You are fitting all of this into an equation that doesn't recognize the issue for what it is. It is a question of too much debt relative to growth and the size of the economy. Also down the line it will be a lack of demand. The only reason why this hasn't been a problem for the US yet is that we enjoy a reserve currency status. We have in fact made an implicit agreement with the Chinese for the past 10-15 years to run a trade deficit in exchange for debt purchasing and cheap goods. A trade surplus doesn't magically appear, it comes about through either cheaper goods through debasing or through simply providing for cheaper goods through some practical means(productivity, innovation). The US manufacturing base has slowly disappeared because of our implicit agreement with China to finance the growth of their economy. So it is a long shot that we become a manufacturing hub! We can always debase! But, then we run into the problem of losing reserve currency status which makes the real cost of financing debt a reality.
With rising unemployment in US the economy increasingly has fewer tax receipts and fewer consumers (who are already laden with consumer debts) with the buying power to kick start the economy. By the way, has anyone seen Charles Ferguson's documentary "Inside Job" which places an interesting perspective on what has occurred and is still unfolding?
ohh, orgasmic moment.... more government please!! Nothing is needed to stimulate an economy, absolutely nothing. Economies would go on quite nicely, recoveries from recessions and depressions have been quicker before Keynsian idiocy started up actually.. Some things can be done by government far better than the private sector like infrastructure planning and funding for one example. Infrastructure stimulates the economy, government jobs detract from the economy of the private sector.. POLITICIANS LOVE KEYNES... so much more of the GNP goes through their sticky little fingers... There is no particular proof that Keynes was right about anything.. but politicians love it, and academics that get their income from it love it, and there is no way to pay for socialism without robbing everybody possible [future generations, foreign investors, etc] and that's the only reason we have Keynsian garbage at all.. I'm thinking that after the upcoming debacle that the US and much of the world will undergo, Keynes ideas will be given a decent and long overdue burial..
Big government socialism is expensive, but I assume you mean to suggest that socialism in the U.K., or in the U.S. for that matter, will necessarily lead to outsize deficits. That's a conclusion not well supported by facts. How do you explain the relatively better balanced economies in countries that are considerably more socialist than the UK? Things are seldom as simple as we might suppose. It is very difficult for a large country with a complex economy competing in a global market place to keep its economy in balance year after year. One expects ups and downs as normal. It is the very deep recessions or periods of exceptionally large surpluses that are indicators of serious unbalances and mismanagement. Jimbo is certainly correct that modern capitalist countries with their own central bank and a fiat currency may more or less be expected to run in permanent deficit. However the size of those deficits relative to productivity along with the inflation rate must not be allowed to get too far out of whack.. I don't agree with Jimbo that increases in taxes in general, and within the normal range, have much if anything much to do with productivity incentives, and history bears this out. It is normal, and correct in modern economic theory, for tax rates to rise modestly during economic booms and to decrease during recessions. That helps to keep economies in balance. Currently the U.S. needs to keep tax rates on the middle class exceptionally low. The modest tax increases proposed for the upper end of incomes would be significant in reducing the deficit without having any significant harmful effect. In this the Democrat administration is right, and their Republican detractors are quite wrong. In the present weak economy, both parties should be backing very low rates for middle class income brackets. These can be allowed to rise modestly as the economy recovers. The economy can always benefit from government efficiency, but this is not the time for huge cuts in the budget, cuts need to be phased in as the economy recovers. The U.S. is not experiencing a "normal" recession but rather an extraordinary one; so extraordinary measures are indicated. It seems the Tea Party folks what to throw modern economic theory out a window and go back to a time when populations and countries were much smaller, much less complex, and much more isolated in their economies. They're going to have a rough go of it trying to make their ideas work in a complex global economy in countries with large, inhomogeneous populations. I wish they could prove me wrong and create a country where nearly everyone was prosperous, free from government interference -- because the government is too small to interfere with anything -- the air and water are pure, and nearly everyone is as happy as a lark and as well behaved as Little Lord Fontleroy. In fact I wish that almost as much as I wish it were really true that there is an all seeing, all wise, all compassionate, all loving and caring God.
If you have a couple of glasses of wine with dinner it probably has little effect on your life. If you are 22 years old and get drunk from time to time as long as you can hack the hangover you'll probably out grow it. But to binge year in and year out on booze or credit will eventually extract an enormous price. Current debt levels in the West are unsustainable. Current debt levels plus political systems that seem to make sanity impossible seem to be unsustainable even in the short term -- three years or less. Maybe a lot less as in three months. Anyone who thinks that Western industrial countries can avoid chaos while continuing to travel this economic path -- higher and higher levels of unemployment and growing mountains of debt -- does not believe in gravity. We are either on the brink of disaster or one step away from that brink. If the political leaders of the large Western industrial societies continue to tinker around the edges and believe that grand pronouncements without substance can extend the day of reckoning for a decade or two they are missing what markets are screaming at them. The banking systems in many countries needs more -- a lot more -- equity to assure their survival. Some of the weaker banks and sovereigns must do the equivalent of prepackaged bankruptcies and spending, private and public, must begin to fall and in coming years approximate income. Shooting down a Bloody Mary or three simply will not cure this hangover. We are talking about changing a mindset, a lifestyle and, if it is not already to late, we can at least start before the markets impose it upon us but either way the party is over.
Yes, modern economic theory says that the government must get us ever deeper into debt. That is why modern economic theory is bankrupt. You will note that massive government deficits for decades have not caused the U.S. trade deficit to do anything but go up.