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Yehuda “YJ” Draiman - Candidate for Mayor of Los Angeles 2017 YJ Draiman is the lead elected official for the Northridge East Neighborhood Council – NENC, he is also the liaison between the NENC and LADWP. As an Energy Efficiency Advocate YJ Draiman is known for his advancement in implementing... More
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YJ Draiman for Mayor of Los Angeles
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American Energy Independence
  • When The Government Spends Trillions Of Dollars It Is Taking It Out Of The Economy Which Diminishes Economic Growth 1 comment
    Nov 30, 2012 3:40 AM

    When the government spends trillions of dollars it is taking it out of the economy which diminishes economic growth

    Why this crowding out of private spending? Government spending comes from three sources: debt, new money, or taxes. In other words, the government can't inject money into the economy without first taking money out of the economy.

    Take taxation: Taxes simply transfer resources from consumers to government, displacing private spending and investment. Families whose taxes have increased will have less money to spend on themselves. They are poorer and will consume less. They also save less money, which in turn reduces the resources available for lending.
    In addition, higher taxation encourages people to change their behavior to avoid taxes. They might switch their efforts to non-taxed activities, such as household production, or to the untaxed underground economy. Economists call this a deadweight loss, because people give up the taxed activity or good they prefer.
    There are high costs to the other options as well. If the government borrows money, that leaves less capital for the private sector to borrow for its own consumption. If the government prints new money, it will create inflation, which reduces the value of the money we own and decreases everyone's purchasing power.
    Overall, government spending doesn't boost national income or standard of living. It merely redistributes it-minus the share it spends on the bureaucracy that collects and spends our tax dollars. The pie is sliced differently, but it's not any bigger. In fact, it's smaller.

    In addition, higher taxation encourages people to change their behavior to avoid taxes. They might switch their efforts to non-taxed activities, such as household production, or to the untaxed underground economy. Economists call this a deadweight loss, because people give up the taxed activity or good they prefer.
    There are high costs to the other options as well. If the government borrows money, that leaves less capital for the private sector to borrow for its own consumption. If the government prints new money, it will create inflation, which reduces the value of the money we own and decreases everyone's purchasing power.
    Overall, government spending doesn't boost national income or standard of living. It merely redistributes it-minus the share it spends on the bureaucracy that collects and spends our tax dollars. The pie is sliced differently, but it's not any bigger. In fact, it's smaller.

    YJ Draiman

    http://yjdraimanformayor.org

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    Author’s reply » "The national debt is certainly a ticking time bomb. There's no question that if we don't do something about it, it's going to go off," like most economists, thinks there comes a point when the debt becomes unsustainable -- when interest payments on the debt alone create an economic implosion.
    "We're spending about $200 billion on interest now. That’s much more than we're spending on operations in Afghanistan, more than we're spending on Medicaid."
    Compounding the problem are the baby boomers. The first of the tidal wave of Americans born in the post-World War II years are now retiring. Many of them have had their retirement savings diminished by the bursting of the housing bubble and the subsequent recession. More than ever, they're counting on government entitlements in their senior years.
    "We're facing this avalanche of seniors moving into Medicare and Medicaid and Social Security. So federal expenditures driven by Medicare and Medicaid are going to go up faster than the economy can grow."
    30 Nov 2012, 03:46 AM Reply Like
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