Myth #4: Spending cuts will jump start the recovery. Reality: This one doesn't even merit a response...
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.
Spending cuts hurt the economy in the short term.
Probably not. But I'd say tax cuts for businesses would help.
It could raise out credit rating (and lower interest rates for borrowing), and let lenders know we are serious about our fiscal "house"
This is a myth in the current situation, but it depends on what you are recovering from.
So paying less in taxes isn't going to give me more money to spend on more things? Huh
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?
Define "like the government would"
Spending money all around in the economy is effective, is it not?
The things the government do with our taxes create the very environment and infrastructure that businesses need to succeed.
So the government pays our businesses and we don't
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.
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.
That definitely is true. That still admits the idea that spending cuts aren't inherently economy starters.
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.
Depends on what you cut.
This is just some dude's own research, but it looks pretty damn solid to me: myesoteric.hubpages.com/hub/Tax-Cuts-Spur-Growth-Oh-Really-Lets-Just-Take-a-Look
"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.
Or you have a complete black and white view of economics like someone who pledges never to increase taxes which is just naive.
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.
Less spending is less consumption. That means lower GDP, fewer jobs. That is undeniable.
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.
Did he just say "economists don't understand... the economy"?
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
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.
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.
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?)
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.
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.
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.