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Morality of Deficit Spending

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Ottens

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(Hope this is in the right forum.)

I'm debating the morality of deficit spending with someone and I'm hoping some people here can help clear some things up for me.

Here's some of the points he's making:

After netting, the government’s liabilities are the financial assets of the public–deficit spending *allows* the public to save. This is simply double-entry bookkeeping.

If I say that, in a closed economy (for simplicities sake) the net financial assets of the public are the net financial liabilities of the government (because within a sector, all balances sum to zero) [...] Do you disagree?

This, of course, evades the question of morality but purely economically speaking, is this correct?

EDIT: Should probably have posted this in Economics... Sorry about that.

Edited by Ottens
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In essence, the government is borrowing wealth from Bondholder A with the assurance that when it comes time to pay back that wealth, the government will expropriate that wealth from Taxpayer-B.

Of course. But what are the implications he's talking about? I don't see how this necessarily relates to the morality of deficit spending.

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Of course. But what are the implications he's talking about? I don't see how this necessarily relates to the morality of deficit spending.
From what you've quoted, I don't see him speak of any implications.

Most government spending today is immoral. With deficit spending one has the slight added fraud of pushing the robbery into the future.

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Here's what he mentioned earlier:

If consumer demand © drives the AD recovery there is obviously no increase in the government deficit (G)! The point is to positively affect total spending in the economy (i.e. aggregate demand) by deficit spending. Those deficits then form the net financial assets of the private sector so that C does not have to drive the recovery and can achieve its desired savings rate.

Which seems to imply that deficit spending is its own reward which is nonsense: the money invested in government bonds is effectively denied the private sector and on itself, doesn't drive a recovery. It's how the money's subsequently spent that matters, right?

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His answer:

There are no moral implications. This is just basic double entry bookkeeping. In a closed economy the net financial liabilities of the government are the net financial assets of the public. Thus deficit spending allows the private sector to save on aggregate without destroying output.
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In my experiences, economics enthusiasts who spout Keynesian economic theory like it were the gospel truth do so because it's all they were taught in school. When they got old enough to understand how important economics really is and decided to expand their knowledge of the topic, they defaulted to expanding on what they were taught, instead of altogether questioning what knowledge they already had.

Throw him some links to some Mises articles, tell him about Hayek's "Road to Serfdom", and tell him about von Mises "Human Action", which can be read for free here: http://mises.org/resources/3250 . If he balks at the opportunity to learn something from these two economists, then you know you're dealing with a jackass and that you're wasting your time.

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Beware of self inflating balloons. They can only be filled with hot air. Such magical entities are in the same class of objects as perpetual motion machines.

Any entity that passes as a trade good must have something real backing or tradeable for for it somewhere, somehow. An I.O.U. made up on the spot hardly has this property.

Bob Kolker

Edited by Robert J. Kolker
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  • 1 month later...
the money invested in government bonds is effectively denied the private sector and on itself, doesn't drive a recovery.

exactly!!! this is why listening to the news is so frustrating. it is bad enough hearing statist politicians sneer at the "failure" of the free-market, but to hear supposed economic "experts" make such a rudimentary and blatantly obvious error is annoying in the extreme.

this assumption that increased government spending is helping to end the recession is nonsense. you are entirely correct, this money is not adding a penny to the economy as it has to come from somewhere. to spend an addition £1 billion, the government must borrow £1 billion from the banks or private individuals. this much is accepted by all commentators. however, they refuse to understand that this money was already in the economy, the money held by the bank would not just sit in a vault if it wasn't for the govt, the money would be used to invest in businesses, or else would be loaned out to individuals and small businesses. a private individual buying government bonds may have bought a speedboat instead, increasing demand for speedboats, giving jobs to speedboat manufacturers. the only difference with government spending is that speedboat makers are out of business but road builders have a job - oh and the £1 billion of debt the govt has stuck the next generation of taxpayers with. there is no benefit to the economy at all, except the added burden of increased public debt.

this is so simple :);):dough:

it is even worse in the UK, because our sanctimonious govt is telling us that this spending and borrowing is necessary because it is following standard Keynesian economics... yet this is the same government that ran deficit spending in the boom years - something Keynes never advocated. Keynesianism would be bad enough, but they are not even running the country on the basis of flawed economics, they were simply spending taxpayers money like a bunch of drunken sailors and want to continue spending and will latch onto any excuse they can. even if we were to get rid of this lot in May, the "opposition" is no better, they will continue borrowing and spending, only they will spend slightly less and reduce the deficit marginally quicker.

ok, rant over, I'm fine now... B)

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