Video: Welcome back to Keynesian economics
posted at 8:05 am on December 23, 2008 by Ed Morrissey
The latest in economic theory, Cato Institute warns, actually hails from the disastrous 1930s. Dan Mitchell gives us an overview of classic Keynesian economics, which has become a necessity in the incoming Hope and Change administration. What does FDR and Robert Mugabe have in common, anyway?
Remember when we talked about redistributionism during the election? Joe the Plumber may not have an economic degree, but he had the right idea. Barack Obama’s new economic team may not be as left-wing as many had feared, but the overall approach of Obama’s tax shifts, rebates, and stimulus plans come right from the Keynesian playbook. If Obama’s not the next FDR on economics, he may yet be the next Gerald Ford or Richard Nixon, and that’s not much of an improvement.
On today’s Ed Morrissey Show, we’ll talk with my favorite economist, King Banaian, the chair of economics at St. Cloud State University, about Keynesianism and its potential to drag the American economy back into stagnancy.
Update: Ed Driscoll says it’s more of a case of “In Dodd We Trust”.
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This reminds me of one of my favorite communist stories.
The guy readily admitted that everytime communism had been tried in the past, it had failed. He declared that this was not the fault of communism, but rather the fault of the people who tried to implement it.
This time, he assured us, the people in charge were so much smarter that surely, the attempt will succeed.
It doesn’t matter how many times Keynsianism has failed in the past, the leftists have such unshakeable faith in their own superiority, that they have absolute faith that they will succeed where everyone else has failed.
MarkTheGreat on December 23, 2008 at 8:13 AM
We elected him…so now we get to enjoy his wonder! He shall maketh our economy into his own image!
sabbott on December 23, 2008 at 8:24 AM
Ah yes, hope and change through the implementation of all the old crap we’ve tried before . . . or, as a lyricist once said, “Everything old is new again”. Ho Hum.
rplat on December 23, 2008 at 8:28 AM
we’re slouching towards zimbabwe…with great help from Bush…we’re so far in debt, and printing so many dollars…they’re going to be worthless….hyper-inflation anyone?
right4life on December 23, 2008 at 8:35 AM
The Great Depression was caused by liberalism with a Republican president in charge, therefore causing people to blame conservatism. The Dem who took over increasesed the liberalism, prolonging the Depression.
History is repeating itself.
eea on December 23, 2008 at 8:40 AM
Second verse, same as the first.
ZK on December 23, 2008 at 8:52 AM
This guy will have an “accident” soon.
angryed on December 23, 2008 at 8:54 AM
Very good video except for the part where he claims that the government isn’t printing more money. Every time the Fed lowers interest rates that is essentially what they’re doing. Other than that, great video.
Ann NY on December 23, 2008 at 8:57 AM
I have been saying for a long time that Bush was the new Hoover. The difference between then and now is the access to and the speed in which we get our information. I believe that will possibly save us.
Ann NY on December 23, 2008 at 9:00 AM
I think we’ll see deflation. We’re already there. Interest rates below 1% and he economy is contracting? That my friends is a sure sign of the big D.
Inflation is probably the most mis-understood economic concept out there. Just because you print a lot of dollars does not automatically cause the value of the dollar to go down.
If the Euro, Brit and Japanese economies were on fire, then yes, the US dollar would be worthless by now. But since the entire world is in a recession/depression, the dollar’s value relative to other currencies has actually improved in the past 6 months since as hard as it may be to believe, the US is in a better situation than a lot of the world.
And remember, the ECB (Euro Central Bank) is printing as many Euros as we are printing dollars. It’s a net neutral situation. They print 1000 new Euros, we print 1000 new dollars, so the exchange rate is unaffected between the two.
The only way the dollars becomes worthles is if all of a sudden we decide to go back to using gold, the EBC raises rates significantly or somehow every country gets out of the recession/depression except the US. All highly unlikely scenarios.
angryed on December 23, 2008 at 9:04 AM
“It is not true that life is one damn thing after another…It’s one damn thing over and over.”
–Edna St. Vincent Millay
Bugler on December 23, 2008 at 9:09 AM
last I heard china was going to cut taxes to deal with the problem…so they’ll recover much faster than we will.
the dollar had its biggest single day loss to the euro the other day when we cut interest rates to almost zero. I think the writing is on the wall for the dollar…we’ve added another 8 trillion or more, to the debt, with much, much more to come, and we’ll never pay it back.
right4life on December 23, 2008 at 9:09 AM
Measuring the dollar against other currencies has nothing to do with inflation.
If the Dollar, Euro, and the Yen, were each experiencing 100% inflation, they would stay equal to each other in value, but there would still be inflation.
MarkTheGreat on December 23, 2008 at 9:10 AM
The only way out of this debt is to either renounce it, or inflate our way out of it. Paying it off is no longer possible.
MarkTheGreat on December 23, 2008 at 9:11 AM
I wish I understood economics better globaly than I do, but what I do know is that I have worked hard, long hors, weekends for well over 25 years to build a comfortable life for my Wife and Son, employed over 100 folks during the years in business and now have lost a lot of that security due to corruption, greed, mismanagment, unions, fools, morons, and the far left “entitlement” Liberals. My money now goes more and more to folks who do less and less, more welfare, more hand-outs, more “programs” and less oversite, less control and less accountibility. People like me are getting so tired of “feeding” the able bodied of the urban areas, tired of “housing” capible workers in the rust belt of America, tied of “education” the unmotivated youths of disfunctional families.
When and if personal responsibility returns to America, we will heal and rebound… Until that day arrives, we are doomed to a path of decay.
Mark Garnett on December 23, 2008 at 9:27 AM
People blamed conservatism because the liberal was in charge when it ended. Nobody ever explained to them that what ended it was WWII, not FDR’s policies.
Failing another world war, Obama has no hope coming out of this the hero FDR was.
Kafir on December 23, 2008 at 9:29 AM
very true. the dollar will be worthless paper the way we are going.
right4life on December 23, 2008 at 9:37 AM
its based on some version of the Broken Window Fallacy
jp on December 23, 2008 at 9:38 AM
Just wait for Obama’s stimulus package is unveiled. Its primary purpose will be to pad the pockets of leftist special interest groups. Just like much government spending does now.
Dasher on December 23, 2008 at 9:39 AM
yep, deflation is a killer for most Americans(everyone who has debt of some sort), so Inflation is a better alternative.
and yes it is a poorly understood concept, its not always a bad thing and in many ways a ‘lesser evil’ over altnernatives. There are alot of cranks out there(Ron Paul) who equate Inflation as simply “increase in the money supply” and of course they give you the “a $20 Gold coin now cost you $400″ line and of course fail to mention that most Americans make a whole lot More money now than the income made during 1920 so the “real Inflation” rate is really not that high.
jp on December 23, 2008 at 9:43 AM
WWII didn’t end it, exactly. It was that, after WWII, FDR wasn’t tinkering anymore, a lot of his policies had been dropped during the war, and the people he left in charge weren’t interested in reinstating them.
Count to 10 on December 23, 2008 at 9:57 AM
But… but… Obama’s team is so…uh….. smart. That’s what the press is telling us.
Surely, these smart people can make this stuff work… right?
“My advice to you is to start drinking heavily.” Blutarski
Sugar Land on December 23, 2008 at 10:00 AM
The general idea is that you want to keep the nominal cost of living stable, but erring toward a slow increase over time, in order to keep investment going smoothly.
I like to keep in mind, though, that people living well under the poverty line now enjoy some luxuries that even the richest people could not have bought a century ago.
Count to 10 on December 23, 2008 at 10:02 AM
Paul Krugman already had King Banian’s number:
starfleet_dude on December 23, 2008 at 10:07 AM
Look, you only get hyperinflation if the government actually prints money to pay its bills. We have that separated between the fed and Congress, breaking up the political pressures that lead to hyperinflation.
Granted, it could still happen if the fed is stupid, and we could go into stagflation if the fed tries to us inflation to boost the economy before the deadwood (like Detroit) has been cleared out.
Count to 10 on December 23, 2008 at 10:08 AM
yeah, they didn’t have Wal-Mart and free trade during the 1930′s either. I just bought alot of stuff for a needy family for christmas at Wal-Mart, stretch a dollar far there.
things outside of Monetary Policy actually have a big impact on inflation/deflation of consumer goods. Trade, Productivity increases(tied into advances in Tech.), taking out Middlemen in the business chain(Wal-Mart effect)…all of these things go a long way towards reducing the cost of items, plus the fact the items available today make us all far more wealthier than we were in the past.
jp on December 23, 2008 at 10:09 AM
Well, I had thought Krugman was out of touch, but he has clearly jumped the shark now.
Count to 10 on December 23, 2008 at 10:11 AM
Count to 10, what ended the Great Depression was WWII putting people back to work. By putting money in worker’s pockets it finally gave the stimulus to the economy that was necessary to end the deflation of the 1930s.
starfleet_dude on December 23, 2008 at 10:12 AM
Shorter Krugman: it makes no difference as far as stimulation of the economy goes whether it’s a dollar spent on a public good or a dollar spent on a private good. It’s also true that simply cutting taxes won’t necessarily stimulate the economy as said tax cuts might not be spent, but simply hoarded.
starfleet_dude on December 23, 2008 at 10:15 AM
Incorrect. What happened was that the war overrode the regulations that had hobbled the economy, as well as the traditional exclusion of women from the workforce, so that things could really take off when the war ended.
Though there was probably a moral effect in their as well. Listless, demoralized people are less productive than hopeful, enthusiastic people.
Count to 10 on December 23, 2008 at 10:21 AM
Government is horrendously wasteful, and, if public works were worth what was spent on them, companies would be lining up to build them without public funds.
Where money goes is the only difference, as government spending is money not invested by the private sector, and government is very, very bad at it.
Count to 10 on December 23, 2008 at 10:26 AM
You’re right about women also having money to spend as a result of their war-time employment, but wrong about any regulations being overrode that somehow acted as a brake on spending as the problem was that people had little money to spend, not regulation.
starfleet_dude on December 23, 2008 at 10:29 AM
Reality is crank now?
Inflation is defined as the money supply increasing faster than the supply of goods.
That’s not to argue that it is a good thing, but we should understand what inflation is before we argue how to deal with it.
MarkTheGreat on December 23, 2008 at 10:40 AM
Its not about spending–its about production. People get this mixed up all the time because we try to measure production by things associated with spending, but production is the real fundamental. It wasn’t because the women had money to spend, but because they produced more by working in traditionally male jobs than they did homemaking.
Count to 10 on December 23, 2008 at 10:41 AM
starfleet_dude on December 23, 2008 at 10:07 AM
Anyone who quotes Krugman has already discredited himself beyond redemption.
The idea that the govt and the govt alone knows what the proper level of any product or service is, is so stupid that only a liberal could possibly believe it.
MarkTheGreat on December 23, 2008 at 10:42 AM
First, government isn’t inherently wasteful. If that was the case, the overhead for running Social Security wouldn’t be a fraction of what private sector insurance and investment overhead is for retirement plans, nor would the VA hospitals be running more efficiently than their private counterparts. Here’s Mark Thoma on that:
VA Hospitals vs. Private Sector Hospitals
Note that the innovations the VA implemented are also do-able by private hospitals.
Second, I don’t think your claim about contractors building projects is logical, since to my knowledge they can’t just go out and start building roads on their own.
starfleet_dude on December 23, 2008 at 10:42 AM
Also, it was regulation that was keeping people out of work (mostly by things like price and wage controls). The debt of WWII went some of the way to inflating us passed those controls.
Count to 10 on December 23, 2008 at 10:44 AM
It wasn’t what Rosie the Riveter herself produced that stimulated the economy, unless you think that B-24 bombers were being built for use as housing! Again, it wasn’t the production side that mattered, it was the stimulation of putting money in pockets that was spend on other goods and services.
starfleet_dude on December 23, 2008 at 10:45 AM
I’ve already demonstrated that Krugman is an idiot when he says that the govt supplies those things that the free market needs but won’t provide.
And now you have kindly given us yet another example of how incredibly ignorant Mr. Krugman is.
The only time money is hoarded, is when someone stuffs it in a mattress.
Money placed in banks is available to be loaned out.
Money placed in any kind of investment is used to create goods and services, it is not being hoarded.
The whole notion of “hoarding” is the cross that Keynsianism hung itself from, and the reason why it always fails.
MarkTheGreat on December 23, 2008 at 10:45 AM
As if there wasn’t rationing and price controls in effect during the war! Yet the economy actually grew during wartime.
starfleet_dude on December 23, 2008 at 10:45 AM
If you think there were no regulations hampering businesses during the Depression, than you are as ignorant as everyone believes you to be.
As to nobody having any money to spend, that was primarily because FDR was busy taxing everything that moved.
MarkTheGreat on December 23, 2008 at 10:47 AM
Krugman’s making a mistake or two himself. The argument that markets undersupply public goods does not produce as a logical consequence the argument that government supplies the proper amount. Think about it for a moment. It’s an elementary logical error.
People like Krugman are always ignoring the lessons of social choice theory and public choice theory, which have a lot to say about whether the government solves the public-good provision problem any better than markets do.
I say this as an economist who has no real problem in principle with updating the country’s infrastructure (highways, bridges, power grid, pipelines) at a time like the present. But Krugman’s pulling a fast one hoping his readers didn’t get past Micro 101.
DrSteve on December 23, 2008 at 10:48 AM
Maybe, but they would be pushing, lobbying, for it.
***
Health care and retirement funds are a really bad comparison, as both are very far from the free market. I imagine that the VA has less regulation to deal with than your average HMO.
Count to 10 on December 23, 2008 at 10:48 AM
MTG, the problem that is during a deflationary crisis, banks are more concerned with their own liquidity than with lending money. Krugman calls this the “liquidity trap”, and it’s what sank Japan’s economy during the 1990s as they struggled with the consequences of their own real estate bubble.
starfleet_dude on December 23, 2008 at 10:49 AM
man, is there no discredited canard that you won’t trot out?
Even Owl Gore’s commission determined that the Federal Govt’s books were so screwed up that it was impossible to determine what the true cost of any service was.
The only way the SS adminstration get’s it’s over head so low is that it farms out most of it’s work to other agencies. The result is that the cost of that work goes onto other agencies books.
MarkTheGreat on December 23, 2008 at 10:49 AM
Wow. I mean like, wow, dude.
Bugler on December 23, 2008 at 10:49 AM
They could, except in California where it is illegal.
MarkTheGreat on December 23, 2008 at 10:50 AM
Most, not ALL, but most VA facilities give HORRIBLE service and have HUGE waits… Been there, done that, check with your local vets groups. The VA sucks… I have seen it first hand. ALL, yes ALL Gov programs are full of waste and fraud and if run by private groups would be investigated, have charges filed and closed. You think Enron was bad, ALL Gov agencies are mismanganged and WAY OVERFUNDED… Time to kill this kind of thinking that Gov is ANY answer.
Mark Garnett on December 23, 2008 at 10:50 AM
You’re missing Krugman’s point, which isn’t about the under or over supply of public goods, but that a dollar spend on a public good has the same stimulus effect that a dollar spent on a private good does.
starfleet_dude on December 23, 2008 at 10:51 AM
Actually Keynes called it the liquidity trap long before Krugman was born.
And the whole notion of liquidity trap was discredited 30 years ago.
MarkTheGreat on December 23, 2008 at 10:52 AM
You completely missed my argument. As I said, the economy grew because we inflated past the price and wage floors, freed up women to more productive work, and gave people motivation. All of this could have been done without a war, had FDR not been so keen on treating symptoms.
Count to 10 on December 23, 2008 at 10:52 AM
Farms out to who? You made the claim, back it up with actual facts.
starfleet_dude on December 23, 2008 at 10:53 AM
That would only be true if govt provided the exact amount of public goods that were needed. If govt provides too much, then that is money that is wasted.
That’s the whole point. Though I’m not surprised that you missed it.
MarkTheGreat on December 23, 2008 at 10:53 AM
You’re comparing apples to oranges. I would counter with “It is easier to manage Ponzi schemes than true investment portfolios”. One of them actually has a return… and it isn’t Social Security.
dominigan on December 23, 2008 at 10:55 AM
Don’t you read? I said other govt agencies.
Do you think the SS owns or rents it’s own buildings?
The list is endless, for those who’s eyes aren’t too blinded by ideology to see.
MarkTheGreat on December 23, 2008 at 10:55 AM
If you don’t count war production, then the economy went way down during the war, and didn’t bounce back until the war ended.
Count to 10 on December 23, 2008 at 10:56 AM
I think you’re trying hard to make something true that just isn’t. “Inflate past the wage and price floors”? What on earth does that mean? Why is it so hard to get the simple point that putting people to work and paying them a wage during WWII building bombers and other military goods meant they had money to spend on goods and services that stimulated the U.S. economy during wartime?
starfleet_dude on December 23, 2008 at 10:56 AM
What are you, a Krugman fanboy? Keynes’ idea, Robertson’s term. Coined mid-30s. Get a library card, willya?
DrSteve on December 23, 2008 at 10:57 AM
Repeating yourself isn’t an argument, it’s merely a waste of time.
starfleet_dude on December 23, 2008 at 10:57 AM
Guess you don’t have a response as an “economist”, do you? Can’t say I’m surprised.
starfleet_dude on December 23, 2008 at 10:59 AM
And you’re still missing the point… If we substitute real life experience into your sentence, we get…
“20% of a dollar spent on a public good (with 80% in administration overhead) has the same stimulus effect that a dollar spend on a private good does”
Nope. Don’t think so…
dominigan on December 23, 2008 at 10:59 AM
Pointing out a logical fallacy in Krugman’s argument is not the same thing as missing his point. I’m telling you he’s not entitled to his point.
DrSteve on December 23, 2008 at 11:01 AM
Basically, one of the side effects of the war was inflation, due to heavy borrowing, which lifted prices out of the regulation that was putting the breaks on the economy. It was not the spending itself.
In some sense, the war finally allowed the country to feel the pain that Hoover and FDR had been putting off for a decade with all of the government handouts and such.
Count to 10 on December 23, 2008 at 11:04 AM
thats not the definition of Inflation.
Inflation is when the Real Price level increases, it doesn’t automatically happen with an increase in the money supply.
There is a rather long post on this very topic(the two definitions of Inflation, mainstream vs. the Ron Paul version) here:
http://www.optimist123.com/optimist/2007/11/two-different-d.html
jp on December 23, 2008 at 11:06 AM
I did respond. I cited both a fallacy in his logic (markets fail, therefore government succeeds) and in his economics (including citing two whole literatures I’m certain you’ve never heard of). You failed to comprehend my response. And you went on to compound your error by demonstrating to all and sundry that your understanding of economics is entirely encompassed by what Krugman scribbles on a notepad and faxes to the Times every week.
You can leave the scare quotes off economist, too, as anyone on this site could tell you about me.
DrSteve on December 23, 2008 at 11:07 AM
Does anybody else feel a draft in here? A Cold wind blows through this story.
I have been assuming history was repeating itself since 2001, when a fascist, illogical, immoral and evil ideology reared its head and began killing innocent people. The fact that an economic downturn, which all too many are comparing to a Great Depression, has occurred and is proceeding, with similarities in policy by the administration to that time in our history, is just more reason to study the history of the times and act accordingly.
But don’t forget. America withdrew from the world and isolated itself during this time, exactly as the new administration appears to be focusing itself, and left evil men to grow strong and, unopposed, build empires based on hatred and avarice. These Ghosts of Christmas Past are with us today in the Middle East and South Asia. Regimes in ascendance there are NOT friendly, even in Pakistan. Our allies in Europe are even more impotent in the face of their tyranny than they were in 1932.
War is coming, probably nuclear, but certainly a war we don’t even want to see. Britannia ruled the waves then, and had the largest empire in the world. They couldn’t stand alone against the Nazi onslaught. The Soviet Union wasn’t suicidal, so nuclear war against a superpower America wasn’t their cup or tea.
The Islamist republics don’t make the same claim. Remember Saddam doubted our will to fight. Remember bin Ladin doubted our will to fight. Remember Hitler, Mussolini and Tojo doubted America’s ability and desire to oppose them. These mistakes are all being made again because of the Leftist propaganda and ideology in our country, and the excessive deference paid by them to tyrants simply because they are unpleasant to deal with.
I guess you’d all better get ready to send sons AND daughters to fight this time. Because it’s going to be bloody ten years down the road. We didn’t learn the lessons of History, and we allowed ourselves to be complacent because Bush kept us safe from Islamist idiots. You can’t make the same claim about His Nibs, President Elect Obama. And now, after the election, there’s not a thing you can do about that, is there?
Subsunk
Subsunk on December 23, 2008 at 11:09 AM
Not true. Defense expenditures for example grew by 5 billion dollars in 1941, but U.S. GDP grew by almost 20 billion. In 1942 defense grew by almost $16 billion, but the GDP increased almost $20 billion. By 1945, overall U.S. GDP had gone up by $73 billion a year.
Even if you entirely discount military spending, the U.S. economy still grew 16% from 1941 to 1946 despite wartime rationing and controls. And obviously, after the end of the war the economic boom began in earnest.
starfleet_dude on December 23, 2008 at 11:18 AM
DrSteve, you’re still avoiding acknowledging Krugman’s point about the stimulus effect a dollar spent on public goods vs. on private goods being equal. BTW, the “economist” quotes are there because you are obviously more interested in making ad hominem attacks than economic arguments. I couldn’t care less about your reputation or whether the lurkers are with you in email.
starfleet_dude on December 23, 2008 at 11:21 AM
That’s not an economic argument, it’s a misplaced moral one that did us no good as Hoovernomics proved.
starfleet_dude on December 23, 2008 at 11:23 AM
Look the problem here is a misunderstanding of the 30′s.
Lots of people think those were BAD years.
But in fact, the government was controlling everything, so they were GOOD years.
Don’t be confused by all that malarky about people’s lives being destroyed. They LOVED what their government was doing for them, as did the people in Russia and Germany at the same time.
notagool on December 23, 2008 at 11:24 AM
It’s nice when liberal idiots finally admit that they are liberal idiots.
MarkTheGreat on December 23, 2008 at 11:25 AM
Ah, another misleading moral argument. That’s about all the anti-stimulus side is capable of.
starfleet_dude on December 23, 2008 at 11:25 AM
He’s a fan of anyone who will tell him what he wants to hear.
MarkTheGreat on December 23, 2008 at 11:25 AM
He’s dead wrong. This is demonstrably incorrect and shows a shameful lack of understanding of the very field he works in. How does the government know what projects to invest in? How does the government know that it is allocating resources to their highest-valued uses? If it doesn’t know, it doesn’t know if it’s creating or destroying wealth.
Social choice theory says there is no social utility function to maximize, given the information available to governments. The measures governments respond to (e.g. voting) create intransitivities in preference orderings.
Public choice theory says that governments aren’t social utility maximizers to begin with.
I would expect anyone with a B.S. in Economics to have a better grip on those lessons than Prof. Krugman.
DrSteve on December 23, 2008 at 11:25 AM
?
That’s odd. If non-war production went up, then there would have been no need for rationing.
I’m guessing that there is some kind of failure in the mechanism for gauging inflation in those statistics. Of course, rationing artificially keeps prices down, so maybe that’s it.
Count to 10 on December 23, 2008 at 11:28 AM
In order to have inflation like we had in the 70s you need two things to happen. Prices AND wages have to rise.
Does anyone believe wages will rise anytime soon? If the answer is no, then you should not fear inflation. I say the reverse is happening. Wages are falling which will cause prices to fall more, which will cause wages to fall, etc.
That is what happened in the 1930s. And we are entering the 1930s Part 2. And nothing the Fed does will stop this cycle from happening. And whatever Obama does is inconsequential really, just like everything FDR did was inconsequential during the 1930s. He started out with unemployment at 25% and ended with unemployment at 20%. When it was all said and done, his actions were a side show, just like Obama’s actions will be a side show.
We had an asset bubble on untold proportions 2002-2006. And the only way to get past it, is by taking the medicine, going through several years of pain and starting over.
angryed on December 23, 2008 at 11:29 AM
Of course it was not until 1954 that the stock market returned to 1929 levels — a full 25 years. Ah that sweet smell of government intervention.
Dasher on December 23, 2008 at 11:29 AM
Quote-mining is dishonest, “Dr” Steve, as you ought to know. Here’s Krugman’s full quote:
Clearly, Krugman is speaking about the stimulus effect of said dollar being spent on either a public or private good. As Krugman anticpated, you’re just trying to engage us in a bait-and-switch here DrSteve.
starfleet_dude on December 23, 2008 at 11:31 AM
I made a logical argument. His “ifs” don’t get him to his “thens” — that’s not a moral argument, unless you consider illogic immoral.
I’ve made an economic case, too, or at least as much of a reference to where the case is plainly worked out as anyone here is probably willing to pursue. There are dozens of researchers who have spent their entire careers on the very question he’s saying there’s “nothing” in economics about. It’s patently ridiculous, he’s appealing to ignorance, and you’ve fallen hard for it.
DrSteve on December 23, 2008 at 11:33 AM
Oh, there was definitely a need for rationing gasoline, steel, and other war-related commodities and rationing was certainly a form of price controls. But the point is that money in the form of wartime wages did stimulate the U.S. economy out of it’s long deflation of the 1930s.
starfleet_dude on December 23, 2008 at 11:33 AM
No, its something of a metaphorical one. In essence, the economy during the depression was still structured as a boom time economy because regulation kept it from doing the painful restructuring necessary to get growing again. Wages stayed inflated, which I think is the biggest part.
Count to 10 on December 23, 2008 at 11:34 AM
Dr. Steve, the only thing I’m not falling for is your rhetorical bait-and-switch tactics.
starfleet_dude on December 23, 2008 at 11:34 AM
The marginal value question and the stimulative effect question are inseparable. It isn’t as stimulative to spend a dollar on something that is less highly valued than it is to spend it on something more highly valued. Destruction of value, through misallocation of resources to other than their highest-valued uses, is not stimulative.
DrSteve on December 23, 2008 at 11:39 AM
FYP
grdred944 on December 23, 2008 at 11:40 AM
A love of Iosif Stalin?
steveegg on December 23, 2008 at 11:40 AM
Look, if it had stimulated the economy, then people would have had more stuff. Instead, they were forced into rationing schemes. I think the numbers you have there are suspect.
Count to 10 on December 23, 2008 at 11:40 AM
You’re a fool. You’re subjugating your own critical faculties in service of a sham argument in a dispute with someone who doesn’t even disagree with you on the policy point.
I leave you to your ignorance.
DrSteve on December 23, 2008 at 11:43 AM
Looks like the Obama administration is shaping up to take the failed economic and social ideas of the 20th century and implement them all in one term, which is about what you’d expect from someone with too much education and no real-world experience.
Socratease on December 23, 2008 at 11:46 AM
What? You’re trying to strain at a claim of some nebulous future value and make it diminish the present value of said spent dollar. In terms of directly stimulating the economy in the present, it makes no difference what the future value may or may not be.
starfleet_dude on December 23, 2008 at 11:53 AM
But you
disagreeing with Krugman on the policy point when you try and diminish the stimulus value of a dollar spent on a public vs. private good by invoking said good’s future value.
starfleet_dude on December 23, 2008 at 11:55 AM
But you are disagreeing with Krugman on the policy point when you try and diminish the stimulus value of a dollar spent on a public vs. private good by invoking said good’s future value.
(fixed now)
starfleet_dude on December 23, 2008 at 11:56 AM
No, no temporal element involved at all. Your lack of comprehension of economics is now utterly complete. I really shall be going now.
DrSteve on December 23, 2008 at 11:57 AM
Krugman might be right that there is nothing in econ 101 that favors public over private spending. They might not get to that subject until econ 102.
MarkTheGreat on December 23, 2008 at 12:02 PM
I can understand that, but your bedside manner is getting in the way of understanding more than you may suppose. Ah, blogs really aren’t a good place to learn I’m afraid. Too much propensity towards heat and too little towards light.
starfleet_dude on December 23, 2008 at 12:05 PM
Do Andorians have dogs, and do they talk?
MarkTheGreat on December 23, 2008 at 12:06 PM
starfleet_dude, you seem to be saying that the value of the bridge being built isn’t the point, getting money into the workers’ hands is the point. If this is so, why not just have the government pay people to stand around?
shazbat on December 23, 2008 at 12:30 PM
Before you can assume that having govt buy things that may or may not be needed can stimulate the economy, you have to assume that the money, where it was before the govt appropriated it, is not stimulating the economy.
Hence Keynes fixation on hoarding.
The trouble is that this belief in hoarding has been disproven so many times, and in so many ways, that only those with ulterior motives still cite it.
MarkTheGreat on December 23, 2008 at 12:35 PM
George Bush’s economic policy was decidedly Keynesian, and so was McCain’s. Those “stimulus checks” were straight out of The General Theory.
hicsuget on December 23, 2008 at 12:45 PM
Then why is it going on right now?
From Wiki: “In monetary economics, a liquidity trap occurs when the nominal interest rate is close or equal to zero, and the monetary authority is unable to stimulate the economy with traditional monetary policy tools. In this kind of situation, people do not expect high returns on physical or financial investments, so they keep assets in short-term cash bank accounts or hoards rather than making long-term investments. This makes a recession even more severe, and can contribute to deflation.”
Right now, short-term treasuries are at zero because money is being parked there instead of being invested. TARP money is barely moving through the system, so now we’ve got ZIRP (zero interest) to flood the banking system with money. Still, the Fed can’t stimulate the economy with ZIRP because “consumers” are in the position where the must spend less and service debt. Spending less means recession, so even with low interest, or zero interest rates, return on investment will not have a profitable spread, generally speaking.
So there’s no incentive to invest and no incentive to save. Cash is king for now.
Increasing productivity alone is not the answer, but reallocating production and resources is. People (“consumers”) can’t take on any more debt, nor are they in a position to increase income. Of course, Keynes would advocate government deficit spending, but we’re SOL there, too.
shuzilla on December 23, 2008 at 12:53 PM
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