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Post by traveler on Jun 18, 2007 8:58:09 GMT -5
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Post by legaltender on Jun 18, 2007 10:51:17 GMT -5
I never miss an issue. "NCPA's Daily Policy Digest brings you the most wide-ranging public policy findings five times a week at no charge."www.ncpa.org/sub/dpd/index.php?Article_ID=14667You could also conclude the budget surplus of 1998 to 2001 was a bad thing, because it greased the rails for Bush’s irresponsibility. Then someone would bring up 9/11 and Homeland Security. And another would argue deficit reduction, on the other hand, might just end up playing into the hands of the next irresponsible president. Sounding sanguine about deficits shows how much the Right and Left have in common.
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BlackFox
Senior Forumite
Stay thirsty my friends
Posts: 4,496
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Post by BlackFox on Jun 18, 2007 15:42:19 GMT -5
Cool. Let's give everybody a million dollars in next years budget. What the hell. The Chinese will keep lending us money!
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Deleted
Deleted Member
Posts: 0
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Post by Deleted on Jun 18, 2007 20:36:15 GMT -5
Do, uh, "we" get multiple millions for multiple personalities?
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Post by traveler on Jun 21, 2007 10:21:51 GMT -5
One additional point which the article failed to make in the analogy of a $900 credit card charge for someone with a salary of $50,000 is the fact that the $900 credit charge also triggered an increase in income of $1800. So, is it worth borrowing $900 if your immediate annual return is double that amount?
Edited to fix typo.
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Felix
Global Moderator
Tepid One
Happy Morning
Posts: 4,137
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Post by Felix on Jun 22, 2007 9:46:09 GMT -5
Metaphors of course shouldn't be made to conform to RL in too many details, or they lose their force (meta-force, heh), BUT, the point of the deficit is the relation of the deficit to federal spending, not to the expenditures in the economy as a whole.
In addition, a person with a $50 K income who is paying a credit card company interest (yes, I know the legal fictions that allow such companies to call interest 'charges' or 'fees") of $900 annually needs serious credit counseling. So does the Gubmint, although the rates on federal debt instruments are much less than credit card charges, i.e., interest.
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Post by traveler on Jun 22, 2007 11:03:15 GMT -5
Marvell, the illustration for analogy says nothing about $900 in interest. If it did, I would agree. The analogy is in reference to making a $900 charge on a credit card, or incurring $900 of additional debt, in order to produce an increase of income of $1800.
On the other point, most economists, including myself, will disagree with you about the relation of the deficit to the economy. That is really the only relationship that is important. Simply said, the government spent 1.9 percent more than it had planned to spend....but, due to low taxes which has fueled economic growth, the total income of the country, GDP, grew by 3.5 percent. That is the critical point. As a country, government spent 1.9 percent more dollars than anticipated, and incurred that much additional debt, but we as a country increased our wealth by 3.5 percent.
The deficit, as many recent studies show, is a result of increased federal spending, not because we pay too little in taxes. That being said, had the tax cuts not been in place, economic growth would likely have stalled incredibly in 2002 leading us deep into recession which, by definition is negative economic growth. Remember, the economy was headed into recession in 2001 and then 9/11 was laid on top of that, which by itself, accounted for a multi billion dollar hit to the economy.
Considering that, since government spending, driven mostly by mandatory spending plans such as Social Security, Medicare, state formula and block grants, if our economy experienced negative growth of even a percent or two (a relatively mild recession), the federal deficit would have been enormous, relative to the budget but even more importantly, relative to GDP (our total national income), probably in the 6-7 percent range of GDP.
Using a similar analogy and the above example, this would be a comparison in that situation: A person with an income last year of $50000 would have to add $3500 in credit debt but his/her income also would have decreased by 1-2 percent as well, so instead of making $50,000 the next year, he/she would make $49000 and also have an additional debt of $3500.
This is why the relationship to our national income is far more important than the relationship to the federal budget.
Remember, also that government spending is a net drain on the economy and does not contribute to economic growth. This is why it is important to keep government spending as low as possible. The absolute best way to accomplish this , or at least keep downward pressure on policymakers to keep spending down, is also to keep taxes low.
So, again, spending an additional dollar through debt has resulted in an increase in income/wealth of $2. Is that a bad thing? Some people will argue yes it is a bad thing and believe we should never incur debt.
Personally, if I can spend a dollar to make two dollars, I will always make that choice.
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Post by legaltender on Jun 22, 2007 11:57:09 GMT -5
Simply said, the government spent 1.9 percent more than it had planned to spend
The FY 2006 deficit was 1.9 percent of GDP. The government spent $248 billion — or 10 percent — more than it collected that year. What year are you using?
The deficit, as many recent studies show, is a result of increased federal spending, not because we pay too little in taxes.
The deficit is a result of both tax cuts and spending increases approved by Congress since 2001. Some tax cuts pay for themselves, some don't. Iraq war costs and baby boomer retirements intensify budgetary deterioration.
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Post by traveler on Jun 22, 2007 12:19:48 GMT -5
My mistake, LT, that is correct. Thanks for the catch. I was thinking of the relationship to GDP rather than the budget. But, it doesn't really change the point I was making. I should have said that government spent 1.9 percentage more, relative to the GDP, than it had planned.
And I am in no way arguing that the deficit does not need to be reduced and pork barrel spending is not part of the problem. I do believe it needs to be reduced but it should be done by reducing spending programs rather than increasing taxes which, history has proven time and again, slows economic growth.
Edits in italics
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