Vulgar Keynesianism is said to prescribe that unemployed men should go down the road dig a hole and then refill it. Keynes actually suggested that banknotes be buried in mine shafts and covered up, then the private sector recover them. But you get the idea. Keynesians believe that activity is important, not value-add.
How well has the stimulus done on that score? Consider the insulation program; 1,100,000 houses were apparently insulated, then a whole bunch burned down, creating jobs for the construction industry firemen jobs insurance pay-outs kept the cash ticking over and promoting retail sales when damaged goods were replaced, then it turned out the insulation was faulty and had to be pulled out, creating different jobs, at some point it will have to be replaced, more jobs, and now it turns out some fraud was involved. So police jobs are created, newspapers sold etc. It just doesn’t end.
The schools building program is also starting to payback the initial investment.
THE cost of projects under the federal government’s $16.2 billion school infrastructure program more than doubles from initial estimates by the time builders start work.
A breakdown of costs for individual projects in NSW, the only government or school sector to provide the information, shows initial estimates for school buildings do not include the associated construction costs, and reveals the extent of fees and charges paid to managing contractors and builders.
At Hastings Public School at Port Macquarie on the NSW north coast, the school is building a new covered outdoor learning area and a two-classroom building with its grant of $3m from the Building the Education Revolution.
The outdoor area, known as a COLA in educational parlance, was initially budgeted for $400,000, but by the time students are running around under its shade, the structure will cost closer to $1m.
That story contains this absolute gem.
An education department spokesman said the initial cost of $285,000 was a very early estimated intended to provide preliminary advice about the likely cost of a shell-only building at the factory and not installed on the site.
I think the Liberals should revisit their opposition to having plaques on school halls come the election. The notice should include, with thanks to Julia, the budgeted cost and the installed cost of the building.
Vulgar Keynesians welcome natural disasters as well on account of the beautiful spending required to rebuild. But don’t forget about the broken window fallacy exposed by Bastiat a couple of centuries ago.
The take-home message is “opportunity cost” and productivity. The money spent on the broken window could have been spent on something else. What adds most to the common wealth, making good a broken object or creating, building or buying something new?
Of course I am not opposed to repairing things but you need to do the sums. Ever costed repairs to a broken printer?
Rafe
18 Mar 10 at 8:38 am
Lurchgate and its subsequent clean up would also be stimulatory I would guess.
JC
18 Mar 10 at 8:40 am
what a load of codswallop.
you would think given that you fruitloops have got so much wrong you might just might try and find out why you were and are wrong.
Why did Keynes say that? you clearly have no idea. It is a bit like Friedman’s helicopter of money actually.
Butterfield, Bloomfield & Bishop
18 Mar 10 at 8:42 am
Homer:
Do you believe the pink batts clean up is all stimulatory and therefore economically positive?
JC
18 Mar 10 at 8:44 am
Credit crunch are you sure the clean up is due to pink batts?
Butterfield, Bloomfield & Bishop
18 Mar 10 at 8:48 am
I don’t intend to debate BBB on what Keynes said or meant, he changed direction so often that scholars are still debating what he actually said long after the Keynes of the General Theory was practically dead and buried (intellectually speaking but not in practical politics as we are finding out).
BTW, were you on holiday when I asked you to debate classical liberalism on another thread (no, not on this one). Just address the question posed by JC.
Rafe
18 Mar 10 at 8:50 am
Homer:
Try and not be so difficult in answering what is a very easy question.
I’ll try again.
As a result of Lurchgate and the effects of the clean-up being supervised by the adult- Combet- is it stimulatory in your “interpretation” of economics or not?
JC
18 Mar 10 at 8:52 am
Credit crunch
If you cioukld read ld direct you to the annual reports of the RBA from 1954 to 1868 anmd the footnotes in p. 54 of the Havard Business Revuew may 1987.
But perhaps it is better if you just have another chocolate
>>>>
end channeling of Homer
jtfsoon
18 Mar 10 at 9:20 am
Rafe,
I cannot say I have ever heard of the theory you put forward. I cannot see how anyone who has read Keynes would say it is stimulatory either.
I do find it funny that an Austrian said Keynes changed direction. Yes he was eclectic and yes was very classical about what instruments should be used in normal times but you would actually have to read him to know that.
One thing that has gone missing here is why the Government spent in the areas they did.
I said long ago they should have completed the dual carriageway from Melbourne to Brisbane.
( That is when Sinkers did a Statman and laughed at the suggestion not knowing how important transports costs are to business.)
Well there were no plans on the drawing board.
nothing, nought ,bugger-all.
so they had to make up some pronto which makes David Gruen’s speech much more understandable.
What point on classical liberalism? you might be surprised and I agree with you!
Butterfield, Bloomfield & Bishop
18 Mar 10 at 9:21 am
one small point , as Catallaxy’s Keynesian expert will I’m sure attest , the difference between value add and activity is moot in a depression.
Austrians will not appreciate that point.
Better to get people into jobs and reduce welfare costs
Butterfield, Bloomfield & Bishop
18 Mar 10 at 9:34 am
Agreeing with Homer, why did the spending happen where it did? In view of the surplus accumulating under Howard and Costello, how come neither party had a plan for infrastructure investment?
Either the whole lot should have been refunded in the form of tax cuts or relevant departments and consultants should have been engaged many years ago in cost/benefit studies of alternative schemes to spend the money.
Instead of turning to well developed and considered plans for spending that should have been “on the shelf” in each party and in relevant bureaucracies, we got the “drunken sailor” or “lurch” approach, with predictable results.
Rafe
18 Mar 10 at 10:03 am
NO NO NO Rafe.
They should have banked the proceeds from the commodity boom. This would have calmed down the economy instead of providing an inflationary stimulus.
ALL tax cuts have to be matched by spending cuts otherwise you create a fiscal blackhole like Reagan and Bush2 did.
There should have been plans to gradually spend money on infrastructure however this would be done instead of other programs.
When you face a GFC this does not matter.
I am not surprised that NSW for example had no plans on the table to at least have dual carriageway up the great Western highway to Katoomba
Butterfield, Bloomfield & Bishop
18 Mar 10 at 10:22 am
“…the difference between value add and activity is moot in a depression.”
That may be so if you ignore the structure of production.
Keynesians will not appreciate that point.
Capitalist Piggy
18 Mar 10 at 10:27 am
Homer
Tax cuts can’t cause inflation – they reduce deadweight losses and therefore increase the efficiency of the economy. Only loose monetary policy can cause inflation.
Secondly infrastructure spending should be undertaken if and when it passes a cost benefit analysis. full stop.
jtfsoon
18 Mar 10 at 10:33 am
sorry Statman if you have tax cuts in the midst of a commodity boom then it will merely add to inflation not demand.
If you have tax cuts without spending cuts you are merely asking for interest rates to be higher than they should be.
Err no not if you have a depression. The unemployed may think differently.
Butterfield, Bloomfield & Bishop
18 Mar 10 at 10:56 am
sorry Statman if you have tax cuts in the midst of a commodity boom then it will merely add to inflation not demand.
Good one , Homer. So there’s no evidence that you would see an increase in economic activity with a tax cut.
You dolt. You total and complete dolt. You eggnog. There are no words left to describe your moronic comments, as you embarrass the species, you baboon.
JC
18 Mar 10 at 10:59 am
Homer
if a ‘commodity boom’ means increased demand for our stuff and tax cuts having a supply side effect increase our productive capacity, where is the inflation coming from you indoctrinated numbskull?
Keynesianism has you all intellectually twisted up. Stop thinking in terms of ‘booms’ and ‘busts’ and think from the microeconomy up
jtfsoon
18 Mar 10 at 11:00 am
No not when you are in a commodity boom and already at full capacity but you would realise that if you understood economics.
similar to what Friedman says actually
Butterfield, Bloomfield & Bishop
18 Mar 10 at 11:01 am
I echo what someone once said about you. Homer. You should be charged for idiocy and horse whipped in the city square.
You still haven’t answered the question, Captain Courageous.
JC
18 Mar 10 at 11:01 am
yawn,, do you fruitloops live in the real world.
how do tax cuts add to capacity.What is the RBA watching all the time?
Butterfield, Bloomfield & Bishop
18 Mar 10 at 11:03 am
“…similar to what Friedman says actually”
Do you mean this?
“I am in favour of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.”
- Milton Friedman
Capitalist Piggy
18 Mar 10 at 11:08 am
Tax cuts enable people to either save or spend more of the money they earn. The savings provide capital for entrepreneurs. Both saving and spending create employment one way or another.
Equally important, the spending, saving and investing decisions are made by people with a personal interest in the result. That tends to encourage a degree of responsibility but if people are reckless it is their problem, not ours.
Rafe
18 Mar 10 at 11:26 am
Piggy:
Ignore the twit. At one stage he was arguing that you could never cut taxes. That’s where his cul de sac of “brain” ended up.
He argued that you could not cut taxes in a good economy as it would be inflationary and the government needed to save the money for a rainy day. He also argued that the government couldn’t lower taxes in a recession as they would be using the money to finance a stimulus.
He’s a moron.
JC
18 Mar 10 at 11:30 am
Homer
Each dollar of tax collected costs at least 20 cents.
jtfsoon
18 Mar 10 at 11:35 am
Jtfsoon,
Gee, I knew it would be high, but not THAT high. Can you cite references? Just curious.
Capitalist Piggy
18 Mar 10 at 12:05 pm
Don’t rubbish my friend Homer, he may turn out to be a closet classical liberal. Also he did some good work for me in the library by checking some sources. And he did it from the goodness of his heart as well!
Rafe
18 Mar 10 at 12:08 pm
CP err no if you add to the money supply you add to inflation.
Let us see we can examine the output ‘gap’ and holy moly no increase in the gap when tax cuts are given.
How about the US . Rudebusch has data for the output gap going back sometime and holy moly again no increase in the gap when tax cuts are given.
Never mind Catallaxian crackpots say the tax cuts increase the capital stock so it must happen!
no Credit crunch doesn’t understand macro-eoconomics.
you do not give tax cuts in a boom it merely boost inflationary forces.
It is silly to do it in a severe downturn.
firstly it puts a hole in the budget.
Secondly spending is far preferable as we have just witnessed.
If you wish to cut taxes then cut spending at the same time.
Butterfield, Bloomfield & Bishop
18 Mar 10 at 12:13 pm
CP err no if you add to the money supply you add to inflation.
You’re not adding to the money supply by lowering taxes as a result of a surplus or spending cuts, you ignoramus.
JC
18 Mar 10 at 12:14 pm
CP
By cost I don’t mean just administrative costs but costs in the broader economic sense of the word. I actually should have said *net* costs of 20 cents (in fact 1 dollar raised leads to a reduction in $1.20 of production) so if anything I was both imprecise and understating the economic costs
http://www.cis.org.au/policy_monographs/pm68.pdf
Deadweight losses arise when individuals
change their behaviour in response to higher taxes, substituting one kind of behaviour for
another which would have been preferred had the tax increase not occurred. For example,
if income taxes rise, some people might decide to work fewer hours, or they might conclude
it is not worthwhile training for an additional qualification, or they might stay on welfare
rather than look for a job, or be deterred from the risk of setting up a company of their own.
Deadweight losses, in other words, represent the disincentive costs of tax. They are the value of
all the work and output that we lose as a result of taxing people’s incomes.
It is extremely difficult to calculate these deadweight costs of tax with any accuracy (and
governments, of course, rarely even try). However, by applying US research findings to the
Australian context, Robson suggests that total deadweight losses here could be as high as $61
billion per year, and drawing on a variety of OECD research, he estimates the Marginal Cost
of Funds (MCF)—i.e. the wealth destroyed for each extra dollar we raise in income tax—at
between 1.2 and 1.3.
If this is right, it means that each extra dollar of income tax raised by the Commonwealth
is costing the economy at least $1.20 and perhaps $1.30, even without counting the costs of
administration and enforcement
jtfsoon
18 Mar 10 at 12:15 pm
I said similar stupid
Butterfield, Bloomfield & Bishop
18 Mar 10 at 12:16 pm
Homer
The research that suggests that the deadweight loss of taxation is $1.20 for every $1 is not addressed by what you have desribed about Rudebush or whatever porn star you’re citing since you would have to consider the counterfactual
jtfsoon
18 Mar 10 at 12:25 pm
Statman you stated tax cuts add to our capacity.
the RBA could not find any added capacity when inflation started rising owing to capacity constraints.
nor can any be found in the US.
amazing what the actual evidence says
Butterfield, Bloomfield & Bishop
18 Mar 10 at 1:03 pm
Get it right Homer we’re dealing with vulgar classical economics here, you know where prices move instantaneously and there are no people or financial markets. It’s a self correcting system don’t forget.
That these people don’t understand cutting taxes during a boom is analogous to an increases the supply of money should hardly be surprising. I’ve tried to explain to them that changes in the balance of payments between the public and private sectors in favour of the private sector end up as increaseddeposits in private sector bank accounts but they don’t seem to get it.
It’s no wonder considering they seem to hold the bizarre notion that shovelling windfall corporate taxes into householder pockets during a terms of trade boom is some sort of supply side tax reform.
sdfc
18 Mar 10 at 2:10 pm
“Better to get people into jobs and reduce welfare costs.”
Jobs doing nothing of value are a welfare cost.
“It’s no wonder considering they seem to hold the bizarre notion that shovelling windfall corporate taxes into householder pockets during a terms of trade boom is some sort of supply side tax reform.”
That’s not fair, the counter-argument is that the money will be used more profitably in the private sector than by the govt. Even householders will actually spend the money on something wanted.
If you have a terms of trade boom and you want to keep the profits out of the money supply then surely you could only do so by putting the taxes into a sovereign fund and invest them overseas.
Pedro
18 Mar 10 at 2:31 pm
Pedro it ain’t being used by the private sector that is the point.
Why do you have a recession or even worst a depression.
The private sector is in a fix and needs help that is the point.
Butterfield, Bloomfield & Bishop
18 Mar 10 at 2:36 pm
Good letter in The Australian today:
As a retired engineer it’s astonishing to me that the definitive counter measure to dodgy batt installations has not yet been devised, namely under-roof smoke alarms (with extension speakers) and automatic fire extinguishers.
Bill Hodgson, Ocean Grove, Vic
Infidel Tiger
18 Mar 10 at 2:38 pm
Homer, it is still welfare and the real claimed value is not the jobs directly created by the ones they supposedly lead to.
Pedro
18 Mar 10 at 2:59 pm
SDFC:
Do you realize that you’re the only individual who has shown the intestinal fortitude to partner up with Homer in over 4odd years of this blog’s existence.
Congratulations. Honestly I mean that.
Now as Homer’s “pardner,” you may wish to answer the question he refuses to.
Is the clean-up, as a result of Lurchgate stimulatory?
JC
18 Mar 10 at 3:05 pm
Thanks Jtfsoon
Capitalist Piggy
18 Mar 10 at 3:09 pm
credit crunch I have answered you clod when i answered Rafe.
have another chocolate it is self correcting
Butterfield, Bloomfield & Bishop
18 Mar 10 at 3:19 pm
It is self correcting? How so, homes?
You mean that the damages caused by Lurchgate is self correcting as a result of the repairs?
JC
18 Mar 10 at 3:25 pm
oh dear irony is completely beyond you isn’t it.
Butterfield, Bloomfield & Bishop
18 Mar 10 at 3:26 pm
SDFC:
Dopey we have tax cuts during the boom. We didn’t exactly end up with a horrific inflation rate.
JC
18 Mar 10 at 3:30 pm
Homer,
everything thing you say is ironic. I take it you’re too much of a coward to answer the question then?
JC
18 Mar 10 at 3:32 pm
No Credit crunch we merely ended up with a HIGHER inflation rate.
Boofhead who said anything about horror inflation rates.
I have answered the question you idiot quite specifically on whether it would be stimulatory or not.
Butterfield, Bloomfield & Bishop
18 Mar 10 at 4:16 pm
Point to it, homer.
JC
18 Mar 10 at 5:04 pm
Inflation went to 5% JC, you can thank the global recession and the RBA’s very late monetary tightening for it not going higher. Even now underlying inflation is elevated. It is lagging indicator Sleepy.
sdfc
18 Mar 10 at 8:04 pm
SDFC:
Provide evidence that it was the tax cuts that caused the elevated inflation rather than every single commodity price doubling that year.
Go!
Homer: Point to it.
JC
18 Mar 10 at 9:57 pm
JC
If you don’t understand that boosting household disposable income via tax cuts in an economy already approaching full employment is inflationary then it’s obvious even the simplest economic concepts are beyond you.
sdfc
18 Mar 10 at 11:37 pm
It seems to be beyond you is to answer a simple question, which is to explain exactly how much of the tax cuts raised the CPI rate.
There’s no point saying that “simple economic concepts are beyond me”, as that is obfuscation.
What is it with lefties and avoiding answering a straight question? It’s easier to pull hen’s teeth. I asked you an earlier one seeing your “pardner” (Homer) was too cowardly to answer and you ran off like a little kid too.
Again: Is the cleanup, as a result of Lurchgate stimulatory?
One other thing, SDFC, you recently mentioned that you had a lot of time for Austrians economics. However recently input at this site shows you have fuck all understanding what it actually means. If you did understand it you wouldn’t be raising the issue of inflation fanned by tax cuts when there was a surplus. That’s because you would be asking the next logical question, which is where, did the surplus come from in the first place. Surpluses under Austrian economics would appear to be coming from the central bank, which therefore means that there’s nothing essentially wrong with tax cuts at any point in the cycle. The real problem is as a result of a bloated money supply caused by the central bank. In other words, inflation is always a monetary problem.
JC
19 Mar 10 at 12:03 am
One more thing about your Keynesian crap, SDFC. Explain this to me.
Keynes says that the interest rate is determined by the supply of money and liquidity preference. Do you agree with this proposition? If so why?
JC
19 Mar 10 at 12:07 am
I think nuking our capital cities and cleaning up the waste may very well be stimulatory.
Michael Fisk
19 Mar 10 at 1:17 am
this is the thing about our Forrest.you point him to where you state a very clear concept and he pleads ignorance.
you state a piece of plain economics and he doesn’t understand.mind you the Catallaxy crowd are a band of fruitloops.
They do not agree lower spending in a year with a structural deficit is contractionary despite vast evidence ( see Japan) and all nations using it in national accounting.
They believe tax cuts miraculously increasing the capital stock so they are always disinflationary.
This is at odds with their arguments on deficits and debt but that is another matter.
They examine OECD data without having the faintest idea of how it is comprised
cuckoo cuckoo
Butterfield, Bloomfield & Bishop
19 Mar 10 at 8:39 am
Homer:
Try and put that in a way that people can understand what it is you’re trying to convey, you lunatic.
JC
19 Mar 10 at 8:43 am
sfdc,
You’re desperate. You don’t even make arguments anymore, you just insult people and tell them that they are wrong.
“If you don’t understand that boosting household disposable income via tax cuts in an economy already approaching full employment is inflationary then it’s obvious even the simplest economic concepts are beyond you.”
No, I don’t, and compared to you and Homer, I’m a freaking doyen. Why is it not inflationary when the Government spends it? Doesn’t Keynesian theory expound the vitrue of Government spending, as none of it is saved?
“the difference between value add and activity is moot in a depression.
Austrians will not appreciate that point.”
Because it is rubbish. Aggregate demand falls but not all firms survive by simply cutting inputs in a robotic fashion. Value adding to projects with long development times for example doesn’t conform to your homogenisation of industry.
“Better to get people into jobs and reduce welfare costs”
Making work destroys real jobs. The Government can’t artificially create demand. The saving grace for Rudd was that capacity constraints previously may have been due to underinvestment in infrastrucutre. This assumes it was all spent succesfully. If not, then it is simply a temporary accounting trick with long term, real deletrious consequences. The only other salves were how well monetary policy worked to reduce real wage rates and rebalance externally – along with a more flexible labour market than in 1991, 1996 etc that allowed hours, rather than jobs to be cut.
Semi Regular Libertarian
19 Mar 10 at 11:00 am
actualy we now see Mark’s wonderful research skills at work again.
We actually saw comparable hours worked coming into the recession in the early 90s however in that episode we then saw a vast number of redundancies.
In other words employers wanted to see what would happen.
ever looked at real unit labour costs over a long period?
Now Marky is saying despite government spending rising when the is full capacity he can’t see how inflation can rise.
Whops sorry tax cuts immediately increase capapcity. We forgot that.
cuckoo cuckoo.
making work doesn’t destroy real jobs it merely increases demand than leads to more jobs but hey why should we talk about what actually happenes. lets us stay with a wacky theory instead.
After all it has given everybody here a great track record in inaccuracy.
Butterfield, Bloomfield & Bishop
19 Mar 10 at 11:10 am
Homer,
Your argument is low rent mischaracterisation and straw man burning.
Just as I never said any tax cut or supply side reform was immediate, you also omit an explanation as to why a balanced budget tax cut is inflationary. There’s no extra base money and private consumers don’t spend all of their income, they save some of it. This is apparently contra one of the virtues of Keynes. Would you like to explain how G is only in the IS equation when it is convenient?
Or would you rather explain why savings are inflationary?
“making work doesn’t destroy real jobs it merely increases demand than leads to more jobs but hey why should we talk about what actually happenes. lets us stay with a wacky theory instead.”
Um okay Homer why don’t we create work to reduce the structural reasons for/and the natural rate of unemployment?
Semi Regular Libertarian
19 Mar 10 at 11:39 am
Homer:
From someone to keep defending Skanke Ho, put up heartfelt emotionally laden arguments in support of Nazi economics, suggest Jews weren’t badly treated prior to 1938 and that Hitler actually liked Jews and someone who thinks the pink batts fiasco actually saved homes, you really have a fucking nerve lecturing people about economics, you dumb shit.
Go away and find a hate site more attuned to your, err views.
JC
19 Mar 10 at 11:44 am
More on Keynesian policy:
http://michaelscomments.files.wordpress.com/2010/03/unemployment-projection-march-2010.gif
Semi Regular Libertarian
19 Mar 10 at 11:45 am
Marky,
it doesn’t matter if the budget is in surplus , as it was in the last Howard one IF the structural deficit is rising it is contributing to economic activity.
It was doing this at a time where we had no extra capacity.
if money is going in but output cannot rise then it must go to rising prices and guess what. That is what happened.
I assumed you were in agreement with Statman in believing tax cuts lead to increased capacity. okay you do not.
in an economy where it is declining you aren’t anywhere near the natural rate of unemployment.
I would think we are in agreement on reducing the natural rate of unemployment. Making the labour market more flexible.
in this it is a pity you and other so-called conservative types do not call for a NZ style policy which actualy worked rather than workchoices which clearly didn’t.
Butterfield, Bloomfield & Bishop
19 Mar 10 at 11:48 am
Homer – I said a balanced budget tax cut. Now you’re arguing Rubinomics (the level of spending matters) to declare any tax cut as inflationary. This is a red herring. You don’t even agree with the fiscal theory of prices anyway, so, as they say, what is your point, exactly?
It’s also erroneous that we accepted Work Choices part and parcel. It could have been a lot better.
Semi Regular Libertarian
19 Mar 10 at 11:53 am
Mark,
I am sorry I thought you were saying tax cuts from a balanced budget.
If you are saying tax cuts funded by expenditure cuts then the net effect would be a very small contractionary effect.
Butterfield, Bloomfield & Bishop
19 Mar 10 at 11:55 am
Right.
So how are tax cuts inflationary?
Semi Regular Libertarian
19 Mar 10 at 11:57 am
…and what would the effect be outside of the short term – or assuming that Government spending actually includes transfers and waste?
Semi Regular Libertarian
19 Mar 10 at 11:58 am
tax cuts like in the last Howard budget made WITHOUT expenditure cuts and that lead to a HIGHER structural deficit than the previous year have a stimulatory effect.
If given when the Economy has no spare capacity left then the increase in expenditure merely goes into rising prices not output.
A for your second question assuming it happens in the same circumstances the result would be the same.
of course it would be vastly different in an economy that is declining
Butterfield, Bloomfield & Bishop
19 Mar 10 at 12:03 pm
“If given when the Economy has no spare capacity left then the increase in expenditure merely goes into rising prices not output.”
That’s not an answer to the question I asked.
How is G inherintly *better* (not inflationary) if private consumption is partly saved and not spent?
Semi Regular Libertarian
19 Mar 10 at 12:04 pm
Hmm yes well…”inherent”…
Semi Regular Libertarian
19 Mar 10 at 12:05 pm
JC
How much of the tax cuts raised the CP? That is of course unknowable but the question fits in with your apparent minimal understanding of economics. That easier fiscal policy during a terms of trade boom is inflationary is pretty basic stuff. I don’t think the tax cuts were the major reason for rising inflationary pressure, however, the RBA should carry most of the blame in my opinion for running persistently loose monetary policy. I have said this previously. Do you actually read my comments or just post knee-jerk reactions regardless of what is said.
Why would the clean up from the insulation fiasco be stimulatory? The numbers are pretty small.
Once again my comment about Austrian economics, related to the danger of credit booms. I have said this before. You didn’t understand it then obviously, so I doubt you will understand it now. The massive surpluses were the overwhelming result of the terms of trade boom facilitated at least in part by loose monetary policy. Inflation is a monetary problem but only as it relates to an increasing demand for credit. Once again I have said all this before.
Of course the interest rate is determined by liquidity preference and the supply of money. They are all linked, a rise in liquidity preference causes the money multiplier to fall and interest rates to rise. We saw ample evidence of this during the credit crunch. Tell me this didn’t escape the ace equity trader.
SRL
I don’t think you are a doyen of anything. Both government spending and tax cuts are inflationary. That’s unless you believe tax cuts to householders during a terms of trade boom are some sort of supply side reform.
The rest of your comment seems to be directed at someone else.
I’ve gotta go and take our youngest to soccer training so I’ll have to deal with the rest of it later.
sdfc
19 Mar 10 at 7:37 pm
It takes a certain level of genius, perhaps Homer’s self admitted admirer such as yourself, to suggest that a budget going from 2.5% of GDP in surplus to zero balance is hugely expansionary. Well done, SDFC.
Once again my comment about Austrian economics, related to the danger of credit booms. I have said this before. You didn’t understand it then obviously, so I doubt you will understand it now. The massive surpluses were the overwhelming result of the terms of trade boom facilitated at least in part by loose monetary policy. Inflation is a monetary problem but only as it relates to an increasing demand for credit. Once again I have said all this before.
I don’t disagree with this comment, but how do you tie it into your Keynesian perversion of fiscal stimulus on pink bats that you have previously supported? You’re all over the place, jumping from one economic theory to another without the slightest whiff of self-awareness that the two sides-Keynesian and Austrian-are mutually exclusive. Both aren’t right, Doofus.
Of course the interest rate is determined by liquidity preference and the supply of money. They are all linked, a rise in liquidity preference causes the money multiplier to fall and interest rates to rise. We saw ample evidence of this during the credit crunch. Tell me this didn’t escape the ace equity trader.
What I saw and what Keynes believed are two entirely different things. You realize that didn’t happen, right. You do realize that the multiplier fell, which to me is really just a marker for the business cycle, and interest rates fell too. Take a look where interest rates are, where they were and what happened to the multiplier. Keynes was simply wrong and you’re thoughtlessly reciting this stuff without the slightest hint that you see how wrong it is.
Here:
Bloomberg has a public screen where it shows the US financial conditions index, which is a pretty good marker for your liquidity preference/multiplier down/rising interest rates bull. Take a close look, doofus.
What’s happened to the index now compared to the money multiplier? The financial conditions index is as high as it’s been this past decade.
Lets have a look at the money multiplier shall we?
http://research.stlouisfed.org/fred2/series/MULT
Gee, it’s been trending down since 2000 and taken a huge whack in 2009. In other words Keynes is wrong. He’s not just a little-bit wrong. The fucker was off-his-head-wrong. He was so wrong he should have been sent to economist prison for life.
In other words interest rates are not determined my liquidity preferences, you dill.
JC
19 Mar 10 at 9:00 pm
fiscal stimulus with pink bats that you have previously supported?
JC
19 Mar 10 at 9:01 pm
JC
Are you saying a swing in the budget balance of 2.5% of GDP isn’t expansionary?
Nice chart of the M1 multiplier, kind of proves I’m right don’t you think? Since 2000 the multiplier has been relatively stable except for the cliff at the end.
As for the financial conditions index, that wouldn’t be a function a fed funds at close to zero would it? We can chuck the PBOC and BOJ into the mix as well. in terms of easy policy. There does seem to be a hell of a lot of money sloshing around out their but I’ll believe credit is easy when the loan officers survey suggests an easier supply of credit and households. CP issuance has stagnated at low levels. It’s going to be interesting when the Fed stops funding the housing market at the end of this month.
For about the 20th time, the impact of the stimulus on economic activity is a separate issue as to the quality of the spending, I have always maintained that some of it is wasteful, I have told you there has been wasteful spending at my kids’ school. Some of it such as the whole insulation fiasco has been downright stupid. You’re a goldfish.
Keynes picked the crisis like a nose. The financial markets did exactly what Keynes said would happen, the increased demand for liquidity in a crisis sends interest rates higher. Why do you think the Fed engaged in QE or credit easing as they apparently like to call it. Have you been asleep for the last two and a half years? The multiplier hasn’t just declined its plummeted, the slump is near vertical.
Why do I have to repeat everything to you multiple times. Both Keynes and the Austrians have pretty much the same theory of credit booms. I disagree with the Austrian remedy. I’m not aware that they have a valid theory of finacnial markets or if they even have one. Considering they think deflation is a good idead I’m thinking not. Do you get that you can agree with some aspects of a theory without necessarily agreeing with everything, or are you too tribal for that?
sdfc
19 Mar 10 at 11:27 pm
Are you saying a swing in the budget balance of 2.5% of GDP isn’t expansionary?
Are you really this dumb? Did I even go near suggesting that? The point I was making is that it was pretty small. I t was relatively insignificant to the effect of monetary policy.
Nice chart of the M1 multiplier, kind of proves I’m right don’t you think? Since 2000 the multiplier
has been relatively stable except for the cliff at the end.
It doesn’t prove you’re right at all. Stop the lying. You argued that Keynes liquidity preference bullshit was right. I proved to you through evidence that the fucker was so wrong he deserved to have his head put in a vice 3 stooges style and someone tightening it a few notches.
As for the financial conditions index, that wouldn’t be a function a fed funds at close to zero would it?
Dunno. It hasn’t appeared to be the case in Japan.
We can chuck the PBOC and BOJ into the mix as well. in terms of easy policy. There does seem to be a hell of a lot of money sloshing around out their but I’ll believe credit is easy when the loan officers survey suggests an easier supply of credit and households. CP issuance has stagnated at low levels. It’s going to be interesting when the Fed stops funding the housing market at the end of this month.
Fed is a pretty smart institution and I wouldn’t always sell them down the river.
For about the 20th time, the impact of the stimulus on economic activity is a separate issue as to the quality of the spending, I have always maintained that some of it is wasteful, I have told you there has been wasteful spending at my kids’ school. Some of it such as the whole insulation fiasco has been downright stupid.
There’s no such thing on quality spending in a hurried slap dash way it was put together. There can’t be as it’s impossible for any government to ensure efficiency in such a thing, in such size and in such speed.
In any event the government hasn’t got one spending intititiave right for the past 50 odd years. Everything they’ve touched they’ve fucked up longer term and you think I would my faith in Rudd-the-fake?
Keynes picked the crisis like a nose.
Hahahhahaha I wouldn’t be using that analogy to explain it. But then again I’m not you.
The financial markets did exactly what Keynes said would happen, the increased demand for liquidity in a crisis sends interest rates higher. Why do you think the Fed engaged in QE or credit easing as they apparently like to call it. Have you been asleep for the last two and a half years? The multiplier hasn’t just declined its plummeted, the slump is near vertical.
Are you on dope? It’s a serious question. What Keynes said about that liquidity preferences and interest rates is wrong. He’s been proved wrong. I’ll repeat it. He’s wrong. The direction of the multiplier and interest rates has proved that. Something I notice you’re avoiding like the plague.
Why do I have to repeat everything to you multiple times. Both Keynes and the Austrians have pretty much the same theory of credit booms.
Bullshit. Forget the dope, I think you’re doing smack.
Do you get that you can agree with some aspects of a theory without necessarily agreeing with everything, or are you too tribal for that?
Please. You don’t have to be tribal to think Keynesian economic is horseshit. I look at the evidence whereas Keynesians like you rely on faith.
JC
19 Mar 10 at 11:52 pm
JC
So now you agree that a 2.5% swing in in the budget balance is expansionary. That’s a bit of a flip flop.
Let’s you contention that Keynes and the Austrian theory of credit booms are contradictory. Try explaining how. Their policy prescriptions differ once the boom turns into a bust, but we already know that. Keynes prescriptions have been largely followed by central banks, leading to sonewhat of an easing in financial market conditions. That the multiplier remains in the doldrums however is due to the impairment of banking sector money creation activities as in evidence by the ongoing decline in private sector credit.
How was Keynes theory of liquidity preference proved to be wrong? Did credit spreads not skyrocket during the crisis?
Your ongoing contention that government should never invest in infrastructure means you obiovusly favour privagte roads, ports, airports, rail, electricity distribution, water distribution etc. In other words you favour monopolies to any form of government investment.
As for the Fed they’ve made some pretty big mistakes in the past. After all ultra-easy fed policy was a major contributor to the crisis. My comment about funding of the housing market is related to the end of the agency MBS buying program at the end of March. Is the private sector ready to pick up the ball? This will almost be a psuedo policy tightening if that makes any sense.
As for Japan, they are almost entirely dependent on external demand so I wouldn’t be making any comparisons with them.
As for the financial conditions index this article suggests the traditional indices could be a little misleading.
http://www.marketwatch.com/story/financial-conditions-may-be-recovery-drag-study-2010-02-26
sdfc
20 Mar 10 at 3:33 pm
So now you agree that a 2.5% swing in in the budget balance is expansionary. That’s a bit of a flip flop.
You apply incredibly bad faith in your debating style, SDFC. We were always specifically talking about Australia’s surplus at the time of the Howard government. To suggest this was going to raise our inflation rate level to Zimbabwean proportions is frankly laughable. In any event the RBA is always able to sweep out the extra money through a permanent reduction in the money supply. As I said to you (which seems I need a jackhammer to get through) inflation is and always will be a monetary problem. Tax policy has little to do with it.
Let’s you contention that Keynes and the Austrian theory of credit booms are contradictory. Try explaining how.
Interest rate determination is one. Keynes thought liquidity preferences etc. determine the interest rate. He’s fucking wrong. No equivocations. He’s just wrong, accept it and move along. If you get teary eyed, get a Kleenex.
Austrians on the other hand suggest interest rates are determined as a result of present vs future consumption decisions in an unhampered market and it’s government intervention in the price discovery mechanism in this area that fucks things up. They’re right.
Their policy prescriptions differ once the boom turns into a bust, but we already know that.
Of course they’re different. Keynes suggests all sorts of voodoo economics while the Austrians think the cleansing is a good thing. The Austrian prescription of a cleansing may sound harsh however in reality there is no free lunch in economics and the pain will eventually have to be taken. Notice how the size of the economic crises only get bigger? Does that tell you something like perhaps we’re really just rolling all these problems in a forward date until we have no choice but to allow the market to clear itself which means ultimately the Austrians are right.
Keynes prescriptions have been largely followed by central banks, leading to sonewhat of an easing in financial market conditions. That the multiplier remains in the doldrums however is due to the impairment of banking sector money creation activities as in evidence by the ongoing decline in private sector credit.
The US banks are not really impaired. If they were there wouldn’t be $1 trillion of reserves hanging around. People aren’t borrowing and there’s a big shift going on in the US towards more savings.
How was Keynes theory of liquidity preference proved to be wrong? Did credit spreads not skyrocket during the crisis?
That was hardly what the old fart was talking about and in any event the entire interest rate structure moved down. He’s wrong.
Your ongoing contention that government should never invest in infrastructure means you obiovusly favour privagte roads, ports, airports, rail, electricity distribution, water distribution etc. In other words you favour monopolies to any form of government investment.
Oh but state based monopolies are somehow better, are they? History has always shown us that monopolies owned by the state are always so efficiently run. LOL If you’re that concerned with monopoly power then the government can use regulation. The gouging that always takes placed in government owned monopolies is the result of unionization and how they treat the assets as captured capital.
As for Japan, they are almost entirely dependent on external demand so I wouldn’t be making any comparisons with them.
Oh bullshit. The vast, vast bulk of their economy is domestically based.
You really don’t understand much economics, SDFC.
JC
20 Mar 10 at 4:09 pm
Look SDFC. This is where I come out as my underlying view on economics. It’s not something I got from textbooks at uni but rather it was bashed into me through reality in terms of how the world really works.
Leave people and the economy alone. If you must intervene then apply the Hippocratic oath in that you do NOT make things worse and always be aware that actions have real freaking consequences. Maintain a hard currency not a strong currency necessarily but a hard currency, which is different.
Always endure the long-term growth arrow is pointing straight up.
That’s my guiding principal and pretty much everything else such as arguing about freaking this or that just isn’t going to get us anywhere.
JC
20 Mar 10 at 4:44 pm
oops… ensure the long term
JC
20 Mar 10 at 4:44 pm
Zimbabwe? Try not getting hysterical. What is true for extreme cases is also true for less extreme cases. Increasing disposable income via tax cuts is analogous to an increase in the supply of money to householders. End of story.
The Austrians don’t have a valid theory of financial markets that’s why they believe cartoon cleansing is good policy. In fact I agree it is usually reasonably good policy but only to a point. The problem is the crisis has reached such huge proportions that the Fed and government has no choice but to intervene. Deflation is poison in an economy with high levels of private debt where the risk of deflation is high. The 1930′s can be likened to a laboratory experiment and showed the Austrian solution was a failure.
The US banking system is not impaired? Obviously the Fed doubled the money base just for the hell of it. That there are $1 trillion in reserves at the Fed is evidence the system is impaired. Do you even no what the multiplier is?
Credit spreads are exactly what Keynes was talking about. Do you really think business and householders borrow at AAA rates? The Libor/OIS spread blew out to astronomical levels for crying out loud. Banks were iffy about even lending to each other. Even here the bills/OIS spread blew out and our banking sector is relatively sound, though a sharp increase in unemployment would certainly test it out.
That private monopolies produce deadweight losses is pretty basic second year micro from memory.
As for Japan, private consumption has been if anything a drag on Japanese growth over the past decade and a half. Japanese growth has been export and government expenditure driven over the past decade and a half.
Textbook ecomomics tell us little of what happens in the real economy because it omits the role of financial markets and expectations. I’ve always treated it as a frame work. I did my degree in my 30s so I had already worked in the real economy. I had already worked for a company where a corporate raider tookover a small thriving small business and bled it for funds until it ran out of money and credit. And then went bust. I also worked as a sales rep in the building industry during a government generated housing boom and bust.
You’re right we’re going around in circles. You’ll probably want to reply (I know I would) but I’m not going to answer. Unless you request an answer of course.
sdfc
20 Mar 10 at 8:19 pm
Zimbabwe? Try not getting hysterical. What is true for extreme cases is also true for less extreme cases. Increasing disposable income via tax cuts is analogous to an increase in the supply of money to householders. End of story.
Bullshit. It’s not the end of the story. Why on earth do you think money held in the government’s hands is less inflationary and distortive? Don’t you think the various “funds” they created such as the Future Fund and the Education Fund for instance weren’t potentially inflationary for asset prices? Even if they had taken the money overseas it would have distorted the exchange rate. I think you don’t really understand the way the government creates money, which is why you think the surplus retuned as tax cuts was inflationary. The surplus is money that’s already been created, returning it is not “new” money. If you were really concerned with inflation you would be advocating the destruction of the surplus…. Having it simply cancelled.
The Austrians don’t have a valid theory of financial markets that’s why they believe cartoon cleansing is good policy. In fact I agree it is usually reasonably good policy but only to a point. The problem is the crisis has reached such huge proportions that the Fed and government has no choice but to intervene.
I don’t believe that’s true. All that was needed to happen was for the bondholders to move down to equity level depending on seniority. The bankruptcy court could have handled that in a week and over that period of time the Fed could have kept the payments system open by standing in the middle. There was plenty of capital at the bondholder level.
Deflation is poison in an economy with high levels of private debt where the risk of deflation is high.
I love how you think deflation is bad but inflation isn’t as bad.
The 1930’s can be likened to a laboratory experiment and showed the Austrian solution was a failure.
Doofus, the 30’s were a period of intervention. It was the opposite of market-based economics, you nong.
The US banking system is not impaired?
It was, but isn’t now. You really have a problem with following an argument, don’t you?
Obviously the Fed doubled the money base just for the hell of it. That there are $1 trillion in reserves at the Fed is evidence the system is impaired. Do you even no what the multiplier is?
Credit spreads are exactly what Keynes was talking about. Do you really think business and householders borrow at AAA rates? The Libor/OIS spread blew out to astronomical levels for crying out loud. Banks were iffy about even lending to each other. Even here the bills/OIS spread blew out and our banking sector is relatively sound, though a sharp increase in unemployment would certainly test it out.
Interesting, so Keynes actually thought people would lend during a time when they have no idea what is happening to creditworthiness.
That private monopolies produce deadweight losses is pretty basic second year micro from memory.
Was second year silent on public monopolies?
JC
20 Mar 10 at 10:29 pm
Sorry JC I lied. Just one response though which is pretty good for me seeing like you I must have the last word.
“Interesting, so Keynes actually thought people would lend during a time when they have no idea what is happening to creditworthiness”.
Only if the price is right. Hence the rise in credit spreads.
sdfc
20 Mar 10 at 11:24 pm
That’s it I promise.
sdfc
20 Mar 10 at 11:24 pm