OMNILIBRIUM
  Rational Discussion of Controversial Topics
Economics Education Ethics Foreign Policy Government History Politics Religion Science


Should government stimulate the economy through deficit spending?

         27 April 2015 07:21 AM




Do you find this topic interesting?
      
-2 -1 0 +1 +2
 

                  Answer                   




Answer category:  All answers yes no unsure/other
Recommended for You Optimates Populares Centrists

Show comments            Sort by        



melian 1 May 2015 04:28 AM
66%

In democracy, governments have little choice in this matter. In the long term, increasing national debt may result in economic disaster, but sacrificing present for the future is a sure way to electoral defeat.


stars0
Reply


julia1 1 May 2015 09:59 AM
65%

Not quite. After an economic disaster does happen, for awhile the voters will be much more cautions about this (until a new generation that does not remember the economic crisis grows up, and everything starts over again).

stars0
Reply



antat 1 May 2015 02:32 PM
66%

I'm not sure of the intent of the question. "Stimulate" "economy" and "deficit spending" have been most recently discussed in the the US in the context of austerity vs. spending in times of a recession. I assume that's true in Europe (Germany, Greece, etc). Since a controversial tactic of "quantitative easing" (printing more currency and injecting that money into the economy) is a different thing than "deficit spending", let's stick with the initial question with some rephrasing:

Under what circumstances, if any, will a national government spending more than its annual revenue be good for that nation's economy over the course of the next decade?

To convince me of a position, either way, I would consider:
-Examples of national economies in different stages of growth (growing, declining) whose governments have spent more or less than their revenues.
-A reasoned opinion of an economist with a) an understanding of rationalism and b)verifiable economist credentials

My initial belief is that deficit spending can help an economy in recession. And when not in recession, the government should be paying back down the debt incurred. I suspect keep budgets balanced over the span of 10 years would be a good thing to do. I am not supporting this position with any evidence and don't expect anyone to take it as such.


stars0
Reply


melian 1 May 2015 03:01 PM
68%

Examples of national economies in different stages of growth (growing, declining) whose governments have spent more or less than their revenues.

Statistics shows that economists are no better than anyone else in predicting the stock performance. Actively managed hedge funds perform worse than the index funds. Now, if economists cannot reliably predict the future of a single company, how can they be blindly trusted with setting the economic policy for an entire country?

stars0
Reply


antat 1 May 2015 03:20 PM
66%

You're mixing several things here...

Professional stock analysts actually do perform slightly better than passive funds (even accounting for the random walk effect), but that slight gain of 1-2% is eaten up by their fees, so passive funds are a better choice.

"if economists cannot reliably predict the future of a single company, how can they be blindly trusted with setting the economic policy for an entire country?" is a nonsense statement. Since analogies seem popular, that's like saying: "If my weatherman said it might rain today, and it didn't, how can we blindly trust climate scientists that the earth is warming?"

Macro-economists are the not the same thing as stock analysts. The variables that affect a single company's performance are vastly different than a national economy.

Economists have been influential in economic policy in the US for decades. They ... read more


stars0
View Replies (1)
Reply


antat 1 May 2015 03:26 PM
63%

Are you saying a credentialed economist will be more ignorant on economic issues than a random person off the internet?

stars0
View Replies (1)
Reply


VoiceOfRa 3 May 2015 10:17 PM
65%

> Examples of national economies in different stages of growth (growing, declining) whose governments have spent more or less than their revenues.

The situation is even more complicated. Since debt must eventually be paid back (or defaulted on which triggers it's own problems), it could well be that deficit spending causes short term improvements at the expense of long term harm. Thus restricting to time slices would give a misleading picture.


stars0
Reply



antat 1 May 2015 08:47 AM
64%

Oh dear. Is this how we're starting off this site? My concerns are:

1) The question is unawerably vague. What to government? USA? Greek? Japanese? In 2015? 2008? 1992?

2) Having a short answer option (required) for an incredibly complex social issue sets the wrong tone.

3) One of the first two replies uses an analogy as evidence. There is no way a drug user is like an economy. Even a closer analogy, like a household budget, is sufficiently different than a nation's economy to be used as a sufficiently persuasive (I would hope) metaphor.

Hopefully, the recommendation system will handle number three, but one and two? How do you address that?


stars0
Reply


admin 1 May 2015 09:36 AM
74%

Hi antat,

"1) The question is unawerably vague."

The first three topics were selected in a poll we’ve sent to the first thirty people who signed up for the discussions. This came as the second most upvoted topic. Anyone who would prefer a more specific title can start a separate discussion at any time.

"2) Having a short answer option (required) for an incredibly complex social issue sets the wrong tone."

You are right, but we are facing another problem here. When recommendation system sorts comments, for most people it puts comments posted by someone from their own political side higher. Therefore there is a strong risk that many people will read only comments that support their own position. We want to give people also an easy option to see the best arguments against their position (which is why the comments have to be split in several groups, e.g., “Yes”, “No”, “Other”). If you or anyone else can think of a better solution, please contact me or leave a comment in the feedback thread.


stars0
Reply


ChristianKl 1 May 2015 12:42 PM
68%

All the questions in the email where vague. Just because this question wasn't the among the worst doesn't say that it's a good question.

By forcing people to give binary answer to vaguely posed questions you encourage the opposite of rational discussion by encouraging people to think in a tribal way. A forum for political discussion should be designed to reduce mindkill not designed to increase it.

Scott Alexander illustrates in his post about the growth mindset very well how getting clear about a claim allows for meaningful "yes/no" votes.

stars0
Reply


MaximumLiberty 1 May 2015 12:18 PM
63%

In answer to #1, each of those sound like interesting anecdotes.

In answer to #3, I rather liked the analogy because it stroked my priors the right way. And that is a kind of persuasion. But you're right that it's not evidence.

stars0
Reply



DonaldMcIntyre 5 May 2015 07:53 PM
63%

I am not sure if there is conclusive research that government spending increases or decreases move the economy significantly other than short term.

My intuition is that a healthy public sector that executes its mission (defense, law enforcement, judicial, legislative, health, education, etc.) and at the same time does not asphyxiate the nation with a huge budget and debt is the best government.

Also, when government is used as an instrument for economic management the bias for politicians is to overuse the tool and just turn irresponsible, which in the end is detrimental to economic activity.


stars0
Reply



strangeattracto 2 May 2015 12:30 AM
61%

Yes, in a recession, in a situation more like the last part of the 20th Century.

It depends on the circumstances, and economies can get into trouble if the government does not cut back on spending in good times, but sometimes the market fails spectacularly, and government spending can be an effective way to soften the blow to the people living in the society. The goal would be not to completely change the business cycle, but to moderate it. It worked pretty well in Canada in the past few decades, before the financial crisis and global deflationary economy changed the context.


stars0
Reply



DanielLC 1 May 2015 03:06 PM
59%

The question is unclear. Are you asking if the government should spend more money during a recession to end it sooner, or if they should spend more money in general? I'm guessing the first one.

The economy is stable. If it's bad, it will tend to get better. If it's good, it will tend to get worse. If this wasn't the case, we wouldn't always seem to have at least 90% as many jobs as we have people looking for them.

With this in mind, it seems clear that if the government permanently increases their spending, it will only temporarily help the economy. If the government stops spending, it will hurt the economy again. They are not stimulating the economy. They are postponing the recession by paying people to do unproductive things in the mean time.


stars0
Reply



contrarian 1 May 2015 10:17 AM
52%

Imagine a habitual drug user asking for advice -

“I have not been feeling well lately. The drugs, which always used to make me feel better, don’t seem to help much anymore. Should I increase dosage?”

Translate the same question into the language of economics and you get -

“Our economy has been underperforming recently. The old borrow and spend method, a.k.a. Keynesian economics, does not seem to help much anymore. Should we increase the size of the stimulus?”

Here is an honest if painful answer to this question:

“As long as you have any credit left, you can buy more drugs spend more on the stimulus. In the short term this is the least painful option. However, in the long run it will only make your problems worse.

Your dealers politicians told you that this is just a temporary bad phase and you’ll be back to normal soon. They told you about people who temporarily used painkillers after an accident the US borrowing a lot during the WWII and repaying the debt later. This is not your case. You did not have any major accidents other than using drugs living beyond your means for the last 35 years. So your choices are a bad pain now or an even worse pain later.

And don’t listen to dealers politicians who tell you otherwise. They only want your money votes.”


stars0
Reply


mwengler 1 May 2015 01:04 PM
71%

While you may be right, you may be wrong. You are reasoning entirely by analogy, without discussing whether this is a good analogy or not. Analogizing government's use of money to a drug-addict's use of drugs is, I think, prejudicial, failing to be illuminating because it is not argued for. One could as well analogize government to a parent who's child is hit by a car and who is bleeding out. Does she turn away the private ambulance because she currently has credit card debt? So by this analogy, "obviously" the government should take the action required to gain health, at a time of crisis is the wrong time to pinch pennies.

See, the problem with analogies is unless you motitivate why you pick the one you do, you can essentially always go either way with them.

stars0
Reply


julia1 1 May 2015 01:44 PM
64%

I like the original analogy. The definition of addiction is that you keep repeating the same behavior, that makes you feel better in the short term, and is destructive in the long term. This fits with both drug addiction, and repeated stimulus through increasing deficit. The analogy with the parent whose child is hit by a car is worse in my opinion, because (1) It is absolutely clear that the life of a child trumps other concerns (unlike temporary possible improvement of economy), and (2) this is not an event that repeats regularly, and cannot develop into a habit.

stars0
View Replies (4)
Reply


DanielLC 1 May 2015 03:12 PM
63%

"However, in the long run it will only make your problems worse."

Why? You have to pay a loan later, but if you help the economy now, you'll have more money later, so it may very well be worth it.

stars0
Reply


julia1 5 May 2015 05:39 PM
65%

There are two scenarios: (1) this is a one-time occurrence. When economy improves, you pay down the debt, and everything is OK; and (2) this happens on a regular basis, and the debt only accumulates. I think the author meant (2). I guess the important questions are: (1) does deficit spending really improve the economy; and (2) if it does, does the government pay the debt.

stars0
View Replies (8)
Reply


julia1 1 May 2015 10:07 AM
59%

That's a very good analogy. The problem is even worse because it is likely that only the next generations will be forced to pay for the sins of the current generation. One would hope that seeing other nations face economic disasters due to this sort of behavior would be a strong enough warning for voters to change their behavior, but it looks like the opposite happens: this is viewed as another proof of the exceptionalism and stability of your own country.

stars0
Reply



Xerographica 3 May 2015 02:21 PM
50%

Let's think about this website/forum. This forum is currently a small group of people trading thoughts/ideas/information with each other. This forum is essentially a market. It can function pretty decently as a model of the economy.

In what type of situation would it make sense to stimulate this forum? It would make sense if there was a recession. Which would mean that there wasn't very much trading going on. Forum members wouldn't be replying to many threads. Why not? Maybe because the supply of threads was pretty crappy. And why was the supply of threads crappy? Because producers didn't have enough incentive to supply awesome threads.

Stimulating this forum wouldn't truly solve producers' lack of incentive to create an abundance of awesome threads. Because if it did, then you'd only have to do it once.

To truly fix the economy... we'd have to eliminate everything that's demotivating producers on this forum...

1. Minimum wages
2. Unions
3. Regulations
4. Taxes*
5. Other barriers to entry

When this forum removed these bottlenecks, then there would be a lot more incentive for...

1. producers to create an abundance of awesome threads
2. a lot more members to become producers

Plus, it would be a lot easier to become a producer. The result would be a huge abundance of awesome threads/products and a whole bunch of trading going on. The economy would never have to be stimulated.

Government stimulus is just another "solution" that adds to the problem. If anybody disagrees... then they should advocate that we should make it harder to start threads on this forum. I'm pretty sure that this forum would suffer from a recession. But I could be wrong!

*There's nothing wrong a tax that helps to keep this forum running. The issue would be if we're taxed to pay for irrelevant/harmful/wasteful "public goods". Hence, the need for tax choice.


stars0
Reply


Fwiffo 16 May 2015 05:34 PM
59%

Having a good stimulated thread could show example how rewarding making a cool thread is that is more salient than estimating that in the abstract "on paper".

The analogy also suffers form the problem that none of the demotivators apply to the forum environment. It doesn't really illustrate anything as the analogy isn't taken any further than an equivocation.

stars0
Reply


Xerographica 16 May 2015 08:04 PM
50%

The economy has "demotivators"... taxes, minimum wages, regulations, etc. Your mission, should you choose to accept it, is to explain why it wouldn't be a good idea to apply these same demotivators to this forum.

A forum environment has supply and demand. It has consumers and producers. Economics applies just as much to this environment as any other. If it doesn't make economic sense to apply demotivators to this forum... then it doesn't make sense to apply them anywhere.

stars0
Reply