Skip to comments.In Case You Needed More Proof That It's Stupid To Cut Government Spending In A Weak Economy...
Posted on 03/10/2013 6:21:43 AM PDT by 1rudeboy
There are two basic approaches to fixing our crappy economy.
The first approach is called "austerity."
This logic for this approach rests on the theory that our economy is crappy because our government is spending more than it takes in and that the resulting deficit is creating "uncertainty." Once this deficit spending is reduced, this theory goes, uncertainty will ease, and confidence will return. And then our economy can recover in earnest.
The second approach is called "stimulus."
The logic for this approach rests on the theory that our economy is crappy because consumers are unemployed and broke and have little money to spend. Because consumers have little money to spend, this theory continues, the government should take up the slack and deficit-spend until unemployment drops and consumers have more money to spend. This government spending, in other words, will keep the blood flowing until the patient is healthy again.
Five years ago, economists were locked in a fierce debate about which approach was better--"stimulus" or "austerity."
Thankfully, that question has now been answered.
The "stimulus" approach is better.
Importantly, this question has not just been answered theoretically.
It has been answered empirically.
(Excerpt) Read more at businessinsider.com ...
Then replace tools and glass.
Return to step one.
What this “genius” doesn’t understand is that in the short term, austerity hurts, but works in the long term - a place we haven’t gotten to yet.
Even worse, in the short term, “stimulus” works (because the market is being flooded with fiat money) - but it is disastrous in the long term by significanlty de-valuing currency - and in the long term, collapsing the economy.
And we haven’t gotten there yet either.....
The result of Marxist-induced short-term thinking and a culture that wants immediate gratification - as well as avoiding any sacrifice or pain for the long term good.
The solution is not austerity, but a radical decrease in the size of government and the repayment of debt though forced indentured servitude of liberals and the lazy. Let's call it workfare.
It also just happens to be fair to the productive.
This article is partially correct. The trick is in what you stimulate. If you line contributors pockets with cash, sending money to so-called green projects that employ few people, and reward the unemployed for not working, that is not “stimulus”. If you put the money towards large long-lasting public infrastructure projects that employ significant numbers of people, not only during their construction, but in their operation and maintenance, that is stimulus. This would include transportation and energy transport systems. Taking coal and other energy systems away are anti-stimulus projects.
Another way of saying it is that spending can keep the economy going in the short run, but the short run would not matter if people had adequate savings. They don’t because it has been penalized. Investment is what creates long run strength and that has been discouraged by both monetary and fiscal policies. So we are left to creating new lamer bubbles between new crises.
Energy transport is private. The only thing the government can do (and does regularly) is get in the way.
So cutting a gigantic bloated government, spending 50% more than it takes in, by a mere few point in growth is now economic austerity?
I have a bridge to sell Mr. Blodget if he really believes that.
If ‘stimulus’ worked, we’d have a booming economy after Obama...The WORST economic recovery in 60 years says otherwise!
Nope, sorry. Communist economies never created a middle class. Someone needs to read Thomas Sowell’s book “Basic Economics”.
Untill then, see the following link. “Cutting Government Would Boost The Economy”.
I will agree that spending on roads is a legitimate governmental function.
This is the so-called proof/evidence the author cites for approving Keynesian economics.
Seems to ME to be an exagerrated view of the approach. GDP is being used to "prove" the economy is better: a growing GDP, we are told, is proof of a better economy.
But the growth is solely due to government taking wealth away from the private sector!
Such type of growth isn't optimal or even desirable--it is anti-growth in the long run!
Look, why not just SHUT DOWN the private sector and allow the government to spend ALL the money, and MORE--print it up....as Bernanke has been doing....
Will we see prosperity? No.
The argument that Europe "has" tried austerity seems to be a bit ridiculous, too...Europe has only turned that way, and with fits and starts, after many more years of going down the path of socialism...America hasn't been as bad as Europe, though the Clown and his predecessors Nixon, Johnson, and FDR were trying mightily to shove us down that path.
Both “austerity” and “stimulus” do more harm than good when done by governments to stimulate economic growth.
Think of John Doe as the patient and Uncle Sam as the doctor. John Doe is flat on his back and sick in bed, unable to work and certainly unable to pay the doctor.
Under “austerity” therapy, the doctor would just leave John Doe alone to rest until he was well again. If he gets better on his own he can go back to work and pay the doctor. If he doesn’t get better right away, the temptation is for the doctor to monkey around with more “treatments” and “gimmicks” that will run up the bill. If John dies, the doctor gets nothing.
Under “stimulus” therapy, the doctor forces his sick patient to work to buy his own food and medicine to make him get well so he can work and pay the bill. If the patient is unable to work, the doctor steals food and medicine from his other patients or from John to give to him, which causes John to owe a lot more. If the doctor gives John too much of the wrong kind of medicine, he will stay sick and could even die.
As you can see from this analogy, the best outcome is for the quack doctor to do nothing but make the patient comfortable so he can get better on his own.
No, in the austerity case the doctor tells the patient to lose weight.
I’m always up for an education, so please correct me where I’m wrong.
Isn’t government spending one of the elements of GDP? By increasing government spending you haven’t really directly increased economic production, making GDP an faulty indication of the health of the economy. It’s like a self-fulfilling prophecy.
The author also says, “...this approach rests on the theory that our economy is crappy because our government is spending more than it takes in and that the resulting deficit is creating ‘uncertainty.’”
That’s not right either. Government spending is taking capital from the market that it would otherwise use to grow/expand. Austerity slows that bleed from the market. It’s like the supporters of “Stimulus” think that taking gas out of your car and pouring it on the road will make your car go farther.
The “stimulus” approach is better.
Stimulus aimed at giving huge amounts of cash to international bankers has done nothing short term except to inflate the stock market and fill the personal pockets of the crooks.
The government is not all-controlling. The economy recovered despite, not because, of policy.
“What looks like a recovery, a rally or an increase in consumer confidence may just be the effect of elites passing money among themselves.”
Socialism Is Legal Plunder - Bastiat 1801=1850
BIG GOVERNMENT IS CRONY SOCIALISM
Cut, cut, CUT! Death by a million cuts. Pick any one of their tiniest programs (Big Bird gets you a million angry bird march on D.C.) and cut it. Listen to the socialists whine. How about social security (built on the backs of dead Americans)? They even insulated it from discussion by labeling it “the third rail”. Look at the firestorm when President Bush wanted to allow you to put some of your confiscated funds into the market. I could go on and on...
Pick one. Any one. Cut it out.
Plunder and Death - Socialism/Totalitarianism 2.0
live - free - republic
The economy is "crappy" because the government takes too much out of the private sector. The entire budget of the United States could be borrowed -- all deficit spending. But if the level of spending was low enough, business could still expand.
The deficit is almost beside the point. It's the level of spending.
What this genius doesnt understand is that in the short term, austerity hurts, but works in the long term - a place we havent gotten to yet.Even worse, in the short term, stimulus works (because the market is being flooded with fiat money) - but it is disastrous in the long term by significantly de-valuing currency - and in the long term, collapsing the economy.
The economy is NOT improved by enlarging a dependent class of non-producers!
The “proof” is that the U.S. economy still sucks!
There is NO merit in contrasting European austerity with U.S. stimulus, as it proves nothing, given the long standing socialist nature of those European economies.
The “Uncertainty” present in the U.S. economy derives from a growing regulatory burden, compounded with the threat and reality of ever increasing taxes.
If the gubmint was spending down cash-on-hand that would be one thing. Like drawing on your cash reserves in an emergency. But borrowing at these levels, in fiat money, makes EVERYONE poorer. (econ 101 - helicopters dropping $100 bills makes a sandwich cost $100 = inflation i.e. rising prices NOT rising values, so YOUR savings are worth-less)
1- reduce the overhang of government by strictly limiting to the legitimate role of a Constitutional government.
2- reduce taxes to the extent needed to fund the legitimate role of that Constitutional governemnt
3- repeal the 17th amendment, Roe and other pernicious enablers.
4- establish term-limits
5- ban local/state/federal government unions
6- impeach John Roberts
. . . and there was happiness throughoutt the land, and He saw it was good.
The “best” part is, when the collapse comes (and it will), Keynesian economists will blame it on business.
I have a bridge to sell Mr. Blodget if he really believes that.
Contact: e-mail: email@example.com
Economist Paul Krugman put up a chart this morning that reminds us how well it has worked
Henry, you are a good example of the stupidity that is currently in charge of this country. Krugman on the other hand is just quite simply a plain a$$hat parading as an econmist. Following your logic I could vastly improve my economic outlook if I just ran out and borrowed as much money as I am capable of and spend baby spend. Government stimulus may be good when the government is running surpluses, however, running deficits means they have to borrow that money. Borrowing money is something the government has been doing for far too long, and hitting this banker (and other tax paying citizens) by raising taxes, counteracts a stimulus. So that leaves the government with borrowing from China.
No Henry, the real chart will come after we are thrown into a giant tailspin and Europe's austerity continues to slower, but steadily, reap rewards. That is if they don't keep bailing out too many of the bad economies in Europe that have been stimulating their economies for decades upon decades
Wow, So enslaving our children in perpetual debt and requiring them to pay up to 50% of their daily output to pay interest to the Money Changers for allowing us to have Dollars to Trade with is a good thing?? The title of this article should be:
Why Slavery is better than Freedom.
The only “uncertainty” I see is about new environmental regulations, the costs of Obamacare, the rise in the minimum wage, and I’m sure, a trillion other things.
The U-6 unemployment rate hovered around 8.3% throughout '06 & '07.
By December of '08 it was 13.6%
By December of '09 it was 17.1%
Today its at 14.3%
So you want to tell me how this economy has recovered?
Austerity is a political loser.
It works up to a point. But if you use as a bludgeon to flatline an economy rather than spur economic growth - which is what the Germans have imposed by diktat on southern Europe, you risk social collapse.
Without economic growth, the public is not inclined to suffer for the sake of the elites and they’re right. Any one who pointlessly harms them and their families will get punished. I’m all for reducing government spending but using it to kill the economy is foolish in the extreme.
How about that...
“newly formed Consumer Financial Protection Bureau (CFPB).”
BIG GOVERNMENT IS...
C R O N Y S O C I A L I S M
He’s a sharp guy who’s a political idiot. NYC is full of his type.
There have been two kinds of ‘austerity’ tried in Europe.
Most countries have inflicted austerity on their populations by raising taxes, a few by cutting spending. Those who’ve gone the cutting spending route—Estonia and some Scandanavian countries, for example—are doing much, much better.
sorry for the extra post.
The current government is not really taking anything from the markets to fund it’s borrowing. That’s the real problem!
They’re printing their own money to borrow and pay for bonds purchased by the governemnt.
A circle of straw-men.
If they had to go on a truly open market for the borrowing, the rates would be outrageous.
Get ready because THAT is what’s coming.
it’s only stupid if your normal, ODUNGO is doing it on purpose without restraints....
Your big construction ‘stimulus’ only works if there’s a profound lack of basic government services, such as decent roads and bridges.
Otherwise, all you are doing is taking money away from the private sector, fancying up some government utilities, and lining the pockets of noncompetitive labor unions.
The ability to enslave [future generations to debt service, to print and redistribute money to socialists and sheep and make graphs with crayons for right now snapshots] is evidence of evil.
In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause - it is seen. The others unfold in succession - they are not seen: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference - the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, - at the risk of a small present evil.
Bastiat - That Which is Seen, and That Which is Not Seen
A large recession would require a large stimulus and the danger would be to pile up so much debt as to cripple any potential recovery.
Another factor would be the potential of the economy to recover. An economy with strong fundamentals as far as capable employees, good technology, available markets, etc. can be stimulated with infusion of capital.
An economy with a handicap, such as onerous and unpredictable government regulations cannot be stimulated.
I see it as the patient telling the doctor to lose weight because he keeps eating the patients' food. But the analogy falls apart anyway because governments create nothing, only consume what is created by others. Real medical doctors actually create new wealth.
The service and housing sectors, fuel, vehicles, and the hospitality industry all gain as well.
The reason I mention trucking so often is that everything moves by truck, from the rigs and crude oil to groceries and toilet paper. One in three vehicles on the highways in the western part of the state is a semi.
Keynesian: "Take two of these for the pain."
anti-Keynesian: "Go on a diet and lose weight."
What everyone seems to miss about “austerity” (why does no one mention the tax hikes that go along with austerity?) is the element of necessity. When you have no income, on going expenses, and nobody will lend you money at anything other than usurious rates, austerity isn’t a concept, it’s a requirement.
all of this is meaningless as long as the price of energy remains high for retail consumers.
High energy costs hurt the bottom, who need to spend most of their income to survive. Lower energy prices stimulates the economy because of the effect of a pay raise, by lowering costs for food, fuel, heat, lights, and lower prices on other energy intensive products like electronics.
So, all the stimulus in the world will not fix the economy...lower energy prices will.
Keynesian Economics is the belief that we have created a time machine that we can use to go into the future and bring back money without suffering any bad effects.
With a bigger bucket, we can take more money out of the deep end to put in the shallow end.
And we’ll all live happily ever after. :)
I view government spending, in accounting terms, much like intercompany income and expenses. That type of income or expense is eliminated in combined financial reporting, so at best, it's a zero-sum game. There is no net change in total income or expense. But with government adding their spending to GDP they are overstating GDP, because they took that money from the private sector.
But what are we to expect from a crooked government that changes the rules for reporting unemployment, and the CPI?
The 2012 CPI was officially 2.1%. Does anyone here believe that?
The entire premise of this article is wrong. Our economy is not broken. It is working exactly as the Globalist Banksters designed it to do. It is supposed to impoverish the American Middle-class and make them helpless and unable to resist the Bankster's One World Government.
If we had patriotic Americans in control of the government if would be very, very easy to change our economy over to one that actually benefits the American people. The hard part is taking back the government.
Did the “globalist banksters” drop the price of your book from $17.00 to $11.56?
Which can exist without the other?
Which can exist without the other?
Very, well-stated, EPU.
Life, faculties, production in other words, individuality, liberty, property this is man. And in spite of the cunning of artful political leaders, these three gifts from God precede all human legislation, and are superior to it. Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place.
Yes, Bastiat again
(what isn't) Manipulated by Marxists BUMP!
I discovered a single word to describe the "ocracy" America finds itself in today.
A system of government where the least capable to lead are elected by the least capable of producing.
This results in the members of society least likely to sustain themselves or succeed, are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers.
I don't think one can remain free for very long under such a system of governance. What makes it a colossal conundrum is pondering that the people favored this over their Constitution. A sign of spectacular ignorance.