Re: Budget Deficits Lead to lower or higher GDP?

royls_at_telus.net
Date: 10/18/04 

Date: Mon, 18 Oct 2004 06:29:52 GMT

On Mon, 18 Oct 2004 03:13:04 GMT, Igor <jjweatherby@houston.rr.com>
wrote:

>Heilbroner's argument assumes the government is spending on investment.
>That is the funds are going into roads, airports, education, etc. This
>is not neccesarily the case. Government investment need not occur. For
>instance National Defense spending, transfer payments, etc are not
>investment.

Depends what you mean by "investment." Few investments are less
profitable than a military that is not strong enough to deter attack;
but that means few investments are _more_ profitable than a military
that _is_ strong enough to deter attack. Even transfer payments may
in some cases sustain a worker who would otherwise have fallen into
destitution and become permanently unproductive. AFAIK, the only
really big and clearly unproductive expenditures by the US government
are the WoD, Medicare, and foreign military adventures that do not
enhance domestic security or future tax capacity.

>What Heilborner argues is that the deficit is not a big
>deal. Unlike a household the government and often corporations do not
>have credit limits. So borrowing today could be financed in the future
>by more borrowing. This is a possibility. Bonds can be financed by bonds
>for some time. There is a limit interest compounds exponentially while
>GDP grows in a linear fashion.

That is most certainly false. GDP growth compounds pretty much like
interest.

>If the governement continued to run
>deficits forever at some point the interest payments would exceed GDP
>and they would have to default.

Only if the combined interest rate and sustained deficit fraction is
higher than the GDP growth rate.

>The Heilborner argument states the fallacy
>that there need be a massive increase in taxes at some time to repay the
>deficit and that deficits will cause the government to go bankrupt. They
>can cause the government to default but it takes high deficits for
>extermely long periods to do so.

"There is a deal of ruin in a nation." -- Adam Smith

-- Roy L

Relevant Pages

  • Re: Budget Deficits Lead to lower or higher GDP?
    ... >> reading Heilbroner and Thurow's 'Economics Explained'. ... >> investment allows for innovation, new growth, etc... ... "Crowding out" only happens when the government consumes ... rates, investments, deficits, etc. have nothing to do with it. ...
    (sci.econ)
  • Re: Budget Deficits Lead to lower or higher GDP?
    ... > reading Heilbroner and Thurow's 'Economics Explained'. ... > investment allows for innovation, new growth, etc... ... Heilbroner's argument assumes the government is spending on investment. ... deficits forever at some point the interest payments would exceed GDP ...
    (sci.econ)
  • Re: Budget Deficits Lead to lower or higher GDP?
    ... Government investment need not occur. ... GDP growth compounds pretty much like ...
    (sci.econ)
  • Re: The Need for a Budget Deficit
    ... >> government borrowing and spending. ... >> sector to provide assets, ... >> and reduced investment in plants because of reduced demand ... >> into savings accounts or the capital market; ...
    (sci.econ)
  • OT: Killing the Goose
    ... Killing the Goose ... by John Mauldin ... fiscal deficits financed by printing money. ... roughly 40% of what our government is ...
    (rec.gambling.poker)