Why You Should Love Government Deficits

[Dovahkiin]

I'm sure members from both sides of the spectrum are reading this and shaking their heads. Give it a read and respond with your thoughts. I will not reply to silly statements that add nothing of substance.
Why You Should Love Government Deficits

Government deficits, by definition, create private sector wealth, while surpluses drain it. It’s simple accounting.

You can attempt to disagree with this all you want, I was once like most people, believing that deficits are always a bad thing. I changed though, and I am going to show you why, with the help of John Harvey's nice article.

To understand this, start by imagining a world in which there is no government and no foreign countries. All economic activity in the US would take place domestically and be carried out by our private sector firms and households. As a group, they would earn what they spent. If all American firms and households spent $1000, then–because one of them was standing on the other side of the cash register for each of these transactions–American firms and households would earn $1000. It is logically impossible for them, as a group (though not as individuals), to spend more or less than what they earned–the values must be identical because it’s really double-entry bookkeeping. Every transaction that takes place is both spending (for the person buying something) and income (for the person selling something).
Now create a government. It is only at this point that it becomes possible for one sector (private or government) to spend more than they earned or earn more than they spent. For example, say over its first year in existence, the government takes in $100 in tax revenues but doesn’t spend any of it.

You might have something like this:
Government Budget Surplus and Private Sector Deficit

Private Government Total
Income $1000 $100 $1100
Spending $1100 $0 $1100
Balance -$100 +$100 $0

In this case, the private sector spent $1000 on the goods and services it created (which is what created the $1000 in income for them), plus they spent $100 for taxes. The government, meanwhile, earned $100 in income (via taxes), but spent nothing. The government budget is thus is surplus, while the private sector has gone into debt–by the exact same amount, of course. It is impossible for it to work out any other way. The balances must add to zero because, as the last column indicates, total spending must equal total income in a closed system. And with the government in surplus, the private sector goes into debt.

Look at what happens when the government spends in deficit:
Government Budget Deficit and Private Sector Surplus
Private Government Total
Income $1100 $0 $1100
Spending $1000 $100 $1100
Balance +$100 -$100 $0

Now it is the private sector that gets the surplus! In this scenario, the government has collected no taxes, but spent $100 on goods and services produced by the private sector. This creates enough income for the private sector for them to actually save money rather than go into debt.
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).

Consider all of this with an open mind.

 

[The Great Goose]

Very informative.

 

[Dovahkiin]

Very informative.

If you're interested in learning more about modern monetary theory, feel free to ask questions.

 

[Dovahkiin]

Think big deficits cause recessions
Relevant to the OP, and some irony for you guys and girls:

Meanwhile, the longest period without a recession was from November, 1982 to July, 1990.

The Republicans who now praise that "Reagan boom" never refer to the deficits or blame the Democratic Congress, while Democrats repeatedly attack "Reagan deficits." Neither side seems aware that a steep rise in deficits began in 1981, preceding the "boom" by almost two years.

When deficit reductions finally began in 1987, they paved the way for the next recession. Political irony is everywhere.

I love showing people this.

 

[ScienceRocks]

Where is all this money going? It isn't going to renew our infrastructure that is for damn sure as we're spending the least of any year per capita since the 80's, it isn't going to science, it isn't going to r&d and it sure as fuck isn't going to education.

You want to know where most of it is caused by?
-5 trillion dollars from our goddamn wars as trump pointed out!
-massive fucking tax breaks by the cock sucking treasonous rich after they fucked us by outsourcing everything.

We're getting next to shit for all this money and yet we have a deficit. Sorry, but our government is corrupt! It needs a good kick in the ass that only Bernie sanders can give it.