Krugman: Spend Now, Save Later

[mrstickball]

Akvod said:

mrstickball said:

Now, as for a response to anti-Keynesian. I will provide my view:

The reason I am anti-Keynesian is as follows:

In order for a government to prop up the economy, it must use money. If it does not create the money (quantitative easing), it must either borrow the money (deficits) or earn the money (taxes).

When the government takes on this role, the tax payer suffers, as his money will invariably go to these spending projects. Therefore, private capital is taken away for the good of public usage. The problem with this is 2 fold:

1) It reduces private capital that could be spent, or moved to projects that may have produced solid, tangible economic results.

2) It assumes that the government will spend it properly. More often than not, this is not the case.

So in the end, Keynesian policies are, at worst, very inefficient (just ask me about my local stimulus project that the feds have spent millions on), and at best, improve the situation slightly (at the expense of further taxation either now, or down the road, reducing any period of economic boom).

In the end, Keynesian economics are the inferior path of economic growth. The government rarely puts money into projects that will see a large return on investment, which is what you want in a recession - the ability to create new jobs that are stable and will continue even after the initial funding period is over. Unfortunately, most jobs created by the government are short-term fixes on a problem that needs dealt with over the long term.

Is it possible that the government can create long term jobs, and help fix a recession? Yes. Is it likely? Absolutely not. The government rarely has the flexibility needed to ensure that jobs go to the right areas...Even if the reasons are harmless, its still there.

Also, you have to deal with the aspect of deficit spending. Obviously, in the US, this is a huge problem. We pay interest on our debt, to the tune of 9.1% of our entire federal budget. This costs Americans about $250 billion a year...That $250 billion/yr is lost money that could be in the hands of people to create jobs, but it is not. If we ever have austerity to help with the $13 trillion deficit, any money we spend on such will be 'wasted' (that is, spend on something we should not of had, as opposed to using it for job creation). Imagine the trillions of dollars we would of saved had we not of deficit-spent as madly as we have.....The trillions could of been spent on new jobs in the US, but was not.

That is why I'm against Keynsian ideas. Its great in theory, but so is communism. The human aspects of government spending make it very unattractive.

Keyensianism advocates lower taxes, and borrowing as a means to run its defeceit spending.

1) There will be no private investing if producers don't expect future consumption. Keyensianism's whole point is to START investment. The Great Depression's biggest hit was not consumer spending reduction, but the reduction in investment spending. Plus, add on deflation and liquidity traps, you result in what happend to Japan.

Wrong. The great depression's biggest hit was Smoot-Hawley. The biggest fix was the Bretton Woods agreement. US exports dropped by 66% after Smoot-Hawley. You can't tell me that such a massive reduction wasn't one of, if the largest, factors in the great depression.

2) This is just anti-government. It's not an argument. Do we stop having the government provide military, police, health care, etc because of fuck ups? No. Your attitude is that of a cynic and pessimist, and is not constructive. Constructive criticisms of government should be made, in order to construct a better government, not destroy it.

Have you ever worked for the government, Akvod? I speak from experience, you speak from ignorance. I've seen how the government works versus private businesses (as both myself and my fiancee have worked for the government - she's worked for them for 5 years now). The government does have a role to play, but we've seen many programs they've built that are costly and inefficient. Need I mention our current education system, or social security?

Keyensianism doesn't expect government to keep the economy afloat in the long term. It hopes that by doing so in the short term, consumers will regain confidence, spend again, allowing consumers to take the place of government again, and resume normally.

Of course, we assume the government stops spending....When has there been a significant reduction of federal government spending in the US?

How is Keyensian communist? It's trying to take the course of action that will stimulate consumer demand again. It's trying to prevent deflation, and promote business investment. It's trying to smooth the business cycle out, so that we can continue a steady long term economic growth, with minimal government intervention, or massive failures and booms.

I never said Keynes was communist, did I? I likened Keynesian economics to communism not because it IS like it, but because both rely on the 'goodness' of government. However, the truth is that much of the government spending is totally wasted. Let me ask you this Akvod: If government spent $1 trillion on stimulus to hire unemployed people to mow grass on the white house lawn with scissors...Would that be the wisest way to encourage business investment? If not, then why are they doing something like this where I live with federal monies?

You have to remember that there's an other half of Keynesian, which is contractionary policy. The theory is that by preventing inflationary gaps like the Japanese bubble, or our Housing Crisis, there won't even be a need for huge government intervention, but a tiny one (just some monetary policy).

And you assume that government didn't create the housing crisis in the first place...It did. I've cited CRA 1999 many times as being a prime motivator for giving out bad loans. See, I don't think the government needed to make those laws, or spend $800 billion on bank bailouts to fix the problem.