If we cut 10 trillion in spending, would that help or hurt the economy? (bankrupt, student loan)

[Majin]

A lot of conservatives (Rush Limbaugh, Sean Hannity, Glen Beck, etc) think that if we drastically cut spending it those dollars will be replaced by the private industry investment and therefore add jobs.

I really don't see the logic in this, at all, yet this type of mentality is what is actually being push in the government by the tea party and other rank and file republicans.

For the economist on the forum, is this true? If we drastically slashed government spending, lets say 10 trillion, will that pull us out of recession and help the economic?

[cpg35223]

Hurt short term. Help long term.

The thing people don't realize is that government is not an efficient consumer of resources. Anybody who has ever done business with the government knows that. Everything takes twice as long, typically costs 3-4 times as much, and is half as effective.

Heck, do yourself a favor and walk into the local city clerks office. Notice the alacrity with which they move? Notice how they are always trying to find ways to do a better job? Notice how much emphasis they put on serving the taxpayer with a smile and a cheerful attitude? Neither did I. And don't try to get anything done in that half-hour before the office closes. They're too busy packing up their thermos and other personal effects in order to sprint out the door at 5 p.m.

Now multiply that by literally millions of government employees with their attendant paperwork, regulations, and red tape and you begin to see the dimension of the problem. These are people who are employed for life and, short of diddling Girl Scouts while on their coffee break, can't lose their jobs for any reason. They have no incentive to improve and no incentive to save money. Yet so much of what goes on in government today can be automated without paying government employees hundreds of billions of dollars in salaries and benefits.

As somebody who has done DoD contracting for a while, I can tell you all the games they play towards the middle of September to spend all their budgets by the 30th. Fortunately, I've tried to give them good value for their money which evidently is a rarity. Because I am a taxpayer, too. I just can't gouge Uncle Sam.

[MovedfromFL]

Are we talking 10 trillion in a one year period or over a decade?

Either way, 10 trillion would be a massive hit to the economy. Look how dismal the numbers are lately while we are propped up by huge government spending. Think about pullling that rug.

Everything is like a spider's web - interconnected. If you start taking away government spending, you affect many areas, *including* the private sector.

Defense cuts = less troop healthcare = nurse layoffs. Defense cuts = fewer dollars for simulations and government contracts = layoffs in those industries (Lockheed, etc and many, many smaller outfits as well)

Healthcare cuts (Medicare, Medicaid) = layoffs in the healthcare sector (already a massive bubble, IMO); further layoffs in pharmceutical industry; less money for R&D, etc. Possible losses for insurance groups (Blue Cross, etc) ~ unemployed folks cut spending in their local economies and don't pay federal income tax = federal tax revenues plunge

Education = teacher layoffs = fewer folks spending money in their local economies (hair stylists, car dealers, etc) Also, perhaps big losses for standardized testing companies.

You get the picture.

So for each person whose job is eliminated, they no longer pay federal income tax, so the tax rolls plummet. Then they have no health insurance, so they cut back in that area. (dental, pills, etc)

Consumer spending is 70% of the economy. If we take out massive numbers of goverment jobs, and then cut programs, that will lead to massive layoffs in the private sector as well (many, many companies that we consider private depend at least in part on government spending, either directoy through contracts, or indirectly by serving folks who make their living through the government.)

So we would be looking at massive job losses, which of course means fewer folks with money to spend "stimulating the economy". So Sally's government job is eliminated, she suddenly can't buy that new car or go on that vacation to Florida. If Joe's company loses its government contract, it has to lay off 1/2 of the workers, and now Joe can't buy a new TV or send his kid to college in the fall.

Do we need to cut $10 trillion? I think $4 trillion might do for now, but of course, we are nowhere near that. Would even $4 T throw the economy into a tailspin that would be pretty much depression like? Yes. Would the private sector ride in to the rescue? THAT is the big ??????

Who knows? What is the private sector going to make or do? Manufacture? We're not competitive on the global stage unless we eliminate the environmental regulations and pay workers $5.00 a day.
Maybe private sector "service industry" can save us? Nope. Who is going to be able to afford to dine out or go on vacation? Who are we going to sell financial services to? Bankrupt teachers? Laid off firemen? Doctors who have taken 40% pay cuts? Nurses who owe $40k in student loans and can now only get 20 hours of work per week?

[2018]

I would expect serious short-term pain. Long-term, either a big improvement or a continuing decline. But the latter may be unavoidable anyway.

[Vegas Joe]

Originally Posted by cpg35223

Hurt short term. Help long term.

The thing people don't realize is that government is not an efficient consumer of resources. Anybody who has ever done business with the government knows that. Everything takes twice as long, typically costs 3-4 times as much, and is half as effective.

Heck, do yourself a favor and walk into the local city clerks office. Notice the alacrity with which they move? Notice how they are always trying to find ways to do a better job? Notice how much emphasis they put on serving the taxpayer with a smile and a cheerful attitude? Neither did I. And don't try to get anything done in that half-hour before the office closes. They're too busy packing up their thermos and other personal effects in order to sprint out the door at 5 p.m.

Now multiply that by literally millions of government employees with their attendant paperwork, regulations, and red tape and you begin to see the dimension of the problem. These are people who are employed for life and, short of diddling Girl Scouts while on their coffee break, can't lose their jobs for any reason. They have no incentive to improve and no incentive to save money. Yet so much of what goes on in government today can be automated without paying government employees hundreds of billions of dollars in salaries and benefits.

As somebody who has done DoD contracting for a while, I can tell you all the games they play towards the middle of September to spend all their budgets by the 30th. Fortunately, I've tried to give them good value for their money which evidently is a rarity. Because I am a taxpayer, too. I just can't gouge Uncle Sam.

You are absolutely right. I don't know why it is that it seems so hard to convince people that the private sector is many times better at doing things than the government. I am not going to dump on government employees as I am sure many of them would like to do a better job if they could but because they have to follow set rules and procedures with no deviation they cannot. For example look at the Post Office. They are losing tons of cash yet they are not allowed to cut delivery to even 5 days a week because they are run by politicians. If they were UPS or Fed Ex they would be free to set their own rates and rules. It is really the same thing with Social Security. Sure, it is a nice lifetime benefit IF you make it to 65 (67 if born after 1957) but compare what you would get IF you and your employers had contributed that SAME money into a private pension or 401K. That is why government employees (the ones who force you and me to be in Social Security) do not get into Social Security themselves. They know better! Typically those government workers get double to triple the retirement funds that we get from Social Security.
Galveston County: A Model for Social Security Reform | Publications | National Center for Policy Analysis | NCPA

[Malloric]

$10 trillion over ten years would be a roughly 25% cut in federal spending. If you did that across the board you can pretty much imagine the effects. If I had to make $1 billion in cuts I'd probably half defense spending and eliminate Homeland Security. That still would get you half way there at best. I wouldn't touch VA or Infrastructure and there's not enough in the smaller Agency budgets to find the other $500 billion or so. You'd have to cut at least $300 billion (15%) from so-called mandatory spending (Social Security, Medicare/Medicaid, etc) even if you went all draconian on defense spending.

[Vegas Joe]

If you did a $10 trillion cut all at once, it would not HURT the economy. It would KILL the economy! What I would like to see is a more moderate slow go transition from public to private. We could start with education. The fact is that government schools are massive failures for the most part. A few are good but many spend $9000 per student per year turning out high school graduates that cannot read a Dr. Suess book. Private schools charge much less and turn out college ready graduates. Why not start with the worst schools and give the students or their parents a voucher and allow both other public and private schools to COMPETE with each other for those students and the money that comes with them? I am not saying it would cure everything but I'd bet education in this country would improve by quite a lot. Then move on and privatize other government functions via bidding. I think that cities for example should privatize ALL functions except for public safety (police, fire and EMS). Street repairs, public lights and water and sewer should all be farmed out to private enterprise. Same with garbage collection. A private garbage collector probably makes about $40,000 a year with another $12,000 in benefits. A city garbage collector makes over twice that in many places and comes with an expensive pension plan as well. It is obvious that you don't want lots of employees on the public payroll. Here is an example of a city that privatized everything except public safety and it is thriving, attracting new companies and Fortune 500 headquarters with low taxes and a high quality of life:
Sandy Springs may be model for privatization - Atlanta Business Chronicle

[MovedfromFL]

Short term pain sounds so.. well, painless.

People, it would (and WILL) be more like short term epic depression. Think about cutting everything by 42%. The government is now borrowing about 42% of the budget. So everything needs an immediate 42% haircut. That includes defense, SS, Medicare, and FOOD stamps, Section 8, Medicaid, etc.

How many millions of Americans are on food stamps now? Are we up to what, 44 million or so? Think about cutting their food rations by half. Think about cutting off access to doctors for kids on Medicaid. Think about kicking the demented elderly out of the nursing homes. Think about how the state budgets would implode if government money dries out (esp the states that receive more benefits than they send up to DC, like Mississippi)

Short term pain would be evident in your neighborhood and probably in your family.

How many of us have jobs that are totally free and independent of any government spending (fed, state, or local?) Let's see: my husband and I were both teachers (non-tenured, so the first to get the ax). Those jobs would be gone, as a result of cuts from the federal level, plus drop in taxes paid by sales tax and property taxes due to massive unemployment.

My sister in law is a teacher in NJ. My other sister in law works for the state (PA) as a social worker dealing with abused children. Yep, both of their jobs would be gone. What about my brother-in-law? He's in the private sector in a resort area and works as an exec. chef. Well, I bet that quite a few of the customers of the resort are high paid government workers from the Philly/ NYC metro areas.
So it's safe to assume that the resort would see a drop off in customers and his job would see reduced hours or outright elimination.

I have friends who work for the USPS, Lockheed, and private companies that do environmental work. Gone, gone, and gone (the latter depends on federal/state dollars since there is no money to be make in ensuring that our water is clean)

We could have and should have made these cuts years ago (and let the too big to fails fail in 2008). The required cuts would have been a lot less 10 years ago. Instead, we've kicked the can and now the required cuts to get the deficit under control are frankly unthinkable.

Our political system is set up so that we will NEVER see the needed solution. Pols only care about the re-election cycle and big donor interests.

So the good news is there will be no massive cuts right now.

The bad (very, very bad) news is this will all be forced upon us in what I call the sudden stop event. Our borrowing and spending ways will work... until they don't. Then either we get a currency crisis, we get an interest rate spike, or we get WWIII. In any event, it will be Mad Max. Prepare accordingly.

[user_id]

Originally Posted by cpg35223

The thing people don't realize is that government is not an efficient consumer of resources. Anybody who has ever done business with the government knows that. Everything takes twice as long, typically costs 3-4 times as much, and is half as effective.

And anybody that has done business with a large corporation knows that they suffer from the same problems. Its about size, not private vs public.

A few days ago I called the state to have something fixed...it took me 15 minutes. For the last 12 months I've been trying to get Verizon to charge me the correct rates, I've called 4 times and each time it takes around 30 minutes to speak with someone and they issue me a refund for money overpaid and tell me that they've "fixed it"...and yet the next bill comes in the mail and has the same issue...overcharged. But wait..its a free market right? Why don't I use someone else? Can't....they are the only provider to this building.


The idea that private business is always more efficient than government is so easily refuted its a true testament to the power of propaganda that so many people believe otherwise....

Anyhow, spending cuts right now will do little for the long term budget, they will depress the economy and as a result decrease revenue..... Its amazing that textbook macro is being ignored today....

[MovedfromFL]

You can zero out defense and ALL "non-discretionary" spending now and still be in the red.

Think about that.