Just a reminder. My view on fiscal stimulus is that governments should pay down debt during recoveries to that they are able to engage in fiscal stimulus during economic downturns without having an adverse effect on growth. I also think it is better for governments to serve as the employer of last resort than as the consumer of last resort.
Somehow, mysteriously, the provision of services on behalf of those in need always seems to transmogrify into benefits for those providing services while largely ignoring the conditions of those actually in need.
They used to call it a sinking fund………or a rainy day fund……..
This is imminently very sensible when you consider that downturns are usually shorter than the expansions. That is you could pay off the debts incurred during a downturn without undue burden and if you worked at it maybe even run surpluses for the next down turn.
The problem is our political system, and this may hold for any political system, this is not a feasible strategy when left to the discretion of policy makers. How do I know this: this kind of strategy never happens on purpose…ever. Even the Clinton surpluses were more due to good fortune that sage planning and intelligent policies.
So, if the sensible is not feasible what are you left with?
It is an easy question to answer. You are left with non-sensible policies. In short, our political system is awesome at producing nonsense in regards to policies.
What you describe is pretty much what what we did via growth up until 1980. Then we went to starve the beast.
Steve
No, not really. Debt-to-GDP dropped mainly via GDP growth. That does not mean that we had more spending in times of recession than during expansions.
The United States has annually run deficits throughout the post WWII period, with the exception of a few years like 1969 and 1999-2000, which appear to have been accidents.
@PD Shaw,
The U.S. also ran deficits more often than not when on the gold standard in the 19th Century. It must be understood that whatever the budgetary goals of the government, private sector spending and saving choices can easily derail the policy.
I also think it is better for governments to serve as the employer of last resort than as the consumer of last resort.
There might have been no need for stimulatory generalized expansion if an automatic stabilizer as powerful as the Jobs Guarantee had been in place before the most recent downturn. It’s certainly a more effective use of purchasing power than just running out and buying up goods and services, hoping enough trickles down to expand employment.
Given how our Congress acts during crises, I’m a big fan of automatic stabilizers.
I’m too lazy to do the work. But we have run deficits since perhaps 1962. I have looked at the data. Clinton, in a total charade, claimed a surplus in I think 1998.
We spend like alcoholics drink. And its for votes. Its the liberal way, and unfortunately, what Republicans have come to believe is the way to get elected. Dems have no standing. Long gone.
The game of musical chairs is just about up. Michael and steve’s heads will be spinning.
There is no free lunch.
Steve V- In the line you quote I note that it was via growth. What we did not do before 1980 was increase debt faster than our growth.
Steve
But that is NOT what Dave is talking about. Your scenario it is possible to run persistent deficits or even have constant spending as a ratio of GDP and still obtain the result you note.
In other words, saying, “That is what we did” is not a factually true statement. The first part is wrong, even if the second is correct.