2016

[detbuch]

Originally Posted by spence

Sure, there are a lot of components and Federal spending is a big one.

I think the CBO predicted that the Sequester -- which was a drop in the bucket some claimed -- would depress GDP 1.5% in 2013. Given that the difference between recession and strong growth is in the single digits that's a significant impact.

-spence

It's obvious, without debating abstruse theories (those academic discussion you like to disparage), that government spending has impacts, significant or otherwise. The important question is whether the impact is good or bad, short term or long term. As far as short term GDP goes, there is also the question of mirage or reality. GDP inflated by government spending which does not actually reflect organic economic growth is illusory and accompanied by a rising government debt. In the short term it may appear that so-called GDP has grown due to government spending due to raw numbers of dollars spent, but numbers adjusted to inflation and debt to GDP ratio may tell a different story, especially in terms of the long term economic health and government's credit reliability. The sequester (which was a bit of a mirage itself since only discretionary spending, not mandatory spending, was cut, and since actual spending would grow, just at a slightly smaller pace) would presumably have not only an illusory negative impact on GDP, but also a positive impact on debt to GDP ratio. Which would, supposedly, have a positive long term effect on growth.

But that's all academic. Besides, all that changes from election to election with future administrations cancelling their predecessors legislations and creating new ones. The trajectory consistently being growth of government debt and the debt to DGP ratio. Which leads to, as Piscator says, a big problem.

[scottw]

it was sequestration AND the changes "in certain tax provisions" AND 1/4% attributed to "other" factors that would cause the 1.5% in depressed GDP that Spence is referring to

february 28, 2013

The fiscal tightening in 2013 is mostly a result of two developments: the expiration of certain tax policies that will lead to an increase in tax revenue (relative to 2012, payroll tax rates are higher and tax rates on income above certain thresholds have increased); and the automatic spending reductions scheduled to occur under current law (the sequestration). In the absence of those policies, real GDP would grow about 1¼ percentage points faster between the fourth quarter of last year and the fourth quarter of this year, CBO estimates. (The remaining ¼ percentage point reduction in economic growth due to fiscal tightening comes from other, smaller changes in spending and taxes.) The expiration of those tax provisions and the automatic spending cuts account for about equal portions of that 1¼-percentage-point effect. The spending changes have a smaller budgetary impact than the tax changes, but they affect GDP by a larger amount per dollar of budgetary cost.

Nevertheless, although CBO expects that reducing the amount of fiscal tightening this year would strengthen the economy in the short term, the resulting increase in federal borrowing would weaken the economy in the longer term unless other changes in spending or tax policy were made to offset that additional borrowing.


we live from short term mirage to short term mirage digging the hole deeper and deeper