Potpourri
==> Nick Rowe agrees with me that Steve Landsburg’s analysis of paying down government debt is only true if we assume perfect certainty. (Steve I think would totally agree, and that’s why I said in my original post that this was an argument over specifying assumptions for the reader, not about the implications of those assumptions.) Incidentally, if you have never seen Rowe in action, just skim the comments section, only reading his posts. You literally could learn a lot of economics just reading him patiently arguing with people. (In contrast, I am so sarcastic in my comments section that even my allies aren’t quite sure what my point is.) The other good thing about Nick is, he’s pretty humble. So you walk away thinking, “It’s not that this Canadian guy is all that smart, it’s just he’s been studying this stuff longer than I’ve been alive.”
==> Speaking of debt, I’m pleased to announce that for once, I agree with Daniel Kuehn on the government debt stuff! I don’t think Arnold Kling’s response to Krugman’s “we owe it to ourselves” position really got at the fundamental problem. To be clear, it’s not that Kling said anything wrong, and in fact he is highlighting one of the serious, real-world problems with deficit finance. But Krugman really did handle this type of thing by admitting upfront that government debt could have distributional implications for future generations. The stuff Kling is talking about doesn’t really show that Krugman is just flat out wrong for focusing on “we owe it to ourselves,” the way Buchanan/Boudreaux/Rowe did.
==> Poor Ron Paul gets ambushed at 13:30 by this host asking about the Murphy-Krugman Debate.
==> It’s kind of interesting: Someone in the comments of my post about Keynesians and consumption pointed to this Krugman article, where he definitely talks about the limitations of the “paradox of thrift” etc. But if I wanted to be a jerk, I would say, “So you prove to me that Keynesians don’t focus much on consumption, by pointing to Paul Krugman chiding Keynesians for focusing too much on consumption?” Anyway in the interest of holiday charity let me say that actual Keynesian economists are not quite the mindless champions of “consume consume consume!” that their critics sometimes attack, but there is no doubt that the caricature is based on a germ of truth: Even Krugman admits as much in the opening paragraphs of that linked article. So it’s not this right-wing myth the way Gene Callahan and Daniel Kuehn are suggesting.
Hahaha, Paul’s reaction to that sounded so awkward and funny.
Bob, does Ron Paul know you, or at least know of you? He seemed supportive of the debate.
Allow me to balance out your charity,
— Paul Krugman, The Return of Depression Economics and the Crisis of 2008 (New York: Norton, 2009), p. 71.
Granted, Krugman clearly favors investment over consumption, but this is good evidence that Keynesians care about price level maintenance first, resource allocation second. Is there a modern version of W.H. Hutt’s The Theory of Idle Resources? If not, maybe the profession needs one.
JMFC,
Isn’t the term “public investment” an oxymoron?
I don’t think so, although I could be wrong.
I think you miss the point of the Austrian critique. At least the way I read Rothbard, an investment in capital is for the purpose of making consumers happier and thus earning a profit. Whereas government spending is consumption, as it is (and can only be) used to satisfy the demands of bureaucrats and politicians as consumers.
In other words, an investment, as defined in the Austrian tradition, is not merely buying capital goods – it is doing so to satisfy consumer demand to make a profit. The building of a road is not done by government to allow for the creation of more consumer goods, or to earn a profit, or in any sense to conform to market signals. It is done only for the purpose of gaining votes. (This is part of the reason why the country suffers from – simultaneously – a surplus and shortage of roads.
Matt, do politicians that actually believe roads will allow for the creation of more consumer goods invalidate this then? Is it then an investment? I don’t think we can assume every single politician has the wrong intentions.
Matt,
“Making a profit” isn’t a requirement for investment. Many investments fail to make a profit. A charitable person could even purposefully invest in something unprofitable (nominally), just to provide a service he/she thinks is necessary.
In any case, even conceding that politicians allocate resources to win votes (which may or may not be true), the fact of the matter is that this is completely irrelevant. An entrepreneur could invest in something his wife likes just to get laid, or an entrepreneur can make an investment because of some sort of psychological profit (consumption), but it doesn’t make the allocation any less of an investment. By building a road, a politician is allocating resources towards the production of a good. This good can be consumed by others, or it can be used by others as an intermediate means towards that final act of consumption. But, the building of the road is still an act of investment.
I am thinking of developing an economics theory that contains the following Doppelganger Keynes concepts:
1. MPI (marginal propensity to invest).
If the marginal propensity to invest is reduced, then, ceteris paribus, wage incomes and capital goods seller incomes will fall. This will result in lower real wages. Thus, a healthy wage economy would be one in which the MPI is closest to 1. Some examples of counter-productive phenomena that might reduce the MPI are: an increased MPC (marginal propensity to consume), taxation, and money supply deflation.
2. Paradox of consumption.
An individual can think to himself that consuming a lot is a good thing. But what is true for the individual may not be good for the economy as a whole. For if everyone consumed more, then this will, ceteris paribus, result in a lower MPI (marginal propensity to invest), which will decrease wage payments and capital goods seller incomes. At the extreme, if everyone took 100% of their incomes (product sales revenues, wages, interest payments, etc) and consumed with it, then wage payments and capital goods seller incomes would collapse to zero.
3. Fallacy of equating saving with consumption.
So many people believe in the myth that consumption spending necessarily increases when the government inflates the money supply and/or spends more money such that businesses have higher cash balances. But businesses owning more cash does not mean the owners will necessarily consume with it. During an inflationary boom for example, economic uncertainty of profits may be too low for them to consume as much.
To anyone who complains that the above principles over-emphasize investment, let me say that wage earners can’t consume unless their employers invest in their labor. Wage earners spend more when their employers invest more in labor. So consumption depends on investment, not the other way around.
check out this article…
http://www.demos.org/publication/retails-hidden-potential-how-raising-wages-would-benefit-workers-industry-and-overall-ec
made me spill my coffee
Ron Paul obviously knows Bob, I’ve seen him suggest this site (consultingbyrpm.com) in some of his books, however, and i don’t blame you bob, i think Ron doesn’t like the way you’re trying to debate Krugman, I say this because I’ve promoted krugmandebate.com in other forums and people think you’re trying to “win your 15 minutes of fame” and crap like that, others mention that you’re holding poor people hostage by having Krugman acknowledge you and that if you have to do it like this, then our “ideology” probably isn’t worth debating (this is not what i think but what I’ve been told by others) of course i hear the other side like.. “krugman is a coward” or “he got his ass handed to him by Ron Paul so he doesn’t want to debate an “actual” economist” i put actual in quotations because Ron Paul is obviously a great economist but not an “official” economist
just some thoughts, I’m still actively promoting the krugman debate whenever i get a chance
if you have to do it like this, then our “ideology” probably isn’t worth debating
I realize you were just repeating what you had heard from Krugman’s fans, RP2016, but just to say once again for the record: The only reason I even did the silly debate challenge is that a girl emailed me and said she had asked Krugman at a book signing why he didn’t debate an Austrian, and he said (publicly in front of the crowd) that he wouldn’t bother debating an Austrian because no serious economist listened to them. Thus, Krugman had ruled out a nice friendly debate among peers, so I had to stoop to the theatrics.
I would love to hear Ron Paul’s opinion on bitcoin.
From a liberty point of view, bitcoin is all thumbs up: no one controls it, incredibly difficult to jig the system, people voluntarily use it (or don’t use it as they choose), and anyone at any time can start up an alternative system as a competitor if they want to.
From a “sound money” perspective of course, bitcoin is backed by nothing, and that’s not fraud because bitcoin is 100% upfront about being backed by nothing, the only guarantee you get with a bitcoin is that you can exchange it for another bitcoin.
Besides Paul Krugman has already said that bitcoin is crap, so that would surely be the most solid reason to get into it.