This is pretty straight forward.  An economy cannot grow without people spending money, so for an economy to grow, people must, over time have more money.  Where does the additional money come from?

Here is the list of things that most people might think of when they think of economic growth...

1) Increasing the deficit

2) An increase in private sector borrowing

3) Decrease in private sector savings

4) Increase exports relative to imports

5) Increase velocity

6) Increased private sector investment

7) Decreased waste

8) Decreased regulation

The question is, where does the money come from so that the economy can grow?

Let's start with #8.  Companies spend a certain amount of money each year meeting certain regulations.  Reducing regulation will decrease costs for producers.  Ideally, regulations are imposed to prevent societal costs, so the real question is, which regulations have been imposed that don't meet their promise of reducing a societal cost, or the cost is too high relative to the benefit.  Having said that, reducing costs just makes an economy more efficient with the money it has.  Once an acceptable level of efficiency has been achieved, growth from more efficient allocation of regulation will stop.


When it comes to decreasing waste, it can only add to the economy until an acceptable level of efficiency has been achieved, after that, increases from decreased waste stop.

Private sector investment is the most confusing and probably the most controversial because companies in the aggregate (at the macro level) won't expand unless there is increasing demand or at the very least a belief that there is enough untapped demand that spending money will create an increase in sales.  The problem with this is that even if you could grow the economy this way, it does nothing to add new money to the economy in which a net 150k people enter (as in become old enough to work) the workforce each month.  The money used to invest comes out of a pool of savings and in that sense is really just rebalancing of money that already exists.   It is an exchange of assets within the economy.   In order to grow long term, you'd need another form of growth.

What about velocity? Historically velocity is something that falls within a fairly predictable range and it tends to increase when things get better.  So it really just magnifies the effect of real growth rather than being the genesis of it.  As such it's unrealistic to think that increasing velocity is a reliable way to grow an economy.

What about #4?  The way things are now, the US is an import based economy.  As a result, we export $860 billion more dollars (yes, we actually export dollars) and imports G&S in the same amount.  It's not very realistic to think that the US economy will become an export based economy.  SO Growth has to come from somewhere else.

What about savings?  People could drain their savings and the economy could grow, the problem is savings act as a buffer for the private sector during downturns and I don't think anyone here would advocate growth via savings depletion.  If you are thinking of savings depletion as a way to increase income via investment, that's #6.

This leaves two options....

Private sector borrowing (and subsequent spending)

Increased government deficit, which can take two forms, lower taxes or increased spending or some combination of both.

Ok, so in conclusion....

If you advocate economic growth but are against increased debt, then you must support increasing private sector debt, unless I missed something, and I hope you'll tell me what it is, or I'm wrong about some aspect of 3-8.

If you think that a rising private sector debt is bad and you think a rising public sector debt is bad but you think the economy should grow, unless you have another solution, you have a serious problem, because you can't have all three.  You have to give up at least one.


Little about me...

I'm here for good and interesting conversation and I hope you will all welcome me here as this is my first post.

When it comes to economics, I disagree with some commonly accepted orthodox positions and I find it an interesting topic to discuss.

-Cheers

Lets start with shrinking govt first, that alone shrinks the deficit, as well as unleashes free mkt principles.

Quote from: Solar on December 04, 2016, 07:51:11 PM
Lets start with shrinking govt first, that alone shrinks the deficit, as well as unleashes free mkt principles.

Ok, so then you believe that increasing personal(private sector) debt is the solution, correct?  I mean, the government currently spends 1 out of every 4 dollars in the economy.  So in order to grow, the private sector would have to increase its debt by whatever the public sector decreases it.

Quote from: Econ4Every1 on December 04, 2016, 08:11:08 PM
Ok, so then you believe that increasing personal(private sector) debt is the solution, correct?  I mean, the government currently spends 1 out of every 4 dollars in the economy.  So in order to grow, the private sector would have to increase its debt by whatever the public sector decreases it.

Why does reducing the size of government necessitate an increase in private debt?

Quote from: Econ4Every1 on December 04, 2016, 08:11:08 PM
Ok, so then you believe that increasing personal(private sector) debt is the solution, correct?

Huh?

Quote
  I mean, the government currently spends 1 out of every 4 dollars in the economy.  So in order to grow, the private sector would have to increase its debt by whatever the public sector decreases it.

Who is this magical "private sector" single entity?  When us business owners increase debt, if we don't pay our bills, we can go bankrupt and out of business.  I'm confused about where you're confused.  Or, I'm confused about what your point is.  We have business owners on this site, as well as visitors, so please step us through a scenario.

Quote from: supsalemgr on December 05, 2016, 04:49:14 AM
Why does reducing the size of government necessitate an increase in private debt?

I'm thinking he might not understand that private and public sectors are apples to oranges.  Government has unlimited funds and doesn't need to compete.  Us in the private sector are forced to live in reality.

Quote from: supsalemgr on December 05, 2016, 04:49:14 AM
Why does reducing the size of government necessitate an increase in private debt?

First, thanks for joining in and asking questions.

The answer is that it doesn't necessarily, but if the federal government is made "smaller", in order to maintain growth long term the private sector must increase its spending.  Of course, I assume that when someone says "smaller" federal government they mean to reduce the functions that it provides and that means less federal government spending.  For any service the federal government no longer performs that leaves the states to pick up (which will require money) or simply eliminate altogether (which will result in unemployment).

For example.  Today the Federal government is spending around $4 trillion dollars a year (actually it's just a hair under).  Most of that spending is paid to the US private sector in exchange for goods and services.  A very small portion is paid to entities outside the nation and that portion does not add to GDP.

Ok, so let's say you believe that the IRS, Dept of Education so on and so on could all be eliminated (I'm not saying you actually believe that I'm just giving examples, you can fill that in however you like)

All the people that work for those agencies and all the spending those agencies do, would no longer be needed.  So let's say for the sake of argument that you eliminated $1 trillion dollars is spending through "smaller" gov, some through a reduction in waste and some through decreased regulation.

That $1 trillion dollars in spending was $1 trillion dollars in income for someone in the US private sector.

Millions of people just lost their jobs, but the states and private industry can pick up those jobs, right?

Who is going to pay for it?

Of course, now that you've reduced gov spending you can reduce gov taxes.  If you reduce spending by 25% presumably you could reduce gov taxes by the same...So, gov taxes are $3.2b take away 25% and you get $2.4 trillion leaving $800 billion.  The states could now increase their taxes collectively by $800 billion and the amount of tax money paid by the population would stay the same.  This would create problems of locality, but let's set that aside for now.

The problem is there used to be $1 trillion in spending, now there is only $800 billion, a $200 billion shortfall.  But wait!  Let's say, though reductions in waste and regulation and elimination of unnecessary jobs $200 billion has been saved, thus you wouldn't have to raise any additional taxes to do the jobs you think the states should pick up.

Ok, so what's the problem?

That $200 billion used to be paid to someone.  Not paying it means a reduction in GDP and a massive spike in unemployment (I'm not even going to factor the growth of federal benefits those people would be paid just yet).  If you support growth (and you better with a net 150k people turning 18 each month, most of which would like to work) than the money has to come from somewhere.

So my question stands, where does the new money come from to create growth if not from private sector borrowing?

Quote from: taxed on December 05, 2016, 05:50:01 AM
Huh?

See my reply above.

Quote from: taxed on December 05, 2016, 05:50:01 AMWho is this magical "private sector" single entity?

The private sector encompasses all for-profit businesses that are not owned or operated by the government. Companies and corporations that are government run are part of what is known as the public sector, while charities and other nonprofit organizations are part of the voluntary sector.

Read more: Private Sector Definition | Investopedia http://www.investopedia.com/terms/p/private-sector.asp#ixzz4RyaWI0KP

Quote from: taxed on December 05, 2016, 05:50:01 AMWhen us business owners increase debt, if we don't pay our bills, we can go bankrupt and out of business.  I'm confused about where you're confused.  Or, I'm confused about what your point is.  We have business owners on this site, as well as visitors, so please step us through a scenario.

Shhhhh, that's my point.  We'll get there.

Ok, so let me ask you....

1) Do you think the US economy should aim for growth?

2) Do you think the US government should reduce the Federal debt?

3) Do you think it's possible to do both simultaneously without increasing the debt of the US private sector (again as opposed to the US public sector - the government)?

If your answer to 1 and 2 are yes, then I'm here to tell you that #3 is not possible.

Quote from: taxed on December 05, 2016, 05:53:30 AM
I'm thinking he might not understand that private and public sectors are apples to oranges.  Government has unlimited funds and doesn't need to compete.  Us in the private sector are forced to live in reality.

Not sure why you think that, can you explain?

Quote from: Econ4Every1 on December 05, 2016, 07:04:25 AM
See my reply above.

I did, and you don't seem to understand some free market basics.  I'll chop that post up next...

Quote
The private sector encompasses all for-profit businesses that are not owned or operated by the government.

Sure, but all businesses are for-profit...

Quote
Companies and corporations that are government run are part of what is known as the public sector, while charities and other nonprofit organizations are part of the voluntary sector.

Most of us call that non-profit, but yes, that is a term...

Quote
Read more: Private Sector Definition | Investopedia http://www.investopedia.com/terms/p/private-sector.asp#ixzz4RyaWI0KP

Shhhhh, that's my point.  We'll get there.

Oh goodie... this is going to be fun....

Quote
Ok, so let me ask you....

1) Do you think the US economy should aim for growth?

No.  The economy will, as the kids say, "do what it do".

Quote
2) Do you think the US government should reduce the Federal debt?

Yes.

Quote
3) Do you think it's possible to do both simultaneously without increasing the debt of the US private sector (again as opposed to the US public sector - the government)?

Yes.

Quote
If your answer to 1 and 2 are yes, then I'm here to tell you that #3 is not possible.

Why?

Quote from: Econ4Every1 on December 05, 2016, 06:54:51 AM
The answer is that it doesn't necessarily, but if the federal government is made "smaller", in order to maintain growth long term the private sector must increase its spending.

Why?

Quote
  Of course, I assume that when someone says "smaller" federal government they mean to reduce the functions that it provides and that means less federal government spending.

That is part of it.  Anther part of it is to reduce the regulation stranglehold on business.

Quote
  For any service the federal government no longer performs that leaves the states to pick up (which will require money) or simply eliminate altogether (which will result in unemployment).

Give an example.

Quote
For example.  Today the Federal government is spending around $4 trillion dollars a year (actually it's just a hair under).  Most of that spending is paid to the US private sector in exchange for goods and services.  A very small portion is paid to entities outside the nation and that portion does not add to GDP.

Give a specific example.

Quote
Ok, so let's say you believe that the IRS, Dept of Education so on and so on could all be eliminated (I'm not saying you actually believe that I'm just giving examples, you can fill that in however you like)

Yes, those should at least be eliminated, among others.  I'd also like to put a bunch of them in jail, buried up to their necks, and stoned for treason, but I'm getting ahead of myself.

Quote
All the people that work for those agencies and all the spending those agencies do, would no longer be needed.

They are not needed right now.

Quote
  So let's say for the sake of argument that you eliminated $1 trillion dollars is spending through "smaller" gov, some through a reduction in waste and some through decreased regulation.

Ok, let's say....

Quote
That $1 trillion dollars in spending was $1 trillion dollars in income for someone in the US private sector.

Give an example...

Quote
Millions of people just lost their jobs, but the states and private industry can pick up those jobs, right?

Incorrect.  The free market would employ them, provided they had some sort of skill that is in demand by some employer.

Quote
Who is going to pay for it?

Pay for what?

Quote
Of course, now that you've reduced gov spending you can reduce gov taxes.  If you reduce spending by 25% presumably you could reduce gov taxes by the same...So, gov taxes are $3.2b take away 25% and you get $2.4 trillion leaving $800 billion.  The states could now increase their taxes collectively by $800 billion and the amount of tax money paid by the population would stay the same.  This would create problems of locality, but let's set that aside for now.

Why wouldn't the state governments reduce their spending to stay solvent?

Quote
The problem is there used to be $1 trillion in spending, now there is only $800 billion, a $200 billion shortfall.

Incorrect.

Quote
  But wait!  Let's say, though reductions in waste and regulation and elimination of unnecessary jobs $200 billion has been saved, thus you wouldn't have to raise any additional taxes to do the jobs you think the states should pick up.

Ok, so what's the problem?

That $200 billion used to be paid to someone.  Not paying it means a reduction in GDP and a massive spike in unemployment (I'm not even going to factor the growth of federal benefits those people would be paid just yet).  If you support growth (and you better with a net 150k people turning 18 each month, most of which would like to work) than the money has to come from somewhere.

So my question stands, where does the new money come from to create growth if not from private sector borrowing?

There's this magical force called the "free market capitalism".  So far, you have shown you have no understanding about free market economics.

May I ask, how many business have you started and run?

Quote from: Econ4Every1 on December 05, 2016, 07:14:23 AM
Not sure why you think that, can you explain?

You don't comprehend free market capitalism.  I'm not being mean, I'm just being factual.

Quote from: Econ4Every1 on December 05, 2016, 06:54:51 AM
First, thanks for joining in and asking questions.

The answer is that it doesn't necessarily, but if the federal government is made "smaller", in order to maintain growth long term the private sector must increase its spending.  Of course, I assume that when someone says "smaller" federal government they mean to reduce the functions that it provides and that means less federal government spending.  For any service the federal government no longer performs that leaves the states to pick up (which will require money) or simply eliminate altogether (which will result in unemployment).

For example.  Today the Federal government is spending around $4 trillion dollars a year (actually it's just a hair under).  Most of that spending is paid to the US private sector in exchange for goods and services.  A very small portion is paid to entities outside the nation and that portion does not add to GDP.

Ok, so let's say you believe that the IRS, Dept of Education so on and so on could all be eliminated (I'm not saying you actually believe that I'm just giving examples, you can fill that in however you like)

All the people that work for those agencies and all the spending those agencies do, would no longer be needed.  So let's say for the sake of argument that you eliminated $1 trillion dollars is spending through "smaller" gov, some through a reduction in waste and some through decreased regulation.

That $1 trillion dollars in spending was $1 trillion dollars in income for someone in the US private sector.

Millions of people just lost their jobs, but the states and private industry can pick up those jobs, right?

Who is going to pay for it?

Of course, now that you've reduced gov spending you can reduce gov taxes.  If you reduce spending by 25% presumably you could reduce gov taxes by the same...So, gov taxes are $3.2b take away 25% and you get $2.4 trillion leaving $800 billion.  The states could now increase their taxes collectively by $800 billion and the amount of tax money paid by the population would stay the same.  This would create problems of locality, but let's set that aside for now.

The problem is there used to be $1 trillion in spending, now there is only $800 billion, a $200 billion shortfall.  But wait!  Let's say, though reductions in waste and regulation and elimination of unnecessary jobs $200 billion has been saved, thus you wouldn't have to raise any additional taxes to do the jobs you think the states should pick up.

Ok, so what's the problem?

That $200 billion used to be paid to someone.  Not paying it means a reduction in GDP and a massive spike in unemployment (I'm not even going to factor the growth of federal benefits those people would be paid just yet).  If you support growth (and you better with a net 150k people turning 18 each month, most of which would like to work) than the money has to come from somewhere.

So my question stands, where does the new money come from to create growth if not from private sector borrowing?

Your premise is based on the assumption government is efficient. Anyone who has spent any time on this planet understands that is not the case. Reducing government is not an overnight proposition. A start would just be to freeze hiring in many sectors of the government. Attrition would take care of the start. Then, applying some effective management techniques would identify many non-performing assets and many of those would voluntarily leave. I also have no problem with states taking on any reduced federal functions they might feel essential. Most states have to have balanced budgets so while they are also inefficient, state management is more efficient than the feds. CA might be an exception.

If you stay here for any length of time you will find I do not deal in epistles in my posts so I do not get into lengthy responses.

Quote from: supsalemgr on December 05, 2016, 07:51:30 AM
Your premise is based on the assumption government is efficient.

Not sure why you think I believe that.  I never said it nor do I think that.

For the sake of this discussion, would you mind defining efficiency in the context you're using it?

Quote from: supsalemgr on December 05, 2016, 07:51:30 AMReducing government is not an overnight proposition.

Agreed

Quote from: supsalemgr on December 05, 2016, 07:51:30 AMA start would just be to freeze hiring in many sectors of the government. Attrition would take care of the start.

Yes, I covered that where I said:

"Let's say, though reductions in waste and regulation and elimination of unnecessary jobs $200 billion has been saved"

Quote from: supsalemgr on December 05, 2016, 07:51:30 AMThen, applying some effective management techniques would identify many non-performing assets and many of those would voluntarily leave. I also have no problem with states taking on any reduced federal functions they might feel essential.

No disagreement here.

Quote from: supsalemgr on December 05, 2016, 07:51:30 AMMost states have to have balanced budgets

Agreed

Quote from: supsalemgr on December 05, 2016, 07:51:30 AMso while they are also inefficient, state management is more efficient than the feds. CA might be an exception.

This is where we disagree.   Taxed has laid out a bunch of questions, so look to my answers there.

Quote from: supsalemgr on December 05, 2016, 07:51:30 AMIf you stay here for any length of time you will find I do not deal in epistles in my posts so I do not get into lengthy responses.

Check.

Quote from: taxed on December 05, 2016, 07:44:40 AM
You don't comprehend free market capitalism.  I'm not being mean, I'm just being factual.

Let's not be hasty.  I ask only that you engage me in constructive discussion and give me the opportunity to explain.

Thanks