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"If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation an

by bcg1 11y ago

"If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months," he said. "And then if we discovered, oops, we made a mistake, there aren't any aliens, we'd be better--" http://www.huffingtonpost.com/2011/08/15/paul-krugman-fake-alien-invasion_n_926995.html http://www.huffingtonpost.com/2011/08/15/paul-krugman-fake-a...

slv77 11y ago
Except that you are left with a fleet of militarized space craft that provide no economic value and a pile of debt that was used to finance the fleet. At that point somebody has to pay for that malinvestment through reduced future consumption. Make work projects are not a free lunch. They work by pulling demand from the future into the present via issuance of new debt. How those costs are allocated in the future are delicate social issues with entrenched interests. In many cases these make work projects are themselves politically palatable ways to socialize losses by transferring bad debt from private balance sheets (households and corporations) to public balance sheets (government). It could be argued that all economic cycles can be explained through malinvestment and then working through allocating losses. My concern is that with activist central banks and fiscal policies that prefer to kick the day of reckoning into the future we have created a situation where allocating losses may lead to significant social and military confrontation (i.e. Revolutions and war).
- brc 11y ago
  Each round of centrally planned malinvestmemt in make work lowers the flexibility to deal with the next one, at the same time increasing the moral hazard for firms to expect the government to make good their losses. It also tends to create people dependent on governments as a source of livelihood, which robs them of economic agency. All because a guy who actually didn't study economics waved away the long term structural issues by stating 'in the long run, we are all dead'

by bcg1 11y ago

slv77 11y ago

Except that you are left with a fleet of militarized space craft that provide no economic value and a pile of debt that was used to finance the fleet. At that point somebody has to pay for that malinvestment through reduced future consumption. Make work projects are not a free lunch. They work by pulling demand from the future into the present via issuance of new debt. How those costs are allocated in the future are delicate social issues with entrenched interests. In many cases these make work projects are themselves politically palatable ways to socialize losses by transferring bad debt from private balance sheets (households and corporations) to public balance sheets (government). It could be argued that all economic cycles can be explained through malinvestment and then working through allocating losses. My concern is that with activist central banks and fiscal policies that prefer to kick the day of reckoning into the future we have created a situation where allocating losses may lead to significant social and military confrontation (i.e. Revolutions and war).

brc 11y ago
Each round of centrally planned malinvestmemt in make work lowers the flexibility to deal with the next one, at the same time increasing the moral hazard for firms to expect the government to make good their losses. It also tends to create people dependent on governments as a source of livelihood, which robs them of economic agency. All because a guy who actually didn't study economics waved away the long term structural issues by stating 'in the long run, we are all dead'