What pisses me off is that this is what should have happened in 2009. With interest rates below the rate of inflation, high unemployment and a lot of excess capacity projects are as cheap as they get. But that was 2009. Back then we were told by Republicans that government stimulus doesn’t work and would cause inflation. The weak stimulus bill we did get was about 1/3 the size it should have been, but even that functioned the way the models predicted - the economy reversed course, surged above average briefly, but then tapered to 2% growth or so, with no burst of inflation or spike in interest rates. Now Republicans want to stimulate an economy that is simply waiting for permission to re-start itself. If they want to help, the government should be doing what’s necessary to protect our people (health, food, etc.) while things are paused and protect systems (food, finance, transportation, healthcare, education, etc.), so they’re in decent economic shape when people go back to work (which we will). Recoveries from economic shocks are often quite dramatic as pent up demand is unleashed. There will be a need for stimulus, but it will be more narrow and focused on certain parts of the economy that may end up drastically changed.
They’re claiming that every current event proves that they were right. Same as they claimed yesterday.
Something about this just doesn’t smell right to me, or maybe I’m misunderstanding the inputs to your equation. Let’s take 1999 as an example. The federal government ran a surplus of $126 billion and the trade balance was a deficit of around $260 billion. So using your equation, the budget surplus minus the trade balance is $386 billion, so the private sector must have lost $386 billion. Yet GDP growth in 1999 was 4.8%, the highest we’ve seen in the past 40 years. That doesn’t add up.
If I instead take 2019, with a budget deficit of $984 billion and a trade deficit of about $625 billion, I calculate that the private sector must have earned $359 billion in profits – almost exactly the opposite situation from 20 years earlier – yet GDP growth was only 2.3%.
What am I missing?
Infrastructure and invasion of venezuela, last two resorts of the government in serious crisis
He must have seen the reelection numbers and not liking them a bit…
If you look at this, each sector is a mirror of the other sectors. It’s difficult, but you can make out 1999. Both the federal budget and the private sector are reflected to the dollar by the current account deficit [that’s the -(- trade balance)]. Both Government and private sector finances have gone negative to offset the current account i.e, our deficit to the rest of the world.
From about 1998 to 2002, the private sector is a big loser financially. They were taking on debt rapidly and killing their future ability to consume.
I can see how an infrastructure would be long-awaited but why must it be called Bill?
The private sector didn’t lose $386 billion, it went in hock (to China…the joke goes) for that amount. That STAGGERING AMOUNT! And that enormous taking on of debt was pretty much the reason GDP improved. Debt spends just like earnings, except there is the problematic hangover that is involved in repaying it.
The sectoral balance equation I posted regards the health of the private sector. It isn’t a proxy for GDP. GDP is basically what is invested, spent, and produced in a given year. It has nothing to do with the amount of private sector debt that was needed to produce it. A way to think about it is; suppose the only economic activity was $15 trillion worth of asset trading going on in a year, mostly based on borrowing in the hope that the assets will gain in value at a later point in which everybody sells (WHEE!!!) at the increased value.
In reality, if that’s the GDP increase, then there isn’t much of a real economy, and there is no way in the future all those owners/potential sellers would recoup their debt based spending. It’s a guaranteed future collapse, but in that given year, you get a swell $15 trillion GDP.
Oh, the 1999 budget was actually in deficit, by about $1 billion. The inclusion of the Social Security fund in the budget, which it has no business being part of, maintained the political fraud that there was actually a surplus.
I apologize to everyone reading these responses as they are extremely boring.
Hold on, in the comment I responded to you described the private sector term in your equation as “surplus (profit) in the private sector.” Now you seem to be saying it’s debt. Which is it?
That may very well be, but if companies were reporting massive losses then people (and companies) would have stopped spending money and GDP would not have grown, which is why I used GDP as a proxy for corporate profits – I know it was imperfect, but it was readily available. My contention is purely that if the private sector term in your equation represents profit/loss as you originally indicated, it doesn’t seem to make any sense and makes the rest of your comment really difficult to follow.
If it is debt, then at first blush it seems to make more sense, though I’d have to look up some numbers to fully convince myself (and even then I’m not sure I agree 100% with the spirit of your comment, but I do begin to see your point).
You are right, replace profit with surplus. That was not accurate on my part.
But it isn’t loss that happens to the private sector, it’s debt, which leads to an eventual debt deflation as it becomes so enormous that the private sector can no longer adequately service (pay back) the debt. That’s when the federal government and federal reserve has stepped in and cleaned off corporate balance sheets, mainly financial sector, and takes the debt onto the government books, exploding the deficit. This hasn’t done much to support a healthy full employment economy or household wealth, but it does reset the table for another onslaught of private debt explosion (seems, mostly share buybacks and speculation). Households haven’t benefited.
Eventually the government ends up going into deficit equal to the amount they should have been carrying all along in the service of private sector health.
So, re your statement, GDP isn’t a proxy for the sectoral balances, it is a proxy to total sector net production and investment. It isn’t really relevant regarding the health of the entire private sector. The less government debt without a trade surplus, the weaker the private sector becomes. If the government sector goes sufficiently negative budget wise, the private sector doesn’t need to set it self up for a debt induced stagnation.
The other thing to think about, and this regards profits, is that it is the case that if the household sector goes deeply in debt (which we have seen for the last 30+ years) the corporate sector will show mighty profits.
They are both part of the private sector, just different parts. Also, if even large portions of the corporate sector become heavily indebted as well, then that often shows up in massive financial sector (still private sector) profits. All of this can lead to GDP increase, due to the way it is calculated, while a huge portion of the private sector suffocates eventually.
Hope this is clearer. I did make a mistake there.
Oh, you sweet summer child…
Yes, a WPA type thing is exactly what will be called for, after there is some relief on the dying front, but the right wingers will have an apoplectic fit before allowing any such thing to pass.
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