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When Keynes picked his example of stimulus, the analogy he choose was paying people to bury money in mine shafts and dig it up again. The reason he chose this i

When Keynes picked his example of stimulus, the analogy he choose was paying people to bury money in mine shafts and dig it up again. The reason he chose this is that it makes stimulus logically identical to what happens under the gold standard without it: society puts effort into digging up more when the total amount of gold in circulation falls. So as long as the economy is facing deflation, it isn't hard to see that stimulus is at worst the conceptual equivalent of doing nothing. And it is usually much better because it funds activities with a bigger collective payoff than moving dirt back and forth. And it prevents mass unemployment! Standard caveats apply that this only holds in deflationary conditions, and monetary policy is usually preferred where possible. But it isn't hard to see that stimulus isn't intended to compete with private investment, and actually enables it in many situations. Especially since holding cash (or buying gold) is often preferred to other investments when the currency is falling, interest rates are low and the economic outlook is otherwise dismal.

stretchwithme 16y ago
I disagree. Its the collapse of the Keynesian housing bubble that's causing the current unemployment. Keynesians ignore where the money for their spending comes from. It can only come from taxes or borrowing, both of which make less capital available for the private sector. Instead of allowing the phony economy die, they seek to keep it going. As if building more houses than we can afford somehow creates wealth, instead of putting hundreds of billions of our debt to sit and rot. And replacing the judgement of millions of people actually spending their own money with the judgements of short-term oriented politicians that haven't worked for the money they spend and who are actively trying to fool us most of the time is not going to result in smarter investments. The government loves to make waves on the pond, call attention to the highs and distract you from the lows. But no new water is created. And when the instability they create knocks boats over, they claim no one could have seen it coming. All the splashing around is just magnifying the distortions.
- trevelyan 16y ago
  Keynes doesn't say what you think he does. But I can see where you are going wrong. Look at the way you use water as a metaphor, but use it to mean simultaneously (1) the money supply (increasing/decreasing), and (2) the wave-like boom-bust flow of economic activity. Conflating these things leads you to paradoxical statements like "no new water is created" when you are taking about governments increasing the money supply. Or the way you say "all the splashing is magnifying the distortions" when this is theoretically impossible: preventing deflation by printing money cannot cause worse deflation by definition. What I think you want to argue is that MAN-MADE changes to the money supply are bad. But not only is this empirically wrong (read about "The Great Moderation"), it brings us back to the point that Keynes made above, when he asserted through a very simple analogy that there is no such thing as a natural economy as long as your idea of one is based around a currency (like gold) the supply of which can only be increased by digging it out of the ground. In this situation you CANNOT be worse off by having your government increase the money supply, because market forces will slowly encourage people to "print more money" themselves by just digging it out of the ground. Which means we're all better off to skip the shoveling and spend the labor on building an airport or something with at least the potential for social return. My contact information is in my profile -- I'd be happy to carry this on over email if you'd like to continue. And I'd encourage you to read Keynes. And also Kindleberger and Eichengreen if you genuinely believe that the worst of what we are seeing these days is anything like what the world has gone through in the past.
  - stretchwithme 16y ago
    when more money is printed, the value of existing money goes down. all that's happening is that value is being taken from the general population and being given to the banks. deflation is not a problem. you had huge asset inflation and this is merely the correction of that distortion. The Fed's easy money and loose lending of Fannie and Freddie caused a doubling in price of the most expensive thing most people will ever buy. It was completely unsustainable and its deflation a necessary occurrence if normal economic growth is ever to be restored. Throwing money at every expansion of government ever conceived of will not restore it.
    - 16y ago

stretchwithme 16y ago

I disagree. Its the collapse of the Keynesian housing bubble that's causing the current unemployment. Keynesians ignore where the money for their spending comes from. It can only come from taxes or borrowing, both of which make less capital available for the private sector. Instead of allowing the phony economy die, they seek to keep it going. As if building more houses than we can afford somehow creates wealth, instead of putting hundreds of billions of our debt to sit and rot. And replacing the judgement of millions of people actually spending their own money with the judgements of short-term oriented politicians that haven't worked for the money they spend and who are actively trying to fool us most of the time is not going to result in smarter investments. The government loves to make waves on the pond, call attention to the highs and distract you from the lows. But no new water is created. And when the instability they create knocks boats over, they claim no one could have seen it coming. All the splashing around is just magnifying the distortions.

trevelyan 16y ago
Keynes doesn't say what you think he does. But I can see where you are going wrong. Look at the way you use water as a metaphor, but use it to mean simultaneously (1) the money supply (increasing/decreasing), and (2) the wave-like boom-bust flow of economic activity. Conflating these things leads you to paradoxical statements like "no new water is created" when you are taking about governments increasing the money supply. Or the way you say "all the splashing is magnifying the distortions" when this is theoretically impossible: preventing deflation by printing money cannot cause worse deflation by definition. What I think you want to argue is that MAN-MADE changes to the money supply are bad. But not only is this empirically wrong (read about "The Great Moderation"), it brings us back to the point that Keynes made above, when he asserted through a very simple analogy that there is no such thing as a natural economy as long as your idea of one is based around a currency (like gold) the supply of which can only be increased by digging it out of the ground. In this situation you CANNOT be worse off by having your government increase the money supply, because market forces will slowly encourage people to "print more money" themselves by just digging it out of the ground. Which means we're all better off to skip the shoveling and spend the labor on building an airport or something with at least the potential for social return. My contact information is in my profile -- I'd be happy to carry this on over email if you'd like to continue. And I'd encourage you to read Keynes. And also Kindleberger and Eichengreen if you genuinely believe that the worst of what we are seeing these days is anything like what the world has gone through in the past.
- stretchwithme 16y ago
  when more money is printed, the value of existing money goes down. all that's happening is that value is being taken from the general population and being given to the banks. deflation is not a problem. you had huge asset inflation and this is merely the correction of that distortion. The Fed's easy money and loose lending of Fannie and Freddie caused a doubling in price of the most expensive thing most people will ever buy. It was completely unsustainable and its deflation a necessary occurrence if normal economic growth is ever to be restored. Throwing money at every expansion of government ever conceived of will not restore it.
  - 16y ago