1.) Here is the GDP equation: Consumer Spending (C) + Investment (I) + Plus Net Exports (X) + Government Spending (G) = GDP.
2.) Government spending subtracted 1.09% from the final GDP total (see table 2).
3.) Contractionary fiscal policy is contractionary.
Links for 05-19-2013
25 minutes ago
4 comments:
Ok let me start by saying that I absolutely 100% agree with you on this. Yet I think your argument that you have stated over and over again of simply putting up the equation of GDP is childish, condescending and goes against everything that this site is about, which is actual quantitative analysis of important questions.
Let me play devils advocate for a moment. one might say "I understand that its part of the equation, yet so is rebuilding from a storm, or fixing a broken window, yet these things do not actually increase economic activity, as measured by gdp, over the long run because this money would have been spent elsewhere, if i didnt need to fix my window i would have bought a new bike for my son, thus you are making the common mistake of not calculating in the opportunity cost of fixing the window. Likewise with government spending I do not disagree that it is in the equation and needs to be counted as product, rather I argue that over a medium or longer term that goverment spending is not an efficent use of these dollars, and that in fact this use of the dollars tends to decrease monetary velocity due to government decision makign processes, while this money is being lent to the government by banks, central banks, investors, individuals and others, these same investors would have found another, more efficent, use of these dollars that would have resulted in higher numbers in the "C" "I" and "X" portions of GDP."
I love this site, and I do honestly agree with your position that now is the time for governments (federal and state) to increase spending, and I do have some very good responses to my own post, it just makes me very angry to see you repeatedly treat your readers like they are 5th graders who have never taken an econ class, and let me just say that this ONLY happens on issues that are politically delicate, so as some1 who we both probably voted for tends to say "let me be clear" I come to this site for the quantitative analysis, please be aware of your own biases and dont let it interfere with your thoughtful work.
Thank you,
A loyal daily reader
Dear loyal reader
The tone of the article is not addressed to you. It is addresses to the idiots and pinheads who continually think that merely cutting spending is the answer. In advocating this course of action, it is obvious they have no idea what they are advocating.
I apologize if I offended you; that was not my intent.
@Calev
In the long run we are all dead, so arguing about the long term opportunity cost is an excellent academic exercise but pretty pointless as a practical solution.
At the moment, businesses, banks and investors are not only flush with cash, but have access to a high level of cheap money. Yet government activity is vital to the current healthy of the economy, in addition, there is a lot of opportunity for government spending to influence our economy in a very beneficial way without hurting the activity of private actors. Infrastructure for example, is one place where government spending would be vital, especially in an era where our existing infrastructure is failing, and where private actors lack the size or the incentive to perform the work themselves.
Gee, I thought the FT article was simple and factual, as was DeLong's comment.
It has to be said that fiscal policy is not purely contractionary. The continuation of reckless tax cuts is expansionary. Nor has the Congress actually done much to cut anything. The Pentagon gravy train rolls on, the health insurance companies are hogs at the federal trough, and the only earmark that's in trouble is Boehner's F-35 engines. Yes, the few remaining benefits of the poor and the middle class are under attack, but fiscal policy is just inept, neither conducive to strong expansion nor strong contraction. Inept, however, will lead to contraction.
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