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I read the New York Times and while I enjoy Paul Krugman and can see the logic in his thoughts, I am generally a skeptic. So, I'd like to hear what informed people think of Keynesian economic theory. Most importantly, I'm interested in interpretations of real-life examples. Krugman makes a solid case regarding the recent economic crisis, saying that government stimulus spending in the USA, while not being a full fix for our economy at this point, has prevented us from going down the path of European countries forced into austerity. Does anyone feel differently?
Everyone is quick to point out that Keynes said that deficit spending is a good idea during recessions. But no one points out that he also said that surpluses are a good idea during prosperity. In other words, the two go together. When you run continuous deficits, then you build no reserve with which to spend during recessions. Therefore, deficit spending during recessions only digs you into a deeper hole which you must climb out of.
My recommendation would be for the government to reduce spending as much as possible. What has prevented us from being in the same position as Greece et al is not stimulus spending, but the fact that we didn't allow ourselves to become as socialist as they did.
I think much of his theory is correct. In times when the private sector is not spending any money, the only entity with enough
money, is the government. Somebody's gotta keep the economy going.
But at the end of the day, it all boils down to confidence. If the private sector refuses to spend, and has a bleak outlook on the future, then no matter how much "stimulating" you do, the economy will continue to stagnate.
I think much of his theory is correct. In times when the private sector is not spending any money, the only entity with enough
money, is the government. Somebody's gotta keep the economy going.
But at the end of the day, it all boils down to confidence. If the private sector refuses to spend, and has a bleak outlook on the future, then no matter how much "stimulating" you do, the economy will continue to stagnate.
Problem is that government does not have money. That's why we have a $16 trillion in debt. The Fed is what's keeping us afloat right now and allowing government to run up huge deficits. In our future, the United States will either keep printing and spending until inflation gets out of hand or we'll try austerity in which the economy will experience no growth. The third option is to address our structural issues. Most importantly, our massive trade deficit. Until structural issues are addressed, most Americans will continue to see their living standards fall.
Everyone is quick to point out that Keynes said that deficit spending is a good idea during recessions. But no one points out that he also said that surpluses are a good idea during prosperity. In other words, the two go together. When you run continuous deficits, then you build no reserve with which to spend during recessions. Therefore, deficit spending during recessions only digs you into a deeper hole which you must climb out of.
My recommendation would be for the government to reduce spending as much as possible. What has prevented us from being in the same position as Greece et al is not stimulus spending, but the fact that we didn't allow ourselves to become as socialist as they did.
You're right about the first point, and it's hard to apply in real life because Republican presidents, who will inevitably win elections from time to time, seem determined to run up the debt no matter the current economic situation.
The problem with your second point is that Spain, Italy, Ireland, and Portugal were not the same kind of patronage state as Greece was. Spain and Italy had lower amounts of public debt per capita and were in a better deficit situation than the USA before the recession began. You can't take Greece's irresponsibility and place it on Spain and Italy as the blame for their economic troubles because it's simply not true. Their debt blew up directly because of the recession, with falling revenues and rising social costs causing a surge in their deficits, the same as in the US. And they've been forced to drastically cut spending due to bailout conditions from the EU, while their economies have shrunk into 25-30% unemployment. How would the USA fare differently by cutting spending?
Problem is that government does not have money. That's why we have a $16 trillion in debt. The Fed is what's keeping us afloat right now and allowing government to run up huge deficits. In our future, the United States will either keep printing and spending until inflation gets out of hand or we'll try austerity in which the economy will experience no growth. The third option is to address our structural issues. Most importantly, our massive trade deficit. Until structural issues are addressed, most Americans will continue to see their living standards fall.
Technically, the government has ALL the money. Every single dollar in existence comes from the government.
Inflation is not a problem right now, and it probably wont be in the near future. Interest rates are at or near 0.
That tells you that investors think that the US debt a pretty safe bet.
People make whatever they want of these theories repeatedly repeating statements that they fabricate to force policies to their own desires.
Keynes proposed governments borrow to stimulate the economy at low points and to pay off the loans during prosperous periods. Politicians just ignore the second half of the proposal.
We have the same ruinous attitudes that has taken Europe down the path to economic disaster and have already started the run... the only answer for the population long term is much less/smaller government.
I read the New York Times and while I enjoy Paul Krugman and can see the logic in his thoughts, I am generally a skeptic. So, I'd like to hear what informed people think of Keynesian economic theory. Most importantly, I'm interested in interpretations of real-life examples. Krugman makes a solid case regarding the recent economic crisis, saying that government stimulus spending in the USA, while not being a full fix for our economy at this point, has prevented us from going down the path of European countries forced into austerity. Does anyone feel differently?
Just remember Keynes was an economist of his time. It was a reaction to the assumptions that they had before the Depression. I believe his view on over saving to be correct as is his idea that Ricardo's barter model of economics was very wrong.
However we don't just have a savings problem. The savings we not invested in tangible infrastructure or even held in vaults. It was loaned out mostly as consumer and housing debt. Keynes was not facing this problem.
The liberals love him because it does involve government intervention. The conservatives hate him because they think intervention makes it worse. The problem is conservatives are blind to the government intervention that already exists. So I can hardly suggest that government should not "intervene" in its own actions.
What is more important is the financiers dislike Keynes because Keynes acknowledges they exist and impact the economy in potentially very negative ways. Ricardo who was a bank representative tried to create a theory where they are invisible and merely a small friction-less tool that pays for themselves. So they want nothing to do with a theory that Keynes proposed. His Bretton woods system also prevented currency manipulation so beloved by the so called free market bankers.
I think its pretty obvious that finance impacts the economy so Keynesian economics from that standpoint is far better than neo classical which takes it out of account. That is also where the Austrians have a problem with neoclassical economics. They take the money monopoly well into account.
Another thing to keep in mind is a Keynesian stimulus is on tangible infrastructure. Food stamps is not one of his prescriptions anymore than was warfare. A bridge would be.
People make whatever they want of these theories repeatedly repeating statements that they fabricate to force policies to their own desires.
Keynes proposed governments borrow to stimulate the economy at low points and to pay off the loans during prosperous periods. Politicians just ignore the second half of the proposal.
We have the same ruinous attitudes that has taken Europe down the path to economic disaster and have already started the run... the only answer for the population long term is much less/smaller government.
That is another thing to keep in mind. Keynes developed his theory when we still used convertible money. Now government prints money despite all the rhetoric to the contrary. There is no debt or private money market they answer to unless you are in the EU which is run by the ECB. I would say the Eurozone is proving Keynes to be right.
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