Year | GNP* | Growth RateThe average rates per decade are as follows (with additional measures for the best periods):
1946 | 1798.20 |
1947 | 1784.80 | -0.74%
1948 | 1864.80 | 4.48%
1949 | 1854.20 | -0.56%
1950 | 2016.50 | 8.75%
1951 | 2174.30 | 7.82%
1952 | 2257.40 | 3.82%
1953 | 2360.10 | 4.54%
1954 | 2346.20 | -0.58%
1955 | 2515.80 | 7.22%
1956 | 2566.90 | 2.03%
1957 | 2619.20 | 2.03%
1958 | 2592.90 | -1.00%
1959 | 2778.10 | 7.14%
1960 | 2848.20 | 2.52%
1961 | 2916.10 | 2.38%
1962 | 3094.10 | 6.10%
1963 | 3230.10 | 4.39%
1964 | 3417.50 | 5.80%
1965 | 3636.40 | 6.40%
1966 | 3869.80 | 6.41%
1967 | 3967.70 | 2.52%
1968 | 4160.60 | 4.86%
1969 | 4288.00 | 3.06%
1970 | 4295.80 | 0.18%
1971 | 4442.20 | 3.40%
1972 | 4678.90 | 5.32%
1973 | 4960.30 | 6.01%
* Billions of Chained 2005 Dollars
Average real GNP growth rate, 1947–1973: 3.86%.
Federal Reserve Bank of St. Louis, Source: U.S. Department of Commerce: Bureau of Economic Analysis
http://wikiposit.org/a?uid=FRED.GNPCA
Average real GNP growth rate, 1951–1960: 3.55%Some points:
Average real GNP growth rate, 1961–1970: 4.21%
Average real GNP growth rate, 1964–1973: 4.40%
Average real GNP growth rate, 1959–1968: 4.85%
(1) The average real GNP growth rate in Romer for 1870–1900 was 4.17%. This was higher than the average for 1947–1973, but not by much: 3.86% (1947-1973) compared to 4.17%. This means that average growth was 8.03% higher from 1870–1900.BIBLIOGRAPHY
(2) Factor (1) is explained by the industrialisation phase of the US economy to my mind, and mostly by the 1870s. It is notable that the decadal rates in the 1880s and 1890s were much lower:Average real GNP growth rate, 1881–1890: 2.72%.(3) As pointed out before, across the whole OECD, 1946-1973 won out as the better period in terms of per capita GDP growth:
Average real GNP growth rate, 1891–1900: 3.79%.1700–1820 – 0.2%(Davidson 1999: 22).
1820–1913 – 1.2%
1919–1940 – 1.9%
1950–1973 – 4.9%
1973–1990 – 2.5%
Davidson, P. 1999. “Global Employment and Open Economy Macroeconomics,” in J. Deprez and J. T. Harvey (eds), Foundations of International Economics: Post-Keynesian Perspectives, Routledge, London and New York. 9–34.
"The OECD nations in 1945-1974 were not "rapidly industrializing for the first time".
ReplyDeleteSome of course expericenced a greater degree of industrialization, but hardly "rapidly industrializing for the first time".”
Read my whole sentence.
“"Again, much of what I said about China would prove applicable to many of the countries rapidly industrializing for the first time (or since prior to WWI) in the post war era.”
Bear in mind that right after I said it I mentioned “or since prior to WWI". Many European countries in the first half of the twentieth century suffered from decades of poor growth and stagnation. World War I, hyperinflations/war debt/inflation overhang in the 20s, poor growth in twenties, fascism, militarism, and collapse of world trade in the 30s, and world war II. As I said in the early thread where we debated over post war II, growth was exceptionally vigorous because these countries had to rebuild after war, engaging in private market industrialization for the first time in a while, utilized a backlog of American technologies, had high savings, etc etc. Much like China, many of these countries were industrializing via private enterprise for the first time or for the first sustained time since pre WWI. I’m not going to rehash that conversation again.
“Growth Rates Balke/Romer”
Mainly because the growth rates are so variable, a slight change in the years can give a whole different interpretation of growth.
For example, you write that with certain benchmarks the 1880s could be considered a period of lower (than normal) growth. But with Balke and Gordon, changing the yearly range slightly:
1879-1889 4.7%
1879-1890 4.4%
And with Romer
1879-1889 3.8%
1879-1890 3.93%
Substantially raises the growth rate. This mainly seems to be because the growth rates are highly variable, especially the 1879-1880 period. Whether this is due to statistical data collection or the economy was actually this volatile, I don’t know. But I think that because of this, it is better to use the general long run average trend as a rough measure for all years (roughly 4%). Its unfortunately hard to get as precise estimates as we do for the post war period.
“The US average real GNP growth rate for 1950–1973 was in fact virtually the same as the decade rates for 1890s, higher than the 1880s, and lower than the 1870s.”
As said in an earlier thread, a good deal of the growth during this period (1946–1973: 3.86%.) can be attributed to general market liberalization (relative to the 30s and 40s) and industrialization of other major powers, which enhances trade, etc etc. Not to mention (in my view) you need to discount growth for government burden. But our comments are in the other thread, and unless new points can be made there is no reason for us to rehash this.
“As I have pointed out before, if we look at the average real GDP growth rates estimates across the whole OECD for 1950–1973 we find a better rate than the US rate of 4.08% for 1870–1900:
ReplyDelete1700–1820 – 0.2%
1820–1913 – 1.2%
1919–1940 – 1.9%
1950–1973 – 4.9%
1973–1990 – 2.5%
(Davidson 1999: 22).”
As pointed out earlier, many of these countries had just been able to industrialize privately for a sustained amount of time since WWI.
As Eichengreen (who I hardly agree with on economics) comments on growth in the 50s (from the earlier thread):
“The 1950s is commonly seen as inaugurating an extraordinary quarter century of economic progress for Europe as a whole. It was possible for Europe to grow simply by repairing wartime damage and putting idle resources back to work. Output could be boosted by shifting labor from agriculture to industry, where its productivity was higher. Investment in the commercialization of American technology and the adoption of mass-production methods had an exceptional payoff. The impact of these favorable initial conditions was evident in the acceleration of growth virtually everywhere. Although the improvement in performance was not uniform, differences in response across European countries only underscore the importance of this same set of determinants, growth tending to be fastest where wartime disruptions were most extensive, where there was the most scope for shifting labor from agriculture and industry, and where there remained the largest gap in output and productivity relative to the technological leader.”
"As said in an earlier thread, a good deal of the growth during this period (1946–1973: 3.86%.) can be attributed to general market liberalization (relative to the 30s and 40s) and industrialization of other major powers, which enhances trade, etc etc. Not to mention (in my view) you need to discount growth "
ReplyDelete(1) The "liberalization relative to the 30s" is just nonsense.
(2) WWII was a wartime economy, so dismantling it, and liberating pent up demand for consumer goods is entirely consistent with Keynesian economics.
"And with Romer
ReplyDelete1879-1889 3.8%
1879-1890 3.93%
Substantially raises the growth rate."
Changing Romer's years in this way does not "substantially [raise] the growth rate".
A 3.4% (from 3.8% to 3.93%) rise in growth rates hardly counts as "substantial".
"(1) The "liberalization relative to the 30s" is just nonsense.
ReplyDelete(2) WWII was a wartime economy, so dismantling it, and liberating pent up demand for consumer goods is entirely consistent with Keynesian economics."
1)Wont go through this again.
2)You never answered this point:
""“the adoption of the pent-up demand line of defense meant a theoretical retreat for Keynesians. Previously, the view had been that increases in aggregate demand could lead to almost infinite increases in total output (implying a positively slowed aggregate supply curve at all price levels). Implicitly, Keynesians were accepting the view that consumption spending during World War II had been “crowded out” by increases government spending, and that reduced government spending after 1945 led to a reversal of this process. Of course, proponents of the Keynesian perspective never pointed out this theoretical weakness” p.174 "
So government spending was needed to stimulate the economy during WWII, but at the same time it was stimulating it was also crowding out the private sector (both consumption and investment)? So whats the point of increased government spending in the first place if it just crowds out the productive capacities of the private sector?
"Changing Romer's years in this way does not "substantially [raise] the growth rate".
A 3.4% (from 3.8% to 3.93%) rise in growth rates hardly counts as "substantial". "
You misunderstood what I wrote. Changing the range by one year does substantially raise the growth rate:
(There were slight errors in my previous calculations)
1880-1890:
(182.964-143.580/139.990)/11=2.7% growth rate
1879-1980:
(182.964-127.675/127.675)/12=3.6% growth rate
3.6-2.7/2.7=33% increase.
Because the data (or the actual economy, I don't know) was so volatile in growth rates, changing the pegs slightly can produce very different estimates.
"So government spending was needed to stimulate the economy during WWII, but at the same time it was stimulating it was also crowding out the private sector"
ReplyDelete(1) "government spending was needed to stimulate the economy during WWII"
This is just a ridiculous, confused statment.
A command economy with massive government spending was required to win the war.
When the economy got to full employment and production had to be diverted to war production, THEN government spending crowded out private sector consumption and investment to a great extent. That is why wage and price controls, and rationing was imposed.
An economy in depression/severe recession or simply not running at full employment and with subtantial idle resources will NOT suffer significant crowding out with well designed stimulus programs.
This is the view even of the Austrian Ludwig Lachmann:
"Perhaps an historical example will elucidate what we mean. Policies based on Keynesian macro-economic recipes might have succeeded (had they then been tried) in 1932 and did succeed in 1940 because it so happened that at the bottom of the Great Depression as well as during the Second World War all sectors of the economy were equally affected. In 1932 any kind of additional spending on whatever kind of goods would have had a favourable effect on incomes because there was unemployment everywhere, as well as idle capital equipment and surplus stocks of raw materials. During the war the situation was exactly the opposite, but precisely for this reason the same recipes, but with opposite sign, applied. With millions of men and women in the armed forces everything, not merely labour, was scarce and any reduction in demand anywhere welcome."
http://socialdemocracy21stcentury.blogspot.com/2011/07/startling-admission-from-ludwig.html
It takes extraordiunary think headedness not to understand this.
"So government spending was needed to stimulate the economy during WWII, but at the same time it was stimulating it was also crowding out the private sector"
ReplyDeleteFalse.
(1) A large stimulus program was required to get the US back to full employment in the 1930s and even in 1940/1941.
(2) When the economy was back at full employment, THEN private sector crowding out would have occured. This is when you end stimulus, and run surpluses or raise taxes (if necessary).
(3) the dismantling of the wartime economy freed up private sector capital goods, and there was massive demand for consuption goods, and private sector investment occurred to meet that demand, owing to accumulated savings.
(4) Modern Post Keynesian theory, New Keynesianism or neoclassical synthesis Keynesianism are in no way "contradicted", "refuted" or at variance with these points. On the contrary, that is precisely what these theories predict would happen.
(5) You are getting obsessed with what Paul Samuelson wrote during the war: he was wrong, plain and simple, in thinking there would be extended depression/stagnation after the wartime economy was dismantled.
Keynes, as I have pointed out to you before, was asked a similar question and was right in his prediction:
“Keynes harshly rejected the risk of post-war stagnation, holding that because of Social security there would be a large reduction in private saving and so that would be no problem.”
D. C. Colander and H. Landreth (eds), The Coming of Keynesianism to America, E. Elgar, Cheltenham. 1996. p. 202.
"This is just a ridiculous, confused statment.
ReplyDeleteA command economy with massive government spending was required to win the war.
When the economy got to full employment and production had to be diverted to war production, THEN government spending crowded out private sector consumption and investment to a great extent. That is why wage and price controls, and rationing was imposed.
An economy in depression/severe recession or simply not running at full employment and with subtantial idle resources will NOT suffer significant crowding out with well designed stimulus programs."
So when was "full employment" and consumption/private investment crowded out during the war? Was WWII needed to stimulate the economy, or did it only crowd it out? If War was needed to stimulate the economy, at what point did it stop stimulating and start crowding out? A particular date? You say it was when the economy got into full employment...once the economy removed its unemployment by sending its able bodied productive male workers into war, then did the government start crowding things out?
"(1) A large stimulus program was required to get the US back to full employment in the 1930s and even in 1940/1941.
ReplyDelete(2) When the economy was back at full employment, THEN private sector crowding out would have occured. This is when you end stimulus, and run surpluses or raise taxes (if necessary)."
So the economy became healthy and entered full employment when the unemployed were shipped off to Europe or the Pacific?
"Was WWII needed to stimulate the economy, or did it only crowd it out? I
ReplyDeleteJesus.
(1) No, a horrible war WAS NOT NEEDED TO STIMULATE THE ECONOMY. Is this point clear to you?
(2) a sufficently large, well designed stimulus involving deficit spending, public works/infrastructure, useful social spending, perhaps R&D and employment programs was needed at any point from 1930, 1931, 1932, 1933 to end the depression, or 1934, 1935, 1936, 1937, 1958, 1939, 1940, 1941 to end the unnecessarily high involuntary unemployment and allow the economy to hit its potential GNP/GDP. Roosevelt's fiscal expansion worked to the extent it was tried, but it was insufficient.
(2) When the economy was back at full employment and potential GNP, THEN private sector crowding out would have occured. This is when you would have ended stimulus, and run surpluses or raised taxes (if necessary).
"So the economy became healthy and entered full employment when the unemployed were shipped off to Europe or the Pacific? "
ReplyDeleteThis is the point where you're just demonstrating that you're a troll and an idiot, Patch.
If you persist in presenting straw man arguments and refusing to address what my actual view is, then don't bother posting comments here anymore.
Lord Keynes, I know you don't think war was optimal or "needed", but DID it stimulate the economy? That's what I'm talking about. Late 1930s early 40s unemployment was still high. DID the war stimulate production? It clearly eliminated unemployment. Once unemployment was low by shipping off soldiers, then did the wartime economy crowd out the private economy?
ReplyDelete"I know you don't think war was optimal or "needed", but DID it stimulate the economy?"
ReplyDelete(1) the war did indeed raise income and production, by employing people and expanding output. It was not of course the same thing as a peacetime stimulus. It was altogether a different type of stimulus: wasteful military spending, arms production, diversion of factor inputs to this production, and eventually restriction of consumption, control of wages and prices and rationing.
(2) Conditions were hardly good, work hours were long and difficult, consumer goods scarce. But previously unemployed people accumulated savings and gained incomes.
(2) yes, the war ended a great deal of the unemployment. Yes, part of this was men going to war. A lot of people were killed. Horrible, horrific.
-------
What we are talking about above are historically contingent events that did in fact end the high involuntary unemployment. Recounting the facts does not mean I approve of them, and does NOT mean that a war was needed to end the depression.
As I have said above, a peacetime well designed stimulus involving deficit spending, public works/infrastructure, useful social spending, perhaps R&D and employment programs coudl ahve been done at any point from 1930, 1931, 1932, 1933 to end the depression, or 1934, 1935, 1936, 1937, 1958, 1939, 1940, 1941
to end the unnecessarily high involuntary unemployment and allow the economy to hit its potential GNP/GDP.
Other nations like New Zealand did in fact use a peacetime well designed stimulus to end their depression:
http://socialdemocracy21stcentury.blogspot.com/2011/09/keynesian-stimulus-in-new-zealand.html
This is what should have been in America, not the war.
At what point did the war stop benefiting the economy and start crowding out?
ReplyDeleteIt was in 1943 that the US reached full employment. Already in April 1941 and early 1942 steps were taken to control prices and inflationary pressures.
ReplyDeletehttp://en.wikipedia.org/wiki/Office_of_Price_Administration
So the war never benefited the economy really, because America only entered the war in late 1941.
ReplyDeleteAnd of course this will depend on how "full employment" is defined:
ReplyDelete(1) it does not normally mean, and rarely ever meant, 0% unemployed;
(2) there is some variance in the definition, amongst different economists in different countries at different times, but either about 4%, 3% or 2% or less unemployment;
(3) E.g., Alvin Hansen:
"'in an economy as large as that of the United States, it is probable that at "full employment" there would be at any one time between 2 and 3 million temporarily unemployed.' (About 4.5 per cent of the civilian labor force of the civilian labor force of 1945-1947.)".
(4) In the UK, Beveridge thought 3% was a full employment rate;
(4) The concern with the percentage is related to the neoclassical synthesis Keynesian concern with inflation. Post Keynesians would say inflationary pressures with very low unemployment should be dealt with by incomes policies and commodity buffer stocks. Thus MMTers argue for a labour buffer stock program or Job Guarantee program.
http://bilbo.economicoutlook.net/blog/?cat=23
"So the war never benefited the economy really, because America only entered the war in late 1941. "
ReplyDeleteBy what reasoning do you say this?
By 1942/1943, the wartime command economy had been imposed. Unemployment had fallen.
Many more people were employed at home, and earning incomes. The continued earning of incomes right down to 1945 also aided the deleveraging that was need to reduce the overall level of private debt, which was a massive burden on the economy in the 1930s, as shown by Steve Keen.
M Lord, if you didn't see this you might find it amusing:
ReplyDeletehttp://krugman.blogs.nytimes.com/2011/12/05/things-that-never-happened-in-the-history-of-macroeconomics/
I'm mainly curious about what happened after the war. I think we have to distinguish between full employment, and increased wealth and a general rise in the standard of living. There is no question, that the war produced full employment, and rising nominal incomes. It was AFTER the war that the savings gained from working in the war years, were utilized in the conversion from a wartime to a peacetime economy and general. By the way Austrians, if youre going to criticize LK, at least do it on something hes wrong on, like incomes policies, rather than used that old tired argument that Russ roberts and many Austrians use, that cuts in government spending followed by prosperity somewhow demonstrate Keynes was wrong, when Keynes himself argued against post-war stagnation.
ReplyDeletethe way I read this whole thing fromm a monetarist perspective is that Monetary and Fiscal Expansion + a credible commitment to reduce that spending int the future (rationing, produced a backlog of high savings despite inflation and end of war was a commitment.) creates a real return on cash once the money printing has stopped. Inflation now plus deflation or disinflation in the future is substantially different that what many pop Austrians like William Anderson absurdly call running the prinitng press without limit.
P.S. By the way LK, you don't necessarily even need to have infrastructure projects, a full payroll tax holiday will due, also SUSTAINED QE, something Japan NEVER practiced, just like it never practiced sustained fiscal stimulus, can raise AD necessarily to restore full employment. I'm not opposed to infrastructure spending because i think it wont work, i just think it takes to long to deal with an AD problem.
PPS Also the key is not only to get to full employment, but to have a massive enough stimulus to make sure that the economy hums along nicely when the stimulus is withdrawn.
"a full payroll tax holiday will due, also SUSTAINED QE, something Japan NEVER practiced,"
ReplyDeleteIt's curious you refer to the full payroll tax holiday idea, as MTTers also propose such a plan:
http://blogs.reuters.com/rolfe-winkler/2010/01/08/moslers-11-steps-to-fix-the-economy/
http://www.hardassetsinvestor.com/videos/1868-warren-mosler-payroll-tax-holiday-needed.html
As for sustained QE, its effects will depend on the state of the economy and the financial system: a 1930s US economy or even 1990s Japanese economy suffering from a collapsed asset bubble, from excessive private debt, with sick banks, and where deleveraging/debt deflation is a drag on the economy is unlikely to respond even to sustained QE. Why would a heavily indebted private sector take on more debt?
The only way you can pump up aggegate demand by QE is if the financial system lends out its excess reserves. Not going to happen in these circumstances.
“By what reasoning do you say this?
ReplyDeleteBy 1942/1943, the wartime command economy had been imposed. Unemployment had fallen.
Many more people were employed at home, and earning incomes. The continued earning of incomes right down to 1945 also aided the deleveraging that was need to reduce the overall level of private debt, which was a massive burden on the economy in the 1930s, as shown by Steve Keen.”
A couple of reasons.
1. You yourself said the military spending was “wasteful”. How can producing things that are “wasteful” increase the productive capacity of the economy? The increased military spending de facto diverted factors of production into unproductive (economically speaking) military ventures. One could make the exact same argument for the U.S in the 1960s with the Vietnam war and place a discount on GNP because of it.
“(1) the war did indeed raise income and production, by employing people and expanding output. It was not of course the same thing as a peacetime stimulus. It was altogether a different type of stimulus: wasteful military spending, arms production, diversion of factor inputs to this production, and eventually restriction of consumption, control of wages and prices and rationing.”
2. My point is this. Unemployment was high, and production was well below (especially net investment) its peak in the 1930s. As other countries gear up for war, America starts to export military goods etc etc , and then in late 1941 enters the war. Unemployment falls as unemployed men and some men in factories leave to go fight and women and elderly take their place in factories producing wartime goods. As you put it, government was already beginning to crowd out the private sector in 1941 and 1942 (wage and price controls), and then when the economy reached “full employment” (productive workers left to fight in wars) in 1943, the government was fully crowding out private sector consumption and investment.
“It was in 1943 that the US reached full employment. Already in April 1941 and early 1942 steps were taken to control prices and inflationary pressures.”
And when the economy reaches full employment:
“When the economy got to full employment and production had to be diverted to war production, THEN government spending crowded out private sector consumption and investment to a great extent. That is why wage and price controls, and rationing was imposed.
“(2) When the economy was back at full employment, THEN private sector crowding out would have occured. This is when you end stimulus, and run surpluses or raise taxes (if necessary).”
3. So, building off of the above, then starting in 1941, 1942, and fully in 1943, continuing in 1944 and most of 1945, government was impeding the recovery with military expenditure and crowding out productive enterprise. But you also say that the war (I know you are not advocating it as optimal) was beneficial in the sense that it increased income, and production (though “wasteful”…), and savings for consumers to spend once the command economy was dismantled.
But my point is, how could the government be crowding private sector consumption and investment at the same time that it was supposedly providing it with necessary savings and income for later? How could government increase income and promote productive full employment at the same time that it was crowding it out? At the same time it was “stimulating” the economy via wasteful military expenditure, it was also crowding out the economy!
Lord Keynes:
ReplyDeleteFalse.
(1) A large stimulus program was required to get the US back to full employment in the 1930s and even in 1940/1941.
(2) When the economy was back at full employment, THEN private sector crowding out would have occured. This is when you end stimulus, and run surpluses or raise taxes (if necessary).
FALSE! You are incorrectly presuming that printing and spending money ONLY affects idle resources and unemployed workers. It doesn't! Capital is interconnected. Your problem is that you're thinking only in aggregate singular statistics.
If the government prints and spending money to get, say home builders working again, then the money they spend there is not isolated to the resources and labor that the government wants to put into "motion." For you are ignoring COMPLIMENTARY resources and COMPLIMENTARY labor, both of which are BEING USED. When the government prints and spends money, the receivers can bid up the prices of those complimentary factors, and that DOES IN FACT crowd out private investment.
LK,
ReplyDeleteYou may not remember, but a couple months ago I recommended a Lachmann-oriented Austrian-school blog to you. I'm bringing it up again because whereas you often brush up with anarcho-capitalists, you may find these two recent posts to be interesting:
The Partial Effect of Government on Violence
The Non-Sequitur of the Modern Anarcho-Capitalist Research Program
This one is not as closely related, but may also be of use.
If people genuinely choose protectionism, is it then okay?
I don't always (or even usually) agree with him - in fact, we had a very brief back-and-forth on instrumental methodological individualism a week or two ago - but I find his musings thoughtful and interesting enough to return to on a semi-regular basis.
"I know you don't think war was optimal or "needed", but DID it stimulate the economy?"
ReplyDelete(1) the war did indeed raise income and production, by employing people and expanding output.
FALSE.
The output that was expanded was wartime output, like weapons and tanks. This came at the expense of civilian oriented output, like cars, shelter and home appliances.
You cannot say that "output was expanded." That is misleading. You have to say "SOME output was expanded while other goods were reduced."
Furthermore, the fact that "incomes" grew doesn't mean that people are better off. For the incomes were a form of capital consumption. If every capital goods owner, every factory owner, every machine owner, sold their capital for money, then spent the proceeds on consumer goods, that would increase incomes as well, but it would be disastrous for the people.
Christof@December 7, 2011 4:18 PM
ReplyDelete"The output that was expanded was wartime output, like weapons and tanks. This came at the expense of civilian oriented output, like cars, shelter and home appliances."
I have already said that above.
You cannot say that "output was expanded." That is misleading. You have to say "SOME output was expanded while other goods were reduced."
That happened when wartime production started to crowd out private sector investment and consumption. But I have already said that above.
"If the government prints and spending money to get, say home builders working again, then the money they spend there is not isolated to the resources and labor that the government wants to put into "motion." For you are ignoring COMPLIMENTARY resources and COMPLIMENTARY labor, both of which are BEING USE"
ReplyDeleteThat is a secondary effect, yes, which applies equally to ALL private sector investment too: if this were a serious argument against govenrment spending, it would rule out ALL private sector investment.
"You yourself said the military spending was “wasteful”. How can producing things that are “wasteful” increase the productive capacity of the economy? The increased military spending de facto diverted factors of production into unproductive (economically speaking) military ventures."
ReplyDeleteI don't even say above that the war "increased the productive capacity of the economy in the same way it would during a peacetime production of consumer goods satisfying people's subjective utility preferences". So this is just a pathetic straw man.
"But my point is, how could the government be crowding private sector consumption and investment at the same time that it was supposedly providing it with necessary savings and income for later?"
ReplyDeleteJesus: easily. Are you seriously denying that I can't earn an income by working in a factory producing tanks?
You're rapidly wearing out my patience with this idiocy.
part 1 of 2
ReplyDeleteLord Keynes:
"I have already said that above."
Then why in the world did you say that Patch was wrong to say that:
"So government spending was needed to stimulate the economy during WWII, but at the same time it was stimulating it was also crowding out the private sector"
???
I mean, after I wrote:
"If the government prints and spending money to get, say home builders working again, then the money they spend there is not isolated to the resources and labor that the government wants to put into "motion." For you are ignoring COMPLIMENTARY resources and COMPLIMENTARY labor, both of which are BEING USE"
You responded:
"That is a secondary effect, yes"
Conceding that argument means you contradicted yourself, because you said Patch was wrong to say that:
"it was also crowding out the private sector."
He just said it was ALSO crowding out the private sector.
If you accept that there are "secondary effects" of stimulus that spill over into the non-idle, non-employed sectors, (which I will argue is more pronounced that the primary effects), then you must accept that those who did not receive the government's money, are in fact being crowded out due the government's spending, because now they have to compete with people who have more taxpayer money, used to bid resources and labor that are NOT idle (hence the secondary spill over). That is a form of crowding out, and yet you said Patch was wrong to say that crowding out ALSO took place.
You need to correct your claims, because as of now, they are in contradiction.
You then say that "crowding out":
"applies equally to ALL private sector investment too: if this were a serious argument against govenrment spending, it would rule out ALL private sector investment."
WTF? That's the dumbest argument ever. That's like saying "Oh, well, because one person outcompeting another and bidding for and acquiring resources leads to some investors/entrepreneurs in the private sector "crowding out" on the basis of some people producing more than others, then by golly, it doesn't matter if the government does the same crowding out too."
You're incorrectly presuming that the government's crowding out is due to the government outcompeting producers in the market. But that's not what governments do.
The whole point of government stimulus is to HELP the private sector by giving some people more money, which the government hopes will stimulate "spending". If you accept that government crowds out the private sector, even via secondary, spill over effects from spending money targeting idle resources and the unemployed, then you can't possibly claim that stimulus that crowds out the private sector can HELP the private sector. It's being crowded out!
part 2 of 2
ReplyDeleteLord Keynes:
That means many people LOSE when government spends. These people are those who are employed, and who own resources in use, but are crowded out by those who didn't outcompete them economically, for the consumer's money, but rather, they just got a special government handout.
How is that fair?
That some people in the economy "crowd out" other people in the economy, is due to the fact that resources are scarce and economic competition leads to people outbidding each other on the basis of their productivity towards others. But the competition an individual in the market displays isn't to help only other individuals, the way government stimulus is meant to only help the private sector. The individual competes by being more productive than his peers. He therefore "crowds out" the less efficient. This improves productivity, which creates NEW resources.
When government spends, they are not producers competing for resources. They are not producing more goods and services than others such that they acquire higher profits and thus resources. They are just taxers and spenders who offer protection services! When the government spends, and crowds out the private sector, this crowding out isn't creating new goods with scarce resources, the way investors and entrepreneurs compete with each for scarce resources by being more productive than others.
The government's spending is like me being a counterfeiter and spending money on my friends who are unemployed and own idle resources, and then my spending money on them spills over into the rest of the economy and crowds out those people who are employed and working hard, legitimately competing, and yet they have to compete with people who have more money for doing nothing productive, who only had ownership claims over idle resources, or their idle labor. Yes, my counterfeiting is putting idle resources and unemployed people to work, but the people who get the money are not crowding out others because they are more productive than they. Quite the opposite in fact. It's because they are not being productive at all that they get money.
Your argument is terribly flawed.
According to your admission, you can no longer say that government stimulus, even during depression, generates no crowding out.
You either have to drop your attack on Patch, or you have to drop your admission that there are secondary effects and hence crowding out even during depressions.
Which will you drop? You can't claim both.
Lord Keynes:
ReplyDeleteYou said:
"No, a horrible war WAS NOT NEEDED TO STIMULATE THE ECONOMY. Is this point clear to you?"
Pardon, but I am not clear about this.
Is your position that the war, despite it not being "needed", nevertheless did stimulate the economy? Or is your position that the war did not stimulate the economy?
By saying the war "was not needed", that sounds very close, at least to me, to implying that the war did in fact stimulate the economy, it's just that you believe it could have been stimulated another way.
Can you please clarify?
Thanks in advance.
http://www.themoneyillusion.com/?p=5164
ReplyDelete"If you accept that there are "secondary effects" of stimulus that spill over into the non-idle, non-employed sectors, (which I will argue is more pronounced that the primary effects), then you must accept that those who did not receive the government's money, are in fact being crowded out due the government's spending, because now they have to compete with people who have more taxpayer money, used to bid resources and labor that are NOT idle (hence the secondary spill over). That is a form of crowding out"
ReplyDelete(1) The last sentence is the key here: "That is a form of crowding out".
(2) Yes, it is a lesser form of crowding out, a secondary effect.
(3) This does not change the fact that the primary effect of government stimulus in a depression/severe recession is too use idle resources, and increase output and employment by employing idle factors of production.
(4) if the lesser form of crowding out, the secondary effect, were in any way a serious argument against government stimulus,
it would apply equally to all private sector investment where competition for complimentary resources is a secondary effect.
Your arguments are feeble.
"That means many people LOSE when government spends. These people are those who are employed, and who own resources in use, but are crowded out by those who didn't outcompete them economically, for the consumer's money, but rather, they just got a special government handout."
ReplyDeleteThis all applies to any private sector investment:
That means many people LOSE when private sector investment occurs. These people are those who are employed, and who own resources in use, but are crowded out by those who didn't outcompete them economically, for the consumer's money, but rather, they just got a some other private investor's money.
"When government spends, they are not producers competing for resources. They are not producing more goods and services than others such that they acquire higher profits and thus resources. "
ReplyDeleteUtter garbage.
The government's public works/infrastructure and social spending (say, in health care) is the fundamental basis of a healthy private sector, it is public investment.
"Is your position that the war, despite it not being "needed", nevertheless did stimulate the economy? Or is your position that the war did not stimulate the economy?"
ReplyDeleteIt stimulated the economy in precisely the way I have described above @December 7, 2011 10:53 AM.
“I don't even say above that the war "increased the productive capacity of the economy in the same way it would during a peacetime production of consumer goods satisfying people's subjective utility preferences". So this is just a pathetic straw man.”
ReplyDeleteNo, its not a strawman, it’s a cogent argument. Although it wasn’t as beneficial as “normal” deficit spending (in your view), you still say that it stimulated the economy and was productive in some sense. So how can something that you labeled as “wasteful” do this?
And this ties in to my last comment (which wasn’t posted):
“Out of Work quote”
and
So government spending was needed to stimulate the economy during WWII, but at the same time it was stimulating it was also crowding out the private sector (both consumption and investment)? So whats the point of increased government spending in the first place if it just crowds out the productive capacities of the private sector??”
This boils down to the Keynes quote of “digging holes to increase employment”, just to give people money to spend things on due to a "shortfall" in AD.
"Although it wasn’t as beneficial as “normal” deficit spending (in your view), you still say that it stimulated the economy and was productive in some sense. So how can something that you labeled as “wasteful” do this"
ReplyDelete(1)
productive
Producing or able to produce large amounts of goods, crops, or other commodities.
Wartime spending was productive in the sense it produced a great deal of output, war goods: war materiel, weapons, guns etc, etc.
(2) It was wasteful production in the sense that this output was being used for destruction and war, killing people, and not satifying demand for consumer goods.
(3) However, it employed people, gave them an income, raised income considerably and allowed them to acculate savings, reducing the high levels of private debt, and allowing the boom after 1945.
So government spending was needed to stimulate the economy during WWII, but at the same time it was stimulating it was also crowding out the private sector (both consumption and investment)?
I've already dealt with this above: we're talking about a lesse form of crowding out, a secondary effect. If that were in any way a serious argument against government stimulus,
it would apply equally to all private sector investment where competition for complimentary resources is a secondary effect.
The primary effect was use of idle resources.
Lord Keynes:
ReplyDelete"Is your position that the war, despite it not being "needed", nevertheless did stimulate the economy? Or is your position that the war did not stimulate the economy?"
"It stimulated the economy in precisely the way I have described above @December 7, 2011 10:53 AM."
I looked at that post, and I see no mention of whether you hold that war actually stimulated the economy, or whether the war did not stimulate the economy. You wrote:
"(1) the war did indeed raise income and production, by employing people and expanding output. It was not of course the same thing as a peacetime stimulus. It was altogether a different type of stimulus: wasteful military spending, arms production, diversion of factor inputs to this production, and eventually restriction of consumption, control of wages and prices and rationing."
I don't see a direct answer to the question in this part. You said war spending increased incomes and increased production. OK, but I hope you know that nominal incomes can be increased on the basis of capital consumption, which shrinks economies and shrinks economic growth, and "production" of weapons and tanks can be "expanded" by using up resources that are therefore unavailable for the production of cars, schools, home appliances, clothes, etc, in the civilian sector.
I would like to know if you consider these phenomena "stimulus" or "not stimulus", and why.
"(2) Conditions were hardly good, work hours were long and difficult, consumer goods scarce. But previously unemployed people accumulated savings and gained incomes."
Is your position that if people are only able to buy fewer civilian goods, but they have more money incomes, then the economy is "stimulated"? Or is it "not stimulated"?
Suppose we compare two economies, one where people make lower nominal incomes, but they can buy more consumer goods, versus an economy where people make higher nominal incomes, but they can only buy fewer consumer goods.
Which economy is better, and why?
Thanks again in advance.
Lord Keynes:
ReplyDelete"(2) yes, the war ended a great deal of the unemployment. Yes, part of this was men going to war. A lot of people were killed. Horrible, horrific."
In your opinion, is it better for people to be unemployed, but having the freedom to find a job, however difficult it may be, such that they have it pretty rough, but they can nevertheless survive on the basis of charity and/or lowering their wage rates, or is it better for them to be sent off to war, where even though they are employed, they can be killed, dismembered, brain damaged, etc? And, given your answer, why that one instead of the other?
"What we are talking about above are historically contingent events that did in fact end the high involuntary unemployment. Recounting the facts does not mean I approve of them, and does NOT mean that a war was needed to end the depression."
Granted of course, but the area of my questioning concerns something else. I would like to know your position on whether the economy was stimulated, or not stimulated.
Yes, you responded, and I thank you, but I don't understand the response.
We have seen that growing incomes can be had on a foundation of capital consumption, and production of weapons can be increased, which means those resources could not go into the production of civilian goods, both of which are, I hope you will agree, not a good set of criteria for judging economic health, because growing nominal incomes and higher weapons production can be associated with impoverishment in the area of civilian goods production, so I just want to make sure on your position here regarding government "stimulus".
Lord Keynes:
ReplyDelete"As I have said above, a peacetime well designed stimulus involving deficit spending, public works/infrastructure, useful social spending, perhaps R&D and employment programs coudl ahve been done at any point from 1930, 1931, 1932, 1933 to end the depression, or 1934, 1935, 1936, 1937, 1958, 1939, 1940, 1941 to end the unnecessarily high involuntary unemployment and allow the economy to hit its potential GNP/GDP."
Granted.
But what WAS done, would you consider that to have been a stimulus? You have already said incomes were raised and that war production increased, in answer to this question. But if incomes can be raised on the basis of capital consumption, and weapons production can be raised at the expense of civilian goods production, are these really the best criteria for judging economic health?
Would you consider nominal incomes rising but smaller capital base for producing civilian goods, and would you consider production of weapons increasing by using up resources that could have gone into civilian goods, would you consider this as "stimulus" or "not stimulus"?
"But what WAS done, would you consider that to have been a stimulus? You have already said incomes were raised and that war production increased, in answer to this question."
ReplyDelete(1) The war spending 1941-1942 undoubtedly stimulated the economy, in the sense that idle resources were used, idle capital goods put into use, and unemployment brought down.
(2) Around 1942-1943 very significant corowding out was taking place, the economy was transformed into a command economy, with demand contraction, the other side of Keynesian macroeocnomic management.
I have already wrtten aboutthis elsewhere:
http://socialdemocracy21stcentury.blogspot.com/2011/11/robert-skidelsky-on-keynes.html
Lord Keynes:
ReplyDelete""Although it wasn’t as beneficial as “normal” deficit spending (in your view), you still say that it stimulated the economy and was productive in some sense. So how can something that you labeled as “wasteful” do this""
"(1) "Producing or able to produce large amounts of goods, crops, or other commodities."
"Wartime spending was productive in the sense it produced a great deal of output, war goods: war materiel, weapons, guns etc, etc."
"(2) It was wasteful production in the sense that this output was being used for destruction and war, killing people, and not satifying demand for consumer goods."
What about productive in the general sense, meaning you compare and contrast missiles and tanks with civilian goods and come to a single conclusion? For example, if one more missile is produced, but one less civilian machine used to produce refrigerators is produced, is there a net gain, net loss, or no change? And why?
"(3) However, it employed people, gave them an income, raised income considerably and allowed them to acculate savings, reducing the high levels of private debt, and allowing the boom after 1945."
Couldn't the same thing be done through just printing money and giving it to people? Wouldn't it have had the same effect post war?
And didn't government spending drastically fall right after the war, in 1946?
"So government spending was needed to stimulate the economy during WWII, but at the same time it was stimulating it was also crowding out the private sector (both consumption and investment)?"
Lord Keynes:
ReplyDelete"I've already dealt with this above: we're talking about a lesse form of crowding out, a secondary effect. If that were in any way a serious argument against government stimulus,
it would apply equally to all private sector investment where competition for complimentary resources is a secondary effect."
But those economically competing for resources must do so by producing something of value. They can't just spend money. They have to EARN money. You can't say that because economic competition takes place in the market, the effect of which increases supply of goods and services, is the same thing as the government merely spending money and crowding out people that way.
If I printed and spent my own money, then I am not crowding out others the way I would be crowding out my competition by being more productive than they are in serving the consumers. I mean, you do see the difference, don't you? One is competing against others for the business of the consumer. The other is just printing and spending money and crowding out the competition that way.
You can't just say that because crowding out takes place between economic competitors, who are only able to crowd each other out by better serving the consumers, that nobody can complain about the government printing and spending money crowding out the private sector. I mean, how is the government competing economically here? What are they producing? They have the authority to tax people. They are not competing with anyone else in this respect. They have a monopoly over that.
Your false comparison is very, very strange. I mean you are trying to equivocate the argument against government crowding out, with legitimate economic competition and the more efficient producers crowding out the less efficient producers, for the consumer's solicitation. Those who serve the consumers better, can crowd out the less efficient competitors.
The government isn't competing with anyone in what they do. They have a monopoly. They can tax people even if individuals don't find the government's services as good as they could be if the individuals solicit someone else in the country. I mean, why should I be forced to go to the government for healthcare, and why should I be forced to pay for other people's healthcare and if I resist, I get sent to a cage? Can't you see something seriously wrong with that?
"The primary effect was use of idle resources."
How do you KNOW the primary effect was the use of idle resources?
And how do you know that those idle resources should be used in the way that government spending makes them be used, instead of being used the way the consumers want them to be used according to their spending patterns?
If consumers want to instead build up their cash balances, because they know the future to be more uncertain, and spend less money on consumption and investment, then why should anyone go against these preferences? They would necessarily be attacking people's values, and imposing their own values on them. Why should those people's values reign supreme? Isn't value FOR the individual determined BY the individual?
"I mean, why should I be forced to go to the government for healthcare, and why should I be forced to pay for other people's healthcare and if I resist, I get sent to a cage? Can't you see something seriously wrong with that?"
ReplyDeleteAre you in the US, by any chance? Have you ever lived outside the US?
In any social democratic society with universal healthcare YOU ARE NOT FORCED to go the government for healthcare: universal systems exist alongside private insurance/private hospitals, pay for service clinics etc.
This argument has no force.
""But what WAS done, would you consider that to have been a stimulus? You have already said incomes were raised and that war production increased, in answer to this question."
ReplyDelete"(1) The war spending 1941-1942 undoubtedly stimulated the economy, in the sense that idle resources were used, idle capital goods put into use, and unemployment brought down."
How long does a particular resource have to go unused, before it goes from "used" to "idle"?
Suppose I own a machine that produces shoes. Suppose that I plan on not using that machine for the next month, and after that, I plan on using it. If you observed the first 29 days of idleness, would you consider that machine, at that point, to be idle? If not, then taking into account the fact that you don't know my future plans, because heck, I am just one person in 300,000,000 in this country, how can you claim that my resource is "idle" instead of "used for the future", and given your answer to that, why should your judgment on what should be done with that resource, overrule my own judgment, given the fact that I know my market better than you could, because there is no way that you can know more than 300,000,000 people?
And suppose that I refused to accept government handouts, and that resource remained as idle as I planned for it to be. Does that mean that the only way that government stimulus would work, would be if I were somehow forced to accept the money and forced to use that resource?
"(2) Around 1942-1943 very significant corowding out was taking place, the economy was transformed into a command economy, with demand contraction, the other side of Keynesian macroeocnomic management."
But demand was skyrocketing on account of government inflation and spending. Do you mean civilian based demand?
"I have already wrtten aboutthis elsewhere:"
"http://socialdemocracy21stcentury.blogspot.com/2011/11/robert-skidelsky-on-keynes.html"
Have you considered any responses/criticisms/challenges to Skidelsky's arguments?
"If consumers want to instead build up their cash balances, because they know the future to be more uncertain, and spend less money on consumption and investment, then why should anyone go against these preferences? They would necessarily be attacking people's values, and imposing their own values on them."
ReplyDeleteIf consumers and banks want to freely and voluntarily engage in fractional reserve (FR) banking, where it is understood by all parties that FR transactions/demand accounts are mere mutuum loans and debt instruments, because all parties wish to benefit from FRB, then why should anyone go against these preferences? They would necessarily be attacking people's values, and imposing their own values on them.
(1) Do you accept this argument. If not, why not?
(2) Unlike you I suspect who would appeal to natural rights ethics to defend your positions, I adhere to variety of consequentialist ethics: even if certian peopel wish to do something and do so voluntraily if it has very bad effects on many other people, there is a moral argument against it and even interventions to curtail certain behaviour, e.g., drink driving, owning guns and carrying them around in public, large scale holding of idle money balances owing to uncertainty about the future causing depression.
In the latter case, government stimulus reduces uncertainty and allows recovery from depression/recession.
"In any social democratic society with universal healthcare YOU ARE NOT FORCED to go the government for healthcare: universal systems exist alongside private insurance/private hospitals, pay for service clinics etc."
ReplyDeleteSorry, I totally bonked my argument, and I apologize. What I meant to say was why should I be forced to PAY for universal healthcare, despite my desire to send myself and my family to private healthcare providers only?
The reason why I said "forced to go to government healthcare" is that by universal healthcare, I thought you meant a society where only the government offers healthcare.
"This argument has no force."
You're right, I goofed.
But my point about being forced to pay still stands.
I mean, if you personally want to pay for universal healthcare, then I will say no problem, you want it, you should be free to pursue it. But what if I then said that you should be forced to pay private healthcare providers anyway, to benefit myself and my family?
If you say that I am not justified in calling for you to be forced to pay for private healthcare, because you want to pay for universal healthcare and that is your choice, then by that same reasoning, isn't it the case that it is also not justified for the government to force me to pay for universal healthcare, because I want to pay for private healthcare and that is my choice?
Lord Keynes:
ReplyDelete"If consumers want to instead build up their cash balances, because they know the future to be more uncertain, and spend less money on consumption and investment, then why should anyone go against these preferences? They would necessarily be attacking people's values, and imposing their own values on them."
"If consumers and banks want to freely and voluntarily engage in fractional reserve (FR) banking, where it is understood by all parties that FR transactions/demand accounts are mere mutuum loans and debt instruments, because all parties wish to benefit from FRB, then why should anyone go against these preferences?"
Um, I was actually asking about holding more cash by reducing one's nominal spending and/or investing. I have no idea what this FR stuff is about.
Do you have an answer for my actual question?
"In the latter case, government stimulus reduces uncertainty and allows recovery from depression/recession."
It reduces certainty? How is that? Government stimulus raises prices above where they otherwise would have been, which nullifies the increased certainty that would have been had by people increasing their cash balances which reduces prices.
How can reducing certainty end up increasing uncertainty? I don't get it.
"What I meant to say was why should I be forced to PAY for universal healthcare, despite my desire to send myself and my family to private healthcare providers only?"
ReplyDeleteWhy should I be forced to pay for roads, bridges, schools, highways, police etc. etc?
Because it can be justified by various ethical theroies, and the defence of whatever ethical theory you adhere to as valid and justified is the ultimate foundation for it.
There are a large number of ethical theories that easily provide ethical justification for interventions and progressive taxtation even if coercion is involved:
Categorical Imperative ethics (Kantian ethics)
Human rights objectivism (Rawls)
Utilitarian Kantian Principle of James Cornman
preference rule consequentialism (John Harsanyi)
ideal consequentialism/utilitarianism (G.E. Moore; Hastings Rashdall)
preference consequentialism/utilitarianism (R. M. Hare; Peter Singer)
two-level preference consequentialism/utilitarianism (R. M. Hare)
Negative consequentialism (Popper, Christoph Fehige and Clark Wolf)
http://socialdemocracy21stcentury.blogspot.com/2011/06/ethical-theories-classification.html
The issue then becomes just a debate for philosophy of ethics.
ReplyDelete"But demand was skyrocketing on account of government inflation and spending. Do you mean civilian based demand?"
ReplyDeleteCivilian demand for consumer goods was severely contracted from 1942.
"Do you have an answer for my actual question?
ReplyDeleteYou actual question is:
why should anyone go against these preferences?
I've already answered it in the response: because it has severe negative effects on the economy, effecting many other people.
A consequentialist ethical theory provides the justification for why it is morally acceptable just as stopping people from drink driving even though might "want" to do so is justified, or stopping people from driving cars which are potetially dangerous to other people on the roads, etc etc etc.
Lord Keynes:
ReplyDeleteI'll try to answer your off topic question the best I can, but this is something I'd rather not do, since FR is kind of a different topic altogether than the one I wanted to talk about. Maybe the next time you do a post on FR, we can talk about it some more.
"If consumers and banks want to freely and voluntarily engage in fractional reserve (FR) banking, where it is understood by all parties that FR transactions/demand accounts are mere mutuum loans and debt instruments, because all parties wish to benefit from FRB, then why should anyone go against these preferences? They would necessarily be attacking people's values, and imposing their own values on them."
"(1) Do you accept this argument. If not, why not?"
Hmmm, fractional reserve banking is something that scholars far more intelligent than me, and more than likely you as well, are arguing both sides. I am kind of sort of tilting towards no fraud, but that is only if individuals are not forced to accept the bank notes as legal tender. Since we are forced to accept them through legal tender however, I can't help but notice many banks lending out their client's money without their knowledge. In a world of freedom, I would have said that if they take those risks, it's their responsibility, but when they are forced to accept them as legal tender, and many clients don't in fact know that the bank is lending out their money, then in our society, I tilt towards considering it fraud.
I am still, at this point, undecided. But my guess is that there has to be some foundation that can conclusively prove it one way or the other. For me, proof ultimately rests on objective reality. So if you can provide a case that voluntary FR contracts have some underlying objective reality foundation, where no contradictions are being made, where we aren't playing word games or shitting on the meanings and definitions of the terms used, I am sure that we can come to an agreement on this.
"Hmmm, fractional reserve banking is something that scholars far more intelligent than me, and more than likely you as well, are arguing both sides."
ReplyDeleteNo, isn't: opposition to FRB is largely confined to Austrian anarcho-capitalist cultists who follow Rothbard, Block or Hoppe.
Lord Keynes:
ReplyDelete"(2) Unlike you I suspect who would appeal to natural rights ethics to defend your positions"
Huh? Unlike me? I do not adhere to natural rights. I adhere to individual freedom.
"I adhere to variety of consequentialist ethics: even if certian peopel wish to do something and do so voluntraily if it has very bad effects on many other people, there is a moral argument against it and even interventions to curtail certain behaviour, e.g., drink driving, owning guns and carrying them around in public, large scale holding of idle money balances owing to uncertainty about the future causing depression."
So if I choose not to spend my money at your place of business, I am "harming" you? Really? I am committing an "offense" against you that justifies "curtailing" my behavior? I should be forced to reduce my wealth somehow, for your benefit?
What the heck kind of ethics is that? I'm glad I'm not a consequentialist like you. Look where it leads you!
How in the world is me attempting to earn more money, and owning more money, in free trade, "harming" you? Since I am not government, I need to produce something of value in order to increase my cash balance. How am I harming you by not buying your stuff? You're not entitled to people's money simply because you're selling shit.
What if I consider your goods and services not very good, or good, but not good now and instead good in the future, such that I find your goods and services to be worth less to me than holding my money for future use, because I have determined that I need the money for an uncertain future?
Why should you be rewarded, at my expense, which overrules my values, with your own values? What makes your values so good that you consider them not only good for you, but so good in fact that they should be forced upon me too, using government force?
Your response regarding people holding more money, is interesting to say the least. I mean you just got through giving me a whole spiel about how fractional reserve banking should not be stopped because people voluntarily enter into it. OK, fair enough. Yet when the context is people holding more money, which is also voluntary just like FR, then all of a sudden, voluntary preferences go out the door, and now voluntary and peaceful preferences have to be smashed "for the good of society."
You're contradicting yourself. Again. You seem to be making a habit out of this.
OK, well, suppose I argued that FR is to me, the way holding more cash is to you. Peaceful and voluntary, but nevertheless has destructive economic effects. Why are you so high and mighty for advocating for a curbing people's behavior when it comes to peaceful accumulating of money, but someone else (not saying me because I am on the fence right now) is a social deviant for advocating for a curbing of people's behavior when it comes to FR?
I mean, surely you must agree that FR makes banks very shaky and more prone to collapse, compared to non-FR right?
"I am still, at this point, undecided. But my guess is that there has to be some foundation that can conclusively prove it one way or the other"
ReplyDelete(1) let us assume, for the sake of argument, that you accpet is morality.
(2) in a free market system, unregulated FRB is widespread.
(3) a crisis occurs and bank runs cause financial sector collapse and depression.
Is (3) an argument for banning FRB or curtailing or regulating it?
If so, you reached consequentist ethics.
If you see no argument for banning FRB or curtailing or regulating it, then you're trapped by the severe limitations of natural rights/argumentation ethics. Voluntary market processes can have devastating, negative effects, but your ethics gives no justification for interference because it's all voluntary.
"So if I choose not to spend my money at your place of business, I am "harming" you? Really? I am committing an "offense" against you that justifies "curtailing" my behavior? I should be forced to reduce my wealth somehow, for your benefit?
ReplyDeleteThat is just idiocy: I am not referring to trivial exmapels like this, but instances where mass liquidity preference causes significant amounts of idle cash balances, such as banks hoarding reserves and refusing to lend, mass deferred purchasing, mass deleveraging and so on, where these have severe, negative macro effects.
I mean you just got through giving me a whole spiel about how fractional reserve banking should not be stopped because people voluntarily enter into it. OK, fair enough. Yet when the context is people holding more money, which is also voluntary just like FR, then all of a sudden, voluntary preferences go out the door, and now voluntary and peaceful preferences have to be smashed "for the good of society."
ReplyDeleteI've done no such thing. You've badly misunderstood the mere hypothetical ethical questions that are posed above to try and make you think.
My position on fractional reserve banking has always been to regulate it, provide deposit insurance forr commercial banks and a lender of last resort in a central bank.
Lord Keynes:
ReplyDelete"(1) let us assume, for the sake of argument, that you accpet is morality."
"(2) in a free market system, unregulated FRB is widespread."
"(3) a crisis occurs and bank runs cause financial sector collapse and depression."
"Is (3) an argument for banning FRB or curtailing or regulating it?"
I would say no, for the same reason that I wouldn't consider banning people holding more money even if that also lead to pretty rough economic times. My ethics leads me to refuse punishing people who did not initiate aggression against others.
I mean, if people's voluntary behavior in surfing, lead to more surfing related deaths, then I would not consider banning surfing.
My ethics is one where the only time force is justified against people, is if they initiate it against others. Every other use of force is, to me, immoral and unjust.
"If so, you reached consequentist ethics."
OK, but isn't the debate over FR not the effects of it, so much as the inherent morality of the practise itself?
The debate over FR is not so much over the effects, it's more about whether the practise is fraudulent or not.
"If you see no argument for banning FRB or curtailing or regulating it, then you're trapped by the severe limitations of natural rights/argumentation ethics."
Wait, what? That doesn't follow. I can abstain from calling for it's curtailment, because I haven't decided yet, and still not adhere to natural rights ethics.
"Voluntary market processes can have devastating, negative effects, but your ethics gives no justification for interference because it's all voluntary."
Woah, that is an extraordinary claim. Define "devastating, negative effects" here please.
Suppose that a large place of business, gets bought out by owners who are not very good managers. Suppose they take control of the company of say, 10000 employees, and the company starts producing crap that nobody wants. Suppose then that the voluntary decisions of the consumers is leading to the company's bankruptcy.
Question: Since the consumer's voluntary decisions are going to put 10000 people into a temporary state of unemployment, would you consider the consumers acting "immorally", such that consumers should be "punished" for NOT buying the crap from that company, lest there be "devastating, negative effects" for the employees?
Do you believe in the government's doctrine of "too big to fail"? That any time the company is teetering on bankruptcy, it should be bailed out at taxpayer's expense? EVEN IF the owners are corrupt banksters?
Lord Keynes:
ReplyDelete"I mean you just got through giving me a whole spiel about how fractional reserve banking should not be stopped because people voluntarily enter into it. OK, fair enough. Yet when the context is people holding more money, which is also voluntary just like FR, then all of a sudden, voluntary preferences go out the door, and now voluntary and peaceful preferences have to be smashed "for the good of society."
"I've done no such thing. You've badly misunderstood the mere hypothetical ethical questions that are posed above to try and make you think."
You've done no such thing? YOU JUST TOLD ME that if people hold more cash, then the government must squash those voluntary preferences, and print and spend money. You did argue that should be the response!
"My position on fractional reserve banking has always been to regulate it, provide deposit insurance forr commercial banks and a lender of last resort in a central bank."
Which means you want to curtail voluntary FR contracting!
How can you be so against those Austrians who want to curtail it as well?
I mean, you said:
ReplyDelete"If consumers and banks want to freely and voluntarily engage in fractional reserve (FR) banking, where it is understood by all parties that FR transactions/demand accounts are mere mutuum loans and debt instruments, because all parties wish to benefit from FRB, then why should anyone go against these preferences? They would necessarily be attacking people's values, and imposing their own values on them."
Isn't that a (rhetorical) argument that FR should NOT be curtailed?
Lord Keynes:
ReplyDelete"The issue then becomes just a debate for philosophy of ethics."
I know. Debates about economics, and political philosophy, often does this. It's all interconnected. It is a consequence, I believe, of human knowledge being hierarchical. Arguments have premises, and those premises have premises, and so on.
So the entire sum of human knowledge would resemble a tree like structure, where the more you dig down any given field of inquiry (branch), you keep going back to the same core premises (root), and THAT is where, I think, it gets really interesting, wouldn't you agree?
For these core premises are what supports one's entire worldview. If there is an error in those core premises, then one's whole worldview can get screwed up.
"But demand was skyrocketing on account of government inflation and spending. Do you mean civilian based demand?"
"Civilian demand for consumer goods was severely contracted from 1942."
Wouldn't that be a logical consequence of redirecting scarce resources into the war effort? Since it's possible for damn near the entire set of resources to be so diverted, leaving only that which is needed to keep people biologically relatively healthy, then would you still call that a "stimulated" economy?
I mean, the Soviets had a huge army, and tens of millions in the military. But most people were dirt poor, that is, most who weren't killed or starved to death. Should we say that the USSR economy was "productive"?
I don't mean to be trite, I just want to know why the heck you believe the things you believe. It's captivating to see someone adhere to an ethics so apart from mine, which I consider to be pretty straightforward and based on human decency.
"Do you have an answer for my actual question?
"You actual question is:"
"why should anyone go against these preferences?"
"I've already answered it in the response: because it has severe negative effects on the economy, effecting many other people."
But you've already said that this doesn't matter. You said that if I choose not to spend as much money at your place of business, then that's OK. But doesn't that have negative effects on your business too?
When exactly does holding more cash go from "who cares" to "OK, now it's a problem"?
Where is the individual based ethics in your worldview?
"A consequentialist ethical theory provides the justification for why it is morally acceptable just as stopping people from drink driving even though might "want" to do so is justified, or stopping people from driving cars which are potetially dangerous to other people on the roads, etc etc etc."
OK, but you have to actually make the argument, don't you? I mean, my ethics provides the justification for why it is morally UNACCEPTABLE, just as punishing someone for drunk driving is unacceptable if they didn't harm anyone else. My ethics states that punishing drunk drivers is punishing people solely for what they are doing to their own bodies. My ethics also states that if a driver is responsible for harming another driver, then they should be held liable, drunk or not.
I mean, if we should punish people for drunk driving, then what exact blood alcohol level is going to be the cutoff? Some people have higher tolerances than others. Suppose that a person with 0.04 is more "drunk" than someone who has 0.06, and the "legal" cutoff is 0.05? Isn't it ridiculous to punish the "sober" guy, but not the "drunk" guy?
"When exactly does holding more cash go from "who cares" to "OK, now it's a problem"?"
ReplyDeleteIt's called recesssion/depression.
"Isn't that a (rhetorical) argument that FR should NOT be curtailed? '
ReplyDeleteCorrect. To demonstrate that the anti-FRB libertarian position, when conbined with natural rights, is incoherent
Which means you want to curtail voluntary FR contracting!
ReplyDeleteHow can you be so against those Austrians who want to curtail it as well?
(1) because their claim that it is fraud is wrong.
(2) that being so, their justfifictaion for wishing to ban it (alleged fraud) under natural rights ethics collapses.
"Woah, that is an extraordinary claim. Define "devastating, negative effects" here please."
ReplyDelete(1) bank runs hitting FR banks causing bank collapses
(2) mass loss of people's savings, and dsiastrous collpase in investment as the financial sector collapses
(3) depression
"Do you believe in the government's doctrine of "too big to fail"? That any time the company is teetering on bankruptcy, it should be bailed out at taxpayer's expense? "
ReplyDeleteNo.
In the case of banks they can be regulated to ensure that they are not too big to fail, or just stopped from engaging in investment policies that led to their mass failure in the first place.
Lord Keynes:
ReplyDelete""Isn't that a (rhetorical) argument that FR should NOT be curtailed?"
"Correct. To demonstrate that the anti-FRB libertarian position, when conbined with natural rights, is incoherent"
False. Natural rights is ultimately based on objective reality. FR is not necessarily (so goes the argument), because the mere fact that people voluntarily contract is not by itself sufficient to make it justified. For example, two people cannot legitimately contract to murder a third person, even if the first two people voluntarily did so. Another example, two people cannot legitimately contract to create more than one property claim to the same property. Objectively, there is one property, but there are two claims. Both can't be legitimate at the same time.
Have you read Hoppe's "Economics and Ethics of Private Property"? He devotes an entire chapter to critiquing Selgin and White's "free banking" advocacy, and uses a rationalist foundation (what you call "natural rights") to argue against it.
Like I said, I'm still on the fence, but saying that it is incoherent to be against FR and still be in favor of natural rights, is just plain wrong.
Lord Keynes:
ReplyDelete"How can you be so against those Austrians who want to curtail it as well?"
"(1) because their claim that it is fraud is wrong."
"(2) that being so, their justfifictaion for wishing to ban it (alleged fraud) under natural rights ethics collapses."
How can you be so sure of (1)?
"Woah, that is an extraordinary claim. Define "devastating, negative effects" here please."
"(1) bank runs hitting FR banks causing bank collapses"
"(2) mass loss of people's savings, and dsiastrous collpase in investment as the financial sector collapses"
"(3) depression"
For (1), how many bank runs are necessary to go from "not devastating" to "devastating"?
For (2), to what extent in the loss of savings, and to what extent in the decrease of investments, are necessary to go from "not devastating" to "devastating"?
For (3), this is just a label. It is definitional. So it cannot serve as a legitimate foundation for knowing when the objective economy goes from one reality to another reality.
"Do you believe in the government's doctrine of "too big to fail"? That any time the company is teetering on bankruptcy, it should be bailed out at taxpayer's expense?"
"No."
"In the case of banks they can be regulated to ensure that they are not too big to fail, or just stopped from engaging in investment policies that led to their mass failure in the first place."
That response is terribly flawed. It is flawed because it ignores the likely possibility that the government determines that its regulated banks are too big to fail, which means you cannot say that they can be regulated out of being so determined as too big to fail (see our current regulated banking system and the government's determination that they are too big to fail), and it is also flawed because it incorrectly presumes that regulations, laws, times when the government can use force and when they cannot, which are necessarily backward looking, can somehow stop the negative effects of credit expansion, which is always future oriented, all of which is grounded on the absurd notion that the government can even KNOW and PREDICT how much credit expansion is "good" and when it goes bad."
How can the government know that $X credit expansion is "bad", but $(X+x) credit expansion is "bad"?
How can the government know that $Y total market capitalization / asset valuation is "good", but $(Y+y) total market capitalization / asset valuation is "bad"?
What specific regulations can possibly allow the government to stop credit bubbles, given the fact that they allow credit expansion?
How can merely saying "more regulation please!" to the government possibly suffice as an informed understanding of what regulations can and cannot do when it comes to the effects of credit expansion? What contribution are you making to the topic by saying the magic word of "regulation"?
Speaking of "incoherent"...
"Another example, two people cannot legitimately contract to create more than one property claim to the same property. Objectively, there is one property, but there are two claims. Both can't be legitimate at the same time.
ReplyDeleteThere isn't "more than one property claim to the same property".
The FR account is nothing but a debt/debt instrument, and the money was a loan or mutuum, not a bailment.
In demand deposits, you have lost your property rights to the money when you lent it to the bank, and instead have entered into a contract with the bank to allow them to use it, even though they are obliged to re-pay to you on demand money the debt, or money to the same amount in whole or in part from their other reserves, other unused deposits, sale of financial assets or lending from other banks.
http://socialdemocracy21stcentury.blogspot.com/2011/09/if-fractional-reserve-banking-is.html
How can you be so sure of (1)?
ReplyDeletehttp://socialdemocracy21stcentury.blogspot.com/2011/12/my-posts-on-fractional-reserve-banking.html?showComment=1323557823387#c2061218117543789430