So I started my own thread on this topic as it’s my hope to get a good debate going as many Conservatives (and Dems for that matter) advocate a balanced budget or even a surplus.
Just to expand a bit on the thread title, it is possible to grow over short periods. That’s not what I’m talking about. I’m talking about sustainable long term growth. Doesn’t have to be huge growth, it just has to be growth. If your answer is that the private sector run a massive surplus, that’s a great idea, but you’ve got all your work cut out of you demonstrating how it would ever be possible to undercut China and even if we could undercut China how we’d avoid becoming a third word nation to do it.
I’m saying that there are 5 major factors that effect growth. Let’s talk about the first 4.
The stuff on the left in italics is controlled by Government (including the FED), stuff on the right is interactions with foreign markets. Green is additions to the economy, red is subtractions from the economy.
Pick any year you like and fill out those 4 Items.
To show you I’m not partisan (though I doubt you’ll be impressed), I point out in liberal forums all the time, that the surplus that Clinton ran in the lat 1990’s early 2000’s was one of the worst periods in recent history in terms of how the government fleeced the private sector.
So if we create a simple formula, it would look like this (FS+E)-(T+I)=. Those are taken from the table above…So let’s do some math…
The year 2000 was one of the worst. Let’s use the formula above, see what it comes out to and see what kind of conclusions we can draw.
(All numbers are in trillions) (1.79+.781)-(2.03+$1.22)= 2.571-3.25=.679 or negative $679 billion Roughly negative 6.7% of GDP
But what is this number?
This is the aggregate of all federal spending, taxes, imports and exports. This means that the economy should have shrunk by $679 billion! That’s 13.5 million jobs at $50,000 each (for one year). But we know the economy grew in 2000, so how can that be possible? (see below)
Well the 5th factor is made up of 2 basic elements, private sector borrowing and saving depletion. In order for GDP to increase the private sector was forced to borrow. Remember that when the government deficit spends, no matter what you think of deficit spending, the governments liabilities (debt) are the private sectors assets (additional money). If that is true, when the government runs a surplus, then the governments surplus is the private sectors deficit. So the government taxed out $240 billion dollars more than it spent in. Now we call this a “surplus”, but this is really the “glass half full/ half empty” argument.
When you add the private sector deficit of $240B and the trade deficit of $439B you get a deficit of $679B!
Ok so take the deficit to the private sector of $679B and add total household borrowing of $874B (for 2000) and Bingo…You get a positive $195B. GDP increased $337 Billion dollars more than that, some of that came from savings depletion and states running deficits, but it really stats to get into the weeds. I’ve grabbed the largest contributors and shown that the only way for the economy to go positive is on the backs of those that want to carry unsustainable private sector debt. If 2008 prove anything there is a definite threshold to private sector borrowing and when unwinds it’s brutal.
Now when times get tight and demand drops, but payments don’t stop rolling in, companies and private citizens who don’t understand what’s going on (that is, most people don’t good information about the economy), people start to withdraw from savings and borrowing to protect their assets. It could be a companies delivery truck that sits unused as demand falls. Payments are still due even when times are tight. It might be a guy like you or me who had a great job and bought a house 10 years earlier but suddenly have no income after an unexpected layoff. Withdraw savings first than borrow.
Now all you have to do is look at this paper and it shows that household borrowing increases 20% from 1997 to 1998 the same eyar the surplus began? Now is it any coincidence that the deficit had been dropping steadily from 1995 to 1998 as private sector borrowing ramped up over the same time? When it was all over with we fell into a recession as the private sector could no longer sustain debt and everything shifted as we see large government deficits which push money back out into the private sector to help it unwind.
If you use my little formula above for the years 2000-2006 the aggregate of (FS+E)-(T+I) is negative $3.3 trillion. On the other side we have private sector borrowing of $6.5 trillion. We know where that lead…The housing crash.
Now I’m not going to claim that one caused the other, nor am I interested in planing partisan politics when it comes to the crash. Anyone who tries to blame “the other side” is more interested in rooting for their team than looking at the issue. But please. I’ve said a lot and I’d like to stick to it. Let’s leave the crash to another thread…
To answer you question to me, is growth always desirable? Nope. I can think of lots of circumstances under which growth should be cut.
Now if you think that the economy can grow in a sustainable way under these conditions, please tell me what could have been done different?
Running a balanced budget leaves you with the problem of the trade deficit that has averaged roughly $650B. Again from the formula above if FS+E=$0 and T+I= -$650B then the aggregate is -$650 per year. After just 5 years the economy would shrink by more than $3 trillion, far beyond the private sectors ability and willingness to borrow. That’s 10’s of millions of jobs…
So tell me, either what I’m doing wrong, or tell me how the economy could grow while the private sector runs a deep deficit.