Maggie's Farm

This is a classic example where the critique of Keynesianism:
"Keynesians believe that you can pump water out of one end of the pool and into the other and raise the water level" is accurate.

I'm actually a believer in Keynesianism in certain circumstances. If markets do get backlogged and tentative, public debt is low (or overall debt is low), and investment restrained, it can work. There is a cost to it, and it is remarkably inefficient, but it can work because it will put money to work when others are unwilling to put it to work.

But it requires the willingness and ability to run a mild surplus when times get good and drive the debt back down. Politicians simply won't do that because it's a chance to bribe people with their own money to buy votes.

Obama is the biggest perpetrator of bribery in our history, and he's claiming that the reason he's doing it is because the wealthy are making him do it. Yeah, right.

In the end, there is no value in this jobs bill. Unless he can show how the money is going to circulate 3 times through the system in short order, how can he possibly claim that "every penny of the jobs bill is paid for"?
That LIE is simply too outlandish for anyone to not respond.

Agreed. Which is why I am a supporter of the Austrian School, and that was one of their many arguments against Keynes.

The problem you're faced with, however, is that humans (voters, really) are emotionally driven. And while you and I recognize theft when we see it, most people see Taxes as the 'government's right to tax', not theft.

As such, they will opt to seek out government assistance during economic slowdowns simply because Keynesian solutions can provide a bump in certain circumstances.

de Tocqueville stated ""A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy."
In other words, the American Republic will endure, until politicians realize they can bribe the people with their own money. Keynes gave them the justification to fulfill their destiny.

It's a very fine line you walk down when you say (as I did) that you support Keynesianism in certain circumstances. The reason I support it is because there are moments in time when externalities impact the market to a degree which requires some intervention. The tricky part is having leaders who are qualified to recognize those moments, but more importantly are honest enough to do the right thing once that moment has passed.

Publius - "If men were angels, no government would be necessary" Sadly, some level of government is necessary and men are not angels.

Actually, that one's easy to answer. The 'magic multiplier' is real. There are 2 problems with it, though.
1. How quickly does it actually happen? We have no idea how quickly $1 spent in a store is then moved to a bank, recirculated in a loan, spent again, and so on. Could take up to a year for that dollar to go around the needed 3 or 4 times in order for the government to get its money back. But rest assured, it does happen. If you want proof, all you have to do is look at the total wealth and productive capacity of the US, the the total value of currency in circulation.

2. We have no idea how many times the money circulates. And that number varies on the level of economic activity. Basically, if you used GDP/currency in circulation, then you have a cycle in which money goes around 14 times. But that is far too simplistic a methodology. Mainly because other forms of 'money' exist. M1, M2, M3, etc. Which do you want to use?
As economic activity rises, monetary velocity (the speed at which it circulates) picks up. I pay for my dry cleaning today, that dollar goes into the bank at the end of the day, is issued to a borrower tomorrow, spent on a new car that day, back in the bank, etc. The problem is, due to bank reserve rules, that original dollar is not a full dollar recirculating when the loan goes out. So if my dollar recirculates every day in a healthy economy with a 10% reserve holding rule, by the end of the year only 1/3650th, or thereabouts, of it is being loaned out.
In an unhealthy economy, it may go from the dry cleaner, to the bank, and sit there for 2 or 3 weeks.


The issue of the jobs bill goes beyond the multiplier. It's also "how much of it really comes back?" In other words, because of deadweight loss in the government, when the money is handled by bureaucrats, you lose a portion of the money to be spent. So of $354mm, $4mm is spent on bureaucratic salaries. Then there are the delays of paperwork and oversight. Then there are the costs of regulations.
So, $1 spent by the government after it's either borrowed or taxed you more, enters as $.90, and the friction of processing makes it even less by the time it begins to circulate. Many economists feel this is an inefficient means of 'pump priming'.

Much more efficient is a simple tax cut. Why? Because the government doesn't have to touch the money. It's left in your pocket and you get to immediately do whatever you want with it. Returns to the government from tax cuts are always higher than increased spending from borrowing.

As an FYI, there are limits to tax cuts, too. At some level, the tax rate gets so low that the impact of a cut is almost meaningless. But we're not there right now.