92 sats \ 1 reply \ @Undisciplined OP 17 Nov 2023 \ parent \ on: Meta Econ Takeover Day 31 meta
I think that role of deficit spending is illusory, which isn't to say it's fake exactly. Government spending really shouldn't be part of GDP calculations, since it's not a productive expenditure and it's double counting the money from before it was taxed. However, people react to those official numbers, so deficit spending does keep people from acting like they're in a recession.
What you call a "grinding slog sideways to slightly down" they call a "soft landing" and it tends to be worse than just letting the economy go into freefall. Historical evidence suggests that if you allow the market to correct the misallocated resources, the plunge down will be violent, but the recovery will be rapid.
The longer they try to prop up the economy with deficit spending the more distorted the real economy will become, because more and more of it will become tailored to whatever unproductive activities the government is arbitrarily funding. The reason government interventions can't really ease the collapse is because they just introduce new misallocations that need to be corrected eventually.
Could not agree more, on all counts.
I spoke with a Libertarian presidential candidate recently who had a plan to cap government spending at a certain % of GDP. And I was immediately turned off because he didn't seem to take into account the fact that government spending is a portion of the GDP calculation...
Agree that it shouldn't be counted. It's not as if it's real capital earned by the government; it's just funds confiscated by a coercive tax regime.
Also agree completely that the best course of action is to flush the excess credit and unproductive zombie firms out of the system with haste and then let the economy naturally recover. I have no doubt in my mind that it would be extremely painful in the short run but the economy would bend, not break. That's way better than the economy slowly succumbing to asphyxiation by warped incentives and absolutely unproductive uses of capital supported by theft via inflation.
Bad businesses and ideas need to be allowed to fail, full stop.
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