Return of the Keynesians?
Posted by Mark Radulich on 02.03.2009
Fed. Workforce Swells As Private Sector Shrinks...they say that's a good thing.
I had the dubious luxury of having a debate with my dad about economics this past weekend. He referenced my previous article about the stimulus bill saying that he agreed with my assessment that there were some good spending in their with respect to education, health care and the environment but disagreed with my statement that government paid wages do not stimulate the economy. He stated that essentially the government could use taxes to pay people to count ants and that would be just as good a stimulus as a private business creating jobs (presumably counting ants as well). He added that the only reason the New Deal didn't work was because it wasn't funded well enough.
We went back and forth about this and my overall thesis was that when the government create jobs it's stealing from Peter to pay Paul but when private companies come into existence they grow the economy in essence creating new money to enter into the economy. His answer was essentially, what new money do you think is out there, meaning that with the interconnectedness of the modern global economy there isn't new capital out there to speak of. He then mentioned the principles of Keynesian Economics:
Keynesian economics — proudly proclaiming itself as "modern," though with its roots deep in medieval and mercantilist thought — offers itself to the world as the panacea for our economic troubles. Keynesians claim, with supreme confidence, that they have "discovered" what determines the volume of employment at any given time. They assert that unemployment can be readily cured through governmental deficit spending, and that inflation can be checked by means of government tax surpluses.
Whether or not my father and the Keynesians are right remains to be seen but according to the below news video, that certainly seems to be where we're headed whether we like it or not.
Keynesians would "cure" our economic woes by hiring half the unemployed people to dig holes, and the other half to fill them right back up.
Your dad is dead wrong, and I hope you had the nerve to put him in his place.
Sadly, most of our so-called leaders are marching lock step down the Keynesian path. The worst part is that all their nonsence will create a temporary illusion of stability. It's just that the inevitable massive inflation, long term stagnation, and increased taxation is a cure far worse than the disease.
But hey, our politicians are more than happy to put an infected band-aid on our wound, just so long as they can take credit for superficially reducing the bleeding.
Posted By: JoeL (Guest) on February 03, 2009 at 12:44 AM
JoeL,
As crazy as it seems, how truly ridiculous would it be, to follow through with Keynesian prinicples?
The adjusted unemployment number, counting the recoginzed unemployment number, along with the full-time to part-time conversion rate and people who are no longer on the unemployment grid, puts the US at almost 15%.
So, you pay, whoever is willing to work, to dig holes and fill holes. Ok.
Those people then have money, in their pockets, and can then use it, for whatever they want to use it for.
So, in effect, the government gives people money and and people go out and spend it.
The multiplier effect is quite present, and with more of the country actively spending money, government money or otherwise, industries open up and better paying jobs are then created.
People eventually find jobs, that pay better than what the government was offering for them to dig holes, and the government burden decreases over time.
You strengthen American and global industries, and you do it in a way that maintains the value of working for one's pay, in some way or another.
Why is the idea that ridiculous?
Posted By: scipio2009 (Guest) on February 03, 2009 at 01:16 AM
sciplo2009,
The plan is rediculous because it requires common sense. The more people working, and thus buying products, is what will jump start our economy. As they say, "the triumph of evil is when good men do nothing."
Posted By: David (Guest) on February 03, 2009 at 05:58 AM
Or, we could create tons of private sector jobs and decrease government spending by LEGALIZING MARIJUANA.
Posted By: James (Registered) (Guest) on February 03, 2009 at 07:03 AM
Here is the great (or horrible) thing about Economics...different economists are given the same information and numbers to plug in, yet many will come to very different conclusions. Some economists feel the Keynesian Economic theory will work wonderfully in this situation. Others say that it is a horrible thing and long term will do more harm than good. And other economists say in absence of any other kind of idea, we should try it. Ohters say since it has never been fully implemented, they are afraid to test it out. Some economists say, do nothing. That the recession is a necessary correction of the marketplace and the economy.
A true Keynesian economy has never been put into full effect. Aspects of it have been put in place. Lets face it, more tax cuts are not the answer. More tax cuts have been tried over the last 6 to 8 years, which has only exacerbated the situation. And my argument against doing nothing comes from the period of 1929 - 1932. The US government adopted that policy and it only made things worse. The fourth year of the Great Depression was considered to be the worst year during the entire time. But will the Keynesian model work? I'm at least willing to try it out.
Posted By: Elliot (Guest) on February 03, 2009 at 09:40 AM
Scipio and David,
The reason why it's ridiculous is because the neither the jobs nor the money has true value. At the end of the day, the government is just handing out "fake" money for "fake" work. (Keynesian's get around half this problem by presuming the govt has a surplus, which it won't)
This is a problem because, no matter how you want to rationalize it, this leads to massive destructive inflation. So it's great for the 5% of people who get jobs for no reason. But years later it leads to tragic economic consequenses for the other 95%, including plenty of working families who deserve a more stable world.
It's not like this is a theoretical exercise. The idea of 1) printing valueless money, 2) putting it into the hands of poor people 3) with the hope that spending will prop up your economy, is not a new idea. It's been tried time and time again, particularly in Africa and South America. In extreme cases like Zimbabwe and Venezuela, it is literally tearing the country apart. In more moderate cases it still produces high inflation, and very low long term job creation.
Posted By: JoeL (Guest) on February 03, 2009 at 11:03 AM
Your father was correct when he said Roosevelt's plan was underfunded.
Those who say that WW2 saved the economy and not government spending are somehow disconnecting the fact that WW2 was the largest government spending program in U.S. history It's an interesting psychological puzzle to try to figure out how people manage to make that mistake so consistently, since you'd think the facts couldn't be any more obvious.
I think that blind-eye attitude starts with the notion that a "government job" is akin to digging a hole and filling it up again, while working at Walmart or moving paper on Wallstreet has some inherent noble value.
I would like to point out 2 things regarding Obama's bill - first, that building roads and updating electric grids is hardly "digging holes for the sake of holes," and second those kinds of infrastructure jobs will require massive hiring in the private sector to do them (though not from Walmart or Wallstreet of course.)
Posted By: Steve (Guest) on February 03, 2009 at 11:05 AM
Steve,
Don't you ever get the feeling that this idea is like "showing a dog a magic trick"? I bet some conservatives didn't think about the massive amount of government spending tied to WW2. Oh well...Such is life. Stupid people roam like a pack of wild dogs, and their numbers are growing daily.
Posted By: David (Guest) on February 03, 2009 at 11:37 AM
If we're going to have to resort to government deficit spending (and let's face it, outside of Clinton who actually balanced the budget, every modern president has resorted to deficit spending), isn't it better to go into deficit in order to create more jobs for people as opposed to running a large deficit while losing millions of jobs, as we did under Bush?
Posted By: Branon Crow (Guest) on February 03, 2009 at 11:52 AM
You father is selectively quoting Keynes of the 1930s and overlooking Keynes of the 1940s.
Here is John Maynard Keynes of 1942, six years after The General Theory which most people know more as a response while playing Jeopardy or Trivial Pursuit:
Organized public works, at home and abroad, may be the right cure for a chronic tendency to a deficiency of effective demand. But they are not capable of sufficiently rapid organisation (and above all cannot be reversed or undone at a later date), to be the most serviceable instrument for the prevention of the trade cycle.
The empirical evidence argues that Keynesian money multipliers are less than one. Therefore, anti-stimulus economist provide evidence. We are all waiting for pro-stimulus economists to provide their evidence.
Posted By: AdmChesterMynutz (Guest) on February 03, 2009 at 11:59 AM
The article also provides further evidence for Mr. Tobolowsky's 85/15% economic literacy estimate.
Posted By: AdmChesterMynutz (Guest) on February 03, 2009 at 12:01 PM
Lift topics from "This American Life" much? Or I guess its a coincidence that they had this exact discussion on Sunday.
Posted By: swamp (Guest) on February 03, 2009 at 12:29 PM
Swamp, actually yes it is a coincidence seeing as I haven't the faintest idea what show you are talking about seeing as I don't get a chance to watch the Sunday shows. AS a matter of fact, I was at Disney at the time. Oh well, I guess great minds think alike.
Posted By: Mark Radulich (Registered) on February 03, 2009 at 02:51 PM
Crow,
Trying to be civil so bear with me- I'm half retarded when it comes to trying to be civil.
It's easy to blame Bush for the excessive spending, but there in no indication that was ever his plan.
9/11 forced our entire government to redeine what it means to be secure within out own boarders.
If another attack occured then Americans would have said "we did not do enough".
And since another attack never happened it's easy for Americans to say "we did too much", or "spent too much".
The wars in Afghanistan and Iraq clearly indicated that our military was not prepared for the missions they where asked to perform- mostly stability operations.
New technology had to be invented, that costs lots of money.
But it's for the long term good- now we know what it takes to fight the people who attacked us on our terms, on their land.
Bush did what need to be done.
I'll fully admit that he used the times to push his conservative agenda when the timing was "right"- and Obama is clearly doing the exact same thing.
I think that we should go into deficit, and if leveraged properly with will create jobs. I disagree that the bailout as it stands now will offer those jobs.
They can cut this bailout in half and focus it towards rebuilding American industry to be better, faster, cheaper, and "greener"- then that will work.
Retool the automobile industry, revamp the cost of construction, and hold credit companies accountable for poor lending practices.
Don't give 250 million to Peloswi to spend on ghetto condoms to advert unwanted children for low income families because the liberal welfare programs "cost too much". That's retarded. If they cost too much ax them completely- the poor don't pay taxes as it is.
No spell check, still holding out for all the tax cheats to be removed- that's my salary these assholes are skimping on.
Posted By: The Spook (Guest) on February 03, 2009 at 02:59 PM
Spook,
Excuses are like assholes, everyone has one.
Posted By: David (Guest) on February 03, 2009 at 03:50 PM
So what if bush did not intend to go into deficit. He did. He could have raised taxes to pay for his plans but zI guess he did not feel that they were worthwhile enough to actual pay for them.
Posted By: Christopher Radulich (Guest) on February 03, 2009 at 04:29 PM
Scipio and David,
The reason why it's ridiculous is because the neither the jobs nor the money has true value. At the end of the day, the government is just handing out "fake" money for "fake" work. (Keynesian's get around half this problem by presuming the govt has a surplus, which it won't)
This is a problem because, no matter how you want to rationalize it, this leads to massive destructive inflation. So it's great for the 5% of people who get jobs for no reason. But years later it leads to tragic economic consequenses for the other 95%, including plenty of working families who deserve a more stable world.
It's not like this is a theoretical exercise. The idea of 1) printing valueless money, 2) putting it into the hands of poor people 3) with the hope that spending will prop up your economy, is not a new idea. It's been tried time and time again, particularly in Africa and South America. In extreme cases like Zimbabwe and Venezuela, it is literally tearing the country apart. In more moderate cases it still produces high inflation, and very low long term job creation.
Posted By: JoeL (Guest) on February 03, 2009 at 11:03 AM
Tax cuts, in this kind of climate, where the credit markets are frozen and banks are refusing to lend out money, are not any better a solution, in my opinion.
Lest people forget, it was the Big Recession, before Hoover went with his tax cuts focus, and not addressing the true issue, that turned things into The Great Depression!
As much as people like you try to knock what FDR did with his New Deal, massive government spending, through World War 2, that finally got the US out of Hoover's mess.
Building bombers, or digging holes; as long as the spending happens, its been proven that it helps us get out of recessions.
Tax cuts, historically speaking, have not.
How is this any different?
Posted By: scipio2009 (Guest) on February 03, 2009 at 04:37 PM
If we're going to have to resort to government deficit spending (and let's face it, outside of Clinton who actually balanced the budget, every modern president has resorted to deficit spending), isn't it better to go into deficit in order to create more jobs for people as opposed to running a large deficit while losing millions of jobs, as we did under Bush?
Posted By: Branon Crow (Guest) on February 03, 2009 at 11:52 AM
So what are you advocating?
Beyond the money spent on Iraq and Afganistan, the bulk of Bush's deficit spending came when he cut taxes to the top 1% of the country, without instituting the cuts neccesary to alleviate the lost revenues.
If you honestly want to push these, so called "guaranteed stimulus tax cuts", you should then be willing to clearly state what you'd be willing to cut, and in this environment, where most states in the US are facing huge budget deficits, and the American people voted, en masse, for a who promised to try and push "bottom up" economics, I don't see any Republican worth their salt, being that openly honest to their constituency.
Posted By: scipio2009 (Guest) on February 03, 2009 at 04:47 PM
It is just as likely that the massive (for the time) deficits of Reagan caused the economy to jump, not his tax cuts.
Posted By: christopher Radulich (Guest) on February 03, 2009 at 06:47 PM
Mark,
Do you actually know anything about economics or are you just trying to come up with economic theories that support your political beliefs? The economy is the sum of the consumer, private, and government spending. Is your argument that any increase in government spending will result in an equal offset in spending in the consumer and private sectors? Good luck proving that.
Posted By: Caleb (Registered) on February 04, 2009 at 03:11 PM
STAY CURRENT