On the federal governments' ability to create jobs....

Discussion in 'Politics' started by cbirch2, Aug 11, 2011.

  1. cbirch2
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    cbirch2 Active Member

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    It seems to me the tea party has a somewhat idealistically driven view of economics and governances. Their plan sounds great, cut spending and decrease the deficit. But in reality things are not that simple and their plan could in fact have the opposite effect as the one intended. The view is generally that government cannot create jobs. As any economist will tell you, this view is a little deceitful.

    In a classical economy the government collects tax revenue and its spendings have to equal its revenues. In this model, if you cut spending you could correspondingly cut taxes and have private sector growth by returning money to the private economy. But the reality of the US economy is in a slightly less fortunate situation. Our government spending on a yearly basis is funded not only by tax revenue, but by our bond holders. The treasury issues bonds, people buy them, and we pay them back at interest later. In the long run the tax payer pays it all, so no one is arguing that debt is a good thing per se.

    This money from bond holders could go to anything from paying federal workers/soldiers, paying SS or medicare, or providing income for some consumer. So when you simply cut back this spending, no money comes back into our economy. The workers laid off are simply laid off, and the money that was used to pay their salary is simply gone from our economy.

    So in essence a certain fraction of the employed people, as well as a certain fraction of consumer purchasing power and manufacturing, is funded by federal borrowing. This situation is extremely unfortunate, but none-the-less true.

    This is the heart of the problem. The tea party sees government as useless, and it may be in most ways. But there is no acceptance of the facts. If you cease issuing bonds to borrow money, federal employees are fired, and purchasing power goes down significantly. The private sector is not in a position absorb these jobs, so the unemployment rate will go up and purchasing will go down. If purchasing goes down the private sector will be even worse off.

    But tea partiers seems to believe cutting spending is going to have no effect on the economy. Look at recent months. Decently strong private sector job growth in recent months has been partially offset by massive public sector layoffs.

    So i guess the essence of what im saying is this: If the tea party is going to claim to be on sound economic ground, they must acknowledge that cuts to government spending will have some detrimental impact on the US economy in the short term

    Thats not to say cuts shouldnt happen, they definitely should. But they need to be calculated and precise; and hopefully more severe once the private sector economy has picked back up, rather than now when it's vulnerable.

    Remember that a countries creditworthiness is judged not simply by its debt, but by its debt to GDP ratio. For example, we can have a larger debt than spain can because our economy is bigger and we can pay it off faster. So if you cut benefits to social security and medicare, layoff public workers, and cease government purchases from private businesses you will decrease GDP. If you decrease GDP by too much, it may not matter that you cut spending. Debt : GDP may stay the same, and then you havent accomplished anything.

    These are just my thoughts. Agree or rant....?
     

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