Monday, January 19, 2009

A contrarian/libertarian explanation of Keynesian ecoomics....

... from Coyote:

By the way, if you are confused about Keysian stimulus, here it is in a nutshell: The economy is contracting some as people deleverage from over-spending and an asset bubble. I mean, that’s certainly what we are doing in the Coyote den, setting goals for both de-leveraging the business and our household. But folks are worried, because while this has happened many times, one of those times we had a depression. So the government does not want you to deleverage. It wants you to spend and spend. But it knows you won’t, and that it has not yet accumulated enough power to force you to. So it will borrow and spend for you. Government stimulus means that when you are trying to save and reduce debt, government is going to run up debt in your name.

By the way, for those wondering how well this works, the last time we tried it was during the aforementioned depression, and the depression lasted another 8-10 years.

Here's the same concept, explained by neo-Keynesian guru Paul Krugman:

Some background: one of the high points of the semester, if you’re a teacher of introductory macroeconomics, comes when you explain how individual virtue can be public vice, how attempts by consumers to do the right thing by saving more can leave everyone worse off. The point is that if consumers cut their spending, and nothing else takes the place of that spending, the economy will slide into a recession, reducing everyone’s income.

What's missing in Keynesian economics is the possibility that rather than trying continually to pump life into the existing, credit-driven economic system (which requires us to keep pumping out vast amounts of consumer goods beyond any reasonable capacity for morally conscionable consumption), maybe somebody somewhere ought to be thinking about the new economy trying to be born.

Krugman--by his own admission--is attempting to recreate and extend the 1950s economy he sees as resulting from the New Deal and World War Two. There is precious little evidence in this writing that he really has any futurist understanding of places either the American or world markets may be taking us.

Barack Obama is at least partly right when he says, ”But at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe.”

Only government either possesses or can commandeer the resources necessary to attempt either to keep a particular type of tottering economic system on its feet when most of the conditions which created it have changed.

Only government either possesses or asserts the power to turn back time six decades for a do-over of the New Deal.


Tyler Nixon said...

Well said. Nothing like fresh thinking from the dead hand of the 1930's to guide 21st century economic interventionism by a government probably far more massive than even FDR ever would have envisioned. Krugman is a guru in his own mind. His tripe is little more than the peddling of dried-up snake oil, fanning crisis thinking to justify his national statist ideology.

Brian Miller said...

The hilarious irony is that the 1950s economy is dead and gone -- the tottering rotten corpse they're trying to keep shambling forward is an economy with most of its industrial base rotted away.

The 1950s manufacturing economy had big factories in Kensington, high wages, shorter work weeks, affordable housing, low taxes, and save-n-spend.

The present system they're trying to prop up has destroyed neighborhoods in Philadelphia and other big cities, huge slave-labor plants in China, low and falling wages, long work weeks, insanely expensive housing, skyrocketing taxes, and borrow-n-spend just to meet necessities for most working-class people.

The sooner it dies, the sooner the working people of this country will get a shot at the American Dream again. (And no, that "dream" is not 40 years of debt slavery in exchange for an overpriced and poorly constructed house built by illegal immigrant labor out of glue and sawdust -- regardless of what Barney Frank would argue).