Usually when the economy is soaring, it's time to pay back your debts.<p>To do that, you have to at least rein in your deficits.<p>When the private sector is doing great, the public sector doesn't have to stimulate it anymore.<p>However, infrastructure projects tend to have high multipliers - think the interstate highway system and the internet.<p>I would cut overseas spending. That accounted for trillions of dollars. Why should we pay more for the army's unspecified expenses around the world, when there is this: <a href="https://www.rt.com/usa/356562-pentagon-account-trillion-audit/" rel="nofollow">https://www.rt.com/usa/356562-pentagon-account-trillion-audi...</a><p>Why should we help Saudi Arabia with billions in weapons to bomb Yemen in their proxy war against Iran?
I’ve heard that infrastructure projects take a long time to get started. So the ideal time to launch an infrastructure bill might actually be during a strong economy.
He's using this horrible thing called the growth gap. It is this made up metric that assumes economic models are correct ahead of actual reality. It essentially measures actual growth against opinion. Its the old quip "It may work in practice, but it will never work in theory."<p>Potential GDP is defined as what the economy is capable of growing at. How is that determined? By a model. And if we are growing faster than the model says, it is assumed to be growth borrowed from the future. And growth below expectation can then be seen as storing up for the future. Under this incredible strange up-is-down interpretation, you'll see how far below expectation the Obama administration was. Some how not meeting expectations can now be a good thing.<p>1- So even if this were true, the above and below periods should balance to zero over a long enough time. If they don't, then there is a problem with your model not predicting growth properly. In the second chart, growth is often below expectation since the 1960s (as far back as the chart says) and almost entirely below since the 1980s. Something is clearly wrong with the potential growth model.<p>2- if it were true, why is this not a rebounding from the previous below potential of the last couple decades? In that case we aren't above potential just catching up to it.<p>3- using the output gap as a strong/weak signal doesn't even pass the smell test: it would show the economy of the 1980s as being inferior to the 1970s. In fact, it would show no economy being as magical time known as the 1970s!<p>Curious who this guy is, it is a terrible article, i found his academic page: "Evan Horowitz is an assistant professor of English at the University of North Texas who specializes in Victorian literature and culture."
It seems like the article can be boiled down to 2 points.<p>1.) Deficit increasing projects (Infrastructure the main example) should be conserved for when the economy is weak so the Government can use it as a way to introduce money into the economy.<p>2.) Increasing deficits during an economic strong period requires the Government to increase the number of lenders by increasing the interest rates, which in turn puts unneeded pressure on companies to increase their interest rates.<p>I have a couple of confusions from this article. Isn't beneficial for the Government to increase interest rates so they are able to cut the rates during the next recession to increase borrowing? Also, why is it bad for companies to be increasing their interest rates? I am presuming that the tax cut bill will introduce more money into companies to be able to increase their rates.<p>I'm always worried reading the opinion articles on Five Thirty Eight since they tend to have a left-ward leaning bias. Their articles that focus on statistics are usually fantastic.
When Trump won, the odds of tax cuts instantly jumped from 10% (the odds of Trump winning) to about 100%. The may have caused companies to change their forecasts and spending as if the tax cuts had already happened, possibly providing a small economic boost despite the tax cuts having not yet happened. Same same for stimulus spending, but the odds on of that are less certain (maybe 50%). What is more likely to happen now is that there will not be high inflation despite the high deficits. I remember reading the same arguments in the 2000's about how the Bush tax cuts would cause high inflation, but the inflation never came. The reason is tax cuts and stimulus cannot be both ineffective and inflationary. The consensus by many economists seems to be that tax cuts and stimulus only provide a most a modest economic boost, if any. This means that interest rates won't have to rise too much, but longer-dated bonds may suffer.
Funny that. Not exactly surprising. How many years will it take to debunk Friedman I wonder? Or at least to fall from fashion.<p>It's a pity Bretton Woods only let the world try a watered down version of Keynes.
The real potential problems with a deficit are inflation (which isn't high) and bad allocation of real resources. Financing it isn't a problem.<p>The US government spends X amount. That means X amount enters the economy. Then they ask for Y amount back. Y amount are taxes. X-Y is the deficit. The deficit ends up in our bank accounts as savings. Reducing the deficit means fewer dollars enter the economy which means less money in people's savings accounts. Smaller deficit means a slowdown in the economy.<p>Where does the federal government get X amount? Same place a score keeper gets the points they give out in a football match. It comes out of nothing. Its literally a computer key stroke. The treasury and the IRS don't even talk to each other. There is no problem financing the deficit.