“I don’t know what private aggregate demand means, or the phrase “pent-up” demand. The usual way that Keynesians explain the post-war expansion despite the huge cut in government spending is to say, well of course the economy boomed, there was a lot of pent-up demand. What does that mean? There is always pent-up demand in the sense there is a stuff I wish I could have but can’t. But the standard story is that people couldn’t buy washing machines or cars during the war–they were rationed or simply unavailable or unaffordable. So when the war ended, and rationing and price controls ended, people were eager to buy these things. But the reason these consumer goods were rationed or unavailable is because all the steel went into the tanks and planes during the war. So when the war ended, there was steel available to the private sector. That’s why cutting government activity can stimulate the private sector.”To which the response should be: and how is this inconsistent with Keynesian economics?
Russ Roberts, “Keynes vs. Reality-2,” July 14, 2011
Americans had accumulated vast savings during the war: some $100 billion by 1944 including $43 billion in savings and money.
But American consumers could not spend the money on consumption during the war, owing to shortages, rationing and the fall in production of consumer goods. Unless you seriously believe that the desire to consume — to satisfy your subjective utility preferences by buying commodities — does not rise with income, then the meaning of “pent up” should be obvious: it means the desire to purchase consumer goods but being unable to buy them, even though you have the money.
When the war ended and the wartime command economy was dismantled, resources were freed up for reconversion to a peacetime consumer economy, and there was a totally atypical downturn in 1945 were GDP fell by 12.5% between February and October:
“The decline in government spending at the end of World War II led to an enormous drop in gross domestic product making this technically a recession. This was the result of demobilization and the shift from a wartime to peacetime economy. The post-war years were unusual in a number of ways (unemployment was never high) and this era may be considered a ‘sui generis end-of-the-war recession’.”Samuelson feared that there might be a return to long-term depression after this conversion: he was wrong. There was the massive surge in consumption after 1945 using accumulated savings, and income rose even more after the 1945 tax cut of $6 billion, passed in November. The post-war growth to 1948 was an entirely predictable development consistent with Keynesian economics.
http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States
In 1943 — the same year Samuelson got it wrong — Keynes was giving a lecture at the Federal Reserve and was asked by Abba Lerner about the possible economic problems of the post-war period. Keynes’s reply is significant:
“Keynes harshly rejected the risk of post-war stagnation, holding that because of Social security there would be a large reduction in private saving and so that would be no problem.”In other words, Americans now had the security of welfare programs that allowed them to free up more of their income in spending.
D. C. Colander and H. Landreth (eds), The Coming of Keynesianism to America, E. Elgar, Cheltenham. 1996. p. 202.
What kind of analysis of the post-war boom ignores what Keynes — the founder of Keynesian economics — thought about this question? Samuelson was simply wrong; Keynes was right.
Another problem for Austrians is this: there was a very sharp rise in government spending from 1948 to a 1953? Why?
The second post-WWII recession extended from November 1948 to October 1949. Truman’s budget surplus of 4.6% of GDP in fiscal year 1948 fell to 0.2% in fiscal year 1949, as spending went from $29.8 billion in 1948 to $38.8 billion in 1949, as automatic stabilizers kicked in. In fiscal year 1950 (July 1, 1949 to June 30 1950), the budget went into an actual deficit of 1.1% of GDP. Moreover, Congress had pushed through a tax cut in 1948, which boosted private spending in 1949. What we have here is classic Keynesian countercyclical fiscal policy.
Some of the increases from 1950–1953 were, of course, related to the Korean war, but also to new social, welfare and military programs enacted under Truman. Government spending in both absolute terms and as a percentage of GDP surged from 1948 to 1953, fell slightly from 1953–1954 as the Korean war ended, but remained between about 25% and 30% of GDP throughout the classic era of Keynesian economics (1945–1973), as can be seen here:
US Government Spending as Percent of GDP: 1903–2010.Yet the economy continued to boom despite the historically unprecedented levels of government spending in absolute terms and as a percentage of GDP.
There is an interesting view of the post-1945 UK economy at
ReplyDeletehttp://www.press3.co.uk/publications/to_full_employment/chapters/
Whatever "reduction in private saving" due to Social Security there was must have occurred shortly after its establishment in 1937, not magically 8-11 years later when it becomes a convenient rescue of supposedly Keynesian economy (neither). And during the war Americans not only decreased their savings, but actuallly "had accumulated vast savings during the war". LK does not say why but seems to know why they decreased the savings after the war: due to Social Security that had been established 8 years earlier. Social Security keeps working magic through eternity at convenient moments. Soon we'll hear that Germany's post WWII rebound was miracled by Bismarc's social security law of 1881...
ReplyDelete"And during the war Americans not only decreased their savings,
ReplyDeleteAmericans did not decrease their savings in the war.
What are you even talking about.
Ignore "only" and keep reading after the comma.
ReplyDeleteJoanna Liberation, you are obsessing over a small detail. Keynes and Keynesians didn't claim that Social Security was the only reason for the post-WWII boom, it's a contributing factor but nothing else. To be chronologically accurate, Social Security started to collect revenues in 1937, but the first monthly payment waited until 1940. Before that, only death benefits had been paid out. Social Security having delayed effects is also possible, because people aren't "rational" in the way that classical economists or libertarians suppose, they wouldn't have reacted on the spot to its implementation. And even if the effects had been fast-acting, if you take the moment the benefits were first being paid out as the start, it wouldn't have left much time for people to start spending their savings before rationing began and prevented people from buying consumer goods, delaying the effects until the end of WWII.
ReplyDeleteAnyway, the real heart of the argument is that during WWII, there was full employment in the US and people kept earning wages. At the same time, most of the resources were directed to the war effort, so goods available to consumers were rationed. In a free market, according to classical economics, the prices would just have jumped up on all the products and the rate of saving would have been mostly unaffected, but the US went the way of price and wage control and rationing. This allowed Americans of all kinds to save a lot of money, because they were unable to spend a significant portion of their income as there were shortages on many consumer goods.
Those savings were beyond what people wanted to save, so when products finally became available again, a lot of these savings were transfered directly into consumer spending, resulting in increased demand that favored economic growth. Everything here is consistent with Keynesian economics. It's also consistent with debt deflation theory, as private-led growth occurred only after the huge savings during WWII got rid of the overhang of private debt that had caused the depression's effects to last so long. It's also consistent with the idea that money isn't neutral.
Reagrding the post-WWII boom, the savings rate shot up to 20-25% during the war, then plummeted to under 5% by about 1947, then rose only slightly to 7-8% for the 1950-1973 period.
ReplyDeleteThere was thus massive fall in savings rates, which even Robert Higgs admits:
"How then did consumers finance their surge of spending during the postwar recovery of the private economy? The answer is, in nominal terms, by a combination of increased personal income and a reduced rate of savings; in real terms, simply by reducing the rate of personal savings. Between 1945 and 1946, when personal consumption spending increased by $23.7 billion, annual personal savings dropped by $14.4 billion, and personal taxes fell by $2.2 billion; increased (nominal) personal income financed the balance of the increased consumption. Between 1946 and 1947, when personal consumption spending increased by $17.3 billion, annual personal savings dropped by $5.2 billion, and personal taxes rose by $2.7 billion; increased (nominal) income financed the balance of the increased consumption. Between 1947 and 1948, when personal consumption spending increased by $12.9 billion, increased (nominal) personal income accounted for more than the entire increase, as personal taxes fell by just $0.2 billion and annual personal savings actually increased by $6.1 billion. Clearly, during the critical first two years after the war, the ability of consumers to spend more nominal dollars (+$41.0 billion) for consumer goods depended overwhelmingly on just two sources: increased personal income (+$20.5 billion) and reduced annual saving (-$19.7 billion)."
And corporations and businesses liquidated their bonds:
The postwar resurgence of the private economy rested on an investment boom as well as a consumer spending surge. In current dollars, gross private domestic investment leaped from $10.6 billion in 1945 to $30.6 billion in 1946, $34.0 billion in 1947, and $46.0 billion in 1948. Relative to GNP, that surge pushed the private investment rate from 5.0 percent in 1945 (it had been even lower during the previous two years) to 14.7 percent in 1946 and 1947 and 17.9 percent in 1948.21 As a standard for comparison, one may note that the investment rate had been nearly 16 percent during the latter half of the 1920s, before hitting the skids during the depression.
Firms could finance their increased investment spending in part because, unlike individuals, they did unload some of the government securities they had acquired during the war. Between 1945 and 1946, holdings of public debt by corporations (exclusive of banks and insurance companies) fell by $6.9 billion; they fell by another $1.2 billion in 1947 before rising by $0.7 billion in 1948
http://www.independent.org/publications/article.asp?id=109
Also: the US had a recession from November 1948 to October 1949, and 1948 saw a slight rise in the personal savings rate.
ReplyDeleteIn 1949, a recovery began, and in that year savings rate fell again.
Although the savings rate was at 5% by about 1947 - a postive rate - we are dealing with an average. That rich or some middle class households were not dissaving is obviously the explantion, since lower income earners were dissaving in post-war years:
"Moreover, there was a sharp upward trend in the amount of dissaving by the lower-income groups from 1945 through 1948 ..."
U.S. news & world report, Volume 28, p. 71.
Higgs argues that the immediate post-war prosperity was a "supply side boom," but that theory goes out the window, since the main factor was a boom in housing construction caused by a massive surge in demand:
ReplyDelete"The collapse of the housing credit system during the Depression and the restrictions of the war period contributed to a tremendous pent-up demand for housing that exploded after the war. Housing production leaped from 140000 units in 1944 to 1 million in 1946 and close to 2 million in 1950."
John F. Walker, History of the U.S. economy since World War II, p. 360.
The corporate dissavings were used to finance investment (caused by massive pent-up housing demand), so again all I see is a confirmation of the Keynesian explanation.
Any boom is consistent with Keynesian economics. Actually, any boom is consistent with any economics, so no sweat. You take whatever imagined or real factor you happen to like (like Social Security) and say it is THE reason for the boom, simple, any monkey can do that.
ReplyDeleteDownturns are more tricky, like when Keynesians force the poor to keep subsidizing capitalists with invariably dismal results.
Poor subsidizing capitalists?!
ReplyDeleteI'm not the most well-read person on the Keynesian economics, but I always thought that the brunt of the idea was to increase the government investments during economic downturns (when the private investments are falling). That way, through multipliers, the resulting economic output is, ahem, multiplied by x (x>1).
Say, a government decides to build a school. Then, firms get their money through the contracts. Workers get their money through the wages. They spend their wages in the shops. Shops workers get their wages and so on... Everyone wins.
I guess this is the oversimplification, but where do you see an exploitation of poor?
//ESL, so sorry for faulty syntax/grammar.
Joanna Liberation, it's hard to understand what your point is. Your claim that booms are consistent with any economics is wrong. What you are talking about, picking one factor and claiming it's the reason of the boom, isn't what one would call "consistent" with an ideology. In fact, it's the exact opposite. To be consistent, you have to look at the situation before the boom, then make a prediction according to the economic model you wish to analyze, if the prediction is what actually happened, then we can say that the fact is consistent with the theory.
ReplyDeleteFor example, regarding WWII, Keynesian economics say that a government can "prime the pump" and replace consumer demand to restart the economy when it falters and is stuck with major consumer debt. During WWII, this is exactly what happened, government spent insane amounts of money, doing so it got rid of unemployment and had the economy grow quickly. Not only that, but it also led to the elimination of most private debt and accumulation of savings, which is the best example of "priming the pump" you can find, purging the debt out of the system. In those conditions, Keynesian economics say that a boom can be expected following a possible recession if government spending is cut quickly. That is exactly what happened.
On the other hand, classical economists would say that all the government debt would be "crowding out" private investment and lead to weak economic growth. Hence, the boom here is inconsistent with classical economics. Austrian economics would claim that WWII was a period of incredible malinvestments leading to even greater economic problems than the Great Depression while the economy readjusts and purges the malinvestments. Though a recession did occur while the economy readjusted, something consistent with both Keynesian and Austrian economics, the boom afterward is consistent with Keynesian economics, but not with Austrian economics.
You also do not understand Keynesian economics at all if you think that Keynesians support "subsidizing capitalists" with the poor's money in general, and especially in a boom preceding a downturn. Keynesians, when a recession comes, to the extent that they want to subsidize people, want to subsidize the poor more than the rich, as the poor are more likely to spend their money and increase demand, whereas the rich will invest more of it. Of course, Keynesian theory also says that a government should have a surplus in good years, not a deficit.
Having money flow from the poor to the rich is instead the basis of supply-side economics, who think that the more money investors have, the better everyone is, because investments increase supply and supply creates its own demand... at least, that's what they think. It's also at least tacitly supported by Austrians who support much if not most of the same policies as supply-siders do and who rely almost exclusively on a free market in which the powerful can easily accumulate even greater amounts of wealth (the tendency of wealth to be more and more concentrated with time in a free market cannot be denied).
Of course, Keynesian theory also says that a government should have a surplus in good years, not a deficit. Plenty of "Keynesians" say this. They often also say Keynes said this, but without a citation, as James Galbraith has noted. Of course the real Keynesian idea is for fiscal policy to be countercyclical, but this need not mean countering expansions enough to have surpluses during booms.
ReplyDelete"but this need not mean countering expansions enough to have surpluses during booms. "
ReplyDeleteClassic Keynesians might say that: in fact, since surpluses essentially destroy money and a central bank can create money at will, the belief that the government needs to "save" what it itself has the power to create is a complete myth - a holdover from the gold standard era.
The budget state at any time should simply reflect whether the economy needs more demand or less to maintain full employment.
Abba Lerner's functional finance model is the key here.
Roman P, except government spending does not fall from the sky, sooner or later it has to be paid by some form of a direct or indirect tax, ie reduces private spending. Keynesians like new money, so their investment comes from inflation tax, and inflation tax is paid mostly by the poor. New money is mostly created by private banks so financiers make the most of the profit out of it. Then new money reduces mortgage rates, often even below inflation rate like nowadays, so this is also where the new money goes, but you don't find many poor people having high mortgages whose lower rates would offset the inflation tax. Too fast for you? Read again.
ReplyDeleteWow so there are still keynesians out there who believe in the magical multiplier? I thought you had moved on long time ago. But just to use this as an example. If you believe in positive multiplier of increased government spending, then why don't you symetrically believe in negative multiplier of decreased private spending (after higher taxes). I guess because again you believe government spending falls from the sky.
LK, you yourself are also a holdover from the gold standard era, sharing the belief that the government needs to collect via taxes what it itself has the power to create. This is an interesting fact that out of all leftists, only hard core communists actually have the balls to derive all conclusions from their assumptions.
ReplyDelete"Keynesians like new money, so their investment comes from inflation tax, and inflation tax is paid mostly by the poor."
ReplyDeleteTotal garbage. You assume an economy at full employment.
The primary and main effect of deficit spending in times of severe unemployment, idle resources and low capacity utilization is to increase output and employment - employing poor people, raising their income and increasing their standard of living.
Inflation is a secondary effect - just as it always would be even if the spending is private.
You might as well rant about "evil" private capitalists causing an inflation "tax" on the poor by their investments and employment of the poor.
You're an idiot.
And not even all the Austrians you appeal to woudl even support your rubbish.
ReplyDeleteLudwig Lachmann:
"Policies based on Keynesian macro-economic recipes might have succeeded (had they then been tried) in 1932 and did succeed in 1940 because it so happened that at the bottom of the Great Depression as well as during the Second World War all sectors of the economy were equally affected. In 1932 any kind of additional spending on whatever kind of goods would have had a favourable effect on incomes because there was unemployment everywhere, as well as idle capital equipment and surplus stocks of raw materials. During the war the situation was exactly the opposite, but precisely for this reason the same recipes, but with opposite sign, applied. With millions of men and women in the armed forces everything, not merely labour, was scarce and any reduction in demand anywhere welcome."
(Lachmann 1973: 50).
http://socialdemocracy21stcentury.blogspot.com/2011/07/startling-admission-from-ludwig.html
Simon, the fallacy that war has solved unemployment or whatever is just another variation of broken window fallacy. Then accumulation of savings during WWII was not caused by government spending but by consumption rationing. Now, consumption rationing is totally against Keynesian economics, so it's funny that you try to take credit for it. Sure, a boom following the abandonment of consumption rationing is consistent with Keynesian economics, but then again, any boom is consistent with any economics. I can do that no problem with any boom and any economics, same as LK has done here with post WWII boom and keynesian economics by using Social Security as THE explaining factor.
ReplyDeleteIn particular, I can do it with Austrian economics. How can a post WWII boom be inconsistent with Austrian economics, after the drastic cut in government spending? You never say. After such a drastic cut in government spending, normally a Keynesian should expect a drastic and long recession, unless he starts to devise post factum magical factors like the establishment of Social Security 10 years earlier. But no, there was only a short slump followed by a boom, perfectly consistent with Austrian economics, ie the elimination of malinvestments. Then the only way left for the economy was to go up and fast and you don't need to conjure up magical factors from 10 years earlier, you just use the basic Austrian theory.
I am aware that Keynesians want to subsidize the poor. Except I don't care much what they want to do, but what they actually do. New money invariably gets to the richest first who make the most of it, paid by the poorest via inflation tax.
And the tendency of wealth to be more and more concentrated is rubbish. The middle class has always grown together with capitalism. Keynesian assumptions are apriori same as Austrian ones, the difference being that Austrians assume obvious things like "people consciously act" and Keynesians assume emotional rubbish like "the rich get richer and the poor get poorer".
LK, the most important assumption of Keynesian thinking as I see it is that prices are "sticky" and the money supply decreases do not cause price deflation, hence permanent recession. In other words, Keynesians would have never predicted the slump after WWII would be so short lived, that is why you keep trying to conjure up mythical factors like Social Security. All the world's ills supposedly come from that false assumption and the government guys, naturally supported by a legion of Keynesian economists, are the cure.
ReplyDeleteTo me that means basically Keynesians do not believe in the law of supply and demand, the most basic economics law. And there is no economics really without that law.
However that does not matter. Keynesianism, together with fractional reserve banking, has kept financial sector average profits consistently and considerably above economy average since WWII. Politicals powerful as ever. Legions of economists hired (private institutions) trying to forecast what another legions of economists will do with inflation tax (public institutions). Keynesianism will forever be popular with government, financiers and economists because there are simply no better sinecures out there than economy tsars.
"New money invariably gets to the richest first who make the most of it, paid by the poorest via inflation tax."
ReplyDeleteAgain - these are rich who increase employment and output, hiring the poor and increasing the their income, you total idiot.
"In other words, Keynesians would have never predicted the slump after WWII would be so short lived, "
Garbage. Keynes - the founder of Keynesian eocnomics - in 1943 predicted no post-war stagnation or prolonged slump.
"that is why you keep trying to conjure up mythical factors like Social Security. "
Social security was one factor - not the only one.
"Keynesianism will forever be popular with government, financiers and economists because there are simply no better sinecures out there than economy tsars. "
Again - garbage. The voting public has elected Keynesians repeated too.
"Then accumulation of savings during WWII was not caused by government spending but by consumption rationing."
ReplyDeleteOf course it was caused by massive government employment programs and payment of incomes, which were saved because of rationing.
The statement that it was not caused by "government spending" is pure stupidity.
Joanna Liberation, first, regarding the "inflation tax", you are completely and utterly wrong when you claim that the poor suffer most from it. It's the rich who suffer most from inflation, because in general, the poor are debtors, the rich are creditors. Inflation reduces the value of sums of nominal dollars, such as debt and investment. Therefore, the poor get debt relief from inflation, whereas the rich see their real returns on their investments fall. Inflation also usually comes with increased wages, or its back gets broken fast, so it means that even if the prices of products the poor buy increase, it's normally counteracted by higher wages.
ReplyDeletePlease resist the temptation to create a strawman by claiming that I say the higher the inflation, the better. High inflation does have destabilizing effects which makes it undesirable over a prolonged period of time. However, in some cases, high inflation can be useful and good for the economy, such a right now.
As to your claim that the accumulation of savings in WWII was caused by consumption rationing and not government spending... Again, wrong. The two needed to be there to do it. Consumption rationing forced people to spend less, but if the government wasn't spending a lot of money hiring people and buying goods, then there would have been no savings, as people would have had little to no income. A private economy cannot thrive if people are allowed only the buy the strict minimum, factories would idle, plants would be left rotting in the field, etc... You really needed both, rationing lowered spending and government spending kept incomes stable or even increased them.
And the post WWII boom was not consistent with Austrian economics, as the government kept spending more than it used to do and Austrians (at least, those who call themselves that on the 'net) argue that government spending only makes things worse. So if government spending makes things worse, why does cutting it quickly result in a slump? You say malinvestments, alright, but then why did the system purge the massive malinvestment from WWII so fast and the malinvestment from the private economy in 1929 so slowly, despite the fact that government implemented stimulative policies in the post-WWII slump and not in 1929? The reason is not found in Austrian economics.
You claim that Keynesians cannot understand why the boom occurred after the slump, that is just plain wrong. Keynesians do not disagree that the private economy can grow and do it pretty well, but they add the stipulation, IF THE CONDITIONS FOR IT ARE MET. This is what people call "nuance", that you seem not to be able to understand. That is the main problem with you right-winger Austrians, you want easy simple solutions that work every time, and you can't understand when people say that solutions may vary depending on the situation. Keynesians argue for higher government spending in recessions, so you think that they are saying that higher government spending is always a good idea, which no one claimed. When we try to explain why to you, instead of understanding, you become convinced that this is hypocrisy or inconsistency, when it's just the result of a theory that accepts and tries to replicate the complexity of the world.
The rich getting richer and the poor getting poorer isn't an assumption... it is an empirical observation used to make predictions on future developments.
As to the assumption that "people consciously act", I already addressed that. If you interpret it in a way that allows it to be true, then it's of no use to your ideology, it's too vague to draw any conclusion to it. If you restrict the meaning to be able to support your statements, then you add hidden assumptions about people that are false, for example supposing constant economic rationality. You try to get both mutually exclusive interpretations at the same time, the vague one to defend it from criticism and the strict one to support your ideology. You can't have it both ways.
Net savings tell you more than just savings. Also, if money was a "good" like any other and was "produced", there might be a reason for there to be a government surplus to "save". However, money isn't produced.
ReplyDeleteLK, I would love to get free money paid by inflation tax paid in turn by the poor so I can hire the poor and make even more money, this sounds indeed very cool, except with keynesianism the privilege is limited just to the richest. Well, I guess otherwise the system would break down in a couple of weeks.
ReplyDeleteBut what could Keynes do? Predict permament recession after the war? It does logically follows from his theory, but even Kenes must have exibited at least rudimentary common sense, hence the Social Security fairy tale.
"I would love to get free money paid by inflation tax paid in turn by the poor so I can hire the poor and make even more money"
ReplyDeleteYour inability to answer or respond to any of the actual questions posed to you demonstrates your intellectual bankrupcy.
I repeat: the primary and main effect of deficit spending in times of severe unemployment, idle resources and low capacity utilization is to increase output and employment - employing poor people, raising their income and increasing their standard of living.
Anonymous,
ReplyDeleteComing back to Earth, among your friends, who's got the biggest mortgage? The poorest one? You really think banks give out big mortgages to the poorest? It must be a funny world you live in.
The wealthier an individual, the bigger their mortgage, as simple as that.
Same with companies, owned in turn by wealthy individuals. The bigger a company, the higher leverage it can obtain from financial markets.
The wealthiest individuals and the biggest corporations are THE biggest debtors out there, not creditors.
And why are they so much in debt? Because it PAYS. Because loans are subsidized by ultra low rates (nowadays often below inflation rate, so you make money by just borrowing) thanks to new money, ie by inflation tax, ie by the poorest, as they are the biggest cash holders and on salaries fixed in nominal terms. How often do you get raises? Once a year, to offset previous year's inflation, if you are lucky. Newsflash: there is inflation every single month of that year BEFORE your get your raise.
There is no better scheme to make money on the back of the poorest.. but then nothing has changed really, even before Keynes, when someone was calling himself a benefactor of the poor, the poor had better run and fast.
Now if government was just rationing but not spending, people would save even more, not less. Just common sense, government spending is CONSUMPTION, so how can it be otherwise? Just like any keynesian, you look at nominal money and ignore REAL values, because again, you think money is no good... If government was not spending during WWII, heavy deflation would cause REAL private savings to skyrocket.
Next, basics: boom is never in absolute terms, it is RELATIVE. Government was indeed spending slightly (only slightly) more after WWII than before. Yet the government was still spending 2-3 times less than during WWII. Hence a boom, RELATIVE to WWII years. Keep in mind that the great GDP and unemployment stats during WWII came from arms production, ie things that government, not people, wanted. It was a GDP of fake slave-like origin, not something real that could be sustained in a free market.
The purge of malinvestment from WWII was "fast" (or normal, at least for an economist who actually believes in economic law of supply and demand, unlike keynesians) because there was no Hoover and Roosvelt to prolong the depression this time. You are wrong, virtually all stimulative policies of Roosvelt were already started by Hoover back in 1929 and 1930. If you want to read about the real new deal, not just the myth they teach children in schools, I recommend American's Great Depression by Murray Rothbard.
The rich getting richer myth is based on US gini coefficient rising by about 10% over last 40 years (wow, devastating...). But people fail to realize that capitalism has actually CREATED the middle class, so it is absurd to criticize capitalism for high gini coefficient in the first place, because w/o it is invariably close to 1, like historically feudal and contemporary communist states of Cuba or North Korea, with rich government elite and the rest dismally poor.
There is only one way to interpret "people consciously act", ie, that people consciously act, and yes, it's very basic, and yes, you need extra assumptions, but they are neither hidden nor wrong, I've been over that with LK already, if you are interested:
http://critiquesofcollectivism.blogspot.com/2011/01/apodictic-certainty-of-praxeology.html
"The purge of malinvestment from WWII was "fast" (or normal, at least for an economist who actually believes in economic law of supply and demand, unlike keynesians) because there was no Hoover and Roosvelt to prolong the depression this time.
ReplyDeleteRoosevelt did not "prolong" the depression, idiot: under Roosevelt the US experienced a recovery with positive real GDP growth and falling unemployment - right up until when he tried austerity in 1936.
"virtually all stimulative policies of Roosvelt were already started by Hoover back in 1929 and 1930. I"
That is utterly false: Hoover did not try any significant countercyclical fiscal policy.
(1) Hoover ran a federal budget surplus in fiscal year 1930 - the very opposite of Keynesian economics.
(2) Although total government spending in fiscal years 1930, 1931, 1932 and 1933 increased by a puny amount on previous years, that was in no sense a countercyclical fiscal policy.
(3) Hoover also cut federal spending in fiscal year 1933, and introduced the Revenue Act of 1932 (June 6) which increased taxes across the board and applied to fiscal year 1932 and subsequent years - a highly contractionary move.
http://socialdemocracy21stcentury.blogspot.com/2011/05/herbert-hoovers-budget-deficits-drop-in.html
"The wealthier an individual, the bigger their mortgage, as simple as that."
ReplyDeleteWealthy people do not require mortgages, you total fool: they have the money to buy what they want.
"The wealthiest individuals and the biggest corporations are THE biggest debtors out there, not creditors."
ReplyDeleteWrong. The wealthiest individuals and biggest corporations are creditors - they have their money in financial assets, hedge funds, money market funds, and business demand deposits.
"Government was indeed spending slightly (only slightly) more after WWII than before."
ReplyDeleteThat is total rubbish: government spending as a % of GDP and in absolute terms soared after WWII, and was historically unprecedented, being between 25%-50% of GDP in many Western nations - yet real GDP growth, productivity growth, and real wage growth was also unprecedented in the era of classic Keynesianism.
The unprecedented expansion of cheap money by Federal Reserve starting right in the week of the crash of 1929, the expansion of public works, farm subsidies and wage controls, all by Hoover:
ReplyDeletehttp://mises.org/rothbard/agd.pdf
Hoover Dam built in the middle of nowhere does not look fiscal conservative to me, LK. I am sure Keynes would have built it still bigger and on the Moon, but try thinking in terms of early 30s.
Really wealthy people may not HAVE TO take mortgages but they take them anyway because they make money that way by investing their cash. Every financial advisor will keep badgering you into that. Similarily, why pay off your mortgage earlier if you can invest that cash with higher interest than your mortgage?
Then again if you buy a $1 million dollar house, are you wealthy? Not necessarily, usually you are well paid and can afford big mortgage. Still leftists call such guy wealthy. And he is indeed wealthier than the poorest who subsidize his big mortgage ultra low rates via inflation tax.
Now as for those "corporations" that are indeed creditors. You mention financial institutions like banks and that is correct, except you forget they lend money they have created out of thin air in the first place. Every time you deposit a $100 bill in your bank, the bank is licensed to create exactly same amount (minus small reserve requirement of a couple percent) of money out of thin air and lend it. Yes, financial institutions are creditors but of a money they have stolen, via inflation tax, from the poorest in the first place. The system, if you still don't know, is called fractional reserve banking....
Unfortunatelly for you, government spending as % of GDP is well documented:
http://www.usgovernmentspending.com/us_20th_century_chart.html
and I don't see any soaring of it as compared with pre-WWII years, not until early 50s, way AFTER the boom we are talking about.
"The unprecedented expansion of cheap money by Federal Reserve starting right in the week of the crash of 1929,"
ReplyDeleteAnd any Keynesian will tell you cheap money is virtually useless in a depression: it is pushing on a string.
"Yes, financial institutions are creditors but of a money they have stolen, via inflation tax, from the poorest in the first place."
= Idiocy.
You mean the loans that create investment that employ the poor and increase their income?? The loans whose main effect in times of recession is to increase output and employment when resoureces are idle?
And your inflation "tax" would exist even under a gold standard when private sector booms happen anyway.
If you abolished FRB, there would then be a persistent deflation "tax" on productive members of society taking out loans for investment, since they woudl have to pay back their loans in money of higher value, and you would signiicantly reduce the amount of investment as people discovered they could get a guaranteed return on their money simply by holding it.
I don't see any soaring of it as compared with pre-WWII years, not until early 50s, way AFTER the boom we are talking about.
Government spending as a percentage of GDP soared 1929-1933 from 10% to 20% mainly because GDP collapsed, but because there was signifcant countercyclical fiscal policy going on by Hoover:
http://socialdemocracy21stcentury.blogspot.com/2011/05/herbert-hoovers-budget-deficits-drop-in.html
"the expansion of public works, farm subsidies and wage controls, all by Hoover:"
ReplyDelete(1) total federal spending increases under Hoover were miserably small - the idea implicit in your statement, that the spending from some of these public works programs could ever have counteracted the depression, is a sign of sheer stupidity. Learn some basic concepts: potential GDP, the Keynesian multiplier, and the appropriate level of discretionary spending increases that actually bring about Keynesian stimulus and positive GDP growth.
E.g., in 1931, US GDP collapsed by $14.7 billion dollars, in a debt deflationary spiral with bank failures and a collapse in employment and investment. If we assume a multiplier of 4 (which is very high), then Hoover’s spending increase of $257 million dollars might have generated at most $1.028 billion of GDP in fiscal year 1931. But GDP fell by $14.7 billion dollars, and only an complete idiot or ignoramus would seriously argue that Hoover’s increase in spending in fiscal year 1931 could have prevented the depression, by effective stimulus to offset such a catastrophic fall in GDP.
LK, answer this simple question. And I specially made each part of the question in separate lines so you don't miss anything.
ReplyDeleteWould you,
give me for free
your own hard earned money
so that I
may or may not hire you
to increase
your income
back to what it was,
if you're lucky?
Please do, let's see how your Keynesian idology works in practice.
BTW, thanks for all the inspiration, I have not realized before the nice correlation (well, IMO, also causality) between increased gini coefficient and government spending:
http://critiquesofcollectivism.blogspot.com/2011/07/rich-get-richer-and-poor-get-poorer.html
You're latest "question" is drivel.
ReplyDeleteI repeat: government spending in recessions and FRB loans in recessions (and in the latter even in expansions in the cycle) create investment to employ the poor and increase their income.
The primary effect of these loans or government spending is to increase output and employment when resoureces are idle; such "secondary" inflation is also the consequence of all private sector booms.
If you abolished FRB, there would then be a persistent deflation "tax" on productive members of society taking out loans for investment, since they wouls have to pay back their loans in money of higher value, and you would significantly reduce the amount of investment as people discovered they could get a guaranteed return on their money simply by holding it.
That is why low but steady inflation is preferable to deflation, with real wages rising in line with prodcutivity growth and Keynesian macro management gave us an era of absolutely unparallelled prosperity from 1945-1973. E.g. real GDP:
Average OECD real GDP growth:
1700-1820 - 0.2%
1820-1913 - 1.2%
1919-1940 - 1.9%
1950-1973 - 4.9%
1973-1990 - 2.5%
1950-1973 is hands down winner.
LK, you are great in repeating no doubt about it. Most important that it works for you.
ReplyDeleteIn early 1960s even the supposedly socialdemocratic Swedish government was still spending "merely" around 30% of GDP, ie as "little" as the US government, so why do you keep trying to plug 1950-1973 as a Keynesian era?
By government spending as % of GDP, 1973-1990 is the mature Keynesian era when it has reached and passed 50% around the world.
"By government spending as % of GDP, 1973-1990 is the mature Keynesian era"
ReplyDeleteNo, it isn't: Keynesian is about countercyclical fiscal policy to maintian high employment and demand. That - as a policy - was given up in the 1970s/1980s in most countries, which is why involuntary unemployment has been a persistent problem ever since.
From the mid-1970s-2000s we had monetarism/New Classical economics/new consensus macro: the economics of private debt and asset bubbles.
The increases in spending as a % of GDP from the 1970s onwards - far from disproving what of I said - confirm it.
ReplyDeleteYou can see the serious data here:
https://lh4.googleusercontent.com/-F9pU3sZVlGg/TYYb9YDE0pI/AAAAAAAAADA/CmixXrDsqc4/s1600/gov+spending+percent+GDP.png
The major sources of the increases are:
(1) increased social and health spending to do with aging populations;
(2) the fact that by abandoning high employment MORE unemployed people - especially long term unemployed - have required increased support from the state by social security payments, driving up costs of these programs, precisely beacause there has been such higher levels of unemployment.
What the data is telling you is that the Keynesian era of high employment drove down social security/social spending costs, because many more people had employment and government social expenditures did not need to be so high.
The other factor is merely social demographics.
So why do government spending increases fail to generate and multiply Keynesian wonders when they are directed at health and social security? Isn't such spending supposed to render a countercyclical boon too?
ReplyDelete"So why do government spending increases fail to generate and multiply Keynesian wonders when they are directed at health and social security?"
ReplyDeleteI have already told you above: serious countercyclical fiscal policy to maintian high employment and demand was abandoned from 1970s/1980s. The multiplier effect from the various increases in social spending has been insufficient to maintain a 1945-1973 high employment economy.