Quote from: RoadTrain on September 21, 2014, 01:14:34 PM

Quote from: leannemckim46 on September 21, 2014, 03:45:20 AM

Quote from: botany on September 21, 2014, 02:18:36 AM

Quote from: leannemckim46 on September 20, 2014, 08:40:43 PM

I think that when government spending is at lower, "normal" levels then an additional dollar of government spending will cause overall private spending to decrease very little, if anything at all. However as government spending increases to a high percentage of GDP (including spending on interest on debt) then an additional dollar of government spending will cause private spending to decrease by similar amounts (or potentially more then a dollar if government spending is high enough).

Apart from the quantum of spending, we should also look at where the money is going in. If it is just being spent to maintain a bloated bureaucracy and fund some pet projects, then it is effectively going down the drain. On the other hand, if it is being channelled into productive investments, it would have a multiplier effect.

The "multiplier effect" is part of the Keynesian theory of economics and is followed by many liberals. No matter how the government spends each additional dollar it will always create less then one additional dollar in economic output. (The Keynesians actually do not believe that government money needs to be channeled into productive investments).

Let's get your facts straight. Economic output is measured by GDP. Expenditure approach of calculating GDP includes government spending in full, not some percentage. If it's not what you meant, please explain in detail.

In fact what government deficit spending does is taking money from those who don't want to spend and giving them to those who want to, but can't. It's that simple. It creates additional demand economy-wide that otherwise wouldn't be there. Yes, private sector is probably better at investing, but it wouldn't matter is there was no demand.

When the government spends an additional dollar, the private sector will spend some amount less. The reason for this is because when the government borrows money the private sector will need to lend to it. US government debt is generally considered to be near risk free, and can be used as collateral for loans at almost 100% of it's value. Since the private sector can not borrow 100% of the value of government debt, the amount below 100% that cannot be borrowed against is the amount of lower economic output due to additional government spending.