Comments (17)

• RickC

  There was a great comment on that article concerning the American economists of Keynesian persuasion and their critique of the Japanese "stimulus" of the last 20 years ie: the package wasn't big enough or aggressive enough.

  We face the same problem now. No matter how much the government spends or how aggressively they pursue that spending, if it fails they will argue "We just didn't spend enough." Well, how does one argue with a premise that can never be tested? In the end then it's really only an act of faith, especially for those whose religion is the state.

  Published: February 7, 2009 10:39 PM

• Bill R

  Murray Rothbard saw how (ironically) mainstream economics always is subject to conflicting conclusions based based on the "evidence". When that's the case it's no surprise that the "tie" always goes to the "do something" statists.

  "The same considerations apply when gauging the results of political policies. Suppose a theory asserts that a certain policy will cure a depression. The government, obedient to the theory, puts the policy into effect. The depression is not cured. The critics and advocates of the theory now leap to the fore with interpretations. The critics say that failure proves the theory incorrect. The advocates say that the government erred in not pursuing the theory boldly enough, and that what is needed is stronger measures in the same direction. Now the point is that empirically there is no possible way of deciding between them....Clearly, the only possible way of resolving the issue is in the realm of pure theory-by examining the conflicting premises and chains of reasoning." http://mises.org/rothbard/agd/introduction.asp#first

  Published: February 7, 2009 11:39 PM

• Bill R

  And whilst I'm sharing the prescience of the great Rothbard I'll add the following gem. Obama should have just saved himself the scandals and time and sent out a memo (via his kid daughters) to staff instructing them to just actually do the following:

  "Government hampering aggravates and perpetuates the depression. Yet, government depression policy has always (and would have even more today) aggravated the very evils it has loudly tried to cure. If, in fact, we list logically the various ways that government could hamper market adjustment, we will find that we have precisely listed the favorite "anti-depression" arsenal of government policy. Thus, here are the ways the adjustment process can be hobbled:

  1. Prevent or delay liquidation. Lend money to shaky businesses, call on banks to lend further, etc.
  2. Inflate further. Further inflation blocks the necessary fall in prices, thus delaying adjustment and prolonging depression. Further credit expansion creates more malinvestments, which, in their turn, will have to be liquidated in some later depression. A government "easy money" policy prevents the market's return to the necessary higher interest rates.
  3. Keep wage rates up. Artificial maintenance of wage rates in a depression insures permanent mass unemployment. Furthermore, in a deflation, when prices are falling, keeping the same rate of money wages means that real wage rates have been pushed higher. In the face of falling business demand, this greatly aggravates the unemployment problem.
  4. Keep prices up. Keeping prices above their free-market levels will create unsalable surpluses, and prevent a return to prosperity.
  5. Stimulate consumption and discourage saving. We have seen that more saving and less consumption would speed recovery; more consumption and less saving aggravate the shortage of saved-capital even further. Government can encourage consumption by "food stamp plans" and relief payments. It can discourage savings and investment by higher taxes, particularly on the wealthy and on corporations and estates. As a matter of fact, any increase of taxes and government spending will discourage saving and investment and stimulate consumption, since government spending is all consumption. Some of the private funds would have been saved and invested; all of the government funds are consumed.[15] Any increase in the relative size of government in the economy, therefore, shifts the societal consumption-investment ratio in favor of consumption, and prolongs the depression.
  6. Subsidize unemployment. Any subsidization of unemployment (via unemployment "insurance," relief, etc.) will prolong unemployment indefinitely, and delay the shift of workers to the fields where jobs are available.

  These, then, are the measures which will delay the recovery process and aggravate the depression. Yet, they are the time-honored favorites of government policy, and, as we shall see, they were the policies adopted in the 1929–1933 depression, by a government known to many historians as a "laissez-faire" administration."

  http://mises.org/rothbard/agd/chapter1.asp#preventing_depressions

  Published: February 7, 2009 11:53 PM

• heuristic

  All this advice offered to Obama by various writers around the editorial columns and blogs is beside the point. It is premised on the good faith of the person being addressed but it should be apparent just in this first month (from campaign "change" seguing into administration business-as-usual) that that premise is false. Of course it was always false on grounds of historical precedent (and maybe "apodictally" too; I'm not smart enought to say): the people who get to the top of the state heap are the nearly always the most accomplished con-men and thugs. 'Twas ever thus.

  It now all has to work itself out in its own way and the most rational course for would-be advice givers is instead to seek shelter from what is to come.
  

  Published: February 8, 2009 4:44 AM

• John

  This is not that new or surprising. Whenever a government run program inevitably fails to provide what it promised the reason is always lack of money. Why are our schools failing? Why have we not won the war on drugs/poverty/obesity/etc? Why is there not a stable Afghanistan? The answer is always "not enough money" and never "these programs are inherently flawed and will never work."

  Published: February 8, 2009 7:52 AM

• Brian Macker

  Saying, "We didn't try hard enough", is one of the typical signs of a quack medicine.

  Quacks also tend to target diseases that go in cycles because if the treatment runs long enough they can assume responsibility for curing the problem.

  How many else can you pick out?
  

  Published: February 8, 2009 8:13 AM

• fundamentalist

  No matter how massive or frequent the failures, all we get from mainstream economists is excuses: the stimulus should have been larger, or quicker or spent on something different. Of course, they fail to mention that their god, Keynes, said it didn’t matter what you spent the money on. You could dig holes or build pyramids. What they refuse to admit is that their entire system of economics is wrong.

  Clearly, mainstream economists have put themselves in a position where it is impossible to refute their theories with empirical evidence. As a result, they have removed themselves from the realm of science. And they clearly don’t care about the truth.

  Article: “But some Western economists who have studied Japan’s experience say the stimulus accomplished more than it is now given credit for. At a minimum, they argue, it saved the economy from an outright, 1930s-style collapse.”

  They don’t know that. There is no way they can know that. They are merely assuming that the economy is dead unless the state resuscitates it. But history teaches us that economies have recovered for centuries without state intervention. The brief rise in GDP that Japan experienced may have been in spite of the stimulus, not because of it.
  Article: “He agreed with other critics that the 1990s stimulus failed because too much of it went to roads and bridges, overbuilding this already heavily developed nation.”

  This violates Keynesian economics, which says it doesn’t matter what you spend the money on. And logically, it shouldn’t matter. If the problem is a failure of aggregate demand because of hoarding, as mainstream economists argue, then it shouldn’t logically matter where the state spends the money. As long as the money gets into the hands of the people and they spend it, then aggregate demand should revive. Instead of admitting failure, mainstream economists are trying to use slight of hand to direct our attention away from their failure to another issue. There is no reason or evidence that spending on something else would have done better.
  

  Published: February 8, 2009 9:17 AM

• Joe

  If Keynesians don't like what the Japanese did maybe they should go peddle their failed economic policies to the Zimbabweans. I'm sure they would just love to hear about how their Government isn't spending enough either! What are they up to now? Sextillion?

  Published: February 8, 2009 10:21 AM

• Joe

  I hate to be crude with my analogy but it seems to me that Keynesian economics is similar to a doctor perscribing massive amounts of ex-lax to an obese person who wants to lose weight.

  Published: February 8, 2009 10:36 AM

• Enjoy Every Sandwich

  I don't have a Nobel prize and all, but it seems to me that if the Keynesians are going to make the "they didn't spend enough" argument, they ought to have some dim notion of what "enough" means. I want them to tell me just how much the Japanese should have spent during the '90s, or how much FDR should have spent during the '30s (the popular argument being that the New Deal was working but those evil deficit hawks curtailed it in 1937). I also want them to show me the math: how did they calculate what "enough" is?

  Published: February 8, 2009 12:55 PM

• I Hate Taxes

  The solution to the economic crisis is simple.

  1) Abolish ALL taxes, levies, tarriffs, income-taxes, property taxes and sales taxes.

  2) Abolish ALL government spending

  3) Abolish regulations

  4) Bring all our troops home and cut the army to bare minimum.

  5) Allow private citizens and private organizations to buy military equipment and let them protect our country and form private militias.

  6) Allow people to use weapons to protect their property and themselves

  7) End the war on drugs, end the war on terrorism.

  8) End banking regulations that prohibits large cash deposits. Allow anyone to deposit any amount of money and cash they want no questions asked. Make this a banking paradise.

  9) Allow competing currencies and gold, silver and other commodities as payment methods.

  10) SELL SELL SELL ALL government lardmarks and use that money to repay the national debt and bring it back to zero and use that money to cover current engagements like veterans. But make no new engagements.

  LAISSEZ-FAIRE !!!

  Published: February 8, 2009 5:24 PM

• mark m

  Hasn't Krugman already started saying that Obama's plan is not big enough and that it will fail? Likewise with the Great Depression - lefties usually argue that FDR was not adventurous enough and round about 1936 he started to cut back many of his spending spending plans. Hence the reason US unemployment didn't fall much before the outbreak of WWII.
  

  Published: February 9, 2009 7:35 AM

• Pat

  If I were those economists, I would cut to the chase and blame the universe.

  On another note (Allow me to be sarcastic), I thought a wonderful plan that would save the economy. How about creating a civilian force that would ensure every US citizen is consuming. That would generate jobs, spending, and jump-start the economy. Those citizens who refuse to spend will be sent to a reeducation camp and have their wealth confiscated by the government. Of course, the confiscated wealth will be spent at the government's discretion. Sure, our civil liberties will be trampled, but these are different times. The economy needs saving.

  Seriously, I would not be surprised if someone were to propose such measure.

  Published: February 9, 2009 7:44 AM

• I Hate Taxes

  Pat,

  "Those citizens who refuse to spend will be sent to a reeducation camp and have their wealth confiscated by the government."

  If something like that is enacted, I garantee you that I would spend ALL my money buying weapons and waiting for your civilian force to come.

  Instead of sending them to the reeducation camp, I would simply send them to hell.

  Fair enough ?

  Published: February 9, 2009 11:30 AM

• mark m

  Pat:

  It would probably me more subtle than this: I suggest taxes on savings would be raised so that the benefit to the individual of savings would be reduced more and more. Indeed, i wouldn't be surprised if savings were just seized by the government and spent on public works projects. Its not moral inhibtions on the part of our rulers that stops this happening, merely pragmatism - specifically the potential unpopularity of such a measure. But if things get seriously worse then such ideas may get floated by policy wonks in our capitals (be it Washington or London).

  Published: February 10, 2009 6:44 AM

• Pat

  I Hate Taxes,

  An act of self-defense is fair enough. But to be honest, I feel like secession might be a better alternative. Or forming a new country.

  Published: February 10, 2009 7:34 AM

• Tim

  The traditional mode of weight loss, exercise more and eat less, is nothing but than a thing of the past, only held true in the eyes of cynical reactionaries. With our new government sanctioned dietary system, you can eat all the saturated, processed fat you ever want, because according to our magic formula, the more calories you eat, the more calories you burn, therefore the more weight you lose! Away with diet! Away with exercise! Stop starving and exhausting your poor and oppressed body! There's no need for it. The more calories you burn from lesser consumption of food and healthy physical activity, the more you take away from those burnt by our dietary solution!

  Oh you just suffered a heart attack? No problem. You simply didn't consume enough fat. Here, have a tub full of lard. I expect you to finish it by tomorrow. Unless you burn those calories, your arteries will surely be clogged with plaque! So get to it! Not that you have a choice. But don't be sad, because here, we'll even throw in a free straw.

  Published: February 19, 2009 3:02 AM