Simple Math

Understanding the basics of economics will give you a good idea why the Conservatives are wrong on the deficit, and why austerity measures are senseless.

Here’s the equation:

Y = C + I + G + (X – M)

Y is output (or GDP)
C is consumption (what we spend)
I is investment (what businesses spend)
G is government spending
X is exports
M is imports

In a recession, I goes down, and C goes down. (X – M) is not that significant.

To keep Y level or increasing, G must go up.

The American stimulus wasn’t enough to equal the decline of all the others.

It helped, don’t get me wrong. It would have been much worse.

On to the deficit itself.

Governments are structured in such a way that they are SUPPOSED to go into deficit when recessions hit.

Let me repeat that. Louder. GOVERNMENTS ARE SUPPOSED TO DEFICIT SPEND DURING RECESSIONS.

If they don’t, Y (GDP) declines. A lot. Guess where you end up? The Great Depression.

There are only two ways to up GDP. Private sector, public sector. Private won’t, public has to.

It’s not rocket science.

Other than the extremely stupid “The government has to bring down the deficit”, there’s the whole China thing.

“China’s going to stop buying our debt”

No, they’re not. China will always and forever buy our debt. Also, there are no lack of others who want to buy our debt. When we put securities on the market, they’re snapped up almost instantaneously. There is ALWAYS a surplus of buyers for U.S. government securities. Why? Because they’re the only safe things out there. Gold is volatile, as are corporate bonds, and European countries are much riskier than the U.S.

“China’s going to cash in all their bonds at once and bankrupt the economy”

No, they’re not. China has a vested interest in keeping us going. They would lose massive sums of money if we went under. Not that it’s even remotely likely. China, however, would destroy their economy. Y’see, they hold the Yuan artificially high, and to keep it that way, they have to keep building up their foreign currency reserves. Rather than just sitting on the currency, they buy securities, which pay interest. Selling those securities would flood their system with U.S. dollars and crash the value of the Yuan.

I tried to make this as simple as possible, because I want people to really understand why the deficit hawks are at best stupid, at worst malicious. Austerity measures are criminal, and the people who suffer are, as always, the poor.

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