If you spend 8% and the GDP is boosted by 4% once, and then grows at the normal rate afterwards, then the GDP will stay 4% larger indefinitely.

That 8% debt would generate 4% more economic output this year, next year, the year after, the year after that, etc...

If your 8% debt only generates 0.5% of extra growth once, and then we get back to a baseline 3.5% growth, the additional economic output will equal the debt in 16 years and continue generating economic output afterwards.

But it's also completely unclear why, as a government, you should care about the ratio of debt to growth. The two numbers are of an entirely different nature. That economic output corresponds to things produced by the economy. The 8% debt corresponds only to who has control of which money pile (in particular, it includes the promise that the government will redirect a large chunk of money to the lenders in the future, which you might or might not find problematic). It doesn't take anything away from the total sum. So by shuffling money around, you have created real economic output. That's great!

I don't understand why there should be any relation between deficit (which is a percentage of government revenue) and gdp growth (which is a percentage of total gdp of the whole country).

The answer is that GDP simply includes the government spending in itself, by definition: https://en.wikipedia.org/wiki/Gross_domestic_product#Compone...

I have "opinions", but if you are interested in this topic, rather than me dumping it here, it can be worth reading up a bit on GDP, then googling around for GDP criticisms. I think there's a sense in which it measures something useful, but it isn't measuring what people think it is and what the media sort of pushes it as meaning; it is correlated to the health of an economy but it is by no means a measure of the health of the economy, and the fact government expenditures are simply straight-up added to the GDP has such an obvious way for the government to manipulate the numbers that I can't hardly even call it an exploit. Whether they are doing that, I'll leave that to the reader to decide.

Another relatively obvious issue is that the GDP number waved around in the popular press is generally not adjusted for inflation. That's not just the US GDP in 2023, it's any GDP the press will talk about, anywhere and anytime, so I'm not trying to make any stealth political point here. It's something to be aware of in any context a "GDP" comes up, look to see if it's inflation-adjusted or not. Such measures exist and more serious economists definitely use them. The wikipedia page I linked to above has a wide variety of other interesting definitions and that's still a Wikipedia overview itself, of course, not the fullness of econometrics.

The 8% deficit listed above _is_ a percentage of total GDP of the whole country (although the Fed has it at only 5.3%). The numbers are directly comparable.

https://fred.stlouisfed.org/series/FYFSGDA188S

One is a rate of growth and the other is a rate of spending. It would be like comparing that you spend 8% of your income on food and that you got a 4% raise this year. The two numbers have nothing to do with each other other than using the same unit.

No, that's a bad analogy. It's more like I borrowed 8% of my annual income this year, and then bought 4% more than last year. If I hadn't borrowed all that money, I wouldn't have been able to buy that much. It's both intuitively obvious and empirically demonstrable that government deficits stimulates economic growth in the immediate term, since most government expenditure happens in the domestic economy.

If your assets, lets say your house of value grew by 5% , you would say yay me.

However, to make things simpler assume you don't have cash, for example, because you are unemployed.

So, if you are making the mortgage payments using the credit card and the total CC payments this year alone are 8% of the value of the house, you can see problem.

Eventually, the debt becomes due, and no amount of house will repay the incurred debt.

So the relationship is, you may buy any house (assets) that grows in any amount, but if your CC hole is growing faster, you are actually worse than you started out.

Analogies comparing household finances to government finances are pretty apples to oranges. A household can’t easily get unsecured loans below prime, print money to cover debts, or do many other things that governments can.

Government is just a large group of people

Financing and even currency issuance depends on trust.

I can get a 0% from family and friends if i needed for far more my net worth. With connections I could also get counterfeit and pass it around.

It comes down to the fraud triangle: opportunity, incentive, rationalization.

The government may have more leeway to commit fraud than an individual. But the comparison is still apt, the fraud is the same, whether its a house being paid with CC or GPD with govt bonds. Ignore that at your own peril

The dynamics are similar in many ways, but not the same. Government bonds are closer to shares in a company than personal debt, or even corporate debt for that matter. Many people want to own government debt as a stable store of value. Even moreso as the global military hegemon, where other countries want to own the government's debt as a stable store of value.

Conversely, the US government has also spent the last 40+ years abusing the fallacy that loaning money is completely different than spending, which has grotesquely distorted the financial industry and the housing market. So the sooner we shove off these misguided notions, like that the government's balance sheet is anything like a private balance sheet (and even worse, that the Federal Reserve's balance sheet is somehow distinct from the government's!), the better. Modern Monetary Theory is more in line with the actually-conservative Austrian School than the hybrid catastrophe of the past four decades.

Still, there's no free lunch. You can see this clearly with smaller nations that try those strategies. If the US government has to do those things then there are negative repercussions in the form of distorted interest rates, inflation, capital misallocation, etc. All else equal it's obviously beneficial to have a balanced budget, low debt, and organic economic growth from dynamic markets. The federal government still has the exorbitant privilege of the USD as the global reserve currency, so can export much of its inflation across the world. Though at the end of the day these trends matter, and the long term debt cycle, coupled with worsening domestic issues, does not bode well with increasingly powerful strategic rivals and proxy wars.

But what if you can set the CC rates as you please (let's say to 0% because why not and we've been doing that for the better part of last 12 years). And if push comes to shove you can just get infinite "loan" from a biggy bank that you happens to have.

Technically you are correct that the govt can set the rates.

But that's just like you demanding to have a 0% CC from a financial institution. If you are Bezos, you may be able to swing that.

But that demand only follows your credit rating. You can demand 0%, but that doesnt mean you will get it. If Bezos is suddenly bankrupt, bet he's not getting the same CC, or even any CC.

Making the bet that the USG can set rates as they please forever just because they have for 12 years is just saying "I'm a turkey and life is good, this nice farmer feeds me every day!"

Thanksgiving always comes.

I don't think this captures the point I was trying to make, the US government have ultimate control over Federal Reserve and its policies.

Thanksgiving will always arrive but the government is not going to be the turkey with its debts, in this case, it could be a global stagflation. The US government can always make good on however many debt it has as long as it is denoted in US dollars.

Well, the idea of spending more, is working more, which the latter is reflected by GDP.

If the government spends more, it should cause more work, which should lead to higher GDP.

This is one simple way to look at it.

If the government is spending more, but GDP isn't growing by the same, it might be a sign that the governments expenditures are wasted.

Now, I'm not saying that's happened, but it could be. Government spending is historically the most likely to be wasteful, in comparison to individual/retail/business spending.

The deficit is on percentage of GDP! Part of this GDP is direct consequence of government deficit spending. If you remove the 8% deficit you remove a big chunk of this GDP growth (probably all). But the situation shows that the gov is spending way more than the resulting growth, so this means it is a completely inefficient investment. You should expect at least 1 to 1.

In 2019, the US economy grew by 2.3% and the federal deficit as percent of GDP was 4.6%.

So isn't the situation today exactly the same as four years ago, before Covid, under a Republican administration?

Yet somehow I never heard this argument that GDP growth is a function of the deficit back in 2019.

I have always pointed out this, be it a republican or democrat government. They all use the same tricks to inflate GDP by borrowing. Now, I'm not against borrowing for the sake of economic growth, but you cannot keep borrowing 6% to get 3% growth, in the end this policy will not work.

It is also unsustainable in the long-run for the primary budget deficit (I.e excluding taxes interest costs) to grow faster than GDP growth.

Because tax revenue is fairly consistent as a percentage of GDP as well, so if deficit as a percentage of GDP exceeds faster than GDP growth then our debts are growing faster than our ability to repay them.

Tax renevues were down 9% for the 2022 fiscal year which is part of why we saw a larger increase in the deficit. Part of that decrease is due to tax delays related to disaster relief and will come in during the 2023 year so the numbers are skewed.

What do you think why there is a deficit? Government spending is the income of others.

The more they spend, the more others earn, leads to higher GDP.

I dont I think that is the right way to think about this, but I agree that the government grossly overspends.

A one time expense of 8% GDP for a 4% growth is great. That means it would get paid back in two years, or faster if you consider compounding.

The problem is determining if the 8% spending is related to the 4% growth (and how much.

Another way to to frame the whole topic is that the US government spends %40 of GDP in taxes, plus another 8% borrowed, per year. Even this could be a good deal, but it comes down to how much of the growth is causes by govt spending, which types of spending, and if the growth is permanent.

Government debt is completely irrelevant as long as the debt the government has is in its own currency that it can print more of. US government can print however much money it wants.

It will never default because it can just create the credit. That’s what the Federal Reserve did with its zero interest rate policy. It distorts the economy, and the economy can shrink and be torn apart, but the government can always pay its debt by simply printing the money.

The real problem lies with private debt, and that's what's actually leading to a default. When people default on their debt, they end up forfeiting property to the creditors. What we’re seeing now is a large scale transfer of property such houses and cars that people had bought, and so on, that they can no longer keep making payments on. this results in a transfer of income from the 90% to the 10%.

Government internal debt is a problem too because while, sure, you can print your way out of it, you are still devaluing the currency repaid.

Take social security for example. You can print money to repay all the money borrowed from the fund, but in doing so, you have debased the currency it pays out.

If a retiree is owed 100$, you pay it with printed money, so in theory they are made whole, but it no longer has the same purchasing power. It is a rug pull for the retiree.

That's not how fiat currency works. There is no direct relationship between the amount of currency in circulation and the value of the currency as expressed in the price of goods and services. The prices are set by people who own businesses based on how much they believe their consumers are willing to pay them.

nonsense. Double the currency in circulation and hold goods constant and you will deflate your currency. There is a clear and direct relationship.

You can expand the money supply and amounts in circulation without inflation in the exact case where you expand the value goods and services in equal measure.

Even then, the purchasing power of currency holders is less than the counterfactual where the money supply was not expanded and you had deflation as a result.

Money drop a million printed dollars on each consumer, and prices will skyrocket.

Are you trying to tell me that the expansion of the money supply in Venezuela has no direct relation to inflation.

Once again, inflation is a result of business owners choosing to raise the prices. If money that's created goes directly to consumers, then it allows business owners to raise prices on goods. However, that's not what's happening when US government is printing money to pay off its debts. You appear to have an incredibly superficial understanding of how money supply works, and you appear to be just regurgitating tropes you've memorized.

>If money that's created goes directly to consumers, then it allows business owners to raise prices on goods. However, that's not what's happening when US government is printing money to pay off its debts.

This is exactly what happens when the government expand the money supply to repay debt. It send out social security checks, pay workers, and buys goods. This puts money directly in the hands of consumers.

You even agreed we are talking about an increase in the money in circulation. Are you walking that back and saying that money in circulation doesn't give consumers more money? The creditor of Government debt Is citizen consumers with benefit obligations.

What about Venezuela? Consumers don't have more currency there either?

> This is exactly what happens when the government expand the money supply to repay debt. It send out social security checks, pay workers, and buys goods. This puts money directly in the hands of consumers.

Not really, because most government debt isn't consumer debt. US isn't increasing money supply to pay for social security or to pay workers. It's increasing things like military contracts for large corporations.

> You even agreed we are talking about an increase in the money in circulation. Are you walking that back and saying that money in circulation doesn't give consumers more money? The creditor of Government debt Is citizen consumers with benefit obligations.

I'm not walking anything back. I'm saying that the currency that's being created isn't going to the hands of regular people. This is obvious from the fact that majority of the working population can't even afford to live on the salaries they make forcing them to take on debt to buy essentials

https://finance.yahoo.com/news/jaw-dropping-stats-state-cred...

> What about Venezuela? Consumers don't have more currency there either?

Venezuela is under a brutal blockade by the US, and that's the actual source of most of the problems there.

>Not really, because most government debt isn't consumer debt. US isn't increasing money supply to pay for social security or to pay workers. It's increasing things like military contracts for large corporations.

You are confusing the debt owner, and where the money was spent. The governments make create internal debt for a military contract, but the debt is held either by the public (e.g bonds), or intragovernmental ( e.g. borrowed from the social security fund) When these get paid back, they go into circulation.

Besides, Most government spending goes to salaries and benefits.

I'm not, as the link I provided you with clearly explains, personal wealth in US is decreasing. It's now at the point where people have negative assets because they're forced to borrow to meet their basic needs.

If what you claim was happening then we wouldn't be seeing this happening. If money went to salaries and benefits, then workers wouldn't be under water financially the way they are right now.

"You appear to have an incredibly superficial understanding of how money supply works, and you appear to be just regurgitating tropes you've memorized."

The irony is off the charts.

an amazing counterpoint you've mustered there

There is no relationship between money and inflation because the money doesn't go to the pockets of people who can spend money. The extra money goes usually (the covid programs are an aberration) to the pockets of the financial elite, and they become stocks and other financial assets. The price of these assets go up, so there is asset inflation, but not real product inflation. The characteristics of fiat money work because the created money is really going to the pockets of the rich to inflate their net worth.

Sure, that's part of it, and the other half of the equation is that when economic crashes happen the rich use their liquid assets to buy up physical assets that everyone else if forced to let go this concentrating tangible wealth with the capital owning class.

> A one time expense of 8% GDP for a 4% growth is great. That means it would get paid back in two years (...)

Not quite. The payback time will depend on the growth in government revenues, which should be correlated to GDP growth, but a fraction of it.

It's also ignoring interest.

Borrowing $8 to make $4/year is a good investment as long as interest is less than 50%

even if it doesnt increase revenue, it can be a good investment.

The purpose of the government isnt grow, it is to serve the people

Future money is cheaper than current money. The approach totally works in a low rate environment. But as rates get higher in relationship to inflation expectations it becomes unsustainable

If you're rounding, the growth is 5%.

Not that comparing those two numbers is at all meaningful.

OK, what numbers do you propose are the ones we should trust if they're basic?

I think what the comment is saying is, if the government is spending a lot of money inefficiently (i.e. spending $100,000 on a weapon that has $10,000 in raw materials plus layers of bureaucracy that are hard to quantify as costs) and accruing a lot of debt in the process, it is hard to understand what your cost is for basic things.

I think you'd at least want to get a 1-1 ratio for spending to drive growth and ideally an actual ROI. The government is operating like a VC funded startup right now

What are the absolute numbers?

The percentages don't appear comparable here. They also don't allow for future multiplier effects from the spending.

No agenda, just holding that sentence up to a little scrutiny.

Apparently just giving money to the rich isn't a very good way to build an economy

The best way to build economy is to give money to those without. Then they spend it. Trickle Down is bullshit. Bubble Up is the one that works. The rich still get theirs - but less and after the money has passed through a few hands.

We just tried that and inflation exploded.

It sucks that we had to pay 1.5x as much for a dozen eggs during and shortly after that global pandemic, but put blame where it is due, and it is not really due to your neighbors getting pandemic relief.

https://thehill.com/business/economy/4057722-greedflation-is...

I don't get what point you're attempting to make. Your comment suggests you think inflation came from from pandemic (a loss in productivity?), the the link is about corporations sopping up the extra cash that was floating around via raising prices.

The latter would fall into the bucket of government handouts to the bottom cause inflation, would it not?

If you're skipping the monetary interaction and saying "it's not the handout, it's the greed", then I'd like to point out that companies have been behaving the same way forever (trying to maximize profits), yet inflation has been low for a decade.

That corporations would take advantage of poor people having more money to spend is intended behavior, and something that needs to be accounted for in functional monetary policy.

Yea. Tax those corporate profits and tax those wealthy C-suites. Then the taxes help those on the bottom rung; and the circle continues. Accumulation at the top blocks the flow.

> companies have been behaving the same way forever (trying to maximize profits), yet inflation has been low for a decade

This isn't true. Companies only started to maximize profits under shareholder value recently. Corporations originally were thought to have a responsibility to society at large, thus with things like pensions being provided to their employees.

Additionally, the small handouts to the poor are much more dwarfed by handouts to the employers at the time. Which made it baffling that large employers then raised prices anyways, when they already got the vast majority of covid relief money. No, it is pure greed.

Somehow a lot of haves were mixed in there too, which may have been the problem.

This says nothing of economic output. If you just hand out money to people, that has an economic output of zero. Short term this might work, but long term, I believe it would shrink the economy, and leave it saddled with people that don't produce according to the markets' demands. Why would they?

Why wouldn't they? Do you think folk would just sit on ass after getting the handout? Would you? Some, perhaps - but they sit on ass now - and have no social safety net or anything, they outdoors.

The human condition is to endeavour. Even with free money the majority of folk will work, or do something to improve their situation.

I would certainly keep myself engaged and busy with my hobbies. But that is unlikely to produce anything of real value for anyone else.

People who don't produce anything and live from getting money to spend... I think you just described the rich!

How did they become rich then?

There are all kinds of ways of getting rich. Working is the least efficient in terms of effort.

All top 10 richest men in the US are self made. And they worked damn hard at it. Of course they worked smart too, and took chances - that's the part most people miss.

Careful saying that around here ;)

Both of those numbers are wrong. It's more like 6% deficit and 8% GDP growth.