Alright, read the thread and I see that there's a bit of a lack of knowledge about the basics of finance and debt.
Correct me if I'm wrong, but isn't it normal for a country to be in debt?
Yes and no.
Like in business finance, there are two primary types of debt: short-term debt (in business finance, this is usually called operational debt--it's the money you borrow to meet current obligations when your cash flow is behind; for a government, this can include entitlement spending, payroll, etc.) and long-term debt (in business, this is used to finance capital improvements like new buildings and the like, and in government it's often used for large-scale projects).
Short-term debt is generally good, or at least not bad. It means that you know when your money is actually coming in and you're making up the slack between accounts receivable (or, for the government, taxes receivable) and the money that's already been received.
Long-term debt is generally a little bit more of a red flag, but it's not a big deal
so long as you have a plan to pay it back. Debt service is expensive, but sometimes the value of expending money you don't have now is greater than the cost of servicing that debt. An example in somebody's personal life would be a mortgage on a house: you derive more benefit over a longer period of time from obtaining a house
now, even though you'll end up paying no less than two and a half times what the sale price of that house is over a 20-year note, than if you saved up the money over a long period of time and bought the house outright later.
The US's problem, shared by much of the post-industrialized world, is that we aren't making enough money to meet our short-term obligations. Our budget not only doesn't balance, but it's completely fucking cockeyed. Between a couple of stupid wars, an economic bailout that was probably necessary but poorly managed on all fronts, and expensive increases in entitlement spending (with more to come if UHC passes), we don't have the money to meet our obligations. This is what is known as the deficit: the difference between revenue (taxes, primarily) and expenses (almost everything the government spends money on). The problem lies in assuming long-term debt to cover what should be short-term obligations. Deficits tend to increase in post-industrial economies (especially those of countries with representative government) because there's just not enough money coming in to cover what's already being expended and debt service costs increase as year-over-year deficits increase (more money being borrowed, more money being borrowed from other people to service the debt on the previous borrowings).
I said above that long-term debt is not bad so long as you have a plan to repay it. No post-industrialized nation has such a plan. Money that does not actually exist (an inaccurate term, as debt-as-money
does exist, but, like the results of fractional-reserve banking, you can't see it or touch it) is being continually circulated, acting as a multiplier upon the total money supply throughout the world and being a significant contributor to inflation. The comparison to a Ponzi scheme is not inapt, and while it may be possible to keep all the balls in the air for quite a while, you won't find an economist who will tell you that they won't all come falling down someday.
Two methods to reduce deficits exist. Both are problematic (especially in, as I alluded to before, countries with representative government) because they involve twisting the knife in the average person. You can cut services, and piss off your constituents, or you can raise taxes, and piss off your constituents. Generally speaking, I fall on the "cut services" side of the line, because
there's only so much you can tax; this must be balanced, however, by considering the very real possibility that cutting too many entitlements may cause significant social decay. It's a balancing act.
Keynesian economics suggests that it is the role of government to "buy low," expending money (and going into debt) to try to cushion the shock during a recession. This is often cited as a reason why spending more is a net good. It has not borne out in practice; the commonly held case of the New Deal ignores that the American economy did not really recover until it had a war where everybody wanted to buy American-manufactured goods (because as of Lend-Lease we weren't in the war). Its relationship to the current economic situation is marginal, as most economists will tell you that
we're already out of the recession--the term "recession" is inherently backwards-looking and you cannot tell if you're out of a recession until you've been out of it for a while.
Personally, whatever one's opinion of UHC (I don't particularly care one way or the other, though I am ethically opposed to the government asserting further control over the populace's private affairs), it's very hard to assert that we can actually
afford it at the current time. Our primary focus should be reducing our deficit and maybe even running a positive to begin paying down the deficit. But it will not be, as people like "free" things and instead of paying their own way, their children and grandchildren will be stuck with the check.
Modern economic theory is based on the flawed foundations of General Equilibrium, which assumes, amongst other things, infinite supply and demand so as to achieve the perfect balance (hence why it's called General Equilibrium).
If you want to read more, here is a supurb book on the subject. You can find most of the book on google ebooks for free.
Uhm...what? General equilibrium theory says nothing of the sort. The primary driving point of general equilibrium theory (a theory I don't really ascribe to, but one that is perfectly respectable--its mathematics hold in a generalized space, which is
all they're supposed to do) is that a perfect competitive equilibrium will strongly tend toward Pareto efficiency (a Pareto improvement is one where at least one person in a transaction improves their state and no others are harmed; a Pareto efficiency is a case where no further Pareto improvements are possible). It doesn't claim anything related to infinite supply or demand. Certain explanations of various economics proofs assume infinite S or D to make the mathematics cleaner, but
nobody claims the real world is that way, and all are solvable with non-infinite quantities. The proofs are just uglier that way.
Also consider that general equilibrium theory is one offshoot of only one branch of modern economic theory (the Keynesians and Neo-Keynesians have spent decades picking apart general equilibrium theory, and even some neoclassicists aren't fond of it), and I strongly suspect you're picking buzzwords that you don't really understand.
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Topic: Jesus f***ing monetary Christ! (Read 6130 times)