Wednesday, March 11, 2009

One Simple Question

This will be one of my shortest, but most poignant posts.

If it was just a simple matter of causing economic growth through "stimulus" programs, then by default why haven't we just "stimulated" ourselves via government action to income per capitas of $250,000 per year?

When you answer that question you'll not only have debunked all of Keynesianism and Obamanomics, but set a leftist on the path towards becoming an adult (ie-a capitalist).

7 comments:

Anonymous said...

My personal favourite is raising the minimum wage to the average wage level, then we would all be middle class and happy. Everybody could buy a house and pay taxes and the country will be rich.

Hot Sam said...

Well, the Keynesian model is based upon the assumption of sticky prices, such that fiscal policy produces increases in output without inflation, i.e. a flat aggregate supply curve.

Neo-Keynesians do believe in some price flexibility but still think fiscal policy can provide temporary gains in the short run until aggregate supply shifts, hopefully just long enough to recover from a recession.

In the current economic environment, they see aggregate supply as essentially flat, thus monetary policy is ineffective and fiscal policy is very effective. In 'normal' economic circumstances AS would be upward sloping and, in a boom almost vertical. So that's why they'd say you can't always stimulate as much as you'd like.

I don't buy their arguments, but that's what they are.

Anonymous said...

Robert's right on this one. Keynesians see fiscal stimulus as a means of pushing an economy towards full employment, but an economy that's already at full employment will just get inflation.

I don't agree with them either, but it's a useful question to pose anyway. One of the fronts on which Keynesian theory falls part is the total lack of any concept of capital heterogenity. So, it doesn't really occur to them that even during a recession, some sectors of the economy may still be functioning at full capacity and would only see inflationary effects, while other sectors are significantly under-performing and would need a Robert Mugabe-scale fiscal/monetary shock just to make them twitch.

The really blind ones don't even make any sort of practical distinction between the private sector and the public sector (other than to apply magical multipliers to government spending, but that's another can of stupid altogether), so whenever they see a gap in private spending they rush to fill it with government spending and call it good. So long as there's enough C+I+G+Nx to get the Y they want, they don't care.

Anonymous points out a good one as well. When someone can tell you why we shouldn't have $200 an hour minimum wage, they can tell you why any minimum wage is a bad idea, and for exactly the same reason. From there it's just a short hop to hating left wing thinking like the poison it is.

Anonymous said...

There is also the multiplier effect they like to refer to. Since these effects are very difficult to measure with any kind of scientific accuracy, political pet programs are assumed to have high multiplier effects while tax cuts will have low effects. They will cling to this assumption with the sort of religious zeal only seen when science does not have a definitive answer. Honestly, I don't think some of the Keynesians would stop "stimulation" until the whole economy was centered around their pet programs. Reductio ad absurdum only works if the person realizes that your parody of their idea is a bad thing and not a wet dream.

Anonymous said...

My favorite was during the 60-some seconds of debate over the stimulus package, someone (and I wish I knew who) asked the President how he knew this bill would stimulate the economy. His response: "It's spending. Spending is stimulus."

If that were true, Mr. President, we wouldn't--nay, COULDN'T--be in a recession after eight years of the largest increase in government expenditures.

Anonymous said...

The "multiplier effect" is just part of the Obama War on Science. If a dollar of government spending produced more than a dollar of productivity, then we have a perpetual motion machine. So why stop at a trillion? Why not spend a quadrillion government dollars, thus making us all instant billionaires?

Anonymous said...

"The "multiplier effect" is just part of the Obama War on Science."

To be fair, Obama didn't come up with it, and it's been around since before Keynes' General Theory. Politicians love it because it's an excuse to spend as much as they want, and when things get worse they get to spend even more. They'll never give that one up.