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In a recession the government should reduce spending to avoid a costly deficit, whereas during boom times it should increase investment in the public sector to boost growth, efficiency and perpetuate the common good further. Right? Wrong! You just got a 0 on this quiz. It is during a recession that government increases spending and during boom times that the deficit incurred during the recession is paid of. In other words, when private sector spending goes down and economy slows, government increases spending. This is the time to build new colleges and universities, k-12 schools, highways, police stations, dispatch centers, parks, etc... Won't this create a deficit? Yes, it most likely will, as tax revenues decline during a recession. But, as any economist knows, not all deficits are created equal. First, investment in schools, infrastructure and the like is exactly that: an investment. Investments have returns, so does social sector spending. Part of the cost of a deficit derived from making these investments will be off-set through their returns, i.e. a healthier, more educated labor force, fewer traffic jams, less damage to private property, etc... Second, spending should slow or kept level during boom years, when tax revenues increase. It is then that the state repays the deficit incurred during the bust cycle. But why not just make these investments during the boom years and avoid a deficit altogether? Because you won't to lessen severity of the bust cycle. When government spends, there is what economists call a "multiplier effect." For example if the state of California spends $100 billion to build new highway, its spending causes a ripple effect through the economy. Contractors are hired, they have more business, more income and demand more goods. Thus, the real effect on the economy may be upward of say, $300 billion. When the government spends, be it by hiring teachers, contractors to build public projects, etc... Jobs and income are created and aggregate demand for goods increases. When demand increases, supply will follow. This in turn, creates more jobs and further increases demand, and voila: we're out of the bust cycle. That is not to mention the long-term benefits we stand to reap from a better infrastructure and public institutions, i.e. a healthier, more educated population, etc... With the stimulus package, the government followed the above logic. Putting money in the hands of consumers so they may increase aggregate demand (it is important to note that those checks are send only to households below a certain income threshold. Why? Because the rich spend a lower percentage of their income, as they already have enough to satisfy their materialistic desires. Thus, $500 in the hands of a poor person is more likely to be injected into the economy). Increasing investment in the public sector, however, may also yield more long-term benefits and should be added to our anti-recession agenda. What the government should not do is reduce spending. Doing so, will worsen the recession. The process I described above will take place in reverse: less public sector employment, less income, less aggregate demand... you get the idea. Now, is the time to invest in the public sector; now is the time to build those new highways, colleges and schools; now is the time to hire new civil servants.
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If you check the budgets of many of the states in the country that don't have a budget deficit (a majority of them don't, by the way), many of them have done just that. Built a surplus fund during the boom times to use to maintain services during the bust times.
If you can fix the politicians, then run for public office and I may even vote for you . Fixing the way the politicians work, well, I just don't know how to do that ....