Posted on 08/06/2011 7:38:07 AM PDT by RockinRight
OK, just go to the link. It's mostly based on Paul Krugman's data (yeah, I know), so its suspect, but the jist of it is that if the government runs a surplus, it's on the back of the private sector, who will have a negative savings and investment rate as a result.
Is this true, and, if so, is it possible to have a surplus and shrinking national debt with a growing economy that saves money?
Hoping someone who understands this better than me can explain it.
Something that may help explain some of it;
The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks
By Christina D. Romer and David H. Romer
http://emlab.berkeley.edu/users/dromer/papers/RomerandRomerAERJune2010.pdf
“Our baseline specification implies that an exogenous tax increase of 1% of GDP lowers real GDP by almost 3%”
Not as I understand it. You can’t have a surplus if you have debt. You can have budgets that are surplus like the early 2000’s but we still had debt.
I can have money left over at the end of the month but if I have debt such as the house payment and the car payment, I certainly can’t say I have a surplus. I have covered the expenses but I am not out of debt.
If the burden on the private sector is not increased through higher taxes and the surplus comes yearly from spending less than you take in then only in the narrowest sense is the surplus “on the backs of the private sector”. Because its their taxes that fuel the government.
IMHO
The Bush deficits saved the world!?? Who knew?
It seems that the reasoning in this article is based on the same idea that not every country in the world can have a trade surplus, some have to have a trade deficit based on simple rules of accounting.
Of course, in the late 90s when the surpluses started, the economy was pretty good, and I think personal savings rates were higher than they are now, or, at least higher than they were in 2007/2008.
Sure you can. One is a effectively a measure of direction, the other a measure of location. IMO, government SHOULDN'T have a surplus because they should use the "extra" money to pay down debt, but it is possible.
You can have budgets that are surplus like the early 2000’s
Except that we haven't had a surplus since the mid-1950's. They predicted surpluses around 2000, as long as the dot com boom tax revenues held up, didn't account for the money being borrowed from SSI, and didn't count interest on debt.
Business-to-business spending (which is a larger figure than consumer spending) is ignored and consumer saving is considered "leakage" from the spending stream and therefore bad for what they consider to be economic growth, i.e., more consumer spending.
They are confused about what they call the difference between saving and investment (there really isn't any) and very worried about so-called hoarding which is virtually nonexistent. Their biggest fear, though, is that the dollar might actually rise in purchasing power -- a phenomenon they call "deflation". They're worried silly over that.
In short, don't ever read anything with the words "Keynes" or "Krugman" in it. It won't make sense simply because it doesn't. I'm convinced it doesn't to them either, but they just can't admit it.
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