Quote:
Originally Posted by Ohioprof
Remember that Keynes did not call for having government spending continually increase. He called for government to spend and run a deficit when the economy is headed into recession/depression, at a specific point in the business cycle. His idea was not to have government spending be "sustainable," to quote your last sentence. Keyne's argument was to use government spending to counter the business cycle, which is known as counter-cyclical spending. And yes, this government deficit spending is a short-term solution to the immediate problem of depression/recession, to the downturn in the business cycle.
|
Right, but the only way to make it work is to continue the increase in spending, that was my point. As we have seen and you agree with, the moment the funding stops the economy goes right back into recession. It is also debatable whether we were even out of a recession when the spending is on going. The New Deal was happening and the recession wasn't over. The recession in the 80s had no relationship to government spending (in terms of trying to solve it).
Keynes theory is about as accurate as trickle down economics. It sounds good in theory but doesn't work and never will.
Quote:
|
The analogy of the jump start is apt. Just as you use jumper cables attached to another power source to give an immediate jump to your car battery, you use the federal government to give an immediate jump to the economy. You don't rely on government deficit spending to sustain economic growth over time, just as you don't run your car off the other power source over time. You use the jump to get the car engine started, and the engine runs the car. Similarly, you use the jump of deficit spending to get the economic engine started, and the private sector economy then runs the car.
|
I understand the purpose, you have a bad habit of describing how something works instead of arguing whether or not it does work. I'm not stupid.
I am arguing that it doesn't jump start the car. If you want to use the analogy it would be like jumping a completely dead car battery. You might get the engine started for a second but you will have to replace the battery before the car will go anywhere. Even getting the car started for a second is debatable.
Quote:
|
Your point as I understand it is that in the long run, it wasn't government spending during World War II that caused the economy to prosper, but the demand for U.S. products. But it was government spending that created the demand, by creating jobs that enabled people to buy the products.
|
It was the government spending that led to the demand...but by flattening the rest of the industrialized nations. The demand had nothing to do with employing people because after WWII people weren't employed by the federal government (war is over) and it wasn't like they got a big check when they came home and spent it. Remember we were in a mini recession after WWII for 2-3 years. People got jobs when manufacturing was needed after the war. The government was buying this stuff...at least not the US. It was US citizens and foreign nations. All of this was unrelated to the war and to government spending.
In your defense, we did build some great infrastructure during that time that allowed for extreme business growth...so in that sense the government spending helped but this was mostly paid for without debt and would be worthless without the main cause of economic recovery. In other words, you can't go out and build interstates anytime you want and think the economy will go nuts.
Quote:
|
This is true of products purchased by Americans and of products purchased by people overseas. The U.S. government spent money on the Marshall Plan to build up Europe, in part to rebuild our trading partners and to enable Europeans to buy American products. Government spending served to fix the economy by helping to create jobs both at home and abroad, which in turn paid people wages that allowed them to spend money on products, which led to the demand for U.S. goods. Government spending jump starts an economy by enabling the demand for products that then goes on to fuel economic growth.
|
Nothing I've seen supports this. While having no other countries functioning helped us, we didn't have a huge trade surplus which is what you are arguing the government created.
You talk about the Marshall Plan, well that wasn't during a period of US economic recession...at least most of it wasn't. This is largely irrelevant.
One trap you can fall into is assuming a truth and finding a way to get that answer. For example we can do bailouts over and over and over until the economy gets better and then everyone will say it was the bailouts and it took "# of bailouts x $" to get the economy going again when you really don't have any correlation. We have already done a few stimulus packages and those failed. Japan tried them in the 90s and that failed. The New Deal failed. We have had recessions recover is 1-2 years with no stimulus packages.
There is just no relation to government spending and economic recovery. Keynes is wrong.