posted on Jul, 7 2009 @ 04:04 AM
You need to study Econ.
Government spending DOES NOT equal consumer debt.
AD = C + I + G + (X-M)
If any one of the above: consumption, investment, government spending or net exports increase, overall AD will increase. And since employment is a
derived demand, increase in G will lead to an increase in AD will lead to less unemployment.
But because the economy is in A MAJOR recession due to large fall in I because of all the banks crashing, IMMENSE C, G and (X-M) is needed to offset
this fall in investments.
Consumers are more likely to save than to spend: Raising taxes was a fine idea because now the government has more revenue to use for the increase in
G. If they lowered taxes, consumers would have been more likely to save the increase post-tax disposable income than to spend due to the current
economic situation - so AD would not have increased very much.
Since the economy is in such a poor state, increase in G would = an EVEN higher increase in AD, which is needed. The multiplier effect would kick in
in about 7 months' time and you'll see some major recovery happening, because USA's multiplier is VERY high.
Also don't forget that usually an increase in G complements a decrease in T, so I think the best measure for Obama after the spending starts to work
is to LOWER taxes, so people will spend after they see good prospects for the future.
Also, I hope the administration does NOT turn to banks to finance their federal deficit - which would lead to the crowding-out effect, further
lowering investments since less investors get access to loanable funds.
Otherwise, they are doing the RIGHT THING. It's not the wrong thing like so many of you mistakenly think.