From: depken@rigel.econ.uga.edu (Craig Depken)
Subject: Re: National debt is not bad (only if you are economically illiterate) 
Summary: Deficit spending during prosperous times is bad...read John Maynard Keynes. 
Keywords: Economic illiteracy, UGA Economics, T-1440 daze of horror 
Organization: University of Georgia Economics Department
Date: Fri, 22 Jan 1993 05:21:59 GMT

In article <1993Jan21.200324.2210@midway.uchicago.edu> thf2@midway.uchicago.edu writes:
>In article <C16u87.MpI@unix.portal.com> mykes@shell.portal.com (mike myke schwartz) writes:
>>Ted Frank (thf2@ellis.uchicago.edu) wrote:
>>: So how would World War II have been funded?  Without a violation of
>>: the Fifth Amendment, mind you.
>>
>>Issuing bonds and defecit spending are not the same thing.
>
>Please, for the rest of us, explain the difference.
>
>(Hint: they are the same thing.)
>
>>: Agreed to a certain extent.  But budget deficits in a welfare state are
>>: countercyclical, while government spending is directly correlated with
>>: GNP.  Insisting on a balanced budget, in good times and bad, would 
>>: exacerbate the business cycle.
>>
>>A balanced budget does not prevent the government from issuing bonds.
>
>What's the difference between issuing bonds and borrowing money?
>
>What do you think treasury bills are?

The point to all of this is not exactly what is or is not deficit spending, or what is or is not 
borrowing money.

A few weeks past, I posted a few monographs that are making up a series of economic explanations
so as to clear up some of the air around all of this. Search those out, if you want them, I can
mail to you upon request (or repost). 

The major problem with the American public when they try to talk about these types of topics
is unbelievable economic illiteracy. By that I mean, they are talking about what they have
heard in the press, by the candidates, etc. all of which is usually bunk or turned around
so to make it more to their decided position. Problem is that most of the time the press
and the politicians bastardize true economic theory to such an extent that it makes anyone
who happens to be an economist want to puke and then kill.

So, in answer to the deficit not being bad, there is always two sides.

First, the general idea of deficit spending is not bad. John Maynard Keynes introduced the
idea of deficit spending in his models (see Economic Consequences of the Peace, General
Theory, et al) JMK initially took the Classical economic model (which demanded full employment
or full use of all possible resources at all times) and changed it so as to help explain
why the world was in depression during the 1920's. 

He proposed a paradym that showed how a lack of full employment could persist throughout
the economy through time. His proposed solution for this problem (one of many) was the
idea of deficit spending. He showed how government [G] could run a deficit at times of
recession or depression and use the funds to purchase goods and services so as to move
the economy towards full employment. This is what is commonly called "jump-starting"
the economy. That is a misnomer, because you can only "jump-start" something that is
dead...you can get out of something that is moving, even if it is moving very slowly,
and try to push a little bit, but you don't jump-start it.

Anyway, JMK proposed that [G] would use the deficit spending, i.e. run in the red,
until the economy and those in the economy began to pick up steam. The trick to 
the JMK proposition was that [G] was to then run a surplus as times became better.

This is the major problem with the idea of deficit spending. You cannot spend money
constantly and constantly be borrowing money. It is called "crowding-out" in economic
lingo. The idea of constantly borrowing money from individuals, corporations, banks,
etc, is counterproductive in the long run. The government is competing with privat
consumption and investment and any money it takes in cannot be spent to improve
the individual as much as if he/she spent it on themselves (see future discussion
on public goods, etc).

So, JMK, the father of deficit spending, has been misinterpreted, ignored, or otherwise
basterdized. He suggested gov't spending as a means for improving the state of a 
recessed or depressed economy, but he did not call for excessive gov't spending during
times of prosperity. In fact, he called for G to collect taxes, etc. (not in excess, though)
so as to build up a surplus of money, i.e. save it for a rainy (or depressed) day.

We have promptly forgotten that in our quest for more and more gov't activity in our world.

The deficit is not necessarily bad. But in our case, i.e. the U.S. of A., it is bad. The
reason is that there is no end to it, and there will be none. The gov't continues to 
borrow money from individuals in this country (i.e. through bonds), and takes potential
consumption funds away from the individual or the bank. If the gov't borrows from other
gov'ts in the world, then it is borrowing money that could have been spent on goods 
that are produced in this country. This "crowding out" of private consumption and 
investment is what is so destructive about the current format of deficit spending.

More to come, but please don't talk about things based upon what you have read in
the press, etc (Does not apply to all). Economic illiteracy is infuriating.

Xref: sparky talk.politics.misc:70278 alt.peeves:19721