Trump himself has said he is going to "prime the pump" and expand the deficit. It is only Keynesian economic thinking that stops mainstream media and economists from commenting on what an immediate problem this will be for the economy.
The usual take is that the deficit will hurt future generations when the debt will have to be paid off.
But this view is largely inaccurate. To be sure, when a country takes on so much debt that creditors are no longer willing to loan it more money, a debt crisis emerges (See; Greece). But until the debt reaches such crisis levels the debt can grow and grow for a very long time.
It has done so for a very long time in the United States. No one had "paid it off."
But there is an immediate problem with ballooning government debt that is hardly ever mentioned---and this is a problem that exists far before any debt crisis emerges.
It is that money borrowed by the government is money that would otherwise remain in the private sector. This is a major immediate hit to the economy.
Instead of money ending up in the hands of businesses serving consumers, consumers themselves, and entrepreneurs, The money ends up in the political world of special interests, politicians, bureaucrats, cronies and the Deep State.
In other words, the deficit problem is in the here and now as soon as the deficit expands. A growing deficit crowds out and suffocates the private sector immediately, resulting in an immediate lowering of the general standard of living.
-RW
This is the hardest thing for the layman to conceptualize. The seen vs. the unseen. What we all miss out on is the misallocated stolen taxpayer money that gets redirected to the government's centralized planning priorities instead of investing in what the market truly demands.
ReplyDeleteSince the layman can't visualize what the object of those misdirected investments are, they don't understand the unknown intangible investments and improvements on the human condition they've missed out on.
"In other words, the deficit problem is in the here and now as soon as the deficit expands. A growing deficit crowds out and suffocates the private sector immediately, resulting in an immediate lowering of the general standard of living."
ReplyDeleteNormally the "crowding out" notion applies when the money supply or the supply of savings is fixed: more for government means less for the private sector. Interest rates rise and private investment is restricted. But if the Fed is expanding the money supply (when don't they?)that sort of crowding out is limited. Better to argue that if both the government sector and the private sector are borrowing and spending (or investing), prices for resources and capital must rise and THIS "crowds out" some private and presumably productive activity. Indeed, that's exactly the sort of crowding out I expect in the near future.
All government spending crowds out private activity no matter how it's financed, since it deprives the private sector of real resources. Currency debasement is just a tool the state uses to siphon off additional wealth.
DeleteDoes anyone remember when that quisling Allan Greenspan went before Congress in early 2001, and said we were paying the national debt off too quickly? Greenspan said in a series of three videos that were on CSPAN that the national debt which at that time stood at 5.7 trillion dollars, would be paid off by 2010. Allan stated that the Federal Reserve would be forced to purchase equities if the national debt was paid off.
ReplyDeleteI can not say what I think of that man and his well documented lies.