We have borrow/sell and spend conservatives in the EU as sell.
Annoyingly people use the same word for raising taxes as for cutting spending. Sometimes they use it for structural reforms as well. And then they say ridiculous things like, “sure we must have austerity, but not too much because we also need growth”. In reality cutting spending, reducing taxes and structural reform are exactly what will give us growth.
Hmm, sort of like some of the claims from the left that we have cut too much already when we have not cut anything.
Keynesian economics is little more than the Broken Window Fallacy writ large. It never addresses the unseen effects of taking the money out of the economy, only the seen effects (or lack of them) of government spending.
Yep. That’s why it’s maddening that so many space cadets keep reciting the old cliche that every dollar spent on NASA returns seven dollars through the magic Keynesian multiplier effect.
If that were true, we could get rid of the Federal deficit quite easily by increasing the NASA budget to one trillion dollars.
Absolutely Larry. My rule of thumb is any dollar spent by the govt. reduces the overall economy by two dollars. Which is why idiocy like this…
rich tend to hoard their wealth, maybe we should just smash their windows
…needs a cluebat education.
You don’t get rich or stay rich by hoarding. The rich get and stay that way by investing. Investing is the opposite of hoarding. So what if they did hoard? It belongs to them. They will die on their own eventually and they really can’t take it with them.
Class warfare is the easiest way to identify a marxist/juvenile (but I repeat myself.)
There’s also the point that even the Keynesians aren’t Keynesian.
Keynes wasn’t about pure government spending.
It was about government infrastructure spending.
A trillion dollars of nuclear power plants might actually manage to cause some of the ‘magic multiplier’ to work. Because (a) it has a -direct- positive rate of return; and (b) the employees would fundamentally be new local hires. And a whole lot of local concrete.
(Of course, we couldn’t hand a trillion dollars to NASA to make the powerplants, that wouldn’t be enough money for the first round of safety computers.)
I’m still in awe of the local insanity being called “Stimulative” when 95% of the money went to Chinese raw materials, imported computers, and funding the state employee pension fund. Yeah, that sounds mighty Keynesian.
I don’t think Keynesian economics works much, but our brainiacs are doing the equivalent of: You dig, you fill, I’ll count. Three Jobs! Hire strippers for another victory lap!
“There’s also the point that even the Keynesians aren’t Keynesian.”
Exactly. Keynes is probably spinning in his grave over the notion that his work somehow justified chronic, systemic deficits. Not that his work wasn’t deeply flawed for other reasons, but what is going on now bares only a superficial resemblance.
Keynes is probably spinning in his grave over the notion that his work somehow justified chronic, systemic deficits.
I doubt it. As Churchill said:
If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions.
The guy was a politician, not a scientist, like the odious Paul Krugman. I doubt he believed what he himself said. Those were his principles, and if you didn’t like them, he had others.
“A trillion dollars of nuclear power plants might actually manage to cause some of the ‘magic multiplier’ to work.”
If those power stations make sense, then a better solution would be to get the government out of the way and let private industry build them. At least that might create some jobs that last beyond the initial construction phase.
Governments throwing money at infrastructure that makes no economic sense merely create short-term jobs that disappear when the government money does. It makes economic problems worse, because the government can’t later cut that spending without putting a lot of people out of work and losing their votes; hence the current mess where governments around the world have to cut spending but can’t even manage to eliminate economically useless or counter-productive jobs.
If the infrastructure project does make economic sense, then now probably is a good time to fund it because it’s likely to cost much less than it would have in a boom. But throwing money at random infrastructure that doesn’t make any economic sense is madness; just look at Japan.
That’s not what Keynesianism was about.
Keynes himself used the example of paying people to dig holes and fill them in again as an example of useful stimulus. Building pyramids was another example he used quite often.
In the Keynesian worldview, nonproductive spending is actually preferable because Keynes believed depressions were caused by “underconsumption.” Building factories or nuclear power plants would simply increase the supply of underconsumed goods and services, but building pyramids would increase consumption without affecting production.
Also, you misunderstand what the Keynesian multiplier effect means. It does not refer to the rate of return you get on a nuclear power plant. That’s profit. The multiplier effect is something entirely different.
If you hire Joe to run your nuclear power plan (or to dig holes and fill them in), you might pay him $100. Joe uses that $100 to pay his landlord. The landlord uses that $100 to buy meat from his butcher. That’s $300 of “economic activity,” because three $100 transactions occurred. That’s what the “multiplier effect” means, and that’s all it means. It has nothing to do with profit; it simply measures the number of times that $100 bill changes hands.
That’s the problem with the statement “every dollar NASA spends returns seven dollars to the economy.” The study they’re talking about wasn’t measuring economic return at all, just the number of people who handle the money after NASA’s through with it. And the result is not unique to NASA, either.
The $100 is just a bunch of paper printed by the government. If the alternative is to have lot of people sitting on their asses constantly unemployed there is going to be some sort of social friction which will end up costing more than actually putting that person to work in the first place. In the end high unemployment rates does not serve any nation or society as a whole. They may depress wages and consumption (reducing imports) causing capital to be further concentrated into the hands of a few but it also implodes the economy in general and increases instability further. If you can get more people working GDP will grow and the country will be wealthier in general (kind of obvious really).
If you check historical periods with the highest amounts of economic growth they were nearly all periods where there was in fact a major amount of government planning or direction in the economy and low unemployment. Countries with weak governments are usually basket cases. This does not mean the state should necessarily hold the largest pie of the GDP or have a lot of workers working directly for it. It just means it should manage the economy to a high degree by direct or indirect means.
The Chinese go to the extreme of considering that telecoms, transportation and energy in all forms are essential to the functioning of society so must be in the control of government monopolies. They do not allow market competition in these sectors. (while for example healthcare is not 100% government subsidized). To me this just shows how the Chinese prioritize the well being of their citizens compared with the smooth running of the civilian economy in order to better support their military expansion. i.e. they don’t give a damn.
As for Keynes talking about digging holes to fill them again or building pyramids I think he was just joking. Still that is almost what is required to build a subway and even pyramids can turn out to be tourist attractions someday.
Well, I can see why they didn’t explain it -that- way to engineering grad students.
If you hire Joe to run your nuclear power plan (or to dig holes and fill them in), you might pay him $100. Joe uses that $100 to pay his landlord. The landlord uses that $100 to buy meat from his butcher. That’s $300 of “economic activity,” because three $100 transactions occurred.
And yet this explanation is incredibly weak. What happens to the $100 after the 3 transactions? Does it simply disappear? Or, more likely, people keep spending it over and again until it essentially provides for an indefinite amount of economic activity (I call that “magic money”).
One of Keynes’ most odious quotes when asked about the consequences of long term government debt was “In the long run, we’ll all be dead.”
We’re seeing that mindset in action by governments around the world. In the long run, we’ll all be dead so why worry about leaving massive debts for future generations? We get to enjoy the benefits of spending money we don’t have today and let the future deal with the mess. That’s economic pedophilia.
I have 4 grandchildren, all under 8 years old. I wish to leave them a future of opportunity, not a legacy of debt. As things stand now, future generations are going to curse all our names for not putting an end to this nonsense.
And yet this explanation is incredibly weak. What happens to the $100 after the 3 transactions? Does it simply disappear?
I oversimplified. Three is simply a number I chose for purposes of illustration.
Yes, the money disappears at some point, into savings (to Keynesians, economic activity is all about spending, not investment) or it leaves the area of interest (which might be the nation, state, county, or some other region depending on who is doing the economic impace study).
That’s why the purported “economic impact of NASA spending” is so high. The study looked at a very broad area — the entire nation. If you studied the economic impact of NASA spending in a smaller area, say Brevard County, you’d get a smaller number simply because it takes less time for the money to travel out of the area.
Of course, all of this assumes that economic growth comes from spending rather than investment and productivity.
Austerity is a loaded word. It implies doing without.
Ronald Reagan wanted to reduce government spending, but he never called it an austerity policy. If you asked, he would have told you it’s a prosperity policy.
The mindset in Europe (even among so-called conservatives) is different. They simply assume an economy that’s driven by the government. When Europeans talk about austerity, they don’t simply mean government austerity, they mean social and personal austerity. The idea that reduced government spending might lead to greater personal prosperity is (literally and figuratively) foreign to them.
“Prosperity would work. Too bad we can’t try it.”
There are all sorts of infrastructure which could be built right now which would be useful regardless of the economic scenario further ahead. Massive LTE rollouts, massive fiber rollouts, upgrading the electric grid to become a decentralized and fault-resiliant “Enernet”, high-speed electric rail in some places (oil prices are still high and will not be getting near 90s oil prices if the source material is of less quality and requires heavy processing), electric rail in general for much the same reasons especially in countries where oil is expensive and electricity is cheap.
But the people who -want- spending consider the Barney Frank Museum infrastructure. Obama Feb 2009 when questioned on whether the spending should be a tad more targeted: “It’s all good, right?”
I’d argue that most duplicative (upgrading) infrastructure spending offers very little bang for the buck. We’re rarely building a route from point A to point B in the absence of a fairly efficient path between the two. A new bridge or highway bypass does far less to improve transportation costs in dollars per mile (or more to the core of the issue, dollars per delivery from point A to B) than would a slight lowering in the cost of fuel.
A new system of delivery, like maglev trains or sealed pods traveling in evacuated tubes, would show transformative improvements in commerce, but the government infrastructure we get are still relics of the 1950’s programs, highways, light rail, and airports.
The Keynesian growth from building 50 more miles of paved roads in Massachusetts in 2012 surely isn’t still the same benefit as adding 50 miles of paved road in Massachusetts in 1912.
“You keep using that word — I do not think it means what you think it means.”
As far as European austerity goes, I think we can steal Chesterton’s line about Christianity:
“The Christian ideal has not been tried and found wanting; it has been found difficult and left untried” – G. K. Chesterton
Though, to be fair, the monetary handcuffs imposed by currency union adds a big extra degree of difficulty here; I’m not sure that anything will “work” in the sense that people want.
We have borrow/sell and spend conservatives in the EU as sell.
Annoyingly people use the same word for raising taxes as for cutting spending. Sometimes they use it for structural reforms as well. And then they say ridiculous things like, “sure we must have austerity, but not too much because we also need growth”. In reality cutting spending, reducing taxes and structural reform are exactly what will give us growth.
Hmm, sort of like some of the claims from the left that we have cut too much already when we have not cut anything.
Keynesian economics is little more than the Broken Window Fallacy writ large. It never addresses the unseen effects of taking the money out of the economy, only the seen effects (or lack of them) of government spending.
Yep. That’s why it’s maddening that so many space cadets keep reciting the old cliche that every dollar spent on NASA returns seven dollars through the magic Keynesian multiplier effect.
If that were true, we could get rid of the Federal deficit quite easily by increasing the NASA budget to one trillion dollars.
Absolutely Larry. My rule of thumb is any dollar spent by the govt. reduces the overall economy by two dollars. Which is why idiocy like this…
rich tend to hoard their wealth, maybe we should just smash their windows
…needs a cluebat education.
You don’t get rich or stay rich by hoarding. The rich get and stay that way by investing. Investing is the opposite of hoarding. So what if they did hoard? It belongs to them. They will die on their own eventually and they really can’t take it with them.
Class warfare is the easiest way to identify a marxist/juvenile (but I repeat myself.)
There’s also the point that even the Keynesians aren’t Keynesian.
Keynes wasn’t about pure government spending.
It was about government infrastructure spending.
A trillion dollars of nuclear power plants might actually manage to cause some of the ‘magic multiplier’ to work. Because (a) it has a -direct- positive rate of return; and (b) the employees would fundamentally be new local hires. And a whole lot of local concrete.
(Of course, we couldn’t hand a trillion dollars to NASA to make the powerplants, that wouldn’t be enough money for the first round of safety computers.)
I’m still in awe of the local insanity being called “Stimulative” when 95% of the money went to Chinese raw materials, imported computers, and funding the state employee pension fund. Yeah, that sounds mighty Keynesian.
I don’t think Keynesian economics works much, but our brainiacs are doing the equivalent of: You dig, you fill, I’ll count. Three Jobs! Hire strippers for another victory lap!
“There’s also the point that even the Keynesians aren’t Keynesian.”
Exactly. Keynes is probably spinning in his grave over the notion that his work somehow justified chronic, systemic deficits. Not that his work wasn’t deeply flawed for other reasons, but what is going on now bares only a superficial resemblance.
Keynes is probably spinning in his grave over the notion that his work somehow justified chronic, systemic deficits.
I doubt it. As Churchill said:
If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions.
The guy was a politician, not a scientist, like the odious Paul Krugman. I doubt he believed what he himself said. Those were his principles, and if you didn’t like them, he had others.
“A trillion dollars of nuclear power plants might actually manage to cause some of the ‘magic multiplier’ to work.”
If those power stations make sense, then a better solution would be to get the government out of the way and let private industry build them. At least that might create some jobs that last beyond the initial construction phase.
Governments throwing money at infrastructure that makes no economic sense merely create short-term jobs that disappear when the government money does. It makes economic problems worse, because the government can’t later cut that spending without putting a lot of people out of work and losing their votes; hence the current mess where governments around the world have to cut spending but can’t even manage to eliminate economically useless or counter-productive jobs.
If the infrastructure project does make economic sense, then now probably is a good time to fund it because it’s likely to cost much less than it would have in a boom. But throwing money at random infrastructure that doesn’t make any economic sense is madness; just look at Japan.
That’s not what Keynesianism was about.
Keynes himself used the example of paying people to dig holes and fill them in again as an example of useful stimulus. Building pyramids was another example he used quite often.
In the Keynesian worldview, nonproductive spending is actually preferable because Keynes believed depressions were caused by “underconsumption.” Building factories or nuclear power plants would simply increase the supply of underconsumed goods and services, but building pyramids would increase consumption without affecting production.
Also, you misunderstand what the Keynesian multiplier effect means. It does not refer to the rate of return you get on a nuclear power plant. That’s profit. The multiplier effect is something entirely different.
If you hire Joe to run your nuclear power plan (or to dig holes and fill them in), you might pay him $100. Joe uses that $100 to pay his landlord. The landlord uses that $100 to buy meat from his butcher. That’s $300 of “economic activity,” because three $100 transactions occurred. That’s what the “multiplier effect” means, and that’s all it means. It has nothing to do with profit; it simply measures the number of times that $100 bill changes hands.
That’s the problem with the statement “every dollar NASA spends returns seven dollars to the economy.” The study they’re talking about wasn’t measuring economic return at all, just the number of people who handle the money after NASA’s through with it. And the result is not unique to NASA, either.
The $100 is just a bunch of paper printed by the government. If the alternative is to have lot of people sitting on their asses constantly unemployed there is going to be some sort of social friction which will end up costing more than actually putting that person to work in the first place. In the end high unemployment rates does not serve any nation or society as a whole. They may depress wages and consumption (reducing imports) causing capital to be further concentrated into the hands of a few but it also implodes the economy in general and increases instability further. If you can get more people working GDP will grow and the country will be wealthier in general (kind of obvious really).
If you check historical periods with the highest amounts of economic growth they were nearly all periods where there was in fact a major amount of government planning or direction in the economy and low unemployment. Countries with weak governments are usually basket cases. This does not mean the state should necessarily hold the largest pie of the GDP or have a lot of workers working directly for it. It just means it should manage the economy to a high degree by direct or indirect means.
The Chinese go to the extreme of considering that telecoms, transportation and energy in all forms are essential to the functioning of society so must be in the control of government monopolies. They do not allow market competition in these sectors. (while for example healthcare is not 100% government subsidized). To me this just shows how the Chinese prioritize the well being of their citizens compared with the smooth running of the civilian economy in order to better support their military expansion. i.e. they don’t give a damn.
As for Keynes talking about digging holes to fill them again or building pyramids I think he was just joking. Still that is almost what is required to build a subway and even pyramids can turn out to be tourist attractions someday.
Well, I can see why they didn’t explain it -that- way to engineering grad students.
If you hire Joe to run your nuclear power plan (or to dig holes and fill them in), you might pay him $100. Joe uses that $100 to pay his landlord. The landlord uses that $100 to buy meat from his butcher. That’s $300 of “economic activity,” because three $100 transactions occurred.
And yet this explanation is incredibly weak. What happens to the $100 after the 3 transactions? Does it simply disappear? Or, more likely, people keep spending it over and again until it essentially provides for an indefinite amount of economic activity (I call that “magic money”).
One of Keynes’ most odious quotes when asked about the consequences of long term government debt was “In the long run, we’ll all be dead.”
We’re seeing that mindset in action by governments around the world. In the long run, we’ll all be dead so why worry about leaving massive debts for future generations? We get to enjoy the benefits of spending money we don’t have today and let the future deal with the mess. That’s economic pedophilia.
I have 4 grandchildren, all under 8 years old. I wish to leave them a future of opportunity, not a legacy of debt. As things stand now, future generations are going to curse all our names for not putting an end to this nonsense.
And yet this explanation is incredibly weak. What happens to the $100 after the 3 transactions? Does it simply disappear?
I oversimplified. Three is simply a number I chose for purposes of illustration.
Yes, the money disappears at some point, into savings (to Keynesians, economic activity is all about spending, not investment) or it leaves the area of interest (which might be the nation, state, county, or some other region depending on who is doing the economic impace study).
That’s why the purported “economic impact of NASA spending” is so high. The study looked at a very broad area — the entire nation. If you studied the economic impact of NASA spending in a smaller area, say Brevard County, you’d get a smaller number simply because it takes less time for the money to travel out of the area.
Of course, all of this assumes that economic growth comes from spending rather than investment and productivity.
Austerity is a loaded word. It implies doing without.
Ronald Reagan wanted to reduce government spending, but he never called it an austerity policy. If you asked, he would have told you it’s a prosperity policy.
The mindset in Europe (even among so-called conservatives) is different. They simply assume an economy that’s driven by the government. When Europeans talk about austerity, they don’t simply mean government austerity, they mean social and personal austerity. The idea that reduced government spending might lead to greater personal prosperity is (literally and figuratively) foreign to them.
“Prosperity would work. Too bad we can’t try it.”
There are all sorts of infrastructure which could be built right now which would be useful regardless of the economic scenario further ahead. Massive LTE rollouts, massive fiber rollouts, upgrading the electric grid to become a decentralized and fault-resiliant “Enernet”, high-speed electric rail in some places (oil prices are still high and will not be getting near 90s oil prices if the source material is of less quality and requires heavy processing), electric rail in general for much the same reasons especially in countries where oil is expensive and electricity is cheap.
But the people who -want- spending consider the Barney Frank Museum infrastructure. Obama Feb 2009 when questioned on whether the spending should be a tad more targeted: “It’s all good, right?”
I’d argue that most duplicative (upgrading) infrastructure spending offers very little bang for the buck. We’re rarely building a route from point A to point B in the absence of a fairly efficient path between the two. A new bridge or highway bypass does far less to improve transportation costs in dollars per mile (or more to the core of the issue, dollars per delivery from point A to B) than would a slight lowering in the cost of fuel.
A new system of delivery, like maglev trains or sealed pods traveling in evacuated tubes, would show transformative improvements in commerce, but the government infrastructure we get are still relics of the 1950’s programs, highways, light rail, and airports.
The Keynesian growth from building 50 more miles of paved roads in Massachusetts in 2012 surely isn’t still the same benefit as adding 50 miles of paved road in Massachusetts in 1912.
“You keep using that word — I do not think it means what you think it means.”
As far as European austerity goes, I think we can steal Chesterton’s line about Christianity:
“The Christian ideal has not been tried and found wanting; it has been found difficult and left untried” – G. K. Chesterton
Though, to be fair, the monetary handcuffs imposed by currency union adds a big extra degree of difficulty here; I’m not sure that anything will “work” in the sense that people want.