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View Diary: Ryan's Follies: Oy! Taxes, Decline, and Austerity (9 comments)

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  •  The Great Depression (3+ / 0-)
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    Azazello, luckylizard, Calgacus

    seemed to bring out the most government spending - known as the Works Progress Administration. Bridges, roads, infrastructure and other programs were started and paid for by the government to get people working. It helped.

    Unfortunately, it seems it takes a major war (WWII) to actually end the depression, but again, that was governmental spending (war materiel, transportation, etc.)

    I could do without the war, but wouldn't we all be better off if the government started putting people to work at such important things as making sure bridges don't collapse from poor construction/poor maintenance, that roads don't deteriorate into a succession of potholes (or worse) or that sewers don't break and pollute our drinking water.

    That sounds like something that would be worth going into debt over. During my Econ/Poli Sci classes, it seems that the appropriate model was - debt spending during bad times, savings during good times. I guess that model  isn't approved of these days.

    I reject your reality and substitute my own - Adam Savage

    by woolibaar on Sun Aug 12, 2012 at 06:51:05 PM PDT

    •  Sure! (1+ / 0-)
      Recommended by:
      Calgacus
      I could do without the war, but wouldn't we all be better off if the government started putting people to work at such important things as making sure bridges don't collapse from poor construction/poor maintenance, that roads don't deteriorate into a succession of potholes (or worse) or that sewers don't break and pollute our drinking water.
      Sure it would. And it doesn't take a war to get full recovery either; but it does take a government that will deficit spend whatever it takes to get full employment, even if there's no war. We've never had such a Government. Even FDR backed off in 1937 and tried to please the budget balancers. It cost him dearly in terms of lost ground during the depression. When he saw the result he reversed course; but the damage was done.

      Anyway the Keynesian formula of spend in bad times, save in good ones is much too simple. First, it isn't meaningful to say that the federal Government can save money. The reality is that it creates net financial assets by deficit spending and destroys then by taxing. So when it runs a surplus, it's destroying net financial assets.

      Nor is it as simple as good times and bad times. For example, The US economy could be roaring and there could be full employment, but if people are saving 6% of GDP and importing 4% of GDP more than they're exporting, then to make up for that demand leakage and get full employment the Government will have to run a deficit of 10% of GDP, because if it doesn't, then there will be a contraction creating an output gap and unemployment will appear. This is just a consequence of the sectoral financial balances model (follow the link above).

      Now this logic will apply in every year these conditions apply, so that it will be appropriate for the US to run 10% forever so long as these conditions apply. In fact, the only time it will be appropriate to run a surplus is when savings as a percentage of GDP, a demand leakage, are exceeded by net exports, a demand contribution. Something that hasn't happened in a very, very long time in the US. That's why the Clinton surpluses were damaging to the economy and caused the recession at the very end of his term.

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