WHat is so bad about borrowing to stimulate the economy

Economics Economics Questions
1

If a business overproduced in the boom, the govt can borrow to make up the shortfall.

the business can then spend it, increasing consumer incomes, When the government taxes this money back no one is hurt.

2

Huh?

3

  1. There is no such thing as overproduction. Kenyesian myth. The only way a business can overproduce is if government distorts business.

  2. This sounds confusing. You say there is overproduction, then there is a shortfall. How can this be possible with the same business.

  3. Who is the government borrowing from?

Wait, what happened here? How did business get additional money. By the way, if it was taxed by the government, it does not “increase consumer incomes”, it merely shifts them from one group of people to another.

You might want to reiterate your argument.

4

First, that in no way resembles a coherent thought.

If a business overproduced then the solution is less production. Have the government sustain a waste of resources is what we would call a bad thing.

If a government borrows it is not creating “demand”, it is shifting demand. If a government inflates it is also only shifting demanding. Shifting production away from consumers’ wants and towards government’s wants.

5

It doesn’t “stimulate” the economy. I’m not sure that there is such a thing as stimulating an economy.

6

what about borrowing from overseas?

7

Sounds like blowing bubbles to me.

Get a grip on ABCT and then reread your post.

8

That doesn’t make any sense. You have businesses who overproduced due to malinvestments and you have the government borrowing money for what? To attempt to sustain the overproduction? What do they do? Lend it to the businesses which are already in debt and malinvested? How does that increase consumer incomes? By allowing them to keep paying their employees? They are doing that now and have to much production. So why would propping up malinvested businesses with borrowed money fix anything? At some point you will not be able to borrow anymore money and the malinvested businesses would go bankrupt anyway (GM). So you then claim to pay for the borrowing by raising taxes which reduces consumer incomes and makes things even worse.

Your solution is to create zombie companies that will eventually have to go bankrupt once the government stops supporting them, go deep into debt and then to raise taxes. This makes financial sense to you?

The only solution to malinvestments is to liquidate the losses.

9

To liquidate the losses as quickly as possible.

When we look at re-capitalizing these failing firms, we’re doing two things.

  1. We’re borrowing against the future to consume now (as loser businesses are net capital consumers, not net capital producers)

  2. We’re depleting the capital stock, bidding away capital from the solvent and productive competitors, thus raising their finance costs and limiting their expansion opportunities.

That’s how you end up with the zombies. You not only keep the losers in a zombie state, you drag the successful firms in your economy down to zombie status as well, through the forced subsidization of their competitors.