Wednesday, October 19, 2011
Remedy for the Economy
Nothing new, but well said.
Arguably, the problem with the economy in the United States is that the government has not fostered a very good business climate. The answer to that would be smaller government, stable rules, and fewer regulations. When businesses feel confident that expansion is going to be profitable, they'll hire people. When they don't, they won't take the risk.
Or maybe it's aggregate demand? In that case, government spending works and you can pay workers to dig ditches and fill them back in again. It's no suprise that the promise of a free lunch through Keynsian stimulus is politically feasible. It's also no suprise that it doesn't work.
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Very true. Keynesians must ask, if the government is so good at making jobs at little to no expense, then why does Obama stop at creating two million jobs?
ReplyDeleteLikewise, if the government spending multiplier is 4 (or whatever arbitrary number they invent), then why not have the government make all jobs and be the main driver of the economy?
Obviously something doesn't add up.
might as well just let the market do its thing, right? has worked out so well thus far. Oh wait... the problem with Obama's stimulus was that it was too small. ANd it was the GOP that blocked it! Put the blame with the right wingers! enough of this propaghanda, AM!
ReplyDeleteHM
HnB: exactly. What makes the theory so implausible is that there is no logical limit: spending is spending, that is it. I guess HM's answer to you is that the Rep's blocked it, but that doesn't make sense b/c the dems had both houses at the time. It is true that real Keynsians like Paul Krugman wanted it to be really really big.
ReplyDeletePeople who try to calculate multipliers get wildly varying answers. I think to actually have a higher effect, it has to be more than 1. I've seen work that shows it's less than 1 (which means that there was no multiplier); and work that shows there is more than 1. It seems like economists get the answer they want depending on their stripe. I don't know how people account for the "unseen" effects, crowding out, wealth destroyed by taxation etc...
HM: yes, let the market do its thing.
Quote from Andrew Coyne at Macleans, June 2010:
ReplyDeleteAnd even if you thought deficit spending was the answer to a problem of insufficient aggregate demand, it was hard to see what relevance it had to the credit crisis, which was primarily a problem of supply. As the economist John Cochrane, of the University of Chicago, has written, imagine if several major oil refineries blew up at the same time, leaving gasoline in short supply: “Stimulating people to drive around would not revive gas sales.” All it would do is drive up gas prices. Substitute banks for refineries, and the point becomes clear.
Well said Mr. Coyne.
Indeed.
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