Lone Wolf wrote:
brajalle wrote:
Keynesian policy at this point would be to get capital into the hands of people who will spend it in order to get the economy moving. In Keynes day, this was largely in the form of public infrastructure job packages or a war with a draft, often both. The amount of federal spending, and the stimulus was widely panned by Keynesian economists as being pretty minuscule (much like the fitful and timid stimuli that Japan has tried) and insufficient for the job.
Japan spent $6
trillion to stimulate her economy. How much debt must one take on in order to enough to qualify as "Keynesian"?
I read some research over at Steve Keen's site (who makes a well-reasoned case for deflation) and in his view in order for Keynesian stimulus to be effective in the U.S.--i.e., inject enough money into the economy to offset the destruction of money by deleveraging--it would need to be approximately $20 trillion. To date, the scale of Keynesian stimulus has been along the lines of $2 trillion, or 10% of what would be needed in order to be effective (assuming that you accept the Keynesian spending premise in the first place).
The problem with all of this Keynesian speculation, of course, is that the question of where the money is supposed to come from is never really answered. Since every dollar of government deficit spending that is borrowed is a dollar+interest claim on future economic output, at what point does the process lead to ridiculous outcomes where future economic output becomes insufficient to even pay the interest on the outstanding debt? Japan will probably encounter this barrier first, since it has such a head start on everyone else in the spending contest.
Also, the idea that going to war helps the US economy (or any economy) is very dangerous. The citizens of a nation at war are forced to give up some portion of their own needs and desires (often an enormous portion for conflicts like World War II) in favor of tanks and bombs. This problem is illustrated by the
"parable of the broken window".
Also, lots and lots of people die. War is poverty.
To me, the question of whether war would help at this point is moot. We've aready tried that. The recession that started in 2001 was followed by two wars that would have made Keynes blush--the U.S. got involved in two of the most unfriendly and inhospitable places on earth (urban fighting in Iraq and mountain fighting in Afghanistan) and has been at it for 10 years in Afghanistan and 8 years in Iraq. Both of these wars were basically put on a credit card that our children will carry in their wallets. Whatever Keynesian boost that war could provide has already been provided, and the relatively smooth functioning of the U.S. economy from 2001-2008 may mean that these wars actually were successful from a Keynesian spending perspective. At this point, however, I don't think the U.S. has any more appetite for new wars, no matter how urgent the "need" is, as explained by the politiicians.
I think that one of the untold stories (or at least the scale of the story hasn't been widely told) of the two wars described above is the future expense of caring for all of the physical and mental problems in soldiers who in past wars would have been killed in action. The improvements in battlefield evacuation of the wounded, the first aid procedures on the battelfield, and the improvements in body armor mean that while there are dramatically fewer killed in action than in past wars, there are a dramatically higher number of wounded relative to those killed, and many of these wounds will require lifetime care.
The Austrian explanation seems to get at the real reason why the Japanese and US stimuli haven't worked: they simply create further malinvestments and debt that still have to be cleared from the economy.
To me, this is so obvious it's scary.
In reading von Mises' philosophical discussion of what economics has meant to humanity, it becomes clear that economics was one of the reasons the world was able to move away from feudalism--i.e., the world now had a mechanism for accumulating capital and a way of deploying it efficiently that it didn't previously have. In modern times, however, it's like all of the soundness of the basic understanding of how to structure society from an economic perspective has been eclipsed by what might be called "speculative economics" where people like Keynes tell stories about worlds that only exist in fantasy--a world where politicians can be trusted to only spend like sailors during times of economic contraction and will then dutifully raise taxes and rein in spending during the economic expansion that follows the contraction. When has this ever happened?
