Debts, Deficits, and Spending Cuts

“It’s the expenditure, stupid,”
should be the line, not, “it’s the deficits, stupid.” My name is Jeff Miron. I’m director of Undergraduate
Studies in the Department of Economics at Harvard University. I want to talk about deficits,
debt, and the U.S. fiscal situation. First, what is the deficit? It’s the difference
between how much we spend and how much we take in, in tax revenue. Our debt is how much
we accumulate over time from running deficits year after year. It’s basically the sum
of our past deficits. The U.S. situation is such that we’re running huge deficits. We’re
projected to run huge deficits, and therefore our debt is exploding and is going to eventually
crash over time. And we will end up being bankrupt and having to default on all their debt. And what should we do about this? Lots of people say, “Well, we should raise
some taxes and cut some spending.” There are two problems with that. First of all, raising taxes slows the economy
down. That means less tax revenue, and that makes the problem even worse, because we are
not going to be as vibrant as an economy and so our deficits will tend to be even bigger
despite having raised taxes because of the slower economic growth. Second, that approach forgets the fact that
most of the expenditures, huge amounts, are a terrible idea to begin with. We don’t
want most of that expenditure. It’s all been put there by special interest groups.
So even if we had a huge surplus, we should still be cutting an enormous fraction of federal
expenditure. And that’s the huge problem. “It’s the expenditure, stupid,” should
be the line, not, “it’s the deficit, stupid.” Why is spending bad in and of
itself? It’s bad because, first of all, that spending is money that could have been
in the private sector. It’s spending that could have been done by a private business
or an individual on something that they thought was productive or useful or valuable. So,
we’re making decisions about that spending in Washington instead of out there in the
country by individuals. In addition, that spending is distorting all
of the ways that resources are allocated by spending money to subsidized health insurance,
we’re or encouraging people to buy too much health care. That’s really bad for the efficiency
of the health care system. By spending money trying to enforce drug prohibition, we’re
creating crime and corruption. That’s really bad for the economy. And the list goes on
and on. With few exceptions, such as, say, some of National Defense, spending causes
tons of problems because it interferes in the workings of private markets.

  1. deficit is not the difference between how much we spend and how much we earn. Slave speak. It is the difference between how much THEY spend and how mucht THEY steal.

  2. @guydudeasian
    Why should I pay more money because I make more money? Most people work their way up a company ladder. Does it take 5 years? sometimes. 10 years? usually. Very few people are given a $200,000 job right off the bat. My point is, people earn their money and it takes time, why punish their hard work?

  3. @guydudeasian
    What do you mean they don't pay taxes? If you made over $200,000 in 2010, 33% of that ($66,000) was taken as income tax. We also have a consumption tax to account for too. If that person spends $10,000 on entertainment, food, etc. at a 7% tax rate, that's another $700. So at the end of the year, that person's net income was $133,300. I suggest we have a flat tax rate, heck I think we should rid the income tax.

  4. @guydudeasian
    GE paid estimated taxes for 2010. And your GE example is a company not an individual which makes me think that the tax code should be rewritten for businesses. If GE has 300 lawyers finding loopholes on income taxes every year, then why aren't our politicians knotting them up? I think because a company is taking advantage of loopholes, we shouldn't punish everyone who makes X amount of $. (BTW, I love other people's view point as understanding is knowledge.)

  5. Yeah, we should definitely cut down on special interests, especially when it's private corporations lobbying for breaks from the government. Of course, what's suggested here is cutting spending on various health care, possibly public works like our road systems, you know, necessary things. If only private for-profit corporations had the money, they could be spending it on more yachts and jets, after all. Yeah, for-profit corporations are soooo efficient.

  6. @lockdown260 You fail to grasp my point. To make a profit, you jack your prices up, thus making them higher than they need to be, and thus making goods cost more than they're worth. If government run businesses were making a lot of money (aka profiting), they'd be less efficient by definition. Profit is an overhead, and government is here to work on our behalf and help fix our problems, not profit off of us.

  7. @lockdown260 Profits are overhead, though, even if you don't call them as such. Consumers pay more than what things are worth, due to the profit motive, which acts (from the consumer's point of view) as an overhead. Sure, they can't jack it up TOO much most of the time, but it's still up.

    "the free market has done a lot more for people than the government has"

    Like…sweat shops? BP? Outsourcing? Without proper regulations by the government, free markets do a lot of harm.

  8. @lockdown260 *facepalm* You bought into that sweatshop video, eh? I believe he mentioned the sweatshop-type situations we had here in the U.S., too, which we got past by using the government to enforce proper working conditions and pay. With the free markets back then, people were treated like dirt, until we got government to step in and stop it. Also, what are you talking about when you mention communism? You're not talking about China or Russia, are you?

  9. @lockdown260 I've found them skewed and lacking in context when I've looked at them. Every single set of data on this channel is spun in just such a way as to make the people spouting them seem credible. Furthermore, I like how you simply ignore history, as if it never happened. Of course, I suppose if you don't want to discuss any longer, have a nice day.

  10. @lockdown260 Ah, gotta love when people project. The graphs and data on here is cherry picked and lacking context. This channel, and seemingly you, deny history and what we have done through the government in the past. Government can act as a voice for the people, if we do it right. Free markets will never act as a voice for the people. What we need aren't ~just~ a few laws. We need a large social movement that will leverage the government for the good of the people.

  11. @lockdown260 Laughable. Have you seen Norway lately? It has higher GDP per capita than the U.S., much lower rates of crime, poverty, and unemployment (3% last I heard), and it could easily be called a socialist welfare state. Its public sector is huge. "The country maintains a Nordic welfare model with universal health care, subsidized higher education, and a comprehensive social security system." Norway has us beat hands down, so you don't get to call BS. I do.

  12. @lockdown260 Sorry for the slow reply. I've been a bit too busy the past few days. In any case, I'll reply more fully to these skewed videos you've posted when I have the chance (possibly with a video), but enjoy these in the meantime. The people aren't just some random charismatic speakers, but actually have degrees and have held respectable jobs that deal with the economy. Of course, they aren't short, 10 minute clips for the attention impaired.


  13. @asg102 If I take more from your paycheck, you have less to spend on the things you want and need. Was that clear enough?

  14. @debatablescientist It's called the Liberty Movement. Only thing is, Free Markets are part of the equation.

    Free Markets are people freely associating and mutually exchanging goods and services for their labor. A government that intervenes in this free exchange and parasitically saps it is only aggrandizing itself at the expense of the people. Also, if people at this point still think Socialism has anything to offer, then I think that represents a MAJOR denial of history…seriously.

  15. @Jack95912 What kind of liberty do you get when the people with the most money get to run everything? I suppose THEY would get plenty of liberty here in the U.S., but not anyone in the middle or bottom.

    Free markets have to be regulated. Without it, unfair and immoral practices reign. Apparently you haven't looked into history much, have you? Furthermore, which truly socialistic society are you talking about? Hopefully not the shams of Russia and China.

  16. What we have now is not a Free Market, it is more properly called "Corporatism" or "crony capitalism."

    Regulation is the means by which corporate interests protect themselves and stifle competition. I am sure you have heard of the 'revolving door'? When the regulators are the ones who stand to benefit, there is a hug conflict of interest and the regular people of the nation suffer the most.

  17. @debatablescientist In the U.S., we have a corporatist system where big business has co-opted the state apparatus to form Protectionism for elites.

    This is why you have Big Pharma and Insurance company lobbyists literally writing the Obamacare legislation. It is why General Electric paid no tax, yet the U.S. has the highest corporate tax rate IN THE WORLD.

    You are the one who needs to look into history. More of the same will not bring you liberty. But a REAL free market could.

  18. @Jack95912 Oh, of course. We do have Protectionism for the wealthy. Not only do they have the money to do what they want normally, but they've co-opted the government, as you say, which has made it worse.

    We definitely need to stop the lobbying by big corporations, or even lobbying in general. Perhaps if it was only votes that counted, the government would do what was right for the people, rather than the interests of the incredibly rich.

    We should take a page from Scandinavia.

  19. @twdarkflame said "Tax cuts for business make sense, but not for the richest 2% of people."

    You are looking at the cart, and not the horse that pulls it. How do the majority of people acquire their wealth? If you massively increase taxes for the "rich," then you disincentivise them to attain riches, which usually means you defeat the incentive of them going into business or expanding their operations.

    Besides, how do you define "rich" ? Most people of wealth keep it in assets.

  20. @twdarkflame For example, there are already quite a few independent institutes and groups that check on the nutrition and other qualities of food. The consumer can look amongst varying study groups, as well as utilize user reviews (esp. easy with the internet) to determine which products are safest, and most cost effective.

    As for elevators and the like, cooperatives and unions are a couple ways of ensuring aggreed-to professional standards for construction technique.

  21. @twdarkflame Even disregarding those options, a construction outfit that makes shoddy elevators and gets people killed, is going to have people come after them in court, which should be incentive enough in a free market. With state-backed unionism and/or state agency protections however, a private citizen may have trouble suing and so regulation is less effective, once again owing to teh coercive power of the state being appropriated by "private" business.

  22. @twdarkflame The best way to ensure your bank is not doing "dodgy trading pretending debts are worth more then they are" is to eliminate things like the Federal Reserve system.

    The behavior you describe comes about because of the system of central banking which allows member banks to borrow money they don't have, and then invest poorly with impunity, safe in the knowledge that they are 'too big to fail.'

  23. @twdarkflame Not to mention the insider trading that occurs, i.e. "consulting" they get from their "regulators" on the Fed Board and in Congress.

    None of that is free market.

    Another thing that leads to what you describe is fractional reserve banking, which would be less prevalent if the government did not engage in things like FDIC, or have laws actually saying that banks MUST lend a certain % of their reserve, or laws that prohibit banks from declining loans to certain entities.

  24. @twdarkflame Things like credit unions would be ideally better suited to meet people's needs. As it stand, we do not have anything approaching what is called "free banking."

    We have a govt. system that mandates big investment banks get monopolies, whilst also hamstring what credit unions can do with their members' capital. We even have laws that say certain types of financial cooperatives are outright ILLEGAL simply because they would provide a safer alternative to the big banks.

  25. @twdarkflame And then of course, we have the Government Sponsored Entities, like Fannie and Freddie.

    We all know what happened with that.

  26. I would like to see him debate Keynesian economic theory. I think I would like to here his arguments on that since it seems to be the major reason the government is avoiding cuts or at least arguing against cuts.

  27. People have less money than they trade less, since there are less people trading they also stop producing.

  28. We need unions in order to prevent workers from abuse. Regulation ensures fair competition. If you want to go with minimal to no regulation, no unions, and minimal government interference, you should look up the "Gilded Age". Also, how does regulation make it harder to sue?

  29. No, it isn't.I never said otherwise. However, it is horrible to prevent workers from getting paid fairly and to allow corporations to make working conditions unsafe. Unions were the response to starvation wages and horrible conditions. The unions made it so that people can earn a decent wage and safe working conditions.

  30. Because their opponents start screaming "They want to get rid of Social Security! (Medicare, Medicaid, National Defense, Police, Fire Depts, etc.)" And then people don't vote for them. Because why should they worry about the future at the expense of free stuff?

    There are actually some of these guys in office though. Check out Justin Amash.

  31. See the paper entitled 'The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks' by Romer and Romer (2010) for evidence.

  32. there a problem free market doesnt exist
    axioms of economy: people are racional, people have all information, natural monopolies dont exist, and so on
    so free market is theorical, exist in only the world of ideas that is why the gov intervenes, if market is not perfect then sooner or later it will enter in crisis is the gov job make sure that doesnt happen, thats why the gov intervene the economy, intervention is not socialism
    germany is rule by socialist (CDU party)

  33. In “Inheriting an Abundant Earth” a simple rule tweak on inheritance ends up changing the direction and purpose of modern human life! It's something specific we can demand. Are we really just this close to having it work right? Oh yeah, it's a Ski movie! Watch “Inheriting an Abundant Earth” on Youtube (“Occupying Chairlifts” 5.0) then sign the petition, and share it!!

  34. If you want to learn more about the economics of taxation, look at Keynesian and Supply-Side economics. They are contrasting views about the effects of taxes on the public. (My personal recommendation for supply-side economics is "The End of Prosperity" by Arthur Laffer et. al.).

  35. The problem with that is that the majority of "wealthy" Americans are small business owners who provide a large number of jobs. Increasing taxes levied on them will eventually reduce the number of jobs made available to others.

  36. This may be a little late, but taxes slow down economic growth because it is a market distortion, which, by definition, distort markets. In a market free of distortions, the market will always seek equilibrium. But, since taxes raise prices and therefore lower demand, which therefore disables the market and makes it impossible to reach equilibrium, taxes create a "deadweight loss." Google the term and you'll see graphs that verify what I said.

  37. First, take an English class.

    Now then, when I walk into a place of business and offer my services as an employee to work for them, under the condition that they pay me a negotiated wadge, that is a free market.

    I'm not a libertarian because I believe the state should have some limited say in the market. But I think the Federal gov should be re-limited to its original powers: defending the constitution, and foreign affairs.

  38. Ron Paul and his son will never be President because they are the ones who really could help the USA, we humans are stupid in nature because we like things that are not good for us and always reject the good.

  39. Can someone please explain why deficits are supposedly going down while the debt is obviously going up? I have searched all over the internet and all I see is drivel about Obama wonderfully bringing down the deficit. I'm going to pull my hair out!

  40. Free markets regulate themselves, because in a capitalist world, individuals only make trades that increase their value. Government intervention makes trades that may not cause an increase in value to everyone in the country. Think about it this way, you need a computer for school so you buy one that fits your needs, free market. OR the school charges you 1500$ and gives everyone the same laptop, maybe not one you wanted or the best deal, that's like government intervention.

  41. There is a 0% chance of the US ever defaulting on the debt. You can not declare bankruptcy on something that isn't borrowed.

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