Posted on 06/21/2011 11:07:03 AM PDT by Qbert
It was the British economist John Maynard Keynes who famously wrote that ideas, "both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else." Right now, I'm worried about the damage that might be done by one particularly wrong-headed idea: the notion that, in stark contrast to Keynes's teaching, government spending destroys jobs.
No, that's not a typo. House Speaker John Boehner and other Republicans regularly rail against "job-killing government spending." Think about that for a minute. The claim is that employment actually declines when federal spending rises. Using the same illogic, employment should soar if we made massive cuts in public spending—as some are advocating right now.
[Snip]
The generic conservative view that government is "too big" in some abstract sense leads to a strong predisposition against spending. OK. But the question remains: How can the government destroy jobs by either hiring people directly or buying things from private companies? For example, how is it that public purchases of computers destroy jobs but private purchases of computers create them?
One possible answer is that the taxes necessary to pay for the government spending destroy more jobs than the spending creates. That's a logical possibility, although it would require extremely inept choices of how to spend the money and how to raise the revenue. But tax-financed spending is not what's at issue today. The current debate is about deficit spending: raising spending without raising taxes.
[Snip]
In sum, you may view any particular public-spending program as wasteful, inefficient, leading to "big government" or objectionable on some other grounds. But if it's not financed with higher taxes, and if it doesn't drive up interest rates, it's hard to see how it can destroy jobs.
(Excerpt) Read more at online.wsj.com ...
For example, the interstate highway system greatly reduced the cost of movement of people and goods.
An excellent essay on creation of wealth by private versus public sectors.
http://www.edlotterman.com/RWE/Articles/20070503.htm
When you have a quasi-monopoly, it is much easier to fleece your customers.
As it does with all private sector initiatives.
Look, I’m not saying government is always or even normally a more efficient producer of wealth than the private sector. I’m just pointing out that government provides many goods and services we would consider “wealth” if provided by a private entity. I see no reason why these same goods and services should not be considered “wealth” just because they’re produced by the government.
This is actually an argument to make government smaller. If it concentrated on those things only it can do, it could presumably do them more efficiently and produce more wealth in the process. Since it isn’t interfering with the private sector as much, the PS is also able to function more efficiently and generate more wealth.
Win/win. Except for those who think government spending and control is morally superior to spending by the private sector.
Big difference between the Roosavelt, Reagan, and Obama spending sprees. When Roosavelt and Reagan spent money things, useful things, lasting things were built. Dams, bridges, tanks, power plants, tanks, ships, airplanes. many of these are still in use today. What do we get for 0’s 3 trillion dollars? Not one damn thing.
Quite true. But the $10 debt is a charge on the future. It isn’t “taken away” from somebody today.
I guess this is one of the reasons I gave up my 40+ year subscription to the WSJ.
When a business buys computers for itself, it does so because it thinks that it will increase its net profit by doing so. When the business buys the computers for the government (through taxation and then purchase by the government) its net profit falls by nearly the entire amount of the computer purchase.
Hmmm. Let's see. Which one is better?
ML/NJ
Why do you add the word “today”? $10 dollars of spending is ALWAYS!!! $10 taken by force. Period.
Very true.
Johnny Maynard would be very disappointed in how his ideas have been misapplied.
As I understand it, items from his economic theories as to how public spending impacted the economies were utilized to justfy jump-starting a stagnant economy by a sharp-short bump in government spending.
These efforts were claimed to have produced some benefit and, like magic, a whole program of constant government “stimulas” came to be accepted despite its costs and lack of efficiency. The taxes to finance and/or the inflation to print-around that spending became big factors in making econimic cycles deeper and prolonged — the exact opposit of what Keynes would have proposed.
“The WSJ felt the need to have a liberal professor write an opinion piece for some reason — and check out this logic by the author:
” Suppose we enacted a modest fiscal stimulus program specifically designed for maximum job creation. My personal favorite is a tax credit for firms that add to their payrolls, but there are other options.”
—I can just see all the gimmicks that would be involved with that proposal.
City A builds a new road connecting a to b. The economy benefits from the material purchases and the wages paid. it also got a new capital good which would open up new areas to development (new gas stations and shopping centers along the new road) which requires new employees who require new services (dentist, doctor, grocery store etc.
Very little of the 0 Stimulus was stimulative because very little was actually shovel ready jobs but instead was money give to local and state governments to keep union workers employed. Now the money is running out, the economy has not recovered and those jobs still have to go. All the 0 stimulus did was delay the pain.
You do realize that no government employee helped to build the interstate highway system. Roads are built by private contractors (just as the computers are). The analogy to the government computers vs private computers would be if the roads built were only for government use, which would render them mostly useless.
ML/NJ
Maybe it is an issue of maturity. When the Interstate system was put in, it generated a lot of wealth. But spending on the interstate system now does not, it is a maintenance item that is important but it doesn't generate new wealth when we spend on it.?
Well, I would contend that maintenance is a form of wealth generation or at least protection. If you don’t do the maintenance, the system stops functioning pretty soon and then you have a serious loss of wealth.
I find it quite interesting that lots of posters here are quite willing to post all about how government never creates wealth, but are shy about posting their definition of what is and is not wealth creation.
If they can’t define what they’re talking about, how can they be so positive the government isn’t doing it?
Uh...how is this spending paid for if not through higher taxes or borrowing (which raises interest rates)?
I agree a lot went to states to keep public employees on the payroll for another year or two just delaying the pain.
Addtionally, a lot went to studies, grants and academic research programs to line the pockets of leftist academics and reasearch teams. No new jobs were created as it takes six years to make a PHD — instead grants funded higher incomes for these chosed few of the right (I mean left) qualifications.
All I need to know.
Former Federal Reserve Vice Chairman Alan Blinder? Which One?
#1
Transcript of Pelosi, House Democratic Leaders, and Economists’ Press Conference Following Economic Forum 10/21/2009
http://www.speaker.gov/newsroom/pressreleases?id=1414
“So for that reason, despite the fact that we’re looking at an absolutely horrendous long-term fiscal outlook,”
or
#2
Wall St. Journal : The Case for Optimism on the Economy 12/16/2009 | Alan Blinder
http://www.freerepublic.com/focus/news/2408814/posts?page=24
“Let me offer instead, in deliberately one-sided fashion, the case for optimism.”
What is wealth? Again I will go with Adam Smith in that when you get done, it generates more wealth. It is not the item it self but how it is used. Computers can generate more wealth but can also generate more bureaucracy.
It is also related to maturity of a family or govt. When you have easy wealth available, you will spend it foolishly, it is the nature of things. One generation earns it, the next spends it.
I have studied farm records for 30 years. The one bottom line I have is cash flow affects mgt more that mgt affects cash flow. If cashflow is tight I make better decisions, IF I win the lottery tomorrow, I make poor decisions. Which leads to the next discussion, what is the difference between wealth and cashflow?
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