All tax laws include enFORCEment provisions. In other words, they will be collected by force–including imprisoning or even killing should the victims resist coughing up the extorted money. In this way, taxes introduce force and violence into otherwise peaceful human relations, and this introduction of violence into the human-intercourse equation inevitably has unseen, unpredictable-but-certain-to occur consequences–like wars, murders, school children killing school children, etc., etc. (Ask me how taxes and the people who propose them are responsible for the Columbine HS and similar school massacres–if you dare.) Because of the unseen consequences of their taxation schemes purportedly to succor the downtrodden, the poor, and the unemployed, “Progressives” who seek government action to cure recessions and other ills of the world are in reality thugs and murdering war mongers responsible for most if not all of those ills.)

To the victim taxpayers, deficit spending in good times or bad is the equivalent of being allowed to pay the extortionist with a credit card instead of cash, and it is consequently a lot more expensive because of the years of interest charges. Of course there is one difference between taxes and deficits: current taxpayer/victims, if they don’t live productively for too long, are able to pass some of the extortion burden off on the next generation of taxpayer victims including their own children and grandchildren. All of the Keynesian-Progressive-Communist-Democrat-Republican b-s theorytales about the “benefits” of government spending require attributing superhuman, divine-like attributes to government and its human operatives, which is the religious belief Mises dubbed statolatry.

Good article, Mr. Murphy, but I doubt it will change the mind of TOM HUMAN, ERIC OR JOEBHEAD. The problem is cognitive dissonance, or as Tolstoy said, in words Micheal Lewis borrowed as a preface to his survey of those insightful speculators who foresaw and made a killing on the bursting of the housing bubble in his book, THE BIG SHORT: “The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him.” Hmmm. Could Tolstoy have known Krugman?

However in a depression people are scared to do anything. So new laws have to be changes to reflect this fear.

Is it because the statists have used their socialist poison and youth indoctrination camps to purge these virtues from the population? Ever urging further dependence on the state, they appear oblivious to the fact that prudent action involves thinking for one’s future and the uncertainty which it may bring.

A prudent man will ignore the spendthrift’s budgeting advice. When the statists and the state have balanced their own budget and begun to live within their means, perhaps the exhortations emanating from these individuals may be worth considering. Until that time, it is better to do exactly the opposite as what they propose.

I would suggest that it is not enough to just prepare and lay down provisions for an uncertain future, but also be prepared to defend them from vultures with no morals. Maintain physical possession of as much as prudence guides.

Do statists understand that their advocacy of violation of the law can lead to nowhere but the destruction of civilization itself? For what society may exist when there is no protection from thieves and vandals, when the fruit of one’s labor and the property acquired rightly may be taken with no institutional recourse? Perhaps the secret desire of the statist is to destroy the state and to see what anarchy obtains? I would suggest that there are better ways to transition to a system of anarchy than to advocate a path of lawlessness and a breakdown in the division of labor. Mises was right, the anti-capitalist mentality remains anti-human and counter to the advancement civilization. This is made clear by even a cursory examination of the expected outcome of such nonsense proposals.

“There is arguably lot of instability now. The conditions have abruptly changed. I would argue that the best outcome would be if the market adapted the price and production structure to the new conditions AS FAST AS POSSIBLE.”

This is a good statement that anyone can agree with. The question is, “What is as fast as possible?”

In the same way that if you deform a piece of metal too fast, it will break, if you move individuals too fast, they will break.

If your top-flight engineer spends some time getting food out of garbage cans for his family, when some opportunity suddenly appears he simply isn’t going to be a top-flight engineer any more.

It’s important to sustain that engineer so he can keep feeding his kids and keep his house while you find something to do with him. If you break that engineer, he won’t work any more.

Humans are delicate.

“What you propose is essentially what happened during the Great Depression, at first the government exhorted businesses to maintain wage rates and cut into profits. While this maintained wages for a while, it did not allow them to adjust to the reduced discounted marginal revenue product available from the final sales of goods to consumers as monetary deflation from failing banks and business loans accelerated raising the purchasing power of money and consequently resulting in a falling price of goods.”

Again, there is nothing in your argument I disgree with, not one bit.

Let me even cut to the chase and say, “Yes, I’m advocating that the government do things that are _am kleinem_ somewhat uneconomic. Yes, we’re losing a little money with each transaction.”

The reason is that in the longer term, you are preserving and nurturing your assets, and these are assets you can’t turn on and off like light bulbs, these are your human assets.

So from a larger, longer-term perspective, it’s perfectly reasonable to pay your engineer to do something that’s somewhat uneconomic while you rearrange your economy to find something for him to do, because if you break ‘em, it’ll take you 30 years to make another one.

I’m not proposing throwing money in the toilet, of course. You have to obey the laws of economics. You have to realize that you’re employing this person at a loss – though that loss might be quite small, and if you see my taxation argument above, it might be more economic for a goverment to employ someone marginally employable because they can then tax them.

Yes, you have to be working hard to move this person to a real, economically viable job, no, you shouldn’t be doing things that are wildly economically unviable.

But still, that said, most people want a chance to live, and thrive, and survive, and if “the government” (which is “the people”) have to put in money – and even take money from other people who have not consented, frankly fuck you if my child(*) needs to eat, particularly if I’ve done everything right and am simply being dislocated by “economic” forces completely outside of my control – then that’s what’s going to be done.

Economics and economic efficiency are very important in the same way that the laws of electronics or gravity are important – you don’t want your circuits to catch fire or your buildings to fall down – but in exactly the same way have no particular moral imperative one way or the other, there’s nothing wrong with tall buildings or complex circuits.

These are human tools, intended for human uses, and used to make humans as happy as possible. People want to thrive, they want fairness, these tools should be used to attain these ends, but should not be ends in themselves.

Thanks again. I hope to convert you all from your Manichean free-market views into my more nuanced “efficient humanist” views, and will do so one keystroke at a time.

–

(* – actually I’m a single male so it’d be “fuck you if my nephew needs to eat”, but you get the point.)

It may be argued that during those 3 months of employment the workers will try to find other jobs. But they can work for Wall-Mart, too, at minimum wage and look for a better job while doing that. For goodness’ sakes, markets do clear, and it is always possible to get a saver to part with his money at a high enough interest rate or an entrepreneur to part with his money at low enough salary. Alternatively, during the difficult period the workers can try consulting, working for short periods for different companies, or working odd jobs. Or, since every crisis is also an opportunity, they can try their luck at entrepreneurship. Maybe some of them had an idea for a business, and being laid off would give them a push to start it. The point is that unemployment is temporary and by slurping up the resources and keeping wages artificially high the government is preventing the economic correction from taking place.

The important thing here is that Murphy zeros in on the issue of causality. Bob says that resources are idle because those resources were malinvested during the boom and now need either to be liquidated or transferred to other uses.

Krugman, on the other hand, says they are idle because of “insufficient consumption.” In other words, consumers no longer are spending enough money to keep that “perpetual motion machine” known as a Keynesian economy going. Thus, government fills in the gap by spending

They’re both right, but I think Murphy is more right. Krugman is right in saying that a drop in demand has cost jobs and left resources idle in sectors unrelated to the boom (such as retail).

The housing bubble made a lot of people feel richer than they were. So those people consumed a lot. Housing and stock price crashes made a lot of people poorer than they thought they were going to be. Those people reduced their consumption. This drop in demand affected nearly all sectors of the economy (I believe retail is one of the hardest or the hardest hit).

Would the investments made in retail and other consumer sectors have been malinvestments in a normal economy of steady growth? Probably not. They were malinvestments in the bubble economy, fueled by artificial demand created by inflated asset prices. I think is an important point, because Keynesians often point to unemployment in sectors unrelated to the asset bubble as proof of a Keynesian world-view.

We aren’t as rich as we thought were, therefore consumption must drop. Keynesians believe we can keep consuming at bubble-levels anyways. I won’t believe it until I see some microeconomic explanation as to how that can happen (and I’m not holding my breath).

“One of government’s great roles is in providing stability for individuals.”

There is arguably lot of instability now. The conditions have abruptly changed. I would argue that the best outcome would be if the market adapted the price and production structure to the new conditions AS FAST AS POSSIBLE. Which certainly means lot of bankruptcies. However, it certainly means fast transfer of the resources being wasted to better use.

The adjustment process is marked usually with high unemployment, especially when such abrupt change of conditions occured. However – you seem to want the adjustment process to occur slowly. You seem to favour high, long-term unemployment over arguably slightly higher, short-term unemployment?

Now the market conditions DID change, the ‘move’ already occured. The world will get more stable again when the market adapts. How do you want the government to achieve stability by slowing the adaption process?

What you propose is essentially what happened during the Great Depression, at first the government exhorted businesses to maintain wage rates and cut into profits. While this maintained wages for a while, it did not allow them to adjust to the reduced discounted marginal revenue product available from the final sales of goods to consumers as monetary deflation from failing banks and business loans accelerated raising the purchasing power of money and consequently resulting in a falling price of goods. Further compounding this was share the work baloney which reduced the supra-marginal worker’s take home pay and left him in as dire of straits as the sub-marginal worker with whom he worked. Instead of the effect of a large pool of labor willing to work for reduced wages, helping ro adjust the market to the prevailing monetary conditions, the share the work prevented wages from dropping and led to the impoverishment of all workers. Eventually even large and formerly healthy firms had to go looking to the government for subsidies. Things got so bad that price and wage controls were enforced, rationing was instituted, and the economy was turned into essentially a fascist system.

Your proposal speeds us on the way to fascism, or corporatism. Despite the few jobs that might be “saved.” You punish all those workers and entrepreneurs who are operating on a now tilted deck. The need to bail out more and more businesses will accelerate, just like in the 30s. It is better to let the market reallocate resources. It will do so while maintaining the highest level of living standards across the board. Private charity and self reliance are better options for the workers in your example than a governmental crutch. In the situation you describe, the economy needs self directed rehabilitation, not paternalist Keynesian quackery.

No, waste in this case would be the violation of consumer preferences and the utilization of resources in suboptimal roles. It need not imply a firm making a loss, just resources being diverted from more to less profitable roles… it might mean not using a resource at all until market conditions warrant it.

“No one objected to my claim that it’s logical to provide capital for economically profitable businesses if they are going to close their doors due to technical problems in the capital markets – does anyone? This is like picking up free money in the street.”

What are “technical problems” in capital markets? If these firms are truly profitable but for these “problems” then why not fund them yourself?

“But consider that if the business is only marginally unprofitable, there might be a large net real profit to the government to picking the business up and running it – because the taxes from the workers more than outweigh the losses incurred.”

I don’t care for increasing the government’s ability to fleece workers, and if there is indeed a real profit to be had (other than by stealing from the participants involved) the private sector can attend to it. Otherwise, there is no one who wishes to at current economic conditions. It is still diverting economic resources from the private sector, and not just specific ones but especially non-specific ones.

“Even if the business is bad enough that it must inevitably fail, there may be large advantages for the goverment in taking the business over and smoothly shutting it down over months or years as opposed to letting it collapse overnight.”

Ipse dixit. All it is is prolonged theft/inefficiency in the market.

“Sudden events like a large business closing overnight destroy huge quantities of capital in a small area – not just the business itself but all the secondary and tertiary businesses that have grown up as well as property values in general. Tremendous difficulties are inflicted on individuals, workers who have been making “best economic decisions” but are overwhelmed by forces of great magnitude.”

Again, if you believe this do some fundraising. Stop forcing people who do not believe the risk/cost is worth it to finance your preferences.

“One of government’s great roles is in providing stability for individuals. For rational people, stability (“Will my family eat?”) trumps economic growth (“Will we get a better car?”)”

Read: for people with high time preferences, impatience justifies theft. Yeah.

“Yes, I understand you don’t think this is the government’s job. But the free market side’s only response seems to be that “these things happen” which ignores that fact that bubbles and crashes are characteristic of unregulated markets only.”

Spare me this bullshit. You’ve not done one thing to demonstrate this, other than blather on demonstrating an utter ignorance of economics. Please address the ABCT before asserting this “deregulation” canard. Even Krugman can come up with this rubbish. And please stop lying, ignoring the fact that financial markets are some of the most heavily regulated.

“It is one of the tragedies of the free market that this majority periodically experience great hardships because a small number of mentally unbalanced individuals, psychotically obsessed with profits over human interactions, take huge, irrational risks in unregulated markets for pursuit of geometrically increasing profits, knowing full well that they personally will experience few significant repercussions when their speculations finally and inevitably fail.”

It’s a tragedy that mentally imbalanced individuals still propose to “regulate” the market, like monkeys with wrenches, and that some in fact do this.

I believe I did cover this issue in my original argument.

Remember, I divided business into two classes, businesses that aren’t economic to run, which either run at a loss or don’t generate enough profit to justify their capital investment, and economically profitable businesses.

No one objected to my claim that it’s logical to provide capital for economically profitable businesses if they are going to close their doors due to technical problems in the capital markets – does anyone? This is like picking up free money in the street.

“Wastage” definitely refers to the inadequately profitable businesses, am I right?

But consider that if the business is only marginally unprofitable, there might be a large net real profit to the government to picking the business up and running it – because the taxes from the workers more than outweigh the losses incurred.

Even if the business is bad enough that it must inevitably fail, there may be large advantages for the goverment in taking the business over and smoothly shutting it down over months or years as opposed to letting it collapse overnight.

Sudden events like a large business closing overnight destroy huge quantities of capital in a small area – not just the business itself but all the secondary and tertiary businesses that have grown up as well as property values in general. Tremendous difficulties are inflicted on individuals, workers who have been making “best economic decisions” but are overwhelmed by forces of great magnitude.

One of government’s great roles is in providing stability for individuals. For rational people, stability (“Will my family eat?”) trumps economic growth (“Will we get a better car?”)

While of course there will always be individual tragedies which cannot be prevented by government, if all at once millions of hard-working individuals are suddenly unable to work the government has failed at its job.

Yes, I understand you don’t think this is the government’s job. But the free market side’s only response seems to be that “these things happen” which ignores that fact that bubbles and crashes are characteristic of unregulated markets only.

Most people don’t want this at all. They want a chance to grow and thrive and raise a family and take moderate risks to grow their career.

It is one of the tragedies of the free market that this majority periodically experience great hardships because a small number of mentally unbalanced individuals, psychotically obsessed with profits over human interactions, take huge, irrational risks in unregulated markets for pursuit of geometrically increasing profits, knowing full well that they personally will experience few significant repercussions when their speculations finally and inevitably fail.

Thanks again for the soapbox!

Krugman, on the other hand, says they are idle because of “insufficient consumption.” In other words, consumers no longer are spending enough money to keep that “perpetual motion machine” known as a Keynesian economy going. Thus, government fills in the gap by spending.

This latter argument ignores capital and it makes the assumption that government spending makes a better contribution to economic growth than does anything else. Of course, here is an economist who simply defines “growth” as an increase in GDP numbers. Thus, World War II, with all its deprivation on the home front and mayhem abroad actually was a good thing for the economy, since it raised GDP numbers.

This is not simply bad economics; it is madness; it is destructive. That is why I have said so many times that Krugman is NOT an economist. He is a political operative, pure and simple.

The private sector will reduce pay levels and in the process reduce their product prices, stimulating demand and so stimulating the appetite for an increased workforce.

All of this process benefits society including export prices.

Governments hiring unemployed workers interfere with the pricing process for labour and thus the recovery by directly competing for labour and increasing incomes.

The key words in my post were “at the margin”, which is where most people’s reasoning takes place. Yes the needed institutions (financial markets that deal in assurance contracts, lets say) could be created to finance public goods voluntarily, but government already exists. It is very cheap for government to allocate tax funds into some project or other. For those people who like to ignore the information and incentive problems facing governments, its very easy for them to propose government projects as a solution to the high transaction costs of many public goods.

The Dahlman paper deals with all of this; it is really quite excellent.

Obviously consumers are irrational and need the government to think and act for them.

No, basically they got pissy that the market had a higher price than what they were willing to fork out of their pockets, so they decided to force everyone involved to pay. That is the problem.

Grant, if consumers think “government” can lower transaction costs, they can arrange for one amongst them and them alone to rob them to finance it. They need not involve non-consenting parties. Which, kind of invalidates the whole idea…

Now to Tom…

“Let’s look at your first argument, “Government “Smart” Stimulus Can’t Target Only Idle Resources”. While this is clearly true, surely if markets are reasonably efficient, resources, both capital and not, will shift to adjust for any terrible imbalances here. I’m interested to see a realistic scenario where this is impossible.”

Already been demonstrated. Just saying “markets will adjust to wastage of capital” does not undo the fact that said wastage is, well, wastage…

“I’d also suggest that this problem is one that is actually targetable by actually having reliable demographic information.”

No, not really. If you think that that is possible, you vastly underestimate the complexity of the structure of capital goods.

“First, this is clearly untrue for resources that have a positive “real value” but are being closed due to arbitrary capital limitations. If my factory needs a million dollars in operating capital but turns $100,000 net profit a year, there’s no possible economic model where it doesn’t make sense to raise the million and run the company.”

Then do so with your own cash.

“There are many of these businesses in America, due unfortunately to the deregulation that has allowed businesses to both lie by omission and to leverage themselves to an astonishing degree,”

Yes, obviously that’s the core problem… the “deregulation”.

” and well as a collapse of the actual enforcement of the regulations that allowed thousands of companies to commit what are undoubtedly felonies where they knowingly represented excrement as gold for years at a time. (A true “free market” requires enforced, strong openness, which requires regulation. Who has time to do due diligence with each counterparty?)”

Who will regulate the government, though? Actually, it needs to get out of the way and allow for market-driven regulation to revive itself.

“However, for most non-financial, bricks-and-mortar based businesses, it takes years to start a new instance. If you allowed every business with negative value to collapse overnight, you’d be throwing literally millions of American workers out of work for years. Exactly what are they do to eat during this time?”

Who knows and who cares, exactly? Either they make themselves useful, or they sit “idle” until they become useful. Why should one prop up failed businesses that cannot earn their buck voluntarily?

“Much better for the government to take over the factory, run it at a loss and slowly close it down or shift it to something else.”

No, much better for you to hold a fundraiser and beg for money to do this. Stop trying to justify theft based on your own preferences.

“In the real world, things are the reverse of your story. In fact, it’s quite common for people to set up a brand-new restaurant near a bridge, let alone expand an existing business. The point is that bridge projects last a long time, and you could easily pay for the expansion or even new construction in the first year or two if you had a lock on the market.”

Ugh, how does this refute anything he said? The same could’ve been said of the private funds that are now being whittled away…

“I believe what you fail to grasp in this example is how efficient and flexible the economic system is in this sort of small scale, individual basis, and how inflexible it is on a large scale basis. Allowing large businesses to die and hoping the capital will reorganize to start another one is rather like having your child die with the expectation that you’ll have another one who’s more healthy.”

Yawn, there we go with the weak, invalid analogies. Look, if you think businesses are “worth saving”, go hold a fundraiser and stop forcing people who do not believe so.

“I suspect that the governments can, at the margin, coordinate the funding of public goods much more cheaply than our current crop of market institutions; i.e. government’s transaction costs are lower, meaning it could (if it had the information and incentives to do so) better provide for the public goods of consumers than the consumers could themselves (again, given our current institutions).”

Why are the transaction cost high? Walking around people in your neighborhood and collecting money is quite cheap actually. The problem is that most people would not give you sufficient money to build the ‘public good’. They would require some assurances, profit etc. – which with some types of goods (arguably with the public ones) raises the cost.

Why do people require it? In order not to waste resources. Said in other words: the transaction cost is high because people think they need to do certain things in order to assure that the investment (into the public good) is justified.

The government involvement in public goods is: we will not try to figure out if the investment makes sense (which costs money), therefore we could provide the public good cheaper. But you don’t know if you want to provide the public good in the first place…