Brad thinks I am too pessimistic about the prospects for a fiscal-led recovery:
But surely we believe that if the U.S. government were to follow the
Countrywide plan–to send its representatives out onto the streets to
have them walk up to people and say: "Here’s $500,000. You can have it
if you go buy a house"–then that would drive a recovery, right? I mean
it drove a recovery in 2003-2006, didn’t it?Even the Austrians believe that spending–in their case, driven by
credit-expansion created by the malefactors of fractional-reserve
banking–works. So why can’t the government do what fractional-reserve
bankers can?
Here is the link.
Why do they think it will work here when it did not work in Japan? Are there really positive NPV projects to be financed by the US government? Exactly what controls does the government have?
Like always, this will simply help connected people-likely the already rich.
I just wonder if that solves the tight fisted bank problem. Once we blow our wad, then that money get locked away in some vault. And it puts another 2 trillion on the Federal tab.
Uhm, the recovery was aided and abetted by the Fed driving interest rates down, not by the government
walking up to would-be home buyers and giving them checks. The big shift in government spending from 2003-2006 was on the American, er Iraq War. Maybe he thinks that sparked the recovery, but no Austrian does.
Now for the kicker:
Even the Austrians believe that spending–in their case, driven by credit-expansion created by the malefactors of fractional-reserve banking–works. So why can’t the government do what fractional-reserve bankers can?
Let’s parse this. First, fractional-reserve bankers are not malefactors, the 100% reserve school aside.
In fact, free banking is consistent with the right to make banking contracts allowing fractional reserves. Historicaly, banking developed with fractional reserves; and banks have served as growth-promoting financial intermediaries, not as money warehouses.
Second, there’s a massive difference, both economically and morally, between the government stealing money from Peter to give to Paul to buy a house, and a banker making a loan to Paul to buy a house, which has been facilitated by the savings of Peter and other customers, who deposit their savings into the bank.
The latter operation involves capitalist-savers investing money with an entrepreneur (who is probably also a saver-capitalist) to meet consumer demand on the market. The essence of the capitalist process is that savings are accumulated and invested (by suppliers of present goods) in advance of the sale of the final product, and the factors of production (demanders of present goods) are paid in advance, and don’t have to wait.
The government (a court ‘n cop monopoly that steals two different ways, by taxation and inflation) is a criminal gang, and so operates in a completely different way. It demands present goods and takes them at gun point. It supplies nothing in exchange, unless the operations (like kidnapping and mass murder, and paying for a little Keynesian R&D at the People’s Republic of fill-in-the-blank School) of a criminal gang are your idea of a supply chain.
Government spending is not done by entrepreneurs trying to intuit shifting patterns of consumer demand and to profit from supplying services that meet them, and with savings supplied by capitalists. No, government spending is perpetrated by politicians, planners, and bureaucrats, none of whom are investing a dime of their own savings. Instead they are “funded” by Other People’s Money, from whom it was stolen.
Government spending can’t possibly meet any sort of market test, unlike a banker making a mortgage loan to Paul with savings supplied by Peter and friends.
Keynesians have a quasi-religious, almost mystical faith in government to spur economic growth, cure recessions, and do other stuff as well, like educate people. It’s all malarky and an illusion; and none of it is consistent with individual liberty or natural rights. So the taxpayers of California (who number some of my extended family) are getting ripped off. What else is new?
I think DeLong is right, and so is everyone else, but maybe they aren’t explaining themselves clearly.
When the problem with the economy is that too much money has been invested in unproductive assets, having the federal government invest more money in unproductive assets might help. The economy might not overshoot itself as much in correcting the problem. This would save people from unnecessary pain. But as it stands now, we are expecting state governments to increase taxes on productive assets. Maybe even go bankrupt. Also, the federal government is already massively in debt itself and can’t afford to loose its credit-worthiness. What we have to worry about is a tipping point, where productive assets are taxed so much that they can no longer sustain the system. This is something I’ve thought of since reading Finer’s “The History of Government.’
That’s what everyone is arguing about, even though they can’t voice it.
At what point are taxes so high that the government is no longer sustainable? How close to that point are we? Can we afford to try and “soften the blow” of a recession? Why do so many people think it is impossible for the United States government to go into default when the states that make up our country are close to going into default? What would a federal default be like?
Do we need any more proof that Brad DeLong doesn’t have a clue where it comes to the macroeconomics of Hayek and Garrison?
Let’s speak honestly.
Brad DeLong doesn’t know Hayekian economics, Brad DeLong doesn’t understand Hayekian economics, and Brad DeLong should stop pretending to the world that he does.
Sorry, I meant there is only one way to end the inflation and that is to radically raise interest rates
David Wright makes a good point. I ‘d also add: Does it not matter that raising the price of houses will attract more resources into the housing market? Oh wait. Does DeLong’s proposal assume that $500,000 is just the right amount to validate the existing level of resources into the industry without attracting more? In that case, the existing housing stock would be optimal and the construction workers, etc. would be idle. So where are we? How does one tell the difference between a smart person’s off-hand joke/comment from a real proposal??
There are no trillion dollar good investments right now. There are plenty of trillion dollar investments that have failed or are failing. We will have deflation until this changes. Don’t economist call this the margin? That the margin sets the price?
Mr. DeLong is fond of tearing apart Mr. Cowen’s ideas and all we get to hear back from Cowen is a link to the slaughter house. Is there an explanation for this?
Well that one’s easy. Cowen links to DeLong and some of us tear him a new one (at least in our heads) and Cowen can giggle in the privacy of his office, safe to write a non-controversial piece for the NYT. “Not that there’s anything wrong wih that.”
Steve,
I don’t think this gets said often enough. We (or more specifically, the finance and home-building industries) put vast amounts of resources into investments that were expected to pay off big time. They didn’t, at all. They crashed and burned, and as a result a lot less wealth is available; people thought the pie was bigger than it was. Consumption absolutely has to drop. You can’t consume resources that don’t exist.
Given the vast difference between expected wealth and actual wealth (which I realized markets are still trying to calculate), if a stimulus was really going to help, could it do so significantly?
Here is an excellent refuation of the Keynesian multiplier hornswogle.
The Keynesians go wrong in focusing on consumption, and ignoring the savings and investment that has to be done to support consumption. Barkley Rosser, you need to read this.
http://findarticles.com/p/articles/mi_m0254/is_4_60/ai_80802015
PrestoPundit,
Here’s an example from DeLong on Hayek that makes say: “HUH?!?!”
“This Hayekian argument was, of course, dead wrong. Its problem was that it mistook value for being a fact of nature rather than a social relationship among people. The value of something is what people are willing to pay for it. If there is extra liquidity–extra real money balances–in the economy then the value of commodities in terms of nominal yardsticks will be higher and the value of liquidity will be lower–which means that the value of bonds will be higher. There is no “fall back in price to their true value.”
Notice the last comment in the comment section. I was so relieved that somebody else noticed. Sadly, DeLong never addressed it.
John V said Notice the last comment in the comment section. I was so relieved that somebody else noticed. Sadly, DeLong never addressed it.
He did address it it seems, in typical DeLong fashoin. He “disappeared” it, presumably after reading your post here. Here is the entirety of his comments section for that linked article:
Comments on this post are closed.
John V,
Thamks for your reply.
Interesting. I went back again, and still didn’t see any comments. So I did it the hard way, and checked out the archives, and finally found the post. Clicked on comments, and they were there. I then navigated back here, and clicked on the link again, and this time comments were there.
I can only think that perhaps it is a cookies issue (i’m on my parents apple and don’t want to mess with their cookies to verify my hypothesis).
Anyway, my apologies to deLong for assuming it was his fault I couldn’t see comments.
Tangential point: DeLong selectively edits out critical comments on his blog.
Comments on this entry are closed.