What defence do we have against politically-motivated scientists?

[Drogue]

Originally posted by Ned
However, it is also demonstratively true that balanced budgets lead to economic stagnation, surplusses to depressions, and deficits to expansion.

Not quite. The phrase you're missing is ceteris paribus, or "all other things being equal". They aren't. Small, even medium-sized deficits well spent lead to expansion. Huge deficits lead to scared creditors and taxpayers. Moreover, balanced budgets don't lead to stagnation. At times, they're necessary as debt can't just keep on rising indefinitely. It has to be kept in check. If deficits were always good, you'd end up with an infinite debt. Debt must rise slower than output and slower than tax revenue. If it is, that's great. If it isn't, you need to reign in spending.

Originally posted by Imran Siddiqui
Yes they are MUTUALLY EXCLUSIVE for those two, Ned.

They're really not. Friedman even admitted it late in life, that fiscal policy is neither useless nor neutral.

Originally posted by Imran Siddiqui
For instance, the Kennedy tax cuts you love to wax about came into effect in 1964!! It takes a looong time for fiscal policy to be enacted. Monetary policy is much, much quicker.

Actually, economics tends to presume the exact opposite. Monetary policy takes 18 months to have it's full effect, whereas fiscal policy is almost instant - as soon as you start spending, it boosts demand.

Originally posted by Jack_www
I agree with you point, I should have stated I am talking about the long run. Also everyone has forgotten about Japan. They tried to do what Ned says is the sure fire way to get out of a recession, spend their way out of it by borrowing 100 trillion yen. It did nothing for Japan, and they still have their problems. How do you explain that?

No multiplier effect. The government spent money and people just saved it. They didn't respend a large part of it, which is what leads to the increase in demand, they just saved. Also, they were already in debt before the recession, through deficit spending, which was precisely why they *couldn't* spend their way out of a recession. Add to that the ridiculous bubble that Japan was in, the utterly unique Japanese corporate culture and way of life and the huge export-led growth of the rest of South East Asia, which really hit Japan's balance of payments, and you can see why the recession was so hard. It was a lot of events that conspired to mean that you'd have needed billions upon billions to spend you way out of the recession.

There's a really simple answer here, as shown in many, many articles (Barro 1974 comes to mind as a seminal one) - deficit spending increases aggregate demand, which increases economic growth, but not perfectly. That means for every dollar the government spends and doesn't tax, the public spend a little (though less than a dollar) less, in anticipation of future taxes. This is justification for limited deficit spending. However too much deficit spending and the credibility of the country to pay back loans is called into doubt, the currency can have problems (causing more doubt about the debt) and unless the money is used productively, the interest builds up.

The USA is able to absorb a lot more deficit spending than any other country, for two key reasons. Firstly, it can borrow in it's own currency. So it doesn't have the issues of "if the currency falls, the debt grows larger", as the debt falls with it. Secondly, it's big enough that it would take a lot of debt to make the country's credibility fall into question. However it's getting close - the currency is having issues if Asia doesn't keep proping it up and it's debt is becoming huge. Also, there's a lot of doubt about how well the money is being spent, from a growth-stimulating point of view.

[Drogue]

Re: Re: Re: What defence do we have against politically-motivated scientists?

Originally posted by Doddler
What if the peers have the same ideologically-driven bias?

You think *all* scientists, in any field, have the same ideology? The whole point of science is it teaches people to be critical, to test, to look at evidence and assess whether or not conclusions are valid. If even a few scientists in a field disagree, they counter-publish and we have an active debate. There's only a problem if so many scientists believe one thing uncritically that it's accepted and other views aren't allowed, which goes against all science training given to young scientists and all science strives towards.

[Victor Galis]

In response to the original question: Politically-motivated lobbyists.

[Ned]

Originally posted by Jack_www


Government Spending can not simulate a economy. The government etheir has issue a tax or borrow money. That money has to come from some where, and it comes from the economy. So when the government spends money, it is just puting back the money it took out in the first place, money that would have been spent anyways by consumers. So how in the world can it simulate the economy? Also you cant just go on decifit spending for ever, there is only so much you can borrow before you start to run out of money to borrow.

Governtment spending based on borrowing is stimulative of the private economy. Government spending that taxes the economy to balance the budget is the shell game you describe.

[Ned]

Originally posted by Imran Siddiqui


Yes they are MUTUALLY EXCLUSIVE for those two, Ned. Friedman was against using fiscal policy to control the economy. He saw, rightly, that fiscal policy's enactment usually came far after what it supposed to correct, so it applied after the problem was fixed, causing a problem on the opposite pendulum. Friedman was very, very anti-Keynesian and many say that he proved a lot of Keynes' assumptions were wrong (part of the reason he got the Nobel Prize in Economics) They tend to get in each other's way more than not.

For instance, the Kennedy tax cuts you love to wax about came into effect in 1964!! It takes a looong time for fiscal policy to be enacted. Monetary policy is much, much quicker.

That is why I prefer to use monetary policy to fight inflation and fiscal policy to drive the economy. Taxes rates should be adjusted very infrequently. Higher tax rates always act like a brake on the economy, while deficits stimulate it. If you need more revenue for new programs, you simply need to grow the economy to provide more tax revenue. That means stimulus.

[Ned]

Originally posted by Jack_www


I agree with you point, I should have stated I am talking about the long run. Also everyone has forgotten about Japan. They tried to do what Ned says is the sure fire way to get out of a recession, spend their way out of it by borrowing 100 trillion yen. It did nothing for Japan, and they still have their problems. How do you explain that?

"Japanese voters simply didn't trust their government to make the tough reforms, so they hunkered down and held on to their wallets. They didn't spend, and they didn't allow their government to undertake expensive bailouts or restructurings of afflicted sectors of the economy. Instead, Japan has approved a stream of smaller tax cuts and pork-barrel public expenditure projects, which have largely failed to re-inflate the economy and are slowly burying the nation under a mountain of public debt. Problems festered and confidence shrunk."

http://www.centrists.org/issue_summaries/econ_basics.html

Their banking system was broken and they didn't have the courage to fix it by writing off bad loans and restructuring failed banks as necessary. The US has a similar problem in the early '90s that caused or contributed to a slowdown, but we restructured and lending continued.

[Ned]

Originally posted by Drogue

Not quite. The phrase you're missing is ceteris paribus, or "all other things being equal". They aren't. Small, even medium-sized deficits well spent lead to expansion. Huge deficits lead to scared creditors and taxpayers. Moreover, balanced budgets don't lead to stagnation. At times, they're necessary as debt can't just keep on rising indefinitely. It has to be kept in check. If deficits were always good, you'd end up with an infinite debt. Debt must rise slower than output and slower than tax revenue. If it is, that's great. If it isn't, you need to reign in spending.

Moderation in all things, Drogue. Clearly "large" deficits sustained over a "long" time are bad. Such deficits would cause debt to grow faster than the economy so the ratio of debt to the economy would grow. But that is still no argument for balanced budgets and/or surplusses. It argues for modest deficits, all other things being equal.

[Jack_www]

Originally posted by Ned


Governtment spending based on borrowing is stimulative of the private economy. Government spending that taxes the economy to balance the budget is the shell game you describe.

Even when the government barrows money, it causes interest rates to raise and it costs more for business to barrow money to expand their business. Also it one of the main reasons why inflation occurs, because here in the US, the government uses the debt as reserves for the Federal Reserve which in turn use it to put more money into the economy.

[Ned]

Jack, Think about the difference. If the government borrows your money, you get a note that is like money itself. It doesn't reduce your liquidity one bit. If the government taxes it from you, you have nothing. Your equity and liquidity are reduced.

Interest rates somewhat depend on aggregrate demand for money and expectations about infation. Witness Japan. Even while they borrowed like crazy, interest rates stayed at zero. This is why monetary policy and fiscal policy are somewhat independent.

[Imran Siddiqui]

Originally posted by Ned
Moderation in all things, Drogue. Clearly "large" deficits sustained over a "long" time are bad. Such deficits would cause debt to grow faster than the economy so the ratio of debt to the economy would grow. But that is still no argument for balanced budgets and/or surplusses. It argues for modest deficits, all other things being equal.

Aside from the fact that continually running in 'small deficit' will eventually add up to a 'large' deficit? And what about large deficits from wartime spending? Should that not be countered by surpluses afterwards to prevent the debt from getting to the "large" stage?

[Drogue]

Originally posted by Ned
Moderation in all things, Drogue. Clearly "large" deficits sustained over a "long" time are bad. Such deficits would cause debt to grow faster than the economy so the ratio of debt to the economy would grow. But that is still no argument for balanced budgets and/or surplusses. It argues for modest deficits, all other things being equal.

Actually, it is, occasionally. Put it this way Ned:

There will always be external forces that can destablise a country's economy - other countries for starters. This means there's always a chance of recession, however well run a country is. Suppose then that you have a country running continually medium-sized deficits, but below the rate at which the economy is growing. The economy growth funds this, and the debt ration drops. However they you're hit by a recession due to external forces. Now, by your argument, since you'd have to keep debt growing slower than the rest of the economy, if you have a recession (ie. negative growth), you need to have negative growth on debt too. You'd need to spend less government money during a recession. Which is the exact opposite of what is a good idea to do.

So you see Ned, in order to keep the debt ration stable or falling in the long term, with external shocks, you need to have a buffer zone. You need to have the reserves to spend at a time of recession. The more debt you have, the harder this is to do and the worse effect it will have on inflation.

So in conclusion, if a deficit is well spent, we have justification to have a deficit. Now it must, at all times, allow debt to grow slower than the economy. That is the maximum deficit. It must also allow enough of a buffer to cover external shocks.

Originally posted by Imran Siddiqui
Aside from the fact that continually running in 'small deficit' will eventually add up to a 'large' deficit?

Nope, not if the economy grows faster. Say debt's $100bn and growing at 2% a year (ie. the government deficit is $2bn). Let's say the GDP of this country is £1000bn, leading to tax revenues of $400bn, and growing at 3% a year. So at year 0, the debt ratio is 1/4. After a year, we have debt of $102bn and tax revenues of $412bn, leading to a debt ratio of just under 1/4. Every year, even with debt increasing, the debt ratio drops.

Originally posted by Imran Siddiqui
And what about large deficits from wartime spending? Should that not be countered by surpluses afterwards to prevent the debt from getting to the "large" stage?

Yes. Any large debt needs to be countered.

[Solly]

Re: Re: Re: Re: What defence do we have against politically-motivated scientists?

Originally posted by Drogue

You think *all* scientists, in any field, have the same ideology?

It only takes a majority. The minority are brushed aside as charlatans or non-credible, despite their work being sound, for example.

[Ned]

Drogue, during recession and emergencies like war, the debt can and should be large so that it grows relative to the economy. In all other circumstances, you "pay off" the debt by growing the economy. If you go into a government surplus condition, you place a large brake on the economy. While you might be paying down the debt, you might also being throwing the economy into a deflationary depression. In US history, at least, every surpluss has caused exactly this.

Focus should always be first kept on the economy, not on the budget.

Growth Growth Growth is the Holy Grail.

[Drogue]

Re: Re: Re: Re: Re: What defence do we have against politically-motivated scientists?

Originally posted by Doddler
It only takes a majority. The minority are brushed aside as charlatans or non-credible, despite their work being sound, for example.

No it doesn't. You have a small majority, say 60% or so, then the other 40% still have a lot of places to publish, can publish good counters, and politicians will look at the arguments. Even if 60% were politically motivated strongly enough towards one side that they stopped looking at arguments and thinking critically (highly unlikely - I don't know many politically motivated scientists at all as they care more about science), then the other 40% would have plenty of opportunity to create reasoned rebuttals. And faced with 60% saying one thing, and the other 40% rebutting it well without any further counter, politicians won't be purely guided by the 60%. Most politicians, and people, will look at the evidence, to some extent. It requires a large, overwhelming majority to remove the other sides ability to counter. And frankly, science is set up that scientists are taught, and the people tend to be people who are, more concerned with evidence, with sensible conclusions and argument than they are with politics. Remember that by rebutting a commonly-held view, a scientist can make his name. He has all the incentives in the world to try to rebut whatever is currently recongnised as the mainstream view. And it only takes one or two good rebuttals before the government starts to listen. Or at least the opposition start to listen, and then the public can decide by vote which they believe.

[Drogue]

Originally posted by Ned
Drogue, during recession and emergencies like war, the debt can and should be large so that it grows relative to the economy. In all other circumstances, you "pay off" the debt by growing the economy. If you go into a government surplus condition, you place a large brake on the economy.

Don't you see, there's nothing special about the amount 0, when a deficit becomes a surplus. A small surplus will do very little. The difference between a $10m surplus and a $10m deficit is non-existent, as far as effect on the economy is concerned. So at times, it will be necessary, as you say, to pay off the debt by lowering deficit spending. At times, that may need to be lowered enough so as to mean surpluses - imagine if the government had a debt ratio higher than 1, where its debt was higher than its GDP. Would you then still argue for small deficits to stimulate the economy? That would be utterly stupid, as to do so would put your currency into freefall, cause your creditors to call in their debt and force sky-high interest rates on the rest. It would be madness, and it would be carnage. Similar to Mexico before the bail-out.

In such an extreme situation, reducing the debt would be necessary to restore confidence. Now I admit that this is an extreme situation, and that usually a small deficit (ie. much smaller than economic growth) is necessary. But that is not always the case, as how small that deficit should be depends on how much debt you have, and if the debt you have rises so much, you need to start looking at surpluses.

Put yourself in Japan's situation. Imagine you spend money to try and fight out of the recession, and it adds a massive debt. Eventually, it gets to the stage where borrowing becomes prohibitively expensive and so you need to start paying it back. If the recession hasn't ended there, you have a problem. In the modern age, recessions have the potential to be longer and more vicious, requiring more spending to get out of them. This requires a higher level of reserves beforehand to try and make sure the country is safe. Occasionally, that may require surpluses as, to put it simply, the difference between -$10m and +$10m on the budget is the same as the difference between -$30m and -$10m. It doesn't matter whether it's classed as a surplus or a deficit, what matters is the effect it has, and whether the debt level is sustainable.

Originally posted by Ned
While you might be paying down the debt, you might also being throwing the economy into a deflationary depression. In US history, at least, every surpluss has caused exactly this.

How did Clinton's cause that? Remember fiscal policy works quickly, so it doesn't take 8-10 years for it to start causing recession, if it's going to.

Surpluses do cause recessions, but you're presuming they're all bad. If the economy is overheating, you need a small recession to correct it (or at least a slowing), in order to avoid a large recession later. The economy won't grow faster than a certain amount, as productivity won't. Any excess just causes inflation and future problems.

Originally posted by Ned
Focus should always be first kept on the economy, not on the budget.

Growth Growth Growth is the Holy Grail.

Within limits. The economy will only grow at a certain rate, sustainably, whatever policy the government takes. Grow it too fast and you have boom-and-bust economics, with crashes to 'right' the market every now-and-then. This isn't good. Spending too quickly causes inflation. What you need is sustainable growth, say around 2-3%, and then a sustainable (ie. smaller than this) budget deficit, say ~1% of GDP. That way debt/GDP never gets out of hand, and the economy doesn't overheat. As if it overheats, you get a crash, huge deficit spending, a big debt, and a lot of problems to start the next boom-bust cycle with.

It's not rocket science. The hard part is saying what fine-tuning the economy needs to stay on that course, as there's nothing keeping it there naturally. Too much growth can be disasterous.