Krugman: Spend Now, Save Later

[Final-Fan]

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.

But the implication of your argument that government should NOT intervene in that way is that it should do nothing beyond manipulating interest rates, which, considering they are currently at zero, would be doing nothing, which is a recipe for disaster IMO.  The private market is proven to be prone to periodic catastrophe, and the only one that can do anything about it IMO is the government.  Do you disagree with any of the points in my post, and how so?