John Maynard Keynes.

[coloradodem2005]

"In the long run we are all dead."


I had been reading a write-up on him. I had heard of him before but didn't quite hook in. A lot of his views I would agree with. The thing is, I also believe in a balanced budget. And consider myself a fiscal conservative. Though, I also realize there are times, especially when the economy gets bad that conventional wisdom goes out the window and you need to do things.

He said that when things are bad that laisseiz faire economics won't work and we need to increase aggregate demand by increasing the government spending. This influenced FDR's economic plan greatly.

My question is do you agree with Mr. Keynes?

[AP]

1. If you ever took out a student loan or a mortgage, you don't believe in

balanced budgets. You believe in borrowing today, when times are tough (or not as good as they could be) in order to leverage growth and have a better tomorrow.

[donco6]

6. Not necessarily.

I disagree with your statement. I don't think debt negates the possibility of a balanced budget. If your debt is collateralized with assets, and your revenue is balanced with payments, what's the problem?

[AP]

8. Debt is spending money you don't have.

Of course you budget for the cost of financing a loan, but you're spending money today that doesn't generate revenue until tomorrow.

You may have to refinance the debt if you misjudged revenues, or you can go bankrupt and give up whatever you used to secure the loan to your lenders. But you're still borrowing against the future when you borrow money -- and that's what defecit spending is.

[donco6]

10. No.

Deficit spending is spending money when you have no demonstrable revenue source. Totally different from what you're describing.

[AP]

11. How can you buy things without money?

When the US is in defecit and needs to spend money, they either buy now and pay later with interest if they can, or they issue bonds. One way, it's a promisory note, which is as good as "money+interest", and the other way it's a black and white loan. Essentially, it's a loan either way.

What you've described is just taking things without paying and with no intention of paying, and the gov't doesn't really do that.

[bryant69]

7. Well

Yes but if the government borrows too much, well than it hogs up all the credit making it harder for individuals to buy houses and what not--so it's very much a balancing act.

Bryant
Check it out --> http://politicalcomment.blogspot.com

[AP]

9. Ideally, they're borrowing to create a wealthier economy in the future.

If they're doing that, banks will be happy to lend to more people because they know everyone's going be sharing the wealth in the future.

But, yes, it's a balancing act.

If the government doesn't borrow during bad times to create a wealthier tomorrow, banks might not be willing to loan to people because they know it's less likely that there will be a payback.

[Touchdown]

2. Yes.

The best applied example of Keynes' economic theories, and the detriment in ignoring them is told in "Wealth and Democracy"...Kevin Pillips' previous book.

Read it, if you haven't already.

[Cary]

3. Markets work always and everywhere, . . .

in the long run. But in the long run, we are all dead. Therefore we can have things like barriers to entry and monopolies. We can affect the economy using monetary and fiscal policies. We should especially affect the economy to avoid letting the economy get to the point of a depression.

Nations aren't like individuals. Nations print money. The money supply has to keep up with the growth in real GDP. So as long as the growth in the deficit does not exceed the real growth in GDP, the deficit isn't a problem.

That's economics 101. Conservatives don't like it mostly because they don't like the idea of the government having any control over anything, except of course our sex lives.

[coloradodem2005]

16. Other things conservatives like to control...

Free speech, right to privacy, not to self incriminate, need I go on?

[sweetheart]

4. keynes is right on

What we have today is military keynsianism, when most democrats support a more civilian keynsian spending approach.

The monetarists have reduced everything to dollars, whilst keynes
understood that dollars in trade partiy is just part of a greater
framework of relations.

Keynes veiws changed during his lifetime, himself a prodigal economist. To fault him is to challenge the orthodoxy of sanity
that the democratic economic administrators live by. His views
on limited international capital flows are to be noted. The
republicans have subverted the democratic argument throught
the trojan horse of "chicago school" economics. That the perfect
market discounts all special interests with free information flow
to a fair price.

This free-for-all schooling that discounts all social value except
cash, in an economy where hard cash is not issued on social-credit. (another issue).

blah blah... nobody cares.

For very intresting info on this subject:

www.wizardsofmoney.org

[coloradodem2005]

12. Actually....

...what we have today is supply-side economics. THis is in direct opposition to Keynsian economics.

[Touchdown]

13. And Supply side economics is just a new word for

the age old Trickle down ecomonics, which was electoral poison up until the mid 80s...that's why they needed a new name. In any event, it's still laissez faire economics dressed up in new clothes, and sold as if merchantilism never existed.

[coloradodem2005]

15. Yes you are right about supply side being trickle-down.

I think that supply side is different than laissez faire, because with laissez faire, you just leave it alone.

[sweetheart]

18. supply side trickle down

Is not antithetical to military keynsianism. Injecting huge public
subsidies to jumpstart economic growth in military industries. You
might call the whole of keynsian economics antithetical, but this one
element is being used out of context. Heck, the neocons are not
educated well enough to understands keynes.

I would call it less trickle down, rather i'd call it federal (large) economic institutions get the free goodies and tax breaks
during republican admin, that with the corporate welfare, they'll
create more jobs.

This is contrasted to using welfare transfers to prime the pump
of consumption in an economic downturn. Whereas the former gives
the cash to corporations, the latter gives it to the poor, who are
then in turn most likely to reinvest the cash at the corner shop
as the low income is entirely disposable. The payments
immediately reenter the economy at a much more plural range of
investments.. relative to the corpwhoreate welfare theory.

The real engine of economic growth is SME's (small and medium
enterprises) These are crowded out by the economic policies of
corporate welfare for the very large, and this stifles innovation
and creativity in the economy.

oh, sad. these republicans... pathetic squanderers of economic opportunity.

[BillZBubb]

5. Keynes is the best of a bad lot in the dismal "science"

There is nothing wrong with deficit spending per se. It is not a black and white issue.

It simply depends on how the money is spent and why. Generally, government spending on "investments" is a net plus. IE, education, infrastructure, training. As Keynes suggests, short term deficit spending to increase aggregate demand in a slowdown is also reasonable. But, deficit spending on tax cuts for the rich and military adventurism is a road to ruin.

[skeptic9]

14. We may be on the verge of Keynesian economics from the Bush White House

Forget about Keynes for a moment. Think about the economic mess Dubya and Greenspan have created.

Greenspan's devotion to the Republican party has endangered our economy by putting monetary policy on the verge of powerlessness. Greenspan has kept interest rates at record lows. This has delayed the inevitable result of Bush's tax and social policies:forcing the economy into another recession, deeper than the one that started in March 2001. You can't take away purchasing power indefinitely from millions and millions of ordinary people and expect the economy to prosper. Who's left to buy the US goods and services being produced at low cost with outsourced foreign labor?

What will happen when Greenspan's low interest rates fail to keep recession at bay? He's only got 100 basis points left to use to goose the economy with lower rates. Once the Fed rate goes to zero, monetary policy is completely powerless. Only fiscal policy is left. And income tax cuts will not help unemployed people who have no earned income. Only government spending projects to create "make-work" jobs will help the unemployed.

This is exactly the same situation Keynes wrote about during the 1930s. It hit Japan in the late 1990s and it well may hit the US later this year or early next year.

Progressive economist Paul Krugman has written quite a bit about the Japanese situation. Here's an excerpt from a lecture he gave in Germany:

"THE LIQUIDITY TRAP

A country that does not need to defend its exchange rate can fight recessions easily, simply by cutting interest rates as low as necessary - all the way to zero. But what if a zero interest rate isn�t low enough -if, even at a zero rate, businesses do not want to invest as much as consumers want to save? This is the dreaded "liquidity trap", in which monetary policy finds itself "pushing on a string" - in which attempts to expand the economy by expanding credit fail because banks and consumers alike prefer holding safe, liquid cash to investing in risky, less-liquid bonds and stocks."

From "THE RETURN OF DEMAND-SIDE ECONOMICS", at http://www.wiwiss.fu-berlin.de/w3/w3collie/krugman/rede.html

[coloradodem2005]

17. Yes, demand-side economics will return...

...but it will happen under President Kerry. Bush will not do such a thing, for it is against his nature as a parasite.

[skeptic9]

19. I really hope you're right about who'll win in November

The nightmare scenario for me is that Greenspan's interest rate largesse may appear to work until November, allowing Rove and Bush to stay in power. Then the liquidity trap and weakening of the dollar would kick in. If Dubya got a second term, Greenspan and Mankiw would have two main choices for dealing with the economic mess the Republicans have created. Either they would restore purchasing power to the jobless with extended unemployment benefits and government job-creation, or they'd engineer deliberate inflation to keep people from hoarding cash at zero interest rates.

[kurtyboy]

23. Keynes expounded on the Liquidity Trap

And too few understand it today.

Why invest with today's dollars when tomorrow's will be cheaper? That is, when the interest rate becomes low enough, people & firms will hold their cash--betting that they will go lower still. An increased money supply (read low interest rates) can no longer influence the interest rate. This is Precautionary Demand--When the interest rate falls to a low enough level, bond outlook becomes infinitely gloomy.

The mathematical models show the demand for money dropping less and less as supply increases. As Skeptic9 wrote, Japan already knows. They offered negative rates, and still the economy shrunk.

If our economy, which takes up an inordinate share of the world's Gross Product, were to to become entrapped by the Liquidity function...God help us all.

[robcon]

20. The one thing that is missed on this thread...

Tax reduction is a Keynesian response to increase aggregate demand. Either increased spending or tax reductions provide a stimulus to the economy.

As someone said in the 70's: "We're all Keynesians now"

[BillZBubb]

21. But tax rates aimed at whom?

Keynes would never have supported the Reagan/Bush* type tax cuts that throw virtually all the savings to the top decile.

Keynes would only favor a tax cut that put the vast majority of the cash in the hands of those who would spend immediately--ie create an immediate boost in aggregate demand. That's the whole point of the exercise.

The top 10 percent won't spend enough of the money on everyday items to move demand much. Witness what has happened under both Reagan and Bush*. Their big claims on growth just don't pan out.

[skeptic9]

22. Not all tax cuts are Keynesian. In fact, it's hard to stimulate demand with tax cuts

First, you've got to distinguish between tax schemes to increase mass purchasing power in times of deficient demand and "supply side" tax cuts. "Supply side" of course is Reagan-speak for the "revolt of the haves" that began with Proposition 72 in California during the 70s and culminated in the 2000 Bush coup d'etat.

In today's economy, the best example of a Keynesian tax cut proposal would be a holiday on FICA deductions. But even that scheme would offer little help to the jobless, whose spending needs goosing the most.

Another Paul Krugman webpage is quite instructive on the politics and economics of "supply side" tax cuts sold as Keynesian through clever bait and switch.

"SLICING THE SALAMI

SYNOPSIS: The rationales for Bush's tax cut wear away bit by bit

Basically, there are three federal taxes on individuals. The payroll tax, which is levied at a flat rate of 15.3 percent of income up to a maximum of almost $70,000, is the main tax paid by about four out of five families. The income tax is less than 10 percent of income for most families, but it rises to around 30 percent of the income of million-dollar earners. And the inheritance tax, which applies only to estates of more than $675,000 (twice that for couples), is a tax on only the very well off: a mere 2 percent of estates pay any tax, and most of the tax is paid by a few thousand multimillion-dollar estates each year.

Now for the salami tactics.

Conservatives who decry the burden of taxes always include the payroll tax in their calculations. And when arguing for tax cuts, the administration starts with numbers that include the whole salami. Again and again we hear about that projected surplus of $5.6 trillion. You shouldn't believe that projection, but for what it's worth more than half of it (the more credible half) comes from Social Security and Medicare programs financed by payroll taxes.

When it comes to tax cuts, however, Mr. Bush's people ignore the payroll tax that is, they propose no cut in the tax that is most of what most families pay, while demanding a large cut in the income tax, which falls mainly on the affluent. And they want to eliminate the inheritance tax, which is overwhelmingly a tax on the downright wealthy.

By proposing to eliminate a tax that falls entirely on the rich, to cut a tax that falls mainly on the well off, but to ignore the main tax paid by most people, the administration has made a deliberate decision to tilt tax relief strongly toward the top of the scale. Families earning $50,000 per year would on average get a tax break of about $800 annually; families earning $1 million would get about $50,000." From

http://www.stern.nyu.edu/globalmacro/cur_policy/bush_tax_cut_readings.html