Talk Elections

This widespread spending seems to meet no end. How will this spending supposedly help America. I have gone around, and I haven't found a suitable answer. What is the point of spending so much money on fiscal stimulus packages and whatnot?

()

To create jobs.

There are three simple answers:

1. by shifting money towards those with little money you increase consumption (and decrease savings). If the economy is suffering from lack of demand that is good.

2. If you borrow and spend you get the same effect but more efficiently.

3. The whole bank-side is about making the market liquid again so people dare borrow.

OK, now I understand the point of view that has brought this spending upon us. However, wouldn't this expansion of government eventually cause our demise?

Eventually, the spending doesn't happen in such massive quantities (in theory).  Now, in practice, it's much harder to stop.

This is only making me feel worse. This is like a cart running down a street in San Francisco. It won't stop till it has hit rock bottom.

Some might also be inclined to point out that it's almost impossible NOT to run up the deficit during a recession.  Your revenues are crashing - the poor are losing their jobs, businesses have ceased investing, and the rich are losing vast amounts of their income - while your social expenditures like unemployment are going up.  If you cut anything then you are creating another unemployed worker who is going to spend less, pay no taxes, and simply absorb the government's benefits (or starve) until jobs start coming back to the economy.

This issue is obviously tangent to the idea of a specific Keynesian spending package, and the whole issue is infinitely more complex than that, I just thought I'd point out some obvious on this thread. 

The hope is that the massive cash being injected right now by the government will spark an increase in private investment back to former levels, allowing the government to reduce its spending.

Condensing the crisis and economic theory, simply:

1. The crisis has caused a credit-freeze, reducing the amount of money people can spend in the system.

2. Lack of money has led people to save more and spend less, meaning less consumption and private investment.

3. Falling investment has a dramatic effect on the GDP, even greater than actual fall in investment.

So how do we fix that dramatic decline? Luckily, an increase in government investment (read: spending) has the same effect as private investment. So an increase in G leads to a greater increase in GDP. As GDP rises and the market emerges from the crisis the credit will unfreeze, consumption and private investment will increase and we can decrease government spending.

Lol. I am living in a country right now that has a government about 60% bigger than the American. We haven't demised...

Even if one agrees that a specific level of government spending is best (and I don't), all that matters is you return to the previous level as a percentage of GDP, not to any absolute level.  I think many presidents have done this:

()

Look at all the spending started during the New Deal.  It's supposed to end, but it often doesn't.

no it isnt

I meant spending now is supposed to end, like much of the New Deal spending was supposed to end, but didn't.  What we have left from the New Deal now will probably be with us forever.

I don't know how  much you can relate this is to the New Deal. FDR started a lot of new programs that started the social safety net. Obama is spending money to jump start businesses, temporarily cutting taxes and patching certain spending. Some of it will likely be permanent or long-term, but I'd say there will be little residual by the end of the next decade. It will be replaced by private investment.

On the other hand, the rest of his agenda (read:budget) will likely have similar long-term effects on the economy and institutions, but hopefully that will save us money in the long run (i.e. fixing Medicaid/care; energy initiatives).

Well, if your party wants to propose the elimination of Social Security or the FDIC, feel free. :)

Dude, the idea is that the safety-net - the welfare state - will always be there, and that it will thus automatically increase spending when times are bad and lower them when times are good.  People will go on and off the dole as need be. 

It exerts a tremendously benenficial stabilizing effect, as well as encourages the confidence to consume (in a normal capitalist society workers would be afraid to consume beyond a minimal shack and basic gruel, since by definition the worker's position in capitalism is so precarious).