[po]

Stop thinking about government spending as if there's a magic money fountain and start thinking about it like it's your own money. Yes, it would be great to spend twice your income on a better car, but the mere fact that it would be a great car, a really great car, man nobody should have to live without this car car does not make it a good idea. Nothing that science research is going to feasibly produce is better than having a country that is still fiscally sound, and that goes for a great deal of other things that need to be cut. What is a bankrupt society supposed to do with the results of this research, anyhow?

I say stop thinking about the government spending as if a government budget is similar to a family budget or a company budget.

It is impossible for the US government to be "bankrupt" if the debt is held in US dollars. Impossible. You might not like the situation but the analogy you are operating on is deeply flawed with respect to reality and leads to bad decisions being made.

[thematt]

This is usual argument, but it's purely academic in nature. Yes, by law, the government can continue to print money indefinitely. But guess what? At some point people will stop buying that debt. So even though the government has a mandate to continue printing paper and by definition can't go "bankrupt", that's effectively meaningless when people no longer accept your currency.

[po]

If by academic in nature you mean grounded in reality instead of a bad analogy then yes it is. Now that we've decided not to view the problem through the lens of personal or corporate finance we can look at the problem as it is: macroeconomics.

Luckily, we're in agreement! Yes, inflating away the problem is fraught with peril just as you say. But I will suggest to you that high unemployment is also very perilous. The rule of law beaks down when you have high unemployment for long periods of time. We've seen some instances of that recently…

In a time when private sector is laying off people, should the government also be cutting and reducing the workforce? What should these workers do? Its not like they chose old unneeded jobs: unemployment has been pretty even across industries.

As you know, this policy of belt-tightening is called austerity and the countries trying it aren't doing so great either. http://en.wikipedia.org/wiki/Austerity

Perhaps the government should act as a countercyclical balance to the private sector? When the private sector is irresponsible, takes too much risk and blows up, who is there to clean up the mess? The government can't just declare bankruptcy and start over. Perhaps we can view the government as a safety net, giving people jobs when the private sector fails to put them to work? Perhaps we can think of ways to make a robust and diverse private sector instead of one dominated by giant multinational risk-taking, non-competitive lobbyist machines that push risk onto the public and privatize the profits. That's what I want to see... a well regulated market with a diversity of companies trying to get ahead and a government overseeing it without playing favorites. Difficult. Maybe impossible. But that's where I want to go.

[jerf]

"Perhaps the government should act as a countercyclical balance to the private sector?"

Perhaps it should. The question is academic in all the bad senses, because while people love to cite Keynesian theories about how government should behave as if it's some sort of proved theory that admits no debate (itself a false statement, it was considered essentially disproved until suddenly it told the government what it wanted to hear and got itself revived; I fully expect it to be considered disproved again until it ends up convenient again), they fail to look out in the world and notice just how thoroughly our government is not acting Keynesian anyhow. The whole Keynesian multiplier argument falls apart if the government appropriates a dollar and then generates $0.30 of wealth with it, instead of >$1.00.

I'm well aware of the Keynesian argument. What I've noticed is that even by Keynesianism, if the goverment proves incapable of generating a multiplier Keynesianism itself says the government should spend less.

Having a pretty economic theory does not remove your responsibility to look out into the world and see if it actually describes reality. In reality, what the government is doing is not Keynesian stimulus.... it's just spending money.

Austerity countries are taking their hit now. Non-austerity countries are taking it later, and will take it bigger as a result.

[brc]

One day you will realise that printing money does not increase wealth. Sure, it increases all sorts of economic indexes but nobody gets richer because more bits of paper are circulating around. It takes a while for the effect to take root, but sure as apples, take root it will.

Austerity programs are taking the medicine after the party. Printing money and borrowing more is hair of the dog. Guess which person ends up with the biggest hangover?

[po]

Roots, medicine, hangovers… adding more analogies to the conversation doesn't convince me of anything. If anything it throws up red flags that you're probably using a simplified model to analyze the problems. What takes root? What happens?

Where's the data? Ireland had a budget surplus before their current dilemma, was that a sign of health? Is a deficit a sign of weakness? I don't think printing money increases wealth; I've never even mentioned wealth.

You've clearly thought about this problem a lot because you care enough to post about it. The problem is that you still only understand about 5% of it (I sure as hell don't understand it as much as I would like to). You've filled in the rest with assumptions, wrapped a nice anecdote around it and are now going around smugly wagging your finger at people who say it's more complex than "surplus good/printing money bad". Drop the rhetoric and make me a convincing argument based on macroeconomics.