FW: The Sequester Will Be Good for the Economy | RealClearPolitics

[George Thompson]

George aka ElExtremo1312 aka P.K.

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Subject: Re: The Sequester Will Be Good for the Economy | RealClearPolitics

Let's see...you are saying that Iraq was a dumb war that Bush should have never started, taxes should have been raised by Bush to finance it (not cut to help the rich) and therefore, a decade later, any economic theory that says no to continued deficit spending is for suckers and people who believe it are wrong???  Right???

Cheez

-----Original Message-----
From: Dick Klass
Sent: Sat, Mar 2, 2013 12:06 pm
Subject: Re: The Sequester Will Be Good for the Economy | RealClearPolitics

If borrowing was good for WWII, it also was food for Iraq , right? Wait, taxes were also raised for WWII, Korea and VN but not for Iraq. Hmmmm....

And Colin continues to repeat the line with Real Right Politics as a source, that deficit spending does not work and has never worked hoping that repeating the big lie will dupe more suckers.

Dick

On Mar 2, 2013, at 10:26 AM, Chuck Cheeseman  wrote:

Pretty good, Coli.  While any brief essay will take some logical shortcuts, this little tutorial on the economics of government spending is both sound and understandable, IMO. Although the author doesn't state it, his model for government spending decisions even allows for borrowing - if it is justified in a temporal sense, the same way business does it. For example, selling WW II war bonds was legitimate borrowing, since the government needed to finance the military buildup necessary to defeat Japan and Germany and hadn't the cash on hand to do it. To make such borrowing completely rational, establishing the future revenue stream to repay it would be the only additional thing needed. Cities do this sort of thing all the time on a smaller scale - airport parking authority bonds are an example.

Cheez

-----Original Message-----
From: CRichar713
Subject: The Sequester Will Be Good for the Economy | RealClearPolitics

COMMENT:      Some great points about Keynesian economics and why it doesn't work.  It didn't work for Roosevelt, who kept the nation in depression until WWII lifted it out, and it hasn't worked for Obama  despite all his claims to the contrary.  Obama, however, refuses to recognize and admit his failures. He wants more taxes so he can spend even more money, with the idea that government can lift the nation up by its bootstraps---if only the government spends enough.  This article shows why that concept is nonsense.

Coli

 

EXTRACT:      The Keynesian model of business cycles is taught in most college and high school economics courses around the world. It is accepted wisdom in the halls of government. But its value as a guide for policy depends on a key but under-emphasized assumption.

The Keynesian model does not evaluate government expenditure using the standard microeconomic concept of economic efficiency (cost-benefit analysis). Instead, the model assumes policy should target increased GDP. This sounds reasonable, and consistent with efficiency considerations, until one examines government expenditure in detail.

This expenditure has two components: purchases of goods and services (e.g., roads, education, research, and the military) and transfer payments (e.g., unemployment insurance, welfare, food stamps, Medicaid, Medicare, and Social Security). 

The efficiency concern with government purchases is that the National Income and Product Accounts value them as equal to the expenditure on these items. This means that bridges-to-nowhere or a military buildup aimed at an imaginary alien invasion are both desirable from the Keynesian perspective because such expenditures increase measured GDP. Yet this expenditure is pure waste.

More broadly, the fact that some government expenditure generates benefits in excess of costs (the economy needs some roads) does not mean additional expenditure generates value in excess of costs (the economy does not need to re-pave its roads every year). At some point additional expenditures hit diminishing returns and make no sense in cost-benefit terms.

Transfer payments are also problematic from an efficiency perspective because they distort economic incentives. Unemployment insurance discourages work effort. Social Security subsidizes early retirement for people who are still able-bodied. Medicare and Medicaid create moral hazard, thereby generating excess health costs. Thus even if transfers help stimulate consumer spending, their net effect on the economy is unclear.

This implies that whether the sequester will harm or help the economy depends on whether cost-benefit considerations can justify the existing level of government expenditure. And on this question, the answer is clear. Across all categories, federal expenditure is far greater than necessary to achieve the legitimate goals of government intervention.

National defense is a classic public good — something that everyone values but that free markets are unlikely to provide — so some expenditure on national defense makes sense. Yet many national security activities have large and certain costs but hard-to-measure and intangible benefits, if any. Examples include the ongoing occupation of Afghanistan, the provision of national security for Western Europe and other parts of the globe, not to mention misguided weapons systems, redundant military bases, and more.

Non-defense, non-entitlement spending is also rife with programs that have no compelling justification and frequently do substantial harm: the National Endowments for the Arts and Humanities, the Corporation for Public Broadcasting, NASA, earmarks, the Post Office, Amtrak, foreign aid, agricultural subsidies, the Small Business Administration, drug prohibition, and more. Even for expenditure that is defensible in moderation (e.g., transportation and education), many specific projects are wasteful (the Big Dig, high-speed rail, No Child Left Behind).

Entitlement spending is also excessive relative to reasonable cost-benefit considerations. A minimal government safety net that provides insurance against the worst-case scenarios for unlucky individuals is one thing; the current generosity of Medicare, Medicaid, and Social Security, which by themselves threaten to bust the entire budget in coming decades, is another. The introduction of higher deductibles, increased eligibility ages, and less generous indexing are all desirable from a cost-benefit perspective and essential if the United States is to avoid a fiscal meltdown.

While the recommendations espoused here may sound heretical, considerable evidence suggests that policymakers should set government spending based on hard-nosed cost-benefit considerations, not Keynesian stimulus concerns.

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