5 ms·

What does it even mean to "drive" the economy? I've always thought that's such a vague phrase that can denote a lot of different objective, mathematical concept

What does it even mean to "drive" the economy? I've always thought that's such a vague phrase that can denote a lot of different objective, mathematical concepts, depending on the speaker.

hestefisk 6y ago
I think the author refers to increasing economic activity, employment and consumption. The article is quite poorly written, mostly a range of statements about how Keynes was wrong because I think so. The way out of the COVID crisis has been largely Keynesian for most countries (including the US). Without this boost to counter externalities such as a global pandemic, the impact to unemployment would have been much greater.
- Guthur 6y ago
  Way too early to say whether or not we've got our way out of covid with Keynesian inspired stimulus packages, and some point we'll all have to pay for those packages whether through taxes or inflation and we'll have to see whether or not the boost to the near term economy will stick. If we find that unemployment does not improve quickly enough coming out of this we could be in for some pretty hairy downward spirals.
  - throw0101a 6y ago
    > Way too early to say whether or not we've got our way out of covid with Keynesian inspired stimulus packages The cheques that were/are issued by the US Congress should not be thought of as stimulus packages (which they are not): they are disaster relief. The economy (or economies, plural, of states considered individually) were put into a coma purposefully for health and safety reasons. It would be paradoxical to 'jump start' the economies when they have been shutdown at the same time. The purpose of the cheques is that help those who cannot work, and draw an income, to pay the rent and purchase food. At least that is the opinion of folks like Ben Bernanke and Paul Krugman. Some people are of course labelling them as "stimulus cheques", but that is incorrect: it is probably undesirable for people to go outside of their homes and try to do 'normal' stuff. At least not until vaccines are rolled out in volume.
    - Guthur 6y ago
      Many countries already had income support for the unemployment without the need for additional cheques. In Australia the government handed out $600 to individuals who were on income support, and I can guarantee some of those recipients went straight out and bought a 60" television. This would naturally stimulate some sales but do absolutely nothing beneficial in the long run because the rest of us will have to pay for it eventually.
      - throw0101a 6y ago
        In Canada, we handed out CA$ 2000 per month to the unemployed with our CERB program for several months: * https://en.wikipedia.org/wiki/Federal_aid_during_the_COVID-19_pandemic_in_Canada https://en.wikipedia.org/wiki/Federal_aid_during_the_COVID-1... > This would naturally stimulate some sales but do absolutely nothing beneficial in the long run because the rest of us will have to pay for it eventually. Define "rest of us". The UK is still rolling forward debt from the 1700s and 1800s: * https://www.theguardian.com/business/2014/oct/31/uk-first-world-war-bonds-redeemed https://www.theguardian.com/business/2014/oct/31/uk-first-wo... * https://www.theguardian.com/business/blog/2014/oct/31/paying-the-price-of-war-britain-makes-good-on-historic-debts https://www.theguardian.com/business/blog/2014/oct/31/paying... Unless your government has run budget surpluses sometime in its history, then the debt you have accumulated has probably never been paid off, but simply rolled forward. This generally isn't a probably as long as economic growth is higher than interest rates, which for AU look to be quite low: * https://ca.investing.com/rates-bonds/australia-government-bonds https://ca.investing.com/rates-bonds/australia-government-bo... And interest rates have been (generally) falling for Western European countries for 700 years (with some gyrations): * https://www.visualcapitalist.com/700-year-decline-of-interest-rates/ https://www.visualcapitalist.com/700-year-decline-of-interes... So it's probably cheaper to pay off old debt with new debt. In Canada for example, even though we had an unprecedented CA$ 340B deficit, our total debt servicing costs will be lower over the next few years.
        Guthur 6y ago
        Inflation and tax increases. If you really think that this stimulus will not be used as an inexcuse to raise taxes/levies whatever upon the all of us you've been living under a rock. Whether or not countries have been carrying debt or not is irrelevant because that will not be the narrative.
  - imtringued 6y ago
    I would gladly see a decent amount of inflation (max 4%) over the obvious economic loss caused by unemployment. Unemployment is real and it hurts people directly. Consumer inflation merely reduces the relative wealth of the rich because wages catch up with consumer inflation. That's an absolutely tiny price to pay for a not broken economy.
tobylane 6y ago
Confidence to spend not hoard. Traditionally that’s just private money, but Keynesian and modern monetary theory extend it to public money too. Possibly over simplified.
throw0101a 6y ago
> What does it even mean to "drive" the economy? To have transactions for goods and services. Anything that creates more transactions "drives" it. Generally the Keynesian view is that it is demand (for goods/services) that creates/drives activity. If people are scared of losing their jobs (or have lost their jobs) they won't spend money because they may not have any more. If people are confident of their future prospects they'll be more likely to spend now because they have faith that they'll get more money later. The best ELI5 of Keynesianism that I've come across: > I would summarize the Keynesian view in terms of four points: > 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond. > 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain. > 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down. > 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses. * https://krugman.blogs.nytimes.com/2015/09/15/keynesianism-explained/ https://krugman.blogs.nytimes.com/2015/09/15/keynesianism-ex...

What does it even mean to "drive" the economy? I've always thought that's such a vague phrase that can denote a lot of different objective, mathematical concepts, depending on the speaker.

hestefisk 6y ago

I think the author refers to increasing economic activity, employment and consumption. The article is quite poorly written, mostly a range of statements about how Keynes was wrong because I think so. The way out of the COVID crisis has been largely Keynesian for most countries (including the US). Without this boost to counter externalities such as a global pandemic, the impact to unemployment would have been much greater.

Guthur 6y ago
Way too early to say whether or not we've got our way out of covid with Keynesian inspired stimulus packages, and some point we'll all have to pay for those packages whether through taxes or inflation and we'll have to see whether or not the boost to the near term economy will stick. If we find that unemployment does not improve quickly enough coming out of this we could be in for some pretty hairy downward spirals.
- throw0101a 6y ago
  > Way too early to say whether or not we've got our way out of covid with Keynesian inspired stimulus packages The cheques that were/are issued by the US Congress should not be thought of as stimulus packages (which they are not): they are disaster relief. The economy (or economies, plural, of states considered individually) were put into a coma purposefully for health and safety reasons. It would be paradoxical to 'jump start' the economies when they have been shutdown at the same time. The purpose of the cheques is that help those who cannot work, and draw an income, to pay the rent and purchase food. At least that is the opinion of folks like Ben Bernanke and Paul Krugman. Some people are of course labelling them as "stimulus cheques", but that is incorrect: it is probably undesirable for people to go outside of their homes and try to do 'normal' stuff. At least not until vaccines are rolled out in volume.
  - Guthur 6y ago
    Many countries already had income support for the unemployment without the need for additional cheques. In Australia the government handed out $600 to individuals who were on income support, and I can guarantee some of those recipients went straight out and bought a 60" television. This would naturally stimulate some sales but do absolutely nothing beneficial in the long run because the rest of us will have to pay for it eventually.
    - throw0101a 6y ago
      In Canada, we handed out CA$ 2000 per month to the unemployed with our CERB program for several months: * https://en.wikipedia.org/wiki/Federal_aid_during_the_COVID-19_pandemic_in_Canada https://en.wikipedia.org/wiki/Federal_aid_during_the_COVID-1... > This would naturally stimulate some sales but do absolutely nothing beneficial in the long run because the rest of us will have to pay for it eventually. Define "rest of us". The UK is still rolling forward debt from the 1700s and 1800s: * https://www.theguardian.com/business/2014/oct/31/uk-first-world-war-bonds-redeemed https://www.theguardian.com/business/2014/oct/31/uk-first-wo... * https://www.theguardian.com/business/blog/2014/oct/31/paying-the-price-of-war-britain-makes-good-on-historic-debts https://www.theguardian.com/business/blog/2014/oct/31/paying... Unless your government has run budget surpluses sometime in its history, then the debt you have accumulated has probably never been paid off, but simply rolled forward. This generally isn't a probably as long as economic growth is higher than interest rates, which for AU look to be quite low: * https://ca.investing.com/rates-bonds/australia-government-bonds https://ca.investing.com/rates-bonds/australia-government-bo... And interest rates have been (generally) falling for Western European countries for 700 years (with some gyrations): * https://www.visualcapitalist.com/700-year-decline-of-interest-rates/ https://www.visualcapitalist.com/700-year-decline-of-interes... So it's probably cheaper to pay off old debt with new debt. In Canada for example, even though we had an unprecedented CA$ 340B deficit, our total debt servicing costs will be lower over the next few years.
      - Guthur 6y ago
        Inflation and tax increases. If you really think that this stimulus will not be used as an inexcuse to raise taxes/levies whatever upon the all of us you've been living under a rock. Whether or not countries have been carrying debt or not is irrelevant because that will not be the narrative.
- imtringued 6y ago
  I would gladly see a decent amount of inflation (max 4%) over the obvious economic loss caused by unemployment. Unemployment is real and it hurts people directly. Consumer inflation merely reduces the relative wealth of the rich because wages catch up with consumer inflation. That's an absolutely tiny price to pay for a not broken economy.

tobylane 6y ago

Confidence to spend not hoard. Traditionally that’s just private money, but Keynesian and modern monetary theory extend it to public money too. Possibly over simplified.

throw0101a 6y ago

> What does it even mean to "drive" the economy? To have transactions for goods and services. Anything that creates more transactions "drives" it. Generally the Keynesian view is that it is demand (for goods/services) that creates/drives activity. If people are scared of losing their jobs (or have lost their jobs) they won't spend money because they may not have any more. If people are confident of their future prospects they'll be more likely to spend now because they have faith that they'll get more money later. The best ELI5 of Keynesianism that I've come across: > I would summarize the Keynesian view in terms of four points: > 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond. > 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain. > 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down. > 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses. * https://krugman.blogs.nytimes.com/2015/09/15/keynesianism-explained/ https://krugman.blogs.nytimes.com/2015/09/15/keynesianism-ex...