please explain anyone explain how government spending can help the economy get out of a recession ?
It is not government spending that will help us get out of the economic slump. It will take government incentivizing businesses thru tax breaks or tax cuts to pull us out. Unfortunately, the Obama administration has the opposite in mind as they intend on letting the Bush tax cuts expire at the end of 2010. This will result in higher tax rates for individuals, businesses and will reimplement the marriage penalty.
The economic principle behind it is basically an idea of redistribution of wealth...stimulating the economy by putting more money back into circulation. While this has been used with success in some other countries, it has never been shown to be effective when there are larger adjustments needing done...especially in an economy like the US, which has so many "leaks" (where money leaves the economy and goes out of country) that not enough money stays within the economy to affect any kind of substantial change. For the most part it is a small-scale solution for smaller slumps either during a fiscal year or after a single down year...and it has to be properly directed to have any positive effect at all. If it's not properly directed, or if it's "too little, too late" then the government is just wasting money. Another principle is that when something needs to be invested in by the government, they should invest in infrastructure...however, this is a long-term investment plan and not a very good option in times of economic hardship, as we've seen some construction and road-building programs lately "designed to keep people employed" that haven't really fulfilled their purpose either.
For the economy to work, individuals need jobs and businesses need orders or demand for goods and service to keep them going.
For every transaction for goods and services there has to be a buyer and a seller.
If there is no spending there will be no buying. There will be no business or jobs.
Spending is vital to a healthy economy.
In a recession, spending from the private sector drops for variety reason. Businesses suffer.
Individuals get laid off. They in turn cannot spend for even the basic goods and services. This creates hardship like hunger and homelessness. Businesses then would not want to invest because there is no demand for their goods and services. This vicious cycle get worse and worse. Unemployment gets even worse. The economy is now bad.
Even the tax-base and government revenue to support essential services drops.
The federal government can drop interest rates to make borrowing more attractive to boost demand of goods and services. This can help in marginal situations.
The biggest help however is what economist calls the “injection effect” or stimulus. That is government has to start deficit spending. This is one of the few times deficit spending is justifiable. Why deficit spending, because raising taxes to prevent deficit will make thing worse. When government spending starts the demand for jobs and services go up. Government can spending on infrastructure projects like roads, bridge, utilities, communication networks, education, and even defense projects.
This creates jobs instantly. Soon demand for good and services picks up.
More people start to shop for houses, cars, and furniture. Demand increases for things like pizzas, laundry services. Everybody has more opportunities to make money and get out of financial hardships.
This creates a positive ripple effect. With low interest rates, low taxes and high demand for goods and services, businesses tend to invest even more creating even more jobs and more demand goods and services.
The stimulus package is a temporary measure to jump-start the economy. It must be big enough to make the impact.
When the recession ends, government can stop deficit spending. The tax revenues would naturally increase to overcome the deficit. Then government has the opportunity to reduce the deficit. Taxes and interest rates can be re-adjusted carefully as needed to regulate the economy.
If the spending was in the proper places instead of with big business that isn't creating new jobs it can work. Trickle down economics never works, I believe most of us learned that in 12th grade economics.
To get out of this whole the government has dug for Americans the billions of dollars spent already to stimulate the economy need to be given to the middle and lower classes in society. By doing this we pay late mortgages, bills, and car payments and buy more because we have a surplus of money for purchasing power.
Things we need to do...
1.) Repeal NAFTA
2.) Different regulations for the Federal Reserve
3.) Create jobs
4.) Follow FDR's New Deal plan and put people back to work.
In theory things like the stimulus money we got were suppose to pump money into OUR economy which would mean businesses are making money which leads to jobs. The problem is that people went out and bought products that were probably made in China so it may have stimulated our economy a little but it also helped China. America needs to be like it was when we became a superpower. We made the cars we drove, the steel to make those cars came from America and so on. I agree that NAFTA is not good; I think it's just plain stupid. It would be like giving your neighbors kids an allowance because they will take less then your own kids. We should be keeping our jobs not giving them away. Also I am sure America could have found an alternative to fossil fuels which could lower transportation costs across the board and create jobs. Spend the money in the right places and it becomes an investment not a waste of money.
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