Filling in Some Economic Gaps

I'm not much of an economist. This week, I've been looking at articles about whether or not government spending and the deficit hurt the economy. To be honest, I didn't understand them that much. A lot of the articles (even the popular ones) seem to assume that everybody has a common-sense, "big picture" understanding of how the economy works, and that's not exactly true with me. My Asperger's tends to make me focus on the trees rather than the forest, and, when authors leave the trees out, then I am lost. Of course, I'm not saying that having Asperger's and being an economist are irreconcilable. There is a Nobel prize-winning economist who has the syndrome, after all.

I spend time (probably more than I should) on a Christian dating site, which has a variety of forums. I've learned a lot from it. From the Bible Study and Theology Forum, I've read the perspectives of different denominations. I can now tell you (roughly speaking) the various viewpoints on the rapture and the justifications given for each of them. As I said yesterday, the Prayer Form gives me clear opportunities to pray for people, something that church doesn't really do for me (at least not as well).

Anyway, as I was struggling with the economics articles, I posted a question on the News and Current Events Forum. I asked why the budget deficit is bad for the economy. I told all the potential responders to expect some obvious questions from yours truly.

Some of the replies did not make sense to me because they were overly abstract and used technical economic terms. But some of them did make sense. Here's what I learned:

The deficit is bad for this reason: when the government borrows money, it is leaving less money for investment and purchases in the private sector. Incidentally, this is also true when the government spends more money. There is only so much money to go around. If more is in the government's hands (through taxes, the deficit, and government spending), then less is in the possession of the private sector. When the Federal Reserve prints more money to address this problem, the result is inflation, as Ron Paul has repeatedly said. Why? Because when businesses know that more money is out there, they will raise their prices to get more of it.

The best thing for the economy is for more money to be in the private sector, not the government. Why? One reason that comes to my mind is that the government depends on the private sector. The government gets money through taxes. It is not self-supporting, but parasitic.

Often, the Democratic solution to unemployment (going back to FDR) is for the government to create more jobs. But the money for those jobs will have to come from the private sector, through taxes or borrowing. The private sector, by contrast, is not exactly parasitic, since people pay their own money to receive a service, resulting in jobs. Now that is a self-supporting system! The company gets paid, the person receives a service, and jobs are created through the entire process. There's no ripping off of another sector to create jobs. Everyone's happy, and, when there is unhappiness, people can shop elsewhere (if the government doesn't inhibit competition). Why not stimulate the creation of jobs in the private sector rather than creating more parasitic jobs for the government?

The same applies to all this push for federally-funded energy alternatives. Sure, that will create jobs, but the jobs would be parasitic because they'd need the support of the government. The support won't be coming from the consumer, for there's not a great deal of demand for alternative energy right now (since people can use oil). If there were, then the private sector would be investing in it.

Some may argue that government jobs are not parasitic because they create services (e.g., roads, schools) that can help the economy in the long run. Businesses prosper when there are good roads and an educated work force. If I'm not mistaken, this is the type of deficit spending that John Maynard Keynes advocated--the kind that yields beneficial returns for the economy. Liberals point out to me that the deficit we've accumulated from the Iraq War is different, since the money is going down a hole in that case.

My response to that will not surprise my readers. I feel that a lot of domestic government spending is going down a hole. Government-funded schools do not necessarily produce a better educated work force, for example. In fact, the lack of competition in public education seems to create the opposite effect. So one can legitimately ask, "What beneficial returns?"

I realize that this post may not be my clearest, since I'm thinking out loud. There are also many economic rules that I don't understand. Why does the budget deficit lead to higher interest rates? It has something to do with selling bonds, but what? I read that the budget deficit means that Americans save less. How so? Just because the government doesn't balance its checkbook, that shouldn't mean that I can't. Maybe there are some good books or articles that can fill in the gaps.