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veritas1 June 2nd, 2014 10:09pm

Myth #4: Spending cuts will jump start the recovery. Reality: This one doesn't even merit a response...

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austrian Valid Location, Virginia
06/03/14 9:15 pm

Obviously if you just say GDP=C+I+G+(EX-IM), then yes, decreasing G will decrease GDP, but that ignores the effects of debt and long term effects on GDP.

chinito Florida
06/03/14 4:25 pm

Spending cuts hurt the economy in the short term.

commonsense America isnt racist
06/03/14 9:53 am

Probably not. But I'd say tax cuts for businesses would help.

06/03/14 3:49 am

It could raise out credit rating (and lower interest rates for borrowing), and let lenders know we are serious about our fiscal "house"

06/02/14 10:35 pm

This is a myth in the current situation, but it depends on what you are recovering from.

Statek Im from the Internet
06/02/14 6:48 pm

So paying less in taxes isn't going to give me more money to spend on more things? Huh

06/02/14 10:36 pm

But are you going to spend every last bit of that money like the government would? No. So now which situation see more money getting spent?

Statek Im from the Internet
06/03/14 3:40 am

Define "like the government would"
Spending money all around in the economy is effective, is it not?

RoDe Latinus wordsus
06/03/14 1:44 pm

The things the government do with our taxes create the very environment and infrastructure that businesses need to succeed.

Statek Im from the Internet
06/03/14 2:35 pm

So the government pays our businesses and we don't

06/03/14 4:09 pm

Not what we said at all. The government just spends a larger percentage of that money and uses it for infrastructure that is needed by all businesses but never purchased by any individual business.

BusinessJustin Tamriel
06/02/14 5:41 pm

Well, yes. However, spending cuts are going to become a necessity. We can't just keep spending money we don't have for the sake of economic growth. One day we're going to have to suck it up and make the cuts.

06/03/14 10:44 pm

That definitely is true. That still admits the idea that spending cuts aren't inherently economy starters.

BusinessJustin Tamriel
06/03/14 11:52 pm

I would agree to an extent. Spending cuts are never economy boosters, but are necessary for longer-term financial health. If coupled with tax breaks, then we have economic growth (hopefully). More spending=fast growth though. Pros and cons to both.

Arananthi Literal Ninja
06/02/14 3:44 pm

This is just some dude's own research, but it looks pretty damn solid to me:

Vincere Seattle
06/02/14 3:41 pm

"Spending cuts" is such a vague term and it gets thrown around a lot on SOH. So much depends on where you cut and where the savings go. Saying "I support/oppose spending cuts" is really a meaningless statement unless you go into much more detail.

06/02/14 10:40 pm

Or you have a complete black and white view of economics like someone who pledges never to increase taxes which is just naive.

skinner Jersey City
06/02/14 3:22 pm

My understanding is that economists don't really know for sure how spending cuts effects the economy and that it mainly depends on what areas are cut how quickly, and how that revenue is then redistributed.

veritas1 Panda
06/02/14 3:42 pm

Less spending is less consumption. That means lower GDP, fewer jobs. That is undeniable.

veritas1 Panda
06/02/14 3:43 pm

Let alone spending cuts high enough to balance the budget. That would take a 5-10% chunk out of GDP. The economy runs on consumption. Austerity slows, not spurs, recovery. Look at Greece and Spain and Italy and tell whether austerity spurred growth.

listgarten SF Bay Area
06/02/14 5:09 pm

Did he just say "economists don't understand... the economy"?

skinner Jersey City
06/02/14 6:51 pm

Vertias I believe, if done over a gradual period of time, reduced spending can be implemented without doing significant damage to the economy. Other industries may simply pick up where the government left off. In the end cutting spending is necessary

skinner Jersey City
06/02/14 6:53 pm

it's simply a question of how long we will wait before beginning the inevitable slashes to public spending. If we do it earlier rather than later we can avoid doing too much damage. Budget cuts don't have to come with austerity.

Maj Worth Economist
06/02/14 3:18 pm

Some time ago, I got one of those chain eMails full of facts that are made up. This one said that most conservative congresspeeps were business owners, while liberals were lawyers.

Maj Worth Economist
06/02/14 3:19 pm

The conclusion to this (of course) was: Why would you want lawyers trying to fix the economy? (If you like that logic, then I have to ask... Why would I want business people telling me what's Constitutional?)

Maj Worth Economist
06/02/14 3:21 pm

I looked it up, and at the time, it was true. Well, I've been a business owner, and I can't figure out for the life of me why some of these so called business people would ever run their business the way the demand the government run.

Maj Worth Economist
06/02/14 3:23 pm

When business is slow, it's always good to cut back on unnecessary expenditures - find ways of reducing overhead and increase efficiency. But it's also extremely important to invest in new ideas and products to help grow your business.

Maj Worth Economist
06/02/14 3:26 pm

Stagnation and short-term thinking are not contributers to success. And even acknowledging the differences between business and government, those strategies won't work - for either of them. Austerity isn't the answer. Good investing is.