In an AP Fact Check released this past week-end, the Associated Press reported that, contrary to popular arguments put forward by the Republican party, the problem with the lagging US economy is not spending but is, in fact, related to the lagging US economy.
In their concisely worded AP Fact Check release, the AP noted:
“This disparity between what comes in and what goes out .. reflects the mathematical reality that during recessions, tax revenues go down sharply because people and companies make less money and so pay less in taxes. Federal spending goes up… with an increasing demand for government help from food stamps and unemployment compensation and other safety-net programs. At the same time, the negative economic growth associated with recessions lowers the GDP number on the bottom of the equation, further boosting the ratio of spending to GDP.”
In other words, revenue goes down because less revenue comes in and government spending goes up because the government spends more. As a direct result, spending to GDP ratios look bad.
Noted Dreadmonger consulting economist, Dr. Paul Grunder commented on the report, saying, “We see this pattern repeating historically in each cycle. Not to get too technical but, as capital inflows decrease, we see less money coming in. Similarly, as more capital is spent, we see a corresponding increase in spending. This is often difficult for the layperson to grasp as it may be somewhat counterintuitive to those not schooled in economic theory.”
The AP Fact Check went on to quote noted Democratic strategist Mark Mellman, “If the economy starts to get better, then everything gets better.”
Trust Dreadmonger to provide in-depth economic reporting and analysis.
- Report: U.S. Debt Is Caused By Weak Economy, Not Government Spending (mediaite.com)
- FACT CHECK: Recession is culprit in high US debt (seattletimes.nwsource.com)