    320 Years of History Gold Member

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    Macroeconomists are divided on the matter of debt and the role it plays in an economy and what be impacts of that role. There are strong arguments on each side of the matter. The questions posed in the OP, however, are not new; they are the very questions asked in every basic economics class.

    I'm not going to discuss the answer personally; plenty of others have already done so. Read the linked paper, "Government Debt," to get a comprehensive view of both sides of the topic and form whatever opinion most appeals to you.

    Like everyone who thinks about politics and economics, I'm required sooner or later to take a position about the roles and impact of government debt. Because there is no clear consensus among economists, and because I have not invented any macroeconomic models of my own, nor have I the training needed to do so, and because I see the merit in both sides of the argument, I find it more useful to choose a stance based on what I know to be the body of consequences wrought by the nation's assuming greater and lesser amounts of debt and debt spending.

    Some of the things I keep in mind when considering the matter are:
    • The U.S. government is not an individual; therefore, debt assumed by the government plays a very different role than debt assumed by a person or company. First and foremost, unlike me and my firm, the government can print money to pay its debts. While it cannot do that with abandon, it can do it to some extent before the nation's creditors will deem it unacceptable. That a nation can do that, no matter how detrimental it may be to actually do that, is never far from the minds of creditors.


    • By the same token some of the same rules that apply to you and me also apply to the government. For example, a dollar now is worth more than a dollar in the future; thus if the sum one must pay is fixed (either by interest rate or in total), it makes financial (as contrasted with economic) sense to pay for "whatever" we obtain/use/do now with dollars earned/collected in the future. Put another way, debt spending is what maximizes the taxpayers' money.
    • Much of what the government buys doesn't have an immediate empirically measureable value. That's hugely different from what you, I and companies buy. For example, when a company spends X dollars to buy a piece of equipment, it can use the price of the equipment along with the annual revenue streams, interest on invested cash, debt on borrowings, etc. to calculate how much is too much to spend on the item, what is a good price to seek in negotiations, etc. The government, on the other hand, cannot necessarily so "cleanly" quantify the return on its expenditures.
    In light of the preceding remarks, the nature and extent of debt the U.S. carries, or more precisely, what I think about it, has more to do with whether we need to carry/assume the debt we do in order to accomplish the things I feel we as a nation should or should not accomplish. Consequently, what I think about the national debt and its size does not depend purely on economic principles.

    Do I think the current levels of debt the U.S. carries are problem today or will be in the next lustrum? Largely no. I will think it's a problem when the U.S. economy, and therefore revenue, actually stops growing. I think of it much as I consider financial position. If one earns $100K/year after taxes, how much debt can you reasonably handle? Could you afford a 30 year mortgage on a $600K home (assuming interest rates comparable to what the U.S. pays in its debt), for example? Clearly one can. That's another way in which the U.S.' debt is similar to yours or mine. The national debt is ~$18 trillion which is about six times the government's income.

    Let's take a simple example, one I'm using solely for the sake of the availability of data and to illustrate the nature of "hard to quantify" returns: food stamps. For each tax dollar spend on providing food stamps, the return to the U.S. economy is ~$1.70. Given that, does it make more sense to spend one's own money today or borrow someone else's money in order to provide a food stamp? It doesn't take a financial wizard to realize that even after paying interest on a borrowed dollar to buy a food stamp, that one is going to have a net gain not a net loss. Quite simply, there is no other use of that same dollar that can obtain guaranteed returns of ~70% or anything close to it. Thus it makes more sense to spend the dollar on a food stamp than on something else.

    Of course, with food stamps, there's a limit. If "everyone" stops working, then nobody can be given a food stamp. However, as long as the proportion of the population needing food stamps is small enough (i.e., the economy is growing, which is not what it'd do if "everyone" needed a food stamp), the government spending a dollar on a food stamp provides the best long term return on the use of that dollar. Therefore, if a food stamp were the only thing causing the country to borrow money, it'd make more sense to borrow the money and give the food stamp than it would to not so do.

    So you see, my answer given above, that I'm okay with the debt as it and the nation stand now and for the foreseeable future, is what I think now. I may think something different a lustrum or decade from now. There is no single/simple answer that is the "right" answer for all time.
     
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  7. Votto
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    Votto Gold Member

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    As the Prog idol Dick Cheney once said, "Reagan proved that deficits don't matter."
     
  8. Foxfyre
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    Foxfyre Eternal optimist Gold Supporting Member Supporting Member

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    They don't matter so long as there are means to eliminate them. When they get to the point that they create debt that there is no means to eliminate, they are a problem.
     
  9. Foxfyre
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    Foxfyre Eternal optimist Gold Supporting Member Supporting Member

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    Why is the National Debt a Problem?
    1. The interest paid per year increases and could eventually be more than all other spending. It drains our wealth and sends a large percentage of it overseas. Eventually you are only able to pay the interest and nothing else. This means bankruptcy.
    2. Interest on the debt (as of 2010) was larger than all but a handful of programs, over $400 Billion. Just think of what you could do with your share of that money.
    3. We will no longer control our own destiny. The owners of the debt will.
    4. The interest alone has been bigger than what is spent on Medicare.
    5. Lower growth. Fewer Jobs. Lower salaries. It hurts everyone now, and future generations much more through lower growth compounded over decades.
    6. Compounding. Debt compounded becomes extremely large, very quickly.
    7. It weakens the dollar when it becomes excessive.
    8. [New for 2010] If interest rates rise in general, they will increase the United States' interest payments dramatically.
    9. On January 20, 2001, the debt was $5.7 trillion. Eight years later, January 2009, it was $10.6 trillion, an increase of $4.9 trillion, or 86 percent. In July 2010 the national debt stood $13.2 trillion, an increase of $2.6 trillion or 25 percent - in 18 months since January 2009. In May 2011, the debt stood at $14.3 Trillion, a $3.7 trillion increase in 28 months.
    Why Is the National Debt a Problem?

    The national debt passed $19 trillion last month and will be well over $20 trillion when Obama leaves office.

    And nobody really cares about it? None of the Presidential candidates still standing seem to be worried about it.
     
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  10. percysunshine
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    percysunshine Gold Member

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