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You absolutely CAN have bubbles without subprime loans, but in this case that was a big factor. These risky loans should have never been made. People who should not have been homeowners were able to purchase homes. It caused a lot more harm than good.
Breaking windows didn't work in 1850 and it doesn't work today. Bastiat knew 150 years ago that intentionally breaking windows was no different than stealing.
Which variable in your equation accounts for the "non-purchases" the taxed party won't be making?
Bastiat's argument and Keynesian economics are different things with different definitions, they are only the same thing when you don't really understand what each is. The only way it can come close is trying to justify economic expansion spending by the government is gearing up for war.
Are you serious about counting non-purchase? How can you count the number of things people didn't buy, or wondered about buying, in a given month? Do we need telepathic powers in order to gauge economic activity in your world? That's loony.
Hell, I bet the number of things I think would be cool to own in a month could top Rhode Island's entire GDP.
Consumption=65
Investment=15
Government=10
Net Exports=10
C+I+G+Xn=65+15+10+10=100
Hokiestan has a recession and consumption drops to 60, GDP is now 95.
C=60
Investment=15
Government=10
Net Exports=10
GDP=95
Government economists get together and decide that the government needs to step in for the lack of consumption, they decide to increase spending by 50% to $15.00.
GDP is now at 100, the economy grew by 5.3% (100-95/95), everyone praises the President because GDP is back to prerecession levels.
Did the economy improve?
Not enough information to tell whether the economy improved.
If the increased government spending came from taxes, then consumer spending probably declines by 5 points, totally offsetting the government increase.
If the increased government spending is financed as part of a clearly unsustainable orgy of borrowing, consumers may reduce consumption in order to save more, or reduce personal debt--knowing they are on the hook for an eventual increase in taxes to cover the borrowing, and fearing the long-term effects of a profligate government.
If the increased government spending comes from a magical source that will hurt virtually no one since it only applies to a very small number of corporate-jet-flying greedy fatcats, get ready for a diet of tree bark and grass.
Why look at Hokiestan when you can look at Europe right now as they feel the effects of your solution for the USA ......"Austerity"
They were warned by Krugman and others. But they didn't listen.
The Keynesian champions CAUSED the problem in europe. The europeans LISTENED to the Keynesians, that is why they are in the shape they are in. Stiglitz, the Nobel Prize winning Keynesian, only three years ago, was praising Greece, Italy, Spain and Portugal as shining examples of the SUCCESSES of Keynesian economics!
Spend into a ditch and you will end up in a ditch. This is the problem with the Keynesians- they state that federal spending is fine, as you can "grow yourself" out of debt, until a "tipping point" is reached. That "tipping point" is a reflection of debt relative to GDP and the percentage of debt held by the citizens of that nation, relative to foriegn investors and banks. When that "tipping point" is reached, the Keynesians just don't know what the hell to do. This, of course, is seen in europe. What happens? Things go to hell and austerity measures need to be instituted.
Take home message- Keynesian economics has been a dismal and disasterous failure for any nation which has embraced us.
Are you serious about counting non-purchase? How can you count the number of things people didn't buy, or wondered about buying, in a given month? Do we need telepathic powers in order to gauge economic activity in your world? That's loony.
Yes, I'm serious. That is one of the reasons I think Keynesian theory fails. It's incomplete. It ignores opportunity cost. And basic human behavior.
Humans make decisions based on reasoning AND emotion. When I was running a company, decisions were an educated guess. When Bush was President, we made certain assumptions about tax rates. And government spending. And interest rates. Cost of borrowing. When Obama took over, we made different assumptions. It doesn't matter how things really turn out, because we make strategic decisions that are hard to reverse. It's Obama's ideology that concerns many business leaders. The only way to quantify the affect of their "non-spending" is to look at the unemployment numbers.
Example: I made a decision to enter into a rate swap in 2005 because I was convinced rates would rise. I locked into a five year rate swap and got clobbered. Rates went down and I ate the difference. We are not always right.
Last edited by TrapperJohn; 12-19-2011 at 07:41 PM..
"The real estate bubble of the mid 2000s was economic growth. Construction went up. Unemployment decreased. What more does there need to be to indicate economic growth?"
What do you think caused the real estate bubble?
What always causes them, rent seeking and real estate speculation that not only doesn't create wealth, it steals it. Loans that invest in industrial capital = more widgets. Loans for buying real estate can't make a teaspoon of dirt. It just raises the cost of everything because of land access charges.
The Keynesian champions CAUSED the problem in europe. The europeans LISTENED to the Keynesians, that is why they are in the shape they are in. Stiglitz, the Nobel Prize winning Keynesian, only three years ago, was praising Greece, Italy, Spain and Portugal as shining examples of the SUCCESSES of Keynesian economics!
Spend into a ditch and you will end up in a ditch. This is the problem with the Keynesians- they state that federal spending is fine, as you can "grow yourself" out of debt, until a "tipping point" is reached. That "tipping point" is a reflection of debt relative to GDP and the percentage of debt held by the citizens of that nation, relative to foriegn investors and banks. When that "tipping point" is reached, the Keynesians just don't know what the hell to do. This, of course, is seen in europe. What happens? Things go to hell and austerity measures need to be instituted.
Take home message- Keynesian economics has been a dismal and disasterous failure for any nation which has embraced us.
If you believe that the "Europeans" embraced Keynesian economics you don't know what Keynesian economics are. First and foremost, Keynesian economics and "austerity" don't go hand in hand. That should be your first clue.
Yes, I'm serious. That is one of the reasons I think Keynesian theory fails. It's incomplete. It ignores opportunity cost. And basic human behavior.
It failed because it was blind to resource rents just like neoclassical economics is blind to financial rents.
Quote:
Humans make decisions based on reasoning AND emotion. When I was running a company, decisions were an educated guess. When Bush was President, we made certain assumptions about tax rates. And government spending. And interest rates. Cost of borrowing. When Obama took over, we made different assumptions. It doesn't matter how things really turn out, because we make strategic decisions that are hard to reverse. It's Obama's ideology that concerns many business leaders. The only way to quantify the affect of their "non-spending" is to look at the unemployment numbers.
The problem that a Keynesian approach could solve would be to move the debt off the private account and move it to the public account, which is cheap and a way out of the liquidity trap. Its a poor way to solve the credit crunch, but it beats what we are doing now. Bank failure and defaults was the right way to begin with, but barring that, where is the deficit spending that is making it into the goods and services economy?
The big deficits for bank bailouts isn't Keynesian at all. It is in fact a form Frankenstein monetarism where banks are expected to make loans in low intrest rate and high risk environments..
If you believe that the "Europeans" embraced Keynesian economics you don't know what Keynesian economics are. First and foremost, Keynesian economics and "austerity" don't go hand in hand. That should be your first clue.
I don't think you comprehended Hawkeye's post at all.
In econ class back in the 70's, they taught us all about Keynes. Countercyclical deficit government spending in periods like 1974 would be paid back with surpluses when times got better. I was young, but I wasn't stupid. We spent into deficits in the bad times, then times got better...and we spent into deficits. For at least four decades, "Keynes" is a code word for spending money we don't have.
The Keynesian champions CAUSED the problem in europe. The europeans LISTENED to the Keynesians, that is why they are in the shape they are in. Stiglitz, the Nobel Prize winning Keynesian, only three years ago, was praising Greece, Italy, Spain and Portugal as shining examples of the SUCCESSES of Keynesian economics!
Spend into a ditch and you will end up in a ditch. This is the problem with the Keynesians- they state that federal spending is fine, as you can "grow yourself" out of debt, until a "tipping point" is reached. That "tipping point" is a reflection of debt relative to GDP and the percentage of debt held by the citizens of that nation, relative to foriegn investors and banks. When that "tipping point" is reached, the Keynesians just don't know what the hell to do. This, of course, is seen in europe. What happens? Things go to hell and austerity measures need to be instituted.
Take home message- Keynesian economics has been a dismal and disasterous failure for any nation which has embraced us.
You're as ignorant as ever in this matter. It was a global economic downturn caused by a collapse of a housing bubble. Created by deregulation of the mortgage industry which your ideology fully supports. 95% of the bank failures were private banks. No country is in trouble because the had high deficits before the banking collapse.
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