Lord Keynes Beautifully Illustrates Why We Get Nowhere in the Stimulus Debate
My son has off from school today and I have agreed to watch old episodes of X-Men with him in 9 minutes… (Hey, I make sacrifices for the next generation.) Therefore I have to be brief, and can’t paint the picture from scratch, but will instead just dive right into the weeds…
In a previous post I linked to Scott Sumner who busted Krugman’s analysis of Sweden. Reading Krugman, you would think that conservatives who were praising Sweden’s handling of budgetary affairs during the crisis were simply insane, and you also would think that Sweden had been spending more profligately than the U.S. (Krugman produced a chart showing government “consumption and investment” spending dropping a lot faster in the US than in Sweden.) Sumner mentioned that Sweden ran a 2% budget surplus in 2011, which shocked me; one wouldn’t have guessed that in a million years from Krugman’s discussion.
Anyway, in the comments here is what “Lord Keynes” had to say:
The fact that Sweden is running a budget surplus now is a demonstration that there stimulus worked: they passed a large stimulus package in 2008, which continued in 2009 and 2010:
http://www.dowjones.de/site/2009/04/sweden-earmarks-7-billion-for-2010-stimulus.html
http://www.economywatch.com/economic-stimulus-package/sweden.html
Australia is yet another country which went for a moderate stimulus in 2008, 2009 and 2010, never even had a recession because of its quick fiscal expansion, and with some minor cuts now has been able to run a surplus.
Now if you click his links, they don’t show the actual evidence that we’d need, to test just how big the stimulus was. (Click them to see what I mean.) When I read that, I thought to myself, “If I know Lord Keynes–and I think I do–if I bother to go dig up the actual statistics needed to assess his claim, I bet they will be the exact opposite of what he’s saying–that the US under any plausible metric ran a bigger Keynesian stimulus than Sweden.”
So I looked up the stats, and as Phil Hartman might say, “You are correct sir!”
First let’s consider the deficit as a % of GDP, which is how Keynesians typically evaluate stimulus in the 1930s. According to this site, here are the numbers for Sweden, where a + signs means a surplus. Also, I don’t know for sure if this is just central government or all government:
Swedish Gov’t Budget Surplus/Deficit as % of GDP (+ means surplus):
2007: +3.53%
2008: +2.20%
2009: -1.18%
2010: -1.17%
2011: +2.x% [Note this last figure comes not from the site–which had an estimate–but from the news story Sumner linked.]
In contrast, here’s the White House figures for the federal deficit for the U.S.:
US Federal Gov’t Budget Surplus/Deficit as % of GDP:
2007: -1.2%
2008: -3.2%
2009: -10.1%
2010: -9.0%
2011: -8.7%
I am having a hard time from this criterion, seeing how any Keynesian could possibly say Sweden bounced back quickly because of their smart and effective stimulus, as opposed to the inadequate and too-late U.S. response.
But maybe deficit spending isn’t the right criterion. Let’s look at government spending as a share of GDP. Here’s Sweden, and here I’m assuming “SE” in the table corresponds to Sweden:
Swedish Gov’t Spending as % of GDP
2007: 51.0%
2008: 51.7%
2009: 55.2%
2010: 53.0%
And the White House tables again for the US:
US Federal Gov’t Spending as % of GDP
2007: 19.7%
2008: 20.8%
2009: 25.2%
2010: 24.1%
And there you have it, kids. Even if we set aside the deficit (because an inadequate spending surge could lead to a collapsing economy and hence tax revenues), and focus exclusively on government spending, we see that whether in absolute dollars (obviously), whether in the change in percentage points of GDP, or whether in the percentage change in the percentage of GDP, the US government increased its spending more in 2008 and 2009, than the Swedish government did.
Since Sweden handled the crisis much better than the US did, I would say the case of Sweden is prima facie evidence for the Austrian / austerian camp. As always in these matters, these particular data don’t prove anything; maybe there are confounding factors.
But boy, doesn’t it sure seem like there are all these counterexamples piling up, that Krugman and friends have to constantly explain away? And wouldn’t it be nice if they would at least stop citing these counterexamples, as feathers in their cap? (I have a Mises.org coming out this week showing Krugman doing this yet again with his recent analysis of Fed history.)
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Probably cause you’re just looking at federal spending. Most of that was filling the hole the states and local government were digging. I’m guessing this looks very different when you look at total government spending.
I’m of the view that you can’t just look at the deficit. The tax and spending multipliers are different beasts.
What was going on with Swedish finance? That seems to be a critical key to this crisis.
re: “Since Sweden handled the crisis much better than the US did, I would say the case of Sweden is prima facie evidence for the Austrian / austerian camp.”
Can I get a straight story on this? I always thought Austrians said government spending could generate jobs, it would just be a fake boom that would lead to trouble down the road. That seems different from the austerity claim. Is there a definitive view on this?
Can’t you just admit Krugman was full of it, just once?
I don’t think I even read the Krugman post on Sweden. This has nothing at all to do with him. Stop obsessing about him or implying that sort of thing about me. It’s a reaction to Bob. Do you have any thoughts about my comment or just about me and Krugman?
Where do Ausrtians say government spending could generate net jobs but it would just create a false boom? You don’t understand ABCT if that is what you think. Now, fed printing can generate a false boom.
You’re right, Dan. At this stage in the game, it is truly remarkable how DK doesn’t even understand the BASICS of Austrian theory.
You know what I have noticed? This might be a coincidence, but every single person I have ever debated in economics (there’s been a LOT over the years), the only people who understand ABCT are the ones who accept it, and the only people who don’t accept ABCT are the ones who don’t understand it.
This is just my personal experience, and so I am not making any generalized statement for everyone, but it is something I didn’t expect to see, and yet I see it over and over and over again. I mean it happens so often that now I typically just assume those who reject ABCT, don’t understand ABCT. I have not yet been wrong in this assumption whenever I press my interlocutor for reasons why he rejects it.
Oh how I want to find someone who rejects ABCT and yet understands ABCT!
MF wrote:
and the only people who don’t accept ABCT are the ones who don’t understand it.
MF I agree that Krugman has no clue about ABCT, but surely Bryan Caplan and Tyler Cowen are intimately aware of it. I think they both used to believe in it.
It seems that Tyler Cowen does not understand ABCT:
http://marginalrevolution.com/marginalrevolution/2010/04/krugman-on-austrian-business-cycle-theory.html
I’ve read several articles that set out ABCT. My conclusion is always the same, namely that ABCT is hogwash. But I’m always prepared to try again. Please direct me to an article that sets out ABCT in two or three thousand words. If I get the impression I’m reading something by someone who is seriously clued up, I’ll dig deeper. Otherwise, I won’t bother.
By the way, I’ve read Huerta DeSoto’s book “Money, Bank Credito and Economic Cycles”. I’m looking for something much better than that.
Name one thing about the theory you find to be hogwash, and we can go from there. I promise I’ll use fewer than 2000 words.
Nobody can understand Austrian anything without first understanding subjective values expressed as objective prices. Bob Murphy explains the basic Mises concept here:
http://consultingbyrpm.com/blog/2012/03/murphy-on-mises-on-money.html
LK certainly does not understand it. In 39 years, I’ve never found a non-Austrian who understood it.
JCat explained that the ABCT is nothing more than a single example of probably the most severe type of economic miscalculation.
ABCT is not a theory of economic calculation — I keep repeating this point. Economic calculation is necessary as a prerequisite to understanding how ABCT is possible — ABCT describes a miscalculation. Hayek’s suggestion that (paraphrased) “one must understand how the economy works to know where it does not” applies equally to ABCT. The theory of economic calculation is the theory of how the economy works.
http://www.economicthought.net/blog/?p=594#comment-1551.
Cowen does know ABCT sometimes and sometimes even makes predictions using it:
http://marginalrevolution.com/marginalrevolution/2005/01/if_i_believed_i.html
Oh man, that’s classic.
I don’t read much Caplan but when I see Cowen diss ABCT he tends to describe it in ways that don’t resemble ABCT to me. There may be an article where he does a fair job of describing the theory and then disagreeing but I haven’t seen it yet.
Here is Bryan Caplan’s critique of ABCT:
http://econlog.econlib.org/archives/2008/01/whats_wrong_wit_6.html
Caplan shows he doesn’t get ABCT.
Here is what he writes:
“What I deny is that the artificially stimulated investments have any tendency to become malinvestments. Supposedly, since the central bank’s inflation cannot continue indefinitely, it is eventually necessary to let interest rates rise back to the natural rate, which then reveals the underlying unprofitability of the artificially stimulated investments. The objection is simple: Given that interest rates are artificially and unsustainably low, why would any businessman make his profitability calculations based on the assumption that the low interest rates will prevail indefinitely? No, what would happen is that entrepreneurs would realize that interest rates are only temporarily low, and take this into account.
He makes the same mistake as Sumner. They both believe the unsustainability has to do with the Fed not able or not willing to inflate the money supply, when in reality the unsustainability refers to the physical unsustainability of production. Even if the central bank kept inflating, at some point the physical unsustainability will be so overwhelming that the only remaining choice is hyperinflation and destruction of the currency and the collapse of the division of labor, or abstaining from hyperinflation, which is what Caplan believes is the unsustainability argument from the Austrians.
He also makes the error of believing that investors are even able to know what the true market rates of interest are despite the fact that they are not even observable. He sloppily just says investors should “take it into account.” But take into account how? If any investor acts as if real interest rates are higher than nominal rates, then what higher number should he guess? There is no substitute for the real thing. More importantly though, is that Caplan is denying the empirical fact that central banks lowering interest rates really do affect investor behavior. They wouldn’t even lower interest rates if it didn’t. Even Keynesians admit lowering interest rates “stimulates the economy.” Lower interest rates are bringing about SOMETHING. Caplan would have us believe that the 100% perfect correlation between lowering interest rates and “stimulating the economy” has been a 100 year coincidence.
He goes on:
“Why does Rothbard think businessmen are so incompetent at forecasting government policy? He credits them with entrepreneurial foresight about all market-generated conditions, but curiously finds them unable to forecast government policy, or even to avoid falling prey to simple accounting illusions generated by inflation and deflation… Particularly in interventionist economies, it would seem that natural selection would weed out businesspeople with such a gigantic blind spot.”
Here Caplan doesn’t get that the better investors get in predicting the future actions of the Fed, the more “random” the Fed will have to get in order for the Fed’s actions to have the effects the Fed wants.
If investors were good at THAT, then the Fed would have long ago become a completely benign institution that had no effect on the economy at all. Clearly history has shown that investors are NOT able to do what Caplan believes they can do. One simply cannot compete with a subjective money printer who intends to bring about effects.
“It should be noted that other Austrians, particularly Roger Garrison, attempt to handle the expectational objection. Garrison astutely notes that “[M]acroeconomic irrationality does not imply individual irrationality. An individual can rationally choose to initiate or perpetuate a chain letter… Similarly, it is possible for the individual to profit by his participation in a market process that is – and is known by that individual to be – an ill-fated process.”[50] This is definitely a possible scenario. But does it make sense in this particular case? It does not. Naturally, entrepreneurs will not turn down lower interest rates. Rather, the rational response to artificially low interest rates is to (a) make investments which will be profitable even though interest rates will later rise, and (b) refrain from making investments which would be profitable only on the assumption that interest rates will not later rise. If entrepreneurs followed this rule, then there would be no tendency for policy reversals to produce malinvestments.”
Here Caplan just repeats the same error. He believes it is possible for investors to guess the correct higher real interest rates in a world with nominally lower interest rates. It is one thing to say “Real interest rates are higher”, it is quite another thing to say “real interest rates are 6.5%.”
If Caplan doesn’t get ABCT, and he’s supposedly it’s most informed critic, then maybe what I said is more prevalent that even in my own experiences.
I think that in order to “get” ABCT, one has to think like a praxeologist, and not a positivist.
“it would seem that natural selection would weed out businesspeople with such a gigantic blind spot.”
Not if there is bigger selective pressure in other directions! Suppose that businesspeople today are selected above all according to how much they are friends with politicians. With respect to this “skill”, the skill of being able to forecast interest rates is so secondary it may not be selected.
Good point.
Another selection process is that businesspeople are selected according to how much profit they bring in. In a world with lower than market interest rates, those businesspeople who are short term oriented, who act as if market interest rates were really that low, but got out quickly before other businesspeople get out, then we should expect to see exactly what we do see in the real world.
I’d bet I understand ABCT better than you do MF
I know for a fact you don’t.
You actually believe ABCT is brought about by government spending.
I knew it didn’t, Dan knew it didn’t, Murphy knew it didn’t, every other person who actually understands ABCT knew it didn’t.
Rather than chest thumping on an empty chest, maybe you should first fill it with substance so that it doesn’t sound so hollow.
http://www.youtube.com/watch?v=8oq15Zy7sB4#t=00m30sec
“You actually believe ABCT is brought about by government spending. ”
I don’t understand what that sentence even means and I certainly never said it.
I don’t understand what that sentence even means and I certainly never said it.
Hahahaha.
“I always thought Austrians said government spending could generate jobs, it would just be a fake boom that would lead to trouble down the road.”
It’s in black and white.
That’s the most petulant sentence I’ve read in a while.
I swear Murphy has said something just like that before! He said he did believe government spending would increase jobs, but it would be the wrong kind and it would miscalculate resources, which would mess up the whole readjustment process. It might have been during the time where Murphy was arguing with Fama or Cochrane about making arguments from from accounting identities (1 dollar used for government spending necessarily meant 1 dollar is taken away from the private sector). I found a few quotes along those lines from him, but it’s not quite the money quote I have in mind.
It would be the wrong kind, as it would take money from one sector of the economy to “invest” it in another. The result would be things like Solyndra or wasted spending on unnecessary infrastructure.
This is different than starting another false boom. That can only really be done by the Federal Reserve tinkering with interest rates and printing up money to do it.
Government spending misallocates resources and can cause delays in the liquidation and recovery process. The actions of the Federal Reserve pair that with the creation of a false boom, followed inevitably by a bust.
This chart is total government spending at all levels as a percentage of GDP.
Eyeballing the percentages for each year, I get:
US Total Gov’t Spending as % of GDP
2007: 34.2%
2008: 35.8%
2009: 39.3%
2010: 39.8%
The increase in the US was larger than it was in Sweden.
Can I get a straight story on this? I always thought Austrians said government spending could generate jobs, it would just be a fake boom that would lead to trouble down the road. That seems different from the austerity claim. Is there a definitive view on this?
When Murphy said “Sweden handled the crisis better”, was the issue about jobs? I don’t see any mention of jobs. Perhaps you just assumed it was about jobs, and thought you saw a problem.
Probably cause you’re just looking at federal spending.
That is a valid point. Bob, you should update the main post with the data that MF provided.
Are we sure my Sweden data is all levels? That’s why I didn’t, because I want to be sure it’s apples to apples. (Also I was rushed on time.) When I am sure we have total-governmernt to total-government I’ll update it.
But, it’s kind of pointless; LK has conceded that a dinky stimulus in Sweden could have been enough, while a massive stimulus in the US might not be enough. His position is non-falsifiable so looking at numbers is pointless.
No, I’m not sure that your Sweden data is at all levels! I trusted you on that.
The IMF (way more user friendly BTW) and Eurostat both use the same term, “general” government, and I am almost sure that is what we would consider “all” or “total” government.
http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx
Yes, I realize it is pointless, as there will always be something different about two countries, but it is amusing watching LK twist himself into a pretzel.
Sorry Daniel, but the data here don’t bear out your guess. Apparently, even considering all levels of gov. spending, US gov spending grew faster than Sweden in the relevant years. Here is the chart I found (with data table).
US Gov Spending % of GDP (Fed,State, Local)
2007: 35.1
2008: 37.1
2009: 42.6
2010: 40.8
Bob, you totally buried the lead here. What episodes of X-Men?
Also, looking at federal spending in and of itself seems incomplete. (So I am knocking both you and Krugman; enjoy your exalted company). Not only, as Daniel points out, should you consider state and local spending, but you should also consider monetary policy. As a certain man from Bentley is wont of reminding us, the monetary authority moves last, and so has the true impact on stimulus.
What is total government spending over the period in both countries, and how did monetary policy compare in both countries? I am quite sure monetary policy in Sweden is the key here, which explains their (and say Israel’s which was the other country mentioned in the interview originally cited by Krugman) better handling of things.
“as Phil Hartman might say”
Oh, poor dear, haven’t you heard?
Yosef, OK, maybe we should look at that stuff, but do you agree with me that Lord Keynes’ contribution to this debate was a non sequitur? He was acting like it was obvious why Sweden did well, because of aggressive and early government stimulus spending. Do you agree that the data, if anything, contradict his claim?
Daniel, OK, you take the lead on it. The US figures should be easy to hunt down, and maybe you can find Sweden’s. I’ll post what you find, either way.
I’ll check it out tomorrow morning. The states have been a big drag. I don’t know what the sub-national situation in Sweden is but the EU puts together good stats on this stuff.
This is why it is so hard to understand keynesians, they post a chart, you show it makes your case and not theirs, and they say you are looking at the wrong charts. If the state and local spending levels makes LK’s case he should have posted those charts instead of the ones that make the opposite case. Since DK is not saying that those federal spending levels support Keynesianism then he should have no problem with this post.
Bob, yes, I agree that the triumphant statement by Lord Keynes about Sweden was not helpful to the debate. The data at the federal level, which is what Krugman brought up and Lord Keynes’ supported, went against his claim.
Then again I rarely agree with anyone calling himself Lord.
Can’t get away from LORD on this blog Yosef.
There’s only one Lord, ma’am, and I’m pretty sure He doesn’t blog like that.
I don’t have a problem with him (Him?). I don’t think he ever called himself (the) Lord
@Yosef,
You write:
Dreadfully sorry, old boy, but there is (at the least) this from Exodus 6 {Douay-Rheims]:
Keith Töpfer
“He was acting like it was obvious why Sweden did well, because of aggressive and early government stimulus spending. Do you agree that the data, if anything, contradict his claim?”
(1) Do you dispute that Sweden implemented a stimulus, with expansionary fiscal policy in 2009 and 2010?
(2) Do you dispute that their recession ended about the middle of 2009 after this stimulus was implemented, and real output growth resumed? If “yes”, then what in your view caused the end of the recession and real output growth Sweden has had subsequently? Magic?
(3) Do you dispute that the recovery led to rising tax revenues? That the budget deficit fell?
Lord Keynes wrote:
(1) Do you dispute that Sweden implemented a stimulus, with expansionary fiscal policy in 2009 and 2010?
(2) Do you dispute that their recession ended about the middle of 2009 after this stimulus was implemented, and real output growth resumed? If “yes”, then what in your view caused the end of the recession and real output growth Sweden has had subsequently? Magic?
LK, do you really not see the problem in your argument? You might be right, but I could use your same approach to “demonstrate” that the Obama stimulus package caused the US economy to suddenly become much worse than people thought (a la Romer unemployment forecasts).
Look, do you dispute that there was a thunder storm in Sweden in 2008 and also in 2009? Do you dispute that there was an ensuing recovery? Surely you can’t deny, then, that the thunderstorms caused the recovery. Only someone versed in magic would deny this obvious causality.
The reason you think your argument is better than mine, is that you believe on antecedent grounds that stimulus spending causes economies to recover. Yet that is precisely what we are debating. If someone genuinely believed that thunderstorms caused economic growth (maybe by breaking windows?) then he’d find my own argument compelling.
The reason you think your argument is better than mine, is that you believe on antecedent grounds that stimulus spending causes economies to recover. Yet that is precisely what we are debating.
Exactly!
The problem of LK’s approach is that he thinks historical data proves one story over another, and yet as you show, more than one story is also consistent with the data. Indeed, two theories that completely contradict each other can be consistent with the data.
LK doesn’t want to even utilize any other antecedent theory when debating, but it is precisely that antecedent theory that is being debated!
Keynesians like DK are in the closet a priorists who refuse to admit they’re a priorists.
I see that:
(1) you refuse to answer the questions.
(2) claim that the relationship of cause and effect running from fiscal expansion to real output growth
is somehow highly doubtful. But this is backed up with zero evidence.
In fact, the very logic of the Austrian business cycle theory requires that monetary expansion (and presumably fiscal stimulus) causes booms that drive demand for capital goods over and above the scarce resources available for this investment.
You’ve now taken a position that destroys even the logic of your business cycle theory, for if monetary and fiscal expansion do not cause increases in private sector investment and consumption, how could an Austrian business cycle even occur?
I ask you: if the government held its level of current spending stable, and implemented a large tax cut (making up for the shortfall by borrowing), would you also deny that this would stimulate the private sector?
(3) No one has ever claimed that thunderstorms cause economic recovery.
But the empirical evidence that expansionary fiscal policy, whether through tax cuts and/or increases in government spending, causes surges in private investment and private consumption is overwhelming. It has been the mainstream view of vast numbers of professional economists since the the 1940s.
This puts the latter assertion in a very different category from the former ridiculous drivel about thunderstorms.
You might then complain that appealing to the opinions of mainstream economists does not settle the matter, for they might be wrong.
But the empirical evidence is just plain as can be.
To take one example, Steve Keen provides a careful sectoral breakdown of Australian national accounts showing exactly how Australia’s economic growth after 2008 was the result of the federal government stimulus:
Steve Keen, “Giving the Bird to the Stimulus?,” DebtWatch, August 18th, 2010.
(1) You refused to address Bob’s argument, even though he addressed yours. He said you might be right, which means he doesn’t dispute your two points. He is disputing your interpretation of those two points. One thing following another does not mean the former caused the latter. He is addressing your antecedent theory that government stimulus works. This antecedent theory is not confirmed or falsified by way of observing past history, since a contradictory theory is ALSO perfectly consistent with the historical data.
(2) You say the argument that the cause and effect relationship between government stimulus and real output isn’t born out of historical evidence, and is thus doubtful…lacks evidence? It’s obvious you don’t understand the argument Murphy is making. He is saying that your theory isn’t proven by historical data, because his theory is ALSO perfectly consistent with the historical data, and yet contradicts yours. Both your theories can’t be right, but both your theories are consistent with the data. His theory has just as much evidence as yours does. He is not disputing whether or not your theory is consistent with the data. He is disputing your claim that your theory is the ONLY theory consistent with the data.
You say his theory lacks evidence, but his theory is just as consistent with the historical data as yours.
What this means is that you cannot call upon Murphy to use YOUR theory in order to settle the dispute. You have to take your theory, and compare it to Murphy’s, by using MURPHY’S epistemology, not yours, since his is the only one capable of resolving two competing, contradictory theories that are both consistent with historical data.
The theory that Murphy is presenting is this: Government stimulus reduces real GDP from what it otherwise would have been without government stimulus. Your theory is this: Government stimulus increases real GDP over time.
Can’t you see you’re not even addressing his argument? His argument isn’t temporal. Real GDP could rise or fall over time in the temporal sense, and his theory would still be entirely consistent with it.
Austrians don’t just want real GDP to rise. They want real GDP to rise by as much as it can rise. Government stimulus is to the Austrians only capable of reducing real GDP below that maximum potential, so it is possible to observe government stimulus, then subsequent temporal increase in real GDP. It will just be lower than it otherwise could have been.
The reason why you are trapped into considering only temporal increases or decreases, is because your antecedent theory precludes any other way to interpret past data. You cannot help but look at past data in a sequential temporal pattern of up and then down, or down and then up. You are unable to consider counter-factuals because you reject logical deduction.
It is like someone arguing through deduction that a mathematical problem has such and such an answer, and you reject that answer until you can see the counting of numbers over time throughout history, one by one, so that you can observe the conclusion made having “empirical evidence.” It is like me saying the solution for 3x + 4 = 10, is x = 2, and then you say we can’t know this until we count numbers one by one in the empirical sense over time.
You’re saying that your theory is that real GDP has to increase or decrease temporally, that is, we have to observe real GDP one period, then real GDP another period later on, and then see if the latter real GDP is higher or lower than the former real GDP. A lower subsequent real GDP is supposed to falsify your theory, and a higher subsequent real GDP is supposed to confirm your theory.
But what if real GDP increases temporally after government stimulus is instituted, but would have been higher still without it? How in the world can you possibly claim your theory is correct on the basis of historical evidence alone? You can only see a particular temporal increase, for that is the only one that took place because government stimulus took place. But that doesn’t mean you can say “the evidence shows” that without government stimulus, real GDP growth over time would have been lower, or declining!
You refuse to address the argument Murphy is making, given that he doesn’t dispute the temporal events you suggest, and you have the gall to accuse him of evading?
YOU’RE EVADING.
In fact, the very logic of the Austrian business cycle theory requires that monetary expansion (and presumably fiscal stimulus) causes booms that drive demand for capital goods over and above the scarce resources available for this investment.
Not presumably government spending. It’s credit expansion and the lower than what otherwise would have existed interest rates that does it.
You’ve now taken a position that destroys even the logic of your business cycle theory, for if monetary and fiscal expansion do not cause increases in private sector investment and consumption, how could an Austrian business cycle even occur?
Where did Murphy take that position? Oh that’s right, he didn’t.
I ask you: if the government held its level of current spending stable, and implemented a large tax cut (making up for the shortfall by borrowing), would you also deny that this would stimulate the private sector?
I ask you: if the government held its level of current spending, and cut taxes but borrowed more, would you deny that this would reduce real output from what it otherwise would have been if government cut spending and taxes dollar for dollar even more?
(3) No one has ever claimed that thunderstorms cause economic recovery.
But the empirical evidence that expansionary fiscal policy, whether through tax cuts and/or increases in government spending, causes surges in private investment and private consumption is overwhelming.
The empirical evidence that increases in government spending causes real private investment and real private consumption to be lower than they otherwise would have been without the government spending, is also “overwhelming.”
It has been the mainstream view of vast numbers of professional economists since the the 1940s.
The empirical evidence shows that the mainstream view in economics has always been wrong. The mainstream economics view in the 16th century was wrong, the mainstream economics view in the 17th century was wrong, the mainstream economics view in the 18th century was wrong, the mainstream economics view in the 19th century was wrong…are you seriously claiming that despite hundreds, indeed thousands of years of empirical evidence to the contrary, that somehow the theory that the mainstream economics view is correct, is itself correct today for the first time ever?
See what I did there? You say it’s OK to go against or ignore empirical evidence when your antecedent theory is proposed as correct but contrary to historical evidence, but you won’t grant that to the Austrians, who ALSO say that despite the historical evidence, their antecedent theory is correct.
This puts the latter assertion in a very different category from the former ridiculous drivel about thunderstorms.
It puts your theory that the mainstream economics view of today is correct, despite thousands of years of empirical evidence to the contrary, in an even more ridiculous light.
If Murphy is wrong for going against merely 70 years of evidence, you are “not even wrong” for going against thousands of years of evidence.
You might then complain that appealing to the opinions of mainstream economists does not settle the matter, for they might be wrong.
But the empirical evidence is just plain as can be.
No, it’s not. See this is your problem. You actually believe that historical data speaks for itself. It doesn’t. All historical data is meaningless without a thinking entity to interpret it with an a priori grounded theory.
You are utterly blind to your own a priori theory. That is the only explanation for why you can believe that the empirical evidence shows only one theory is correct. It’s because you start and stay with that one theory, and you refuse to compete your theory with other theories by subjecting both to a grounding OTHER than the historical data. You can’t insist that we never address your a priori theory, and that we can only defer to historical data, because we’re not disputing the historical data. We could admit fully that government stimulus precedes real GDP growth 100% of the time. But admitting that is not an admission your theory regarding the efficacy of government stimulus is correct. For we hold that government stimulus reduces real GDP from what it otherwise would have been. We’re not saying real GDP falls in the temporal sense, like 100 real GDP one period, but then 90 real GDP in a later period, after government stimulus was used. We’re saying that if real GDP goes from 100 to 110 after government stimulus, it could have gone to 115 without government stimulus, and that the government stimulus destroyed 5 units of real GDP.
Steve Keen ALSO is presuming his a priori theory is correct when he considered Australian government stimulus. The theory that Australian government stimulus reduced real GDP from what it otherwise would have been, is also completely, 100%, totally and fully consistent with the historical data, which means you as a positivist must admit that there is “overwhelming” evidence that the Austrian theory is correct. But of course you won’t do that, because you’ll become an a priorist and claim the empirical evidence supports your theory instead.
Lord Keynes wants answers, mister. Have you stopped beating your wife?
A proper response here:
http://socialdemocracy21stcentury.blogspot.com/2012/05/this-takes-cake.html
“Not presumably government spending. It’s credit expansion and the lower than what otherwise would have existed interest rates that does it.”
LOL! So a government stimulus without monetary expansion would not cause an ABC? is that correct?
“For we hold that government stimulus reduces real GDP from what it otherwise would have been. “
I see: you’re saying that deep fiscal contraction will result in … higher real output growth than fiscal stimulus?
And where in the real world do you have examples of this?
Ireland perhaps? That has just fallen into recession again. Greece? That’s been been mired in depression for years.
Latvia perhaps? Its austerity led to worst loss of output, the worst depression, in the world, with a GDP contraction of 24%. Real GDP growth was still negative in 2010.
http://socialdemocracy21stcentury.blogspot.com/2012/03/latvias-recovery-sick-neoliberal-joke.html
LOL! So a government stimulus without monetary expansion would not cause an ABC? is that correct?
LOL! If you have to ask this question at this stage in your intellectual development, it’s proof you are cognitively challenged, because OF COURSE it’s the case that the boom bust cycle is not brought about by government spending per se. If you had bothered to read it, it’s brought about by credit expansion and the lowering of interest rates from what would have existed with saving backed lending only.
I see: you’re saying that deep fiscal contraction will result in … higher real output growth than fiscal stimulus?
I am saying a lower government spending and taxation would result in higher growth than what would have otherwise existed had government spending and taxation been higher, or, if taxation is not cut and the deficit is made up by more borrowing, than the increased government borrowing and spending results in lower gains in the private market than would otherwise have been possible had that additional borrowing and spending not taken place.
And where in the real world do you have examples of this?
The examples are everywhere, in every country economy, from the beginning of time to today.
In every case, in every economy, gains in the private market would have been higher than they were, if government spending, taxation and borrowing were lower.
Ireland perhaps? That has just fallen into recession again.
I don’t argue over definitions. Recession to you doesn’t mean austerity failed. Ireland is better off today with the austerity than they otherwise would have been without it. If there was more government spending, they would have been even worse off today.
Greece? That’s been been mired in depression for years.
Because government spending and borrowing has bankrupted the country.
Latvia perhaps? Its austerity led to worst loss of output, the worst depression, in the world, with a GDP contraction of 24%.
Real output decline would have been even greater if the government spent more than they did.
I don’t deny any of the historical data you’re presenting. I just reject your interpretation of it, because I reject your a priori theory you are using to interpret the data. You are saying things would have been better with more government spending, and would have been worse with less. I say the opposite.
You say Ireland’s real GDP has fallen over time, I say it would have been even lower had the government spent more than they did, and that it would have been higher if they spent less.
That reminds me, has there been an “Austrian” response to the claim that Keynesianism got Sweden out of the Great Depression swiftly? I think Mises claimed it was due to German rearmament but didn’t Sweden recover before that really got got going?
Watching old episodes of X-men is not a sacrifice. Unless, you’re talking about the 2000s X-men, not 90s X-Men.
DJ I was kidding. These episodes are awesome.
You still didn’t understand the sectoral balances did you?
Saving doesn’t mean buying government debt, plagiarist.
Did you send your red herrings to Norway, Switzerland and Sweden, [jerk–edited by RPM]?
You mean to countries where it is also true that saving doesn’t mean buying government debt?
I’ll have to ask Mosler on how to respond to your question and then pretend that it’s my own words first, and then I’ll get back to you.
No, asshole, I mean those countries that are missing the one in a lifetime opportunity to experience a Great Recession.
Ohhhh, you mean those countries that are not adopting MMT recommendations. Why didn’t you say so before? What’s the matter, Mosler hasn’t written about that yet?
No, idiot, those countries that are not adopting austrian recommendations and are missing out on their once in a lifetime opportunity to experience the joy of a Great Recession.
Send all your red herrings to them!
Actually we know they are not adopting MMT recommendations because they aren’t eating paper money, they aren’t clothing themselves with paper money, and they aren’t building houses out of paper money yet.
Once they do, they’ll be living in an MMT paradise, plagiarist.
We know they are living in an MMT world, because that’s the only world there is, cocksucker.
We know they are not living in an Austrian world, because their economies are growing, idiot.
MMT only applies to the imaginary world where saving means buying government debt, where printing money abolished the law of scarcity, and where people eat money.
In the real world, which behaves exactly according to the Austrians, prosperity is had when Austrian recommendations are implemented, and impoverishment is had when they are not.
Every accounting truism of MMT was already known by the Austrians.
I never said Austrians don’t know the sectoral balances.
I said they don’t understand them.
That’s why I call you idiots, idiot.
MamMoTh can you chill out please? Try to remain “balanced.”
Must’ve been what Mosler wrote.
I can’t remain balanced, Bob, I’m only one sector!
I never said Austrians don’t know the sectoral balances.
I said they don’t understand them.
To know them is to understand them. They do understand them. They know that every dollar given is a dollar received. They know that an increase in total cash balances is caused by an increase in the money supply.
What they dispute is that the economy even needs “net” savings (as the MMTers define it) to grow.
Net savings can be zero, and yet the economy can grow by way of gross saving, which is had by investment spending, being sufficiently high relative to consumption spending.
The “private sector” not only does not need to “net save”, meaning produce for the benefit of money printers such that wealth is consumed by the money printer and replaced by dollars from the money printer, but this form of “net saving” actually reduces the standard of living of producers, because instead of producing goods to earn money, which would benefit producers, the money printers simply print money and consume resources from producers. It is like me printing $14 trillion in my basement, then I go and consume the entire economy of the US, and everyone in the US ends up with piles of paper dollars but zero real wealth.
You only call Austrians idiots because you feel like one when debating them.
I told you you don’t understand them. There was no need to provide more evidence.
I told you you don’t understand them.
I told you that you don’t understand them.
There was no need to provide more evidence.
Except I showed you evidence that you don’t even understand them, and you’re supposed to be the head plagiarist.
I have a Mises.org coming out this week showing Krugman doing this yet again with his recent analysis of Fed history.
Looking forward to it! There will be blood!
Murphy, if you ever think of writing “Lessons for the good economist” don’t forget to have a chapter about the sectoral balances and what they mean to the economy, because there are too many economists, old and young, who still don’t get them.
Repeat after me:
S-I = G-T + X-M
S-I = G-T + X-M
S-I = G-T + X-M
S-I = G-T + X-M
S-I = G-T + X-M
S-I = G-T + X-M
S-I = G-T + X-M
S-I = G-T + X-M
S-I = G-T + X-M
The private sector can increase its net savings without government IOUs.
See Murphy? This is what I am talking about.
I know ignorance will not be eradicated, but it’s worth trying.
What I said is correct. If you can’t refute it, just admit it.
Oh wait, maybe you can’t because Mosler hasn’t been able to yet, and you don’t know what to write.
To educate your uninformed brain:
Private sector “net savings” (as MMTers define it) can increase by way of inflation financed government spending. The government does not have to issue IOUs. After all, “net savings” to MMTers is just total cash balances.
But please, continue to be ignorant and yet believe you’re anything but. It’s highly amusing.
You’ve been refuted too many times. Now it’s time to ignore you.
Yes, please ignore him MamMoTh. Then I can get on with my day instead of deleting R-rated comments from you and your detractors.
I’ll do anything for you, Bob.
You haven’t once refuted me.
You have been refuted so many times and now you’re giving up.
I thought your plagiarizing potty mouth was going to ignore me?
You mad.
Listen[…]I am ready to call you whatever I want to face to face. What about you, chicken?
*sigh* If anybody cares at this point, MamMoTh in the above himself put in something and said “edited by RPM].” I am just warning you guys to be on the lookout for that now.
It’s almost as if MamMoTh is taking my lines…but at least he acknowledged my authorship.
So Bob, am I still the commenter who annoys you most?
Listen [description of MF’s oral sex talent involving other males edited by RPM] I am ready to call you whatever I want to face to face. What about you, chicken?
So in other words you’re not in fact ready to ignore me, despite your claim you would. You’re like my ex-girlfriend, only she was more original than you as she didn’t plagiarize.
So what do we have this time? A threat of violence now? I didn’t know Mosler permitted you to do that. Did he let you out of the cage?
I’m ignoring everything you say except you calling me names.
So I’m just inviting you to call me whatever you want to, but face to face. Not on a blog using a nickname.
So are you a man, or a chicken like Richie?
Wow, I love an angry plagiarist.
MF this is seriously starting to tax my time, especially since now MamMoTh has surely violated some sort of Universally Preferable Behavior on the Internet rules by pretending to be me, and inserting “edits” from me that are actually from him. Can you just ignore him? We all know you guys aren’t actually going to fly to Salt Lake City and have a physical confrontation, so just ignore him please.
Make up your mind Bob, you want to waste time doing the editing or not?
<i.I’m ignoring everything you say except you calling me names.
You couldn’t have said that unless you weren’t ignoring me, plagiarist.
So I’m just inviting you to call me whatever you want to, but face to face. Not on a blog using a nickname.
Yeah, you mad.
So are you a man, or a chicken like Richie?
A man doesn’t make threats of violence on an economics blog. That’s what a pathetic loser who can’t keep up intellectually does. A man knows the battles he’s fighting and chooses the right tools.
MF this is seriously starting to tax my time, especially since now MamMoTh has surely violated some sort of Universally Preferable Behavior on the Internet rules by pretending to be me, and inserting “edits” from me that are actually from him. Can you just ignore him?
Oops, sorry Murphy, I saw your comment after I posted my last one. I promise to cease sending the plagiarist any more posts.
Murphy, I am willing to fly to Salt Lake City or anywhere else to give a chance to MF to call me names, face to face. Even chickens deserve that right. But chickens can’t fly.
And now that we’ve established MF is a chicken, we can move on.
Once we abolish the “government sector”, it will not longer be around to allegedly impact the economy, will it?
In goods news, only 20% of the 18-29 age group agree that government spending is an effective way to economic growth and only 28% agree government should do more to curb climate change even at the expense of economic growth.
http://www.forbes.com/sites/johnzogby/2012/05/02/libertarian-bent-of-young-voters-tests-obama/
Actually, except for a small clique of Keynesian Krazies, nobody in the real world believes spending or debt cause growth.
Average people do not yet even know that both unpayble government debt and funny money dilution are purposefully enacted Keynesian programs. All we have to do is get average people to understand that Keynesians actually believe what they believe and have been actively inflicting it upon the world for decades. The program is all so preposterous that people don’t believe it when Ron Paul explains it. It is so preposterous that it cannot be true that anyone believes and/or acts on it. The MMTers do us a great service by constantly pointing out that the government will “satisfy” its unpayable debt via keystrokes. Once average people finally understand the nature of the system, they will be horrified. So I always give thanks to the MTTers for their public service of promoting unlimited key stroking. SEE FOLKS, THEY REALLY MEAN IT!
The government sector will not be abolished, Roddis. You will be buried in a keynesian world, sooner than later.
In the meantime, keep squandering stolen gas driving in public roads to give a meaning to your sad life.
Probably more original than yours.
MamMoTh, grow up.
Some information about central bank policy in Sweden.
“The repo rate has been the Riksbank’s policy rate since 1994. The repo rate is the rate of interest at which banks can borrow or deposit funds at the Riksbank for a period of seven days”
http://www.riksbank.se/en/Interest-and-exchange-rates/Repo-rate-table/
Effective(DD/MM/YY), Repo rate , Repo rate Change in %, Deposit rate, Lending rate
25/4/2012 1,50 0.00 0.75 2.25
22/2/2012 1.50 -0.25 0.75 2.25
21/12/2011 1.75 -0.25 1.00 2.50
2/11/2011 2.00 0.00 1.25 2.75
14/9/2011 2.00 0.00 1.25 2.75
6/7/2011 2.00 0.25 1.25 2.75
27/4/2011 1.75 0.25 1.00 2.50
16/2/2011 1.50 0.25 0.75 2.25
22/12/2010 1.25 0.25 0.50 2.00
27/10/2010 1.00 0.25 0.25 1.75
8/9/2010 0.75 0.25 0.00 1.50
7/7/2010 0.50 0.25 -0.25 1.25
21/4 2010 0.25 0.00 -0.25 0.75
17/2/2010 0.25 0.00 -0.25 0.75
23/12/2009 0.25 0.00 -0.25 0.75
28/10/2009 0.25 0.00 -0.25 0.75
9/9/2009 0.25 0.00 -0.25 0.75
8/7/2009 0.25 -0.25 -0.25 0.75
22/4/2009 0.50 -0.50 0.00 1.00
18/2/2009 1.00 -1.00 0.25 1.75
10/12/2008 2.00 -1.75 1.25 2.75
29/10/2008 3.75 -0.50 3.00 4.50
15/10/2008 4.25 -0.50 3.50 5.00
10/9/2008 4.75 0.25 4.00 5.50
9/7/2008 4.50 0.25 3.75 5.25
20/2/2008 4.25 0.25 3.50 5.00
31/10/2007 4.00 0.25 3.25 4.75
12/9/2007 3.75 0.25 3.00 4.50
27/6/2007 3.50 0.25 2.75 4.25
21/2/2007 3.25 0.25 2.50 4.00
20/12/2006 3.00 0.25 2.25 3.75
1/11/2006 2.75 0.25 2.00 3.50
6/9/2006 2.50 0.25 1.75 3.25
21/6/2006 2.25 0.25 1.50 3.00
1/3/2006 2.00 0.25 1.25 2.75
25/01/2006 1.75 0.25 1.00 2.50
Good data. LK will surely point out that Sweden had agressive monetary policy. That is true, but I don’t think it was more agressive in relative terms than the US Fed.
Effective Federal Funds Rate (FEDFUNDS)
http://research.stlouisfed.org/fredgraph.png?g=7o7
Give it up. It’s pointless. An honest scientific statement that would be worth being discussed makes a prediction of a certain result under a certain condition. The main Keynesian statement, however, is not something like ‘a certain governmental policy (stimulus) will create economic growth (success)’ but ‘a successful governmental policy is a stimulus’. They have the result in the condition. A Keynesian stimulus is defined as a successful stimulus. Keynesianism cannot fail, never – per definition.
Here is a Swedish blogger with a post from feb 2011 about its relative economic success.
“Swedish Boom Isn’t Due To Monetary Policy”
http://stefanmikarlsson.blogspot.se/2011/02/swedish-boom-isnt-due-to-monetary.html
But beware, he is leaning towards the Austrian school! 🙂
It’s always so fruitful to engage LK in debate:
http://tinyurl.com/bvrhr8t
Never forget that LK still does not understand the concept of economic [mis]calculation, especially in the context of Keynesian funny-money dilution and spending schemes.
(1) There is a full response to you here:
http://socialdemocracy21stcentury.blogspot.com/2012/05/robert-p-murphy-gets-it-wrong-on.html
(2) the links I cited were to demonstrate that Sweden implemented a stimulus from 2008.
The first remarks of your post are therefore of no value: it is only your erroneous assumption that is at fault here. You assumed, falsely, that my links were meant to prove this idea: “that Sweden is running a budget surplus now is a demonstration that their stimulus worked.” In fact, they were there to prove my assertion that Sweden “passed a large stimulus package in 2008, which continued in 2009 and 2010.” Does Murphy deny this?
Nor did I deny that “the US under any plausible metric ran a bigger Keynesian stimulus than Sweden” – of course it did. That is not the point.
The inference that Sweden’s stimulus worked is my inference, easily confirmed by the fact that
(i) the Swedish stimulus has resulted in real output growth in 2009, 2010, and most of 2011 (which, of course, the links confirm; see here as well) and
(ii) rising tax revenues.
Does Murphy deny either of these two facts?
(3) The whole assumption underlying Murphy’s comparison of the size of the stimulus in Sweden and the US is flawed for the following simple reason: what kind of naive or ignorant person believes that the global recession of 2008-2009 was exactly of the same scale, depth and magnitude in all nations?
What kind of naive person believes that the financial crisis and resulting debt deflationary effects were exactly the same in all countries? Or that the asset bubbles and private debt levels (and resulting private sector deleveraging effects and knock-on effects on the real economy) were all the same?
This is a nonsensical assumption: different countries had different economic conditions, and different crises; consequently, there is no reason why different levels of stimulus will have worked in some nations and not in others. Or why a stimulus of a certain level in Sweden was appropriate there, but not in America. Or why America’s stimulus, even why it was larger than Sweden, had different effects too (e.g., not as great an affect in employment).
(4) The fact that Sweden has government spending of over 50% means that its economy was already cushioned from private sector shocks and falls in real output in the 2000s long before the great recession, and certainly to a far greater extent than an economy where it is on the order of 20-25% (like the US).
Sweden’s recovery is thus a function of the high degree of government spending (G) in its GDP already in 2008 when its recession struck.
Nor is the particular degree to which government spending rose in each country relevant here: for the US and Sweden experienced different types of recession and thus the degree of stimulus necessary was different in each case (horse for courses, so to speak).
“consequently, there is no reason why different levels of stimulus will have worked in some nations and not in others. […] Sweden’s recovery is _thus_ a function of”
In other words: “We can’t compare two countries, thus I am right.”
Well, that’s kinda the reason why many here reject empiricism. What kind of naive person would base their scientific thinking on such a methodology?
But let me ask you one thing: What would need to happen for you to change your mind on this? Is there any thinkable scenario that would cause you to rethink Keynesian economics?
Taking this to its logical conclusion, one cannot compare two different countries period, because there will always be differences that you can use to protect your a priori theory from being addressed, let alone put where we’re trying to put it: as the topic of debate.
Your argument is this:
When comparing two countries is consistent with your a priori theory that government stimulus works, you say we can compare the two countries.
When comparing to countries is consistent with a counter a priori theory that government stimulus does not work, you say we cannot compare the two countries.
Your whole edifice is constructed on a bedrock of absurdity.
“in other words: “We can’t compare two countries, thus I am right.””
Wrong. Of course you can compare in a general or specific way, as long as the comparison is legitimate.
There is no reason why I cannot compare general US GDP with Swedish GDP to see the state of growth in both countries.
But Murphy’s comparison does not prove what he thinks it does: it’s all based on the absurd assumption that the US and Sweden had the same recession, the same level of private sector crisis, the same deep financial crisis, etc. Therefore comparing the scale of Sweden’s stimulus with the US’s, noting that Sweden’s was lower does not prove that Sweden was “austere”, that stimulus does not work, etc etc
“Well, that’s kinda the reason why many here reject empiricism.
LOL… if Murphy’s rejects empiricism, then what the hell is he doing citing empirical evidence of economic data and saying it proves his point?
“What would need to happen for you to change your mind on this? Is there any thinkable scenario that would cause you to rethink Keynesian economics?”
There is an easy empirical way to demonstrate that a Keynesian stimulus failed and that, moreover, something is wrong with Keynesian theory:
(1) in an economy experiencing a recession, calculate potential real GDP, estimate the Keynesian multiplier and
(2) design fiscal policy to expand demand by tax cuts and/or appropriate level of discretionary spending increases to hit potential real GDP via the multiplier, and if
(3) the stimulus is implemented and
(4) real GNP continues to collapse,
then you have empirical evidence that your stimulus failed, and that there are problems with your theory.
Cite me one nation were a stimulus was implemented in sense (1) and (2), and yet real GDP simply continued to collapse.
The examples of nations that implement stimulus and see real output grow are too numerous to even mention. The empirical evidence is overwhelming.
“calculate potential real GDP, estimate the Keynesian multiplier”
oh, FFS.
Let’s let him finish reading the tea leaves and charting star paths. Keynesianism won’t work without it.
“LOL… if Murphy’s rejects empiricism, then what the hell is he doing citing empirical evidence”
I don’t know. My name isn’t Murphy. I don’t even know whether he rejects empiricism. My guess, however, would be that there is a difference between using a false method to refute someone who bases his worldview on that particular method on the one hand, and using a false method to prove that your own view is right. I usually don’t say we have empirical ‘evidence’ for ABCT. However, I do think that experience has a role to play. It’s just not sufficient to prove something, but it certainly can serve as an indication.
“Cite me one nation were a stimulus was implemented in sense (1) and (2), and yet real GDP simply continued to collapse.”
Fair enough. I bet plenty people here will be happy to take on that challenge.
In any event, I think whether an economic policy is desirable is not just a function of short term GDP growth. To convince me you would have to show me that said GDP growth is (1) sustainable and (2) is reflected in the standard of living of the people. That’s what economic policies should be all about in my opinion: sustainable improvement in the standard of living.
To illustrate what I mean: If Greece implemented real Austerity measures I do expect Greek GDP to fall in the short run. I don’t think anyone here would expect anything different. I just think that would be a good thing for the standard of living in Greece in the long run. Because there is a difference between just output and output that contributes to society and improves the lives of the people.
LK the US has a trade deficit, Sweden a trade surplus.
S-I = G-T + X-M
Yes, Sweden’s trade surplus is another important difference. Also a source of private sector growth that US lacks.
Also a source of private sector growth that US lacks.
Mercantilist myth derived from misguided gold standard thinking.
A trade surplus is not a “source” of private sector growth. a growing economy based on saving and investment can have a perpetual trade deficit as investment resources pour into the economy.
Imagine the discovery of some valuable raw materials underneath a currently undeveloped piece of land. As the land is developed, as factories are built, as machines are invested in the area, the area would almost certainly have a trade deficit, as far more resources are imported than exported, but who would actually claim that there is a lack of source of growth here? Who would say that this area lacks a source of growth?
The area is actually “healthy” as the influx of resources get imported, and the trade deficit is a PART of this growth.
In an economy that continually grows this way, it is possible for there to be a perpetual trade deficit.
I am not saying that ALL trade deficits ipso facto imply a healthy economy. I am just saying that the existence of a trade deficit does not necessarily mean there is a lack of source of growth, or that there is something wrong that only a trade surplus can somehow fix.
The idea that trade surpluses were “good” derived from misguided gold standard thinking from hundreds of years ago. The thought was that because Kings needed gold to finance wars, anything that lead to gold leaving the King’s country was “bad”, and anything that lead to gold entering the King’s country was “good”. Thus importers were considered acting against the interests of the King, and exporters were considered acting in favor of the King. Hence mercantilism was born.
Adam Smith of course demolished that view, and yet here you are in 2012, a Keynesian no less, having the same misguided gold standard thinking. Too funny.
“Cite me one nation were a stimulus was implemented in sense (1) and (2), and yet real GDP simply continued to collapse.”
Why can’t real GDP just be lower than it otherwise could have been without the stimulus, such that real GDP rises but not as much as it would have risen without the stimulus?
Why does real GDP have to fall in the temporal sense?
“Why can’t real GDP just be lower than it otherwise could have been without the stimulus, such that real GDP rises but not as much as it would have risen without the stimulus? “
Which nations saw GDP soar as a consequence of deep fiscal contraction?
Any examples?
Lord’s Keynes argument is brilliant ! .
“different countries had different economic conditions, and different crises; consequently, there is no reason why different levels of stimulus will have worked in some nations and not in others. Or why a stimulus of a certain level in Sweden was appropriate there, but not in America”
He has framed the problem so that any country that has recovered relatively well from the recession can be used by him as an example of successful Keynesian policies
I particularly like his point 4
“The fact that Sweden has government spending of over 50% means that its economy was already cushioned from private sector shocks and falls in real output in the 2000s long before the great recession, and certainly to a far greater extent than an economy where it is on the order of 20-25% (like the US)”
I assume he would extend the logic of this argument to North Korea which like Sweden suffered only a mild recession since 2008 (
http://www.businessweek.com/globalbiz/content/jun2009/gb20090630_198805.htm) presumably because it has an even bigger share of government spending.
.
Awesome argument, Rob.
Which nations saw GDP soar as a consequence of deep fiscal contraction?
You didn’t answer my question. You’re evading it. So I will ask you again:
Why can’t real GDP just be lower than it otherwise could have been without the stimulus, such that real GDP rises but not as much as it would have risen without the stimulus?
My argument is not about GDP rising or falling OVER TIME from one period to the next. It’s about GDP being higher or lower than it otherwise would have been had government spending been lower or higher than it was.
In other words, why do you believe that government spending has to be followed by declining GDP over time before what I am saying is true? I am not talking about declining or rising GDP over time, after government spending does or does not take place.
I am asking you why can’t it be the case that should government spending be followed by a rise in GDP be the result of government spending reducing the extend to which GDP rose, but not by enough to make it fall from one period to the next, but fall from what it otherwise would have been?
So instead of history of real GDP being 100, 110, 121, etc, without government spending, it was 100, 105, 110.25, etc, with government spending.
If you observed 100, 105, 110.25 with government spending, how do you know that it wouldn’t have been 100, 110, 121 without government spending? You’d have to eliminate my theory a priori as wrong BEFORE you will even consider the data as being consistent with it!
Austrian joke:
What comes first, the MF or the egg?
The Richie.
Splendid! From where did you steal that one, plagiarist?
Did I hear someone chirping?
It must have been Mosler.
Chirping again? MF is that you?
This awesome. I’ve been calling “progressives” “economics deniers” for quite a while now. But Bill Anderson finds the money quote from FDR himself. (I realize that it is disturbing and depressing to realize that our “opponents” live in a world of reality denial, but such is life):
“Years ago, Murray N. Rothbard wrote that modern egalitarianism constituted a “revolt against nature,” and Rothbard provided the intellectual ammunition to prove his point well. The modern Progressive “revolt against nature” is not limited to just egalitarianism, however, as Progressives long have tried to convince everyone that if they could just direct enough government resources at something, they could undo the very laws of economics.
During the Great Depression, President Franklin D. Roosevelt even claimed in his 1932 nomination speech at the Democratic National Convention that economics laws were arbitrary things. Declared FDR:
But while they prate of economic laws, men and women are starving. We must lay hold of the fact that economic laws are not made by nature. They are made by human beings.
Indeed, Roosevelt spent almost an entire presidency railing against economic laws that were not “created” by anyone, but rather discovered by people who understood the realities of nature and natural law. The same president who claimed to care about the “starving” also had farmers destroy tons of food (the destruction financed by a tax on agricultural products) in the name of making food more expensive.”
http://lewrockwell.com/anderson/anderson336.html
I replied to Lord Keynes on his blog. Interestingly, he did not publish my comment.
So I post my unpublished comment here :
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LK -> “Sweden’s recovery is thus partly a function of the high degree of government spending (G) in its GDP already in 2008 when its recession struck.”
Really ? See these numbers :
http://menghusblog.files.wordpress.com/2012/04/general-government-total-outlays-united-kingdom-oecd.png
France -> 52,9% (2006) – 52,6% (2007) – 53,3% (2008) – 56,7% (2009) – 56,7% (2010) – 56,2% (2011)
As Veronique de Rugy said : “Sweden has significantly cut government spending without equivalent increases in taxes” (as opposed to France).
http://mercatus.org/publication/gdp-growth-rates-swedish-approach
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“he did not publish my comment.”
no, forget what I said.