YAY! Americans are going into more debt again...

[jazzlover]

Originally Posted by user_id

Krugman disciple? I was not aware that Krugman wrote the General theory of Employment, interest and money.

But this is the problem, people are against Keynesian policy despite the fact that it has been used successfully in the past and as an alternative suggest........well nothing. Actually some, as mentioned previously, suggest that we dramatically reduce debt and save But I don't think these policies will be implemented, instead the economy will stagnant for many years. And the people will blame the politicians, yet it is them that prevented real solutions from being implemented. The Bush and Obama administration provided enough stimulus to prevent great depression part 2, but not enough to put the US economy on a road to solid recovery.

The above is about the most inane, filled with half-truths posts I've ever read on economics. Keynes, if you would do a scintilla of research, had extreme reservations about using deficit spending and borrowing as a constant method to keep the economy booming. He believed, correctly in my opinion, that such "stimulus" should be used sparingly, and the budget balanced when the economy recovers. To do otherwise, he believed, would lead inevitably to massive inflation. But, what we've done for decades now is run up deficits and public debt (and now private debt) in both good times and bad. Now we have painted ourselves into a corner where, if we try to cut the deficit and borrowing, we crash the artificial economy we have created; if we continue to try to "stimulate" ourselves out of our difficulties with more deficit spending and government borrowing, we run the near absolute risk of igniting hyperinflation, as well as debasing the dollar. If I had to choose between the two, I would choose a deflationary scenario as it would, as is commonly said, remove the "wretched excesses" from an economy built on speculation, rather than the creation of real wealth. Unfortunately, we appear headed down the other road--mushrooming government spending, governmental intervention in the marketplace, "public-private" partnerships, non-productive speculation, and a national debt out-of-control. The result will be hyperinflation--which usually leads to social and political destabilization, along with economic ruin. We have a great example in history to see what that causes--that was the rise of the Fascists--or as they were known then, the "Nationalists/Socialists"--in Germany and the election (yeah, he was initially elected) of Adolph Hitler. What is going on in Washington right now is way more similar to the first wielding of power by Hitler in Germany than anyone would probably want to admit. Pretty scary.

“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

“The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

John Maynard Keynes

[user_id]

Originally Posted by jazzlover

had extreme reservations about using deficit spending and borrowing as a constant method to keep the economy booming. He believed, correctly in my opinion, that such "stimulus" should be used sparingly, and the budget balanced when the economy recovers.

Did I suggest otherwise? Nope. Are you under the impression that the economy has recovered? This is just a straw man and despite claiming my position inane, you have failed to actually refute anything I stated.

Originally Posted by jazzlover

If I had to choose between the two, I would choose a deflationary scenario as it would, as is commonly said, remove the "wretched excesses" from an economy built on speculation, rather than the creation of real wealth.

And Keynes correctly pointed out the absurdity of this "solution", the economy will, as seen during the depression, reach equilibrium at a much reduced level of output and you'll still end up with large deficits. If the goal is persistent high unemployment and a reduced standard of living this is a great solution though.

The economy went into the depression with large amounts of household debt just like today. You are suggesting the "solution" that was used during the beginning of the depression, it would have the same effect today that it had in the 30's. Namely a great depression.

Hyperinflation? Give me a break....we are experiencing disinflation which may turn into deflation soon. A stimulus package in the order of $1.5~$2 trillion would not cause hyperinflation, it would likely increase the rate of inflation though. But that is the point....

[jazzlover]

The economic problems we have today are much different than in the Great Depression. In the Great Depression, the United States had tremendous reserves of natural resources and a large industrial base that was glaringly underutilized as a result of the financial crash. In that environment, stimulating spending so as to re-energize that industrial base made some sense--though the results were mixed and it really was the onset of World War II that got America working again. Today, we are a nation of depleting natural resources and an industrial base that is not underutilized--it has largely disappeared. Throwing money into that abyss can only lead to one of two things--or both--a speculative economy that produces little real wealth (read: the early 1990's until 2007) or hyperinflation. Until Americans--individually, corporately, and governmentally can live within their means again--this country is going to continue to decline economically, politically, and socially. Unfortunately for us, living within our means is necessarily going to mean a protracted decline in the material living standards of most all Americans until we relearn financial and fiscal responsibility. That sucks, but it is inevitable and quite necessary.

[user_id]

Originally Posted by jazzlover

In the Great Depression, the United States had tremendous reserves of natural resources and a large industrial base that was glaringly underutilized as a result of the financial crash.

There is over capacity all over the US economy, the situation is not that dissimilar to the environment during the depression. Of course, industry has changed since then but that is irrelevant.

One of the industries that has contracted the most is ahem....construction.

Originally Posted by jazzlover

and an industrial base that is not underutilized--it has largely disappeared.

This is not even remotely true... The US industrial base contributes $2.7 trillion to the US GDP and it is very much underutilized at the moment. Furthermore, isolating matters to the industrial base makes no sense whatsoever.

Originally Posted by jazzlover

Throwing money into that abyss ....

Who said anything about throwing money into an abyss? Keynes had very particular ideas about how the government should spend money. Namely, one should spend money on projects that not only create employment but also add to the long term wealth of the nation. These sorts of projects help increase GDP/and save in the future and therefore help pay down the deficit. For example, the federal government could spend $200 billion to build high speed rails in Texas/South, California and the east coast. There are a ton of smallish projects that would actually pay for themselves over 1-2 decades (and save thereafter) too, for example improving energy efficient of buildings, street lights, etc (some of this was part of the stimulus package).

There is no reason Americans need to accept a lower standard of living, there are solutions but Americans are unwilling to implement them. Its sad that spending trillions on wars is accepted yet spending trillions on infrastructure to improve the nation is not. In the mean time all the infrastructure built during the depression will continue to collapse...

[jazzlover]

Think whatever you want, user_id, but most of the "stimulus" money that our dear government has spent or wants to spend is not your Keynesian vision of investing in the future of the economy though building of enduring and productive assets, it is a spending orgy to either blow the speculative real estate balloon back up, or to encourage immediate consumption. Both of those are nothing but a bunch of temporary feel-good horse*** that are actually damaging to the economy over the longer term. Sort of like taking out a second-mortgage on your house to eat a fancy dinner that you really can't afford. Dinner is quickly over, but you've got debt that hangs over you forever. THAT is what our current "stimulus" program is doing.

I will agree with you that we need to be investing in public infrastructure that we will need in the future. A good start would be to be quit wasting money on our unsustainable highway system and start rebuilding our passenger rail infrastructure. But, hey, that's not "fun" like letting people build McMansions they can't afford and live a lifestyle way beyond their earning and productive capacity--and borrowing money from future generations and squandering depleting natural resources that they wil desperately need in order to keep spoiling ourselves.

[user_id]

Originally Posted by jazzlover

but most of the "stimulus" money that our dear government has spent or wants to spend is not your Keynesian vision of investing in the future of the economy though building of enduring and productive assets

And I never claimed it was, but a decent amount of it went towards infrastructure projects (mostly shovel ready projects that would have been cut due to lack of funds). It was not nearly big enough though.

Also, increasing consumption (e.g., final demand) is the point of Keynesian policies. But there are better ways to do this than others.

I don't see any reason why the highway system is unsustainable.