…seems to be pro-Bush economists. Supply-side economists like Larry Kudlow have for long been even worse than liberal economists like Paul Krugman on issues like budget deficits and inflation. But this article from Thomas Nugent is among the nuttier I have read. He actually claims that budget deficits are good and should be as large as possible because it allegedly increases “aggregate demand” and even savings. But what about the rise in the federal debt? No need to worry, because the government has the power to inflate “it [Government] can’t run out of money because it creates it”The fallacy of this is of course that deficits do not increase “aggregate demand” but merely diverts savings into government consumption rather than investments. And far from increasing savings, deficits will reduce savings as it diverts saved funds from investments to government consumption. It is like saying you increase savings if you lend money to some guy who will spend the money on booze instead of using it yourself to buy for example a new computer
. This too might increase your “financial savings”, but real savings will of course be lower. And using inflation to pay for government spending will also decrease savings as it creates a disincentive for savings.
Source link: http://archive.mises.org/2174/the-only-thing-worse-than-liberal-economists/
The only thing worse than liberal economists….
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From the article:
“This data indicates is that the federal deficit is too small for the U.S. domestic sector to save anything! Domestic savings are low because the budget deficit is too low. Low and unobtainable savings means low demand, excess capacity, and low levels of employment. In other words, to get adequate demand from a healthy economy, a much larger federal budget deficit is needed. Unfortunately neither political party sees the light on this one, and both proclaim a sincerity to balance the budget — which would totally choke off what growth we do have, as it would actually drain domestic income and savings and further reduce demand.”
Say what?!! This guy is totally cracked out.
Extending credit (i.e. ‘saving’) should be based on expected repayment with a return on investment.
The public debt to provide for what it consumes (usually as a payoff for votes) merely allows the ultimate creditor, the citizen, to live under the illusion they are building equity when they are merely holding a debt instrument. If the State is borrowing instead of taxing (permenantly and forthrightly impounding individual equity) it must mean the individual does not have equity but has debt. How much is yet to be decided, but it will have to be impounded at some point. The only other option is to use some the borroed money to wage war externally and hope to make a ‘return’ that way. Regardless the State should not be the instigator of production or entice people to do behave one way or another relative to the allocation of their property. Doing so on their behalf also has serious side effects, if nothing else than it makes the State the largest de facto investor in the economy. A Command Economy can result from direct take over by Force in one fell swoop, or simply by eating up the Credit Market one bite at a time.
Well, at least the neocons are returning to their liberal corporatist roots. And that’s only fitting. It was the liberals who invented military Keynesianism, after all.
National Review is pretty embarrassing when it comes to economics (among other things, of course). Brad DeLong often criticizes them from a lefty perspective.
Neo-Cons are Trotskyist trojan horses.
“Best way to defeat the opposition is to lead it ourselves” – V.I. Lenin
Neo-Cons are this kinda opposition to socialism.
Should we really be taken back by the Nugent article? Suuply-side economics is essentially just another variant of Keynesianism, and as was shown long ago, the entire Keynesian framework is nothing but a tissue of fallacies. It is depressing to see how illogical and ridiculous the analysis and assertions can become, but when political power is on-the-line, I guess it is not surprising. However, when one examines the totality of the arguments of the supply siders, versus those of the more “traditional” Keynesians such as Krugman, I’m at a loss as to which group’s analysis is more fallacious.
Dennis: These people will never let go of their fallacious economic theories. For instance in the 1970s when stagflation dealt a major blow to Keynesianism, did all the Keynesians formally and completely reject their theories?
Not by a long shot. They merely “fine tuned” them, and now we have Neo-Keynesianism. And this process will continue. If Neo-Keyensianism is also dealt major empirical blows, the statists will merely resort to “fine tuning” that as well, so we will have Neo-Neo-Keynesianism. So on and so forth.
Constantly missed and these days never even raised is the immorality of interventionist or redistributive systems.
There are no capitalists in government today, but even sadder is that the American people have turned their backs on the only socio-political system that is the corollary of individual rights – upon which the United States was founded.
The upshot is that: collectivism has supplanted individualism; faith is embraced over reason and; altruism is the order of the day.
So to those who resoundly applaud government when they receive the special interest booty, do not complain when your sons and daughters are enslaved in a draft for wars or your taxes rise or your legal tender collapses.
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