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The Deficit Has NO Effect on GDP

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April 25, 2013 – Comments (4)

Heresy? Surely. Opinions go all over the map, but there is one universal belief: these 2 factors surely are intimately related. We only have to discover how.

Disagree in the strongest possible terms.

Factoid #1

Weaker legions of the EuroArmy have had to dramatically cut gov't spending, thereby reducing national deficits down to “safe” levels. Their reward has been an economy that is in much deeper recession than it otherwise would have been.

Aha! You are thinking. So Keynes and Krugman were correct after all? Fiscal spending must be increased to make up the shortfall during times of economic distress? Reduced fiscal spending actually depresses GDP!

Factoid #2

For the past 4 years, Uncle Sam has run deficits right around $1 trillion (holy smokes, before Obama, such a number was never uttered by the common folk, but not it is common parlance. How tragic). Measured by GDP, this would make our deficit the tenth largest economy in the world. That is just our deficit. Yet, unemployment remains stubbornly high and our economy is growing at a flaccid pace, and many other economies are growing much faster than ours.

OK, so the Austrians (Hayek, Mises, Hazlitt, Friedman) were correct: bigger gov't spending depresses the economy, while a lean-n-mean gov't budget equals more growth?

So What?

C'mon. Let's get real. How does that Sherlock Holmes saying go? “When you have eliminated the impossible,whatever remains, however improbable, must be the truth”. The national economy is a ridiculous Rube Goldberg contraption. Anyone who claims to understand how it works is simply “talking through his hat”.

If there are any other cliches I have missed, let me know below.  

4 Comments – Post Your Own

#1) On April 25, 2013 at 10:12 AM, L0RDZ (84.26) wrote:

Anyone  who  thinks  you  can borrow  your  way  out  of  debt  is a  fool.

Unless of course you are lucky enough to get a  piece of  that 18 trillion  the  fed  loaned to the world  at  near  zero percent interest...

Where  can I  line up to get a piece of that pie ?

Who voted for that ?

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#2) On April 25, 2013 at 12:37 PM, Frankydontfailme (27.20) wrote:

Deficit has direct affect on GDP, GDP is basically an aggregate of spending and saving. So spending more = higher GDP.

Why do we care about GDP again? 

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#3) On April 30, 2013 at 7:48 PM, Melaschasm (65.13) wrote:

If debt does not matter, then why not borrow enough money to send a check to every US citizen every year for $1,000,000?

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#4) On May 01, 2013 at 1:57 PM, Turfscape (40.96) wrote:

@melaschasm - If apples are so tasty, why not plant orange trees in every corner of the world?

Sorry to sound snarky, but your position has nothing to do with the original post here. Deficit is not the same as debt, and no one put forth the assertion that it doesn't matter...the post clearly asserts that it doesn't affect GDP. That's a pretty big difference.

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