How does government spending during a recession create more demand for a product?
If the government bought tractors or gave people money with the specific instructions they must buy tractors, that would increase the demand for tractors.
However, that money has to come from some place, either taxes, borrowing, or printing. And that means less wealth somewhere else. So the farmer that needed a new barn has his taxes increased so he can't afford a new barn, but he gets a check from the government to buy a tractor even though he didn't need one. So the guys who made the tractor have jobs, the guys who build barns don't have jobs. The farmer has a tractor he doesn't need and a crumbling barn he needs to replace.
Multiply that stupidity a million times over and you have a depression, created in Washington by our bonehead politicians.
You need to look at the big picture: investing into the infrastructure definitely will create jobs--and for each job created another 3 jobs will pop up because people will have spending money again--so there will be demand for goods and services. Once the infrastructure is modernized(which probably takes 20 years to do-imagine all cities need new sewer systems, new roads, new everything), the modernization needs to be maintained and upgraded--so it's not like these jobs will vanish after a coupla years.
Besides, if you start a business you do what? You invest before you rake in revenues. Buying tractors for farmers will encourage farming--and farming is FOOD-0-everybody needs to eat, so really it isn't such a bad idea. Investing in technology is badly needed. Just look at our airports--everything is aging--the runways, the towers, the equipment--they are disasters waiting to happen......and so it is with a lot of things. The biggest disaster waiting to happen is our education system---investing in that is absolutely crucial--or we won't survive as a nation-----not that I think we'll survive. I actually believe that it's too late, but the future will show that.....
I wrote an article on the topic of âœwhat is real cause for current global recessionâ. I had a comprehensive comparison study between 1929 great recession and this recession.
You can read the entire article through the link: http://www.amlinkint.com/English/global_recession_cause.html
Answer to the question. Government spends money in many different areas. The main purpose of government spending is to increase consumer confidence, to increase market activities and to create more jobs. For example, when government is building a highway, many workers will be hired; contractors, material suppliers will be able to gain more business. When government decide to solve insurance issue for citizens, consumers will have money in pocket to spend and they don't have to worry about saving for emergency.
Here is a summary of my opinions backed up by in-depth analyses of historical economic data.
1. Two major economic expansions led to two episodes of extreme inequalities in the United States. Both ended in severe economic crisis.
2. When the share of total income going to top 10% group approached 50% in 1929 and
again 2007, the capital market crashed in the United States. This suggest 50% is a threshold separating expansion and turmoil. We should develop an inequality index as an key indicator measuring health of the capital market.
3. It is the extreme inequality that had caused house market to crash in 2007. Most likely, the extreme inequality had also triggered the great depression in 1929.
4. Government's improper interventions in the capital market before both episodes of crisis had accelerated the extreme inequalities and ultimately intensified the crisis.
5. It is my opinion that government must focus on stabilization rather than expansion in any economic crisis. The most effective measure to stabilize a down turning capital market is direct investment. In order to do so, raising taxes on top income groups becomes necessary. Such tax increases can also reduce inequalities so to prevent bubbling economy from happening.
Read full context of the article: http://www.amlinkint.com/English/global_recession_cause.html
Well if you undertake large infrastructure projects then lots of equipment is needed that has to be purchased or rented. Lots of supplies and materials have to be purchased. Lots of salaries have to be paid.
For those people who are employed as a result, or sell materials and/or supplies as a result, or who sell or rent equipment as a result, all these persons and entities receive compensation for their capital or their labor and those persons and entities then spend some of their earnings or profits which, in turn, increases the aggregate demand for goods and services above the current demand for goods and services.
It doesn't. It creates a transient demand for labor and some materials. However, that demand diverts capital away from the private sector where real economic growth occurs. The net effect is not good for the economy.
It creates TEMPORARY jobs that last while Obama remains President. It is an illusion for small minded folks who don't realize that they have been duked!! Reagan's tax incentives led to the internet, NO MATTER what Gore claims about him inventing the internet!!!!!!
It only increases the demand for more revenue...in order to satisfy that demand, Congress has to raise our taxes.
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