Destined to Fail – Magical Thinking at the G20

[balazs]

This analysis is mostly accurate, and I absolutely agree with the conclusions. There is one point where I disagree though:
“One path to getting the deficit to 3% from its current 10% of GDP is to cut spending.  However, this path carries the seeds of its own failure. Government spending is a big part of GDP, so cutting spending shrinks the GDP.  The more spending is cut, the more GDP shrinks, which makes the deficit ratio less favorable.  Adding insult to injury, government revenues expand and shrink in proportion to GDP, so cutting spending actually leads to reduced revenues, which leads to higher deficits, which lead to more cutting, which results in an endless spiral into the dumpster.”

Reducing spending would be the only way to get out of this situation gracefully (without a catastrophy) whether for the US, Europe or for any other country. And it would work - at least technically. Now I put aside the fact that reducing spending is political suicide and for that reason not viable in a democracy. So technically, if the spending was reduced, would that solve the problem of debt? My answer is: yes, over the long run.

US Budget deficit is currently roughly 1.5 trillion, budget is 3.5 trillion. Budget deficit is roughly 10% of the GDP so the GDP must be roughly around 15 trillion. So what would it mean if we reduce the budget to 2.5 trillion (budget deficit = 0.5 trillion)? GDP goes down (immediately) by probably more than the reduction in Budget, so lets assume a reduction of 2 trillion of GDP. This means GDP = 13 trillion, deficit is 0.5 trillion = 3.8%. Yes, we did not reach the goal of 3%, but we are a lot better off! (Even if you assume that each dollar not spent by the government reduces the GDP by 5 dollars, which I doubt, the percentage of budget deficit in GDP would be less than today, 5%)

As soon as we reduce the budget BELOW the government revenues, which must be around 2 trillion, we will have immediately no budget deficit. And that is exactly what we need to reduce debt.

Of course that would hurt a lot of people in the short run and no politician doing this would be elected again. But my point is: Technically it would work.

And now, as you already stated: Yes, the reduction of debt will happen anyway, the question is, if they wait until the US government debt explodes or if they try to reduce the debt gracefully.

[ashvinp]

@Balazs

US Budget deficit is currently roughly 1.5 trillion, budget is 3.5 trillion. Budget deficit is roughly 10% of the GDP so the GDP must be roughly around 15 trillion. So what would it mean if we reduce the budget to 2.5 trillion (budget deficit = 0.5 trillion)? GDP goes down (immediately) by probably more than the reduction in Budget, so lets assume a reduction of 2 trillion of GDP. This means GDP = 13 trillion, deficit is 0.5 trillion = 3.8%. Yes, we did not reach the goal of 3%, but we are a lot better off! (Even if you assume that each dollar not spent by the government reduces the GDP by 5 dollars, which I doubt, the percentage of budget deficit in GDP would be less than today, 5%)

I think you are assuming tax revenues will remain the same when you cut out $1T of spending, which they certainly would not if GDP falls by $2T. That’s not to say there isn’t a way to cut and/or redirect spending to help economic transition and reduce deficit-GDP ratio, but I think it has to be a well thought-out plan that involves a lot more than just taking a hacksaw to the budget.

[brosswurm (Bruce Rosswurm)]

 
brosswurm wrote:
 
Nick,
My problem is Chris’s claim that, "We can trace an enormous number of the problems or predicaments we face to over-population or to the strain that results from accomodating the needs of a growing population."    I don’t think you can assert that as fact.  Give me the evidence to support that claim. 
Bruce
 
 
Interesting first post ‘brosswurm.’
Actually, the burden is not on us to verify anything that is based on a super-basic level of knowledge.  I truly wish we had the time to start at square zero with everybody who demands it of us, but it’s not possible.
So let me turn it around.  How about instead that it’s up to you to provide any facts you can to support your implied claim that climbing population levels have not created any problems or predicaments?  Perhaps in the interest of simplicity you could start with:
Energy use (in aggregate, across oil and coal just to keep it simple).  How is it that you think that more people do not use more energy?  Given peak oil, how is this not a predicament?   Please be specific and use actual data.
Fresh water use and availability.  Again, to keep it simple, how about we constrain this conversation to the American southwest and the use of aquifers? Pick Phoenix and project their issues for the next two decades just for fun.
The impact of populations on local resource utilization including water, water treatment, road congestion, school crowding, land use and parking space availability, etc.,etc.,etc.  If you manage to find a way that increasing population does not create additional strains on local resources please PM me immediately as I know of 12,543 local planning boards that need to consult with you pronto.
Honestly, anybody who cannot intuitively and immediately understand the linear and direct connection between population growth and problems that need solving is going to have a hard time at a site where we try and grok the subtleties of living in a non-linear, complex and even chaotic world.
Even more honestly I cannot fathom how somebody could move through life without noting the exceptional levels of dedicated hard work that growth requires and imposes. 
At any rate, our style here is not to place our burdens on others (this site has a strong undercurrent of personal responsibility) so I would ask that anybody seeking to challenge something do so in the form of presenting countervailing evidence, not open-ended questions easily addressed on their own time. 
Thanks in advance.
Chris M.
 
 
Above post #38
First off Chris I really appreciate your website, thank you!
I have been away awhile and just subscribed again.
You and I are going to disagree on this forever most likely, but that doesn’t change the fact that I really appreciate your work!
 
In a nutshell, I believe God created this world and universe and he is all omnipotent, omniscient(sp?), and omnipresent.  I believe he gave us everything we need on this earth to live.  And he said in the bible to be fruitful and multiply.  He would not have told us that if he didn’t provide the neccesary resources to support us.  Nothing in the past seems to contradict that.  There has always been enough to live on this earth.  It is only man’s depravity and sin that causes problems.  With that said and with all due respect, I say that you have not proven anything with facts.  Your points about energy and water use in the above post don’t prove anything.  In some ways it is just a local problem, perhaps brought about by politics or different bubbles in the economy caused by a out of control federal reserve.   Also, I will just point out that through history other energy sources have always been developed or discovered.  And just because this time it doesn’t happen in time before a major crises causes a lot of pain doesn’t mean overpopulation is the problem.  It could be that money printed brought demand forward so fast, and if not for that the next energy source could have been in place. In saying all that, I don’t have concrete data to prove my point either.  So I think it does come down to a person’s faith perhaps.  Thanks again.
Bruce