More Economics

A little on the government deficit:

So, we have total spending, and there's an equation:

We have two equations: Y = C + I + G and Y = C + S + T, where C is household consumption, I is Investments in Businesses, G is government spending, S is savings, and T is taxes. S and T are sources of income. C, I, and G are expenditures, and Y is the output of the economy, or GDP.

We can obviously set the equations equal to each other. We now have: C + I + G = C + S + T. With a little algebra, we can subtract C from both sides, giving us: I + G = S + T.

We can now set that equation equal to zero:

(I - S) + (G - T) = 0

The (I - S) portion represents net private investments. The (G - T) portion is net public investments, or government investments. When (G - T) is positive, we have a government deficit, and it is financed with bonds. So, per the equation, when (G - T) is positive, then (I - S) must be negative, and vice versa. So, that means either businesses or the government will always be operating under a deficit.

So, while the deficit seems scary to everyone, it is really only an issue when government spending is less efficient than private investments. And, while I'm not nervous about the deficit, I do believe that I have a better idea where to spend money than the government does these days.