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Tuesday, November 26. 2013
(cough, cough. bullsh-t)
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But if your goal is to destroy a great country that is too strong to overthrow by raw power and to turn a constitutional Republic into a socialist state then Keynes and Krugman are brilliant. Or Cloward and Pivens are brilliant. Or Marx and Obama are brilliant. Any way you look at it this chaos will end with the American people holding the bag and someone else holding power.
The consumer surplus is not great in digging and filling holes.
This is indeed an old debate. Of course, it doesn't apply to home economics.
I really do see the benefit of this, actually.
On a very simple level, if we have a whole load of people that would otherwise be entirely unemployed it is clearly better to pay them to do something over the short term until the economic cycle returns to growth and then these jobs are quietly killed off as the economy picks up.
The assumptions made on this level are that
1) an entire region is dependent on a single industry that goes broke
2) the skills level to access these "free jobs" is low
3) the money would pass around through the general local economy
It is arguable that the WWII spending on industrial output and, most importantly, research provided a massive boom to the general American and world economies as did the rocketry/space programme. These were government-driven programme periods and the technology created really did change the world for the better.
So the question really is this: what do we spend the money on?
If large scale government industrial orders are brought forward by a few years, that could help. If a massive research effort is instigated in one or more directions, that could help.
Anything that counts as stimulus money has to have a multiplier factor. People "dig a hole". They go for a beer. Demand for beer increases. Jobs become available in bars and breweries. People have to limit their time drinking because they have to go to work. I can see how this could be a virtuous cycle.
The real question is how is this money to be allocated?
The Ukraine in the Soviet Union was one of the most industrialised regions, making advanced weapons etc... All of it was stimulated by government funds. The moment these funds dried out, so did these industries.
This is the danger, How can we ensure that these subsidies do pass down through the economy? How do we ensure that we don't subsidise mediocrity? How can we ensure sufficient oversight that this money is not passed into political lobbying groups whose spending multiplier is dubious? Etc...
I'm not so sure that we can set up a system immune to these problems.
The points you make about the Ukraine are accurate, but remember building weapons is 'productive' (in a very bizarre sense, but if a feeling of security knowing you can obliterate and be obliterated is a sense of security...then it has value and is productive because it keeps you focused on being productive rather than worried about being attacked).
So I would discount weapons manufacture as non-productive and put it in the 'productive' category (though clearly we'd all be better if it didn't exist in a Utopian world).
On the other hand, non-productive activity is not beneficial, even during a down cycle, because it is misallocated funds. During a down cycle, the point is for savings to increase and debt to be destroyed. This improves conditions for future investment.
If, instead, the government were to 'move forward' expenditures, then the conditions for future investment never get created, and future needs will already be addressed, and over time the downturn becomes much worse.
Alternatively, if the government prints money and buries it, and tells people to go dig it up, this will only lead to inflation, not growth or debt destruction.
Productive investment grows the market, which means there are more opportunities for money to 'go somewhere', aside from the current 'known' economy and into the 'newer' sections of the economy. Digging up money doesn't grow the market. Nor does building a Death Star to avoid a non-existent alien threat. All we're left with is a bunch of people with cash from building the Death Star, more government debt, and a Death Star that does.....well, it does nothing for us. Unless we decide to resort to our colonial/imperialist ways and planet hop to 'take stuff by force'. Which, after building this Death Star we may still not have the capacity to do. But that's still not growth, just adding more assets.
The key to economic growth is always productive capacity and its utilization. PROPER utilization, some would argue, though I say the word proper is subjective. Krugman would say turning on an old Model T factory and making tons of cheap Model T's is productive. I'd argue it's not adding any value anywhere. In a way, it's destroying the value of people holding existing Model T's (not really, they are still antiques, but you get what I mean).
The best way to get the economy going, particularly in a time like now, is to relieve some of the pressures from regulation and ease up on minimum wage laws.
Wait and watch what happens in the areas that just raised minimum wage to $10+...the effects may be negligible if the minimum wage really SHOULD BE that high. Chances are this is too high, and we'll see some spikes in unemployment over the next few months.
Thank you. I appreciate and largely agree with all of your points, which are elegantly articulated.
I am certain that Krugmann's definition of "unproductive spending" is quite different from most people's, including mine and probably yours. My best guess is that he is going for the line that if we dump dollars in economic zones that are suffering extensively, even if it is not conventionally productive, things "would be better than they otherwise would have been" (standard tag onto an economics statement!)
While this may be true in some cases and for a short period, I am severely doubtful that government does these things very well.
An interesting comparison is the US and British economies after the 1929 crash. Basically, the US was "stimulated" in an effort to help and didn't recover until industrial demand picked up as a result of the war. The UK reviewed and cut spending rather quickly on the grounds that "if this didn't exist two years ago, then we won't miss it that much". The UK economic numbers in the 1930s are considerably better.
I think among your coughs, you summarise Krugmann's strategy pretty well!
Your description of the differences between the experiences of both the US and the UK is a good summary of how I feel. Basically, the US took a similar tack in 1921 as the UK did many years later - with similar 'better' results.
Thanks for the clarification.
"Multiply this many times over a population, and soon society is starving and bankrupt."
Yeah, maybe, but we'll have a lot of sand.
If it doesn't make sense, then you're probably misunderstanding their aims and goals and aspirations. They may not want the things that we consider to be desirable.
They may want us to be tired and broke, with a surplus of sand.
Keynes and his followers place no value on the business cycle or debt that accumulates during the business cycle. Once the misallocation of capital occurs it requires the destruction of that debt before the cycle can move on. We are simply acquiring debt at astronomical levels and rather than pay the piper we are trying to stall the outcome. Interest rates will cure that stalling.
Unproductive spending is unproductive. That is why it is called unproductive.
We used to be smart enough to understand that.
There may be some value in paying the unemployed to do nothing or for that matter to do something which isn't really productive. BUT, if you have to rob the taxpayers to do that then that is immoral and contrary to the constitution as the foundng fathers understood it. The government has no business deciding who gets to keep their money and who gets "free stuff". I would feel the same way even if the government made great choices and did good things but they even fail horribly at that. The problem IS the government. The solution is less government not more government.
I don't think we have any intent to pay off our debt and I don't think we can. I think when interest rates rise and after a brief effort to tax more and pay the interest on the debt this fact will be obvious to everyone and we will write it off or print $20 trillion or so and pay it off with Obama dollars. We passed a point of no return 3-4 years ago and even if the economy recovered and we stopped borrowing and printing today we can never pay off the debt. It's just a question of when not if.
What if, though, they just printed money and gave it to people for doing 'stuff'?
Technically, after inflation you're still stealing. But it's harder to notice.