Ran across this post during a search for something else. The Whiskey Tango Foxtrot thing made me laugh.
I think this post on the NYT getting it wrong is really oversimplifying things. The post-Keynes point about G (direct govt demand) is that it directs scarce resources away from potentially better uses. Sure, laying new sod employs a couple of people and they're better off. But that money came from taxation. Someone had $100 taken from his paycheck, put through an inefficient government management system (e.g. treasury, IRS, whatever) and yielded $20 (use whatever number you want) into the sod layer's pocket. Well guess what? Taxpayer guy could have used that $100 for something else. And individuals in their local economies are generally going to make better / more efficient decisions than the Federal govt regarding what to do with a dollar.
Perhaps government expenditure directs resources away from better uses in a well-functioning economy. I have seen evidence that it does. But this is NOT a well-functioning economy.
This is an economy in which the collapse of the big banks dried up the funds that the economy had to have to operate. This led to lay-offs and a failure to start new projects. The lowered employment cut back on consumer demand, leading businesses to lay off even more workers. That became a self-reinforcing negative cycle, with no real way out.
The total failure of the Bush administration to forsee this danger and prevent it early on when such prevention could have been done relatively cheaply allowed it to grow into the current truly bad economy.
The result of all that disastrous cycle (and the truly bad deregulation actions taken in the last three decades)has given us an economy with all kinds of slack resources that simply aren't being used.
Look at Elkhart, Indiana, the RV capital of the world. The plants are still in position and capable of producing goods. The transportation network that let the plants function is still in place. The workers are still there, trained, experienced and unable to find jobs of any kind. Where there was under 5% unemployment a year ago, the unemployment is now pushing 20% and there are no jobs to be had. (Newshour tonight)
What better uses can the current economy put those resources to? There is sharply reduced consumer demand for literally everything, and that is getting worse as the economy continues in its downward spiral.
There is no possible source of demand with the funds to spend other than the federal government. Nor will there be anytime soon. There are No new companies ready to use private funds to step in and used the plants and labor left idle in Elkhart. That's not going to change before those plants deteriorate into uselessness and the workers move away or get too old to work. There simply is no potentially better use for those resources without an increase in consumer demand, a turnaround in unemployment, and the breaking of the freeze on bank lending - which won't happen until after there are proven and secure businesses to lend to who can reasonably be expected to pay the loans back.
Businesses aren't going to expand until there is provable consumer demand for them to expand to exploit, and that isn't going to happen until the unemployment turns around. The unemployment is not going to reverse until there is consumer demand that requires more employees to meet.
Only federal government spending can reverse that very nasty downward spiral.
So take your post-Keynes analysis, and stuff it until the economy starts functioning well enough for it to begin to apply. The current situation, permitted through government inaction and required by conservative small-government no-regulation ideology, does not allow your post-Keynes concept to be realistic right now.
2 comments:
Ran across this post during a search for something else. The Whiskey Tango Foxtrot thing made me laugh.
I think this post on the NYT getting it wrong is really oversimplifying things. The post-Keynes point about G (direct govt demand) is that it directs scarce resources away from potentially better uses. Sure, laying new sod employs a couple of people and they're better off. But that money came from taxation. Someone had $100 taken from his paycheck, put through an inefficient government management system (e.g. treasury, IRS, whatever) and yielded $20 (use whatever number you want) into the sod layer's pocket. Well guess what? Taxpayer guy could have used that $100 for something else. And individuals in their local economies are generally going to make better / more efficient decisions than the Federal govt regarding what to do with a dollar.
Whiskey Tango Foxtrot is pretty darn funny. Out.
Perhaps government expenditure directs resources away from better uses in a well-functioning economy. I have seen evidence that it does. But this is NOT a well-functioning economy.
This is an economy in which the collapse of the big banks dried up the funds that the economy had to have to operate. This led to lay-offs and a failure to start new projects. The lowered employment cut back on consumer demand, leading businesses to lay off even more workers. That became a self-reinforcing negative cycle, with no real way out.
The total failure of the Bush administration to forsee this danger and prevent it early on when such prevention could have been done relatively cheaply allowed it to grow into the current truly bad economy.
The result of all that disastrous cycle (and the truly bad deregulation actions taken in the last three decades)has given us an economy with all kinds of slack resources that simply aren't being used.
Look at Elkhart, Indiana, the RV capital of the world. The plants are still in position and capable of producing goods. The transportation network that let the plants function is still in place. The workers are still there, trained, experienced and unable to find jobs of any kind. Where there was under 5% unemployment a year ago, the unemployment is now pushing 20% and there are no jobs to be had. (Newshour tonight)
What better uses can the current economy put those resources to? There is sharply reduced consumer demand for literally everything, and that is getting worse as the economy continues in its downward spiral.
There is no possible source of demand with the funds to spend other than the federal government. Nor will there be anytime soon. There are No new companies ready to use private funds to step in and used the plants and labor left idle in Elkhart. That's not going to change before those plants deteriorate into uselessness and the workers move away or get too old to work. There simply is no potentially better use for those resources without an increase in consumer demand, a turnaround in unemployment, and the breaking of the freeze on bank lending - which won't happen until after there are proven and secure businesses to lend to who can reasonably be expected to pay the loans back.
Businesses aren't going to expand until there is provable consumer demand for them to expand to exploit, and that isn't going to happen until the unemployment turns around. The unemployment is not going to reverse until there is consumer demand that requires more employees to meet.
Only federal government spending can reverse that very nasty downward spiral.
So take your post-Keynes analysis, and stuff it until the economy starts functioning well enough for it to begin to apply. The current situation, permitted through government inaction and required by conservative small-government no-regulation ideology, does not allow your post-Keynes concept to be realistic right now.
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