[atq2119]

Ironically, a lot of economics sound-bites are all about ignoring first order effects in favor of questionable second order effects.

I'm mostly thinking here about deficit spending discussions, where it's popular to inject worry about second-order effects creating a drag on the economy, e.g., crowding out. Meanwhile, it completely ignores the fact that the first-order effects are almost always all positive for the economy, e.g. more spending directly translates to higher GDP. (Plus, there are second-order effects that are positive for the economy as well.)

So yes, by all means try to understand the second-order effects, but don't let yourself get hoodwinked by people who want you to miss the first-order effects.

[HardlyCurious]

Well, logically the second order negative effects of deficit spending must overcome the beneficial first and second order effects on large enough scales.

Otherwise we could just deficit spend ourselves into perpetual prosperity.

[atq2119]

There's a subtlety here, though. It should be obvious that too much deficit spending has negative second order effects overwhelming the first order ones. (An extreme form of this: imagine having the government trying to spend quintillions each year -- that's clearly not going to work without some massive inflation.)

It is not at all self-evident that the same is true for all deficit spending, even on an infinite time horizon.

Consider, for example, that central banks typically aim to have a ~2% rate of inflation in the long run. Given that, why would it be harmful to forever have a level of deficit spending that keeps the real value of the government debt constant in the long run? Or, ignoring inflation but assuming economic growth, that keeps the ratio of government debt to GDP constant in the long run? Why would that be harmful?

(Note: If the government was able to successfully run a balanced budget indefinitely[0], both of those quantities would approach 0 in the limit; some long-run government deficit spending is necessary to keep them constant.)

And yes: the stronger claim, which I also support, is that deficit spending is an important ingredient for our prosperity, because it acts as a sort of "prime mover" for pushing up society's overall level of wealth. (As usual, there's a balance to this. Too much of a good thing etc.)

[0] There's a lot of historical evidence which suggests that this is impossible anyway because it becomes self-defeating. Balanced budgets ultimately cause or at least contribute to recessions, which cause a budget deficit via reduced tax income and increased social services spending.

[HardlyCurious]

Yeah I agree, when I said 'large enough scales' I was referring to the amount of deficit spending in a fixed time, not how long that spending lasts.

One thing to remember here is that the only reason for us to even tax is to reduce the deficit. If we didn't care about the deficit we could just eliminate all taxes and make 100% of government spending deficit spending.

[mym1990]

Some of this is because the first order effects have come and gone, and media is going to try and focus on the most current and relevant things. As you move through a timeline, second order effects will turn into first order effects and we will come up with a new set of second order effects.

Given that, I totally agree with you on the sentiment.