on stimulus

Tim Kane
Mesa, Az

I wish that these people would take a look at South Korea NOW. The recession is covered in the press like it is ancient history here.

Korea GREW at .02% by some measures in 2009. This year estimates are calling for 7% growth!

Keynesianism doesn't work? My foot, it doesn't work!

South Korea implemented a stimulus of about 12%. The also benefited from a 25% drop in their currency in a "flight to quality" that began around January 2008. (I'm not sure what a 25% drop in currency translates in effect to a stimulus, but it is, in effect the same thing - then again so is a tariff).

For the U.S. to do the same stimulus would have been in excess of $1.5 trillion. Any stimulus south of $1 trillion just wasn't serious. My guess has always been $2.1 trillion was the appropriate stimulus response.

Korea's policy choice is almost exactly the same as Japan's in 1932. By 1933 they were out of the depression. By 1939 their industrial production was double what it had been in 1929.

Only in the 1940s did the U.S. bother implementing similar stimulus, and it had the same effect.

Japan implemented a form of Keynesian economics well before Keynes drafted his paper on it.

The American stimulus was only $700 billion - amazingly equal to the TARP bail out. Hmmm. Half of that was for tax cuts, aka anti-stimulus. The American response to the stimulus has been worse than no response, it has under-taken the appropriate medication, thereby discrediting the medication itself.

Basically, we are being ruled by plutocrats. They need $700 billion, they get it in three days time. The rest of America needs $2 trillion, and they get only what the plutocrats got, and only after three months of debate.

Now that the plutocrats feel they are safe, they want the stimulus drawn in and let the public suffer like the expendable cockroaches the greedy elite think that they are.

To that plutocracy I would say - there is still a communist party, it still rules China, who will protect your property rights after you have destroyed the middle class status of the masses? This country becomes less and less defensible as it loses its moral authority to those who would have to bear the burden to defend it. Wasted words: the plutocrats never think it through when they are feeding at the trough.

Deja vu all over

In my view, the most relevant individual psychological mechanism for budget-tightening gaining track with public opinion is the same that is behind the thrift aggregation paradox. The common sense (for the individual) is "When you are short of money, you don't spend more but save more". So the Austerians have it so easy. It is so simple, so logical, it appears to make so much sense. No macro expert should buy that, but of course many do. If only the economic consensus line would be "When everybody stop spending, who's going to sell anything and what happens next to the economy?"... But that is not the case. And yes, "Keynesian" spending is counter-intuitive for most people. (That's precisely the reason why we talk about aggregation "paradoxes": a paradox by definition bears no straight, logical, intuitive common sense). So you have too much factors to fight against: Common Sense/Paradox of Thrift mechanism + guilt/penance-for-all-of-them-but-me-and-my-money + many people fed up with so much public money for banksters + the dubious case of Japan (but how many people read Posen, after all?) + the very real (un-keynesian) case of Greece and the like + ideology and vested interests + the opposite camp has a very easy and intuitive and single argument... You see, Keynes advised to run surpluses in good time, precisely to be able to be the "spender of last resort" in circumstances like these (but how many people read Keynes, after all?). And what you get is: nominally right governments end up running deficits in good times (very un-Keynesian but who cares?) and nominal "Keynesian" """leftist""" huge stimulus (1937, Japan, now) end up falling too short, are too brief, are quited too soon. And the operating mechanism behind public opinion endorsing cutting stimulus is that individuals (even if they are experts) tend to micro-think the macro picture. Many among the public buy it because it meets their micro-reasoning, and because not so many people really love taxes. Et voilá, paradox of thrift all over, again. Ok then. Let's be logical and hoard our money all at once. Let's sit on our hands and wait patiently watching each other to see who's the first to buy the stuff of someone else-who incidentally happens to be also hoarding money like you. And, after the brilliant outcome of this smart strategy manifest itself, let's blame Keynesians (the government, the Yankees, the Germans, the piigs, the Chinese etc) once more. Deja vu all over. Last century... But no, sorry, let's not speculate for the moment about the potential role of wars in reconciling huge public spending with tight savings, because it's different this time.


Keynes advocated increasing demand by spending money. I have never seen a job created or someone get paid by saving (i.e. not spending) money.

Even if one saves money, it is with the eventual purpose of spending it, even if that is not until either retirement (or death). Saving money for a rainy day is important, but what if it is currently raining?

Money that is saved but not lent out does not earn interest and does not grow.

The Depression happened in the 1930's when banks STOPPED lending money, not during the Roaring '20's when banks (and people) LENT/SPENT money.

Economies are not very active when there is no money being circulated because it is sitting on the sidelines.

Today, like in the 1930's, companies and individuals who have money are not spending it or lending it. We are not experiencing inflation today, rather the exact opposite. Housing prices are declining NOT going up. This is a sign of deflation, not inflation.

Raging about government spending, taxes, or needing to save all sound virtuous, and ARE: when people are actually working and the economy is actually growing.

Somalia is a country with very LOW taxes, where people are forced to save (what they can). Sweden (or France) are countries with HIGH taxes and LOTS of government spending.

The question is where would one rather live, France/Sweden or Somalia?

Personally, even though the weather in Somalia is probably nicer, I'd prefer to live in France or Sweden with HIGH taxes and HIGH government spending, rather than Somalia where I would be forced to need to save because there are no government schools, no government hospitals, no government police/army, but LOTS of pirates.

When I have so much money that I don't need to participate in a society and can instead have my own private army, my own private roads, my own private hospitals, my own private schools, then I will be against the wastefulness of stimulus plans and government spending. Until then I will look at privatization much like a monarchy: when government is all private, and hence personal property, the country may as well belong to a single individual, say, a King (or perhaps a pirate).

Keynes' theories were the product of a democracy where all people can have a voice.

Advocating for austerity when there is unemployment will not create jobs. Advocating for the return to a gold standard or less government/societal spending will not create work or jobs.

Savings (not spending) only creates wealth and prosperity when it is put to work building something. This was the point Keynes was making on a macroeconomic level.

The difference between macroeconomics and personal economics is monetary policy. Printing money is an alternative to borrowing and debt that can stimulate demand.

To China it is preferable that the US borrow money rather than print it. Perhaps this is what Slobnob and Bob Roddis are referring to when they state what is rational.

No comments:

Blog Archive