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Edited on Thu Oct-16-03 02:33 AM by BillyBunter
First, it is not my intent to downplay the value of what jafap wrote, or start some kind of debate. What I do want to point out is the problem inherent to having discussions about economics issues with people who might be idealogues -- like the kind of folks who would start blogs to advance a political agenda, for example. Such people will tend to take certain aspects of economic theory, pretend they are beyond dispute, and build arguments based on what could actually be one small corner of economic thinking.
jafap wrote,
The truth in this case is that deficit spending helps an economy grow. It works better if it is done from the spending side (increase spending) rather than the tax side. However, if this tax cut is about economic recovery, why does so much of it happen after 2003?
Now, in actual fact, I tend to agree with this statement; however, not everyone does. The idea is simple: the government increases spending, which creates jobs and demand for goods and services from businesses, who then expand their hiring and purchases of raw materials, which continues to expand the economy, and so on, and so on: it is what is called in economics a 'virtuous circle,' the opposite of the better-known phrase, 'vicious circle.'
There is, however, a school of economic thinking that says this is a fantasy. This school says that, as the deficit goes up, interest rates (borrowing costs) go up as well, as businesses have to compete with the government for capital. This makes it more difficult for businesses to borrow money, and the money they do borrow is more expensive. As a result of this, businesses will sometimes choose not to start certain projects, hire employees, and so on, which is obviously bad for the economy. This theory is based on the concept that governmental deficit spending 'crowds out' business spending, resulting in a net wash, or close to it, for the economy: for every dollar, X, that the government spends as deficit, it 'crowds out' a dollar, Y, that a business would have spent if interest rates were lower as a result of a smaller budget deficit.
These are two extreme positions: the truth is actually some place in between. Thus, (if you are still following me), in fact, for every dollar the government spends, X, it might crowd out, say .75 of a dollar, Y, that business would have spent. But for an idealogue, there is no middle ground: they might act as if crowding out is an absolute phenomenon, and deficit spending is simply stupid. That's what you tend to run into with the Rush Limbaugh style of argumentation; the kind of person who would make a blog devoted to pushing their political philosophy isn't likely to be interested in finding out the crowding out co-efficient, or finding out that it even exists, for that matter. They want to make a point (government spending sucks!), and they will use whatever argument is at hand, honest, correct, or not, to do it. It's for this reason that arguing with such folks is a waste of time. It generally takes a lot of writing (I know this topic pretty well, yet it still took me about 10 minutes to type this out), and when you're done, the person you're arguing with is likely to ignore what you said anyway. It simply isn't an efficient use of your time to argue with the mendacious or the fanatical over complex subject matter.
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