Deficits

Oh, goody! The "dismal science".

A deficit consists of spending more than you take in.

"Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
This above all: to thine ownself be true,
And it must follow, as the night the day,
Thou canst not then be false to any man."
The Tragedy of Hamlet, Prince of Denmark Act I Scene III
by William Shakespeare

The first line is most often quoted.
The last line explains Trump's sterling character.

Since William Shakespeare is responsible for about ninety percent of the idioms in the English language, I'd go with it.

We are borrowing from our children and grandchildren.
That is wrong.
Currently the Federal debt consumes less than ten percent in interest payments.
(Obviously, we are not paying anything back and still borrowing more.)
At the current rates of borrowing and accrual, the interest bill will consume fifty percent of the budget within the lifetime of the current generation.

Why is it that fiscally "conservative" Republicans who want to rein in spending always swell the deficit?
And villains, such as Bill Clinton, were able to reduce the deficit and were on track to reduce the National Debt?
Obama inherited a destroyed economy and reinvgorated it with the longest growth period in history.
He initially boosted the deficit by bailing out stupid, bloated corprations "too big to fail".
But the growing recovery he created, began to stabilize and would reverse the accumulating debt.

How to control the deficit?
Reform the tax code so less money slips away to Switzerland and the Caymans.
Steer money to constructive investment instead of CEO bonuses and stock buybacks.
When a CEO buys a yacht, that's dead inventory.
When a milling machine is bought, goods are produced, workers employed and the profit can buy the next milling machine.

Doesn't building yachts employ workers? Not many built in America and there are no future revenues from it.
It is a dead end for capital.

(This one's for sale for $47 million. Enough to run "meals on wheels" awhile.)

Sometimes Federal expediture can yield a plus in revenue return to the government.
Let's introduce an arcane concept from Economics 101.
It is called the "Velocity of Money".
It may have a sexier name now, but that was what it was called fifty years ago when this author studied.
And this explanation is why investment in infrastructure yields such positive benefits.
Imagine the government builds a bridge (particularly with American steel).

The bridge builder buys steel, concrete, rivets etc. They pay workers.
The steel company buys iron ore, coke, furnaces, pays workers.
The workers on the bridge pay their mechanic, buy groceries, houses, cars etc.
The workers at the steel company pay their mechanic, buy groceries, houses, cars etc.
The iron ore company mines the ore, pays their workers, buys fuel for their machines.
This continues down an ever larger pyramid.
The "velocity of money" refers to how many times per year the same dollar changes hands.
From the government, to the bridge builder, to the steel maker, to the iron ore mine, etc.
Characteristically, the "velocity of money" is about six or seven in a given year.
(Remember this author's classes were fifty years ago.)
Note: the Federal Reserve calculates the velocity of money by a more arcane standard. The say it is about 2.
This is counter-intuitive.
If you receive $1000 January 1st, you don't spend $500 July 1st and the other $500 December 31st.
You go out January 2nd and pay all your bills. The car mechanic you just paid goes out and pays all his bills.
The pharmacist where the car mechanic gets his meds pays their pill supplier. They pay their pill-making employees, etc.
The largest lags are 30 days long when bills are put on "net 30".
Maybe pills will set on a shelf for longer than 30 days, but a back-of-envelope velocity of money
assumes money changes hands every couple months- not twice a year.
Which world do you live in? Try paying your mechanic a year later...
That is a more street-savvy view of "velocity of money".
And in that case, a value of five or six fits with the average consumer's reality.
The Federal Government collects 3.7 trillion dollars in taxes per year.
The Gross Domestic Product is 18 trillion dollars per year.
Taxes are 20.55 percent of income.
If the actual velocity is 5, the government just broke even on their investment (5 x 20.55% = 102.75%).
And therein lies the rub.
Large amounts of government expenditure go for large dead whales that lie on the beach.
For example: hideously expensive airplanes which don't perform.

(If they spent it directly on Vets, it'd go straight into the economy!)
So when expenditures languish over periods of years, velocity of money stalls.
Which is why infrastructure spending is such a good idea. It's faster and local.
It also yields immediate, long-lasting benefits for those who footed the bill- the taxpayer.
Corporations are people, but don't pay taxes. Go figure.

Another part of the problem; when foreign manufactured goods are bought, the money is no longer in the equation.
If you buy a Japanese Honda the money goes to Japan and buys Japanese groceries.
In you buy a Honda manufactured here, the money buys American groceries.
Something else to think about.
Going out of the country, that money just didn't leave your hands, it left the hands of five or six people down the food chain.

Summing it up:
Deficits are not necessarily bad.
Accumulating deficits are bad.
Spending on dead whales is bad.
Spending on infrastructure is good and cost effective.
Fix a road today and no need to fix the car's suspension tomorrow. Immediately cost effective and the road's still there.

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