Ten things debaters should now about econonmics

[Wiseacre]

O wow. I really have to repost most very first post....?

Your wrong about borrowing. For two main reasons.

1. Ok imagine this scenario. Productivity in country A is $1 trillion. Country A borrows $500 billion from country B. Country A uses that $500 to build roads, planes, buildings, etc, etcs. Productivity in country A is now $1.5 trillion. The $500 billion is money that was not in the economy of country A prior to the borrowing.

But now country A has a $500 billion debt, which it must service and pay back. How come you're so quick to ignore the costs of borrowing? Over time, it adds up, no?

Okay, now let's look at another scenario, this time country A borrows $500 billion from country B and invests it in a bunch of Solyndras and Evergreen Solar companies that go bust a year or two later. For the first year when country A got the $500 billion it's productivity goes up $500 billion, great! But now it's a few years later and the investments didn't pan out. Now we're back to $1 trllion in productivity and we also got that $500 billion debt we have to service. Not so hot.

Yes the effect of borrowing is neutral over the long term. But the point is that government can raise production in the short run very easily.

2. Government can actually make investments. The internet is a result of money the military spent to create ARPANET, the first internet. The human genome project in the 90's, the basis of amazing new disease treatments, was funded almost entirely by the US government. Government first harnessed nuclear power. So now that we know government can make investments, lets think about how it borrows.


I wouldn't say the gov'ts track record on investments is all that hot. Been awhile since they've hit a homerun.

Thats more of an opinion. I would call the internet and mapping the human genome historic investments. Very recent too, within about the last 20 years.

The government borrows money from the bond market. The amount of interest the government pays on the bonds it issues is proportional to how risky they are. The government currently pays very low interest rates on money it borrows, historical lows in fact. So think about an investors options. He can invest his money in a treasury bond for 10 years and get a 1.86% return, or he could invest in equities and realize returns maybe even 10% in a single year. The only reason an investor would choose a very low yielding bond over a high yielding stock is if he thought the stock was risky. So the fact that there are even buyers for treasuries at an interest rate of 1.86% indicates that those investors are unwilling to risk their money in more riskier activities like venture capital.

So if government borrowing results in meaningful investment, then that is a net positive. Its money spent on production, that would have otherwise been saved. The question is if government can spend in a way that money meaningfully, that those rick-averse bond holders would not have spent it on. I would argue that its very possible.


I wouldn't.

Someone investing money any security that will only yield 1.86% over 10 years is someone who isnt going to invest in much else. If the government hires a single person they have already allocated the money better than the bond-holder would have, because the bond-holder most likely wouldnt have invested it at all if the treasury hadnt been there as a safe haven asset.

And remember that number 2 only really has to apply to domestic bond holders. Any bonds issued to non-domestic holders are flows of capital into this country, at least temporarily.

Debt is debt dude. Foreign debt has to be serviced just the same, and rolled over. Did you see the interest rates that Italy, GERMANY, France, and other EU countries had to pay lately for their soverign debt bonds? Flows of capital coming in can dry up pretty fast.

Firstly, my point was just to show that government is capable of net in-flows of capital in the short term. Secondly, you have no idea about europe even in the slightest bit.

Italy, Germany, and France are all fiscally sound nations; they are still solvent. Italy is paying a price for not having a lender of last resort, and france and germany are seeing their yields rise because investors are determining what interest rate they would need if the euro disappeared.

LOL, you sound like Barney Frank a few weeks before the crap hit the fan in 2008. And BTW, aren't you being a bit presumptious about what I know? Do you want a serious discussion or a pissing contest? I think I'm done here.

 

[cbirch2]

Debt is debt dude. Foreign debt has to be serviced just the same, and rolled over. Did you see the interest rates that Italy, GERMANY, France, and other EU countries had to pay lately for their soverign debt bonds? Flows of capital coming in can dry up pretty fast.

Firstly, my point was just to show that government is capable of net in-flows of capital in the short term. Secondly, you have no idea about europe even in the slightest bit.

Italy, Germany, and France are all fiscally sound nations; they are still solvent. Italy is paying a price for not having a lender of last resort, and france and germany are seeing their yields rise because investors are determining what interest rate they would need if the euro disappeared.

LOL, you sound like Barney Frank a few weeks before the crap hit the fan in 2008. And BTW, aren't you being a bit presumptious about what I know? Do you want a serious discussion or a pissing contest? I think I'm done here.

Well since you havent shown me that you know anything, i dont assume you do.

 

[Dragon]

The supply-side theory behind saying that government investment in the economy is bad rests on the following assumptions:

1) Money that is left in private hand will be invested in something beneficial to society; and

2) Private industry always invests more efficiently than the government.

Both of these assumptions are false.

Money left in private hands will be invested in, at best, only one sort of activity that is beneficial to society: the production of goods and services, which creates both jobs for workers and material benefit for consumers. But this will be done only to the extent that it is profitable, which means only to the extent that the goods/services can be sold, which means only to the extent that consumer demand justifies making the investment. Capital above the amount so justified is instead invested in various rent-seeking, bubble-blowing, and economic strip-mining activities that are of no net benefit to the economy or to society.

As long as the private sector is left with enough capital to invest in consumer-justified production of goods and services, the government can safely take any remaining capital in taxes without damaging the economy.

Private business -- or at any rate, decentralized decision-makers -- do one and only one thing more efficiently than the government, and that is respond to shifting consumer demand. It's true that a government bureau is inherently too inflexible to do that as well as multiple independent decision-makers such as private business owners. But any other kind of investment can be done more efficiently by the government. The government does not waste any revenue on profits, and can pursue the public good without any conflicting motives, as long as the market for the goods/services offered is inflexible and unchanging, or else as long as it changes only with government decisions themselves.

We would be better off, for example, if military contractors were nationalized rather than private for-profit businesses. This would save money on military equipment, and remove the corrupting influence of defense contractors bidding for contracts and lobbying to keep military expenditures high. The same goes for construction work on infrastructure, something that is routinely paid for by governments or not at all. And of course, the health-insurance industry is also something that would operate more efficiently if it were government owned and run than it does in private hands.

 

[EdwardBaiamonte]

So no, keynes is not dead.

Keynes is of course dead since he was all about magical liberal government manipulation when in reality no one individual even knows how to make a pin or pencil, let alone manipulate an entire economy. Further, Friedman and Keynes were arch enemies as regards broad principles precisely because Keynes was a huge liberal maniac who was positive he could manipulate the economy for any result he wanted.

 

[EdwardBaiamonte]

Capital above the amount so justified is instead invested in various rent-seeking, bubble-blowing, and economic strip-mining activities that are of no net benefit to the economy or to society.

how does one invest capital , and earn a return, if there is no net benefit?

 

[EdwardBaiamonte]

The government does not waste any revenue on profits,

If there is no profit there is no way to no way to compare activities to determine which is being conducted efficiently. Now you know how China literally saved millions of lives by switching to a profit based system. Liberals object to capitalism largely because they lack the intelligence to understand it.