Keynesian economics on display

[MTAtech]

Yes, of course. Depends entirely on the rate of circulation of money.

If the Government gives me a hundred bucks, and I pay it to you to wire my house, you've made a hundred bucks. If you then pay me a hundred bucks to write you a will, I've made a hundred bucks. Another nine such mutual transactions and we've each made a thousand, and got a lot of work done in the bargain.

Say there's a flat tax of 10% on income. The Government gets back $200 for its initial $100.

This is Econ 101, which I never even took.

By the same token, money can disappear in a depression; if no one has the money to buy anything, demand disappears; the value of houses, cars and so on drops, because no one can pay the price they used to. Businesses can't sell their stock, they lay off workers who now have no money to buy stuff with, and the vicious cycle continues as tax revenue plunges, the (foolish) government cuts spending and roads and schools don't get built, construction workers get laid of, et patati et patata.

This should sound very familiar, but the European governments seem not to understand, and the Replicants pretend not to either.

1) Surprised that you never took ECON 101. Seems like you've got it down pat along the way.

2) The other thing about depressions is deflation. The value of goods and assets decline but the value of loans remains at the old levels. A mortgage in 1930 may have been $15,000, with a $50/month payment. Even if money was deflated the bank still wants $50/month.

[The Real Bingo]

What he is proposing about the fake alien invasion is already happening. It's called The War Against Terrorism (TWAT). Though it is a bit different from the fake alien invasion scenario because the threat is actually real - or at least based in reality. Ironically, an alien invasion scenario would necessarily cause military spending to surge in order to protect us from the aliens, yet the Democrats in congress who presumably prescribe to Krugman's/Keynes' theories want to cut military spending in favor of useless social welfare programs. Not to say there aren't Keynesian Republicans - there are - but they are the spend-happy people on the military side, with whom Krugman should be supporting.

[MTAtech]

So, according to you Bingo, social welfare program, like SNAP, that provide food for children; unemployment benefits for those who lost their jobs; Medicaid, that provides health insurance for the poor; Medicare, that provides health insurance for the elderly, etc., are all "useless?"

I suspect that if you were a recipient of these programs you wouldn't consider them so useless.

[The Real Bingo]

The size and scope of the programs wouldn't need to be so massive if it wasn't for Keynesians screwing up the economy through their misguided planning, monetary, and fiscal policies.

[tony_j15]

So Keynesian policies are responsible for our current recession?

[Epidemic]

Ok in Econ 101 why does government not simply give everyone in america 10,000 dollars to stimulate the economy.

It will only cost 3 trillion dollars and we will 6 trillion dollars in revenue.







But is Keynesian theory is quite as easy as described? We probably also have to look at trade deficit in this analysis. The guy who wired your house spent 50 dollars on tools and materials from China He marked those items up 10% so lets call his profit 60 bucks from which he gets to keep 40.02$ after taxes, he spends that 40 on a new chinese multimeter, with a 10% markup the store realized 4$ profit from which he keeps 2.60$ profit after taxes. He buys some chinese ink which Walmart has marked up 10% and realizes .40$ profit from that is .26$. After 11 iterations the government has realize something like 40 ish dollars of that hundred back.

We probably should not forget the fact that they have taxed away 33% of private sectors worth right off the top so that money has been removed from the economy one probably should consider that when trying to figure out the stimulative effects of something. Shouldn't the Keynesian multiplier work there as well? With out the overhead of government having collected the money first?

Keynesian multiplier effect is not quiet what it would seem.

I would also ask you to consider being that there is a proven multiplier effect called compound interest. Taking the remaining debt and rolling it over year after year eventually gives you the balloon note effect At some point wont our creditors want their investment? and interest

[tony_j15]

Ok in Econ 101 why does government not simply give everyone in america 10,000 dollars to stimulate the economy.

They do things like this, usually in the form of a tax credit that you pick up every April on the ol' IRS refund check. IIRC (this was before I was doing much tax work) during the Bush years Congress authorized some sort of additional tax credit that gave a whole lot of people an extra thousand bucks as a stimulus measure. I think Obama has done something similar (this ringing a bell with anyone?).
The most obvious reason why the government doesn't simply give everyone 10 grand is it would never get through Congress, and even I would question the ethics and efficacy of such a proposal.

We probably should not forget the fact that they have taxed away 33% of private sectors worth right off the top so that money has been removed from the economy

With as many loopholes as there are, few major corporations pay anything close to that. And the money isn't "removed" from the economy. That implies that it is gone. The money merely moves.

Taking the remaining debt and rolling it over year after year eventually gives you the balloon note effect At some point wont our creditors want their investment? and interest

Which is why debt is amortized. It comes due at different times and is paid off at different times. Treasury notes are an excellent example. We don't have a single lump sum loan we owe, unless we want to go out there and start discussing how the Federal Reserve and it's banking cartel own the planet.

[Epidemic]

They do things like this, usually in the form of a tax credit that you pick up every April on the ol' IRS refund check. IIRC (this was before I was doing much tax work) during the Bush years Congress authorized some sort of additional tax credit that gave a whole lot of people an extra thousand bucks as a stimulus measure. I think Obama has done something similar (this ringing a bell with anyone?).
The most obvious reason why the government doesn't simply give everyone 10 grand is it would never get through Congress, and even I would question the ethics and efficacy of such a proposal.

yes tony it has happened but my question is more along the lines of do you think giving everyone 10,000 or 20,000 or even more would have a multiplier effect. Why not even go higher to give a real boost if we borrowed 20 trillion then we could triple our economy.

With as many loopholes as there are, few major corporations pay anything close to that. And the money isn't "removed" from the economy. That implies that it is gone. The money merely moves.

If we don't choose to take the austerity route where money stays in the hands of the people and business then we are talking about eliminating the loopholes as it were by raising taxes. So corporations/the rich would lose the 1.6 trillion to balance the 1.5 billion dollar government budjet gap.

Which is why debt is amortized. It comes due at different times and is paid off at different times. Treasury notes are an excellent example. We don't have a single lump sum loan we owe, unless we want to go out there and start discussing how the Federal Reserve and it's banking cartel own the planet.

But if we continue to follow the profligacy model rather than austerity then there is a point when no one will lend you money at rates that are sustainable. So immediatly you either start paying crazy interest rates or are forced into austerity beyond the levels that would be required today with good credit rating.

[tony_j15]

yes tony it has happened but my question is more along the lines of do you think giving everyone 10,000 or 20,000 or even more would have a multiplier effect. Why not even go higher to give a real boost if we borrowed 20 trillion then we could triple our economy.

I think with larger amounts like that, it would all just get spent quickly. People would use it to pay down debt or make a single large purchase and the money would be gone after that. That's why for the most part, larger amounts are targeted towards specific projects or industries where we have a better idea of the ROI.
I would also suggest doing some reading about basic economics. There are very clear, concise reasons why we wouldn't want 20 trillion dollars floating around.

If we don't choose to take the austerity route where money stays in the hands of the people and business then we are talking about eliminating the loopholes as it were by raising taxes.

Those two things are in no way the same, which should be obvious based on what is happening right now: we haven't fixed the loopholes, and we've bailed out a few key industries.

But if we continue to follow the profligacy model rather than austerity then there is a point when no one will lend you money at rates that are sustainable. So immediatly you either start paying crazy interest rates or are forced into austerity beyond the levels that would be required today with good credit rating.

Which is what the deficit hawks would have you believe. Take a look at Europe and tell me if it is even remotely accurate. Hint: it's false. Austerity measures have wrecked Greece and Ireland and are about to do the same with Spain and Italy. Spain's government bonds are hovering around 7% on interest, which is considered unstable. Why? Because they have chosen austerity and have an unemployment rate of 24% (close to 1 in 2 for youth <30). There problem is very obvious: lack of demand, which depletes the tax base.

[The Real Bingo]

They do things like this, usually in the form of a tax credit that you pick up every April on the ol' IRS refund check. IIRC (this was before I was doing much tax work) during the Bush years Congress authorized some sort of additional tax credit that gave a whole lot of people an extra thousand bucks as a stimulus measure. I think Obama has done something similar (this ringing a bell with anyone?).
The most obvious reason why the government doesn't simply give everyone 10 grand is it would never get through Congress, and even I would question the ethics and efficacy of such a proposal.

They reason they didn't do it is because the entire population isn't a special interest group. There's no power politicians can wield over us; we don't owe them anything. If they give corporations money, then the corporations owe them down the line.

It would make much more sense to write everyone a check, and, hold your horses, even means test it so that the uber-wealthy don't get a check. But congress isn't there to do things that make sense; they're there to fulfill their own selfish interests at the peril of the nation.

Furthermore - back to Keynesian-ism - there is no planning - no control - over that money once you simply give it away. When it's earmarked for certain things such as healthcare or public projects, the government can centrally plan the economy and move it in the direction that pleases them. Austrians (the economic type) warn against this, and most anyone with commonsense and a taste of individualism and liberty knows it's inherently wrong, and above all does not work for the commoner. That is why tax cuts are so atrocious to these people because they think - or even know - that they can spend your money in a better, wiser fashion than you can. The audacity smacks you in the face...if you can recognize it.

[MTAtech]

Ok in Econ 101 why does government not simply give everyone in america 10,000 dollars to stimulate the economy?

The main reason is that the $10,000 may not go into stimulating the economy but instead saved or paying off loans, which in a liquidity trap has no stimulative effect. Thus, this has proven to be poor stimulus.

What's most effective is direct purchases from the government or transfers to the states who use it for local expenditures.

[The Real Bingo]

The main reason is that the $10,000 may not go into stimulating the economy but instead saved or paying off loans, which in a liquidity trap has no stimulative effect. Thus, this has proven to be poor stimulus.

What's most effective is direct purchases from the government or transfers to the states who use it for local expenditures.

So not having to pay off debt each month won't make people go out and spend more on discretionary items?

[tony_j15]

If they give corporations money, then the corporations owe them down the line.

And vice-versa.

Furthermore - back to Keynesian-ism - there is no planning - no control - over that money once you simply give it away.

Which, as you say, is why we don't do things like that. Everyone would have a fit. Probably me included.

When it's earmarked for certain things such as healthcare or public projects, the government can centrally plan the economy and move it in the direction that pleases them.

Correct. Is that a problem?

Austrians (the economic type) warn against this, and most anyone with commonsense and a taste of individualism and liberty knows it's inherently wrong, and above all does not work for the commoner.

You do know you work for a government organization, right? One that gets money earmarked in very specific ways? How can you claim this is inherently wrong?
Does this line of thinking apply to all public spending? Universities? Food assistance? Medical assistance? Road management?

That is why tax cuts are so atrocious to these people because they think - or even know - that they can spend your money in a better, wiser fashion than you can. The audacity smacks you in the face...if you can recognize it.

That's a nice philosophy. But it's not a good economic policy. If it was, you (or the Austrians in general) would be hauling out data showing how well austerity is working in Europe, for example.
Meanwhile, in reality, we are seeing that assistance helps the economy recover, which I've offered evidence for that you continue to step around.

[Chuckiechan]

Well, if people pay off loans, won't more money be available in credit markets so we don't have to borrow so much from China?

And the person who pays off a loan has more discretionary income available each and every month, assuming they don't go back into debt.

And the "net asset" value of the household increases.

[tony_j15]

Well, if people pay off loans, won't more money be available in credit markets so we don't have to borrow so much from China?

Two errors there. First, we don't "borrow" from China. Second, the current problem with credit marks is NOT a lack of capital. It's a lack of people/businesses willing to take out loans, which is due to a lack of DEMAND. There is an easy solution to that problem.

[The Real Bingo]

Which, as you say, is why we don't do things like that. Everyone would have a fit. Probably me included.

Letting the aggregate determine the best way to allocate resources? Yeah, that's kooky talk!

Correct. Is that a problem?

Not if you're a socialist/communist/fascist. It's the ultimate goal of those people, actually. Control over the economy. A free economy is a free people.

You do know you work for a government organization, right? One that gets money earmarked in very specific ways? How can you claim this is inherently wrong?
Does this line of thinking apply to all public spending? Universities? Food assistance? Medical assistance? Road management?

The federal government has a Constitutional duty to provide a defense for the union. Can you point to the sections that define government's power to subsidize road building, healthcare, education, and diet? The "general welfare" clause doesn't count.

Planning is inherently inefficient because it doesn't use market forces to determine supply or demand...and subsequently price. Not all spending is bad, but it seems that bad spending is greatly outpacing the good.

That's a nice philosophy. But it's not a good economic policy. If it was, you (or the Austrians in general) would be hauling out data showing how well austerity is working in Europe, for example.
Meanwhile, in reality, we are seeing that assistance helps the economy recover, which I've offered evidence for that you continue to step around.

What austerity? While individual nations are trying to balance their books, the ECB is printing money to bail them out on the backs of the productive nations in the Eurozone. Sound familiar?

[MTAtech]

Well, if people pay off loans, won't more money be available in credit markets so we don't have to borrow so much from China?

And the person who pays off a loan has more discretionary income available each and every month, assuming they don't go back into debt.

And the "net asset" value of the household increases.

That's not the case in a liquidity trap, which is a special case of its own. Currently, there is ample supply of capital at low interest rates. Moreover, it's a misnomer that the government borrows most of its money from China. We actually borrow more than 2/3 from other Americans.

House values do not increase if one pays off more of the mortgage.

[Epidemic]

Greece has been ruined by excess not austerity. Austerity is the response to the profligacy in the past. I dont think you can spend your way out of it. Europe is not willing to pony up (borrowed money) to bail out Greece. Because it is a bad investment. the people are reeling from the austerity measures but I dont see how excess will save them. Who is going to pay off the excess of years gone by? What will keep them form out spending in the future?

as for the bond rate??? 7% is huge. it is a huge incentive to invest in Greece's bonds. That will get a bunch more people willing to take a risk considering current interest rates on other bonds. Isn't that like twice the going rate for 10 year note?

[tony_j15]

Bingo, have you considered the hypocrisy of what you are saying? You cannot claim that earmarking is bad and that only "socialist/communist/fascist" do it, then turn around and claim that doing so with the military is OK because "The federal government has a Constitutional duty".
Just because the government has a constitutional duty doesn't mean they have to go about it in such a "socialist" way. Why not just have the states hire mercenaries? Then the markets would set the price and we wouldn't have to support soldiers with pensions and healthcare. Then we would also only be defending the homeland, instead of an empire.

Planning is inherently inefficient because it doesn't use market forces to determine supply or demand...and subsequently price. Not all spending is bad, but it seems that bad spending is greatly outpacing the good.

Your use of the word "planning" here is overly broad. To what exactly are you referring?
Also, you know that private companies "plan" as well? That most costs associated with items are purchased on fixed contracts? So why is it OK for business to do this and not the government?
Got a link noting the difference between "bad" spending and "good" spending and the difference in those levels?

While individual nations are trying to balance their books, the ECB is printing money to bail them out on the backs of the productive nations in the Eurozone.

The Eurozone is not allowed to create bonds, so the money is not "printed" like we do with our Treasury and Federal Reserve. Rather, the money comes via purchases of sovereign bonds and loans made to nations which are struggling.
Your implication of "productive" nations versus lazy/inferior is flat out wrong. Greeks, for instance, actually worked longer hours than do Germans up until the sovereign debt crisis. The productive nations are just as much to blame in the Euro mess.

[Epidemic]

I do have to say it is pleasant discussion. No one has been name calling or anything.