Tuesday, August 16, 2011

Debunking Catalán on the Recession of 1937-1938

Jonathan M. Finegold Catalán attempts to prove that the recession of 1937–1938 was not caused by contractionary fiscal and monetary policy:
Jonathan M. Finegold Catalán, “Dangerous Lessons of 1937,” Mises Daily, February 2, 2010.
I. The Data
First, some basic facts about the recession and data:
(1) In the US, the fiscal year before 1976 ran from July 1 to June 30 in the next year. So in the relevant years the actual fiscal years were as follows:

Roosevelt inaugurated March 4, 1933.
Fiscal 1934: July 1, 1933 – June 30, 1934
Fiscal 1935: July 1, 1934 – June 30, 1935
Fiscal 1936: July 1, 1935 – June 30, 1936
Fiscal 1937: July 1, 1936 – June 30, 1937
Fiscal 1938: July 1, 1937 – June 30, 1938
Fiscal 1939: July 1, 1938 – June 30, 1939
Fiscal 1940: July 1, 1939 – June 30, 1940

In analysing the effects of fiscal policy in these years, one should not confuse the calendar year with the fiscal year: these are two different things.

(2) The actual recession (economic contraction) ran from May 1937 to June 1938.1 Thus the contraction began in the last months of fiscal year 1937 and lasted until the end of fiscal year 1938.

(3) Data on the Federal budget can be found here:
Federal Budget Receipts and Outlays: Coolidge – Obama.
(4) Data on total government spending (including local, state and federal) can be found here:
Total US Government Spending in billions of dollars.
The figures on total government spending (state, local, federal):

Year Outlays
1933 $12.62
1934 $12.81
1935 $14.78
1936 $16.76
1937 $17.22
1938 $17.68
1939 $19.05
1940 $20.42

Now these figures do not show us whether increases in total government spending were expansionary or contractionary, as one needs to look at whether the spending increases occurred by deficit spending or merely out of current revenues.
II. Critique
Let us now refute and correct Catalán’s assertions and errors here:
(1) Catalán states that
“The idea that Herbert Hoover was a laissez-faire president and that Roosevelt's New Deal paved the road to recovery have been refuted elsewhere.”
I have already refuted the Austrian attempts to paint Herbert Hoover as some radical interventionist president or big-spending Keynesian here:
“Herbert Hoover’s Budget Deficits: A Drop in the Ocean,” May 24, 2011.
Hoover adopted some very limited policy interventions and very mild increases in federal government spending from 1929–1932, but these were almost completely destroyed by state and local austerity.

(2) Catalán states that
“Interestingly, during 1935 — a year considered one of recovery — total government outlays measured $6.4 billion, less than during both 1936 and 1937. In fact, looking back to the years from 1933 to 1935, government spending peaked at $6.5 billion in 1934. It suffices to say that explaining Roosevelt's recession by pointing at a decrease in government spending is severely dishonest.”
Catalán commits the red herring fallacy, and is laughably ignorant of basic Keynesian theory: to gauge the effects of fiscal policy in any particular year and to see whether it was expansionary or contractionary, one must look at
(1) the size of the deficit and whether there was increased spending done via deficits, not just the size of spending per se;
(2) whether tax policy changed and if revenues rose owing to tax increases, and
(3) not just federal spending by itself, but total government spending at the local, state and federal level, to see if the net effect of deficit spending was expansionary.
In fact, total government spending in fiscal years 1935 and 1936 was highly expansionary:

Year* Total Outlays
1933 $12.62
1934 $12.81
1935 $14.78
1936 $16.76

1937 $17.22
1938 $17.68
1939 $19.05
1940 $20.42
*the fiscal year

The expansionary effect of fiscal policy in these years must be attributed to the large federal deficits. In fiscal year 1934 there had been a large deficit, but its expansionary effect was reduced to some extent by state and local austerity. In the fiscal years 1935 and 1936 federal deficits overcame that state and local austerity and imparted significant stimulus at a time when the financial system had been stabilised and monetary policy aided recovery.

It is no surprise that GDP soared in these years, with growth rates of 8.1% (1935) and 14.1% (1936). In 1937 and 1938, Roosevelt turned to budget balancing: the result was that federal deficit was virtually eliminated by fiscal year 1938 by
(1) the raising of taxes (which contracted private spending power), and
(2) reducing overall federal spending.
This shows up in the figures above for total government spending for 1937 and 1938, where total spending barely moved, and was at any rate offset by contractionary state and local fiscal policy, as in 1934 (Cary Brown 1956: 867–868).

In fact, the role of state and local governments during the depression was deeply contractionary most of the time:
“The nation’s fiscal policy throughout the Great Depression included the fiscal actions of state and local governments as well as of the federal government. During the early years of the depression, state governments increased spending for unemployment relief, primarily through subventions to local governments, which faced sharply declining property tax revenues, soaring rates of default, and even popular revolts, including a tax strike in Chicago. They did so by increasing sales taxes and by reducing spending on public works, especially highways, and schools. State constitutions, however, limited deficit finance, and new state and municipal bonds were extremely difficult to market. As the Depression worsened in 1931 and 1932, state and local governments found it impossible to conduct business as usual and still balance their budgets. State and local governments began adopting drastic economies, scaling back total expenditures in 1931 and sharply contracting them in 1933 and 1934. State governments welcomed federal funding of unemployment relief and public works, although they resisted the requirement of the Federal Emergency Relief Administration and the PWA for state matching funds. When economic recovery advanced, particularly in 1936 and 1938, state and local governments resumed spending on public works and education and thus once again increased their total outlays. Sharp increases in tax rates, however, erased any stimulative effect of state and local spending. State and local governments had pushed up tax rates every year between 1929 and 1933, and maintained those high levels until 1936, when they undertook even further increases. State governments increased the scope and rates of their sales taxes until, in 1940, they raised most of their funds through such levies.” (Elliot Brownlee 2000: 1044).
What was also deeply contractionary was the fact that state and local governments were running surpluses:
“Over the same seven years [sc. 1932–1938], state and local government revenues increased—principally from higher taxes—at a faster rate than expenditure.” (Bagwell and Mingay 1987: 282).
What the figures for total government spending (state, local and federal) from 1937–1938 tell us is that, while state and local governments did increase spending (which led to an overall increase in total government spending in each year), they
(1) did so by raising taxes (which did not stimulate the economy), and

(2) they even ran surpluses, which drained even more spending power from the economy, an astonishingly anti-Keynesian thing to do at a time when the economy needed countercyclical fiscal policy.
State and local government contractionary fiscal policy in 1937 and 1938 was thus caused by (1) raising taxes and (2) running surpluses.

The net effect of government fiscal policy in 1937 was to cause “a shift in demand of over [2.5] per cent of GNP in one year” (Cary Brown 1956: 866).

Catalán also ignores the following:
(1) in June 1936, the Revenue Act passed Congress and caused a significant increase in income tax rates, as well as the tax on undistributed profits. The main effect of the tax on undistributed profits was to adversely affect the cost of investment for small and medium-sized firms. There is a reasonable case to be made that this tax increased business uncertainty about profitability of investment.

(2) collection of the Social Security tax began in January 1937, another tax measure contracting private spending power.

(3) The Fed increased Reserve requirements on July 14, 1937 and this went into effect the next month; the second and third increases in reserve requirements were announced on January 30, 1937, and came into effect on March 1 and May 1 respectively. From December 1936, the treasury began to sterilise gold inflows into the United States by using proceeds of bond sales to pay for gold brought to the treasury. From December 1936 to February 1938 the monetary base grew by only 4% while gold stock grew by 15%.
The tax increases reduced the federal deficit very significantly indeed by fiscal year 1938, by causing revenues to rise. The net effect of all this when combined with federal spending cuts was highly contractionary: this was the cause of the 1937–1938 recession.

(3) Catalán ignores the fact that the Federal deficit was almost abolished in fiscal year 1938. Catalán states:
“It is not much more useful to look at deficit spending. True, deficit spending in 1937 was at its lowest since 1933, but it is worth mentioning that in 1938 — the same year as the economy rebounded from the 1937 dip — total government deficit spending amounted to only $89 million.”
In a strange non sequitur Catalán notes in passing that the deficit was massively reduced in fiscal year 1938 (July 1, 1937 – June 30, 1938): in fact, it was virtually eliminated and caused contractionary fiscal policy. The deficit in fiscal year 1938 was the lowest ever in all the years from 1931–1941. In terms of its fiscal impact, the federal budget was almost balanced in fiscal year 1938.

Catalán also confuses the fiscal year with the calendar year. Some data:
(1) The actual recession (economic contraction) ran from May 1937 to June 1938.

(2) Fiscal years:
Fiscal 1937: July 1, 1936 – June 30, 1937
Fiscal 1938: July 1, 1937 – June 30, 1938
Fiscal 1939: July 1, 1938 – June 30, 1939.
The recovery began in July 1938, which is in fiscal year 1939. Most of the actual recession coincided with fiscal year 1938, precisely the year when the deficit had been nearly abolished.

It was only in about April 1938 that Roosevelt turned once again to expansionary fiscal policy and ended the austerity programs. It was no surprise that some months later the recession ended, and economy began to grow again, and entered another expansionary phase of real GNP growth, as the federal deficit soared to $2.8 billion in fiscal year 1939 (July 1, 1938–June 30, 1939).

FOOTNOTES
(1) There seems to be some disagreement about when the recession ended. Cf. Gene Smiley (1997: 154), who states that the recession lasted from May 1937 until August 1938. The official NBER chronology, however, shows a recession from May 1937 to June 1938.

BIBLIOGRAPHY

Bagwell, P. S. and G. E. Mingay, 1987. Britain and America 1850–1939: A Study of Economic Change (2nd edn.), Routledge, London.

Cary Brown, E. 1956. “Fiscal Policy in the ’Thirties: A Reappraisal,” American Economic Review 46.5: 857–879.

Elliot Brownlee, W. 2000. “The Public Sector,” in S. L. Engerman and R. E. Gallman (eds), The Cambridge Economic History of the United States. Volume 3. The Twentieth Century, Cambridge University Press, Cambridge. 1013–1060.

Gene Smiley, W. 1997. “Depression of 1937–1939,” in D. Glasner and T. F. Cooley (eds), Business Cycles and Depressions: An Encyclopedia, Garland Pub., New York. 154–155.

219 comments:

  1. What an idiotic article.

    I have already refuted the Austrian attempts to paint Herbert Hoover as some radical interventionist president or big-spending Keynesian here:

    Your pathetic straw man attempt to paint Austrians as arguing Hoover spent enough to have reversed the collapse, instead of what they did argue, which is that Hoover was not a liquidationist contrary to vulgar Keynesian dogma, is not only refuted by the very articles you cited, but it is also refuted by economic logic.

    Your laughable claim that state and local government spending decreases "offset" the federal government spending increase, and hence prevented the economy from recovering, is just begging the question in presupposing the very Keynesian dogma that equates spending with prosperity.

    Hoover adopted some very limited policy interventions and very mild increases in federal government spending from 1929–1932, but these were almost completely destroyed by state and local austerity.

    State and local governments cannot print their own money, so they cannot even engage in deficit spending. They are constrained. Decreases in spending by state and local government means more money in state and local people's hands. Claiming that state and local spending offset federal spending is exactly like saying civilian drops in spending offset federal spending. But then you have to ask why civilians are cutting their spending in the first place...and oh my gosh, Keynesianism has no tenable answer for that, only the Austrians do.

    to gauge the effects of fiscal policy in any particular year and to see whether it was expansionary or contractionary, one must look at

    (1) the size of the deficit and whether there was increased spending done via deficits, not just the size of spending per se;

    (2) whether tax policy changed and if revenues rose owing to tax increases, and

    (3) not just federal spending by itself, but total government spending at the local, state and federal level, to see if the net effect of deficit spending was expansionary.

    In other words, you are admitting that if only inflation can succeed in propping up the economy, then it is precisely because inflation distorted the economy in the first place, and made it dependent on more (accelerating) inflation in order to stave off inevitable correction.

    By pointing to a reduction in inflation as being the "cause" for a deepening depression, totally ignores the cause for why the economy "needs" accelerating inflation in the first place.

    ReplyDelete
  2. (3) Catalán ignores the fact that the Federal deficit was almost abolished in fiscal year 1938. Catalán states:

    “It is not much more useful to look at deficit spending. True, deficit spending in 1937 was at its lowest since 1933, but it is worth mentioning that in 1938 — the same year as the economy rebounded from the 1937 dip — total government deficit spending amounted to only $89 million.”

    You idiot. If Catalan writes that the deficit was reduced to just $89 million in 1938, that is not Catalan ignoring that the deficit was almost abolished.

    In a strange non sequitur Catalán notes in passing that the deficit was massively reduced in fiscal year 1938 (July 1, 1937 – June 30, 1938): in fact, it was virtually eliminated and caused contractionary fiscal policy. The deficit in fiscal year 1938 was the lowest ever in all the years from 1931–1941. In terms of its fiscal impact, the federal budget was almost balanced in fiscal year 1938.

    That is not a non-sequitur. That is a part of what actually happened, and the level of the deficit is an important piece of information to the whole refutation he made.

    Catalán also confuses the fiscal year with the calendar year. Some data:

    (1) The actual recession (economic contraction) ran from May 1937 to June 1938.

    (2) Fiscal years:

    Fiscal 1937: July 1, 1936 – June 30, 1937

    Fiscal 1938: July 1, 1937 – June 30, 1938

    Fiscal 1939: July 1, 1938 – June 30, 1939.

    Red herring.

    First, he did not confuse fiscal with calendar years you idiot.

    Second, it doesn't matter what timelines you use, as long as you are consistent throughout. Catalan was consistent.

    You are not consistent. You keep changing your story.

    The recovery began in July 1938, which is in fiscal year 1939. Most of the actual recession coincided with fiscal year 1938, precisely the year when the deficit had been nearly abolished.

    No, you are just conflating an increase in spending with economic recovery, because you're stuck in the Keynesian worldview that more money means more prosperity.

    There was no recovery in 1938, nor in fiscal year 1939. There was still almost 20% unemployment, which was higher than it was in 1936, you retard.

    Unemployment fell in 1939 and continued to fall because of the war, where unemployed workers, instead of joining the workforce, were instead sent overseas. Not a true recovery at all.

    It was only in about April 1938 that Roosevelt turned once again to expansionary fiscal policy (“prime pumping”) and ended the austerity programs. It was no surprise that some months later the recession ended, and economy began to grow again, and entered another expansionary phase of real GNP growth, as the federal deficit soared to $2.8 billion in fiscal year 1939 (July 1, 1938–June 30, 1939).

    That is not an ending of the recession. That is just an increase in inflation and spending, which you Keynesian morons keep conflating with increased prosperity and economic recovery.

    ReplyDelete
  3. In fact, total government spending in fiscal years 1935 and 1936 was highly expansionary:

    You just contradicted yourself you dishonest idiot.

    You claimed that spending PLUS inflation is expansionary. Now you're claiming in that list of total government outlays that only spending is considered expansionary.

    Second, you committed the red herring fallacy by ignoring Catalan's argument regarding spending in 1935 relative to spending in 1936-1937.

    In addition, you failed to take into account that total government spending during 1937-1938 was GREATER than it was in any prior year of the depression. So even by your own asinine worldview, Roosevelt's cuts in spending in 1938 could not have plunged the economy back into recession. Not when total spending increased!

    Oh, that painful fact is why you are now relegated to changing your entire story and claiming that it's really just the deficit (i.e. inflation) that matters. In other words, you would only be admitting that because inflation is the only thing that can stop the economy from correcting, it must have been prior inflation that distorted the economy and made it dependent on inflation. And wouldn't you know it? 1933-1937, that is exactly what happened. Inflation returned, thus distorting the economy once more, and coupled with wage price floors in 1938, the economy had to again go into correction, but this time, without the help of able and willing labor who were legally shut out of the workforce.

    The expansionary effect of fiscal policy in these years must be attributed to the large federal deficits.

    You mean inflation. The expansion must be attributed to inflation.

    Since inflation was the only way to prop up the economy, it "must be attributed" to a prior dependency on inflation.

    In fiscal year 1934 there had been a large deficit, but its expansionary effect was reduced to some extent by state and local austerity. In the fiscal years 1935 and 1936 federal deficits overcame that state and local austerity and imparted significant stimulus at a time when the financial system had been stabilised and monetary policy aided recovery.

    Bullshit. The economy still had over 20% unemployment during 1934. You're stupid "correction" to unemployment is just to make it seem like the economy was doing fine until Roosevelt crashed the economy in 1938 with his minor cuts to federal spending, even though total government spending increased.

    It is no surprise that GDP soared in these years, with growth rates of 8.1% (1935) and 14.1% (1936). In 1937 and 1938, Roosevelt turned to budget balancing: the result was that federal deficit was virtually eliminated by fiscal year 1938 by

    GDP just measures spending. It's doesn't measure people's standard of living, you idiot.

    This shows up in the figures above for total government spending for 1937 and 1938, where total spending barely moved

    Barely moved? It increased you dishonest snake.

    ReplyDelete
  4. Sigh at their repeated attempts to rewrite history.

    Austrian methodology:

    1) Refer to something as a 'myth'.
    2) Write a post on Mises.org about it.
    3) Anytime anyone refers to said 'myth' assert that it 'has been refuted' and link to several Mises articles, as well as Henry Hazlitt's 'Economics in One Lesson'.

    ReplyDelete
  5. and was at any rate offset by contractionary state and local fiscal policy, as in 1934

    How can it be offset by state and local spending cuts when total spending GREW during that time?

    The net effect of government fiscal policy in 1937 was to cause a contraction of over 2.5% of GNP in one year

    It wasn't government fiscal policy that caused the contraction in GNP. It was the prior massive inflation post 1929.

    (1) in June 1936, the Revenue Act passed Congress and caused a significant increase in income tax rates, as well as the tax on undistributed profits. The main effect of the tax on undistributed profits was to adversely affect the cost of investment for small and medium-sized firms. There is a reasonable case to be made that this tax increased business uncertainty about profitability of investment.

    (2) collection of the Social Security tax began in January 1937, another tax measure contracting private spending power.

    He didn't ignore taxes. He mentioned that tax receipts increased. He wrote:

    "Government receipts — money received through taxes — increased from $3.9 to $5.4 billion between 1936 and 1937. In other words, high government spending did not result in a high annual deficit because the government collected a far greater amount of tax money that year than in all previous years of the Great Depression."

    (3) The Fed increased Reserve requirements on July 14, 1937 and this went into effect the next month;

    He also did not ignore that either.

    He refuted that it caused any contraction in lending. He wrote:

    "However, his explanation of the contraction is unsatisfying, because the volume of loans made and securities sold continued to rise despite the increase in the required reserve ratio. It was only after the initial fall in the stock market that bank lending began to tighten."

    The tax increases reduced the federal deficit very significantly indeed by fiscal year 1938, by causing revenues to rise. The net effect of all this when combined with federal spending cuts was highly contractionary: this was the cause of the 1937–1938 recession.

    You keep skipping steps. You keep making the bullshit claim "the net effect", and "adding it all up", and yet you aren't explaining how or why what is happening is happening. You're just taking the Keynesian myth for granted, totally ignoring economic principles.

    ReplyDelete
  6. "State and local governments cannot print their own money, so they cannot even engage in deficit spending. They are constrained. Decreases in spending by state and local government means more money in state and local people's hands."

    No, it doesn't.
    The state and local government austerity from 1929-1933 and later was because state and local tax revenue collapsed - it wasn't because they "cut" taxes, putting money in people's hand to spend.

    ReplyDelete
  7. "In other words, you are admitting that if only inflation can succeed in propping up the economy, then it is precisely because inflation distorted the economy in the first place"

    A straw man and also a comment based one the nonsense of ABCT.

    ReplyDelete
  8. "First, he did not confuse fiscal with calendar years you idiot. "

    Rubbish.

    When he says

    "but it is worth mentioning that in 1938 — the same year as the economy rebounded from the 1937 dip — total government deficit spending amounted to only $89 million."

    he is clearly confusing teh fiscal year with calendar years.

    ReplyDelete
  9. "There was no recovery in 1938,

    Yes, there was.

    nor in fiscal year 1939.

    Yes, there was.

    There was still almost 20% unemployment, which was higher than it was in 1936, you retard."

    Unemployment came down to 10% by the end of 1939 from about 13%:

    http://edgeofthewest.wordpress.com/2008/10/10/very-short-reading-list-unemployment-in-the-1930s/
    Unemployment,

    ReplyDelete
  10. "Unemployment fell in 1939 and continued to fall because of the war, where unemployed workers, instead of joining the workforce, were instead sent overseas."

    The US entry into the war did not begin until 1941.

    ReplyDelete
  11. "In addition, you failed to take into account that total government spending during 1937-1938 was GREATER than it was in any prior year of the depression. etc. etc.

    These pathetic ramblings show a basic ignorance even of simple concepts in Keynesian economics.

    ReplyDelete
  12. TMMBlog:

    Sigh at their repeated attempts to rewrite history.

    I know, Keynesians really do try to rewrite history.

    The state and local government austerity from 1929-1933 and later was because state and local tax revenue collapsed - it wasn't because they "cut" taxes, putting money in people's hand to spend.

    Straw man. I never claimed states "cut taxes." I said "decreases in spending by state and local government means more money in state and local people's hands."

    If the state and local governments spend less, that means non-state and non-local economic actors can spend more, because the state and local governments finance their spending out of taxing and borrowing.

    That taxation collapsed is obviously due to the collapse in incomes. But this does not mean that state and local governments were engaging in "austerity measures", and even if they were, that would mean more money and spending in the people's hands, since state and local governments are revenue constrained. They don't have printing presses.

    A straw man and also a comment based one the nonsense of ABCT.

    It's not a straw man. It logically follows from your own arguments. And you have not at all shown that ABCT is "nonsense."

    When he says

    "but it is worth mentioning that in 1938 — the same year as the economy rebounded from the 1937 dip — total government deficit spending amounted to only $89 million."

    he is clearly confusing teh fiscal year with calendar years.

    No, he isn't. He is consistently using the same standard throughout. He is not confusing fiscal with calendar years.

    "There was no recovery in 1938"

    Yes, there was.

    No, there wasn't.

    nor in fiscal year 1939.

    Yes, there was.

    No, there wasn't.

    Unemployment came down to 10% by the end of 1939 from about 13%:

    No, unemployment came down to just under 20% by the end of 1939. You're fallaciously excluding make work government projects that had no economic value, and claiming that if someone is paid by the government to sit around all day, or dig ditches, or build roads in areas that are not the most urgently required to have more roads, constitutes "employment."

    The only true measure of employment is private productive employment that is financed voluntarily by employers who earn profits.

    The US entry into the war did not begin until 1941.

    Obviously, that's why I said "AND continued to fall because of the war", not "It fell in 1939 because of the war", in order to refer to the continued fall in unemployment post-1939, meaning when the US entered the war in 1941.

    These pathetic ramblings show a basic ignorance even of simple concepts in Keynesian economics.

    No, they show that the Keynesian myth that the 1938 double dip was due to a collapse in spending, is false. Since total spending ROSE, you were forced to change your whole story and backtrack and claim that what you meant all along was deficits only, even though deficits are totally different.

    You can have a collapse in aggregate spending but with a huge government deficit, if a credit bubble bursts, deflation sets in, and taxes collapse more so than government spending. The net result is a larger deficit, but a collapse in total spending.

    You are now trying to redefine "expansionary" after you even said in this blog that "total spending in 1936-37 was highly expansionary" which implies that you originally held that expansionary fiscal policy is spending oriented, not difference between revenues and outlays oriented.

    You don't even know basic economics you idiot. You don't even know that deficits and aggregate spending are two different things! Deficits and total government spending can go in opposite directions you lame brain.

    You can't even keep your own stupid story straight.

    ReplyDelete
  13. "How can it be offset by state and local spending cuts when total spending GREW during that time?"

    Because I did not say that it was "offset by state and local spending cuts" - you've made that up.

    I said that it was caused by "contractionary state and local fiscal policy".

    State and local government contractionary fiscal policy in 1937 and 1938 was thus caused by (1) raising taxes and (2) running surpluses:

    “Over the same seven years [sc. 1932–1938], state and local government revenues increased—principally from higher taxes—at a faster rate than expenditure. (Bagwell and Mingay 1987: 282).

    “The nation’s fiscal policy throughout the Great Depression included the fiscal actions of state and local governments as well as of the federal government. During the early years of the depression, state governments increased spending for unemployment relief, primarily through subventions to local governments, which faced sharply declining property tax revenues, soaring rates of default, and even popular revolts, including a tax strike in Chicago. They did so by increasing sales taxes and by reducing spending on public works, especially highways, and schools. State constitutions, however, limited deficit finance, and new state and municipal bonds were extremely difficult to market. As the Depression worsened in 1931 and 1932, state and local governments found it impossible to conduct business as usual and still balance their budgets. State and local governments began adopting drastic economies, scaling back total expenditures in 1931 and sharply contracting them in 1933 and 1934. State governments welcomed federal funding of unemployment relief and public works, although they resisted the requirement of the Federal Emergency Relief Administration and the PWA for state matching funds. When economic recovery advanced, particularly in 1936 and 1938, state and local governments resumed spending on public works and education and thus once again increased their total outlays. Sharp increases in tax rates, however, erased any stimulative effect of state and local spending. State and local governments had pushed up tax rates every year between 1929 and 1933, and maintained those high levels until 1936, when they undertook even further increases. State governments increased the scope and rates of their sales taxes until, in 1940, they raised most of their funds through such levies.”(Elliot Brownlee 2000: 1044).

    I have now clarified that above.

    ReplyDelete
  14. "If the state and local governments spend less, that means non-state and non-local economic actors can spend more, because the state and local governments finance their spending out of taxing and borrowing."

    No, it doesn't. Tax revenues collapsed - that is why spending cuts occurred.

    When tax revenues collapsed, that meant that people's incomes were severely reduced - a net fall in private sector income, and then further contractionary effects when taxes that would be spent on state and local expenditures were lost, leading to reductions in spending in 1931, and sharp contractions in 1933 and 1934.

    ReplyDelete
  15. "Since total spending ROSE, you were forced to change your whole story and backtrack and claim that what you meant all along was deficits only, even though deficits are totally different."

    False.
    Already dealt with that above:

    What the figures for total government spending (state, local and federal) from 1937–1938 tell us is that, while state and local governments did increase spending (which led to an overall increase in total government spending in each year), they

    (1) did so by raising taxes (which did not stimulate the economy), and

    (2) they even ran surpluses, which drained even more spending power form the economy, an astonishing anti-Keynesian thing to do at a time when the economy needed countercyclical fiscal policy.

    ReplyDelete
  16. What is wrong with Austrians? Policy aside, do they ever consider the manner in which they debate others, and that perhaps using 'Keynesian' as a self evident canard is not constructive? Calling your opponent an idiot?

    Major's comments are just full of projection in general, as well as incredibly silly charactures of Keynesian thought and an apparent blindness to the facts.

    And they wonder why nobody in Academia takes them seriously. Oh, no, it must be a conspiracy theory! Economists are just too embarrassed, etc.

    ReplyDelete
  17. Because I did not say that it was "offset by state and local spending cuts" - you've made that up.

    Yes, you did say that you liar. You claimed:

    "In fiscal year 1934 there had been a large deficit, but its expansionary effect was reduced to some extent by state and local austerity."

    I said that it was caused by "contractionary state and local fiscal policy".

    Since you defined expansionary policy as increased spending, it follows that contractionary policy means spending cuts.

    Or are you going to make an ass of yourself again and claim that increased deficits coupled with massive spending cuts is "expansionary"?

    State and local government contractionary fiscal policy in 1937 and 1938 was thus caused by (1) raising taxes and (2) running surpluses:

    “Over the same seven years [sc. 1932–1938], state and local government revenues increased—principally from higher taxes—at a faster rate than expenditure.” (Bagwell and Mingay 1987: 282).

    Federal spending declined in the years 1937 and 1938, and yet total government spending ROSE during that time. That means the state and local government were increasing their spending.

    I have now clarified that above.

    On the contrary, you've only dug yourself an even deeper hole, because now you're totally reversing your original position and blatantly passing the new shit off as if it were what you were saying all along.

    Your claims do not add up. They are inconsistent.

    ReplyDelete
  18. "Federal spending declined in the years 1937 and 1938,

    Correct - and federal deficit was reduced to a small amount by raising taxes.

    and yet total government spending ROSE during that time. That means the state and local government were increasing their spending.

    That is what I already said that above:

    What the figures for total government spending (state, local and federal) from 1937–1938 tell us is that, while state and local governments did increase spending (which led to an overall increase in total government spending in each year), they

    (1) did so by raising taxes (which did not stimulate the economy), and

    (2) they even ran surpluses, which drained even more spending power form the economy, an astonishing anti-Keynesian thing to do at a time when the economy needed countercyclical fiscal policy.

    ReplyDelete
  19. Tax revenues collapsed - that is why spending cuts occurred.

    Spending cuts did not occur at the state and local level during 1937 and 1938 you stupid idiot. Federal spending declined, but total spending increased, which means state and local spending must have increased.

    That tax revenues collapsed at the state level is a consequence of people's incomes collapsing. When you make less income, you pay less taxes.

    When tax revenues collapsed, that meant that people's incomes were severely reduced - a net fall in private sector income, and then further contractionary effects when taxes that would be spent on state and local expenditures were lost, leading to reductions in spending in 1931, and sharp contractions in 1933 and 1934.

    You have it exactly backwards you economically illiterate yahoo. Tax revenues collapsed BECAUSE incomes collapsed, not the other way around.

    State and local spending INCREASED during 1937-38, because total spending increased despite a fall in federal spending.

    ReplyDelete
  20. "In fiscal year 1934 there had been a large deficit, but its expansionary effect was reduced to some extent by state and local austerity."

    In 1934, that is totally correct:

    "As the Depression worsened in 1931 and 1932, state and local governments found it impossible to conduct business as usual and still balance their budgets. State and local governments began adopting drastic economies, scaling back total expenditures in 1931 and sharply contracting them in 1933 and 1934."

    (Elliot Brownlee 2000: 1044).

    This has alredy been explained to you above.

    State and local governments cut total expenditures in 1931, 1933 and 1934.

    Over 1937 and 1938 fiscal years their spending rose but by raising taxes, and then they ran surpluses - in the later instance contractionary fiscal policy.

    The taxes rises to match increased spending was not stimulative.

    ReplyDelete
  21. False.

    Already dealt with that above:

    Wrong. You didn't deal with it above, I proved that you defined expansionary policy as spending focused, not deficit focused, and I showed you that deficit increases can take place alongside massive spending cuts, if tax revenues decline by more than spending declines.

    What the figures for total government spending (state, local and federal) from 1937–1938 tell us is that, while state and local governments did increase spending (which led to an overall increase in total government spending in each year),

    You just contradicted yourself yet again. You originally claimed that state and local governments engaged in contractionary policy, now you're admitting they raised spending.

    (1) did so by raising taxes (which did not stimulate the economy), and

    (2) they even ran surpluses, which drained even more spending power form the economy, an astonishing anti-Keynesian thing to do at a time when the economy needed countercyclical fiscal policy.

    Not only are you are conveniently ignoring the fact that they increased their spending, but you are also ignoring the fact that the taxes collected are almost immediately spent anyway, which means there was no contractionary policy at the total economic level, and you are ignoring the fact that at the state and local level, there were always surpluses:

    http://research.stlouisfed.org/fred2/graph/fredgraph.pdf?&chart_type=line&graph_id=&category_id=&recession_bars=On&width=630&height=378&bgcolor=%23b3cde7&graph_bgcolor=%23ffffff&txtcolor=%23000000&ts=8&preserve_ratio=true&fo=ve&id=ASLEXPND,ASLRECPT&transformation=lin,lin&scale=Left,Left&range=Custom,Custom&cosd=1929-01-01,1929-01-01&coed=1950-01-01,1950-01-01&line_color=%230000ff,%23ff0000&link_values=,&mark_type=NONE,NONE&mw=4,4&line_style=Solid,Solid&lw=1,1&vintage_date=2011-08-16,2011-08-16&revision_date=2011-08-16,2011-08-16&mma=0,0&nd=,&ost=,&oet=,&fml=a,a&fq=Annual,Annual&fam=avg,avg&fgst=lin,lin

    ReplyDelete
  22. TMMblog:

    What is wrong with Austrians? Policy aside, do they ever consider the manner in which they debate others, and that perhaps using 'Keynesian' as a self evident canard is not constructive? Calling your opponent an idiot?

    Are you blind or are you retarded? "Idiot" is Lord Keynes' every second word.

    Major's comments are just full of projection in general, as well as incredibly silly charactures of Keynesian thought and an apparent blindness to the facts.


    Prove it.

    ReplyDelete
  23. "Federal spending declined in the years 1937 and 1938,

    Correct - and federal deficit was reduced to a small amount by raising taxes.

    and yet total government spending ROSE during that time. That means the state and local government were increasing their spending.

    That is what I already said that above:

    What the figures for total government spending (state, local and federal) from 1937–1938 tell us is that, while state and local governments did increase spending (which led to an overall increase in total government spending in each year), they

    (1) did so by raising taxes (which did not stimulate the economy), and

    (2) they even ran surpluses, which drained even more spending power form the economy, an astonishing anti-Keynesian thing to do at a time when the economy needed countercyclical fiscal policy.

    Already dealt with above. The argument being made is that it is a myth that the 1938 depression was caused by austerity. The refutation of the myth is already clear.

    ReplyDelete
  24. In 1934, that is totally correct:

    "As the Depression worsened in 1931 and 1932, state and local governments found it impossible to conduct business as usual and still balance their budgets. State and local governments began adopting drastic economies, scaling back total expenditures in 1931 and sharply contracting them in 1933 and 1934."

    We're not talking about 1934. We're talking about 1937 and 1938, years in which alleged spending cuts caused a depression within a depression.

    Raising taxes don't just leave the economic system. They are SPENT.

    What you are desperately trying to hobble together is the basic insight that Austrians have already made, which is that the "stimulus", the "expansion" that you are really referring to is INFLATION. That's it. That's all you're saying. You're only saying that unless the government inflates, then a depression will ensue.

    This view does not address why it is that collapses should exist in the first place. It ignores the prior inflation that generated economic distortions in the economy that only accelerated inflation can sustain, because there just aren't enough real resources. The choice after an inflationary boom is either save the currency and go through economic correction, or stave off correction and collapse the currency.

    You Keynesian yahoos, if you had your way, would create another Weimar hyperinflation, because that is the ONLY way you can stop the inevitable correction after an inflationary boom.

    ReplyDelete
  25. State and local governments cut total expenditures in 1931, 1933 and 1934.

    And they increased total expenditures during 1937-38, the time period in question.

    Over 1937 and 1938 fiscal years their spending rose but by raising taxes, and then they ran surpluses - in the later instance contractionary fiscal policy.

    State and local governments can't run deficits because they can't print their own money. To complain that they increased spending only through tax hikes is to totally misunderstand the entire nature of state and local level economics.

    At best, they can only run a balanced budget. Running surpluses did not lead to any national level decline in government spending, which is contrary to the myth that spending cuts in 1937-38 "plunged the economy back into recession."

    ReplyDelete
  26. Mighty decent of you to keep up with Major_Freedom, he appears to be majorly free of both knowledge and courtesy.

    ReplyDelete
  27. "Not only are you are conveniently ignoring the fact that they increased their spending,

    LOL.. No, that's aready been specifically atstaed above.

    "but you are also ignoring the fact that the taxes collected are almost immediately spent anyway, which means there was no contractionary policy at the total economic level,"

    Transferring spending power from taxpayers to state or local government imparts zero fscal stimulus.

    ' and you are ignoring the fact that at the state and local level, there were always surpluses

    Totally consistent with everything I have said: the net affect of state and local fiscal policy was contractionary.

    ReplyDelete
  28. "Running surpluses did not lead to any national level decline in government spending, which is contrary to the myth that spending cuts in 1937-38 "plunged the economy back into recession."

    Same straw man nonsense.

    (1) The balancing of the federal budget by tax increases

    (2) the reduction in federal spending in fiscal 1937 and 1938

    (3) the surplus run by state and local govenrnment

    all led to the net affect of contractionary fiscal policy in fiscal years 1937-1938.

    By contrast, large federal deficits in 1934, 1935, 1936, 1939 were stimulative.

    ReplyDelete
  29. "Raising taxes don't just leave the economic system. They are SPENT."

    Those that are not spent by state and local governments, but transferred to a budget surplus are drained from the economy, depriving the private sector of spending power, and not spent by government either: that is fiscal contraction - the opposite of Keynesian stimulus.

    Having correctly noted above that many states had surpluses throughout the '30s, you are incapable of seeing that this is fiscal contraction.

    ReplyDelete
  30. john newman:

    Mighty decent of you to keep up with Major_Freedom, he appears to be majorly free of both knowledge and courtesy.

    On the contrary, I have constantly exposed LK to be deprived of knowledge...and you should stop being blind to his non-courtesy.

    LK:

    LOL.. No, that's aready been specifically atstaed above.

    No, it's been specifically glossed over while you keep parroting the line that state and local austerity "offset" expansionary federal spending.

    Transferring spending power from taxpayers to state or local government imparts zero fscal stimulus.

    You mean it imparts zero inflation. You are redefining fiscal stimulus to mean inflation only. For by your changed logic, government borrowing and spending is not stimulative, because it just transfers spending from private borrowers to the government. Taxation and spending is not stimulative, because it just transfers spending from private spenders to the government.

    The ONLY "stimulus" that is now possible in your ever changing worldview is INFLATION of the money supply. For that is the only way that the government can spend without it being merely a transfer of money from the market to the government.

    In other words, all your bullshit is nothing but an ancient call for the government to print money, then spend it, which is a removal of real resources away from the private market, and being replaced with just more medium of exchange.

    In other words still, what you are calling "fiscal stimulus" is actually just plain old chartalist monetarism. You want the state to print and spend money. You want there to be more unproductively acquired money being spent, which MUST incur equivalent losses in purchasing power from everyone who earns or holds dollars.

    All your anti-economic nonsense can be boiled down to crude parasitism. What people need, according to you, is less real resources, and more medium of exchange. What they need is to produce real wealth, after which the government buys it with printed money. In other words, you want people to produce and not get rewarded for it with real wealth.

    You moron. No wonder you're so confused. You don't have the faintest clue how a division of labor, monetary economy works. In any economy, individuals ultimately exchange goods and services with each other. The car maker trades with the electronics manufacturer. The sandwich shop owner trades with the medical doctor.

    Money is used as a medium of exchange to facilitate these exchanges of goods and services. But that doesn't mean that it's the mere spending of money that makes people better off. If there is an entity that spends money it did not earn in production, then that entity is completely dependent on those who produce to acquire money for spending. If there is an entity that creates money out of nothing, and then spends it, then losses will have to be incurred by someone. The initial receiver of the state's money loses the least, because he acquires money before it has a chance to spread throughout the economy raising prices, but he still loses a little bit because he receives money of decreased purchasing power. The state printed and then spent money, but did not put real wealth into the economy before acquiring that money, which is what market participants do when they acquire money. So if the government prints and spends $10 billion, then exactly $10 billion of losses will be incurred by market participants. This is the case even if they have more dollar bills. They have more dollar bills, but real wealth was taken out of the economy.

    Your whole blog is nothing but a call for parasitism, masquerading as scientific and legitimate. Sad. No wonder you can only yammer on Anderson's blog.

    ReplyDelete
  31. Totally consistent with everything I have said: the net affect of state and local fiscal policy was contractionary.

    You're clearly grasping at some consistency with what I said and what you said. No LK, if the state and local governments were always running surpluses, then you cannot pretend that inflation (which is what you Orwellian double speak call "expansionary policies") by the feds in some years was able to "stimulate" the economy, whereas other years inflation from the feds was offset by state and local austerity surpluses. You could only make that argument if state and local governments did not run surpluses, but then ran surpluses. But if they ran surpluses the whole time, then you can't ignore state and local surpluses in some years, but then consider state and local surpluses in other years. That is a blatant case of ignoring and considering facts all in order to fit your narrative.

    ReplyDelete
  32. "You mean it imparts zero inflation. You are redefining fiscal stimulus to mean inflation only."

    No, I mean fiscal stimulus. And your lame repeated attempts to distort what I say are pointless.

    "The ONLY "stimulus" that is now possible in your ever changing worldview is INFLATION of the money supply. For that is the only way that the government can spend without it being merely a transfer of money from the market to the government."

    False.
    Money borrowed by governments in deficits tends to be taken from money tied up in transactions on financial asset markets - it transfers it from purchasing financial assets on secondary markets (spending which is not on producible commodities) to purchases of producible commodities which does in fact stimulate production and employment.

    ReplyDelete
  33. "But if they ran surpluses the whole time, then you can't ignore state and local surpluses in some years, but then consider state and local surpluses in other years. "

    In NO years are the state and local surpluses ignored in my post: in certain fiscal years (1935, 1936, 1939) the federal deficit was larger than the money drained from the economy by state and local surpluses, and in some years the money drained from the economy by state and local surpluses (1937, 1938) added to the contractionary fiscal policy of reduced federal spending.

    ReplyDelete
  34. "In any economy, individuals ultimately exchange goods and services with each other. The car maker trades with the electronics manufacturer. The sandwich shop owner trades with the medical doctor. etc. etc."

    That sort of analysis is fit only for a barter economy.

    We don't live in a barter economy - we live in a monetary economy.

    In periods of high unemployment, unused capacity, and idle resources, Keynesian stimulus's primary effect is to increase production and employment.

    http://socialdemocracy21stcentury.blogspot.com/2011/05/william-l-anderson-flunks-keynesian.html

    And don't pretend that "Austrian" economics is consistent on this subject. The Austrian Ludwig Lachmann, for one, rejected the sort of nonsense you write above:

    "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.

    http://socialdemocracy21stcentury.blogspot.com/2011/07/startling-admission-from-ludwig.html

    ReplyDelete
  35. "If there is an entity that creates money out of nothing, and then spends it, then losses will have to be incurred by someone. "

    All dependent upon the assumption that the economy is running at full employment and full capacity - an unrealistic assumption that time and again does not happen in the real world.

    The same false assumption underlying ABCT.

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  36. Same straw man nonsense.

    It isn't a straw man. You claimed that Roosevelt's spending cuts plunged the economy back into recession. But his spending cuts did not generate a national cut in total government spending. Total government spending in fact ROSE.

    Your red herring argument could have just as easily been written as "The state of Alabama cut spending, and that plunged the economy back into recession." If you said that, then of course people will say you're a fool, because you're ignoring all the government spending taking place elsewhere in the economy. Well, that is exactly why you're fool to claim that Roosevelt's spending cuts plunged the economy back into recession, because that ignores the fact that total government spending rose!

    This is why your stupid Keynesian worldview is forcing you to backtrack this fast. I have never seen such intellectual capitulation in a Keynesian before. You had to change your stupid story so many times that all you can say now is that INFLATION OF THE MONEY SUPPLY did not generate enough "aggregate demand growth." That's all you're saying now. Peeling back all the dirty layers and underneath, you're just a simpleton inflationist like Robert Mugabe.

    (1) The balancing of the federal budget by tax increases

    (2) the reduction in federal spending in fiscal 1937 and 1938

    (3) the surplus run by state and local govenrnment

    Why you believe that continually making these lists of excuses constitutes anything other than a desperate attempt to divert attention away from the fact that all you're calling for was inflation, and that if the economy is in recession, it's because of too little inflation? You keep writing these 1,2,3 lists like they actually constitute a syllogism for your actual position. Your actual position is just "Any and all recessionary periods are due to not enough inflation."

    all led to the net affect of contractionary fiscal policy in fiscal years 1937-1938.

    You mean it all lead to a decline in the supply of money and volume of spending.

    No mention of economic calculation. No mention of catallactics. No mention of how the government's spending will be financed, or what the economic consequences are of more inflation.

    The 1929 stock market bubble was caused by too much inflation during the 1920s.

    The 2008 mortgage bubble was caused by too much inflation during the 1990s and 2000s.

    And all you moron Keynesians can come up with to solve the bubbles and collapses is.....more inflation.

    Can't you see why Austrian economics is experiencing a surge in popularity? There is only so much time that can pass where you inflationists real goals are unmasked, and people rightfully recoil in horror, leading them to finding other explanations. When they know that it was too much inflation that blew up the housing bubble, they of course know that more inflation cannot help fix the problems during the bust. Some other courses of action must be taken. You moron Keynesians don't have a non-contradictory solution. All you have is more of what caused the problems in the first place. Economy went through an unsustainable boom because of inflation, and has since collapsed? No problem, the government can just inflate again and prop up all the unsound and unsustainable investments made during the boom!

    ReplyDelete
  37. By contrast, large federal deficits in 1934, 1935, 1936, 1939 were stimulative.

    Yeah, right, they had to have been stimulative, because the result in those years was a growth in nominal inflation of the money supply and volume of spending, which you yahoo Keynesians interpret as "getting out of recession." GDP and GNP measure the totality of spending in the economy. They do not measure economic health or sustainability. If the government printed and spent $10 trillion to build a giant pyramid of dog excrement, then GNP and GDP would skyrocket, because the "G" variable in G+C+I+(X-M) is one for one with government spending.

    Some of you morons at least have a glimmer of hope and realize this, which is why you are invariably compelled to find some "real" fallback, some real wealth reference, some judgment of value, in other words, in Austrian economics territory, and say things like "Oh, I don't advocate for pyramids, but rather public works like roads and parks and puppies for blind children." But you never go beyond that, because you lack a theory of economic calculation.

    So if we sum your entire worldview, it is this:

    Recessions are caused by not enough inflation. If recessions take place, ignore economic calculation, ignore capital structure, ignore how markets work, and just call for the monopoly counterfeiters to print more money and spend it on themselves, which puts more of that yummy paper into the economy at the expense of taking real wealth out of the economy, and to print and spend money on government employees who will build bridges to nowhere, and then you observe statist statistics of GDP and GNP, and employment, see them all increase, and that is enough for you to say "the economy is out of recession."

    The economy to you idiots is really nothing but a bunch of Orwellian statistics. "Chocolate rations have been increased 2.45%" YEAH! "GNP has increased 4.57%" YEAH! "The number of people pretending to be productive workers, receiving money from a printing press, and producing bridges to nowhere, has increased by 3.45%" YEAH!

    You're not an economist. You're a bureaucrat lapdog, whose sole task in life is to spread propaganda that only benefits the state and their friends. You aren't knowledgeable of economic principles. All you know is how to collect data, and how to spin that data into creating a bullshit story. You pathetically claim that "the data doesn't lie" totally oblivious to the fact that all data requires an a priori theory to interpret it. No economic theory can ever arise out of historical economic data. Economic theories must arise out of rationalist foundations, after which they are then used to interpret history.

    Your economic foundation is irrational. You only want the state to take care of you so that you don't have to think for yourself. All your vitriol and propaganda on Anderson's website is nothing but the ramblings of a very scared individual who lacks a philosophical foundation to deal with reality. You lack a rational foundation, so that's why you run to the government, hoping they have a philosophical foundation of their own to prevent reality from treating you like a bully. I mean, the government must be the go to people, because they're so powerful! They must be intelligent. They must be able to know what 300 million individuals need, and how to satisfy 300 million different value scales. No economic calculation is needed. They just need to print and spend, and you'll ask for more until GDP spending measure goes up. Then you'll believe "economy fixed!" and you'll feel relieved once again, thankful that you didn't have to think.

    ReplyDelete
  38. "because the result in those years was a growth in nominal inflation of the money supply and volume of spending, which you yahoo Keynesians interpret as "getting out of recession."

    False.
    The result was positive growth of real output, increased prodcution, and falling unemployment.

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  39. "You claimed that Roosevelt's spending cuts plunged the economy back into recession. But his spending cuts did not generate a national cut in total government spending. Total government spending in fact ROSE."

    Total government spending rose because local and state governments increased taxes to cover increased spending - a policy with zero stimulative effect.

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  40. "Any and all recessionary periods are due to not enough inflation."

    Drivel.
    Ending recessions requires increasing production, output and employment. As long as the stimulus is not reduced by state and local surpluses or budget cuts, that can involve

    (1) large tax cuts with the same level of government spending by deficits

    (2) increased deficit spending

    (3) or a combination of tax cuts and increased spending by deficits.

    These are the medthods for fiscal stimulsu in Keynesianism.

    ReplyDelete
  41. "Can't you see why Austrian economics is experiencing a surge in popularity? etc. etc."

    LOL.. Ah, yes, Ron Paul, you mean? Who couldn't even get the Republican nomination for president?

    Outside the US, Austrian economics is virtually non-existent at the level of national or state politics.

    Now you have switched to rambling tirades, you clearly have no serious objections to the points made above. Instead, there are endless repetitions of the same red herrings and straw man arguments. Good work.

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  42. Those that are not spent by state and local governments, but transferred to a budget surplus are drained from the economy, depriving the private sector of spending power, and not spent by government either: that is fiscal contraction - the opposite of Keynesian stimulus.

    In other words, it's because they can't inflate the money supply. They are constrained just like civilians are constrained. They have to acquire money from others before they can spend it. The feds can just print it.

    State and local governments running surpluses is necessary in order to prepare for unexpected events that require non-continuous spending. If state and local governments ran a zero surplus, or worse, a deficit, and there is a jump in unemployment, or a flood, or a tornado, or there is a jump in population, which needs more schools and roads, then how will a zero surplus or deficit state government pay for it?

    To complain that state and local governments are running surpluses when they should be running zero surpluses, or deficits, is nothing but a stupid way of saying that state and local governments are not able to inflate the money supply and are cash constrained and are hence capable of becoming bankrupt. Well duh.

    State and local governments were running surpluses during the entire 1920s and 1930s and 1940s and 1950s and 1960s and 1970s. The first time state and local governments were running deficits was in the early 1980s, and again in the early 2000s, and again starting in 2007.

    Having correctly noted above that many states had surpluses throughout the '30s, you are incapable of seeing that this is fiscal contraction.

    Having incorrectly ignored the fact that state and local governments were running surpluses the entire time, it is a fallacy to ignore the surpluses but then consider the surpluses, depending on how much the feds are inflating.

    If you focus on state and local government surpluses, then you would logically also have to consider market participants running surpluses, where individuals increase their cash balances over time and do not spend as much as they earn. What about them? You see, the reason why you ignore individual action is because you know that if you keep going with your logic, you will eventually have to enter the sphere of economic calculation and individual action, which is the bread and butter of Austrian economics.

    Suppose the feds printed and spent money, and the state and local governments ran zero surpluses, but every time the government printed and spent money, and every time the states spent money, that many (not all) individual market actors just increased their cash balances instead of spending it, leading to GNP and GDP etc to remain flat, or even fall? What then? The only answer you yahoos have is for the feds to print and spend MORE money. OK, suppose they do that, and people STILL increase their cash balances? What then? Again, the only answer you yahoos have is for the feds to print and spend more money.

    In other words, your answer for solving any recession, is to treat humans like cattle, pricking and prodding them to spend money on things they don't want, so that all the economic "movement" returns, and people again "do stuff."

    You have no conception of capital structure, economic calculation, intertemporal coordination, why interest rates mean something, why and how it is possible for the real productive structure of the economy to be thrown out of whack by inflation, why inflation cannot solve a problem that can only be taken care of by economic calculation and liquidation of malinvestments.

    ReplyDelete
  43. "State and local governments were running surpluses during the entire 1920s and 1930s and 1940s and 1950s and 1960s and 1970s.

    After 1945, state and local surpluses are dwarfed by federal deficits.

    During periods of expansion in the business cycle and high employment, state and local surpluses present no problem.

    During times of recession, depression or high unemployment they do - and federal deficits on a large enough scale do this.

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  44. No, I mean fiscal stimulus. And your lame repeated attempts to distort what I say are pointless.

    No, you mean inflation. You admitted that taxing and spending are not stimulative, because it's just a "transfer" of spending. Well, then so would borrowing and spending not be stimulative, because it too is a transfer of spending.

    ALL spending that takes place in the MARKET is "transfer" spending. Economic calculation resides in the transfer of spending sphere. I produce something, then someone else makes a judgment as to what it's worth in money, and then if they value what I produced more than the money, which really means if what I am producing is worth more than what others are producing, for that same sum of money, then they will purchase what I produced. I acquired money. They gave me their money. Money was transferred.

    This action is not "stimulative" in your idiotic Keynesian worldview, because no NEW money was introduced into such spending streams.

    In other words, what you are calling "fiscal stimulus" is NOTHING BUT INFLATION OF THE MONEY SUPPLY into the economy's spending stream.

    Don't deny this. It's blatantly obvious. It follows from everything you have said regarding the nature of "transfer" and how it differs from "stimulus."

    If I produce something, for money, and then I continue to hold that money and not respend it, then in principle, in your worldview, I am acting EXACTLY like a state or local government that runs a surplus. As long as ANYONE increases their cash balance over time, they are engaging in allegedly destructive "austerity measures."

    In other words, even if an individual produces and earns money, and holds the money for any length of time, that is allegedly recession inducing, if the feds do not inflate to "replace" that individual's spending. In other words, Keynesianism is just an anti-liberty program of finding supposed justifications for the state to print and spend money on themselves and their friends.

    If I spend less than I earn, then I'm running a surplus, I'm introducing a recession inducing action, which must be responded to with the state printing and spending money on themselves and their friends. The more cash I accumulate, the more money the state should print and spend on themselves and their friends.

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  45. "If you focus on state and local government surpluses, then you would logically also have to consider market participants running surpluses, where individuals increase their cash balances over time and do not spend as much as they earn."

    LOL!
    That is the whole point of Keynesian economics! It's called idle money, held for the precautionary or speculative motive.

    Fluctuating private sector spending on (1) producible commodities or (2) capital goods investment (via saving) out of earned income in one year where that spending is less than 100% of total factor payments is the reason why Say's law doesn't work, and why failure sof aggregate demand occur.

    Let's move on, shall we?

    ReplyDelete
  46. "Suppose the feds printed and spent money, and the state and local governments ran zero surpluses, but every time the government printed and spent money, and every time the states spent money, that many (not all) individual market actors just increased their cash balances instead of spending it, leading to GNP and GDP etc to remain flat, or even fall? "

    Name one historical, real world exmaple of this?

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  47. "why and how it is possible for the real productive structure of the economy to be thrown out of whack by inflation"

    Again, with the begging the question fallacy.

    ABCT is totally false. The foundation of it - Wicksell's unique natural rate of interest - does not exist outside of the fantasy, fairy-tale world of equilibrium or Mises's ERE, as Sraffa pointed out to Hayek in 1932. Austrians have never explained how their theory works without a uniqiue natural rate of interest, as (in fact) conceded by Bob Murphy in amoment of lucid and commendable honesty:

    http://socialdemocracy21stcentury.blogspot.com/2011/07/robert-p-murphy-on-sraffa-hayek-debate.html

    And again as for Keynesian stimulus in a depression, even the Austrian Ludwig Lachmann accepted that it would work. The Austrian school is itself divided on this issue: Hayek wanted monetary stabilisation. Greg Ransom even claims he supported fiscal policy.

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  48. "You admitted that taxing and spending are not stimulative, because it's just a "transfer" of spending.

    Correct: when you tax people's income or use sales taxes you reduce spending on producible commodities by them and simply transfer it to government spending on other producible commodities, (1) directly by government purchases or (2) indirectly via government payment of its employees's wages.

    Well, then so would borrowing and spending not be stimulative, because it too is a transfer of spending.

    False.
    I explained above why:

    Money borrowed by governments in deficits tends to be money lent by the rich or banks, and is money that is (1) free reserves in teh case of banks (idle money) or (2) money tied up in transactions on financial asset markets in the case of the rich - where this idle money is transferred from purchasing financial assets on secondary markets (spending which is not on producible commodities) to purchases of producible commodities which does in fact stimulate production and employment.

    Another basic insight of Keynes, and epxlained by him in the 1930s.

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  49. "If I produce something, for money, and then I continue to hold that money and not respend it, then in principle, in your worldview, I am acting EXACTLY like a state or local government that runs a surplus. As long as ANYONE increases their cash balance over time, they are engaging in allegedly destructive "austerity measures."

    Well done! This is correct: it is called the paradox of third, and illustrates how deleterious macro level effects emerge from micro behaviour that from the individual perspective (say, by saying money for the future) is useful and beneficial.

    If large enough numbers of people do this, they cause a severe failure of Say's law and a failure of aggregate demand.

    This is why Say's law does not work in modern money-using economy: the total money from factor payments (aggregate supply) will NOT necessarily be all spent on purchasing that year's output or on capital goods investment (via saving) because of shifting liquidity preference caused by

    (1) transactions motive
    (2) speculative motive
    (3) precautionary motive.

    When (2) and (3) are applied to financial institutions - when banks divert money into purchasing financal assets on secondary markets or increase their reserves and excess reserves without lending - you have an even more powerful Keynesian explantion of what is wrong with Say's law, neoclassical theory and even Austrian theory.

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  50. Correction:

    "paradox of thrift,"

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  51. Money borrowed by governments in deficits tends to be taken from money tied up in transactions on financial asset markets - it transfers it from purchasing financial assets on secondary markets (spending which is not on producible commodities) to purchases of producible commodities which does in fact stimulate production and employment.

    HAHAHAHAHAHAHAHAHA, your crap is getting more and more ridiculous as your shit is faced with the most basic of criticisms.

    You just shat on one of the most basic of economic principles of them all, which is that value is subjectively determined. Are you seriously this stupid that you have not even read any economics since the marginalist revolution of the 1870s? Your shit precedes the 1870s! Hahaha, and no, you cannot say that your worldview is from post 1870s, because if you bothered to read economic history, then you would have known that Keynesian economics is just a rehash of very, very old prejudices and fallacies, before economics was discovered as a science.

    At any rate, this latest nonsense that you said.

    You claimed that government borrowing "tends to be taken from money tied up in transactions on financial asset markets."

    See, it's stupid asinine stuff like this that only reinforces my conviction that you have no clue about economics, how our economy works, or even how any markets work.

    Money that is "tied up" in financial asset transactions have a purpose in a division of labor economy. I know this by the fact of observing others valuing such financial assets in terms of money, voluntarily.

    You are clearly eliciting a subjective judgment of value, and arrogating it to be something objective, as if a "proper" economy shouldn't have all those financial asset transactions, and it's up the good government doctor to rectify this, and make it more in line with your own utopia, whatever it happens to be.

    That's not economics. That's just you making an ass of yourself.

    Secondly, you contradicted yourself yet again. If money is being "tied up" in financial asset transactions, then that is SPENDING you dolt. That is part of aggregate demand. That is "stimulative." Such money demand is what you are calling to be increased in the first place, by the state printing and spending money. You never made any arguments before on how exactly such money should be spent. You just said it should be printed and spent, so as to increase GDP, GNP etc.

    For you to now say that this financial asset spending, this demand, is NOT a part of "true" spending, or "true" aggregate demand, or "true" stimulus, is an epic no true scotsman fallacy.

    You ad hoc excluded money spending on financial assets from aggregate spending, aggregate demand, after your worldview was exposed of yet another fallacy.

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  52. The more you are prodded, the more you are compelled to enter the Austrian framework of marginal utility, of individual value judgments, of economic calculation.

    You don't seem capable of accepting that other individuals are capable of making value judgments and making monetary transactions.

    Money that is borrowed by the state is money that you just fucking admitted is transferred from "financial asset transactions", and as such, is NOT "stimulative" in your own stupid worldview. For you to commit the no true scotsman fallacy and ad hoc exclude spending and demand taking place in financial markets from aggregate demand and spending as such, only proves you are an intellectually dishonest loser who is absolutely devoid of knowledge in how the economy works. You're only yammering for the state to take more charge in spending. That's it! And when you have your crap exposed that taxing and borrowing are transfers of spending and are not "stimulative", not "expansionary policy", all you're really saying is that only inflation can be "stimulative."

    "Hi, I'm Lord Keynes, and I am only here to say that I advocate for inflation from monopoly counterfeiters."

    If your blog was just one screen, and all it said was the above, then it would be your actual position.

    Oh, and I love how you have so little foundation for this latest BS of yours, that you added the tiny word "tends" in order to try and deflect the shitstorm of criticism you know will come.

    You idiotically claim that money the government borrows "tends" to come from the market, where it would have been used in making financial asset transactions. You changed your definition of "stimulative", and call government borrowing "stimulative", because money spent on financial assets in the market, like stocks and bonds and options, that allegedly does not "stimulate production and employment" (HAHAHAHAHAHA), to the government's coffers, where their spending DOES allegedly "stimulate production and employment."

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  53. Notice how you completely moved to a whole other meaning of the word "stimulate"? Before, "stimulate" was purely monetary. Government spending that raises GDP measures is "stimulative". Now, you're saying that "stimulate" is more about knowledge, that governments are allegedly capable of knowing more about how to increase economic productivity in various industries, than market participants who actually work in the industries.

    You're not only a Keynesian idiot, you're a fucking socialist to boot. Can you be any more pathetic? You want the government to control the economy. You want the government to reduce the size of, or take over, "investment," away from private investors. You want financial markets to be reduced or destroyed, and for the government to take it over. Now it all makes sense. All your posturing is nothing but a TOTAL capitulation to government control.

    Listen you freak, financial markets are in fact "stimulative", because they are voluntary and individuals are clearly deriving value in investing in them. You say "awww, but the poor little Joe! He's unemployed while the big wig financial players are transferring billions of dollars on nothing but stupid financial securities that don't do anything for the little Joe!"

    Unbelievable. You are so clueless, that you cannot even see the crucial connection between financial markets and production/employment. Money that is "tied up" in financial securities transactions is money that eventually finds its way to physical production. In a division of labor society, people don't buy stock for the sake of buying stock. They buy stock because such stock is issued by productive enterprises, who earn profits by selling goods and services.

    Now, I know how you morons think, so you're probably thinking, oh yeah?, then why is there trillions of dollars floating around the financial markets, but there is so little of that money finding its way to the little guy, the worker? There's millions of unemployed people!

    Well you stupid idiot, the reason why the financial markets are flush with money, while little Joe is unemployed, is precisely because you Keynesian idiots are calling for, and getting, INFLATION

    Wait, you didn't actually believe that inflation reaches everyone's pockets equally, did you? Oh man, that's hilarious. No you fool, inflation reaches certain people's pockets before others. The economy collapsed because of too much inflation, a large portion of which found its way into the mortgage market, and that blew up a housing bubble. Since the collapse, the government inflated the money supply and bailed out the banks, and the big players in the financial markets.

    You yahoo Keynesians are responsible for the very government problem you believe only government can solve!

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  54. "If money is being "tied up" in financial asset transactions, then that is SPENDING you dolt. That is part of aggregate demand ....
    You ad hoc excluded money spending on financial assets from aggregate spending, aggregate demand, after your worldview was exposed of yet another fallacy."


    This is the point where you have shown laughable ignorance: aggregate demand from the perspective of Say's law IS spending on producible commodities (whether consumer goods or cpaital goods), NOT financial assets on secondary markets.

    Thomas Sowell's (1994: 39–41) explanation of Say’s law:

    (1) The total factor payments received for producing a given volume (or value) of output are necessarily sufficient to purchase that volume (or value) of output [an idea in James Mill].

    [notice how output does NOT include financial assets bought and sold on secondary markets?]

    (2) There is no loss of purchasing power anywhere in the economy. People save only to the extent of their desire to invest and do not hold money beyond their transactions need during the current period [James Mill and Adam Smith].

    (3) Investment is only an internal transfer, not a net reduction, of aggregate demand. The same amount that could have been spent by the thrifty consumer will be spent by the capitalists and/or the workers in the investment goods sector [John Stuart Mill].

    [that is, on consumer goods or capital goods, NOT on financial assets bought and sold on secondary markets]

    (4) In real terms, supply equals demand ex ante [= “before the event”], since each individual produces only because of, and to the extent of, his demand for other goods. (Sometimes this doctrine was supported by demonstrating that supply equals demand ex post.) [James Mill.]

    [notice how he says goods, NOt assets?]

    (5) A higher rate of savings will cause a higher rate of subsequent growth in aggregate output [James Mill and Adam Smith].

    (6) Disequilibrium in the economy can exist only because the internal proportions of output differ from consumer’s preferred mix—not because output is excessive in the aggregate” [Say, Ricardo, Torrens, James Mill] (Sowell 1994: 39–41).

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  55. "For you to commit the no true scotsman fallacy and ad hoc exclude spending and demand taking place in financial markets from aggregate demand and spending as such,"

    False. Say's law in fact DOES exclude "spending and demand taking place in financial markets" from aggregate demand.

    Don't believe me?

    Let Say speak for himself:

    "Every producer asks for money in exchange for his products, only for the purpose of employing that money again immediately in the purchase of another product; for we do not consume money, and it is not sought after in ordinary cases to conceal it: thus, when a producer desires to exchange his product for money, he may be considered as already asking for the merchandise which he proposes to buy with this money. It is thus that the producers, though they have all of them the air of demanding money for their goods, do in reality demand merchandise for their merchandise (Say 1816: 103–105).

    Say's reference to "products" and "merchandise" refers to what we now call producible commodities (goods and services), NOT to financial asset purchases on secondary markets.

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  56. In NO years are the state and local surpluses ignored in my post: in certain fiscal years (1935, 1936, 1939) the federal deficit was larger than the money drained from the economy by state and local surpluses, and in some years the money drained from the economy by state and local surpluses (1937, 1938) added to the contractionary fiscal policy of reduced federal spending.

    Hahaha, you are using two entirely different arguments to refer to 1935, 1936, and 1939. In those years, you say "the federal deficit was larger than the surpluses of the state and local governments." When you consider 1937 and 1938, you don't say "the federal deficit was smaller than the surpluses of the state and local governments." No, you say something completely different, which is that the surpluses of the state and local governments "added to the contractionary fiscal policy of reduced federal spending."

    OF COURSE the surpluses would ADD a "contractionary" effect to whatever the feds do. THE STATE AND LOCAL GOVERNMENTS ALWAYS RAN SURPLUSES. They ALWAYS added a "contractionary" effect to whatever the feds did.

    So you should have said "In 1937 and 1938, the federal deficit was smaller than the surpluses of the state and local governments, thus creating a net contractionary policy."

    Now why wouldn't you use consistent argumentation? I'll tell you. It's because in 1937, total state and local surpluses were SMALLER than the federal deficit. The state and local surplus was, in 1937, $2.0 billion, while federal deficit was $2.2 billion. Thus, total deficit, total "stimulus", INCREASED in 1937.

    Now of course, being the counter-factual idiots you are, you will invariably concede this, but then you'd say "It wasn't enough stimulus! Clearly it couldn't have been because my inflationist worldview of booming production and employment wasn't observed!"

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  57. Again, LK was wrong.
    http://www.themoneyillusion.com/?p=9548

    "The reduction in the budget deficit mostly reflected two factors. First, the large one-time ”bonus” payments made to WWI vets in 1936 (an election year) was not repeated in 1937. And a 2% payroll tax was instituted to pay for Social Security in January 1937."

    "Government output does decline slightly in 1937, but is still far higher than 1934 and 1935. If you apply a multiplier of 1.6, it should have reduced GDP by about 1%. But RGDP rose more than 5% in 1937. Then in 1938 government output rises by twice as much as it fell in 1937, and RGDP plunges by almost 4%. (BTW, we should be using NGDP figures, but everyone else uses RGDP, and the qualitative results would be similar either way.)"

    "The 1938 depression had two causes, or perhaps one proximate cause and two deeper causes. The proximate cause was a sharp increase in real labor costs. Nominal labor costs rose sharply in 1937, due to a powerful union drive after the Wagner act, which rapidly doubled union membership and led to a wave of major strikes. The payroll tax also slightly boosted nominal labor costs (I believe by 1%, but am not certain.)"

    But... one thing I don't buy with Sumner's argument : the fact that lower prices would drive up real wages. Even if employers were initially reluctant to reduce wages, this concerns only short run. In the long run, lower prices reduce nominal wages because the unemployed don't want to stay unemployed, so they would choose to work at lower "price". Or they will die.

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  58. "Money that is "tied up" in financial securities transactions is money that eventually finds its way to physical production. In a division of labor society, people don't buy stock for the sake of buying stock. They buy stock because such stock is issued by productive enterprises, who earn profits by selling goods and services."

    You confuse and conflate

    (1) IPOs, newly-issued shares for investment purposes, and newly-issued corporate/business bonds with

    (2) mere buying and selling of financial assets on the secondary markets for speculative purposes.

    Yes, (1) does flow into capital goods investment, but (2) does not.

    The value of (1) every year is dwarfed by (2).

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  59. And here :
    http://www.econ.yale.edu/seminars/echist/eh02/ohanian-021008.pdf

    "Union membership rose considerably under the NLRA, particularly after The Supreme Court upheld the constitutionality of the Act in 1937; union membership rose from rose from about 13 percent of employment in 1935 to about 29 percent of employment in 1939.15 This increase in unionization led to a considerable increase in strike activity. Total number of days lost due to strikes rose from about 14 million in 1936 to about 28 million in 1937."

    "Prices and wages remained high after the NIRA was declared unconstitutional. The continuation of high prices and wages is consistent with the view that the effects of government policies did not change much after the NIRA. The relative price of manufacturing is roughly unchanged in 1935 relative to 1934, and rises after 1935. The manufacturing real wage changes little in 1936, but rises in 1937 and in 1938. The 1937 and 1938 wage increases roughly coincide with the large increases in unionization and in the number of days lost to strikes."

    "Second, wages in several of the industries rose around the time that the Court upheld the NLRA (April 1937). Wages in iron/steel rose about 13 percent over the two month period between March 1937 and May 1937. Wages in both anthracite and bituminous coal rose about 15 percent over this two month period.19 Wages in autos and machinery rose about eight percent. This suggests that post-NIRA policy led to higher wages, and that the Court’s decision upholding the NLRA further raised labor bargaining power."

    "The first change we discuss is the relative increase in labor bargaining power in 1937. The Supreme Court upheld the constitutionality of the NLRA in 1937. This increased unionization and the number of strikes substantially in 1937 and 1938. Moreover, State governments permitted “sit-down” strikes, in which employees took over plants and halted production, during this period. These changes in unionization and union activity led to significantly higher wages; manufacturing real wages rose about nine percent between 1936 and 1938. Our cartelization theory predicts that this increase in labor bargaining power should have increased wages and reduced employment and output during this period. This prediction is consistent with the fall in output, employment, and investment that occurred between 1937 and 1938."

    "This bargaining power explanation of the 1937-38 downturn differs from the standard explanation, which is that the downturn was caused by higher reserve requirements on bank accounts. CO (1999) note that it is difficult to explain the 1937-38 downturn solely by higher reserve requirement. If this factor was the sole cause, commercial loan rates and the spread between lending and borrowing rates should have increased shortly after these changes in reserve requirements, and output should have begun to decrease shortly after these increases.
    In contrast, commercial loan rates and the spread between loan rates and other rates were roughly unchanged after these increases, and industrial production continued to grow for 14 months after the first and largest of these increases. While more work is required to assess the 1937-38 downturn, our theory raises the possibility that an increase in labor bargaining power may have been an important contributing factor to the downturn of 1937-38."

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  60. "In any economy, individuals ultimately exchange goods and services with each other. The car maker trades with the electronics manufacturer. The sandwich shop owner trades with the medical doctor. etc. etc."

    That sort of analysis is fit only for a barter economy.

    No, it fits for a division of labor economy as well you loon. The introduction of money doesn't change the fact that people are exchanging their goods for other goods. Money just enables people to make initial indirect exchanges first, after which they then acquire goods and services from others.

    We don't live in a barter economy - we live in a monetary economy.

    That doesn't mean that the mere spending of money is what benefits people. The spending of money is done in order for people to trade their goods and services with each other indirectly. Just because they are using an indirect medium of exchange to do this, that doesn't mean that money becomes a consumer good on its own, where the mere increase in money makes people better off. People's standard of living is due to the real goods and services they produce and consume, not how much money is being used to facilitate the exchange of goods and services.

    In periods of high unemployment, unused capacity, and idle resources, Keynesian stimulus's primary effect is to increase production and employment.

    See refutation of inflation and spending being justified because of "idle resources" in William Hutt's book here:

    Since you're probably not into books, but rather short articles, then see Robert Murphy's refutation of idle resources here:

    http://mises.org/daily/3290

    And don't pretend that "Austrian" economics is consistent on this subject. The Austrian Ludwig Lachmann, for one, rejected the sort of nonsense you write above:

    Ludwig Lachmann was not a full Austrian. Citing Ludwig Lachmann is a straw man against Misesian-Rothbardian tradition, which is what 99.9% of today's Austrians adhere to.

    Citing Ludwig Lachmann is no more a knock against Austrian economics today as would citing Samuelson or Hicks be a knock against Keynesianism today.

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  61. "It's because in 1937, total state and local surpluses were SMALLER than the federal deficit. The state and local surplus was, in 1937, $2.0 billion, while federal deficit was $2.2 billion. Thus, total deficit, total "stimulus", INCREASED in 1937."

    Source? And in fiscal years or calendar years?

    The fiscal year 1937 runs from July 1, 1936 – June 30, 1937, and the recession began in May 1937, at the end of fiscal 1937.

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  62. "If there is an entity that creates money out of nothing, and then spends it, then losses will have to be incurred by someone. "

    All dependent upon the assumption that the economy is running at full employment and full capacity - an unrealistic assumption that time and again does not happen in the real world.

    No, that is NOT dependent on their being full employment and full capacity. If that were the case, then I would not be causing any losses by counterfeiting money myself and spending it on getting currently unused resources and currently unemployed workers.

    You fail to take into account that idle resources and unemployed workers are not the only things that can be targeted with inflation and spending. Idle resources do not operate in a vacuum. They require complimentary resources, complimentary capital goods, and complimentary labor, all of which are already being utilized and area already employed.

    The theory of idle resources justifying inflation is fallacious.

    When the government prints and spends money to "stimulate," say, a currently idle car factory, then the money they spend isn't going to stay at the factory, orbiting it. It is going to be used to buy complimentary resources, like steel sheet, energy, materials, plastics, stationary, everything that is complimentary to producing automobiles, which will invariably incur losses on those who were already buying those complimentary resources, but now have to pay higher prices because of the additional inflation brought about by the government has made those prices go up.

    Thus, the costs of production, existing production, have gone up. That is a loss.

    In addition, once the workers and managers and owners of the car company spend their additional money on their own consumption, that raises the demand for, and hence prices of, consumer goods. That incurs losses on those consumers who don't work at the car company, who now have to pay higher prices

    You can't avoid the losses being incurred by inflation, even if there are idle resources and unemployed people. You simply don't understand capital structure. You lack an adequate understanding of it.

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  63. The result was positive growth of real output, increased prodcution, and falling unemployment.

    Wrong. There was more malinvestment, more make work projects, and another unsustainable economic configuration that will require a future correction.

    You pointed at GNP to justify your claim that the economy was improving from 1933 to 1937. But GNP measures total spending in money.

    You pointed at employment falling from 25% to 10%, but those were just public works programs, not real productive jobs. Their jobs were consumer jobs. Their job was to consume resources.

    In other words, all the employment and "production" that took place because of the government's printing and spending, was CAPITAL CONSUMPTION.

    Production did not increase. Consuming out of capital increased. Sure, I can "produce" a road by consuming out of my capital investment in a car factory. I didn't produce on net. I merely shifted production.

    Government spending does not increase production. It only shifts it, in a way that is not a product of market valuation, but special interest group politicking.

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  64. Total government spending rose because local and state governments increased taxes to cover increased spending - a policy with zero stimulative effect.

    You mean zero inflation effect.

    The only way governments can spend with positive "stimulative effect" in your worldview is if and only if there is an increase in the quantity of money and volume of spending. Any market based transfers of money are not "stimulative". Only INFLATION is "stimulative."

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  65. Ending recessions requires increasing production, output and employment. As long as the stimulus is not reduced by state and local surpluses or budget cuts, that can involve.

    HAHAHAHAHAHAHAHAHA, in other words, ONLY economic calculation can solve recessions. In other words, what the Austrians have been saying.

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  66. Figures for state and local budget receipts and expenditure

    National Income and Product Accounts of the U. S.: 1929-58, Table 3.3, p. 58

    1936
    $8.4 billion receipts
    $7.9 billion expenditure

    $0.5 billion surplus

    1937
    $8.9 billion in receipts
    $8.2 billion in expenditure

    $0.7 billion surplus

    1938
    $9.1 billion in receipts
    $8.7 billion in expenditure

    $0.4 billion surplus


    In 1937, there was no $2.0 billion surplus in state and local budgets.

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  67. LOL.. Ah, yes, Ron Paul, you mean? Who couldn't even get the Republican nomination for president?

    No, I mean Austrian economics. I know it's hard for you to think outside the statist box, but in the sphere of ideas, Austrian economics is surging. It is surging so much, that it has made its way into political rhetoric, and all the entrenched ivory tower state financed intellectuals are finding it more and more difficult to not address it.

    Outside the US, Austrian economics is virtually non-existent at the level of national or state politics.

    Which is why they are collapsing even faster than we are.

    Now you have switched to rambling tirades, you clearly have no serious objections to the points made above. Instead, there are endless repetitions of the same red herrings and straw man arguments. Good work.

    Nope, you're lying. You're desperately trying to make this anything other than what it is: A crushing demolition of your nonsense, for all to see. I have not engaged in any red herrings or straw mans.

    If anyone values logic, they will see that only inflation can be economically "stimulative" in your worldview. You're just an advocate of monopoly counterfeiter inflation. Nothing more, nothing less.

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  68. "When the government prints and spends money to "stimulate," say, a currently idle car factory, then the money they spend isn't going to stay at the factory, orbiting it. It is going to be used to buy complimentary resources, like steel sheet, energy, materials, plastics, stationary, "

    Not when capacity utilization at plants that produce steel sheet, energy, materials, plastics, stationary, etc can just be raised when new order come in, resulting in higher output and employment.

    There is also a thing called international trade.

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  69. "Outside the US, Austrian economics is virtually non-existent at the level of national or state politics.

    Which is why they are collapsing even faster than we are."


    Ah, no they are not: Germany, Norway, Sweden, Canada, South Korea, which all used Keynesian stimulus, are doing much better than the US.

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  70. "The only way governments can spend with positive "stimulative effect" in your worldview is if and only if there is an increase in the quantity of money and volume of spending."

    The process of Keynesian stimulus does not necessarily involve money supply increases: if the stimulative deficits are covered $for$ by bond issues that have taken idle money as banks's excess reserves or idle through financial asset speculation on secondary markets, then that does not add to the money stock.

    The broad money at any one time anyone has significant idle money.

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  71. aggregate demand from the perspective of Say's law IS spending on producible commodities (whether consumer goods or cpaital goods), NOT financial assets on secondary markets.

    HAHAHAHAHAHAHAHAHA, what a stupid straw man.

    I wasn't arguing "from Say's Law" you idiot.

    And not only that, but if you want to discuss "from Say's Law", then all Say's Law is, (actually it is a law that James Mill originally laid out), is that it was a refutation of a preceding fallacy commonly held by people, before the onset of economics as a science.

    Prior to James Mill originally laying out the law, it was commonly held, and is still commonly held, that when a particular businessman incurred losses, there were two reasons. One, money is scarce, and two, too much production was made.

    This led to people fallaciously concluding (via fallacy of composition) that what was true for the individual firm, is true for the whole economy as well during general economic slumps, in that general economic slumps are caused by too little money and too much production (i.e. capacity)

    Say's Law was just a refutation of the latter myth.

    Say's Law has NOTHING to do with your fallacious claim that money spending on financial assets is not a "true" part of aggregate demand as such.

    Thomas Sowell's (1994: 39–41) explanation of Say’s law:

    RED HERRING

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  72. "Ludwig Lachmann was not a full Austrian."

    LOL! The no true scotsman fallacy, huh?

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  73. False. Say's law in fact DOES exclude "spending and demand taking place in financial markets" from aggregate demand.

    I did not make an argument on what Say's Law should and should not include, and it doesn't matter that you believe that Say's Law doesn't refer to financial assets. This is all just a giant red herring designed to divert attention away from the fact that you fallaciously claimed, ad hoc, and in no true scotsman fallacy fashion, that aggregate spending does not include financial asset spending.

    To say "False, Say's Law does not include financial securities" is ridiculously misguided and hopelessly confused.

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  74. "Say's Law has NOTHING to do with your fallacious claim that money spending on financial assets is not a "true" part of aggregate demand as such."

    It has EVERYTHING to do the nature of aggregate demand.

    And it is hilarious how above you (accidently) hit on the reason why Say's law does not work here:

    http://socialdemocracy21stcentury.blogspot.com/2011/08/debunking-catalan-on-recession-of-1937.html?showComment=1313606243901#c2098321034866444093

    Now you are desparately trying to deny that this is relevent. Great work.

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  75. (1) IPOs, newly-issued shares for investment purposes, and newly-issued corporate/business bonds with

    (2) mere buying and selling of financial assets on the secondary markets for speculative purposes.

    You are utterly confused. First you are hopelessly wrong that the government can ever know that its borrowing from the market's savings pool would "tended" to have otherwise been used for stock speculation. When the government borrows, the money that is used to buy government debt comes from savings as such, (or what's more likely these days, inflation from the Federal Reserve) and NOT "from money that would have been used to speculate in stocks."

    How in the fuck can you claim to know that the money the government borrows "would tended to have come from financial security speculation"? You don't know that. You're just making that up because you HOPE that's what happens, or else it is yet another nail in the coffin that you call your worldview. That by itself totally refutes your nonsense.

    Second, what actually happens in real life, is that government borrows from MANY individuals who would have otherwise done all sorts of things with that money had the government not issue more debt. They might have invested in bonds from a company, or land, or an index fund, or yes, even for speculative purposes. But speculation is increased when inflation increases. The stock market bubble that formed in 1929, and the Nasdaq bubble, and the 2008 bubble, they were all financed by inflation encouraging such speculation.

    Third, in a free unhampered market, speculation in stocks makes stocks more rationally priced, because speculation is based on information, and information gets more quickly translated into stock prices when speculation takes place. If a speculator is wrong, then he incurs losses, and other speculators who are right take more control over stock speculation. This process enables stocks to be newly priced quickly with changes in information as it comes.

    Fourth, the money that speculators use to buy stocks and bond and other financial securities, does increase production, because it enables managers of firms to know what the updated market prices of their stocks are, so that they can then make more rational decisions as to their own firms.

    Just because money is "tied up" in such speculation, that doesn't mean it is not stimulating production. A division of labor economy requires speculation. All investments are speculations anyway, because they are aimed at an uncertain future that may go the investor's way or it may not.

    The value of (1) every year is dwarfed by (2).

    That's because inflation is giant. All that money had have come from somewhere. It came from the very printing press that you think is oh so necessary. Suck it up.

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  76. Source? And in fiscal years or calendar years?

    St Louis Fed website, Fred2. Two data series "State and Local current expenditures" and "State and Local current receipts." Download data.

    This is the chart:

    http://research.stlouisfed.org/fred2/graph/fredgraph.pdf?&chart_type=line&graph_id=&category_id=&recession_bars=On&width=630&height=378&bgcolor=%23b3cde7&graph_bgcolor=%23ffffff&txtcolor=%23000000&ts=8&preserve_ratio=true&fo=ve&id=ASLEXPND,ASLRECPT&transformation=lin,lin&scale=Left,Left&range=Custom,Custom&cosd=1929-06-01,1929-06-01&coed=1939-06-01,1939-06-01&line_color=%230000ff,%23ff0000&link_values=,&mark_type=NONE,NONE&mw=4,4&line_style=Solid,Solid&lw=1,1&vintage_date=2011-08-17,2011-08-17&revision_date=2011-08-17,2011-08-17&mma=0,0&nd=,&ost=,&oet=,&fml=a,a&fq=Annual,Annual&fam=avg,avg&fgst=lin,lin

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  77. LOL! The no true scotsman fallacy, huh?

    You obviously don't understand the no true scotsman fallacy.

    I didn't define who are Austrians and who are not Austrians, make a generalized claim on what the Austrians hold, only to ad hoc exclude particular individuals after being presented with counter evidence.

    A no true scotsman fallacy is what you did when you ad hoc excluded financial securities transactions from "spending" after being presented with counter-evidence that borrowing and taxing are transfer concepts, and that only inflation in your worldview could be "stimulative" and "expansionary".

    I don't consider Lachmann to be an Austrian economist. I consider him fringe, who held some fallacious convictions, many of which, not surprisingly, are accepted by Keynesians who try to straw man Austrian economists by saying things like "Even Ludwig Lachmann agrees with me!"

    At any rate, this is all besides the point. Citing Lachmann has no bearing whatsoever on my arguments that refute yours.

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  78. It has EVERYTHING to do the nature of aggregate demand.

    It has NOTHING to do with the fact that financial security transactions are a part of aggregate demand, because ANYTHING that has a price and are sold for money are a part of AGGREGATE demand.

    And it is hilarious how above you (accidently) hit on the reason why Say's law does not work here:

    That doesn't show anything against Say's Law being absolutely true.

    Now you are desparately trying to deny that this is relevent. Great work.

    No, you are desperately trying to claim that this is about Say's Law in order to justify your no true scotsman fallacy that aggregate demand does not include demand for financial securities.

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  79. Ah, no they are not: Germany, Norway, Sweden, Canada, South Korea, which all used Keynesian stimulus, are doing much better than the US.

    No, they are collapsing to the extent that they are engaging in bigger Keynesian policies.

    Germany is the biggest Keynesian inflation and spending economy out of them all, and they are poised to collapse. They are slowing down as we speak if you've been keeping up. Canada inflated and spent very little, and that's why they will probably only experience a mild housing correction. They came nowhere near the amount of inflation carried out by the US government from 2001-2006.

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  80. The process of Keynesian stimulus does not necessarily involve money supply increases:

    False. Yes, it does. Taxing is a transfer of money spending, and borrowing is a transfer of money spending. Only inflation is "stimulative".

    Deficits bankrupt a government if not for inflation. Deficits require inflation. An entity cannot keep spending more than they receive unless they print their own money, lest they go bankrupt.

    if the stimulative deficits are covered $for$ by bond issues that have taken idle money as banks's excess reserves or idle through financial asset speculation on secondary markets, then that does not add to the money stock.

    IF the world is make believe, and IF governments borrow from savings that only would have been "hoarded", or used for financial security transactions (which is NOT "idle money"), and if the real world were not what it is, then yes, Keynesian would work. But the real world is different.

    In the real world, it is impossible for the government to borrow money that only would have been hoarded or only used in financial security transactions. The government does not ask lenders "what would you have otherwise done had you not buy this bond?" only to say "No thanks" to everyone who replies "I would have invested in a factory!" or "I would have hired these people over here!"

    No you fool, the government fucking borrows from whoever is willing to lend it money, and they don't ask and they can't even know where that money would have otherwise been used. You're taking an imaginary counter-factual world, and claiming that it can be used to guide what the government does when it borrows.

    You're an idiot.

    When the government borrows, it has to finance that debt. In order to finance that debt, it has the same three options as they always do in order to acquire money. They have borrow, tax, and/or inflate.

    Since taxing and borrowing you have already painfully and reluctantly admitted, but continue denying lest another fallacy be admitted, to be not stimulative, and only a transfer of aggregate demand, then borrowing cannot be "stimulative" unless it is financed by inflation.

    The broad money at any one time anyone has significant idle money.

    ALL money is held as cash for a positive period of time. All money is held as cash balances. Money that is "idle" performs the vital function of enabling the cash "hoarder" to guard against future uncertainty, as well as intentions for future spending.

    The fact that cash holding seems to only benefit the individual makes you collectivist statists rage with anger, because the alleged purpose of the individual in your mind is to sacrifice his life for the sake of others.

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  81. "Suppose the feds printed and spent money, and the state and local governments ran zero surpluses, but every time the government printed and spent money, and every time the states spent money, that many (not all) individual market actors just increased their cash balances instead of spending it, leading to GNP and GDP etc to remain flat, or even fall?"

    Name one historical, real world exmaple of this?

    It was a thought experiment question, not an empirical pronouncement. It was asked to test your theory for robustness.

    So answer the question, and I will then answer your question

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  82. Throwing ad-hominem and guilt by association into every third sentence is a strong substitute for a well-reasoned argument.

    ReplyDelete
  83. Yo, Major: Whereas firms are quantity adjusters before price adjusters (i.e. they play Cournot games before Bertrand games), in order to hit inflation from a federal deficit we're forced to assume that a) the money is not hoarded, b) employment is maxed, c) the velocity of money is stable (this is a tricky one!), d) no technological advances are further altering output and e) the credit impulse is not declining (i.e. creating an environment of endemic deleveraging).

    Typical countercyclical, exogenous adjustments to the money supply are not the only source of inflation, or even the most important one. It's more of a "special case" than many acknowledge.

    The fact is, there is no voodoo magic that parlays changes in the money supply into changes in the price level. Producers don't check the money aggregates, say "welp, the M2 is up," and adjust their prices accordingly. They only deal with the resources that come to their doorstep.

    That is, it boils down not to any particular stock of money, but the flow of aggregate demand.

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  84. Lord Keynes,

    I'm curious why do you put up with "Major Freedom" as it is evident he/she is a troll. There's nothing wrong with being in favor of Austrian Economics or libertarianism, but one ought to express opinions in a civilized manner, especially at another's blog.

    It just puzzles me why you want to spend time on the likes of MF instead of doing something else.

    Regards,
    H.

    ReplyDelete
  85. "Second, what actually happens in real life, is that government borrows from MANY individuals who would have otherwise done all sorts of things with that money had the government not issue more debt. "

    Such as speculate on financial assets or real assets in secondary markets?? I.e., blow bubbles without increasing output or employment.

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  86. "Germany is the biggest Keynesian inflation and spending economy out of them all, and they are poised to collapse"

    LOL... Germany "poised to collapse"? Really?
    A manufacturing powerhouse with low unemployment, with falling unemployment?

    While its real GDP growth has fallen to 0.1% in Q2 2011, that is not a sign of an economy "poised to collapse", but merely a sign that demands for its exports has fallen, since it is an export-led growth economy.

    http://www.tradingeconomics.com/germany/gdp-growth

    ReplyDelete
  87. The process of Keynesian stimulus does not necessarily involve money supply increases:

    "False. Yes, it does. Taxing is a transfer of money spending, and borrowing is a transfer of money spending. Only inflation is "stimulative"."


    = non sequitur.

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  88. "Since taxing and borrowing you have already painfully and reluctantly admitted, but continue denying lest another fallacy be admitted, to be not stimulative, and only a transfer of aggregate demand, then borrowing cannot be "stimulative" unless it is financed by inflation."

    Rubbish - as said above people and institutions who buy newly issued bonds tend to be (1) banks using reserves or (2) rich individuals who money is tied up on financial asset market exchanges.

    In the case of banks, it precisely in a recession or depression when they are reluctant to lend because business expectations have collapsed. Lending to business is also constrainted by the number of businesses wanting money - that is what collapses during downturns.

    As for (2), since the vast majority of money on financial asset markets goes to speculation on assets on secondary markets, the majority of the money transferred to bond purchases is transferred from mere asset purchases to purchses of producible commodities.

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  89. "I don't consider Lachmann to be an Austrian economist. I consider him fringe, who held some fallacious convictions, many of which, not surprisingly, are accepted by Keynesians"

    LOL! Let's see the logic of this!:

    "I don't consider Bob Murphy to be an "Austrian" economist. I consider him fringe, who holds some fallacious convictions, many of which, not surprisingly, are accepted by Keynesians (e.g., monetary theory of the interest rate, the belief that there is unique no natural rate of interest outsise equilibrium)"

    So by the very same logic Bob Murphy is not an Austrian? Correct?

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  90. "It has NOTHING to do with the fact that financial security transactions are a part of aggregate demand, because ANYTHING that has a price and are sold for money are a part of AGGREGATE demand."

    False:

    "In macroeconomics, aggregate demand (AD) is the total demand for final goods and services in the economy (Y) at a given time and price level."
    http://en.wikipedia.org/wiki/Aggregate_demand

    Goods and services?

    GDP = C + I + G + (X-M)

    C = consumption spending on commodities
    I = capital goods spending (capital goods are commodities
    G = government spending spending on commodities
    E-M = value of exports - imports (all commodities)

    Notice how there is no financial assets included in that?

    Mere spending on IPOs, newly-issued shares or corporate bonds by investors that flow into capital goods investment is ALREADY included in I, and would be double counting to no purpose.

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  91. Such as speculate on financial assets or real assets in secondary markets?? I.e., blow bubbles without increasing output or employment.

    First, you can't know how much of that borrowing is money that would have otherwise been used for financial security speculation, and even if any positive portion of that money was going to be used for speculation, it is still only a transfer of spending, which means it is not "stimulative" in the Keynesian worldview. You fallaciously claimed that money borrowed by the government "tends" to come from money that would have otherwise been used for speculation, and you fallaciously claimed that money used for speculation is not a part of aggregate spending, an utterly idiotic claim.

    You are just imposing a value judgment on what kinds of aggregate spending are "stimulative" and what types of aggregate spending are "not stimulative." That does not follow from Keynesianism. That is not related to Keynesianism at all. Keynesianism is aggregate spending and aggregate demand. Introducing individual value judgments and promoting and discounting certain types of spending is what only Austrian economics can explain.

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  92. LOL... Germany "poised to collapse"? Really?
    A manufacturing powerhouse with low unemployment, with falling unemployment?


    Yes, Germany is poised to enter a recession/depression. Did you really believe that the "manufacturing powerhouse" was financed by and derived from real savings? No, it was derived from and financed by artificially cheap money.

    While its real GDP growth has fallen to 0.1% in Q2 2011, that is not a sign of an economy "poised to collapse", but merely a sign that demands for its exports has fallen, since it is an export-led growth economy.

    I didn't say the mere fact that GDP is falling is proof of a future depression. I said that they are going to collapse and the currently falling GDP is a piece of information that is consistent with, but does not by itself prove, my argument.

    You can mark my post down and archive it. I hereby predict that Germany is going to go through a massive correction period, brought about by a period of artificially low interest rates, high inflation into the loan market, which are going to be exposed in the near term because the rate of money supply growth has substantially slowed in recent quarters.

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  93. "You are just imposing a value judgment on what kinds of aggregate spending are 'stimulative' and what types of aggregate spending are 'not stimulative.'"

    False.
    It is not some "subjective" value judgement: spending on producible commodities stimulates output and employment; spending on mere financial assets on secondary markets does not.

    Just as Say's law focuses on producible commodities for the good reason that these are what really drive the economy and employment, so does modern calculations of GDP.

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  94. The process of Keynesian stimulus does not necessarily involve money supply increases:

    "False. Yes, it does. Taxing is a transfer of money spending, and borrowing is a transfer of money spending. Only inflation is "stimulative"."

    = non sequitur.

    No, it logically follows. Governments can only tax, borrow, or print money. If taxation and borrowing are not stimulative on the basis that they represent only transfers of money spending, then logically the only kind of spending is that which is not a transfer of money spending, which means money that arises out of thin air and is spent. That is the only way that money spending can take place without a corresponding decrease in money spending from others.

    In other words, in your nonsensical conception, only INFLATION is "stimulative".

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  95. "Yes, Germany is poised to enter a recession/depression. "

    LOL.. A recession does not mean it is "poised for collapse".

    "You can mark my post down and archive it. I hereby predict that Germany is going to go through a massive correction period, brought about by a period of artificially low interest rates, high inflation into the loan market"

    Again with the nonsense of ABCT.
    Any recession in Germany will be caused by falling demand for its exports, with knock on effects in domestic income/spending and business uncertainty. Its budget cuts will also cause growth to fall in its domestic sectors. All perfectly explicable in terms of
    Keynesian macrotheory, not a fairy tale business cycle theory, dependent on a non-existent unique natural rate of interest.

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  96. "If taxation and borrowing are not stimulative on the basis that they represent only transfers of money spending, "

    State borrowing and spending via deficits IS stimulative, as explained to you above: because the buyers of bonds represent agents with money that is tied up in non-employment inducing spending on financial assets purchases on secondary markets.

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  97. Money spent on commodities (goods and services that employ virtually all people) is employment-inducing demand.

    Money spent on financial assets (and even real assets) on secondary markets is non-employment-inducing demand. That is idle money. The banks, big money market funds and pension funds thus have a vast amount of money that is essentially idle.

    When they switch to purchasing newly issued government bonds, money is spent by government in deficits, on purchasing commodities or paying people who will purchase commodities - employment inducing demand that increases output and real putput growth.

    This is employment inducing demand.

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  98. Rubbish - as said above people and institutions who buy newly issued bonds tend to be (1) banks using reserves or (2) rich individuals who money is tied up on financial asset market exchanges.

    Nonsense, I've already shown above that you can't know that the money would have otherwise been used to speculate, because we can't observe that world.

    One, that banks use their reserves to buy newly issued treasury bills does not mean that banks hold the bills until maturity. They buy them because they expect to sell them to others, who will either hold them to maturity, or they are like the primary dealer banks, and they too expect to sell them to others. But if the primary dealer banks don't buy treasury bills with their reserves, then you can't say that they would have speculated with it. More likely, as banks, they would have loaned to private borrowers at interest, who themselves may or may not speculate with it. At any rate, there is no consequence to you pointing out that treasuries are initially bought by primary dealers. It does not support your fallacious claim that money the government borrows would have otherwise been used for speculation.

    Two, even if some of the money used to lend to the government would have otherwise been used for speculation, that does not in any way entitle you to claim that financial security transactions are not economically "stimulative" in the Keynesian worldview. In the Keynesian worldview, it is enough that it is being spent and is a part of aggregate demand. The hilarious part about you denying this, by claiming that financial security exchanges are not a part of Say's Law, is that Keynes himself attempted to refute Say's Law in his General Theory, and his immediate followers held this (erroneous) "refutation" of Say's Law as his claim to fame and his legacy. The fact that you are saying that because financial exchanges are allegedly not included in Say's Law (which is false, regardless of how many yahoos you cite claiming otherwise), that they are not "stimulative" in the Keynesian worldview, is downright hilarious. It would be like an Austrian claiming that artificially low interest rates generated by central banks do not cause economic distortions because Keynes said that interest rates are just rewards for parting with liquidity and don't mean anything in terms of intertemporal coordination.

    You're dumber than a bag of hammers.

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  99. "More likely, as banks, they would have loaned to private borrowers at interest, who themselves may or may not speculate with it."

    False: in a recession it is precisely when business confidence and subjective expectations have collapsed, precisely when there is insufficient investment.

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  100. "The fact that you are saying that because financial exchanges are allegedly not included in Say's Law (which is false, regardless of how many yahoos you cite claiming otherwise), "

    LOL... cite me evidence from J. B. Say or nay other 19th century advocate of Say's law to prove that financial asset exchanges are "included in Say's law".

    You won't of course, because you are laughably ignorant even of the basic nature of Say's law.

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  101. In the case of banks, it precisely in a recession or depression when they are reluctant to lend because business expectations have collapsed. Lending to business is also constrainted by the number of businesses wanting money - that is what collapses during downturns.

    It is precisely recession that banks are reluctant to speculate, and instead look for safe investments, such as treasury bills. In the absence of investing in treasury bills, we can't know where they would have put their money, but we can surmise that either holding as cash, or lending into low return, low risk investments, such as mutual funds, or short term money market instruments, or blue chip companies, would have been the most likely places. Certainly not high risk speculation, and even if banks would have otherwise done that, such speculation would have been a part of aggregate spending, and thus is not "hoarding" or "tied up" in the Keynesian worldview.

    As for (2), since the vast majority of money on financial asset markets goes to speculation on assets on secondary markets, the majority of the money transferred to bond purchases is transferred from mere asset purchases to purchses of producible commodities.

    False. Transferring investment from speculation to government debt is a movement AWAY from investment in producible commodities. Commodities are produced by private producers, not government. Government only spends money. Money that is lent to the government, is almost entirely used for spending on medicare and medicaid, social security, and military. Those are the largest aspects of the federal budget, by far. Money lent to the government is therefore NOT money that goes from non-commodity production to commodity production. It is money that goes from commodity production to non-commodity consumption.

    Commodities are produced in the private market, not by government bureaucrats.

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  102. Note carefully:

    GDP = C + I + G + (X-M)

    C = consumption spending on commodities
    I = capital goods spending (capital goods are commodities)
    G = government spending spending on commodities or for wages of people who will buy commodities
    E-M = value of exports - imports (all commodities)

    Notice how there are no financial assets or asset purchases on secondary markets included in these parts of GDP?

    The two major formulations of Say's law:

    Say’s law, there are two main variants of it:

    (1) Say’s Identity
    According to Baumol (1977: 146), this

    "is the assertion that no one ever wants to hold money for any significant amount of time, so that, as a result, every offer (supply) of a quantity of goods automatically constitutes a demand for a bundle of some other items of equal market value."

    [note: this refers to goods, not assets]

    (2) Say’s Equality
    Again, according to Baumol (1977: 146), Say’s Equality

    "admits the possibility of (brief) periods of disequilibrium during which the total demand for goods may fall short of the total supply, but maintains that there exist reliable equilibrating forces that must soon bring the two together."

    [note: Say's Equality refers to goods, not assets]

    Baumol, W. J. 1977. “Say’s (at Least) Eight Laws, or What Say and James Mill May Really Have Meant,” Economica n.s. 44.174: 145–161.

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  103. LOL! Let's see the logic of this!:

    "I don't consider Bob Murphy to be an "Austrian" economist. I consider him fringe, who holds some fallacious convictions, many of which, not surprisingly, are accepted by Keynesians (e.g., monetary theory of the interest rate, the belief that there is unique no natural rate of interest outsise equilibrium)"

    So by the very same logic Bob Murphy is not an Austrian? Correct?

    If you said that, then you would not have committed the no true scotsman fallacy, because you did not originally imply that Murphy was an Austrian, only to then change your story and exclude Murphy from the category of Austrians when presented with counter-evidence.

    You fallaciously claimed I committed the no true scotsman fallacy when I claimed that Lachmann was a fringe Austrian. That is not no true scotsman fallacy, because I didn't originally make any claims that he is an Austrian, only to then change my story and claim he is fringe. I've always held him as fringe Austrian, not Austrian proper. Therefore, my story has not changed, I haven't redefined any universal category, and thus you're wrong.

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  104. Transferring investment from speculation to government debt is a movement AWAY from investment in producible commodities.

    False. The money used to buy bonds is not being spent on producible commodities, but on non-employment inducing spending on financial assets.


    Commodities are produced by private producers, not government.

    Well, duh.
    Also, public goods and services ARE produced by government, i.e., public works, infrastructure, law and order, fire fighters etc.

    Government only spends money.

    False. It also provides public goods and services, i.e., public works, infrastructure, law and order, fire fighters, health care, etc.

    Money that is lent to the government, is almost entirely used for spending on medicare and medicaid, social security, and military.

    All public goods and services. You also forget Keynesian stimulus also public infrastructure spending, roads, bridges, highways, etc, from which the private sector benefits tremendously.

    Since these public goods are free at the point of delivery there is no private profit markup that woudl make them far more expensive if the private sector provided them.

    Money lent to the government is therefore NOT money that goes from non-commodity production to commodity production. It is money that goes from commodity production to non-commodity consumption.

    False. For reasons noted above.

    Commodities are produced in the private market, not by government bureaucrats.

    Yeah, Keynesians know that private sector commodities are produced in the private sector.

    Talk about a red herring fallacy.

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  105. "In macroeconomics, aggregate demand (AD) is the total demand for final goods and services in the economy (Y) at a given time and price level."

    Goods and services?

    GDP = C + I + G + (X-M)

    First off, Robert Sexton and Peter Fortura, the sources cited, are not correct.

    What they call aggregate demand is not aggregate at all. It is a highly netted concept that excludes everything not included in the GDP calculation. I never claimed that stocks and bonds and other financial securities are a part of GDP, so you can't claim I am wrong for claiming that stocks and bonds are a part of aggregate spending (which I also call aggregate demand).

    I do not subscribe to the Keynesian/neoclassical worldview of aggregate spending and aggregate demand. You just presumed I was. Remember, I'm an Austrian, which means you cannot presume that I accept anything Keynesians claim.

    Investment is not even a final good. Investment is spending for the purposes of making subsequent sales. It is an intermediate expenditure. But that is just a confusion on the part of those who claim that physical products, even if intermediate, are final.

    Furthermore, it is precisely due to the exclusion of stocks and bonds from aggregate spending that asset bubbles are blown up by central banks. Central banks target CPI, which is an even more netted concept than GDP. By printing money hoping to raise CPI by 2% or 3% per year, it often times requires hundreds of billions of dollars of inflation, even trillions of dollars of inflation, before market participants take their additional incomes brought about by inflation and spend more money on consumer goods, thus raising the prices of consumer goods, at which point the central bank starts to reduce its inflation. But by that time, asset bubbles would have already been blown up, which is precisely why you see such a bloated financial sector today, and why it collapsed in 2008. All that inflation from the Federal Reserve System, a large part of it went into the real estate market during the last boom. But ZERO Keynesians warned that the Fed should refrain from holding rates at historical lows. ZERO Keynesians warned that the central bank is blowing up bubbles. Only the Austrians were warning about this. By the time the housing bubble was so obvious that any moron would have seen it (Bernanke still didn't), in 2005 on, it was already way too late.

    At any rate, some glimmer of hope remains for Keynesians. Many, including Paul Krugman, are calling for the central bank to target NGDP, and not CPI. This is a small improvement, but because it would still ignore stocks and bonds, and other financial securities, because it would ignore many prices, then the same weakness in targeting CPI would remain, namely, by ignoring stocks and bonds and other financial securities, the central bank would likely blow up massive economic bubbles again as they keep printing and they only observe NGDP, while stocks are skyrocketing because people are using a large portion of the inflation to speculate.

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  106. False.

    It is not some "subjective" value judgement: spending on producible commodities stimulates output and employment; spending on mere financial assets on secondary markets does not.

    Wrong. It is a subjective value judgment, because spending on stocks and bonds DOES IN FACT "stimulate output and employment." People need to be hired to trade stocks and bonds you idiot, and stocks and bonds are issued by companies that...gasp!...produce commodities.

    Production is massively improved when there is a functioning stock and bond market. The concept of the division of labor, and Ricardo's law of association, proves it. When people specialize, total gains are increased. When an individual specializes in stock and bond exchanges, that means less time has to be devoted by a firm manager in managing stock and bond issuances, and they can spend more time actually managing their firm's production. The gains by each can then be traded amongst each other, such that both are better off.

    Just as Say's law focuses on producible commodities for the good reason that these are what really drive the economy and employment, so does modern calculations of GDP.

    False. What "really" drives employment is demand for labor, not production of commodities per se. If there is a demand for labor in the stock and bond markets, then demand for stocks and bonds, and the selling of them, will enable an investment in labor and capital for stock trading to be profitable and hence value creating, if the value of the output is high enough.

    Since there are many workers, thousands of workers, in the financial industry, it means that stock and bond trading DOES stimulate production (because it enables firm managers to focus on their firm's direct production) and employment (because people need to be hired to trade stocks and bonds.

    You're simply wrong. You are making a value judgment that employment in the stock and bond industry is not "real" employment, and that because they don't directly produce tangible commodities, they aren't "stimulative."

    They do produce however. They produce a SERVICE for people. That's why they are paid to do it. Stock and bond exchanging is a service oriented production, and that is why workers are paid to exchange stocks and bonds. Are you really this dense that you didn't even know that stock and bond trading has employees who are paid to do it? Please tell me you're still trolling.

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  107. LOL.. A recession does not mean it is "poised for collapse".

    You're arguing over semantics.

    I didn't claim that a recession means it is poised for collapse.

    Again with the nonsense of ABCT.

    Again you claim it is nonsense without proving it is nonsense.

    You have not ONCE refuted ANYTHING about ABCT.

    The existence of multiple natural interest rates do not make ABCT false at all. Natural interest rates just means interest rates that would prevail in an unhampered monetary system, which means a private production of money system.

    Any recession in Germany will be caused by falling demand for its exports, with knock on effects in domestic income/spending and business uncertainty. Its budget cuts will also cause growth to fall in its domestic sectors. All perfectly explicable in terms of
    Keynesian macrotheory, not a fairy tale business cycle theory, dependent on a non-existent unique natural rate of interest.


    Again with the idiotic Keynesian worldview. No, it is not the case that ANY recession in Germany will be caused by a falling demand for its exports. The US is still the world's largest manufacturer exporter, and it did not go through the last recession because of a sudden decline in demand for its exports. It went through a boom and bust because of Greenspan's east money policy, coupled with Fannie and Freddie's, as well as the FDIC's, moral hazard, which put a large portion of Greenspan's funny money in the housing market.

    The stupid Keynesian story of sudden decline in aggregate demand does not answer why there is a sudden decline in aggregate demand in the first place.

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  108. State borrowing and spending via deficits IS stimulative, as explained to you above: because the buyers of bonds represent agents with money that is tied up in non-employment inducing spending on financial assets purchases on secondary markets.

    You changed your story AGAIN. Now you're saying "borrowing and spending VIA DEFICITS is stimulative." Before you just said that government borrowing and spending alone is stimulative, on the basis that the money would have otherwise allegedly been used for speculation, or "tied up" in stock and bond exchanges.

    Now you're adding the caveat that the borrowing and spending must be via a deficit. You idiot. Borrowing and spending are not deficit generating. Borrowing is a money receipt. Spending what is borrowed is an equal money outlay. It is exactly zero deficit creating.

    To say "borrowing and spending VIA DEFICIT" is to completely shit on how deficits are even created in the first place.

    Your confusion is resulting from an inability to reconcile contradictory concepts.

    Borrowing and spending is not "stimulative" in the Keynesian worldview, as explained above, because it just transfers money spending away from the private market, and towards the government's consumption spending. It does not increase aggregate spending. You committed the no true scotsman fallacy by claiming that some types of aggregate spending are not "stimulative" while other types are "stimulative" by referring to production and employment. But I have already shown that stock and bond trading increases productivity, and it requires WORKERS to trade stocks and bonds.

    You're just espousing a value judgement that the production and employment generated by stock and bond markets is not "real" production and employment, because it is not producing tangible commodities. But tangible commodities are not the only things that individuals value, you retard. Individuals value SERVICES as well, and firm managers do in fact VALUE the services provided by organized stock and bond exchange workers, or else they would not solicit their services in the first place.

    By firm managers issuing stock to the stock market workers, they can pay the stock market workers money to carry out the research and logistics of finding stock and bond investors, and the firm manager can focus on his firm producing goods and services.

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  109. Money spent on financial assets (and even real assets) on secondary markets is non-employment-inducing demand. That is idle money. The banks, big money market funds and pension funds thus have a vast amount of money that is essentially idle.

    False. Banks require workers. Stock and bond trading requires stock and bond trade workers. Hedge funds require hedge fund workers. The money is not "idle". The money is being valued as cash. Not spending or investing that money does not at all mean that production or employment declines. You are just fallaciously equating more nominal money spending with more productivity and employment. That is a misunderstanding of the nature of money.

    More money just increases prices. It does not increase the supply of workers or capital goods. If someone is "hoarding" money, then that means the remaining money in circulation that is being used to pay for labor and capital goods, will just result in lower prices.

    To complain that banks are just "sitting on their money", and believe that all kinds of employment and production can be generated if they just USE that money, is to completely misunderstand that investment are only made if entrepreneurs can see a DIFFERENCE BETWEEN TWO PRICES, namely, prices for output and prices for input. If current input prices are too high relative to expected output prices, then investments will simply not be made. To respond to this by saying that it's better for the government to spend money and consume out of the market's capital, than for the banks to refrain from investing until current prices fall, is just to reduce the productivity of the economy further in the future.

    That's the thing with you Keynesian yahoos. You conflate investment spending and consumer spending, and you don't care if consumer spending is so large relative to investment spending that the real economy shrinks. As long as SPENDING is taking place, that's all that matters. It is you morons who created the rust belt in the United States.

    When they switch to purchasing newly issued government bonds, money is spent by government in deficits, on purchasing commodities or paying people who will purchase commodities - employment inducing demand that increases output and real putput growth.

    That does not increase real output, because merely spending what people produce using money that is not earned, but simply acquired, does not help them. You only help them by producing goods and services yourself and selling them for money. What you are talking about is parasitical. You want an unproductive entity to just stand by with money to buy goods and services from people.

    You Keynesian morons have the mindset of the miser. Your reasoning is dominated
    by the thought of cash hoarding. You believe that one part of mankind is driven by a purposeless passion for work without reward, which requires for its fulfillment the existence of another part of mankind eager to accept reward without work. This is the meaning of the belief that one set of men desire only to produce and sell, but
    not to buy and consume, and the inference that what is required is another set of men who will buy and consume, but who will not produce and sell. In your world, the producers are imagined to produce merely for the sake of obtaining money. You stand ready to supply them with money in exchange
    for their goods — you propose either to take from them the money you believe they would not spend, and then have someone else spend it, or to print more money and allow them to accumulate paper as others acquire
    their goods.

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  110. ...in a recession it is precisely when business confidence and subjective expectations have collapsed, precisely when there is insufficient investment.

    False. In a recession, investments are still made. As long as people consume, they have to produce. As long as they produce, they have to save and invest.

    Banks would, in a recession, provided they do not lend money to the government for taxpayer financed profits, and provided they aren't given money from the printing press, would be COMPELLED to invest in low risk ventures to earn profits. Banks that just sat on their cash would go bankrupt, and banks that did not sit on their cash would take over the assets from those who did.

    The market process does not cease operating just because there is a recession or depression.

    http://research.stlouisfed.org/fred2/graph/fredgraph.pdf?id=LOANINV

    Banks were loaning money all throughout the last recession which was the largest since the 1930s.

    ReplyDelete
  111. "What "really" drives employment is demand for labor, not production of commodities per se. "

    False.
    Effective demand for producible commodities - and the expectation of such demand by business - is what drives production and employment.

    ReplyDelete
  112. LOL... cite me evidence from J. B. Say or nay other 19th century advocate of Say's law to prove that financial asset exchanges are "included in Say's law".

    I already explained to your ignorant arse that the idea behind Say's Law is separate from the nonsensical issue of whether or not stocks and bonds should or should not be "included" in it.

    It doesn't matter whether you include or not include stocks and bonds in Say's Law.

    Say's Law is totally separate from the fallacious claim you made regarding aggregate spending, and what types of spending are "stimulative" whereas other types of spending are "not stimulative."

    Keynes didn't even hold Say's Law to be true, and here you are claiming that I must include Say's Law. You're hopelessly confused.

    Say's Law is, again, just a refutation of a common prejudice and bias that prevailed at the time James Mill originally formulated it. It is the idea that goods and services are ultimately exchanged for, paid for, by other goods and services.

    Someone who buys a hamburger, is ultimately paying for it by selling a bond, if he is a bond seller. Someone who buys a computer, is ultimately paying for it by selling shoes, if he is a shoe seller. And so on.

    ANYTHING that is exchanged for money is productive in the sound economic worldview that only the Austrians understand. You idiotic Keynesians arbitrarily exclude and include various things sold for money because you don't understand the division of labor.

    ReplyDelete
  113. "You conflate investment spending and consumer spending, and you don't care if consumer spending is so large relative to investment spending that the real economy shrinks."

    False. Keynesian economics put emphasis on state investment in public works and infrastructure as a method of stimulus.

    ReplyDelete
  114. Note carefully:

    GDP = C + I + G + (X-M)

    Red herring.

    You're presupposing your own argument by claiming that GDP spending is the only "true" spending that "stimulates" production and employment.

    Stock and bond trading boosts productivity according to principle of division of labor, and it also boosts employment because workers need to be hired to trade stocks and bonds. Banks have employees. They are not just buildings with capitalists in them. There are far more employees than capitalists at ANY large bank or financial firm.

    According to Baumol (1977: 146),

    Red herring, and fallacy of authority.

    Again, according to Baumol (1977: 146),

    Again, red herring and fallacy of authority.

    Merely quoting someone who says the same thing as you does not constitute a proper justification for what you are arguing.

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  115. "You have not ONCE refuted ANYTHING about ABCT."

    LOL.. Sraffa refuted it in 1932. Since then Austrians have been flogging a deep horse:

    Murphy, at least, has the honesty to admit this:

    “In his brief remarks, Hayek certainly did not fully reconcile his analysis of the trade cycle with the possibility of multiple own-rates of interest. Moreover, Hayek never did so later in his career. His Pure Theory of Capital (1975 [1941]) explicitly avoided monetary complications, and he never returned to the matter. Unfortunately, Hayek’s successors have made no progress on this issue, and in fact, have muddled the discussion. As I will show in the case of Ludwig Lachmann—the most prolific Austrian writer on the Sraffa-Hayek dispute over own-rates of interest—modern Austrians not only have failed to resolve the problem raised by Sraffa, but in fact no longer even recognize it.
    Murphy, “Multiple Interest Rates and Austrian Business Cycle Theory,” pp. 11–12).

    ReplyDelete
  116. "The existence of multiple natural interest rates do not make ABCT false at all. "

    Yes, it does, the whole theory coems crashing down.

    ReplyDelete
  117. The money used to buy bonds is not being spent on producible commodities, but on non-employment inducing spending on financial assets.

    False. Stock and bond selling requires workers, just like shoe selling requires workers.

    Tangible commodities are not the only things that require labor you idiot. SERVICES require labor as well. Stock and bond selling is a service that stimulates employment in the stock and bond markets.

    Ever watch an exchange floor, ever walk into a hedge fund, ever walk into a bank? There are workers all over the place you idiot.

    ReplyDelete
  118. "The stupid Keynesian story of sudden decline in aggregate demand does not answer why there is a sudden decline in aggregate demand in the first place."

    The US cycle of 2001-2009 is explained by Hyman Minsky's as financial instability hypothesis, just as the 1929-1933 depression is.

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  119. Also, public goods and services ARE produced by government, i.e., public works, infrastructure, law and order, fire fighters etc.

    They are not productive ventures. They are consumption ventures, no matter how large and complex they happen to be. In a division of labor, monetary economy, the only productive ventures are those expenditures made for the purposes of making subsequent sales, that is, for profit.

    Corporations, firms, sole proprietors, and other business ventures are society's only productive ventures. Everyone not earning money is a dependent consumer, and everyone not earning money but acquires money through coercion, like petty thieves, burglars, and the state, are parasites.

    ReplyDelete
  120. "You are making a value judgment that employment in the stock and bond industry is not "real" employment, and that because they don't directly produce tangible commodities, they aren't "stimulative.""

    Another straw man. Employment in the stock and bond industry is "real" employment, but its existence does not invalidate the truth that is effective demand and purchasing of commodities that drives output and production, not purchasing of assets.

    LOL.. if every spending act was merely buying and selling an asset on a secondary market, production of commodities would collapse. We'd starve. Then try eating your worthless bits of paper called financial assets and see if you can live without production of commodities.

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  121. You changed your story AGAIN. Now you're saying "borrowing and spending VIA DEFICITS is stimulative."

    False.
    That is the original point made above at the beginning of the post:

    to gauge the effects of fiscal policy in any particular year and to see whether it was expansionary or contractionary, one must look at

    (1) the size of the deficit and whether there was increased spending done via deficits, not just the size of spending per se;
    (2) whether tax policy changed and if revenues rose owing to tax increases, and
    (3) not just federal spending by itself, but total government spending at the local, state and federal level, to see if the net effect of deficit spending was expansionary.


    Your pathetic ramblings remind of your debate with Murphy (which I read) over Murphy's support for a monetary theory of the interest rates: you spin endless red herring and straw man arguments, non sequiturs, and when that does not work, just end up inventing things.

    ReplyDelete
  122. It also provides public goods and services, i.e., public works, infrastructure, law and order, fire fighters, health care, etc.

    Only by taking from the market via coercion, which means everything the government "provides" is a consumption, not a production.

    All public goods and services.

    I know you idiot. My point is that you were wrong to claim that money taken from from the banks and used to "provide public goods and services" is "stimulative" in the sense of creating new production and new employment.

    Money taken from the banks means they have less money to pay employees, and less money to buy stocks and bonds, which stimulates workers in the stock and bond trading industry.

    You're now changing your story AGAIN, claiming something completely different, once again, and now saying that because the government spending goes to spending money on "public goods and services," that it is "stimulative" to production and employment. But you're ignoring the costs of decreased production and employment that made such spending possible.

    By taxing "big banks", the government is reducing the production and employment that banking makes possible, and increases consumption of resources that make medicare and medicaid and social security possible.

    You also forget Keynesian stimulus also public infrastructure spending, roads, bridges, highways, etc, from which the private sector benefits tremendously.

    You can't claim that they benefit the private sector by more than what otherwise would have benefited the private sector if the private sector was not taxed and roads, bridges and highways were open to private competition instead. You are ignoring the costs and pretending that government can create wealth out of thin air by the mere taxing and spending.

    Yes, roads and bridges and highways are beneficial, but that doesn't mean that all roads, bridges and highways the government finances are a net gain to society. The government cannot know because they do not operate in a framework of profit and loss. They simply take people's money and then spend it. They cannot know if what they are doing is creating a net gain, and in reality, they are creating a net loss, precisely because the money has to be coercively taken from the private sector.

    Since these public goods are free at the point of delivery there is no private profit markup that woudl make them far more expensive if the private sector provided them.

    It is precisely because they are free at the point of delivery that they are consumption ventures and not investment ventures. They require others to produce for the government so that the government can consume with those resources. The government is a dependent consumer, not an investor.

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  123. You have just contradicted yourself completely:

    Your statement 1:
    (1)
    " are not productive ventures. They are consumption ventures, no matter how large and complex they happen to be. In a division of labor, monetary economy, the only productive ventures are those expenditures made for the purposes of making subsequent sales, that is, for profit.

    Corporations, firms, sole proprietors, and other business ventures are society's only productive ventures.


    Your statement 2:
    (2)
    "In your world, the producers are imagined to produce merely for the sake of obtaining money. etc. etc.

    In (1) you say that only ventures that get a profit can be "productive". But in (2) deny that production is done for sake of getting a profit.

    Incoherent nonsense.

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  124. "Also, public goods and services ARE produced by government, i.e., public works, infrastructure, law and order, fire fighters etc.

    They are not productive ventures. They are consumption ventures, no matter how large and complex they happen to be.


    False. Public goods such as roads, bridges, highways etc. are very productive, providing a service and good, facilitating private commerce and transport, just as a private road would. The only difference is public goods require no private profit markup. We pay for public goods via taxation.

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  125. Money lent to the government is therefore NOT money that goes from non-commodity production to commodity production. It is money that goes from commodity production to non-commodity consumption.

    False. For reasons noted above.

    No, your "reasons" have been shown to be fallacious. You are ignoring the costs and only focusing on the superficial subjective gains that you are trying to claim myself and everyone benefits from. Only the individual can determine whether gains are made, and gains and losses are only relevant at the individual level. Gains and losses are not related to groups of people. They are related to the individual only.

    The only way you can know whether the individual gained or lost is by observing their unhampered actions and what they do with their earnings. By taxing them, you immediately remove your ability to know whether or not the resulting spending from that taxation benefits them or not. In fact, because the tax is coercively acquires, it is a definite loss to the individual. The only way you can know the individual gains is by letting the individual decide for himself whether he will pay taxes or not, and then conclude that if they do pay money to the government voluntarily, they must be deriving gains from it. But that is not what happens. Money is coercively taken, not voluntarily asked for, and so it is necessarily loss generating, EVEN IF you can point to a road or bridge and see people driving on them.

    There is no difference in the above and me stealing your money, and financing the construction of a lemonade stand, and offer free lemonade to people who walk by, and then concluding that because people are accepting it, my whole operation must be generating "gains to society."

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  126. Yeah, Keynesians know that private sector commodities are produced in the private sector.

    No, I said that COMMODITIES are produced in the private sector, not private commodities are produced in the private sector.

    Government wants to pay people to build a road? They need to take money from the private market, and they need to acquire resources from the private market. The private market supports the government, not the other way around.

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  127. "Tangible commodities are not the only things that require labor you idiot. SERVICES require labor as well.

    LOL... whenever I refer to "commodities" I use it in its traditional sense of "goods and services" (which includes non tangible goods) - one of the standard definitions in any economics dictionary or textbook.

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  128. The US cycle of 2001-2009 is explained by Hyman Minsky's as financial instability hypothesis, just as the 1929-1933 depression is.

    No, it is not explained by Minsky's financial instability hypothesis. Minsky's financial instability hypothesis is just a sloppy ex-post facto interpretation of booms and busts that are explained by the Austrian theory of the business cycle. Minsky cannot explain WHY the financial sector should become unstable. He just ad hoc claims they do.

    ReplyDelete
  129. "In a recession, investments are still made. As long as people consume, they have to produce. As long as they produce, they have to save and invest. .. etc

    All a long straw man.

    My comment was that "in a recession it is precisely when business confidence and subjective expectations have collapsed, precisely when there is insufficient investment."

    Note the word "insufficient" - that of course means that some investment is being done, the point is it is not enough to bring down unemployment.

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  130. "Banks were loaning money all throughout the last recession which was the largest since the 1930s."

    = Straw man
    Nowhere above is there any assertion that banks were lending zero funds.

    ReplyDelete
  131. "Money is coercively taken, not voluntarily asked for, and so it is necessarily loss generating, EVEN IF you can point to a road or bridge and see people driving on them."

    I see. So now you have to change the issue to ethics.

    No doubt to the idiocy of Rothbardian natural rights theory, huh?:

    http://socialdemocracy21stcentury.blogspot.com/2011/08/rothbards-argument-for-natural-rights.html

    ReplyDelete
  132. "You're now changing your story AGAIN, claiming something completely different, once again, and now saying that because the government spending goes to spending money on "public goods and services," that it is "stimulative" to production and employment. But you're ignoring the costs of decreased production and employment that made such spending possible."

    The fable of Ricardian equivalence.
    Also the assumption of an economy at full employment without idle resources.

    ReplyDelete
  133. "Government wants to pay people to build a road? They need to take money from the private market, and they need to acquire resources from the private market. The private market supports the government, not the other way around.

    The same argument applies to ANY private sector investment:

    "A private capitalist wants to pay people to build a road!!? He needs to take money from the private market, and he needs to acquire resources from the private market!! The private market supports the private capitalist, not the other way around."

    A trivial fact that is a red herring.

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  134. "You are making a value judgment that employment in the stock and bond industry is not "real" employment, and that because they don't directly produce tangible commodities, they aren't "stimulative.""

    Another straw man. Employment in the stock and bond industry is "real" employment, but its existence does not invalidate the truth that is effective demand and purchasing of commodities that drives output and production, not purchasing of assets.

    It was not a straw man. It followed from what you said. You are now just changing your story AGAIN. You are contradicting yourself. Now you are admitting that buying and selling stocks and bonds does stimulate employment, whereas before you denied it, but you're still clinging to the remaining myth that it does not stimulate production of real commodities. That means you only need to contradict yourself once more, namely contradicting yourself and admitting that stock and bond exchanges increases productivity of real commodities, and you will finally be correct.

    So let's explore that remaining myth you are clinging to. Suppose I am a sole manager of a company that manufactures shoes. I expect to be able to grow my company in the future, and I would like to invest a sum of money in buying more space and buying more materials and labor. I could reinvest out of my profits, but if my profits are not currently high enough, then I would have to find investors. I don't know much about the investor market, because I just produce shoes. I could spend onerous amounts of time doing research myself, but that would detract from my ability to produce shoes. If someone else is available, I could pay them to do the research for me, money that is less that what I would lose by focusing on research myself and forgetting about running my company, and issue stocks and/or bonds on my behalf. That way, I can save time and not sacrifice my production of shoes.

    After a month, the person I hired comes back and says they found an investor who is willing to invest in my company, and hence I am able to not only expand my production, but I did not have to sacrifice production in the meantime. I just paid the person to do the work for me. Therefore, total production has increased because of specialization. Not only is the person I hired a WORKER, but their stock and bond exchanging increased productivity of real goods.

    Now, this is an introduction on the basics of investment. I had to keep this basic because you're a stupid fucking shit for brains. The next step is to explain how stock and bond speculation increases production of real goods. I'll do that in my next post if you'd like. I guarantee you will capitulate and contradict yourself here, just like I got you to contradict yourself and admit that stock and bond exchanges stimulates employment.

    ReplyDelete
  135. "Yes, roads and bridges and highways are beneficial,

    Correct

    but that doesn't mean that all roads, bridges and highways the government finances are a net gain to society."

    Another red herring. Nowhere above is it stated that "all roads, bridges and highways the government finances are a net gain to society".

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  136. "So let's explore that remaining myth you are clinging to. Suppose I am a sole manager of a company that manufactures shoes. I expect to be able to grow my company in the future, and I would like to invest a sum of money in buying more space and buying more materials and labor. etc"

    Your example in no way invalidates the assertion that effective demand for commodities and purchasing of commodities drives production and output.

    The sole manager's purchasing of the services of the person he hired is nothing but an axample of effective demand. The employee's service IS a commodity.

    ReplyDelete
  137. LOL.. if every spending act was merely buying and selling an asset on a secondary market, production of commodities would collapse. We'd starve. Then try eating your worthless bits of paper called financial assets and see if you can live without production of commodities.

    Non sequitur straw man. I never said that there should be 100% spending on financial assets only. You're just unable to integrate financial asset exchanges into your worldview because your worldview is irrational, and so the only recourse is to spew out these ridiculous straw man non sequiturs that what I am saying implies that production can take place with only financial asset exchanges.

    Just like production in a division of labor society would decline if people started to only buy and sell coconuts, so too would productivity decline if people started to only buy and sell stocks and bonds.

    If people started to only buy and sell computers, then production would decline.

    If people started to only buy and sell broccoli, then production would decline.

    You can't make the argument that production would decline if people started to buy and sell only stocks and bonds, and pretend that such a ridiculous thought experiment in any way detracts from my division of labor argument, any more than my thought experiment of coconuts, computers, and broccoli constitute a rebuttal against the idea that real goods and services are ultimately where people derive their utility as consumers.

    The concept of the division of labor can show us how gains can be made with the presence of those who buy and sell stocks and bonds. Nobody is claiming that they alone can produce real commodities. They provide a service, much like an accountant, consultant, and research and development scientist provides a service.

    Buy earning money, they are necessarily productive in the division of labor. You need to open your sphere of consciousness away from non-division of labor, barter society thinking, and towards what the implications are for a division of labor, monetary economy. A division of labor monetary economy enables MORE specialization that makes the overall economy more and more productive. It enables such specialization, that people can make money by giving talks, or exchanging stocks and bonds. VALUE IS SUBJECTIVE, both to the person who pays money in exchange for something, and to the person who pays some non-money object or service in exchange for money.

    If someone can earn money in the division of labor by doing ANYTHING AT ALL, then they are being productive.

    Humans desire more than just bricks and mortar goods you idiot. They desire all kinds of things besides bricks and mortar goods.

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  138. That is the original point made above at the beginning of the post:

    Money spent that is borrowed is not deficit generating. It does not contribute to the deficit, because money receipts would be equal to money outlays.

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  139. The services provided by financial institutions and broker-dealers are a commodity, so most of comments above are a red herring at best.

    It is nowhere said above that service are not commodities.

    Effective/aggregrate demand for producible commodities is what drives output and employment.

    The purchasing of financial assets on secondary markets is, as said above, very different from purchasing of producible commodities. Yes, if there was a massive surge in demand for financial assets on secondary markets that would create some more employment in financial institutions and broker-dealers. The employment created would be trivial, and certainly not enough to employ the millions thrown out of work by the resulting collapse of other businesses producing commodities.

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  140. Your statement 1:

    (1)" are not productive ventures. They are consumption ventures, no matter how large and complex they happen to be. In a division of labor, monetary economy, the only productive ventures are those expenditures made for the purposes of making subsequent sales, that is, for profit.

    Corporations, firms, sole proprietors, and other business ventures are society's only productive ventures.

    Your statement 2:

    (2)"In your world, the producers are imagined to produce merely for the sake of obtaining money. etc. etc.

    In (1) you say that only ventures that get a profit can be "productive". But in (2) deny that production is done for sake of getting a profit.

    No, you're utterly confused.

    These two statements cannot possibly imply I contradicted myself. They are referring to what two different people said, namely myself and you. The first is MY position. The second is I am arguing is YOUR position. If there is any contradiction between these two statements, then they would not be me contradicting myself, it would be my position contradicting YOUR position.

    Yes, production in the private market is meant for the purposes of making a profit, but they want to earn profits so as to ultimately CONSUME more. Producers do not produce for the sake of earning money ONLY. They produce for profit, so that they can consume more. By investing their money and earning a profit, they can forsake present consumption so as to consume more in the future.

    Producers sell goods and services because they ultimately want to consume other producer's goods and services.

    However, this truth goes over your head. In your worldview, which is why I said (2), implies that producers produce SOLELY to earn money...and that's it. As long as they can earn money, then that's all they ultimately want. That's why you have the pathology of a miser, who believes that as long as there are entities in society who merely spend money on producer's products, that they are really helping the producers. But they are not. People benefit each other through their productivity, not their mere spending of money. Yes, producers want to earn money, but it's ultimately so that the producer can consume more.

    By introducing an entity that just spends money and does not produce, they are not helping the private market at all. They are acting as parasites, because yes, while they are spending money on producer's products, they are not producing anything themselves (meaning producing at a profit). The market is only about private producers (meaning those who earn money by selling something for money) exchanging their goods and services with each other. Everyone else, and I mean everyone else, are either dependent consumers, or aggressive parasites. Dependent consumers would be children, and receivers of charity. Aggressive parasites would be the people you Keynesian doorknobs are cheering on to spend for the sake of spending, namely the state.

    You want the individuals in the state to consume and benefit themselves, without producing anything themselves through market exchange earnings.

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  141. "Money spent that is borrowed is not deficit generating. "

    LOL... and the sky is red on a clear day?

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  142. Public goods such as roads, bridges, highways etc. are very productive, providing a service and good, facilitating private commerce and transport, just as a private road would. The only difference is public goods require no private profit markup. We pay for public goods via taxation.

    False. You cannot know that they are productive unless you economically calculate them to be productive you yahoo, meaning there is a profit earned. Only by comparing the PRICES of output with the PRICES of input, can you ever know whether a physical venture like roads or bridges or whatever, are productive and creating value and not consumptive and incurring losses.

    Since you admit that the government provides roads and bridges at a zero price, there is nothing to compare the money costs in producing the roads and bridges. There is just how much the government spends, and that's it. There is no direct revenue earned from offering roads and bridges to those who use them.

    Therefore, you are once again interjecting a personal subjective value judgment when you claim that roads and bridges are "productive".

    What if the materials and resources used in building a road or a bridge are more urgently needed elsewhere? The government would not know because they do not operate in a context of profit and loss.

    So you're full of shit to claim to me that "public goods" are "productive."

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  143. "Money spent that is borrowed is not deficit generating. "

    LOL... and the sky is red on a clear day?

    HAHAHAHAHAHA, you are so stupid that you actually think that money in equaling money out is deficit creating.

    No you moron. A deficit can only occur if money out is GREATER than money in. Please tell me you're just trolling. If not, you have got to be the dumbest bag of hammers in the whole blogosphere.

    If the government spends what it borrows, then that is not deficit creating because it generates an equality between money in and money out.

    If the government spends less than it borrows, then that is surplus generating.

    If the government spends more than it borrows, then that is deficit generating.

    If the government spends the same amount that it taxes, then that is neither deficit nor surplus generating.

    Do I need to go on or are you going to cease making a total ass of yourself?

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  144. "Only by comparing the PRICES of output with the PRICES of input, can you ever know whether a physical venture like roads or bridges or whatever, are productive and creating value and not consumptive and incurring losses."

    Value is subjective! Its consists in the satisfaction/pleasure/utility gained by agents from consuming a good.

    So now you are changing the definition of economic value to make it objective, by calculating whether it earns a profit in money terms (price of good - cost of production)?

    Therefore, you are once again interjecting a personal subjective value judgment when you claim that roads and bridges are "productive"

    "Subjective value judgments" ARE the nature of economic value.

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  145. "You cannot know that they are productive unless you economically calculate them to be productive you yahoo, meaning there is a profit earned."

    And anyway, there is no reason why a nationalised enterprise cannot be run for profit. There are many state-owned/nationalised enterprises that are proft making and very successful even by your criterion:

    (1) Singapore Airlines
    (2) PSA International
    (3) Neptune Orient Lines
    (4) Chartered Semiconductor Manufacturing
    (5) Sing Tel
    (6) SembCorp
    (7) Petrobras
    (8) CODELCO (Corporación Nacional del Cobre de Chile), biggest copper company in the world
    (9) LKAB (Luossavaara-Kiirunavaara Aktiebolag)
    (10) Air India Limited
    (11) China National Offshore Oil Corporation
    (12) Anshan Iron and Steel Corp.

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  146. The services provided by financial institutions and broker-dealers are a commodity...

    Hahaha, now you're changing your story AGAIN. How many times is this? 5? 6?

    Now you're just playing semantics. Services, commodities, whatever. The point is that they are all value generating if they earn money. Workers who buy and sell stocks and bonds and other financial securities are employed because of the services they provide to others in buying and selling financial securities. You originally fallaciously claimed that this does not stimulate employment, when it does. Now you're still in the denial that it boosts productivity. I've already shown how it does boost productivity in the most basic of examples, now it's up to you to contradict the other half of your original fallacious claim.

    It is nowhere said above that service are not commodities.

    Whatever.

    Effective/aggregrate demand for producible commodities is what drives output and employment.

    No, what drives employment is the demand for labor you idiot, not demand for output.

    "Demand for commodities is not demand for labor." - John Stuart Mill.

    You are just espousing the same consumptionist/Keynesian worldview that aggregate demand drives everything, when in the case of production and employment, it is saving and investment that drive it. Aggregate spending comes out of the money earned by those who are producing. The economy does not need an external entity that only spends without producing, to give a reason for producers to produce. Producers produce so that they can ultimately, using money as a medium of exchange, consume other producers products. If there is an external entity that just spends and does not produce, such as petty thieves, or the government, then that does not increase productivity, and only reduces it. It results in producers producing for no reward. Yes, they are earning nominal dollars, but those dollars will have lower purchasing power than they otherwise would have had if the entity spending the money first produced something of value in order to acquire the money.

    The government does not produce anything. They only spend money and consumer resources, and redirect existing resources from where they would have been to where the government wants them. There is no net gain at all in this process of merely spending.

    The only way that the government would be a net producer would be if they acquired their money through voluntary exchange, by providing something to people first, and then asking them if they would like to pay for it on their own recognizance. But that is not what the government currently does. They simply TAKE people's money, and then the government spends it on themselves, and they give it to their friends like no bid unions who build roads and bridges, or to their corporate friends in Wall Street, or to former military personnel who now run military contracting companies, or to voters who demand free healthcare at other people's expense, or to old people who were forced to pay into social security whether they wanted to or not.

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  147. The purchasing of financial assets on secondary markets is, as said above, very different from purchasing of producible commodities. Yes, if there was a massive surge in demand for financial assets on secondary markets that would create some more employment in financial institutions and broker-dealers.

    Hahahaha, your shit has clearly been exposed, and now you're saying that only a "massive" increase in the demand for stocks will there be an increased demand for employment.

    But that is again just you making an anti-economic judgment that says "the money being traded is "too large" relative to the number of people employed. "SHARE" some of that money, or else I'll advocate that the government steal it and build bridges to nowhere."

    But that is not how economics works. It does not matter at all what the prices are for the things traded. What matters is economic calculation. Profit and loss. If the profits are gigantic, then, in a laissez-faire market, that would attract more investment, and more labor, into that market. But the prices of the stocks and bonds traded does not mean that this is money the traders are earning. They earn fees. The prices of the stock and bonds generate earnings for stock and bond investors, who are putting up their own money to buy them.

    How much employment is needed to facilitate these exchanges is entirely dependent on the demand for labor in the industry. If there is a (temporary) labor surplus, then the demand for labor will decline, and if there is a (temporary) labor shortage, then the demand for labor will rise.

    So your statement that:

    The employment created would be trivial, and certainly not enough to employ the millions thrown out of work by the resulting collapse of other businesses producing commodities.

    Is laughable and absurd. Just because there are millions of unemployed people, then that doesn't mean the solution is to find the largest sources of money, extract it by violent confiscation, and then spend it on public works. If there are millions of people unemployed, then you have to look at what is supporting them, and why they aren't taking lower paying jobs, and what, if any, barriers are preventing them from working even if they want to.

    To the Keynesian, it's always a shortage of money and spending. No matter what problems arise, the solution is to print and spend more. To throw money at it.

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  148. "You are just espousing the same consumptionist/Keynesian worldview that aggregate demand drives everything, when in the case of production and employment, it is saving and investment that drive it."

    By adhering to the subjective value theory, that consumers buy goods to satisfy their subjective utility preferences, you already committed to the view that demand drives product.

    "No, what drives employment is the demand for labor"

    A bizarre quasi-Marxist view. Private businesses can deamnd all the labour they want making some commodity, but if no one wants that commodity it is all a waste of time.

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  149. Your example in no way invalidates the assertion that effective demand for commodities and purchasing of commodities drives production and output.

    It doesn't have to. The assertion that demand for commodities (output) is refuted by the simple fact that by buying commodities, one is not buying labor. Only by ABSTAINING from buying commodities, and making earnings available to buy labor, is one driving employment up. Similarly, by buying output, one is also not making an investment. The only way that a commodity can be produced is if there is an abstaining from consuming all commodities, and instead there is investment in the production of that commodity, meaning the producer buys materials and other capital goods, and perhaps even labor as well.

    Capitalists pay wages, not consumers.

    The sole manager's purchasing of the services of the person he hired is nothing but an axample of effective demand. The employee's service IS a commodity.

    Semantics. The services he buys is NOT consumption. It is not a final good. It is an investment. I call it a service, you call it a commodity. Your definition is absurd, because commodities are typically defined as tangible objects, goods, not intangible services, and in addition, commodities are typically defined as having fungibility, meaning it doesn't matter who produces it, because no matter who produced it, it's the same. Gold is a commodity because no matter who produces it, it's the same. Financial services are NOT fungible, because some service providers are much better, i.e. different, than other service providers. Not all stock traders are created equal.

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  150. "Just because there are millions of unemployed people, then that doesn't mean the solution is to find the largest sources of money, extract it by violent confiscation, and then spend it on public works."

    Begging the question by assuming that tax is theft etc. The natural rights ethics required for that argument is false.

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  151. "The only way that the government would be a net producer would be if they acquired their money through voluntary exchange, by providing something to people first, and then asking them if they would like to pay for it on their own recognizance."

    Again, you're introducing flawed ethics into your arguments.

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  152. "Yes, roads and bridges and highways are beneficial, but that doesn't mean that all roads, bridges and highways the government finances are a net gain to society."

    Another red herring. Nowhere above is it stated that "all roads, bridges and highways the government finances are a net gain to society".

    Hahahahahaha, you said roads and bridges create gains without qualification, which in the English language means you said all roads and bridges create gains.

    The point is that you can't know, contrary to your claim that you can know, if ANY road creates a net gain instead of a loss, because it is not built in a context of profit and loss, i.e. market exchanges. Only if you can compare the prices of output with the prices of input, can you know if a venture created value, or lost value.

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  153. "The government does not produce anything. They only spend money and consumer resources, and redirect existing resources from where they would have been to where the government wants them."

    Blatantly false. The state produces public goods, law and order, public works, infrastructure, outside the US health care in universal systems. Since it is easy to verify that people derive subjective utility from these goods, even in the Austrian/neoclassical sense, they create value.

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  154. Only by ABSTAINING from buying commodities, and making earnings available to buy labor, is one driving employment up. Similarly, by buying output, one is also not making an investment. The only way that a commodity can be produced is if there is an abstaining from consuming all commodities, and instead there is investment in the production of that commodity, meaning the producer buys materials and other capital goods, and perhaps even labor as well.

    All dependent on an assumption of an economy with no unemployment, idle resources and no unused capacity and not open to international trade.

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  155. By adhering to the subjective value theory, that consumers buy goods to satisfy their subjective utility preferences, you already committed to the view that demand drives product.

    No, that does not follow. You're now not understanding the reconciliation between the marginalist revolution of value of output deriving the value of input, and the classical economics concept that is not rejected in Austrian economics, which is that what drives production is saving and investment, not consumption.

    Consumers do determine, by their purchasing habits, the RELATIVE values of inputs such as capital and consumer goods. In other words, firm to firm, the dependency is on the consumers to demand goods. But in the aggregate, consumers have no choice but to consume, and they must consume from what is produced. In the aggregate, consumers depend fully on producers.

    If there is an economy that consists of an area of "natural" land, and there are a million people standing there wanting to consume, and they all have paper money in their hands, say $10 million each, then NOTHING will get produced by the mere fact that they stand there with a monetary demand for consumer goods. It doesn't matter how loud they yell, or how much money they are willing to spend, not a single thing will get produced on the basis of the monetary demand for goods alone.

    The only way anything will get produced, is if people, while they did consume whatever is naturally available to keep them alive, to abstain from consuming, either through not spending money on consumer goods, or not spending time finding something to consume, and instead devoted time, money and their labor to producing capital goods that can then be used to produce more consumer goods. In the aggregate, the million people can only consume more if people produce more, and the only way people can produce more, is not by consuming more, because that will shrink the economy, but by producing more, which requires saving and investment.

    In the aggregate, consumer spending, and all other types of spending (capital and labor) are in direct competition with each other. In the aggregate, the more that is spent on consumption, the less that is available to pay for capital goods and labor, and everything else that has a price, like stocks and bonds.

    Keynesians have no conception of where investment comes from. They think that as long as consumption is high enough, investment will magically arise. No wonder they were shell shocked to learn that unemployment and investment remain depressed despite multi-trillion dollar government deficits the last few years. It is precisely because the government is spending so much that less money is available to be invested to buy capital and labor, which is why business is flocking overseas.

    You morons believe that as long as the government spends a ton of money, that "forces" money into private citizens' bank accounts. Sure, it does do that, but the process generated a real loss because real goods went one way, but only money went the other way. That is making us less competitive compared to the rest of the world, because while we're consuming capital like mad, other economies are producing capital. It is capital accumulation that makes economies productive and competitive, and attractive to employment. It is NOT "more money". It is REAL CAPITAL STRUCTURE that attracts further capital and further labor.

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  156. "It is not a final good. It is an investment. I call it a service, you call it a commodity.It is not a final good. It is an investment. I call it a service, you call it a commodity.

    Pointless ramblings.
    A capital good IS a commodity.
    Commodities = good and services.

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  157. "If there is an economy that consists of an area of "natural" land, and there are a million people standing there wanting to consume, and they all have paper money in their hands, say $10 million each, then NOTHING will get produced by the mere fact that they stand there with a monetary demand for consumer goods."

    That purchasing of commodities (consumer goods or capital goods) requires prior production is fact in no way in opposition to Keynesian economics.

    We dont live in this imaginary world: we live in modern capitalist economies with vast production facilities, mnay of which are idle or have significant unused capacity.
    There are idle resources (unsold stocks of commodities that businesses want to sell).
    There is high unemployment.

    Increasing aggregate demand via stimulus has as its primary effect the expansion of production and output, and employment of labour.

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  158. "No, what drives employment is the demand for labor"

    A bizarre quasi-Marxist view. Private businesses can deamnd all the labour they want making some commodity, but if no one wants that commodity it is all a waste of time.

    Hahahaha, no, it's the furthest thing from Marxism, I can assure you.

    You have it exactly backwards. People can demand a particular commodity all they want, but if there is no investment in capital and labor to produce that commodity, then they won't be able to consume such a commodity.

    The order is production then consumption, not consumption then production.

    You can have money and demand a flying house all you want, but if nobody invests in the capital and labor to produce it, then you won't be able to buy it.

    The demand to buy commodities, in a free market, comes from earnings that were generated by producing previous commodities.

    The economy does not need an external class of people whose only job is to spend money and consume. Workers can acquire demand to consume commodities by earning money through offering their labor.

    You can keep believe that without consumers, producers cannot earn an income, but consumption is a guarantee for human life. As long as humans live, they will consume. But they can't consume anything unless things are produced first.

    But production is NOT a guarantee. Production requires thinking and planning. A crude pre-humanoid ape can only consume out of what nature has given through planetary evolution. A human, if he wants to consume more, has to produce more first. Thus consumption increases depend on production increases.

    More consumer demand isn't going to increase production. That will only raise the profits of consumer goods sellers, which if used by the consumer goods sellers for their own consumption as well, will just increase the profits of other consumer goods sellers. If all consumer goods sellers just took their additional incomes and consumed with it, then there will just be a permanent increase in consumer goods profits, and no additional real production.

    But because investors chase profits, what it will do is attract scarce capital and labor away from the production of capital goods, where the relative profits are smaller, and towards the selling of consumer goods, where the profits are higher.

    THAT WILL DECREASE THE LONG TERM PRODUCTIVITY OF THE ECONOMY

    because with less investment in capital goods, there is less demand for capital goods, and with less demand for capital goods, capital goods production will decline. Since producing consumer goods vitally depends on the supply of capital goods, it means that fewer consumer goods will be produced in real terms. Sure, more money is being spent on consumption, but the real supply of consumer goods will be lower, which means prices will be higher, and people's standard of living will decline.

    In the aggregate, consumption depends on production, not the other way around.

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  159. Begging the question by assuming that tax is theft etc. The natural rights ethics required for that argument is false.

    No, that is not "begging the question" because I did not presuppose a premise in order to prove that premise true as a conclusion.

    I did not presuppose that taxation is theft in order to prove the proposition that taxation is theft. I used the premise that taxation is theft in order to conclude that government spending is not productive. That is not begging the question you idiot.

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  160. "It is precisely because the government is spending so much that less money is available to be invested to buy capital and labor, which is why business is flocking overseas."

    LOL... the banks have record excess reserves available for investment - it is businesses that are shocked by an uncertain environment, excessive debt, and particularly whether there will be sufficient demand for their output that is the major problem. Other nations that had larger and more effective stimulus packages are not suffering these problems.

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  161. "The only way that the government would be a net producer would be if they acquired their money through voluntary exchange, by providing something to people first, and then asking them if they would like to pay for it on their own recognizance."

    Again, you're introducing flawed ethics into your arguments

    You have not at all showed how I "introduced flawed ethics" into my arguments the first time, and you haven't shown how I "introduced flawed ethics" this time.

    What you quoted me as saying is not "flawed ethics" and I challenge you to show how it is flawed, without presupposing the existence of a rational ethics that are not subjective. Trust me when I say this, you will lose that argument as well. But try it and let's expose you as being irrational not only in economics, but in ethics as well.

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  162. "People can demand a particular commodity all they want, but if there is no investment in capital and labor to produce that commodity, then they won't be able to consume such a commodity."

    Correct. And all the investment, capital and labor in the world devoted to making some commodity is pointless if there is no demand for such a commodity.

    This is just back to fallacy of Say's law.

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  163. "No, that is not "begging the question" because ... etc.

    I'm afraid you do, genius:

    The fallacy of petitio principii, or "begging the question", is committed "when a proposition which requires proof is assumed without proof", or more generally denotes when an assumption is used, "in some form of the very proposition to be proved, as a premise from which to deduce it"

    http://en.wikipedia.org/wiki/Begging_the_question#Definition

    You assume your taxation is theft nonsence with no proof.

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  164. The state produces public goods, law and order, public works, infrastructure, outside the US health care in universal systems. Since it is easy to verify that people derive subjective utility from these goods, even in the Austrian/neoclassical sense, they create value.

    Utterly false. It is NOT possible to observe INDIVIDUALS deriving utility from them, because you are not observing individuals voluntarily paying their money to the state to finance these things. Taxation is not voluntary. It is mandatory, and if people don't pay them, then they will get thrown into a cage, and if they resist this further aggression, then the state will only up their aggression, and if it comes down to it, they will kill you. Taxation is, ultimately, backed by the threat of death. If you doubt this, just stop paying taxes, and defend yourself from any and all violence that comes your way from the state, and you'll know I'm right as you're gasping your last breath.

    Secondly, it's also utterly false to claim that public goods generate (net) utility to individuals in the "Austrian sense." In the logically consistent Austrian sense, only voluntary exchanges of private property can enable an individual to know whether another individual is deriving utility from what they pay for. If this is not present, then nobody can claim that utility was gained.

    The concept of revealed preference is the only way you can know the empirical truth of what others are doing. With taxation, since it is coercive and not voluntary, preferences are not able to be revealed, other than a desire to stay out of prison and/or not be killed.

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  165. "The demand to buy commodities, in a free market, comes from earnings that were generated by producing previous commodities."

    This is blatant appeal to the totally false propositions of Say's law.

    You already stumbled onto the reason why Say's law is false above, in asuming way:

    If I produce something, for money, and then I continue to hold that money and not respend it, then in principle, in your worldview, I am acting EXACTLY like a state or local government that runs a surplus. As long as ANYONE increases their cash balance over time, they are engaging in allegedly destructive "austerity measures....

    If I spend less than I earn, then I'm running a surplus, I'm introducing a recession inducing action, which must be responded to with the state printing and spending money"


    http://socialdemocracy21stcentury.blogspot.com/2011/08/debunking-catalan-on-recession-of-1937.html?showComment=1313606243901#c2098321034866444093

    The leakages from total factor payments from aggregate supply will not necessarily be spent on output in aggregate demand.

    Money has a store of value function. Liquidity preference shift money from purchasing commodities to holding money idle and purchasing of financial assets on secondary markets.

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  166. All dependent on an assumption of an economy with no unemployment, idle resources and no unused capacity and not open to international trade.

    False. I already explained above that the doctrine of idle resources is fallacious. I already recommended you read William Hutt's book "The Theory of Idle Resources."

    To repeat, idle resources cannot be targeted with government spending. Government spending necessarily affects COMPLIMENTARY resources that are NOT "idle", which by itself completely collapses the claim, and in addition, even if it were magically possible for the government to only target idle resources and not effect any non-idle resources by its spending, then it still fails, because idle resources are idle because they derive utility to the owner to be idle instead of in operation at a lower price of input and output.

    Owners of "idle" machines are holding out for higher prices, and usually they get them when the central bank inflates the currency. But if they didn't, then the owners would have to use those idle resources and incur losses, whereas those who own non-idle resources will take over ownership.

    That is economic competition, and that quickly eliminates idle resources.

    You Keynesian idiots just presume that any and all idle resources "should" be used in their previous employments, when it is almost certain that such employments are uneconomic and loss generating, which is why they are idle in the first place.

    And no, coddling to those who made investment errors, and blaming their inability to earn profits on "lack of demand", is just shifting responsibility for the sole purpose of justifying MORE government spending.

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  167. "More consumer demand isn't going to increase production"

    A tiresome caricature.

    Aggregate demand is NOT simply demand for consumer goods.

    "In macroeconomics, aggregate demand (AD) is the total demand for final goods and services in the economy (Y) at a given time and price level."

    aggregate demand = C + I + G + (X-M)

    I = investment

    http://en.wikipedia.org/wiki/Aggregate_demand

    Notice that "I", genius?

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  168. A capital good IS a commodity.

    Commodities = good and services.

    Pointless semantics. A commodity is typically defined as a tangible, fungible, object, not a service.

    That's why we say goods AND services, not just "commodities" like they did in the 19th and 18th and 17th centuries when economics as a science was relegated to the trading of real goods like rice, gold, wood, wheat, and bricks.

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  169. That purchasing of commodities (consumer goods or capital goods) requires prior production is fact in no way in opposition to Keynesian economics.

    It is in direct opposition to the bullshit you have spewed out here.

    It is also in opposition to Keynesian economics as per Keynes himself, who worried about "marginal propensity to CONSUME", instead of "marginal propensity to MAKE EXCHANGES IN MONEY", and who claimed that savings "leak" out of the economy's spending stream, instead of the truth, which is that most spending that takes place in modern economies is through savings, i.e. spending money not for the purposes of making subsequent sales.

    We dont live in this imaginary world: we live in modern capitalist economies with vast production facilities, mnay of which are idle or have significant unused capacity.

    Many of those "idle" production facilities are "idle" because they represent malinvestments caused by prior monetary manipulation.

    Should the government bail out every company that has problems selling their goods? That's the logical implications of what you're saying.

    Or you go off on the totally different track and fallaciously claim that financing roads and bridges in Nevada can help put GM in Detroit back into operation.

    The Keynesian worldview is nonsensical top to bottom.

    There are idle resources (unsold stocks of commodities that businesses want to sell).
    There is high unemployment.


    There WAS artificially low interest rates and massive credit expansion brought about by the Federal Reserve System, that lead investors to invest as if there were more real resources available than there actually was.

    If you disagree with this, then show exactly what you believe is wrong with it, instead of just claiming that "ABCT is wrong" or citing various authorities. SHOW ME by argument what is wrong with what I said above. No, the existence of multiple natural interest rates does NOT in ANY WAY threaten what I said, because the Federal Reserve System brings about an artificial reduction in interest rates across maturities and industrial sectors, which generates malinvestment. It is not necessary for there to be a single natural interest rate in order for the core elements of the Austrian theory to be correct. This is because the natural interest rate or rates is or are UNOBSERVABLE in central bank economics. Just because Mises and Rothbard used "natural interest rate" as a placeholder to represent that which otherwise would have existed had the central bank not brought interest rates down, does not mean that the whole ABCT collapses. It just means that instead of saying "natural interest rate" they should say "natural interest rates". Everything else is the same and no contradictions would be implied.

    Increasing aggregate demand via stimulus has as its primary effect the expansion of production and output, and employment of labour.

    No, it does not. It has the effect of creating an initial loss through unproductive consumption spending, and if any money that is acquired through such government spending is later invested in capital and labor, then it can never replace and more than replace the initial loss, the way private investment replaces and more than replaces capital goods in the production process.

    Spending does not stimulate aggregate production. It just redirects resources from here to there, from where they are more highly valued to where they are less highly valued, from a voluntary exchange context.

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  170. "A commodity is typically defined as a tangible, fungible, object, not a service."

    False, the word "commodity" has had for over 150 years its accepted meaning simply "all goods and services":

    "commodity
    1. In economic theory, all subjects of production and exchange, ie. all goods and services."

    Dictionary of business, p. 63.

    Also standard usage outside of economics:

    "A commodity is any good or service produced in order to sell or otherwise exchange it for something else in a MARKET system"
    Allan G. Johnson, Blackwell dictionary of sociology: a user's guide to sociological language, p. 51

    "Accordingly, a commodity can be defined as: any good or service that members of a society can conceive culturally as a separate class of goods having primarily intrinsic or exchange-value, as opposed to use-value"...

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  171. the banks have record excess reserves available for investment - it is businesses that are shocked by an uncertain environment, excessive debt, and particularly whether there will be sufficient demand for their output that is the major problem. Other nations that had larger and more effective stimulus packages are not suffering these problems.

    Utterly false.

    The reason US banks have record reserves is because the Fed has printed record amounts of new money (bank reserves), which is what the Keynesians wanted.

    Just because they have more cash, that doesn't mean investment is attractive. The economy has to go through correction first, before investment becomes attractive once again. It's not a demand problem. There is more aggregate demand today than at any time in the history of the US, and yet unemployment is remains high. Obviously it cannot be a demand problem, but a relative price and capital structure problem.

    Europe is going through more problems than we are. For example, in France unemployment is way higher than it is in the US. In Germany, same thing. Their growth rate is lower than the US as well.

    But it is wrong to compare them anyway. The US has its own problems, and can only be solved by doing what needs to be done to fix it, not mimic other economies that have their own problems that require their own solutions.

    In the US, the problem is waaaaaaaaaaaaaay too much government spending, borrowing, regulation, and inflation. The US became the world's most dominant economy because of little government spending, little borrowing, little regulation, and little inflation. Now we're doing the exact opposite, and that is why the US economy is in the tank.

    The problem of the US economy is not that there is not enough money demand for products. That is a SYMPTOM of the underlying structural problems that has been brought about by decades of fiat money inflation.

    You simply have no idea what is in store for the US economy. You are going to hit reality like a mosquito hits a mack truck on the freeway. I can tell you that the US economy is going to go through the worst periods in its history. The Keynesians just wouldn't let the economy correct. They see an idle resource, and they print money. They see unemployed people, and they print money. They see anything wrong, and they print money. All that delaying of correction has created such a distorted economy, that right now, the US economy is completely and utterly dependent on the solvency and trust of the US government, which is able to keep the corrections from occurring by borrowing and spending money from foreign lenders.

    You just wait for when this shell game is finished. I hope you have bars on your windows, because it is going to get VERY ugly.

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  172. "To repeat, idle resources cannot be targeted with government spending."

    LOL! Of course, it can: unemployment is the most obvious example of how govenrment uses idle resources.

    "because idle resources are idle because they derive utility to the owner to be idle instead of in operation at a lower price of input and output."

    I am afraid not: they are idle because there are usually no buyers for them. The owners would love to sell them.

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  173. Correct. And all the investment, capital and labor in the world devoted to making some commodity is pointless if there is no demand for such a commodity.

    All the demand, need, desire, and want to consume a commodity is pointless if there is no producer to save and invest and produce that commodity.

    This is just back to fallacy of Say's law.

    No, that is just Keynes' fallacious understanding of Say's Law.

    Say's Law DOES NOT claim that every single thing produced will have a ready and willing demand for it. That is Keynes' erroneous conception of Say's Law. Say's Law actually states that supply creates its own demand in the aggregate, with the proviso that all the production projects are in the proper proportions, or, in what some economists call "equilibrium."

    Say's Law doesn't argue that me producing tons of fake dog poop will guarantee a willing buyer to make it profitable. It argues that provided production of goods are in the right proportion (meaning that there isn't 200 houses to 1 car, but 1 house to 1 car, or whatever the case may be that results from individual marginal utility), then the demand for products comes out of the supply of products. In other words, this means that in the aggregate, the demand for shoes is created by the supply of computers, where the computer seller's earnings (money) in selling computers (supply) are used to demand (money demand) shoes (supply).

    The introduction of money just makes Say's Law more difficult to apprehend, but the principle remains absolutely true. Keynes just misunderstood Say's Law.

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  174. "Taxation is not voluntary.

    It is fully justifed for those who consider rule utilitarianism a valid ethical theory, or indeed for those who support Kantian ethics, Rawl's ethics, Moore's utilitarianism, or Ross non-absolutist ethics.

    "It is mandatory, and if people don't pay them, then they will get thrown into a cage,

    You break the law, you pay: just as in any other case.

    "and if they resist this further aggression, then the state will only up their aggression,

    Since the state's authority can easily be morally justified by those who hold and defend the theories above, using aggression against the state is wrong.

    This is like saying: I comitted fraud and when the state's legal system charged me with a crime, and they used aggression against me!! Boo hoo.

    and if it comes down to it, they will kill you. "

    The death penalty is virtually non-existent in most of the Western world and many other parst of the non-Western world, or hadn't you noticed? The US is unusual in still having it.

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  175. "Taxation is, ultimately, backed by the threat of death. If you doubt this, just stop paying taxes, and defend yourself from any and all violence that comes your way from the state, and you'll know I'm right as you're gasping your last breath.

    Appeal to emotion fallacy.
    As I have above, many states have abolished the death penalty, so this doesn't even apply in many countries.

    Moreover, ANY law, ultimately, is backed by the threat of coercion, to have any effect on behaviour or to have a system of justice.

    This is basis of law and order. In your Rothbardian anarcho-capitalist system, the private law code would be backed up by the threat or action of private violence and force by private protection agencies. So don't feed us this appeal to emotion nonsense.

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  176. The fallacy of petitio principii, or "begging the question", is committed "when a proposition which requires proof is assumed without proof", or more generally denotes when an assumption is used, "in some form of the very proposition to be proved, as a premise from which to deduce it"

    I didn't commit either of these definitions of begging the question, you idiot.

    My proposition that government spending does not generate net gains uses the premise that taxation is theft. That taxation is theft is a proposition in itself yes, but then all premises are themselves propositions, which means all your premises would, according to your irrational understanding, be "begging the question."

    Notice the "more generally" definition. It states:

    "in some form of the very proposition to be proved, as a premise from which to deduce it"

    I certainly did not do that. My proposition was that government spending does not create net gains, and one premise I provided was that taxation is theft. The proposition is different from the premise, so I am not trying to prove any proposition by using the same proposition as one of the premises.

    You can challenge my premise that taxation is theft, just like I have been challenging, and refuting, your premises. But to disagree with someone's premise does not mean that they are begging the question. It just means that you don't believe their premise is correct. Only if their conclusive proposition utilizes the same proposition as a premise can you say one is begging the question.

    Clear as mud?

    I've already supported my premise that taxation is theft, by making an additional argument, so if you have a problem with THAT argument, then I will explain it further, and I'll keep doing that until we get to premises that have no separate prior foundation, and we reach a point when propositions have to be accepted, or else self-contradiction results.

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  177. "In the logically consistent Austrian sense, only voluntary exchanges of private property can enable an individual to know whether another individual is deriving utility from what they pay for"

    And the Austrian theory is wrong.

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  178. You assume your taxation is theft nonsence with no proof.

    You assumed all kinds of premises without proof as well. It would be impossible to have any debate on a particular subject without supposing premises without proof. But that doesn't mean that the premises that are not accompanied with proof can't be proven. They can be proven, but then you'd only be diverting the discussion further and further into the philosophical field, which is perfectly OK with me, because I'll demolish you there too.

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  179. "Say's Law actually states that supply creates its own demand in the aggregate"

    Correct - it called Say's Equality
    Say’s Equality
    "admits the possibility of (brief) periods of disequilibrium during which the total demand for goods may fall short of the total supply, but maintains that there exist reliable equilibrating forces that must soon bring the two together."

    And it is still wrong, as money has a store of value function and there are financial assets bought and sold on secondary markets that cause shifts in spening patterns away from total output of commodities, very substantial shifts in fact.

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  180. "The demand to buy commodities, in a free market, comes from earnings that were generated by producing previous commodities."

    This is blatant appeal to the totally false propositions of Say's law.

    No, it is not a false appeal to Say's Law. It is a separate proposition that I proposed that has nothing to do with the core of Say's Law.

    You already stumbled onto the reason why Say's law is false above, in asuming way:

    "If I produce something, for money, and then I continue to hold that money and not respend it, then in principle, in your worldview, I am acting EXACTLY like a state or local government that runs a surplus. As long as ANYONE increases their cash balance over time, they are engaging in allegedly destructive "austerity measures...."

    That is not an argument that implies Say's Law is false. Say's Law, again, is just a refutation of a common myth that it is possible for there to be general overproduction. There can't be a general overproduction, because the desire for additional wealth, provided it is in the proper proportions, is practically infinite.

    The only "overproduction" that is possible is PARTIAL, RELATIVE overproduction of goods, which of course implies PARTIAL, RELATIVE underproduction of goods. In other words, overproduction and underproduction are only possible between specific industries and/or companies within the economy. Too many nails and houses are capable of being produced, which means not enough of other goods were produced.

    But wealth in general can never be "overproduced", not as long as humans act. Action implies that there will always be a desire for more wealth, provided it is in line with REAL CONSUMER PREFERENCE, both in the nature of the goods themselves, and, what's important for this discussion, WHEN they are consumed.

    Humans not only want to consume, but they also have specific preference on WHEN they want to consume. If humans want to consume more in the future and less today, then they will abstain from consuming today so that they can consume more in the future. Keynesians completely ignore this. They have no conception of time. They see people holding money because they want to abstain from consuming now, and consume more in the future, and the Keynesian respond by overruling this desire, this preference, and claim that because money is "idle", that justifies the government to steal it, and then spend it on themselves and their friends.

    Why can't you yahoos understand that when people hold money as cash, it's because they want to consume less now and more in the future, rather than vice versa?

    In a free market, if people come to consume a little less, by abstaining a little more from their consumption, and holding a little more cash, then this would send signals to investors to invest relatively less in consumer goods now, and instead invest relatively more in capital goods (future consumer goods), exactly what the consumers want.

    How in the fuck is consumers getting what they want an evil that requires eradication?

    Keynesians want to step in like a bunch of pompous assholes and declare that THEY know how much and WHEN people should consume. They totally overrule individual choice and try to control people like they're cattle.

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  181. "The reason US banks have record reserves is because the Fed has printed record amounts of new money (bank reserves),"

    Straw man.
    What I said was:
    "the banks have record excess reserves available for investment"

    "For example, in France unemployment is way higher than it is in the US. In Germany, same thing."

    False:

    France: 9.7%
    http://www.tradingeconomics.com/france/unemployment-rate

    US: 9.1%
    http://www.tradingeconomics.com/united-states/unemployment-rate

    Germany: 7%
    http://www.tradingeconomics.com/germany/unemployment-rate

    French unemployment is NOT "way higher than it is in the US": there is a 0.6% difference.

    German unemployemnt is lower than US by 2.1 basis points - quite a difference.

    Do you make this nonsense up?

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  182. The leakages from total factor payments from aggregate supply will not necessarily be spent on output in aggregate demand.

    They don't have to be. If people produce, earn money, but then accumulate some more cash and not respend exactly how much they earned, then this will just send signals to investors to refrain from investing so much in present consumption, and instead devote their efforts to projects that will provide for consumption in the more distant future.

    Money has a store of value function. Liquidity preference shift money from purchasing commodities to holding money idle and purchasing of financial assets on secondary markets.

    That is an absurd contradiction. If people are spending money on financial assets, then that is NOT "idle money" you idiot. That is money that is being spent. It is being spent on financial assets!

    If people want to spend less on consumption, or real physical assets, and they want to spent more on financial assets, then what the fuck is the problem? Who the hell are you to overrule individual preference for what people buy and what they don't buy? Who the fuck do you think you are to attack freedom of choice in buying a stock versus buying a pizza? Let people buy what they want, and stop trying to rule their lives you dictator wannabe loser.

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  183. "More consumer demand isn't going to increase production"

    Aggregate demand is NOT simply demand for consumer goods.

    Red herring.

    I know that, that's what I have been saying the whole time. I was refuting your stupid conjecture that demand for output is what drives production and employment. It doesn't. It's saving and investment that drives production and employment.

    Consumers don't pay wages. Those who abstain from consuming their earnings, and pay workers in exchange for their labor, are the ones who pay wages.

    "Demand for commodities is not demand for labor." - John Stuart Mill.

    "In macroeconomics, aggregate demand (AD) is the total demand for final goods and services in the economy (Y) at a given time and price level."

    Red herring, and you just changed the definition of Y. Y is now both monetary spending for output, and output itself.

    aggregate demand = C + I + G + (X-M)

    Thanks for admitting what I have been saying since the beginning, which is that GDP is just a measure of dollar spending, not production or real wealth and thus not standard of living, which means your stupid reference to GNP growing from 1933 to 1937 does NOT imply that people's standard of living went up, nor does it imply that productivity went up.

    All it measures is that total spending went up. Big deal. The government could spend $10 trillion on a pyramid of poo, that doesn't mean people are better off.

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  184. False, the word "commodity" has had for over 150 years its accepted meaning simply "all goods and services":

    "commodity

    1. In economic theory, all subjects of production and exchange, ie. all goods and services."

    You just found a definition that suits you.

    I can do the same thing:

    "A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers. When they are traded on an exchange, commodities must also meet specified minimum standards, also known as a basis grade."

    http://www.investopedia.com/terms/c/commodity.asp#axzz1VPO6D5Nk

    Arguing over definitions is pointless. They are just conventions.

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  185. And the Austrian theory is wrong.

    You haven't SHOWN that the Austrian theory is wrong.

    You've only ever herped over natural interest rate and natural interest rates, which does not in any way compromise the core of Austrian theory proper.

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  186. "Aggregate demand is NOT simply demand for consumer goods.
    ....
    I know that, that's what I have been saying the whole time."


    Absolute nonsense.
    I have been saying it the whole time: it is said above @August 18, 2011 12:26 AM

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  187. Say’s Equality

    "admits the possibility of (brief) periods of disequilibrium during which the total demand for goods may fall short of the total supply, but maintains that there exist reliable equilibrating forces that must soon bring the two together."

    And it is still wrong, as money has a store of value function and there are financial assets bought and sold on secondary markets that cause shifts in spening patterns away from total output of commodities, very substantial shifts in fact.

    No, it is not "still wrong." It is still right and will always be right.

    Equilibrating forces also arise from people holding more money as cash, as shown above. Your incessant fetish with attacking cash holdings is why you can't understand this.

    The fact that there are "shifts in spending patterns", from commodities to financial securities, does not in any way compromise the core of Say's Law. You're just not understanding Say's Law. Say's Law includes EVERYTHING that is sold for money. And no, citing idiot Keynesians and neoclassicals who think differently does not constitute a sound refutation.

    The reason why Say's Law includes all things exchanged for money, is because Say's Law applies to a division of labor monetary economy. In such an economy, every good and service, and every claim to ownership of a good or service such a stock, have a PRICE. Anything that has a price in dollars means that it has a relative exchange value between it and every single other thing that has a price, which means financial assets are being indirectly traded for every other thing that has a price, using money as a medium of exchange.

    Say's Law is not compromised at all. It still holds, correctly, that general overproduction is impossible.

    Now, if you want to reconcile Say's Law with the existence of stocks and bonds, then you must say that it is possible for there to be a partial relative overproduction of stocks and bonds, which means a partial relative underproduction of other things. In a free market, the forces of profit and loss will reverse these temporary imbalances and punish whoever overproduced and underproduced with losses, and those who produced into what otherwise would have been underproduced, end up earning profits.

    This process continues on ad infinitum in an unhampered, e.g. non-Keynesian, market.

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  188. "If people want to spend less on consumption, or real physical assets, and they want to spent more on financial assets, then what the f*** is the problem? "

    Very simple: with that shifting of money into purchasing of financial assets on secondary markets and shifting amounts of money owing to money's story of value, Say's law is invalid both in the short and run and long run. This is a system that can produce lng periods of unemployment, even high levels.

    When combined with the fact that economic agents face uncertainty and subjective expectations, there are NO equilibrating mechanisms that cause sufficient investmet or efficient economic growth with maximal use of resources.

    Hahn decribes it well:

    “there are ... resting places for saving other than reproducible assets. In our model this is money. But land, as Keynes to his credit understood, would have just the same consequences and so would Old Masters. It is therefore not money which is required to do away with a Say’s Law-like proposition that the supply of labour is the demand for goods produced by labour. Any non-reproducible asset will do. When Say’s law is correctly formulated for an economy with non-reproducible goods it does not yield the conclusions to be found in textbooks. As I have already noted Keynes was fully aware of this and that is why he devoted so much space to the theory of choice amongst alternative stores of value” (Hahn 1977: 31).

    “One can certainly now see that the view that with ‘flexible’ money wages there would be no unemployment has no convincing argument to recommend it … Even in a pure tatonnement in traditional models convergence to an equilibrium cannot be generally proved. In a more satisfactory model matters are more doubtful still. Suppose money wages fall in a situation of short-run non-Walrasian unemployment equilibrium. The argument already discussed suggests that initially this will lead to a redistribution in favour of profit. The demand for labour, however, will only increase on the expectation of greater sales since substitution effects in the short run can be neglected. If recipients of profit regard the increase as transient (as they sensibly might) their demand for goods will not greatly increase. On the other hand, if wage-earners have few assets their demand will decrease. But that means that producers get a signal to reduce output. Wages continue to fall and prices begin to fall also. Real cash balances increase but expectations about future prices may give a positive rate of return to money. There may be many periods for which falling money wages go with falling employment. Where the system would end up in the ‘long run’ I do not know” (Hahn 1977: 37).


    http://socialdemocracy21stcentury.blogspot.com/2011/01/f-h-hahn-in-candid-moment-on-neo.html

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  189. Also understood by your "fringe" Austrian Lachmann:

    “Because of his focus on uncertainty, Lachmann came to doubt that, in a laissez-faire society, entrepreneurs would be able to achieve any consistent meshing of their plans. The economy, instead of possessing a tendency toward equilibrium, was instead likely to careen out of control at any time. Lachmann thought that the government had a role to play in stabilizing the economic system and increasing the coordination of entrepreneurial plans. We call his position ‘intervention for stability.’”
    Callahan, G. 2004. Economics for Real People: An Introduction to the Austrian School (2nd edn), Ludwig von Mises Institute, Auburn, Ala. p. 293.

    It is no wonder you have to scream that Lachmann was only a "fringe" Austrian - only he was actually one of the smartest, as opposed to utterly dumb and incoherent Austrians like you.

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  190. "The reason US banks have record reserves is because the Fed has printed record amounts of new money (bank reserves),"

    Straw man

    What I said was:

    "the banks have record excess reserves available for investment"

    What I said was not a straw man because that wasn't an attribution of your position. That quote you cited from me is MY argument.

    It is MY argument that banks have record reserves because the Fed created it.

    You seriously need to learn what it means to commit a straw man.

    France: 9.7%

    Does not include all unemployed workers, and it includes people on government dole.

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  191. "Aggregate demand is NOT simply demand for consumer goods.

    I know that, that's what I have been saying the whole time."

    Absolute nonsense.

    I have been saying it the whole time: it is said above

    You're an idiot. It is true that I have been saying the whole time that aggregate demand is not simply demand for consumer goods. Show me where I said otherwise. To say "absolute nonsense" in response to me saying that I have been saying it the whole time implies that I have said the opposite. So show me.

    You argued that aggregate demand includes only demand for "final goods." That is wrong. Aggregate demand includes demand for ALL things that have a price, if you understand what aggregate means. Aggregate means everything, not just some things. You exclude stocks and bonds from aggregate demand, I do not.

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  192. "Say's Law includes EVERYTHING that is sold for money. "

    No, it doesn't.
    I repeat: cite me evidence from J. B. Say or any other 19th century advocate of Say's law to prove that financial asset exchanges are "included in Say's law".

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  193. Very simple: with that shifting of money into purchasing of financial assets on secondary markets and shifting amounts of money owing to money's story of value, Say's law is invalid both in the short and run and long run. This is a system that can produce lng periods of unemployment, even high levels.

    How can holding onto cash lead to long term unemployment? Why can't the existing money demand for labor buy up the supply of labor? Please note that this is a test, so don't presume that my asking you this is because I don't know what you will say, and what the true answer is.

    When combined with the fact that economic agents face uncertainty and subjective expectations, there are NO equilibrating mechanisms that cause sufficient investmet or efficient economic growth with maximal use of resources.

    Utter garbage.

    Not only is uncertainty ubiquitous in all economic action directed toward the future, but there are in fact equilibrating forces that result from people seeking higher cash balances.

    When people seek higher cash balances, that makes the remaining money and spending more valuable. If prices are free to fall, which they are in a free unhampered market, then the equilibrating force is a reduced price level and full employment.

    Keynes originally made the ridiculous argument that lower wage rates will plunge the economy further into depression because lower wage rates will result in less demand for output, and thus decreased profits. After some mild criticism of this by Pigou, Keynes' followers accepted that it is possible for full employment, but the drop would have to be way too much. After being refuted once again on that score by the Austrians, neoKeynesians came up with "wage stickiness" as a response, claiming in effect that workers would rather die of starvation than accept lower wage rates.

    But in a free market that has no taxpayer financed unemployment insurance, no minimum wage price floors, and no barriers to enter ANY industry, then wage rates would rapidly decrease if there is a fall in the demand for labor. This is what happened in 1920. Wage rates rapidly fell quite a bit, and unemployment did not last for long.

    More importantly however, you're just arbitrarily defining what maximum USE of resources is. You don't determine this, individuals who own the resources do. If an individual wants to keep a machine idle, and refuses to sell it a lower price, then that is the most efficient use of that machine by definition, for efficiency is maximized when individuals can do what they want with their own property.

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  194. Also understood by your "fringe" Austrian Lachmann:

    RED HERRING.

    You have to read William Hutt's book "Theory of Idle Resources" before you have a prayer in understanding it.

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  195. "Aggregate demand includes demand for ALL things that have a price, if you understand what aggregate means."

    Ah, I see: your tactic is now to change the meaning of accepted expressions in econonics just to suit your endless failures in argument!! Well done!

    In Keynesian and neoclassical theory, "Aggregate demand" has excluded financial asset purchases from the beginning of the concept, a fact that only a lying idiot would deny. Since the accepted "defintion" doesn't suit you now want to change it at will.

    It is like arguing with lunatic who denys that the sky is blue on a clear day, and when challenged to expalin why, says: "Because I choose to define "blue" as "green"!

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  196. It is no wonder you have to scream that Lachmann was only a "fringe" Austrian - only he was actually one of the smartest

    It's no wonder you accept what he wrote, because he was a fringe Austrian who held incorrect views that, not surprisingly, are accepted by idiots like you.

    I don't care what "doubts" Lachmann had. His personal beliefs have no bearing on economic science. His claims have no basis in economic principles. He just ad hoc asserted it.

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  197. "Say's Law includes EVERYTHING that is sold for money. "

    No, it doesn't.

    Yes, it does.

    I repeat: cite me evidence from J. B. Say or any other 19th century advocate of Say's law to prove that financial asset exchanges are "included in Say's law".

    I care not for your fallacious appeals to 19th century authorities.

    Say's Law includes EVERYTHING sold for money. The reason why Say himself didn't focus on stocks and bonds very much was because the stock and bond markets were almost non-existent during his time. He just did not appreciate the extent to which the core principle of his own theory applied.

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  198. Ah, I see: your tactic is now to change the meaning of accepted expressions in econonics...

    Nope. I've held that conception of aggregate demand for many years, and I continued to hold that conception the entire time in this tutoring session. I didn't, unlike you, change my story AS THE DISCUSSION UNFOLDED.

    You have contradicted yourself, you have changed your arguments, and you laughably accuse me of changing something that I have not in fact changed since the start?

    HAHAHAHAHAHAHAHAHA

    It's obvious you're failing and running out of excuses. You are becoming more and more antagonistic towards definitions, which is the hallmark of someone who has nothing else left. But don't worry, I'm just getting started! You're going to be an Austrian when we're done. I've converted so many people that I have no doubts that even the most empty headed among you can always learn.

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  199. "When people seek higher cash balances, that makes the remaining money and spending more valuable. If prices are free to fall, which they are in a free unhampered market, then the equilibrating force is a reduced price level and full employment."

    False. Even with perfectly flexible wages and prices, Say's law still does not work, because the gross substitution is false.

    You refer to neoclassical synthesis Keynesians: they are also wrong.

    Post Keynesianism (which I spport) rejects the gross substitution axiom, an implicit assumption made by both Austrians and neoclassicals. In brief, money and financial assets have zero or near zero elasticity of substitution with producible commodities.

    The operative concept is demand for liquidity. The most liquid asset is money, and, in varying degrees of liquidity, there follow various types of financial assets, which are nonproducible and held as a store of value:

    “If the gross substitution axiom was universally applicable, however, any new savings that would increase the demand for nonproducibles would increase the price of nonproducibles (whose production supply curve is, by definition, perfectly inelastic). The resulting relative price rise in nonproducibles vis-a-vis producibles would, under the gross substitution axiom, induce savers to increase their demand for reproducible durables as a substitute for nonproducibles in their wealth holdings. Consequently nonproducibles could not be ultimate resting places for savings as they spilled over into a demand for producible goods ... Samuelson’s assumption that all demand curves are based on an ubiquitous gross substitution axiom implies that everything is a substitute for everything else. In Samuelson’s foundation for economic analysis, therefore, producibles must be good gross substitutes for any existing nonproducible liquid assets (including money) when the latter are used as stores of savings. Accordingly, Samuelson’s Foundation of Economic Analysis denies the logical possibility of involuntary unemployment as long as all prices are perfectly flexible. (Davidson 2006: 189).

    Neoclassical synthesis Keynesians and Post Keynesians part company on precisely this point: the gross substitution axiom is false, and even if all wages and prices were perfectly flexible, you would still have involuntary unemployment, for these reasons:

    (1) with no truth in the gross substitution axiom, demand for liquid financial assets as a store of value, even when it raises the relative prices of nonproducible financial assets in relation to producible commodities will not necessarily spill over into demand for the latter;

    (2) Say’s law does not hold in any economy where we face uncertainty, subjective expectations, and money and financial assets with a store of value function;

    (3) Liquidity preference and the desire for increased liquidity apply not just to individuals but also to banks and other business institutions; indeed, in modern capitalist economies it is the liquidity preferences of banks that are particularly important.

    Davidson, P. 2006. “Samuelson and the Keynes/Post Keynesian Revolution,” in M. Szenberg, L. Ramrattan, A. A. Gottesman (eds), Samuelsonian Economics and the Twenty-First Century, Oxford University Press, Oxford and New York. 178–196

    http://socialdemocracy21stcentury.blogspot.com/2011/07/more-on-gross-substitution-axiom.html

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  200. In Keynesian and neoclassical theory, "Aggregate demand" has excluded financial asset purchases from the beginning of the concept, a fact that only a lying idiot would deny. Since the accepted "defintion" doesn't suit you now want to change it at will.

    The original definition of aggregate demand was started at will, so it can be defined by anyone else at will also.

    Aggregate means everything. Aggregate demand means everything that is paid for. I hold the classical conception of aggregate demand, not the newer, NETTED concept of it.

    The fact that you can only argue over definitions, means that you can't argue over economics. Definitions are open for anyone to determine for whatever reason they want. Sure, it can get confusing if people take a different definition when they hear a certain term, but that doesn't mean that anyone is wrong.

    It is not wrong to refer to everything that carries a price. It is not wrong to define this as aggregate demand. Definitions are neither right nor wrong. They are just words.

    I am not holding the definition of aggregate demand to include everything in order to change my arguments, or hide behind some alleged error I made. That's just you projecting your own hiding and errors onto me.

    I have always defined aggregate demand as every act of spending since the start. If you don't want to use that definition, then you don't have to, but don't presume that because you blindly follow others without thinking, that I have to as well.

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