Does government spending hurt or help the economy?

[Tom Wetmore]

It is a widely held political belief that cutting government spending will help the economy and that increasing government spending is bad for the economy. But is it really true?

When a dollar is spent where does it go? How much does it matter who spends that dollar? If citizens spend money to purchase goods or services does it help the economy more than if the government purchases the same goods and services?

Reality check. Government revenue is not just dumped in a giant incinerator and burned. That money is pumped back into the economy in very much the same ways that business and ordinary citizens do. It purchases good and services from sources within the US economy. If government cuts that spending, the businesses from which the government purchases those goods and services have reduced revenue and profits and end up cutting jobs. It is simply a matter of supply and demand.

The rationale of the above theory that we must cut government spending to grow the economy is that the money is left in the hands of citizens and US businesses that will do the spending of those dollars instead. How does that work?

As it turns out, not very well, if recent economic history is any indication. We have been living in a political climate for about a dozen years, where the revenue side of that equation has prevailed. Substantially lowered taxes have put billions of dollars (actually a few trillion) back into the private sector that would have otherwise been spent by the government. How has big business, and ordinary citizens for that matter, spent those tax savings?

The answer is that they really haven't done so well. Personal savings have been steadily increasing in recent years while wages have remained relatively flat. Normally that would seem to be a good thing. But that means less spending for goods and services. That is not so good for economic growth. Oh, but some might counter that some of that money saved is invested, directly or indirectly, in the market, which means of course those big businesses that are producers and job creators in our economy.

So let's turn to and consider how the business sector has spent those additional invested dollars from the savers and those tax savings from lower taxes. Again the news is not positive for the economy in terms of putting money into the economic stream by spending it. Cash reserves in the corporate (big business) and financial institutions are at record high levels. In short, banks and businesses are holding onto their profits and not spending to expand their business or hire more workers or to increase wages of the existing workforce. Those cash reserves are not doing much of anything to grow the economy. Executives and shareholders (most often overlapping populations) reap a huge benefit by increased dividends, stock options and stock splits. The company is worth more but producing less in goods and services, because, remember everyone is spend less because they are saving more. It is the law of supply and demand. And corporate America is hiding its money under its mattress rather than really pumping it into the economy.

We are on fallacious economic merry-go-round that needs to be stopped. We need to rethink this whole idea that reducing government to virtually nothing is the only way to grow the economy. And we need to rethink the idea that corporate America that drives this charade of economic policy really has our best interests at heart.

[bonnie]

When a dollar is spent where does it go? How much does it matter who spends that dollar? If citizens spend money to purchase goods or services does it help the economy more than if the government purchases the same goods and services?

[bonnie]

Just explain how a 1,000.00 of earned income does less than that 1,000.00 divided up between government excess and placed into the pockets of non working individuals.It is a 1,000.00,the amount does not increase when split among those that do not work or government waste.

Obama's tax plans for the rich,250,000.00 is rich in his eyes will fund the beast for 8 days.Then where do we go? Lower the bar as to what is rich? Add more tax and then more because there isn't any demand for less only more and more entitlements.

[Guest]

It is a widely held political belief that cutting government spending will help the economy and....

....And we need to rethink the idea that corporate America that drives this charade of economic policy really has our best interests at heart.

[bonnie]

It is a widely held political belief that cutting government spending will help the economy and....

....And we need to rethink the idea that corporate America that drives this charade of economic policy really has our best interests at heart.

[Tom Wetmore]

...lack of comprehension - res ipsa loquitur.

[bonnie]

...lack of comprehension - res ipsa loquitur.

Yes,I am sure.It does take a degree to understand how recycling the same dollar is improving the economy.Spreading 1,000.00 around pretending it is actually money the government has earned is far better than each spreading a 1,000.00 around.

Prudent successful small businesses understand before they write a check for money they don't have to stay afloat,they first before anything else eliminate the unnecessary.There is a limit to what they can demand from the consumer.

You sound a lot like my boys when they were young. If they wanted something and we said we didn't have the money and they would have to wait,they "Said,Just write a check" or use your "credit card"

[Tom Wetmore]

Now proving reinforcing my point...

[OzarkWoman]

Now proving reinforcing my point...

Yes, you have proven your point with your posts.

[bonnie]

Now proving reinforcing my point...

The one thing I truly enjoy about your posts is anticipating

your sense of superiority.

It always brings to mind my dad when he said,be suspicious

of those that feel superior to you that can answer only with put downs or condescension.

Just pretend that you are really as brilliant as you think you are and explain how dividing a 1,000.00 among others and putting that money into the economy, or putting that 1,000.00 into the economy by the one that actually earned it.

Explain how that 1,000.00 put into a savings account becomes stagnant.Is that same 1,000.00 sitting there are is it placed back in the economy by home loans,home equity loans,car loans etc.

For most a certain amount of borrowing money is seen as a necessity.Should that borrowing be based on what you can take from others and when that isn't enough we spend more and then

demand the right to take more?

I know liberals actually believe that most people are to ignorant to understand the importance and the moral rightness of spending beyond any hope of repaying,and forcibly taking from others so the government can disperse it.It is obvious to a liberal that a government will use more responsibility and more morality in dispersing those dollars than the ignorant citizen.

Every time you post you make what my parents tried to instill in us clearer.

He had the rather antiquated notion that any question or the right and wrong of a question could be answered biblically if you were willing to look and "listen"

Some look to the new "crucified savior" for the solution and declare those that don't buy that as somehow incapable of understanding.

What is being pushed and has been for some time is not biblically sound for me,sorry that it seems to be for you.

But I do so enjoy those that bask in their own reflected brilliance. Rather entertaining when the brilliance goes out and it is fast going out