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    Most of it is from burning oil, coal and gas. This is unfeasible in the long run because changing over from direct fossil fuel insertions to electric cars will not make much difference overall. It may change consumption distributions but not consumption overall. This constant seesawing should stop and hybrid cars should be supported fully. If we burn coal to get electricity to fuel the car is it not the same as using gas? Glenn Tea Tree Shampoo ikeehot Hi!

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    A republican will drive a prius for his wallet and a dem will drive for the environment. I am so pleased with this car and I am happy that the tax credits are not available anymore. It is a step forward for the car industry, for the economy and why not, for our planet.

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    Controversy[ edit ] Government deficit spending is a central point of controversy in economics, with prominent economists holding differing views. The government should run deficits during recessions to compensate for the shortfall in aggregate demandbut should run surpluses in boom times so that there is no net deficit over an economic cycle i.

    This is derived from Keynesian economicsand gained acceptance especially in the Anglo-Saxon world during the period between the Great Depression in the s and post-WWII in the s. Advocates of federal-level fiscal conservatism argue that deficit spending is always bad policy, while some post-Keynesian economists—particularly neo-chartalists or proponents of Modern Monetary Theory —argue that deficit spending is necessary for the issuance of new money, and not only for fiscal stimulus.

    The deficit spending requested by John Maynard Keynes for overcoming crises is the monetary side of his economy theory. As investment equates to real saving, money assets that build up are equivalent to debt capacity. Therefore, the excess saving of money in time of crisis should correspond to increased levels of borrowingas this generally doesn't happen - the result is intensification of the crisis, as revenues from which money could be saved decline while a higher level of debt is needed to compensate for the collapsing revenues.

    The state's deficit enables a correspondent buildup of money assets for the private sector and prevents the breakdown of the economy, preventing private money savings to be run down by private debt.

    Current reality is almost the exact opposite. Deficits add to the net disposable income of individuals, to the extent that government disbursements that constitute income to recipients exceed that abstracted from disposable income in taxes, fees, and other charges.

    This added purchasing power, when spent, provides markets for private production, inducing producers to invest in additional plant capacity, which will form part of the real heritage left to the future. This is in addition to whatever public investment takes place in infrastructure, education, research, and the like.

    Larger deficits, sufficient to recycle savings out of a growing gross domestic product GDP in excess of what can be recycled by profit-seeking private investment, are not an economic sin but an economic necessity. Deficits in excess of a gap growing as a result of the maximum feasible growth in real output might indeed cause problems, but we are nowhere near that level. Even the analogy itself is faulty. Proponents of fiscal conservatism date back to Adam Smithfounder of modern economics.

    Fiscal conservatism was the dominant position until the Great Depression, associated with the gold standard and expressed in the now outdated Treasury View that government fiscal policy is ineffective.

    A similar argument is that deficit spending today will require increased taxation in the future, thus burdening future generations. See generational accounting for discussion. Others argue that because debt is both owed by and owed to private individuals, there is no net debt burden of government debt, just wealth transfer redistribution from those who owe debt government, backed by tax payers to those who hold debt holders of government bonds.

    Anything other than mild or moderate inflation is generally accepted in economics to be a bad thing. In practice this is argued to be because governments pay off debts by printing money, increasing the money supply and creating inflation, and is taken further by some as an argument against fiat money and in favor of hard moneyespecially the gold standard.

    In a quip, "fiat money governments are 'spend and tax', not ' tax and spend '"—deficit spending comes first. Chartalists argue that nations are fundamentally different from households. Governments in a fiat money system which only have debt in their own currency can issue other liabilities, their fiat money, to pay off their interest bearing bond debt.

    They cannot go bankrupt involuntarily because this fiat money is what is used in their economy to settle debts, while household liabilities are not so used. This view is summarized as: But it is hard to understand how the concept of "budget busting" applies to a government which, as a sovereign issuer of its own currency, can always create dollars to spend. There is, in other words, no budget to "bust". A national "budget" is merely an account of national spending priorities, and does not represent an external constraint in the manner of a household budget.

    Private sector savings are equal to government sector deficits, to the penny. Lernerwho founded the school of Neo-Chartalismand advocated deficit spending in his theory of functional finance. Chartalists, like other Keynesians, accept the paradox of thriftwhich argues that identifying behavior of individual households and the nation as a whole commits the fallacy of composition ; while the paradox of thrift and thus deficit spending for fiscal stimulus is widely accepted in economics, the Chartalist form is not.

    Governments usually issue bonds to match their deficits. They can be bought by its Central Bank through open market operations. Otherwise the debt issuance can increase the level of i public debt, ii private sector net worth, iii debt service interest paymentsand iv interest rates. See Crowding out below. Deficit spending may, however, be consistent with public debt remaining stable as a proportion of GDPdepending on the level of GDP growth. For the public sector to be in deficit implies that the private sector domestic and foreign is in surplus.

    An increase in public indebtedness must necessarily therefore correspond to an equal decrease in private sector net indebtedness. In other words, deficit spending permits the private sector to accumulate net worth.

    On average, through the economic cycle, most governments have tended to run budget deficits, as can be seen from the large debt balances accumulated by governments across the world. Keynesian effect[ edit ] Following John Maynard Keynesmany economists recommend deficit spending to moderate or end a recessionespecially a severe one. When the economy has high unemployment, an increase in government purchases creates a market for business output, creating income and encouraging increases in consumer spendingwhich creates further increases in the demand for business output.

    This is the multiplier effect. This raises the real gross domestic product GDP and the employment of labour, and if all else is constant, lowers the unemployment rate. The connection between demand for GDP and unemployment is called Okun's law. The increased size of the market, due to government deficits, can further stimulate the economy by raising business profitability and spurring optimism, which encourages private fixed investment in factories, machines, and the like to rise.

    This accelerator effect stimulates demand further and encourages rising employment. Increase in government payroll has been shown to depress the economy in the long run. This can lower the inflation rate.

    Any use of the government deficit to steer the macro-economy is called fiscal policy. A deficit does not simply stimulate demand.

    If private investment is stimulated, that increases the ability of the economy to supply output in the long run. Also, if the government's deficit is spent on such things as infrastructure, basic research, public health, and education, that can also increase potential output in the long run. Finally, the high demand that a government deficit provides may actually allow greater growth of potential supply, following Verdoorn's law.

    Deficit spending may create inflationor encourage existing inflation to persist. For example, in the United States Vietnam-war era deficits encouraged inflation.

    This is especially true at low unemployment rates. But government deficits are not the only cause of inflation: It can arise due to such supply-side shocks as the oil crises of the s and inflation left over from the past e. If equilibrium is located on the classical range of the supply graphan increase in government spending will lead to inflation without affecting unemployment. There must also be enough money circulating in the system to allow inflation to persist, so that inflation depends on monetary policy.

    Government borrowing in this market increases the demand for loanable funds and thus ignoring other changes pushes up interest rates. Rising interest rates can crowd out, or discourage, fixed private investment spending, canceling out some or even all of the demand stimulus arising from the deficit—and perhaps hurting long-term supply-side growth.

    Increased deficits also raise the amount of total income received, which raises the amount of saving done by individuals and corporations and thus the supply of loanable funds, lowering interest rates. Despite a government debt that exceeded GDP inthe U.

    The growth of the supply sideit seems, was not hurt by the large deficits and debts. In many countries the government borrows by selling bonds rather than borrowing from banks.

    The most important burden of this debt is the interest that must be paid to bond-holders, which restricts a government's ability to raise its outlays or cut taxes to attain other goals. Crowding out economics Usually when economists use the term "crowding out" they are referring to the government spending using up financial and other resources that would otherwise be used by private enterprise.

    However, some commentators use "crowding out" to refer to government providing a service or good that would otherwise be a business opportunity for private industry. When an economy goes into a recession, deficits usually rise in the more affluent countries.

    Revenue from progressive taxes based on economic activity income, expenditure, or transactions falls. Other sources of tax revenue such as wealth taxesnotably property taxesare not subject to recessions, though they are subject to asset price bubbles. Transfer payments due to increased unemployment and reduced household income rise. Automatic stabilizer Most economists favor the use of automatic stabilization over active or discretionary use of deficits to fight mild recessions or surpluses to combat inflation.

    Active policy-making takes too long for politicians to institute and too long to affect the economy. Often, the medicine ends up affecting the economy only after its disease has been cured, leaving the economy with side-effects such as inflation. For example, President John F.

    Kennedy proposed tax cuts in response to the high unemployment ofbut these were instituted only in and impacted the economy only in or and the increased debt encouraged inflation, reinforcing the effect of Vietnam war deficit spending.

    These terms are especially applied to public sector spending which contributes to the budget balance of the overall economy of a country. Cyclical deficit[ edit ] A cyclical temporary deficit is a deficit that is related to the business or economic cycle. The business cycle is the period of time it takes for an economy to move from expansion to contractionuntil it begins to expand again. This cycle can last anywhere from several months to many years, and does not follow a predictable pattern.

    This leads to lower government revenues from taxation and higher government expenditure on things like social securitywhich may cause the economy to go into deficit. While the cyclical component is affected by government decisions, it is mainly influenced by national and international economic conditions which can be significantly beyond government control. Structural deficit[ edit ] A structural permanent deficit differs from a cyclical deficit in that it exists regardless of the point in the business cycle due to an underlying imbalance in government revenues and expenditures.

    Thus, even at the high point of the business cycle when revenues are high the country's economy may still be in deficit. Other economists see the structural deficit as simply a reflection of the implied discretionary fiscal stance of the government, that is, a structural deficit would be an expansionary fiscal stance that promotes at least nominal economic growth.

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    Where deficits are being funded by borrowing, a structural deficit is seen by some economists as an issue for a government as even at the high points of the business cycle the government may need to continue to borrow and thus continue to accumulate debt.

    According to them, this would lead to continued "deterioration" of the debt-to-GDP ratioa basic measure of the health of an economy and an indication of the country's ability to pay off its debts.

    Those economists who believe that structural deficits need to be reduced argue that structural deficit issues can only be addressed by explicit and direct government policiesprimarily involving reducing government spending or increasing taxation.

    An alternative in countries which have fiat money is to address high levels of debt and a poor debt-to-GDP ratio by monetising the debtessentially creating more money to be used to pay off the debt. Monetising the debt can lead to high levels of inflationbut with proper fiscal control this can be minimised or even avoided[ citation needed ]. Both it and the final option of defaulting on the debt are thought to be poor results for investors.

    These are the first instances of either since the dropping of the gold standard. In a planned structural deficit, the government may commit to spending money on the future of the country in order to improve the productive potential of the economy, for example investing in infrastructureeducationor transportwith the intention that this investment will yield long-term economic gains.

    If these investments work out as planned the structural deficit will be dealt with over the long-term due to the returns on investment.

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