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Lorr47 -> RE: So Is There an Economist In The House? (11/1/2008 8:44:23 PM)
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quote:
ORIGINAL: candystripper
Hey you guys; what is your opinion about a amendment to the US Constitution to require a balanced budget?
I lived under a 'balanced budget' regime at the state level in Florida, not that they didn't dodge the prohibition in various ways, but it did seem to limit the state's spending.
I support the idea at the federal level with one reservation -- the country cannot repay a $9 trillion debt in one year. It'd have to written to require the government to reduce debt in some sensible manner until the budget was finally balanced, and thereafter, not allow further debt.
But does the federal government's ability to indebt itself serve a useful purpose I'm missing?
What about an amendment prohibitting unfunded mandates on state and local jurisdictions? IMO, this is a form of taxation, and one reason the states and local governments cannot meet their basic obligations.
candystripper [sm=pole.gif]
The various economic schools of thought have a difficult time defining Stagflation much less dealing with it. Very simply, there is monetary policy and fiscal policy. Stagflation plays hell with monetary policy because when you try to increase growth by lowering interest rates you invite inflation to become even worse. If you try to fight inflation by increasing interest rates you can tank the economy even further. The problem is that during Stagflation you have terrible growth problems and terrible inflationary problems. Volker faught inflation in the 1980s and won although the ecomomy ended up in a recession. Volker's policy may have merely lucked out. If you think the above is clear as mud consider this from Wiki: "The problem for fiscal policy is far less clear. Both revenues and expenditures tend to rise with inflation, and with balanced budget politics, they fall as growth slows. Unless there is a differential impact on either revenues or spending due to stagflation, the impact of stagflation on the budget balance is not altogether clear. One school of thought is that the best policy mix is one in which government stimulates growth through increased spending or reduced taxes, while the central bank fights inflation through higher interest rates. Whatever theory is employed, coordinating fiscal and monetary policy is not an easy task." Perhaps all you can do is to choose between competing theories and pray. I do not think anyone is sure about what to do much less about cause and effect. At some point Stagflation has the price of commodities such as oil going through the roof ; the government driving interest rates into the ground; the government increasing the money supply----Unfortunately that sounds like what our leaders have already done to the economy.
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