Quote:
Originally Posted by spence
You don't counter this simply by artificially increasing supply.
The market cannot artificially increase supply. It costs real money to increase supply. That's why supply usually follows demand. Government, on the other hand, can artificially increase the demand for supply by increasing the stock of money too fast. This usually results in inflation. Too often, government uses inflation as a means to check somewhat the growth of debt interest and as a means to expand its size by spending for special interests and programs.
Government spending is part of GDP after all and programs to help the unemployed or poor do go right back into the economy. If you cut spending too fast you risk weakening the foundation while you remodel the upstairs.
-spence
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Government spending as part of GDP does not include transfer payments such as social security, unemployment benefits, food stamps, etc. Beneficiaries of transfer payments are not currently producing anything for the payment so there is no product (other than a voting constituancy for government expansion).
Government spending on actual products that it needs to operate, and on constitutionally based services are, in the best of circumstances, paid for by taxes. These may be considered a part of GDP, but they are also a cost to the private portion of GDP and so don't actually increase it. At best, its a wash. If the private sector had to provide those services, that cost would be added to the GDP just as is the government's cost added, and the government's contribution to GDP would be replaced by the private sector. The problem arises when the government goes beyond that for which it was instituted and decides for all of us on what and how and how much it will spend money.
And when it takes on more and more responsibilities that should be left to the private sector, it demands more and more of the private sector's money to spend in ways that it wishes and shrinks what is left for the private sector to spend in ways that will sustain it and let it grow. And when it has to resort to means beyond taxation when the tax burden begins to seriously harm the private economy, it either borrows or prints money. The printing of money too quickly or beyond the private sector's means to supply causes inflation and a growth of the national debt. And that makes the use of GDP (gross national product) rather than GNI (gross national income) a more attractive way for government to hide the damage it creates by requiring larger amounts of income that will have to go into paying off larger debt which DECREASES the gross national income (GNI).
GDP that results from monetary pumping, government "stimulus," which increases the supply of money is not "real" economic growth. It is an artificial growth or rise in the GDP which causes, or is, inflationary growth which is a false increase in the wealth of a nation since it does not increase overall purchasing power. Further it causes social harm by distorting the incentive component of an economy, and creates, rather than new "products," by-products--unmotivated citizens who are given a nominal "income" without having to produce or work specifically for that income. These citizens are in fact the product purchased by government to increase its "wealth"--its size and power.