The U.S. economy (by official statistics) is not growing with the rate of increase in the population, which means that we are slipping further and further. The NYT quotes many people to the effect that this is both shocking and disastrous. This has to be one of the greatest failures ever for Keynesian stimulus policies. It would be interesting to compare this failure with the New Deal itself.
One can’t but reflect on the four years of government/media/establishment promises – backed by ghastly actions – that recovery is right around the corner. This rhetoric probably helped forestall the pace of liquidation and hence delay recovery more. The latest news will probably set the liquidation in motion at a faster rate as factories, homeowners, banks, and many other institutions finally throw in the towel and realize that their inventories, assets, and balance sheets need to reflect reality. And those young people who have put off taking the low-paying job in hopes of finding that high-paying job they were promised will similarly make new adjustments.
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Stimulus fail in graphs:
http://www.grpundit.com/2011/07/14/stimulus-failure-update/
By using “potential GDP” and discounting certain components of the stimulus, Paul Krugman concludes that “the Obama spending binge is a myth”:
http://krugman.blogs.nytimes.com/2011/07/29/the-truth-about-federal-spending/
Oh yeah, so actually there was no spending? So this TARP-to-stimulus thing is just a fantasy?
And “Potential GDP” … what the hell?
Just a little curious as to why using the NYT, in this instance, is ok to support your argument but most other times, the NYT is being slammed by this web site as are the other data reports that come from any government entity. Is it just because this particular piece of data supports the agenda of this web site? Tucker, do you agree with all of the information and pieces of data that the Commerce Dept. used and came up with to come to their conclusion or do you just agree with their assessment because it supports what you believe, regardless of the particulars that they used?
I quote the NYT all the time. My point is that even according to official data, the economy isn’t growing. One even might make the point that if you could count the uncountable (black markets, digital barter, internet gray markets, etc.) there is growth out there in fact.
But I question using the data at all. If it is “wrong” when they report positive news, why is it all of a sudden “correct” when reporting negative news? What if, according to their records, they report something negative, when in fact the opposite is true? This is why became specific and asked whether you also agreed with all of the pieces of data that the Commerce Dept. used in order to come up with their conclusion. Or do you not know how exactly they came to their conclusion and are just saying, “See, even they think things are bad!” If that is the case, was this blog even necessary?
You are merely obfuscating the argument. The “agenda” as you so blithely put it is to educate individuals on economics. Sometimes, a reporter out there gets it right.
Think of it like this, when they get it wrong it is pointed out.
When they get it right, it is used a reference. Seems about right to me.
No problem here, move along.
Sorry, agenda was a horrible word to use in regards to what this web site does, because you are correct, it is an educational web site. I should have been more clear and just simply said, many here make it very clear how much they do not like the NYT. So I found it interesting that all of a sudden, I’m seeing it used to back up a point being made and then even further that, using data from a government entity. To hopefully make what I am saying even more clear, for instance whenever I get into discussion and GDP comes up, even if using a GDP figure would seemingly work to my advantage, I still don’t use it because I belive GDP to be a very useless piece of information. But at any rate, I’m willing to move on from this discussion if Tucker doesn’t wish to respond to my more direct question.
When the guys who paint a rose-colored picture say things are bad, you things are definitely bad.
Ok, I see your point now. Which I definitely agree with.
I also refuse to use GDP in discussions. If it does come up, I explain how easily manipulated it is and give actaul occurences in which it is manipulated.
Peculiar question to an obvious explanation.
How about, the NYT is typically full of crap but once in a while reality leaks from its Ministry of Communications in spite of its transparent and sophomoric attempts to shill.
Franklin and Jeffrey, I also say the NYT isn’t all bad: Today I was a tourist in a nice coffee shop on Coronado, San Diego. Having my kindle drained of battery and my Mises daily unaccessible, I actually picked up a New York Times magazine because the cover was a striking photo of Mexico/Texas. This was a FANTASTIC article about borders, economics, drug wars, military pork, and labor freedom! So yes, I admit, today the NYT was honest.
PS: There was another article about how “auters” (amateur authors?) are saving the comics industry by infringing on IP! Free Talk Live interviewed “the Goblins” customs-detained author about this same theory a few weeks ago.
Under GDP = C + I + G if you increase G and keep C + I constant you should increase GDP. This is a mathematical identity. Hence, the Keynesian call to keep on spending more and more to increase the economy. This clearing is not working. Increasing G must result in either C or I decreasing, or both decreasing.
im curious as to what you have to say about this analysis.
http://www.washingtonpost.com/blogs/ezra-klein/post/what-the-new-gdp-numbers-tell-us-about-stimulus/2011/07/29/gIQAj8lNhI_blog.html?wprss=ezra-klein
this isnt an attempt to gode or anything like that, i just dont have the chops to critique this analysis and thought someone here might. from what i understand its a pretty convincing case that the stimulus “worked” but wasnt big enough. please correct me?
Rory:
Two points:
1) $1.6 trillion to create 3 million jobs – that’s over $500,000 per job – bet you wish one of them was yours?
2)The economy need to create 200,000 jobs per month just to accommodate new entrants into the work force. New high school and college graduates are having a terrible time finding suitable full time work.
We read:
“As Moody’s [Oh it's Moody's .... wow] chief economist Mark Zandi told me this morning [Oh, you have good sources, Mr Klein], the revisions suggest that the recession following the financial crisis was much, much more severe than we’d thought [who is this "we" and what was we thinking exactly - a couple of month before the crashdown, Moody's was probably thinking things would boom forever, but I can't be bothered to look that up] — the economy actually shrank at a 8.9 percent annual rate the fourth quarter of 2008 and 6.7 percent in the first quarter of 2009 (earlier estimates had shown a smaller, 5.9 percent annualized drop across the two quarters). Then, Congress passed the stimulus bill, the fall in growth dwindled to 0.7 percent in the second quarter, and, by the third quarter of 2009, we had 1.7 percent growth [are these estimates gonna be revised, too?]”
The problem is that “GDP” is not exactly well defined or free from double-counting or accounting gimmicks. Neither is it a useful measure of what is actually happening under the covers. Neither is it clear that there is any causal relationship between the second derivative of GDP becoming positive for a time and billions being borrowed, then spent on government-selected activities. Maybe the “fall in growth” just “dwindled” because you can only fall so far in a first step. Who knows? The concept of a “double-dip” recession has been around a long time, and pundits never seem to grasp that it may well be “double-dip” because the “stimulus packages” just delay, and quite likely worsen, the actual downslide. Still, they are clamoring for more.
what’s a better measure of economic performance? Do the problems with GDP prevent it from being useful at all?
Oh well, that’s a discussion for which I need to have read several books more.
But you may want to start here:
http://mises.org/daily/3843 – Should we believe the GDP?
or here:
http://mises.org/daily/1877 – What’s Wrong With Economic Growth?
“Do the problems with GDP prevent it from being useful at all?”
It may be useful for something, but it is not, by any means, a measure of domestic production. It measures consumer spending, government spending, and a tiny number called “net investment” which is the tip of the iceberg of spending by business.
Furthermore, it doesn’t tell us where the spending is coming from. It could be a result of Chinese borrowing, Americans drawing down their savings or Federal Reserve money-printing exercises. So, to consider it a measure of economic output is just, well, silly.
As far as Master Klein’s article goes, its biggest fault is that it assumes that government spending is a stimulus when we all know that government spending is a drain. But, in the end, that is the crux of Keynesianism and the GDP equation which was designed specifically to support Keynes’s theory.
Keynesian theory is nonsense and bothering to read a twenty-something’s interpretation of it is a waste of time and pixels. Hope you stick around here, you’ll learn a lot. I resisted the Austrians for years — too theoretical in the face of statistics! Eventually, though, it dawned on me that it is the only theory that stands up to actual thinking.
This may be naive of me, but it seems that aggregate spending must be a lower bound on aggregate production. Everything bought was made. Seems reasonable to present a lower bound as a measure of economic output. Granted, it does nothing to tell us whether the output was any good, but that’s rather besides the point isn’t it? Knowing the goodness of the investments would require prescience, which seems like an unreasonably stringent requirement for a good metric.
As far as your comment on “Master Klein’s” article goes. I find it troubling that you use the assumption that his conclusion is wrong as an argument against his conclusion. Ezra is arguing the point that the government spending had a stimulative effect, and he presents evidence supporting that conclusion. You can’t just say “nope” without providing an alternative explanation to the data. If stimulus doesn’t work, why do the numbers make it look like it has? What other explanation fits the facts?
I’m not resisting the Austrians so much as trying to figure out whether there’s any useful economics out there at all. I’m interested in Austrian or Keynesian or Chicago-school economics to the extent that they make testable hypotheses and produce models that explain historical data. That’s the only kind of actual thinking I’m interested in doing, and ad hominem arguments (twenty-something, keynes is nonsense) and sloppy thinking (your argument is wrong because I assume it wrong) do little to assist me in reaching the pro-Austrian conclusion.
The articles El Tonno kindly linked me to present very interesting cases as to why GDP is a bad way of tracking the “goodness” of the economy, but they don’t provide me with any reason to believe that it doesn’t track economic output. They also trouble me in that they claim there is no way of tracking the goodness of the economy. That makes sense to me because knowing what is malinvestment (the apparent preoccupation of Austrian theory) seems impossible or at least very difficult until it is rather too late, but it seems that the authors use this fact to conclude that all aggregate measures of the economy are useless and shouldn’t be considered. That seems irresponsible to me.
What, if anything, does the Austrian theory imply we should DO to avoid economic collapses? I’ve heard some talk about avoiding bubbles in the first place? How? by deregulation? by regulation to produce more perfect markets?
point 1 seems to me to indicate that the projects funded were capital intensive, which i understand is fairly common anywhere. Obviously if we had only hired people with the money wed have made more jobs, but if wed only hired people we wouldnt have made anything with the money. also, that 500000 per job looks less scary if you look at it over the lifespan of the job. still not pure labor investment surely, but not so terrible over, say, 3-5 years.
point 2 seems to be basically “the economy is still really bad”. you wont hear any disagreement from me there.
none of this really addresses my basic question though. why are 3 million jobs and the end of the nosedive (which seems pretty strongly correlated to the introduction of stimulus) bad? what would have happened otherwise that would have been better? whats the austrian solution?
Rory, the Austrian solution would be to let the contraction run it course without intervention. If that had happened, a more severe contraction would likely have taken place, but with the bad investments made during the boom or bubble liquidated, the nation would now be experiencing a robust recovery (assuming the government did nothing to screw it up, which under Republican or Democrat politicians is an unlikely assumption.)
Don’t believe the political hype that without the stimulus the nation would have been plunged into a depression deeper than the Great Depression of the 1930s. And don’t believe the b.s. that if the debt ceiling isn’t raised the nation will be plunged into a depression deeper than the Great Depression of the 1930s. And don’t believe the b.s. that Roosevelt’s programs saved the nation from the Great Depression. As a matter of undeniable fact, the intervention of the Hoover and Roosevelt administrations and congress during those years, managed to turn what would otherwise have been a short recession in 1929/1930, into a severe economic slump that lasted for most of two decades (1929-1946).
Finally Rory, use a little common sense: Government cannot and thus did not produce, create, nor “stimulate” the creation on any NET number of jobs whatsoever. Everything government does is financed by taxes or deficit spending, which in essence is taxation on the installment plan, only a lot more expensive because of the interest requirement. For every job government “creates” by spending, it destroys perhaps1.5 (or more) jobs that would otherwise have been created by the productive sector of the economy if the money to pay for those jobs hadn’t been forcibly taken by the unproductive feds from productive individuals and business.
Hi Ned. Thanks for your clarification of the Austrian response to the recession. If I understand you correctly, you’re saying that if the recession is allowed to take its course, then all the bad investments will go away and the subsequent recovery when it finally happens will be much faster. Are there historical examples we can use to show that un-checked recessions have faster/more robust recoveries than recessions where the government intervenes?
I’m not sure how this logically leads to your claim that we wouldn’t have plunged into another Great Depression. Anything more severe than what actually happened would have to be pretty close. I would love to see the undeniable facts you mention w/respect to the origins of the depression. My understanding was that the massive increase in employment and spending generated by WW2 ended the Great Depression slump. I’d note that this massive increase in spending and employment was almost ENTIRELY by the government, and was wasteful in the worse sense since we were actually paying to destroy our workforce and leave large amounts of our natural resources in slag and wreckage on foreign shores.
I also find your final “common sense” argument a little hard to understand. The fact that everything the government does is financed through money received or borrowed from others is hardly unique. Every enterprise’s financing could theoretically have been used by another enterprise. Furthermore, the US government in particular is able to borrow at rates MUCH LOWER than those available to private industry (by the operations of the financial markets, not by mandate i might add). Real rates on government loans right now are negative… not exactly an adverse borrowing situation (incidentally, this makes borrowing LESS EXPENSIVE than taxes right now). The point is, if government can’t create jobs, no one can. The only difference between a government and a business is that the government can protect its revenue stream using force (and really, there are plenty of other businesses that do this too… like drug-gangs!). This seems to be totally irrelevant from a job creation perspective (though not a moral one). If no one else is interested in hiring people in a recession (perhaps because they have low expectations w/respect to demand) it seems to me that the available capital resources will idle unproductively. A government could certainly put those to use without “crowding out” the private sector, couldn’t they?
“The only difference between a government and a business is that the government can protect its revenue stream using force”
No, the main difference between a government and a business is that a business has to do profit/loss calculations and detect where to invest next. A government is a spending drunkard, seizing resources, then splurging them on stuff no-one actually wants (like the 6 wars that are currently going on).
Note that if the “WWII brought us out of the depression” nostrum would be true, everything would be hunky-dory by now..
http://articles.sfgate.com/2008-03-18/news/17168215_1_war-s-price-tag-war-cost-care-for-iraq-war
“It was supposed to be a quick war and a cheap one. Five years later, 160,000 U.S. troops are still in Iraq. And the costs keep piling up – $12 billion every month – putting a strain on an already faltering economy. The United States has poured more than $500 billion into Iraq, mostly for military operations. But that figure is just a small piece of the much larger bill that taxpayers will pay in the future. Because the money for the war is being borrowed, interest payments could add another $615 billion. A heavily depleted military will have to be rebuilt at a cost of $280 billion. Disability benefits and health care for Iraq war veterans, many of them severely injured, could add another half-trillion dollars over their lifetime.
Only World War II was more expensive. That four-year war – in which 16 million U.S. troops were deployed on two fronts, fighting against Germany and Japan – cost about $5 trillion in inflation-adjusted dollars.”
It’s obvious that war was much more labor intensive in WW2. A much smaller portion of our population is directly involved or employed by the war effort now. War has gotten super capital intensive, which obviously reduces its job-creation powers. (For the record I’m glad we went into WW2, and I’m not at all glad we went into Iraq/Afghanistan)
Your point about the government having non profit/loss incentives is fair, but they are resource constrained like everyone else, and have incentives to use their money in ways that they value. There are plenty of careless, crazy, or ideologically motivated rich people who make similarly profit/loss independent decisions about what to do with their money. I’m not sure what that means from an economic perspective. For that matter, most people make life decisions based on well-being, not profit-loss. They want to make their spouse and children happy, not maximize their family wealth production. I’m not sure how the government differs there.
WW2 was a tragedy that should of never happened.
It really is ‘World War 1, Part 2′ and probably would be been avoided completely if we stayed out of WW1 in the first place.
It’s pretty safe to say that with WW1 there was no ‘good side’. France, Great Britain, and the rest were just as bad as Germany.
couldn’t agree more re: WW1 and its role in the creation of WW2.
“If no one else is interested in hiring people in a recession (perhaps because they have low expectations w/respect to demand) it seems to me that the available capital resources will idle unproductively. A government could certainly put those to use without “crowding out” the private sector, couldn’t they?”
Due to the housing bust, idle resources might include things like: unemployed construction workers, out of business interior designers, manufacturers of construction equipment, etc. The reason they are unemployed is that no one can/wants to finish or start housing projects right now. The reason for that is housing prices are low (and entrepreneurs probably believe they will continue falling), which reflects a glut of houses on the market. The resources that are “idle” are specialized; they are employed in making houses or other buildings. The government COULD, through “stimulus,” employ those resources. If they did that, the government would be creating things that the market doesn’t want! It would be a profit-losing, and therefore inefficient, use of scarce resources. Those “idle” resources must be liquidated and the salvageable parts employed for other, profit-making enterprises. The ideal people for that operation are entrepreneurs, not government.
It is not that there are low expectations for “demand” as if just making anything at all will satisfy that demand. There is a lack of demand for the things that the idle resources can produce (housing in my simple example). Those resources need to be put toward producing things people actually want. So, yes, government employment of those resources WOULD crowd out the private sector. At the very least, hiring those unemployed would mean they are not employed elsewhere getting new training for a job that people actually want done. Employing “idle” machines would mean those machines and their components are not being liquidated/dismantled to be employed in future profit-making operations.
An aside:
“the government can protect its revenue stream using force (and really, there are plenty of other businesses that do this too… like drug-gangs!)”
Black markets, which are inherently more violent than normal markets, are created by government through prohibition…. Also, it IS relevant from a job creation perspective. Black markets are better than government because they still provide goods and services people actually want, whereas government enterprise produces inferior or unwanted goods and services at low quality and high price.
I was actually talking about idle capital resources, not idle physical ones. I agree completely with your evaluation of the housing market. If people with money don’t see anything they want to invest in, their money just hangs out doing nothing.
“At the very least, hiring those unemployed would mean they are not employed elsewhere getting new training for a job that people actually want done.” This is demonstrably false. The fact is that, what, 9% of people who want to work are currently not being hired. Who is going to be “crowded out” exactly by government hiring the unemployed?
Yes, black markets are created by prohibition. I’m for legalizing drugs too. You could easily argue that the government’s monopoly on the use of force is the only reason that these violent dynamics don’t exist in every corporation though, so I’m hesitant to argue that the government is wholly bad. Furthermore, it seems like the democratic process is used to enact laws, and therefore that at least some people do in fact want the goods that the government produces, otherwise they wouldn’t elect politicians who want to produce those goods. It’s a different economy, but it seems to be a relevant one. There are clearly ways in which I am unsatisfied with the product produced by my government, but I’m also unsatisfied with my cell phone, my tv, my computer, and my car, so… not sure what that means.
“The fact is that, what, 9% of people who want to work are currently not being hired.”
Rory – the official 9% who are unemployed are those receiving unemployment benefits. Since these benefits are paid (to the states first) by the federal government, the unemployed are no different from minimum wage employee of the federal government, except that they produce nothing. However, this is perfectly sound Keynesian economics. Nancy Pelosi was correct, from a Keynesian perspective, that extending peoples unemployment would stimulate the economy, because they would immediately go out and spend it.
Except that the money is being taken away from someone else who would have otherwise spent it, thus nothing is being stimulated and more money is competing for fewer goods as those 9%+ aren’t making anything, causing prices to rise.
J.
Since this money is being creating out of thin air, it is not really being taken away from someone else, except in the sense that it creates inflation (in the true sense) and thus devalues the purchasing power of other dollars as they compete for scare goods and services.
Also, if this money is being spent on cell phones and flat panel TV’s from China, it is probably providing more stimulation overseas than here.
The overseas stimulas is far less important then the fact that inflation is ‘shadow theft’.
In a very real sense inflation through the creation of fiat money is theft. Worse then regular taxes. Also it affects the poor much more then the extremely wealthy.
Since the inflation money is being created for the sake of capitalization of large corporations the people that are farthest away from these banks are the ones that are going to be hit hardest… which is generally going to be the poorest people. Probably more rural then otherwise.
It would be interesting to see if we can trace the inflationary money as it flows through the system and see which groups of people benefit from the inflated cash supply and which ones are punished the worst.
I am also suspecting that inflationary practices major powers in USA, Europe, and China are responsible for the spikes in food prices that contributed massively to the unrest in the middle east.
nate-m,
It seems to me that inflation hurts creditors most of all. The cost of labor increases with the cost of goods, so things balance out in terms of present buying power (though as you say, people earlier in the pipeline benefit directly from short term increases in buying power). However, since debt generally valued nominally, the real cost of paying interest and principle on outstanding debt goes down. Since the wealthy are more likely to be the creditors than the debtors, it follows that they are hurt most by inflation.
It certainly removes the incentives to save and invest money. This is certainly damaging to the economy. To reduce damage investors simply cease being investors.
I don’t know why it has it has to be ‘short term increase’. To me it seems very long term increase. They gain a distinct competitive advantage towards acquiring resources compared to other groups of people farther down the pipeline.
The ‘very wealthy’, the large publicly traded corporations, are almost all entirely heavily in debt and they borrow as much as they can get. Inflation lowers the costs of debt to them. They play the game that they can borrow and then spend and with the spending will improve profits. As long as they make more money from the borrowing and spending then they owe in interest then it’s all gravy.
In addition to that large central banks lend out as much money as they can get and even with fractional banking system they have maxed out their lending power and always seek to do that since it increases their profits. There is no danger to over extension for them because they have government guarantees on solvency through bail outs. So they lend out as much as they can get their hands on. They need the inflationary policies to compensate for defaults on loans and to increase their monetary base to increase the amounts of loans they can give out.
So these groups of people that control the most money and capital absolutely benefit heavily from inflation.
Individuals that are independently wealthy, like small business owners and such (which are the engines of the economy), of course, are going to much father down the pipeline and will face the same increases in prices for goods and services without the benefits of getting direct access to the inflated money. They also lose access to profits from saving and investing. Without the political ‘pull’ that federal banks and large corporations get they certainly are going to be damaged and have far lower prospects for profits.
If we would ever went into deflation it would be a huge boon for independent wealthy as profits for investing would be considerably easier to acquire. But this would also dramatically raise the cost of debt for major corporations, banks, and the USA government… which is obviously why they all want to avoid deflation at all costs.
Large business, large banks, and governments benefit from inflation. Individuals, small/medium business owners, middle class folks, benefit from deflation.
Very poor people, people who stay poor because they live in debt, benefit from inflation also. But most poor people are poor because they not established. As time moves on they would normally stop being poor and a significant number will move up the social ladder as they progress in their careers. My instincts say that this inflation heavily damages these people’s ability to be upwardly mobile. I need to examine this more.
It’s certainly very complicated process.
From the BLS website regarding unemployment http://www.bls.gov/cps/lfcharacteristics.htm#unemp
Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. Persons who were not working and were waiting to be recalled to a job from which they had been temporarily laid off are also included as unemployed. Receiving benefits from the Unemployment Insurance (UI) program has no bearing on whether a person is classified as unemployed.
So yeah, some of them are payed by the government (some at more than twice minimum wage, incidentally…. which seemed odd to me. 60% of your usual salary previous to unemployment, maximum of almost 600 dollars a week… is the point to discourage people from becoming underemployed? That seems like a perverse incentive. If it were up to me the benefit would be slightly below minimum wage). Still, to be on that list you have to be looking for work. They can’t find it, which means that the government isn’t crowding anyone out, right? Maybe they can only find work that they are overqualified for, but there are already other people taking those jobs. I don’t see unfilled vacancies for burger king or walmart. Who wants these people and can’t get them because the government is paying too much unemployment?
Also, J. what makes you think that the money is being taken from people who would otherwise have spent it. Lots of money is idle right now. http://feedproxy.google.com/~r/matthewyglesias/~3/GUPobZrEgjE/
Rory,
You could easily argue that the government’s monopoly on the use of force is the only reason that these violent dynamics don’t exist in every corporation though, so I’m hesitant to argue that the government is wholly bad.
You don’t think a corporation like Apple with $74 billion in cash couldn’t hire professionals to do violence to Microsoft? With this kind of money, you can have people vanish from the face of the earth.
So why don’t they?
Violence is bad PR (suspicion or fear would drive consumers and investors away)
Markets aren’t limited (global and untapped)
Money better spent on R&D (e.g. Ipod, Ipad)
Eliminating MS will just open the door to more competitors (and drive them underground)
Retribution from Microsoft (It’s not like they don’t have a ton of cash)
In other words, violence isn’t good for business. It’s that simple. It has nothing to do with gov’t.
When government tries to coerce markets, then you have violence. Gov’t perpetuates violence…it’s a myth that gov’t prevents violence.
Apple+computer industry+legal+no gov’t coercion+$74 billion = no violence
Street corner dealer+drug industry+illegal+gov’t coercion+$2000 = violence
Amazing…huh?
All of the factors you listed as deterring violence between apple and microsoft hold equally for drug dealers. The relevant difference, I think, is that drug dealers are already breaking the law, and so the additional risk of adding violence to the mix is lower than the additional risk for apple or microsoft.
This analysis, of course, leads to the conclusion that the illegality of the drug trade is a major driver of violence. That shouldn’t be any surprise; we saw the exact same trend with alcohol prohibition. However, it also implies that, absent any government, microsoft & apple would be much more likely to engage in violence. So I guess I have to disagree with you when you say “It has nothing to do with gov’t.”
However, it also implies that, absent any government, microsoft & apple would be much more likely to engage in violence.
Only in the absence of law. Here, we’ve ventured into the anarchist view that some of us on Mises have, that there can be law without government. An important historical example of this would be common law.
Also, as Microsoft and Apple are in business to make profits, engaging in actual violence with their competitors costs more money than it does to have a power structure like government that can do the dirty work for them at a minimal cost to them. That’s why there is a strong incestuous relationship between big business and government. Government can do much to restrict the competition in business, and force all taxpayers to pay for it. It’s cheaper and easier for the businesses than competing against all-comers in the industry.
Rory, Sorry to be so long in responding to the questions you asked of me. Hope your still tuned into this blog post:
“Are there historical examples we can use to show that un-checked recessions have faster/more robust recoveries than recessions where the government intervenes?”
There sure are, and with in-depth analysis from the economist-historian who has done by far the most research on the subject, Murray Rothbard, see AMERICA’S GREAT DEPRESSION, and THE PANIC OF 1819, both available on-line from Mises.org. (See the “literature link on the home page).
“I’m not sure how this logically leads to your claim that we wouldn’t have plunged into another Great Depression. Anything more severe than what actually happened would have to be pretty close.” What do you mean pretty close? Check the facts. The financial crises of 1929-1930 was by all measure substantially greater than the recent event. Again, use a little common sense. There is no evidence, other than the highly questionable soothsaying primarily by people with a vested interest in spending trillions of dollars of OPM (sounds like opium, is equally addicting, stands for other people’s money) that was in fact appropriated and spent under the pretext of saving the economy from the “crisis” they conjured. Furthermore, to say that a “crisis,” in financial and credit markets, leads inevitably to depression or recession in the economy in general, assuming no government intervention, would require theoretical and empirical proof that has not been forthcoming either for the current recession nor previous recessions.
“I would love to see the undeniable facts you mention w/respect to the origins of the depression.” Please read the Rothbard books I cited for his presentation of a plethora of such facts.
“My understanding was that the massive increase in employment and spending generated by WW2 ended the Great Depression slump.” It certainly did not–if “depression” is measured by the general welfare of most Americans as opposed to the welfare of the political elite and their favored friends who benefited enormously from government war-time spending. Many if not most Americans were worse off as a result of the war Many were dead, wounded, separated from their families, forced into involuntary servitude, denied by rationing many products they had been able to afford and purchase during the Depression, and, if the lived in Europe, Asia or the Pacific, were starved and murdered and deprived of all of their accumulated wealth. And, btw, Hitler’s Nazi Germany, by following Lord Keynes’ policy prescriptions with some macabre twists of its (his) own design, did achieve virtually the Keynesian nirvana of “full employment,” but at what cost? Only those who do not value human life can argue that WWII ended the Great Depression. You obviously recognize this truth as you say much the same as I just said: ” I’d note that this massive increase in spending and employment was almost ENTIRELY by the government, and was wasteful in the worse sense since we were actually paying to destroy our workforce and leave large amounts of our natural resources in slag and wreckage on foreign shores.”
“I also find your final “common sense” argument a little hard to understand. The fact that everything the government does is financed through money received or borrowed from others is hardly unique. Every enterprise’s financing could theoretically have been used by another enterprise.” You miss the point, which is my fault for failing to adequately explain. The private sector of an economy is the productive sector. The government sector is the destructive sector, or, in most people’s terms, the sector that takes resources from the productive sector for government purposes, whatever those may be. There is obviously no comparison between the financing of production (private enterprise) versus the financing of spending (government). Production adds to the wealth of the nation, government spending deducts from the nation’s wealth. Furthermore, because government acquires all of its revenues by the INITIATION of force or coercion, it introduces a terribly destructive factor into the life of the people of the nation, which cannot be measured but is terribly corrosive of the general wealth and welfare of the society into which it is introduced.
“Furthermore, the US government in particular is able to borrow at rates MUCH LOWER than those available to private industry (by the operations of the financial markets, not by mandate i might add).” What do you mean not by mandate?!? The only reason that government is able to borrow at lower rates is because it mandates the payment of taxes. Furthermore, it mandates a central bank that sets interest rates by mandate and at times mandates the purchase and sale of Treasury securities to mandate the going rate of interest on same. (And I could go on and on about other mandates that make Treasury’s borrowing less expensive than that of private-sector borrowers. And, of course, if you are paying attention the current state of the nation’s finances threatens to increase Treasury’s borrowing costs above those of AAA-rated private borrowers.
“The point is, if government can’t create jobs, no one can.” Baloney! For reasons stated above, government never, ever, ever has or can “create” jobs or anything else without before or after the fact taking more wealth out of the economy than its phony “creating.” puts in.
“The only difference between a government and a business is that the government can protect its revenue stream using force…” No, as I said, the most important difference is that the private sector produces everything the government sector spends.
If no one else is interested in hiring people in a recession (perhaps because they have low expectations w/respect to demand) it seems to me that the available capital resources will idle unproductively. A government could certainly put those to use without “crowding out” the private sector, couldn’t they? No. This was certainly Keynes’ reasoning (if one is so bold as to associate anything Keynes’ said with the word reason) and totally wrong. You must ask yourself, where will the government obtain the resources (viz., money) to put the “idle” resources to work? Will it tax (viz., steal), borrow or “create.” In any of these ways it will harm the productive sector.
Rory, reading over your comments on this thread, it is apparent to me that you came here as a committed Keynesian, not to learn about the Austrian school or ABCT (Austrian business cycle theory) as you have professed, but rather to argue the rightness of standard Keynesian economic theory. May I inquire, have you ever actually read Keynes’ GENERAL THEORY OF EMPLOYMENT, INTEREST AND MONEY? If so, I have some question of my own that I’d like to ask you.
Hi Ned,
Thanks for the comments. First of all, I’m not a committed Keynesian. I only started paying attention to economics early this year, and don’t know nearly enough to have a set viewpoint. I learn best by arguing against smart informed people. It gives me an opportunity to see how their ideas stand up against the tough tests that really show the measure of ideas. If Keynesian’s had a similarly active community website I’d be asking them hard questions too.
With respect to “crowding out”. I still don’t see how government borrowing crowds out private borrowing any more than private borrowing does. If there was very strong competition for capital, we would expect to see the price of rent on capital (interest rates) to go up. They haven’t, so it seems like there isn’t “crowding out”. If you don’t want to look at numbers, imagine it this way: If the people who want to lend money can’t find anyone to borrow it, then adding one borrower (the government) to the mix doesn’t take any borrowing out of the hands of anyone who wanted it. The current situation has a lot of idle capital and a lot of idle workers.
I agree that WW2 was a tragedy for everyone who went through it, but the economy certainly picked up a lot afterwards, and many people have argued that the full employment situations generated by the war effort are responsible. Others have argued that the economic uptick was just because the US wasn’t a huge pile of rubble… giving it a distinct advantage over Europe. That’s a fair point and I am less convinced by the Keynesian “look at WW2″ arguments than I previously was.
I’m afraid that I still don’t follow your argument about the essential difference between government and private industry. Government enterprises produce goods. They are arguably less efficient at doing so, but that seems a difference of degree, not kind. So far as I can tell the only difference between a Government and a private economic player is the ability to levy taxes and print money. Private economic players can have non-profit motivations, and can be inefficient just as much as government.
If governments could truly mandate the interest rates on their loans, as you suggest, then there would be no such thing as a sovereign debt crisis. This is clearly not the case (see Europe, or Argentina a while back). And you are clearly aware of this, because you note that our loss of AAA status threatens our borrowing power. They can spend money or create it in order to effect the market for their debt, but these powers are limited and if abused can lead to catastrophic inflation, national defaults, and all sorts of other bad news (as Austrians are very fond of pointing out). So I’m not sold on your “low interest rates are mandated” pitch.
I appreciate your reading links a lot, and will be sure to check them out. Please dont be put off by my argumentative style. The articles here tend to assume a lot of the tenets of Austrian economics and I’m trying to learn what those assumptions are and how they explain the real world, predict future events, and instruct us on proper courses of action. Hard to do that without asking some hard questions.
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