Post
Topic
Board Economics
Re: US National Debt / Deficit - How does it end?
by
marryXmas
on 29/09/2014, 03:58:35 UTC
He was arguing that you could prevent recessions by doing exactly what you are suggesting the government do.

IF the Kensians were correct then anytime there was a contraction in real GDP, the government could simply spend more money to "create" economic growth which would stop such recession.
Do you know that it's exactly what US government did in a latest recession? Do you know that in a recession the budget deficit rises naturally (it's called automatic fiscal stabilizers). It's hard to measure the efficacy of government efforts in the latest recession since a lot of support went to the financial sector, but it certainly helped mitigate the recession.

The fact that US is doing relatively well now is because they don't have austerity unlike the depressed Europe.

And a government can spend its way out of a recession, but it's very sluggish in such kind of actions (usually actions are taken only after a recession starts, when it already has momentum).

The problem is that it does get difficult to cut back on spending once you are out of a recession.
There are various special interest groups, which have a vested interest in ensuring that there are no cuts.
This is why you should not try to "stimulate" yourself out of a recession. You need to make it easier to conduct business in your country (by easing regulations) and by giving incentives to conduct business (via temporary tax cuts)