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" If something goes wrong, we can juice the economy by engaging in extaordinary activities which generate the illusion of wealth resulting in increased spending
by sonnyblarney 8y ago
" If something goes wrong, we can juice the economy by engaging in extaordinary activities which generate the illusion of wealth resulting in increased spending."
This is not what Keynesian economics is. It's perfectly rational for the government to step up their investment in things like bridges and roads as the private sector weakens for a bit. This restores confidence in markets, and keeps money flowing through the economy.
So long as there are savings during the good times, and the projects are not wasted (even though in some extraordinary cases it would actually make sense to dig holes and fill them) ... it makes sense.
Of course the governments ability to 'save' during the good times and to necessarily spend efficiently is questionable.
"Zero Interest Rate conditions are not normal. Never in this history of humanity have interest rates been held this low for so long."
Central banks as we understand them are a very new phenom. Who's to say 'what's normal' when the very construct of our current version of monetary policy is really only a few decades old?
Maybe this is the actual normal.
Maybe because we are getting older, and working an ever decreasing share of our lives, our net productivity is going down and that's being reflected in rates?
Maybe the amount of debt hanging over every economy is a drag on productivity? (Because debt levels are high and this is new)
Maybe surpluses are being pushed into the real economy and captured by consumers who are getting a good deal, so bonds and stocks just aren't getting the great returns they were before.
Maybe we haven't had a war in a long time, which leads to fixed/stagnated human organizations, and without the opportunity for 'ground up renewal' every once and a while, we can't leap forward.
Maybe the benefits of carbon fuels + industrial revolution have mostly been had, or at least, fully priced into stocks.
Maybe we're just measuring inflation the wrong way.
So many maybes.
This could be very normal.
We probably won't know until another 50 years and then only in hindsight.
- mrob 8y ago>in some extraordinary cases it would actually make sense to dig holes and fill them How is paying people to dig and fill holes better than just giving them money without requiring the useless activity? Even if "dignity of work" is a real thing, there's no way doing useless work could provide it.
- sonnyblarney 8y agoYou're right, it's the same thing. 'Paying people to dig holes and fill them' is a euphemism for pure redistribution. It's just an old school term used by Keynes himself. (Though FYI 'the dignity of work' is a very real thing)
- crdoconnor 8y agoKeynes wrote that that would be one way - although, he stressed, not actually a good way - of escaping from a liquidity trap. The real irony is that he was actually decrying digging gold out of the ground and burying it in vaults as he wrote that and among his critics, that kind of "digging a hole in a ground and filling it up" is typically considered above reproach.
- UncleEntity 8y agoProbably because you aren't literally digging gold out of the ground and reburying it, you are transforming land, labor and capital into a finished product which, in this case, is gold bullion. Be like saying digging a hole and "planting" a fencepost is a wasteful activity because the wood was nearly in the same state to begin with.
- zxcmx 8y agoI think the complaint is that the gold bullion will just be hoarded and used as a unit of account. You could have achieved a similar thing with some strokes of a pen. It's wasted effort in the same sense that bitcoin mining is wasted energy.
- nickik 8y agoI just wane explain what Keynes was thinking, even while I don't agree. For Keynes it was all about overall spending, Aggregate Demand. If overall Aggregate Demand goes down then you have recession. Then in some cases monetary policy can not raise AD anymore because of the 'liquidity trap' (interest rate at zero). In that case the only way to get out of the AD whole is for government to spend more money that they have either saved up, or make debt. Meaning that government could lower taxes, build roads or even to make his point 'pay people to dig wholes and close them'. He just tried to make the point that it had nothing to do with the productivity gain of the actual activity. The reason why Keynes was wrong is that the 'liquidity trap' is not a real thing. Second, even if it were real, the government fiscal policy would be unable by itself to raise AD and keep it raised. Even worse, if you tried to do that you would not only end up with AD shortfall but also with high debt (see Japan).
- nickik 8y agoYou should learn about the 'Sumner critic'. If monetary policy is not already allowing fiscal policy to expand then 'digging holes and filling them in' has ZERO impact on AD. And if that is the case then you don't need fiscal policy at all. So no, it never makes sense to 'dig holes and fill them back in'.
- mcguire 8y ago"So no, it never makes sense to 'dig holes and fill them back in'." The CCC?