Part I: Keynesianism

Terinbune

The problem with looking for the government to spend directly as opposed to suffering unemployment for X years is that the government spending doesn’t solve the unemployment problem, it only prolongs it. It’s like re-inflating a balloon with a hole in it.

StickyPrices

That sounds like a good talking point for the Tea Party, but not necessarily correct. Watch the video – gov’t steps in to get the private sector going, stop sitting on their cash, and begin hiring. Will unemployment happen at some point, sure. But the gov’t patches the hole in your ballon in the short term.
- http://twitter.com/doug_barbieri Douglas Barbieri
  
  You are ignoring the cause of unemployment in the first place. Protectionist laws like Smoot/Hawley. Stop the government intervention into the market place and you end the prolonged suffering.
- badScooter
  
  My understanding of the GT is that gov’t spending is supposed to be countercyclical vis-a-vis the business cycle. The problem arises that, in practice, it isn’t. Any given gov’t tends to retain some measure of a stimulus after the need is ameliorated. We’re seeing the results of a half-century of this ratcheting involvement in the western economies, in my view.
- http://ourdinnertable.wordpress.com Seth
  
  By patching the hole with a piece of the balloon it takes from somewhere else on the balloon, leaving yet another hole.
  - Shawn Nichols
    
    You’re actually left with a negative impact, because of the energy it takes to remove a piece of balloon and patch the other hole.
- Gmboy51
  
  the private sector will stop “sitting on their cash” when the Feds stop taxing and regulating everything that moves. Investors look for relative predictability, but Federal and State governments are constantly changing the rules which affect business. Only fools gamble in a losing game with ever changing rules. People who have managed too accumulate enough money to be significant investors didn’t get there by being stupid. The government has been “patching the hole” since the New Deal and now our currency has lost more than half of its value.
- Gmboy51
  
  the private sector will stop “sitting on their cash” when the Feds stop taxing and regulating everything that moves. Investors look for relative predictability, but Federal and State governments are constantly changing the rules which affect business. Only fools gamble in a losing game with ever changing rules. People who have managed too accumulate enough money to be significant investors didn’t get there by being stupid. The government has been “patching the hole” since the New Deal and now our currency has lost more than half of its value.
  - Dwayne Mayor
    
    Are you saying the standard of living of the average American was higher prior to the New Deal than it is today?
    
    And I’m pretty damn sure that business managers invest when they have an expectation of profit above the costs of borrowing. That means sales and somebody has to be spending to generate those sales, and if it isn’t the consumer it has to be the government. Taxes are lower than almost any point in postwar history, the economy is far less regulated than it was in the pre-Reagan era, and interest rates are near zero. The only reason firms are not investing is because there is no prospect for sales.

http://pulse.yahoo.com/_BNFABEP5L6ZWUJWKWSZQFZONMY Berry Muhl

There is no “in the short term” with government regulations, guys. That’s the problem. Recessions come and go, but regulations are forever. The narrator informs us that living with some government waste is preferable to “living with 10% inflation”. We don’t have to LIVE with 10% inflation. He as much as admitted that an _unregulated_ market might well be perfectly capable of absorbing the unemployment on its own, didn’t he? Why should we be willing to take the hit in liberty, and commit our children and their children to that same diminuition in liberty, just to slap a quick-band aid on a momentary problem?

Stan

he says “living with 10% UNEMPLOYMENT” is waste. I would tend to agree with this.

http://pulse.yahoo.com/_BNFABEP5L6ZWUJWKWSZQFZONMY Berry Muhl

There is no “in the short term” with government regulations, guys. That’s the problem. Recessions come and go, but regulations are forever. The narrator informs us that living with some government waste is preferable to “living with 10% inflation”. We don’t have to LIVE with 10% inflation. He as much as admitted that an _unregulated_ market might well be perfectly capable of absorbing the unemployment on its own, didn’t he? Why should we be willing to take the hit in liberty, and commit our children and their children to that same diminuition in liberty, just to slap a quick-band aid on a momentary problem?

Gmlagan

mmm.. nope. He said he would rather live with some government waste than 10% Unemployment for 5 years, I thin you mis heard. And also no to your question about the ability of an unregulated market to absorb unemployment, he did not say that a real world market if unregulated would be able to absorb unemployment. He said that market apologists will say that the market isn’t free and that onerous regulation is the problem, prior to making his counter statement that markets are not perfect and in fact don’t do that. Also… Regulations that prevent (or at least diminish) the ability of, lets say food producers, to poison me with out my knowledge is not what I would call a “hit in liberty.” You can’t make such a general statement about regulation and also say anything meaningful.
- Kevin
  
  Your food producer analogy is flawed. Why would those that make money from you consuming their product seek to poison you? They won’t, that notion is absolutely absurd and short sighted. Food producers gain from repeat business, you think a company that gives food poisoning to their customers would get repeat business? Obviously not. Instead these ‘beneficial regulations’ on the food industry send people to jail for selling raw milk, even though it is advertised as such, or not having an approved mobile hot dog stand that keeps cooked bacon separated from cooked hot dogs. Regulations are the tool with which the politically connected companies force our their competitors who are not politically connected in the guise of protecting the public.
  - Mhalasy
    
    Ridiculous. Businesses cannot regulate themselves. The failure of the CFMA and the repeal of Glass Steagal are utter proof of that. There is a line of course, that could lead to over regulation versus under regulation. How about the food producer that dumps waste in the river? Should we see if the Cuyahoga river can burn again?
    
    I am for stronger regulations.
  - Bill Yang
    
    Food producer will probably not go out of their way to poison you, but they may do that by accident, which can be prevented by rigorous procedure to make sure food are tested before going out.
    
    I’m in favor of less regulation, but the market is complex and everyone is prone to make mistakes. So some level of regulation would be necessary to make sure the obviously bad things do not happen due to some food producer mistakenly under-estimated the economical consequence of accidental food poisoning.
    On a more scary thought, if no regulation existed, what’s to stop a construction company from building non-durable apartments that collapse and kills everyone inside. After all, they can just close the current company and create a new one.
    - Swalsh
      
      Like kevin said, food producers will do what they can to not poison their customers because they deal in consumable goods. But outside of government regulations, problems such as food poisoning and not entirely inconsequential apart from the reduction in customers. In such a case the government does actually come into view but not in the sense of legislation or execution of regulations rather though the judicial system. Light self regulation on their part and increasing the risk of food poisoning on their customers increases the risk of a pricey class action lawsuit on the company.
  - OctopusBird
    
    I suppose a robber on the street has the same issue. If I rob and steal money from someone I may get caught… and that person may go buy a gun and next time I try and rob them I’ll get shot; In which case I’m decreasing the sustainability of my thievery by doing such an act. But it sure is nice to make a few bucks without doing anything and really I can just stop after that and do it juuuuust one time when I’m in tough times… right? So I suppose police are unneeded regulation also
http://www.facebook.com/kevi.donald Kevi Donald

You’ve never studied economics have you? Economics is about cost-benefit tradeoffs and prioritization. Rambling about ideological, idealistic, and abstract ideas such as “liberty” is irrelevant.

http://twitter.com/doug_barbieri Douglas Barbieri

It is interesting to get this perspective. But I think even Keynes would not have recommended holding interest rates down for decades.

Also, check out what Keynes himself said about inflation pre-General Theory:

http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_inflation.html

http://twitter.com/doug_barbieri Douglas Barbieri

Also, this is an interesting to read after seeing this: http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_inflation.html

Taggartdagny59

Let us view a video that may help shape a better future. Go to http://www.youtube.com/watch?v=XdTQTde3TQ0 and follow the link in the description box to help support this creative method for delivering a powerful message to those who would not normally pay attention!!! But do not forget to vote!

Ok1jwc

Yes the narrator assumes that the “government waste” actually reduces unemployment, well every time I have seen it tried (including the CURRENT stupid attempt) it only prolonged unemployment at a higher than needed level. In a free market its true that we may go to 30 percent unemployment after a boom bust cycle depending on how long and how severe the misallocation was. However if allowed to re allocate naturally the unemployment would be shorter term and the recovery would be far more sustainable. This has been demonstrated time after time but the soft headed bleeding heart Keynesians just refuse to get it. Just like the pro welfare folks always scream that the poor need it. It can be shown to them a million times that it actually CAUSES more poverty, but they will not acknowledge the glaring facts. Why not? Because it’s not fair. And in reality its the same argument, they say “the UNEMPLOYED will all wither and die without stimulus!”. No they won’t but without it they will go out and find a job that the economy actually can sustain, in a field that is actually needed. Will they be paid the same? No. But that is part of life and death and reality.

Keynesians are like all socialists, they hate reality. They believe that reality is cruel and unfair and that they can make it fair and nice and like everyone who believes this nonsense they are willing to cause horrible and avoidable pain and misery on the entire human race to do it.

Life is not fair, nor is it supposed to be. Its not fair that we get sick get old die but we do. Its not fair that some people are smarter and wiser and richer and luckier than others but they are. By following their logic we should go to the fastest runner at a track meet and hit him in the knees with a hammer. Will it make anyone else faster? No. but to Keynesians it will be a much “fairer” race.

With friends like these the poor and unemployed don’t need enemies.

Rafngard

You have a lot of asserts here without much to back it up. Also, lumping Keynesians in with Socialists is just plain wrong. Keynes explicitly said that he was trying to save capitalism so socialism would not prevail.

Samuel Marks

Wrong numbering!

This should be IV, not I!

http://www.thefullertonian.com ValueCritic

It’s time to stop talking about the governments role in the economy, and start talking about economy’s role in the government!

Dwayne Mayor

I’ve read the Constitution and the Federalist Papers and nowhere have I found any indication that the government is prohibited from “stabilizing an unstable economy.” And no government can claim to be promoting the general Welfare and securing the blessings of liberty for its populace in the midst of mass unemployment while it twiddles its thumbs and prays for the free market to magically resolve itself.
- http://www.thefullertonian.com Mark Stouffer
  
  “Stabilizing an unstable economy” is like stabilizing an unstable ecosystem. Would you regulate the wind?
  
  You proceed with the assumption that what the government does works. You ignore all indications that it doesn’t.
  
  If instability is bad, remove government’s ability to manipulate the economic playing field.
  - Dwayne Mayor
    
    It did so successfully in the 40s, 50s, and 60s. In fact, the 60s was probably the most regulated economy in American history and yet it was also the most prosperous and stable period in American economic history. And I mean widespread prosperity not just the top 5% as our most recent period. The lassiez faire economy of the second half of the 19th century leading up to 1933 produced a depression or recession every 10 years and half of Americans lived in poverty. The past 35 years of neoclassical Reaganomics of deregulation, privatization, and low taxes has resulted in more financial crises, more income equality, and the destruction of the middle class quite unlike the Keynesian Golden Age of 1945-1973. The empirical data seems to indicate the government can be a stabilizing force for the inherent instability of capitalism.
    - E.G. Wilson
      
      People need to start from a blank sheet. If they start their reasoning from “there needs to be a government” they don’t get the real picture ever. They build on illusions of people. They don’t always have anything in common with reality.
    - JRA
      
      I am sorry friend but you are sorely mistaken. The 1910′s and the late 1930′s and early 40′s were by far the most regulated economies in our history. No other time period has come close. There were quotas, rationing, and price controls in virtually every sector of the economy. You could not produce or buy anything without government control or permission.
- http://www.thefullertonian.com Mark Stouffer
  
  If insider trading is bad, why do we let lawmakers do it? Here is how the government “stabilizes and unstable economy” for us.
  
  http://online.wsj.com/article/SB10001424052748703431604575522434188603198.html

http://profiles.google.com/misterkhalil Daniel Khalil

It’s interesting to note that most of the proponents of lassez-faire have never been a part of the working class themselves.

Gmboy51

on what basis do you make this statement? One might just as well say that most proponents of Keynesian economic theory have never been working class, and you could start with Keynes himself and his latest disciple, Barrack Obama.
Aaron Day

Hayek is a working class hero. Coming from the working class, I can tell you that bottom up is better than top down. Period. It’s the elites who love Keynes because it justifies their ability to play with the lives of us little people.
Anonymous

This is an empirical claim. Where is your data to support this claim?
Luke

I know lots of blue collar people who get Hayek much more easily then my friends who come from a fancy university background. Ironic, that this same claim was made against the communists (Marx, Engels, Lenin, Trotsky ect.) Milton Friendman grew up very poor as did Thomas Sowell (true more of a conservative then a libertarian. I happen live in a very poor neighborhood and can easily see the negative effect of HUD programs. My neighbors generally have a much deeper understanding of these problems then my wealthier friends.
- bm105
  
  Ahh let me guess you live in the US? It’s obvious because that’s the only country in the world where the poorest vote for the party that bends them over every time because it seems more free.
  
  I hate to break it to you but Hayek constructed his ideological comeback to Keynes in Switzerland and was funded by Credit Suisse and a few other banks. The reason for this is that banks love high interest rates because it means greater profits for them. It really has nothing to do with a free market, just bigger profits for lenders.
  
  The real genius of it is how it manages to masquerade under the guise of freedom when in reality the more socialist countries like Germany (with no control over their interest rates) managed to escape recession simply because they didn’t have to bail out banks who invested too recklessly.
  - Kevin
    
    Germany benefits from its placement in the European Union. The EU allowed easier access to credit to the poorer European nations, which has fueled speculative spending, which has greatly benefited the exporting powerhouse that Germany is. For the short term the EU is a great deal for the most powerful economy in Europe, but as we can see with many of the PIIGS it is coming to a point where it could eventually be a net drain. And lastly, Germany contracted in 2009.
    - bm105
      
      Germany suffers from its placement in the EU. It has had to bear the financial burden of Greece and other poorer EU nations who piled on debt as a result of their EU status. I know Germany had a recession like everyone else but it came out of recession very quickly compared to Britain and the US who have the ability to set their own interest rates. Are you saying that Germany’s exports were helped by Greece and Italy having access to credit? I would suggest that Germany’s exports to Greece and Italy could only account for a tiny proportion of their total exports, which are global.
      
      The fact that Germany even has the ability to bail out entire countries should tell you that it did much better throughout the bust than the countries that invested heavily in free-market models (like Britain and the US).
      
      Are you saying that even though it’s common knowledge that too much laissez-faire and aggressive betting led to the collapse, the problem was somehow that we didn’t have enough of this? Even though raising interest rates was what eventually triggered the collapse because it meant more defaults, we should have done it sooner? Amazing.
    - bm105
      
      Germany suffers from its placement in the EU. It has had to bear the financial burden of Greece and other poorer EU nations who piled on debt as a result of their EU status. I know Germany had a recession like everyone else but it came out of recession very quickly compared to Britain and the US who have the ability to set their own interest rates. Are you saying that Germany’s exports were helped by Greece and Italy having access to credit? I would suggest that Germany’s exports to Greece and Italy could only account for a tiny proportion of their total exports, which are global.
      
      The fact that Germany even has the ability to bail out entire countries should tell you that it did much better throughout the bust than the countries that invested heavily in free-market models (like Britain and the US).
      
      Are you saying that even though it’s common knowledge that too much laissez-faire and aggressive betting led to the collapse, the problem was somehow that we didn’t have enough of this? Even though raising interest rates was what eventually triggered the collapse because it meant more defaults, we should have done it sooner? Amazing.
    - Cdeterma
      
      You cannot say with integrity that Germany suffers from it’s placement in the EU and yet hold it up as a model of economic security as you did in your first post. I think you will see the crag of Keynesian economics before we in the US do. I don’t see it working very well in the PIIGS countries. It won’t work in the long run here and hasn’t in the USSR, North Korea, or CUBA either.
    - bm105
      
      Germany suffers from its placement in the EU. It has had to bear the financial burden of Greece and other poorer EU nations who piled on debt as a result of their EU status. I know Germany had a recession like everyone else but it came out of recession very quickly compared to Britain and the US who have the ability to set their own interest rates. Are you saying that Germany’s exports were helped by Greece and Italy having access to credit? I would suggest that Germany’s exports to Greece and Italy could only account for a tiny proportion of their total exports, which are global.
      
      The fact that Germany even has the ability to bail out entire countries should tell you that it did much better throughout the bust than the countries that invested heavily in free-market models (like Britain and the US).
      
      Are you saying that even though it’s common knowledge that too much laissez-faire and aggressive betting led to the collapse, the problem was somehow that we didn’t have enough of this? Even though raising interest rates was what eventually triggered the collapse because it meant more defaults, we should have done it sooner? Amazing.
    - bm105
      
      Germany suffers from its placement in the EU. It has had to bear the financial burden of Greece and other poorer EU nations who piled on debt as a result of their EU status. I know Germany had a recession like everyone else but it came out of recession very quickly compared to Britain and the US who have the ability to set their own interest rates. Are you saying that Germany’s exports were helped by Greece and Italy having access to credit? I would suggest that Germany’s exports to Greece and Italy could only account for a tiny proportion of their total exports, which are global.
      
      The fact that Germany even has the ability to bail out entire countries should tell you that it did much better throughout the bust than the countries that invested heavily in free-market models (like Britain and the US).
      
      Are you saying that even though it’s common knowledge that too much laissez-faire and aggressive betting led to the collapse, the problem was somehow that we didn’t have enough of this? Even though raising interest rates was what eventually triggered the collapse because it meant more defaults, we should have done it sooner? Amazing.
    - bm105
      
      Germany suffers from its placement in the EU. It has had to bear the financial burden of Greece and other poorer EU nations who piled on debt as a result of their EU status. I know Germany had a recession like everyone else but it came out of recession very quickly compared to Britain and the US who have the ability to set their own interest rates. Are you saying that Germany’s exports were helped by Greece and Italy having access to credit? I would suggest that Germany’s exports to Greece and Italy could only account for a tiny proportion of their total exports, which are global.
      
      The fact that Germany even has the ability to bail out entire countries should tell you that it did much better throughout the bust than the countries that invested heavily in free-market models (like Britain and the US).
      
      Are you saying that even though it’s common knowledge that too much laissez-faire and aggressive betting led to the collapse, the problem was somehow that we didn’t have enough of this? Even though raising interest rates was what eventually triggered the collapse because it meant more defaults, we should have done it sooner? Amazing.
  - Caleb211
    
    Yes, so true, because under the current system they are really struggling. Lol, idiot!
Tom Maslowski

In my experience the working class observes the world as it is much more keenly, having not been sheltered from reality. Therefore it is far less susceptible to believing unfounded fantasies, a sharp distinction to many in the middle upper/upper class who frequently generate such fantasies. But what do I know, my old man is a Plumber.

AnimalSpirits

Like everything else in life, there is no black and white. Unfortunately, people tend to present and understand issues in absolutes. The correct solution is a middle ground of government intervention only during the bust cycle to kickstart growth and shorten the bust, followed by quick and immediate withdrawal after the cycle turns. That second part is the one we haven’t learned yet. On the other side of the equation, unproductive and uncompetitive industries must be allowed to fail- another thing we didn’t yet learn.

Gmboy51

the government has no constitutional authority by which to “kickstart” the economy. cycles are part of the world. To claim that government can or should try to smooth out economic cycles is to deny the Constitution.
- Sharky
  
  What about the constitutional power to regulate interstate commerce……
Kitporath

By stating that there is no black and white you are uttering an absolute.
Dave

Kitporath is right, making a black and white statement that there are no black and white statements is a self-detonating argument.

Also, the idea that a moderate or middle position between two extremes is the correct one is a logical fallacy: the fallacy of the middle ground. A position in the middle of two extremes is not valid simply because it takes a little from both.
Dave

Kitporath is right, making a black and white statement that there are no black and white statements is a self-detonating argument.

Also, the idea that a moderate or middle position between two extremes is the correct one is a logical fallacy: the fallacy of the middle ground. A position in the middle of two extremes is not valid simply because it takes a little from both.
Brian

Yo!   Government Spending is a drug and you can get hooked on it….

Once they start, they don’t want to stop… Why should they? It’s redistribution of wealth.   The people vote in their pet projects and get other people to pay for them.

The complex taxation system is setup to be as confusing as possible so that the politicians can dole out the redistribution based upon either getting people to comply with their values or buy votes.

Understanding issues via absolutes is a way to understand everything. Don’t discount it.   Just about every formula for everything is simplified in some way.

In Keynesian equations government fiscal policy is listed as the only solution.   But it never accounts for the fact that sometimes the problem was actually induced by a government fiscal policy to begin with.
- Rafngard
  
  >>n Keynesian equations government fiscal policy is listed as the only solution.
  
  Did you even watch the video?

Dolph

Most of the proponents of lassez-faire have been through all the economic cycles and see the governments lame attempts at trying to control something that is much larger and more dynamic than anything bureaucrats can control. The last thing we need is more government intervention, and that’s exactly what we are seeing right now with skyrocketing energy and food prices, all direct responses to incompetent government meddling

MFvGeel

What most people fail to see is that the amount of government taxation and spending has ZERO impact on your spending ability. The price of goods is dependent on aggregate demand. Therefore, if the government were to tax 60% of your wages, your monthly budget would be less, but your monthly costs would be less too, because in the long run, prices will adapt, just like they adapt when people have more money to spend (inflation).

However, government spending can be used to employ people. The US is doing that full-scale with it’s defense industry, europe is doing it full-scale with all sorts of public programs and government subsidies. The main problem is that the amount of innovation and new jobs that accompany that innovation haven’t been enough to keep employment high. When employment is low the labor market turns disfunctional, because labor-demand is much lower than labor-supply, causing wages to fall.

Working class people tend to see the bottom of the job market, while “the elite” tend to see the middle or top of the job market. This different outlook shapes peoples view on the economy. A little understanding from both sides would go a long way to solving most issues. Classic liberal theory states that government should only intervene when the market is not functioning properly and for the bottom of the labor market this is ALWAYS true, because of the simple fact that the choice is between working a low wage or starving to death.

So, government spending is what has kept the economy going for decades now. Problem is, we’ve run out of money and most of it is in the hands of few. So how do we solve this problem? Simple: Instead of letting the banks use fractionary lending to create more money, why not let goverments print a fixed portion of their GDP each year to increase the money supply? Considering that “we the people” are society and government is nothing more then a construct to keep society running smoothly, I think we have the right to demand such a fundamental change.

Dwayne Mayor

I agree on the whole with your post with a couple of caveats. One of the main problems IS technological innovation in that it has rendered alot of workers unnecessary in the private sector. The more automation, machinery, and robotics the less need for workers. Factories back in the 50s needed alot of manual workers for manufacturing, steel, etc. Nowadays, you walk into a factory and you will see a few skilled technicians operating robotics. This alone means the government needs to provide some form of employment for these workers so that they have a chance to work and earn a living wage income.

I disagree with the notion that the government is out of money. The government can no more run out of money than the scorekeeper at a basketball game can run out of points—it issues the money in the first place. It can run out of goods and services to buy, but it can’t run out of money. As long as there is excess capacity in the economy available, the government spending more money will not result in inflation, but will instead increase sales, income, profit, production and employment. Only when full employment is reached will the government need to pare back, which will happen automatically usually as it gains more tax revenue and expends less on automatic stabilizers like unemployment, food stamps, etc.
- Mfvgeel
  
  The government CAN run out of money. If the government lends money above a certain percentage of GDP, then banks will want more interest, because the risks of the country in question not being able to pay back the debt have increased. This is what has happened to Greece.
  
  The government can print money, but this increases the money supply, which leads to devaluation of the currency. Banks wil again demand higher interest rates or favor loans in another currency.
  
  Only when the money supply doesn’t increase more then it normally would have is the effect negligable.
  - Dwayne Mayor
    
    I must kindly disagree, based on the empirical evidence. Japan, for example, has a debt to GDP of 200%, its had a zero interest rate policy for some 20 years, its 10yr bonds pay only 1.5% annually, and it has suffered, if anything, from deflation during the entire period. That is because bondholders know Japan can never run out of yen just like the U.S. can never run out of dollars. They issue their own fiat currencies, and can always issue as much as is needed to generate a full employment economy. And if you notice, as the national debt increased in the U.S. from $800 billion in 1980 to over $14 trillion in 2011, interest rates have continued to fall from 17% on the 10yr bond to only 3.07% today.
    
    Greece is VERY different because it does not have its own national currency. It’s currency is issued and controlled by foreigners, Germans…err the ECB, and as long as the peripheral nations in the eurozone remain in the EU they will have default risk.
    
    For what it is worth, there is no correlation between the money supply and inflation: http://research.stlouisfed.org/fredgraph.png?g=Db
    
    This makes sense, since companies don’t typically raise prices when they see sales going up, they increase production and hire more workers to gain more market share. So as long as spending does not increase beyond the productive capacity of the economy, inflation cannot be caused by more government spending, but only more income, production, and employment. Once the economy is at it’s full capacity, that is, real full employment where all workers willing and able to work have a job, then increasing spending will cause upward price adjustments (i.e. inflation) unless counterbalanced with higher taxes. At 16% real unemployment, we aren’t even close.
  - Dwayne Mayor
    
    MFvGeel,
    
    Just after my last reply, I fortuitously came across a recent article by the great Ellen Brown saying essentially the same thing here: http://www.truthout.org/inviting-chaos-perils-toying-debt-ceiling/1306515903
    
    “Ruml said federal taxes were no longer needed to fund the budget, which could be financed by issuing bonds. The principal purpose of taxes, he said, was, “the maintenance of a dollar which has stable purchasing power over the years. Sometimes this purpose is stated as ‘the avoidance of inflation.’”
    The government could spend as needed to meet its budget, drawing on credit issued by its own central bank. It could do this until price inflation indicated a weakened purchasing power of the currency. Then, and only then, would the money supply need to be contracted with taxes.”The dollars the government spends become purchasing power in the hands of the people who have received them,” Ruml said. “The dollars the government takes by taxes cannot be spent by the people,” so the money supply can be contracted with taxes as needed.When the economy is in a recession, however – as it is now – the government needs to spend in order to get purchasing power into the hands of the people. Businesses cannot hire more workers until they have more customers demanding their products, and the customers won’t come until they have money to spend. The money (“demand”) must come first. Adding money will not drive up prices until the economy is at full employment. Before that, increasing “demand” will drive up “supply” by setting the engines of production in motion. When supply and demand rise together, prices remain stable.We now know that a government can go quite far into debt without a dangerous level of price inflation occurring – much farther than the US has gone today. Besides World War II, when US debt was 120 percent of GDP, there is the remarkable example of Japan. Japan has retained its status as the world’s third-largest economy, although it has a debt to GDP ratio of 226 percent - and it is still fighting deflation.”
Maverick

This is a flawed argument. The government could employ 100% of the population by enlisting them all in the army, but we would produce nothing of benefit to the population. Aggregate salaries could be no more than aggregate taxation, so we’d all be no better off, financially, but there would be no goods produced for us to buy, so those the already existed would increase in price due to their scarcity, so we’d all be poorer in our purchasing power as a result.

Simon

Good job! Waiting for part II and III!

Mccurdyde

You all need to get out of your little boxes and get up to date on some Marx http://www.youtube.com/watch?v=qOP2V_np2c0

bm105

I would like ask, how is Hayek’s ideology perceived as ‘bottom up’? If you lower corporation tax and keep interest rates high, all you are doing in reality is succeeding in attracting multinational corporations and allowing big banks to reap greater profits from their lending to start-up companies. This does not favour the small businesses at all, it just helps big businesses crush competitors in their early development who are potentially offering a better product and makes it more difficult for small businesses to get past the difficult early formative stage without going under (because they are paying loads of interest to banks).

Keynes’ ideology is the ‘bottom up’ one in reality (in the current climate). Banks lend to small businesses at more favourable rates, we have more start up companies, greater competition and a better product for the consumer at a fairer price.

In times of austerity the keynsian model provides a healthier free market, I admit that once we are fully out of recession and smaller businesses are not so vulnerable, it may be better to fine tune interest rates more carefully but not now.

Peter

If you neglect human action, anything you come up with is just a fart of the brain.

http://twitter.com/fabbecky Becky Cooper

Using all of these videos for my social studies students!

CARLOS M

IT”S A EXCELLENT VIDEO, YOU ARE GREAT, CONGRATULATIONS, FROM COLOMBIA….

Gregory

The great depression, just like the current recession, was preceded with a massive surplus production.In the great depression, it was suddenly an impressive increase in farm productivity. And because our system is not set up to handle huge employment swings like that, this contributed to lower aggregate demand. People saved money, hoarded money gold and other assets basically, rather than spending it on goods and allowing those producing the goods from hiring other workers. Individually it made sense, collectively it was a death spiral. “We have nothing to fear but fear itself” was a great phrase which reflected this reality.This time it happened more slowly, but more relentlessly and across more industries. Today thanks to technology the average worker is 4x more productive than in 1950. Thanks to this and to outsourcing, the demand for US human labor is not so high, and therefore the wages have fallen. For a time you were able to prop this up with credit markets, and you are right, I agree with you and Hayek that the government was wrong to artificially prop up the credit markets for the last 20-30 years. An egregious example is the NINJA loans regulation that Clinton is responsible for.However, the cause is the same, and you have to address it once and for all with safety nets or a negative tax. Our economy has to stop panicking due to unemployment. Some tax money has to be redistributed to those who are unemployed — not enough to make them complacent, but enough to give them the confidence to A) spend money back into the economy (rather than hoard it), and back to the productive sector, and B) take financial RISKS themselves like sitting at home and studying a new profession. A person who can barely afford their rent isn’t going to go to college, they won’t even qualify for a loan from a bank, much less have the capacity to make that investment on their own steam. No, they will continue to be in a rut, earn little, spend little, etc. And the safety nets will actually make the average unemployed citizen a more economically productive citizen — contributing more to aggregate demand, and giving them the opportunity to accumulate knowledge that will make them employable for higher wages, and therefore boost aggregate demand even more once they do get that employment. etc and etc.So this is where the morality becomes the bottleneck. You think it’s immoral to “confiscate” money to “redistribute wealth”. And I say that, outside of religion, morality is just another system, whereby groups of people agree on things and enforce them using shame and blame. On an individual level, something may seem smart, but on a collective level that same thing can be destructive. Savings is one of those things. These are called collective action problems. And sometimes the ways to solve them might seem “immoral” on an individual level, but in the end everyone is better off.

Gregory

The great depression, just like the current recession, was preceded with a massive surplus production.In the great depression, it was suddenly an impressive increase in farm productivity. And because our system is not set up to handle huge employment swings like that, this contributed to lower aggregate demand. People saved money, hoarded money gold and other assets basically, rather than spending it on goods and allowing those producing the goods from hiring other workers. Individually it made sense, collectively it was a death spiral. “We have nothing to fear but fear itself” was a great phrase which reflected this reality.This time it happened more slowly, but more relentlessly and across more industries. Today thanks to technology the average worker is 4x more productive than in 1950. Thanks to this and to outsourcing, the demand for US human labor is not so high, and therefore the wages have fallen. For a time you were able to prop this up with credit markets, and you are right, I agree with you and Hayek that the government was wrong to artificially prop up the credit markets for the last 20-30 years. An egregious example is the NINJA loans regulation that Clinton is responsible for.However, the cause is the same, and you have to address it once and for all with safety nets or a negative tax. Our economy has to stop panicking due to unemployment. Some tax money has to be redistributed to those who are unemployed — not enough to make them complacent, but enough to give them the confidence to A) spend money back into the economy (rather than hoard it), and back to the productive sector, and B) take financial RISKS themselves like sitting at home and studying a new profession. A person who can barely afford their rent isn’t going to go to college, they won’t even qualify for a loan from a bank, much less have the capacity to make that investment on their own steam. No, they will continue to be in a rut, earn little, spend little, etc. And the safety nets will actually make the average unemployed citizen a more economically productive citizen — contributing more to aggregate demand, and giving them the opportunity to accumulate knowledge that will make them employable for higher wages, and therefore boost aggregate demand even more once they do get that employment. etc and etc.So this is where the morality becomes the bottleneck. You think it’s immoral to “confiscate” money to “redistribute wealth”. And I say that, outside of religion, morality is just another system, whereby groups of people agree on things and enforce them using shame and blame. On an individual level, something may seem smart, but on a collective level that same thing can be destructive. Savings is one of those things. These are called collective action problems. And sometimes the ways to solve them might seem “immoral” on an individual level, but in the end everyone is better off.

Jhhj

where is part 2 ?

It’s All About Spending

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