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One point about Keynes theory that if I remember correctly goes something like spend in bad times cut back in good times. Keynes is overused much like prescrip

One point about Keynes theory that if I remember correctly goes something like spend in bad times cut back in good times. Keynes is overused much like prescription antibiotics. "Prescribing Keynesianism to some politicians is like prescribing crack to a coke addict. In the 1970s, the patient hit rock bottom. The U.S. had high unemployment, and the Keynesian solution stopped working. The national government spent and spent, but unemployment only got worse. Then came inflation, something Keynesians had no answer for." The problem is we have been borrowing and spending like crazy both publicly and privately. We've had the accelerator pushed to the floor, how do we go faster now? Keynes (again as I remember) recommended these fixes for short term problems. Our problem is systematic over spending. Obama et al. are prescribing aspirin because they believe the patient has a hangover, when the country really needs chemotherapy for debt cancer. The bad debt that has accumulated needs to be accounted for, losses have to be taken, companies need to go into bankruptcy (which is often reorganization, not necessarily going out of business.) We can't "cheat" our way out of this with Keynes.

avdempsey 18y ago
The article cites this as the essential feature of Keyne's theory that Obama is calling for: government spending should make up the difference between national capacity for economic output, and the current projected level of economic output. Paraphrasing the article: the US economy has a $15 trillion capacity, but the lack of effective demand has reduced our projected output to $14 trillion. By spending $650 billion we can make up that difference in output with the help of Keynesian multipliers. I certainly sympathize with the parent. For the last three months I canvassed for Greenpeace pushing a reinvestment in renewable energy. One gentleman whose door I knocked on was skeptical (way more than just this one guy, door-to-door canvassing amidst recession is a great job if you enjoy getting kicked in the nuggets 100 times/day). He speculated the green movement was just another attempt to sell a newly packaged bubble to the American people. So are we foolish to pursue this short-term fix? Is the reinvestment plan fairly characterized as a short-term fix? To the first question I can at least express the hope that this investment will leave us with something inherently useful: much needed improvements to our infrastructure. We've been riding the wave of cheap energy from the petrochemical revolution for the last 100 years (thanks Steve Jobs Playboy article) and that is certainly appearing to mainstream America as a habit to kick. To the second question, maybe it will help to explore the long term consequences of not meeting our productive capacity. By analogy we can consider the consequences of not meeting our capacity to educate. Imagine if America lost an entire year of engineering graduates. A short fall in capacity may result in a long-term compounded drop in overall engineering output.
- radu_floricica 18y ago
  Completely off-topic, but for a few years now I thought Greenpeace was... how should I put it in a polite way? Too passionate to be taken seriously. I take it it's not really so?
- anamax 18y ago
  > By spending $650 billion we can make up that difference in output with the help of Keynesian multipliers. Only if the multiplier is significnatly greater than 1. One of Obama's advisors made her bones showing that the multiplier for govt spending tended to be around 1 at and that the multiplier for tax cuts was around 1.5 both at current levels. "at current levels" is important. If the multiplier is always greater than 1, the right thing to do is to have an infinitely large stimulus because the return will likewise be infinite. Does anyone believe that would happen?
DanielBMarkham 18y ago
Favorite Keynes quote, "In the long run, we'll all be dead" Methinks the long run has finally arrived. Keynes and pals, as he predicted, are gone.
JesseAldridge 18y ago
"The bad debt that has accumulated needs to be accounted for, losses have to be taken, companies need to go into bankruptcy (which is often reorganization, not necessarily going out of business.)" I get the feeling that while this is intuitively the best idea, it is also far riskier. What if allowing the economy to tank sends us into some kind of never before seen death spiral? The stakes here are extremely high and there is much that is not understood. Considering the circumstances, it seems better to take conservative actions which, though they may not be a great solution, at least prevent disaster.
- yummyfajitas 18y ago
  What if massive government spending sends us into some kind of never before seen (1) death spiral? Fearmongering about the end of the world can cut both ways, but it usually cuts in the direction you were already leaning. (1) Actually, the "stimulus"-caused inflationary death spiral has been seen before. However, I'm not going to argue that this will or will not happen as a result of the currently proposed stimulus. Fact is, I have no idea.
  - Retric 18y ago
    Things are only in a death spiral when the economy is shrinking over time. I expect the secret is finding the correct amount of growth and unemployment. If the government only attempted to correct the economy when unemployment get's over 10% it's going to have a lot more tools on the table than if it's tying to keep unemployment at 5%. What's really hard about economics is people quickly assume the way things where last year is the average even if the economy has been unusually good over the last 5 years. The average auto worker is not producing 100k worth of value and the average banker is not producing 500k of value on wall street. But don't try and tell them that.
    - captainobvious 18y ago
      The average auto worker doesn't make 100k. Including health care costs and future pension benefits, they make 42k. That 100k number was thrown about and included pensions being paid to retired workers, but distributed that cost only to current workers. It made no sense. If the company evenly pays out $100 to 10 current workers and 5 retirees, you can't say the current workers each made $10. They made $6.67.

avdempsey 18y ago

The article cites this as the essential feature of Keyne's theory that Obama is calling for: government spending should make up the difference between national capacity for economic output, and the current projected level of economic output. Paraphrasing the article: the US economy has a $15 trillion capacity, but the lack of effective demand has reduced our projected output to $14 trillion. By spending $650 billion we can make up that difference in output with the help of Keynesian multipliers. I certainly sympathize with the parent. For the last three months I canvassed for Greenpeace pushing a reinvestment in renewable energy. One gentleman whose door I knocked on was skeptical (way more than just this one guy, door-to-door canvassing amidst recession is a great job if you enjoy getting kicked in the nuggets 100 times/day). He speculated the green movement was just another attempt to sell a newly packaged bubble to the American people. So are we foolish to pursue this short-term fix? Is the reinvestment plan fairly characterized as a short-term fix? To the first question I can at least express the hope that this investment will leave us with something inherently useful: much needed improvements to our infrastructure. We've been riding the wave of cheap energy from the petrochemical revolution for the last 100 years (thanks Steve Jobs Playboy article) and that is certainly appearing to mainstream America as a habit to kick. To the second question, maybe it will help to explore the long term consequences of not meeting our productive capacity. By analogy we can consider the consequences of not meeting our capacity to educate. Imagine if America lost an entire year of engineering graduates. A short fall in capacity may result in a long-term compounded drop in overall engineering output.

radu_floricica 18y ago
Completely off-topic, but for a few years now I thought Greenpeace was... how should I put it in a polite way? Too passionate to be taken seriously. I take it it's not really so?
anamax 18y ago
> By spending $650 billion we can make up that difference in output with the help of Keynesian multipliers. Only if the multiplier is significnatly greater than 1. One of Obama's advisors made her bones showing that the multiplier for govt spending tended to be around 1 at and that the multiplier for tax cuts was around 1.5 both at current levels. "at current levels" is important. If the multiplier is always greater than 1, the right thing to do is to have an infinitely large stimulus because the return will likewise be infinite. Does anyone believe that would happen?

DanielBMarkham 18y ago

Favorite Keynes quote, "In the long run, we'll all be dead" Methinks the long run has finally arrived. Keynes and pals, as he predicted, are gone.

JesseAldridge 18y ago

"The bad debt that has accumulated needs to be accounted for, losses have to be taken, companies need to go into bankruptcy (which is often reorganization, not necessarily going out of business.)" I get the feeling that while this is intuitively the best idea, it is also far riskier. What if allowing the economy to tank sends us into some kind of never before seen death spiral? The stakes here are extremely high and there is much that is not understood. Considering the circumstances, it seems better to take conservative actions which, though they may not be a great solution, at least prevent disaster.

yummyfajitas 18y ago
What if massive government spending sends us into some kind of never before seen (1) death spiral? Fearmongering about the end of the world can cut both ways, but it usually cuts in the direction you were already leaning. (1) Actually, the "stimulus"-caused inflationary death spiral has been seen before. However, I'm not going to argue that this will or will not happen as a result of the currently proposed stimulus. Fact is, I have no idea.
- Retric 18y ago
  Things are only in a death spiral when the economy is shrinking over time. I expect the secret is finding the correct amount of growth and unemployment. If the government only attempted to correct the economy when unemployment get's over 10% it's going to have a lot more tools on the table than if it's tying to keep unemployment at 5%. What's really hard about economics is people quickly assume the way things where last year is the average even if the economy has been unusually good over the last 5 years. The average auto worker is not producing 100k worth of value and the average banker is not producing 500k of value on wall street. But don't try and tell them that.
  - captainobvious 18y ago
    The average auto worker doesn't make 100k. Including health care costs and future pension benefits, they make 42k. That 100k number was thrown about and included pensions being paid to retired workers, but distributed that cost only to current workers. It made no sense. If the company evenly pays out $100 to 10 current workers and 5 retirees, you can't say the current workers each made $10. They made $6.67.