This is a headline in the leftist New Republic magazine, over an article lauding any kind of US government spending, by Jonathan Cohn:
“Wanted: More Fraud, Abuse in Government Spending”
Here’s a paragraph to show just how far down the Keynesian rabbit-hole parts of the pro-stimulus crowd have gone:
“But efficiency isn’t the Recovery Act’s primary purpose. Reviving the economy is. And that’s required spending a vast amount of money very quickly–a goal that, inevitably, is at odds with spending the money carefully. Or, to put it another way, a stimulus that threw a little more money away might have created more jobs.”
So “throwing away” money – which is ultimately not the government’s to “throw away” but belongs, or is claimed, from individual citizens – “creates” jobs, does it? So if the US unemployment rate is stubbornly holding just below 10 per cent – a miserable result – then what is needed is yet even more spending, more money printing. These guys remind me of what was said, not always fairly I might add, of WW1 generals, who, when faced with the failure of their latest mass infantry assaults against the German army in Flanders, were urged for one more push, one more bout of bloodletting and hence on to victory.
Einstein once defined madness, I recall, as the repeating of an error and failing to learn from such errors over, and over again. By that measure, parts of the media and commentariat in the US are out of their conceited, Keynesian minds.
I seem to recall President Obama making the exact same point, about a year ago was it?
I think it’s good to challenge these people, and get them to say things like this. They have arrived at self-parody. They can now hardly open their mouths without saying: Vote Tea Party.
C.S. Forrester had an excellent analogy for the generals of WWI: picture a group of pre-industrial natives trying to remove a large wood screw from a stout plank. Their ideas all involve application of greater force with bigger hammers, tongs and levers when (not understanding the problem) all they need is a screwdriver. (The screwdriver was either the tank or infiltration tactics, or both.)
In economics, statists/leftists are full of ideas to apply government force to the problem when (a) it requires the unspeakable, government leaving things to work themselves out, and (b) that screw – the freedom to fail – is holding up the house.
The question they never seem to want to address is that of why a money supply that was adequate to purchase all the good and services in the economy last year suddenly isn’t adequate this year. Where, dear Keynesians, did all the money go?
The difference was it only took the World War One generals four years to work out how to use tanks, artillery and airpower to break through the German defences. After over sixty years of neo-Keynsianism, it is clear that these people have learned nothing, nothing at all. They are still spouting the same nonsense which is sending the western world hurtling towards oblivion. They make Douglas Haig look like Heinz Guderian.
Have you noticed the little click growing up around Cohn, Yglesias, and a few others? One says something stupid, and the others point out how clever and deep it really is. I bet there is a new JournoList started up that’s doing a better job of hiding.
Yet another illustration of the “broken window” fallacy. Of course, I wouldn’t expect anything more intelligent from the New Republic.
I’m not sure it’s even the broken window fallacy. It seems to be more like some kind of “trickle down Keynesianism”.
Freidman 101: The fourth way [of spending money] is when people spend other people’s money on other people. In this case, the buyer has no rational interest in either value or quality. Government always and necessarily spends money in this fourth way. This guarantees inefficient public spending because the spenders have no vested interest in efficiently allocating those funds.
“Wanted: More Fraud, Abuse in Government Spending”
This guy has, at least, a realistic, or realizable wish. I’m afraid his wish will be fulfilled.
Perhaps I’m slow, but it has just occurred to me that the entire debate over Keynesianism — the parts of it I’ve seen over the years, anyway — has been a stacked deck. It seems to me that there are two questions as issue.
The one that is always debated is the pragmatic question of whether or not government spending stimulates the economy in the manner Keynes described. That question is naturally of primary interest to economists.
But it also seems clear that “stimulus” spending, stripped to its essence, means the government deciding that people are borrowing too little (or saving too much, which is just another way of saying the same thing, for all practical purposes), and therefore deciding to assume debt in their name (or destroy a portion of their savings). So the second question that’s inherent in the debate is, is that acceptable in principle?
I’ll have to remember to try to keep the conversation focused on that point next time it comes up. Surely, there’s not much point even debating whether a policy will “work” if you’ve already decided that it’s unacceptable as a matter of principle.
Well one interesting thing about the first point, “does it work?” is that it’s based on the idea of the Keynesian multiplier, that is that each groat injected is passed around and does more than one groat’s work, its stimulus value gradually diminishing due to each spender’s “propensity to consume”.
But if you take time into account, your realise this is nonsense. Considering the economy working in discrete “spending rounds” (the silly V (velocity of money) term in the practicably useless MV=PQ equation gives us this, to stay Keynesian) you realise that the groat can only do its work once per spending round; so the total M in the economy you can spend is always M, just the bigger M after the extra money was injected. So there’s clearly no multiplier. It’s effectively the same fallacy as the fractional reserve banking fallacy that one groat is being spent in two or more different places at the same time.
New Republic’s understanding of economics is superior to that of Johnathan Pearce. NR is quite right to point out that in a recession it’s an idea to get extra spending power into the pockets of the private sector just about any old how. Keynes by way of a joke, famously said that it would be better in a recession to pay people to dig holes in the ground and fill them up again, than to do nothing. He was right.
But obviously if one can in the process of getting that money into private sector pockets get something done with reasonable efficiency, so much the better. And the latter seems to be exactly what has happened according to the NR article. So what is Johnathan Pearce complaining about?
Moreover, a job is created when someone spends money i.e. demands goods and services. If Johnathan Pearce thinks that putting extra money into people’ pockets with a view to getting them to spend more money is NOT a good way of achieving the latter, what better ideas does he have? I’m all ears.
Also, the argument that stimulus has not worked because we are not yet in economic nirvana is a crass argument. It’s a bit like pouring one gallon of water on a fire, failing to extinguish it and concluding that water does not put out fires. Putting out fires requires the right amount of water, and dealing with recessions requires the right amount of stimulus. Estimating the exact amount of remedy needed in both cases before applying the remedy is not easy.
Ralph-
If there was enough money in the economy last year to buy all its goods and services, why is there not enough money in the economy this year to buy all its goods and services? Where has the money gone, Ralph?
Ralph’s peevish tone is unwarranted. First of all, he obviously has not been reading the business sections (and one assumes, neither has the New Republic’s contributor). The airwaves and press are full of talk about the need for more “quantitative easing” (printing money), fiscal expansion, to prevent a “double-dip” recession and so on. Why is this? I thought the TARP and all the rest had worked its Keynesian magic? Obviously it has not.
Clearly the policy has only “worked” to the extent of delaying, or preventing, a slide into a deep recession. But the enormous debt, and the cost of servicing that debt, weighs over any serious recovery in the US for many years.
In any event, the idea of printing money to “create jobs” or to boost asset prices etc, knowing full well what happens when the effects of this brandy-shot wears off, is irresponsible nonsense.
There have been examples of recessions ending without massive government action. 1920-21 in the US being one example, 1981-82 in the UK being another. I guess I can understand why some folk prefer not to recall these as they don’t fit the narrative.
The US could be looking at a Japan-style period of stagnation lasting up to 20 years. Well done, I am sure the New Republic will stay in business.
And presumably Keynes was right because the money paid to people to dig holes in the ground and fill them up again gets plucked off the government’s magic money tree rather that confiscated from productive creators of wealth, yes?
So, can somebody swipe this guy’s Prius?
What is the result of digging and hole and filling it up? The same ground you had before you started. Isn’t that same as just paying people and skipping the work? And isn’t that the same as just reducing taxes?
Oh, Ralph, who seems to think that the stimulus is justified by its results, might be interested to read this, (Link)from Goldman Sachs (a firm that has done very well from the huge bailouts, BTW).
These fallacies are a lot older than John Keynes – what he did was make them respectable by dressing them up in academic langauge and giving the green light for the government to follow the monetary crank route by using the banking system (rather than just printing the money and spending it – or handing it out to other people for them to spend it).
This put the banks on the side of the monetary crank (“Keynesian”) ideas – because they could profit from them.
It is true that the head of some big financial enterprises (such as J.P. Morgan Chase) are ideological leftists – but with most of them (such as the Goldman Sachs crowd) it is just corrupt greed. The belief that they can personally profit from the government creating lots of money, lending it to them (at virtually zero interest rates) and borrowing it back (and real interest rates) and then spending it on……
Well I was going to say they do not care what the govenrment spends it on – but actually that is not true.
For example, Goldman Sachs (and General Electric) really want it to be spent on “climate change” scams.
I must be careful to make myself understood – the idea that that human emissions of C02 cause dangerious globel warming may be true (for all I know) – but the idea than anything Goldman Sachs is involved with is going to do any good is not true. After all they specialize is scams – legal ones (because they have influence over the people who write the laws – and sometimes Goldman, and other such, people write them directly themselves), but scams just the same.
Behond the Chicago Climate Exchange – a scam set up by Barack Obama (via the Foundation he sat on the board of) and others years ago, but now owned by Goldman Sachs and other such.
It is into the standard Enron style (indeed Enron invented) “Carbon Credits” and other legal robbery which has about as much to do with “saving the planet” as digging holes and filling them in again has to do with saving the economy.
For the connections between Barack Obama and his Wall Street supporters (the sort of Hollywood style Wall Street people – i.e. the sort who would sell their own mothers) see “Bought and Paid For”. They do not care he is a life long collectivist – they care only for their own subsidies (free market go hang).
But as for economics…..
Poltical Economy (as it was then) was a body of knowledge (a “science” as the definition then was) developed to refute ancient falllacies – such as the “underconsumption” fallancy (a personal target of both J. B. Say and Bastiat, and NO Keynes did not “refute Says Law” he refuted his own misstatement of it).
But step by step the statists got control of the new subject, for example the founder of the American Economics Association (set up to monopolize, guild fashion, the subject and drive out real economists) was Richard Ely – a statist and a scumbag, see Jonah Goldberg’s “Liberal Fascism” on him.
Germany was the first nation to fall – with the Historical School issuing a defacto ban on the teaching of real economics at any German university.
But now it is virtually universal – although not quite. The Chicago School (split) contains some people who would dispute the “create money and spent it” fallacies, and the Austrian School fights hard where it can.
As for Keynes – see Henry Hazlitt’s “The Failure of the New Economics” (1958).
Or “Where Keynes Went Wrong” by Hunter Lewis (2009).
Of course I do not think that Barack Obama actually believes in these fallacies (i.e. the doctrines that are now called Keynesianism).
Like Maurice Dobb and Pierro Straffa long before Barack was born – he is just using them for a rather different cause (spend the nation, perhaps the whole West, into breakdown – but have the new structure ready for when the breakdown occurs).
Barack was instructed in this at all those conferences whilst he was at Columbia (conferences that did not form part of his official education – but which he went to, indeed was a leading person at) by Cloward and Piven themselves (and others).
As Bill Ayers pointed out, the genius of Barack (and it is a form of genius) is not his ideological originality (he has added nothing of his own) or even his deep knowledge of doctrine (many Comrades are more learned in the holy, or rather unholy, texts), but in his false manner of calmness and gentleness – the “I am a nice person – I am not out to murder or enslave you, I like golf and basketball and so on….” approach (and it is effective).
Bill Ayers and co are no good at this form of act – and it is an act.
Barack Obama himself (in both “Dreams from my Father” and “The Audacity of Hope”) admits it is an act (if one reads carefully) – he even explains how he taught himself to speak with a slow gentle voice and …….
Yet many people just refuse to see what they are dealing with.
Also, the argument that stimulus has not worked because we are not yet in economic nirvana is a crass argument. It’s a bit like pouring one gallon of water on a fire, failing to extinguish it and concluding that water does not put out fires. Putting out fires requires the right amount of water, and dealing with recessions requires the right amount of stimulus. Estimating the exact amount of remedy needed in both cases before applying the remedy is not easy.
Not really. We have solid evidence, with sound theoretical underpinnings that suggests water really does put out fires. Whereas robbing peter to pay paul as a cure for recessions doesn’t seem to have either. So it’s more like a quack saying that the fact that the leeches haven’t cured your cancer yet doesn’t mean that they won’t if we keep adding more leeches. And did I forget to mention he owns a leech farm? Just a coincidence, I am sure.
^
and if the leeches actually make the patient more ill, we can always fudge the predictions to match the data.
The question they never seem to want to address is that of why a money supply that was adequate to purchase all the good and services in the economy last year suddenly isn’t adequate this year. Where, dear Keynesians, did all the money go?
Oh, haven’t you heard? The economy hasn’t recovered because businesses are “hoarding” money. Damn those capitalist roaders.
If the purpose of fiscal stimuli is to reduce money demand, then it does no good for government to simply hold the money it borrows. In a sense, it really is better to spend spend it quick than spend it wisely, at least according to the logic of fiscal stimuli.
I am not saying that I support fiscal stimuli. I think they’re a horrid idea, but as a matter of pure theory, the argument is quite sensible.
And the theory is utterly false.
And the people behind the “stimulus” Act know it is false.
Do you think that (life long Marxist – and long time terrorists) Jeff Jones really believes in this crap?
Or do some people not know that it was Jeff Jones (and the rest of the Comrades over at the Apollo Alliance, and other allied groups) who write the Act – not Harry Reid at all (he was just given a few earmarks to keep him sweet).
Jeff Jones is no more a Keynesian than Comrade Barack is – or than Cloward and Piven (back in the 1960’s) were.
Like Pierro Straffa and Maurice Dobb back in the 1940’s they seek to USE Keynesianism for their own cause. The destruction of civil society (the West – what they call “capitalism”).
Do they have to actually say these things before people understand?
Actually they have said them – members of the Administation and allied groups say this stuff all the time (and recordings are played on the Glenn Beck show and so on).
Yet people do not WANT to understand what is going on.