Friday, March 1, 2013

Mismeasurement of Federal Spending, Investment and Saving

http://economix.blogs.nytimes.com/2013/02/26/mismeasurement-of-federal-spending-investment-and-saving/

11 comments:

  1. By discussing federal spending in terms a typical household’s spending, Bartlett creates a discussion of federal spending which can be more easily understood by almost all American citizens. Many Americans think that Washington should balance their cash income and outlays annually saying something along the lines of, “We are all expected to run a balanced budget in households. Why does Washington have such a hard time with it?” This seems like a simple argument, but when you think about it, households aren’t balancing their budgets annually; they’re only balancing them in the long term. Bartlett uses major purchases such as homes and cars to show this. We learn that the idea of a mandatory annual balanced budget should not be expected and can limit the nation’s ability to make long-term investments. This comparison is further used to discuss the need for government spending to make improvements to infrastructure. Overall, I am very impressed with this article because of the way it presents government spending in a way everyone can understand. I think that a better educated public can only benefit our government and help to eliminate gridlock in Washington.

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  2. I agree with Robert's analysis of this article. Bartlett describes the government's budget and deficit in a very clear and succinct manner that is easy for the average person to understand. I had never thought about the reasoning behind the government's deficit in this manner. It seems to me that the US needs a new way to measure their loans to provide a more long-term outlook that will truly show whether or not they are running deficits. Obviously no person or government can be expected to keep a balanced budget if each loan they take out is reflected just in the year that loan was taken. This does not allow for the government to show the returns on their investments. Furthermore, since the government is perceived by the public as running outrageous deficits, it limits their ability to take out more loans now, which may in fact be beneficial.

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  3. Bartlett best explained government spending when he used the maintenance metaphor. Just like your house, an asset will depreciate over time if you do not perform repairs. Those assets will then need to be prematurely replaced at an even higher cost then the repairs. The same is true for government infrastructure. Thus, the budget cuts can hurt the public in ways that we will not notice until the government programs must be completely rebuilt (at a high cost to us as citizens). But, spending more to repair the infrastructure will make it even more difficult to balance the budget. What Bartlett wants the public to understand is that we cannot treat the government budget like a household's. The government has no savings, and its expenditures often exceed its income. He believes the main problem that we have in misunderstanding the budget is the difference between investment spending and capital spending. Bartlett thinks that the best possibility would be to increase spending on infrastructure, so that idle resources are mobilized and capital projects will have low interest rates and thus can be produced cheaply. I agree with Bartlett's suggestions because infrastructure is the safest way to spend. The government should treat its spending as if it has 2 separate budgets.

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  4. This article very accurately supports Casey's stories about how the average American citizen should just take an introductory level economics class and actually learn how the economy works. Citizens are so focused on “decreasing the national debt” and “lowering the debt ceiling”, but many do not actually understand that cutting out investment spending would likely hurt the U.S. economy more in the future. As we discussed in class, a collapsed bridge would be inevitably good for the economy but something that would be good for the economy and kill less people would be to invest in infrastructure now. I understand that there are a lot of problems that need to be solved by government investments (such as pre-school education), however investing in infrastructure would lead to more jobs and safe conditions. This makes sense when you explain it but to people who have not taken the time to do so, it sounds like we are digging ourselves deeper into a hole. This article basically sums up why spending and investment can be good for the economy and that people should consider investments over spending more money.

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  5. I agree with everything that's been said so far. I really liked this article, and it explained government spending rather well. I understand that government spending is good for the economy and very important, but that doesn't mean it can be done indefinitely, and I think that is why some cuts are important. Bartlett's article did a good job of explaining government spending in a simple matter, but as always in economics, things are much more complicated than that. The government's budget is much different than the budget of a family and there are so many more things to take into account in the government. I do agree that treating spending as 2 different budgets is a good idea. Overall I enjoyed reading the article.

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  6. Cutting spending and balancing the budget is not inherently beneficial. This is the lesson that we have been taught in our macroeconomics class and what Bruce Bartlett is addressing in his article. An example of spending cuts could be to stop investing. To the naked eye, it seems like the spending cuts will help get our country out of the spiral of the increasing deficit. However, investments could result in higher returns than costs. This can be related to the multiplier effect. If the US government decided to invest more money in the development of energy alternatives, it will have costs associated with it. These costs would be ultimately picked up by the tax payers, but the benefits over the long run could prove to far exceed the costs. Jobs would be created, which provides income for more citizens. Those people then consume goods, contributing to our economy. The biggest lesson I learn from this article is that it is important to balance the budget, but it is even more important to keep the economy moving. If we pull out too much funding, the economy could slow down, resulting in a worse economic situation.

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  7. I enjoyed reading this article and agree with many of the points made by Bartlett. In particular, his ideas on how decreasing government spending could ultimately have a negative effect on the deficit in the long run due to the decrease of government investment spending seemed very interesting. I agree with this idea and thought that he did a very good job explaining it through the analogy of how putting off repairs to a house can ultimately cost more in the end. I also agree with Bartlett’s suggestion for instituting a new government policy allowing the government to treat their budget more similarly to the way a private individual would. This policy would allow the federal government to increase investment spending and hopefully lead to a reduction in the deficit (or at least a reduction in the rate the deficit is growing) over the long term. This increase in government investment spending should in theory also lead to an increase in private consumption due to the creation of jobs which have a positive effect on GDP. However, if the government was to adopt this new budget policy, it would need to be very careful about not wasting funds on projects that would have a negligible return or the government could end up increasing the deficit even more.

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  8. I enjoyed reading this article because I think Bartlett is very good at writing for people who may not understand all of the intricacies of the economy. His use of metaphors to draw parallels between government and household spending not only made the comparison easy to understand, but also highlighted various reasons why comparing these two spending methods is probably not the best thing for the federal budget.
    I thought it was especially interesting when Bartlett mentioned that, the budget as it is written now, doesn't really have a way of differentiating between investment and consumption spending. This is a big problem, because as we have learned in class, the two are very different. Other students have commented before me that considering the differences between the immediate returns gained from consumption spending and the delayed returns received from investment spending is crucial, and I agree with them.
    Ultimately, we all need to ask ourselves what our priorities are. If we want to immediately pay down the deficit at all costs, recognizing that this could be detrimental in the long run, then there is a strategy for doing that. If, however, we understand that maybe having a deficit right now isn't the worst thing, especially when we will be seeing returns tomorrow on investments made today, the we might just have a plan for economic recovery.

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  9. Bartlett has done a very good job of explaining in simple terms what misconceptions and what problems there are involving Americas federal budget. Most Americans are probably unaware, as was I, that the federal budget takes investment spending to be the same as consumption spending. It should be clear that investment spending fundamentally is not the same as pure consumption spending, and Bartlett’s household analogy really makes it obvious. In light of the federal budget’s current misinterpretation of government spending I not only agree with Bartlett that a capital budget and an accountability office are good ideas, but I would say they are imperative to the proper solving of the deficit problem. Reducing investment in our long-term future cannot be a part of our deficit solution.

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  11. Bartlett does a great job in this article addressing the common misconceptions many Americans have about government spending and deficit. He points out how the federal budget treats investment spending like consumption that has no long term benefit. As we discussed in class, this is certainly not the case because investment spending on things such as technology or human capital can ultimately have higher returns than the costs. Many Americans do not understand that reducing the deficit by cutting investment spending is not always a good thing and Bartlett makes sure to point this out. Bartlett stresses the fact that balancing the budget is necessary, but cutting investment spending can actually result in hurting our economy even more.

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