EconGuy
Active Member
So, I'd argue that the government cannot "save" money (at least in the dollars that it creates) it can only reduce the amount of money it's created (what we call the debt), but let's stick a pin in that for now as the explanation requires more unlearning than learning. Let me address your other points and maybe we can swing back to this one at some point.
Ahh....Here is the key. Understanding that every transaction has two parts, both of which you've identified here.
Costs and payments and what's being transacted (so there are 4 things to record in any transaction)
Who does it cost?
Who get's the payments?
Instead of explaining it all right here, I'll let that simmer in your mind and see what you (or anyone else) thinks and we can come back to it.
Right, we call this investment. For a very simple example, let's imagine two cities and commerce that occurs between them. However, there is also a river and the only bridge is several miles north, so any travel between the two cities requires more driving than it would if there were a bridge closer that could cut miles and time off the trip between the two cities. Imagine the bridge costs $100 million to build and will last 50 years. Imagine how much time an expense it could save the people that use it.
Now, that's a simple example, not every dollar of government spending has benefits that can be measured that easily. Spending money on safety is harder to measure as something not happening or avoided is harder to "see".
There is also opportunity cost, that being spending money on one thing can reduce or eliminate spending somewhere else. So buying a bridge might cost the opportunity to build a new hospital, thus it can be said that the cost of the bridge is one hospital, so any benefits the bridge delivers has to be measured against potential losses in other places that money could have gone (cost benefit analysis).
But, part of the problem with trying to understand government spending is the people tend to shift which side they are considering but don't shift the language they use or worse realize they are shifting their point-of-view.
Is the government's spending your cost or your income? After all, if the government pays you to do a job and credits your bank account with money, then it would be correct to say that the government's costs are your income, right?
Even if you argue that the government takes 20% of what it's paid you for taxes, the net-net of that transaction is still a surplus to you and a deficit to the government. But that's only looking at the cost side because the government got something of value in return, we can't just look at spending, right?
So when we say the government is running a deficit aren't we really looking at things from only the government's side? Isn't the government's deficit your (the private sector's) surplus?
And if that's true, then the government's surplus (what we call the government "saving" money) has to be the private sector's deficit?
I'll leave you with this to ponder by asking a question that I will come back to.
Is it possible to spend money without someone else earning an income?
If the answer is yes, then is it possible to reduce spending without reducing income somewhere else?
Hopefully when this conversation concludes I can change your mind. I'd argue that, in the economy we have today, a balanced budget would utterly destroy the US economy in just a few years.
That doesn't mean that I believe that everywhere and always a yearly deficit is good, I'm only arguing that in the situation the US finds itself in today (something I'd call the prevailing economic conditions), specifically a nation that is a large net importer (maybe we'll get to why this matters), with a growing population, where technology is increasing the amount of work that can be done, in a nation that creates it's own currency and does not rely on foreign dollars with the goal of increasing GDP, that under these circumstances that a government defect of some size, generally is a very good thing.
Now, I tend to ramble on a bit at times and I can't explain every circumstance, but suffice it to say there are some spending and some levels of deficit that could be considered bad, but this would be getting down into the weeds of prevailing economic conditions. If anyone is curious about what I mean, hopefully they will ask.
It does, but as you noted, the government can only sell a real asset one time, like real estate, but will persist for the foreseeable future. Hopefully the people making these kinds of decisions will realize the futility in selling real assets to fund the government and how incredibly finite and wasteful that is.
Just ask Russia about how it feels about the sale of Alaska today.
I hear this claim of dependency, but I will argue that is a myth. Rather than lay out the whole thing here, I'll ask a few questions and let's see if we can tease out why this isn't true at all.
If we look at a nation like China. China currently holds $868.9 billion dollars in US treasuries (and approx $2 trillion more in US dollars accounts). Those are mixed between the Chinese government (which I believe owns the lions share) and the Chinese private individuals.
First question.
Ever given any thought to how the Chinese government came to hold so many US dollars?
Why would the Chinese government, clearly an ideological rival of the US buy US government bonds at all?
Now, imagine that China decided not to buy US bonds, what would be the consequences?
As for as calling bond sales "borrowing" I'd like to clear something up.
When you and I go to a bank and borrow money, it is the bank that sets the terms of the loan, the interest, the terms and the penalties. But when the government (or any bond seller) sells bonds, it is the seller that sets the terms. The idea that the government is dependent on bond purchasers ignores why the purchaser buys them in the first place. China doesn't want to "lend" money to the US government. It buys bonds because it has to, at least in the situation it finds itself now (a HUGE net exporter to the US).
This will undoubtedly raise more questions than it answers and I don't want to try to explain too much to fast, so I'll let you chew on that.
That said, understanding econ is key IMO, because almost anything good worth doing costs money and if you don't understand government finance all anyone has to do to shut down a conversation is ask, "well how ya gonna pay for it...hmmmm?" The sooner we all understand the answer to that question (and hint, it's not Federal taxes) the sooner we'll understand how much we can buy and then argue what we should be buying.
One other point that often goes unspoken and rather assumed. Behind all of this we should all be asking ourselves what goals should be be striving for as a nation. I mean, real fundamentals here. Freedom, happiness, security, justice, health, well-being ect. Only once we know what it is we want to achieve can we evaluate our actions in the light of what we believe should be our goals as a nation.
Respectfully,
EG
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