Ronn! Blankenship wrote: > Okay. Disregard the flawed analogy, then, since all analogies are > flawed to one extent or another. Government living beyond its means > has worked so well, might living within its means perhaps be worth > trying? If not, why not? (Serious questions.) > And a serious question deserves a serious answer. I will do my best.
Treated in isolation, the question of the balance of spending and revenues is not particularly relevant. For instance, I have a mortgage and a car loan. I think that makes me fairly common, from what I can tell, but does it indicate that I am living beyond my means? In one sense, clearly yes, since I did not save up and pay cash for those things. But neither I nor the bank thought that was irresponsible. Do you? I think most people would evaluate that type of borrowing based on my ability to repay the loan. My car loan has a little over a year to run, my mortgage more like 20 years, but my prospects for repaying both loans in full and having a useful asset are quite good. When I was a professor of economics, I would often find that my students had taken out loans to get their college degree. Such loans were not usually regarded as profligate or irresponsible. In some cases they might have been if analyzed carefully, but in any event the analysis would have centered on the present value of future incremental income earned by having the degree, in comparison to the debt. It requires a little care to do the calculation, but it is not rocket science. If you find that the degree costs you $30,000 in debt, and only adds $1000 per year to your income, it is not a good investment, but if it can $5,000 per year it is an excellent investment. Now to the issue of government spending and revenues. When the government spends more money than it takes in as revenue, it actually has two choices. One is to essentially print money, which increases the stock of money in the economy. This tends to sound to many people like a very bad thing, but even that is not cut-and-dried. The relationship between the growth rate of real GDP and the growth rate of the money stock shows up as price changes. To have price stability (generally a good idea in theory), you would need to have the money stock grow at the same rate as "output", i.e., real GDP. If the money stock grows more quickly, you will get inflation, if less quickly, deflation. Neither is good, and stability is in general the best way to go. So if you need to increase spending, and you cannot print enough money without causing inflation, the other alternative is to borrow the money. Governments do this by going to the capital market and selling bonds that pay interest. Now whether or not this is a good thing can get somewhat complicated. So let's just look at one factor to begin with, the one I have been leading up to. If a government borrows money, it will need to repay that money, with interest, at a future date. Will this be a problem? It would depend on how the money that was borrowed is put to use. If it is squandered on things that will not increase the future level of GDP, and hence the future level of government revenues, that might indeed be a problem for those who will need to repay the loans. They will in effect have an increased burden of debt without the increased level of income to pay it off comfortably. I think the vast majority of economists would agree that the deficits run up by Bush fall into this category. But in the situation we are in now, I think many economists would support borrowing to be used for productive purposes. The experience of the 1930s is still quite relevant. The U.S. economy remained mired in Depression as long as the government made balancing the budget the main objective (which was true mostly from 1929-1939). We didn't really begin economic recovery until the war spending kicked in, which was all deficit-financed. In other words, the main lesson of the last 8 years is not that unbalanced budgets are always wrong, but that putting Republicans in charge of the government is always bad for just about anything related to the economy. Regards, -- Kevin B. O'Brien TANSTAAFL [EMAIL PROTECTED] Linux User #333216 "God made an idiot for practice. Then He made a school board." -- Mark Twain _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
