So Much Money

by Don Boudreaux on January 28, 2009

in Stimulus

During the past few weeks I've spoken with several reporters about the "stimulus" plan.  Many of them offered to me some version of the following comment: "There must be something good about the stimulus plan!  After all, it's more than $800 billion.  Surely some good spending is included in this huge amount."

Overlook the fact that, if Keynesian theory is correct, what the government spends the money on is far less important than the fact that it spends the money.  The Keynesian idea is to increase aggregate demand.  So if the whiz-bang Keynesian wizards determine that the multiplier is 1.5767938563856302144, then government should spend an extra amount of $$ such that, when this amount of $$ is multiplied by this multiplier, the product equals the amount by which the same whiz-bank Keynesian wizards determine aggregate demand must rise by in order to restore full employment.

What amuses me is the presumption that (1) there necessarily must be some good spending in a plan that has government spend an additional $825 billion; and (2) that if there is some good spending in this plan, then it helps to give the plan legitimacy.

As Karol points out about the first presumption, no one applies that kind of reasoning to their private lives.  If, for example, your teenager came home after spending the day at the shopping mall with your personal credit card and tells you "Hey Mom and Dad, I know that you told me to spend no more than $100, but I spent instead $10,000," you'd likely be furious.  And you would not be becalmed by your profligate teenager suggesting that, because he spent $10,000, surely some of it is wise.

About the second presumption: even granting (as I don't) that a spending package of $825 billion must contain some good projects, that putative reality justifies the spending package only if the benefits of these worthy projects outweigh the detrimental effects of the unworthy projects.  But such a result is hardly guaranteed by the fact (if fact it be) that some of the spending, taken separately, is worthwhile.

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Marcus January 28, 2009 at 3:09 pm

I like your teenager analogy because it turns the table around to the way it should be with the government as the spoiled child.

muirgeo January 28, 2009 at 3:18 pm

I'm all for the government spending money. I trust a legitimate administration such as Barack Obamas a heck of a lot more then the Hedge Fund managers, Bank CEO's and the Wall Street Money Grubbers who have taken trillions and trillions of our dollars entrusted to them and put them away into their personal Kingdoms. Government regulation and taxes had NOTHING to do with these jerks designing products to rip off the world with their fraudulent pieces of paper. They did it of their own volition because they knew they were on the top of the Ponzi scheme and it didn't matter that the house of cards would fall because they'd get out with plenty. And everyone of those son of a bitches is likely lining up to support the CATO signers against the stimulus package because as we all know they'll all tell us what free market supporters they are and have always been. Their total hypocrites. Their nothing more then perverts who complain about over-regulation of ones ability to rape.

But yeah lets give them more tax cuts, less regulation and lay off more government workers so they can pile their stacks of money they aren't spending even higher. That will really help get the economy moving.

Martin Brock January 28, 2009 at 3:57 pm

… you'd likely be furious.

Sure, I'd be furious, but is my fury relevant here? Suppose I'm employing my profligate teenager, paying him $10,000 annually to mow the lawn, do the dishes and so on. Suppose this $10,000 is all I can afford to pay, not a penny more. Suppose the teenager (or I or anyone else) spends $100,000 at the mall on my credit card, charging 10% annual interest. Now, I owe $10,000 annually to my creditor, and that's all I could afford to pay my teenager, so I can't employ the teenager anymore.

Within my family, the teenager is unemployed and fundamentally unemployable. My bankruptcy doesn't help, because I can afford to pay my creditor. I just can't afford to pay him and employ my teenager at the same time. Lowering my teenager's wage doesn't help either, because I can't pay him a single penny.

I cannot demand my teenager's labor, because my family's aggregate demand is too low, and my fury at the predicament doesn't change a thing.

Right?

The idea that any spending whatsoever, even paying people to dig holes and refill them, effectively solves this problem is nonsense, of course, but that the problem can exist is not nonsense. So what do you propose to do about it?

And I doubt that Keynes ever suggested that digging holes and refilling them is an effective solution to the problem.

Ike January 28, 2009 at 3:59 pm

muirgeo.

It's not a matter of who you trust MORE.

It's a matter that we shouldn't trust anyone AT ALL.

You're telling us we have to release the mass murderer from prison, because the serial killer is a more dangerous threat.

MnM January 28, 2009 at 4:01 pm

"I trust a legitimate administration such as Barack Obamas[sic]"

I'm sure the Japanese trusted FDR too; that is, until he put them in internment camps.

"Ponzi scheme"

Um, you do know what a ponzi scheme is, don't you?

"And everyone of those son [sic] of a bitches [Wall Street] is likely lining up to support the CATO signers against the stimulus package because as we all know they'll all tell us what free market supporters they are and have always been."

What makes you think that? Are you saying they were against the government giving them money after the government gave them money? Do you understand what you're saying?

"Their [sic] nothing more then perverts who complain about over-regulation of ones [sic] ability to rape."

You do realize that rape is an act of force, don't you? I'll ask you again to prove that Wall Street has done what it has done through force or fraud. Forgive us if we don't simply take your word for it; provide us with some evidence.

John Dewey January 28, 2009 at 4:13 pm

muirgeo: "I'm all for the government spending money."

Wow! What a surprise!

Oil Shock January 28, 2009 at 4:22 pm

they knew they were on the top of the Ponzi scheme and it didn't matter that the house of cards would fall because they'd get out with plenty.

CDOs, CMOs, Swaps etc didn't take shape on Jan 20th, 2001. They have been around prior to that. As far as I know, Ponzi schemes are illegal, except for politicians and bureaucrats. Why wasn't the regulators like SEC shutting down these Ponzi schmes in 1993, 1994, 1995, 1996, 1997, 1998, 1999? I guess was somebody legitimate was in the white house? Was he too busy getting orally stimulated?

Oil Shock January 28, 2009 at 4:22 pm

they knew they were on the top of the Ponzi scheme and it didn't matter that the house of cards would fall because they'd get out with plenty.

CDOs, CMOs, Swaps etc didn't take shape on Jan 20th, 2001. They have been around prior to that. As far as I know, Ponzi schemes are illegal, except for politicians and bureaucrats. Why wasn't the regulators like SEC shutting down these Ponzi schmes in 1993, 1994, 1995, 1996, 1997, 1998, 1999? I guess was somebody legitimate was in the white house? Was he too busy getting orally stimulated?

Martin Brock January 28, 2009 at 4:27 pm

I'll ask you again to prove that Wall Street has done what it has done through force or fraud.

Countless statutory forces are involved. That anyone denies their existence boggles the mind.

Henry Paulson was CEO of one of the Wall Street firms directly involved in the Fed's open market operations, involving trade almost exclusively in entitlements to tax revenue, which is forcibly confiscated wealth.

Paulson personally arranged the transfer of hundreds of billions of dollars worth of this entitlement to forcibly confiscated wealth to banks including Wall Street firms in his last few months as Treasury Secretary alone.

And that's only the tip of the iceberg.

Martin Brock January 28, 2009 at 4:38 pm

CDOs, CMOs, Swaps etc didn't take shape on Jan 20th, 2001. They have been around prior to that. As far as I know, Ponzi schemes are illegal, except for politicians and bureaucrats.

CDOs and default swaps are not necessarily Ponzi schemes. The original Ponzi scheme involved postage stamps, and postage stamps don't imply a Ponzi scheme either.

But why wasn't Madoff detected earlier? That's a great question. Why did so many investors trust him for so long? You could say that policing of his activities wasn't adequate, but policing his activities is what his investors are supposed to do.

Jesse Rouse January 28, 2009 at 4:38 pm

"I'm all for the government spending money."
-muirduck

I think you misquoted yourself. Don't worry, I will fix the quotation for you.

"I'm all for the government spending everyone else's money."

George January 28, 2009 at 4:41 pm

Dr. Boudreaux,

I have search in vain for a discussion of the opportunity costs associated with borrowing $850 billion. If spending that money via the public sector is supposed to generate the additional demand that will create the “3.5 million jobs”, what about the loss of demand that is a consequence of removing $850 billion from the private sector? Is there any detailed discussion you or Dr. Roberts would care to make on this subject?

What is perplexing is that almost all of the public discussion on TV and radio news (journalists, government leaders, economists, etc.) seems to assume that the story begins when the government spends the money. Very rarely is there even a mention of what is being displaced, i.e. the private sector investment that would have been done in lieu of buying government bonds.

MnM January 28, 2009 at 4:49 pm

True enough, Martin, and I'm not denying it. I doubt muirgeo was referring to that. Regardless, that wasn't Wall Street's doing. That money couldn't have been confiscated without government.

Without force or fraud, regardless of whether or not the government is the enforcer of said force or fraud, transactions are voluntary.

Oil Shock January 28, 2009 at 6:10 pm

CDOs and default swaps are not necessarily Ponzi schemes

I never said it. Muirgeo said it many times.

As for your Madoff Question, so long as people don't ask for their money back, these things can go on for while. Usually during market downturns Ponzi schemers get into trouble. But we don't tolerate even small market downturns. Have you heard of Greenspan put? In our current system, when ever market wants to expose the conartists, which ever superregulatory regime is in power will paper over all the troubles quickly, all in the name of saving mankind from self destruction. By not allowing the smaller corrections to occur, they create possibilities for these things to build and implode in a raging fire.

By artificially protecting forests from smaller natural fires, the "environmentalists" create a suitable environment of fuel build up and bigger fires later.

muirgeo January 28, 2009 at 8:46 pm

"I'm all for the government spending everyone else's money."

Posted by: Jesse Rouse

Odds are I pay more taxes then you. I am so tired of conservatives assuming it's only they who are taxed… grow up!

Oil Shock January 28, 2009 at 8:54 pm

if taxes are like a good spanking, you can sum up muirgeos attitude towards it as masochistic. You like it dude. You want pay more and want government to spend more. I don't want them to take my money and spend it. Wall Steet didn't get my money until government started transfering my taxes to them. In the case of government, they leave me no choice. I am required to pay it even if I leave the country. I don't know what conservatives want.

Martin Brock January 28, 2009 at 8:55 pm

Regardless, that wasn't Wall Street's doing. That money couldn't have been confiscated without government.

Wasn't Wall Street's doing? If Paulson maintains an office on Wall Street while Treasury Secretary, is it Wall Street's doing then? The idea that some bright line separates the good guys on Wall Street from the bad guys on Constitution Avenue is absurd. They're practically two lanes of the same street.

muirgeo January 28, 2009 at 8:59 pm

”, what about the loss of demand that is a consequence of removing $850 billion from the private sector?

Posted by: George

You don't get it. THER IS NO DEMAND from the private sector and we ARE NOT borrowing from them.
The private sector isn't spending or borrowing. The middle class has NO money to spend. The people with the money have no idea how much money they or potential clients have because everyone has lots of complex pieces of paper the value of which NOBODY KNOWS. The government DID NOT create these market unknowns or HUGE leverages against pieces of crap paper. The private sector, WALL STREET, did this all on their own.

The only institution capable of creating demand is the government. They aren't taking money from the private sector. They are borrowing the money in hopes of creating demand that will get the private sector markets moving.

The idea that cutting taxes and cutting government spending and government jobs will some how lead us out of this mess is mind bogglingly short sighted and unintuitive.

We just lost almost 2,000,000 jobs in 4 months….

Seriously you guys would take us back to 25% unemployment… but you're so cock sure of yourselves…

Martin Brock January 28, 2009 at 9:11 pm

By artificially protecting forests from smaller natural fires, the "environmentalists" create a suitable environment of fuel build up and bigger fires later.

I agree with you, but how does Fed policy explain the fact that Madoff's investors never demanded reasonable accounting from him? The Fed wasn't extending Madoff credit to allow him to pay investors. New investors were. Isn't a Ponzi scheme a product of a free market? I'm not suggesting that anyone should bail anyone out or even that statutory regulations should require transparent accounting of hedge funds, but blaming the Fed for Madoff is nonsense. I'm a libertarian, not a utopian. Liberty is not always a sunny spring day.

muirgeo January 28, 2009 at 9:22 pm

if taxes are like a good spanking, you can sum up muirgeos attitude towards it as masochistic. You like it dude. You want pay more and want government to spend more.

Posted by: Oil Shock

You are the one who probably has just lost the equivalent of 5-10 years of taxes you pay to the guys on Wall Street and you're ready to grab your ankles for more. NOT ME. The democratic party spends less money then the Republicans, they promote more efficient government AND stronger economies and they've not lead us into any Great Depressions while the Republicans have 2 in 80 years under their belts… nope you are the sadist.

Christopher Renner January 28, 2009 at 10:01 pm

Martin Brock: And I doubt that Keynes ever suggested that digging holes and refilling them is an effective solution to the problem.

If the statement attributed to Keynes in this WSJ article is accurate, he suggested something extremely similar. The relevant paragraph:

Drama was a Keynes tool. During a 1934 dinner in the U.S., after one economist carefully removed a towel from a stack to dry his hands, Mr. Keynes swept the whole pile of towels on the floor and crumpled them up, explaining that his way of using towels did more to stimulate employment among restaurant workers.

Martin Brock January 28, 2009 at 10:17 pm

… he suggested something extremely similar.

Or he had a sense of humor.

Roger January 28, 2009 at 10:30 pm

"Odds are I pay more taxes then you. I am so tired of conservatives assuming it's only they who are taxed… grow up!"

-muirgeo

If you're okay with the government spending your money, I don't care. I do care when you and other people assume that because you're okay with it, other people should be also.

The difference is that Hedge fund managers, CEOs, and all the other people you try to portray as villains are voluntarily given the money and have very strong incentives to use the money as successfully as possible. Yes they make mistakes, yes sometimes those mistakes are widespread (whether because of their own miscalculations, the psychological atmosphere, government action, outside disaster, whatever), yes some of them are incompetent, but fundamentally, the money and trust is voluntarily given.

If the government were to attempt to "stimulate demand" with money which was voluntarily given to them by individuals without coercion, I wouldn't care how much they spent; I would only be sure that they wouldn't be spending any of my dollars unless I thought it might be successful.

muirgeo January 28, 2009 at 10:49 pm

Roger,

This is a democracy and the last 8 years we voted to have tax cuts and increased spending and less government oversight and the results are plain to see.

This time we voted for the plans as outlined by Barack Obama. That's how it works here. If you don't like how we are doing things you'll need to convince enough people you have a better idea. I've suffered AND PAID for 20 of 28 years of conservative incompetence now I got a say in how the money is spent and there is no way people like YOU should expect a pass. If anything YOU conservative voters should be paying ALL of the stimulus check since the need for it arose out of conservative governmental incompetence which many of you voted for.

If you have an issue with the country you were born into and how we do things take it up with your parents. There are always other countries to move to and many Americans did that these last 8 years.

The idea that we could have an al a carte government were we only paid for the things we want is infantile.

If we did anything maybe we could make voters responsible for any deficits accumulated under the president they elected. I think any one who voted republican these last 2 elections would be on the hook for some $80,000 per family member.

PAY UP!!

Roger January 28, 2009 at 11:13 pm

Democracy shouldn't be getting into these areas in the first place. Government spending never should have gone up starting with FDR.

That's the problem with democracy when the government takes control of so much of our lives, that we have to live by the tyranny of the majority. That you have to pay for my mistakes and I have to pay for yours (and the government by and large doesn't have to pay for anything).

Trust me, I extremely dislike of most of the "conservative" (please don't call them that) administrations that have been in power recently, mostly because they've betrayed actual conservatism. Taxes should be cut, though more emphasis should be put on them being simpler and more broadly-based with less exceptions, spending should be cut drastically and the government should stop trying to be the magic cure-all, although I'd have to disagree with you that regulation has been reduced by any means.

But anyway, I never wanted the travesty of the last 8 years (and you obviously didn't), but we both still have to pay for it because the majority did. And I doubt that there would've ever been a better result with the structure and incentives inherent in government and the power that it holds. The only way to get a better outcome is to reduce that power, to allow us to make our own individual choices and to be responsible for those choices.

Just because the majority coerced you into doing something against your will doesn't mean that when you're on the majority you should coerce others in revenge. Rather, we should work to allow individuals to take back their own freedom to make their own individual decisions.

Oil Shock January 28, 2009 at 11:18 pm

they knew they were on the top of the Ponzi scheme and it didn't matter that the house of cards would fall because they'd get out with plenty.

CDOs, CMOs, Swaps etc didn't take shape on Jan 20th, 2001. They have been around prior to that. As far as I know, Ponzi schemes are illegal, except for politicians and bureaucrats. Why wasn't the regulators like SEC shutting down these Ponzi schmes in 1993, 1994, 1995, 1996, 1997, 1998, 1999? I guess, according to you, somebody legitimate was in the white house back then? Was he too busy getting orally stimulated?

Oil Shock January 28, 2009 at 11:23 pm

You are the one who probably has just lost the equivalent of 5-10 years of taxes you pay to the guys on Wall Street and you're ready to grab your ankles for more.

You shouldn't speculate about things you have no clue about. My money was safe until crooks like you want to steel my money and give it to the snake oil salesman on wall street.

Oil Shock January 28, 2009 at 11:32 pm

You missed the whole point dude. The paragraph that you quoted was about forest fires, and fuel build up. Are the forest managers to blame for the fuel build up, regardless of their intents?

The Fed wasn't extending Madoff credit to allow him to pay investors. New investors were. Isn't a Ponzi scheme a product of a free market?

So why do we have an SEC? What good is precrime? Is murder a result of freedom? Will police states prevent murders? Is the tradeoff worth it?

I'm a libertarian, not a utopian. Liberty is not always a sunny spring day.

I am not a utopian either. Which is why I believe in the necessity of a minimal government that protects property. Madoff should be punished severely so that it acts as a deterent. There is no need for a survailance state.

Once government "removes" all risks, public will be left with nothing but risk.

Oil Shock January 29, 2009 at 1:04 am

The democratic party spends less money then the Republicans, they promote more efficient government AND stronger economies and they've not lead us into any Great Depressions while the Republicans have 2 in 80 years under their belts…

Democrats singlehandedly just passed 1 trillion stimulus package and muirgeo has the gall to tell us that democrats spend less. Let me tell you republicrats spend other people's money lavishly on themselves and their cronies. They might be different set of cronies.

Which are those 2 depressions? You think "O"bama the messiah can't keep us out of 25% unemployment?

Democrats have only guided us into civil war, unnecessary meddling in world war 1, war in Korea, war in Vietnam. They only stole your money through torrent of inflation from the mid-60s.

FDR just helped the economy stay in the depression through his entire term from 1933-1945. Making bombs and dropping them elsewhere do not produce prosperity.

Sam Grove January 29, 2009 at 1:33 am

explain the fact that Madoff's investors never demanded reasonable accounting from him?

They were given to understand that they were protected by the financial market regulatory regime?

The idea that cutting taxes and cutting government spending and government jobs will some how lead us out of this mess is mind bogglingly short sighted and unintuitive.

That may be one of the dumbest things I've ever read.

muirgeo January 29, 2009 at 1:35 am

Democrats singlehandedly just passed 1 trillion stimulus package and muirgeo has the gall to tell us that democrats spend less.

Posted by: Oil Shock

It's not even close… you are the one with gall.

Oil Shock January 29, 2009 at 1:50 am

National debt has nothing to do with spending. YOu can either steal from the present or from the future. Republicans since 1995, have used overwhelmingly the latter, Where as Democrats who have been in charge of spending for most of 20th century, have used both. you just don't have gall muirgeo, it are plain deceptive, or you are plain stupid.

brotio January 29, 2009 at 2:18 am

Proving once again that when it comes to freedom or big government; Mierduck will choose government over liberty every time, he's been arguing on this thread all night about how a 'legitimate administration' (as if the previous one wasn't duly elected) is now profligately spending our money, and how that is so much better than us spending our money ourselves. (Notice that I know the difference between "then" and "than").

Russ Roberts posted another thread right after this one discussing Obama appointing a tax cheat and a bunch of lobbyists to his administration. Mierduck has been strangely silent on that thread. I wonder why? Trumpit's been busy defending The One. Whither thou, Socialist Duck?

vidyohs January 29, 2009 at 6:05 am

I have been using the teenager analogy to explain the behavior of congress since the 1970s.

Only in my scenario the teenager gets his weekly allowance, promptly dashes to the mall and spends every penny, comes home and promises to behave and live on the pennies he has left until his next allowance.

Then that night you wake to find him pressing a gun against your temple and he demands another full allowance right then. You say no, and he cocks the gun. You give him the allowance.

Then you are determined to boot him out, but you find that he has hidden all your weapons and he has the keys to all the locks.

Your kid never goes for your bank account, he understands the lesson of the golden goose, he just makes his own rules about when he gets his allowance.

Being an utter coward and still down deep you love your kid, so you do nothing and pray he reforms.

Welcome to America!

Bill N January 29, 2009 at 9:32 am

Was "whiz-bank" a Freudian slip or an intentional play on words?

With regard to the B$800+, one must keep in mind that every single dollar on every single program of that amount was considered less wise than the baseline budget.

The most honest justification is to spend it as "least foolishly" as possible.

MnM January 29, 2009 at 9:34 am

Wasn't Wall Street's doing? If Paulson maintains an office on Wall Street while Treasury Secretary, is it Wall Street's doing then?"

No, it's Paulson's doing, as an agent of the government.

"The idea that some bright line separates the good guys on Wall Street from the bad guys on Constitution Avenue is absurd. They're practically two lanes of the same street."

Maybe you're being a bit dramatic but I certainly understand where you're coming from. My point wasn't that there was some mystical line separating good guys and bad guys, but that Wall Street doesn't force you to invest in hedge funds, reinvestment trusts, etc., as muirgeo often contends.

Ike January 29, 2009 at 9:59 am

Muirgeo – an honest question:

If this stimulus package is so good for us, then why are we limiting it? Why shouldn't we double it?

And if inflating spending, entitlements, and federal bureaucracy is really the answer, then wasn't Bush (by your definition) closer to real progress than Clinton?

Martin Brock January 29, 2009 at 10:06 am

You missed the whole point dude. The paragraph that you quoted was about forest fires, and fuel build up. Are the forest managers to blame for the fuel build up, regardless of their intents?

The SEC didn't police Madoff's books, and the Fed didn't extend him credit. The negligent forest managers in his case were his own investors who blithely handed him cash without demanding proper accounting for his fund's assets. They are to blame along with Madoff, not anyone else.

So why do we have an SEC?

It's a good question, but it misses the point.

What good is precrime?

The whole idea of SEC regulation is to require proper accounting so that Ponzi schemes are discovered early, before investors discover that assets in Madoff's alleged $50 billion dollar hedge fund are worth only $300 million, but this sort of regulation is not the market solution to problem.

The market solution is for investors to require this accounting before they'll invest. So why didn't they? That's the question. Why didn't the market work? Why were investors willing to hand Madoff billions of dollars without knowing what he was doing with it?

Is murder a result of freedom?

No. Walking up to man with a gun and saying "go ahead and shoot me" is a result of freedom.

Will police states prevent murders? Is the tradeoff worth it?

No, they won't, but that's beside the point. My question was "isn't Madoff's scam a product of a free market?" The SEC didn't prevent it, and the SEC may not be worth its cost, but that's irrelevant. If the SEC hadn't been there, Madoff's scam could have and presumably would have happened anyway. There was no SEC when Ponzi operated.

Pretending that a freer market would have avoided Madoff is nonsense. If we're advocating free markets, we must honestly acknowledge that Ponzi schemes are possible and will occur. Caveat emptor. We don't have a solution to this problem, so the libertarian position must be that no cost effective solution to the problem exists.

I am not a utopian either. Which is why I believe in the necessity of a minimal government that protects property. Madoff should be punished severely so that it acts as a deterent.

Punishing Madoff is not the deterrent. His investors' losses are the deterrent. Madoff should be reduced to poverty to return as much of the booty as possible, and maybe he should spend some time in jail, but his punishment by the state is irrelevant to the market incentive created by the implosion of his scheme.

There is no need for a survailance state.

The need for this policing is the question, and you'll have a hard time now convincing Madoff's investors that effective surveillance is unnecessary or practically impossible, even if you're right.

Martin Brock January 29, 2009 at 10:08 am

I'd really like someone to reply to my first post in this thread, so here it is again. Is "inadequate aggregate demand" a meaningful notion or not? This question is about fundamentals of economics and finance, not about politics.

… you'd likely be furious.

Sure, I'd be furious, but is my fury relevant here? Suppose I'm employing my profligate teenager, paying him $10,000 annually to mow the lawn, do the dishes and so on. Suppose this $10,000 is all I can afford to pay, not a penny more. Suppose the teenager (or I or anyone else) spends $100,000 at the mall on my credit card, charging 10% annual interest. Now, I owe $10,000 annually to my creditor, and that's all I could afford to pay my teenager, so I can't employ the teenager anymore.

Within my family, the teenager is unemployed and fundamentally unemployable. My bankruptcy doesn't help, because I can afford to pay my creditor. I just can't afford to pay him and employ my teenager at the same time. Lowering my teenager's wage doesn't help either, because I can't pay him a single penny.

I cannot demand my teenager's labor, because my family's aggregate demand is too low, and my fury at the predicament doesn't change a thing.

Right?

The idea that any spending whatsoever, even paying people to dig holes and refill them, effectively solves this problem is nonsense, of course, but that the problem can exist is not nonsense. So what do you propose to do about it?

And I doubt that Keynes ever suggested that digging holes and refilling them is an effective solution to the problem.

Jesse Rouse January 29, 2009 at 10:11 am

"Odds are I pay more taxes then you."
-Muirgeo

I'm sure you do (I'm an econ grad student)but that doesn't mean you don't like spending other people's money either. If you are so gung-ho on big government and the Obama administration why don't you voluntarily give more of your paycheck to the state??? The majority of what the government provides are private goods, so why should I be forced to pay for them when I can get them cheaper in a market and I am not able to free ride?

I also love the conservative remark. I'm more liberal than you will ever be. Not in the perverted since but in the classical since before progressives and socialists distorted the word.

Since you assumed I was a conservative I will make an assumption of my own. I have a feeling you are the type of person who goes to Disney World and complains about long lines AND high prices.

Morgan January 29, 2009 at 10:11 am

If we did anything maybe we could make voters responsible for any deficits accumulated under the president they elected. I think any one who voted republican these last 2 elections would be on the hook for some $80,000 per family member." – muirgeo

I have a better plan. Make voters responsible for any spending under the presidents they elect – deficit or not.

Martin Brock January 29, 2009 at 10:24 am

Here's a good example of the now prevailing attitude toward Madoff.

"Robbins, who has spoken at the United Nations and appeared on 'The Oprah Winfrey Show,' said he began investing small amounts with Madoff Securities International Ltd. through a trusted friend and attorney in Marin County whose family had been Madoff clients for 35 years. Then, after several years of steady earnings from what he thought was a portfolio in line with his principles, Robbins decided to place all of his holdings from book royalties and speaking fees with Madoff, who faces a host of federal charges.

"'This wasn't a bad investment, Robbins said. 'This was a theft, a criminal action.'"

No, it was a bad investment and a criminal action. If it had not been a bad investment, Robbins could expect his money back, and I certainly do not want taxpayers bailing him out.

Roger January 29, 2009 at 10:35 am

"The SEC didn't police Madoff's books, and the Fed didn't extend him credit. The negligent forest managers in his case were his own investors who blithely handed him cash without demanding proper accounting for his fund's assets. They are to blame along with Madoff, not anyone else."
-Martin Brock

Although I agree that the investors are largely responsible for taking the consequences of their own actions, I'm fairly certain that the SEC investigated Madoff's firm multiple times and gave him a clean bill of health, missing many warning signs in the process. The very existence of the SEC creates more confidence in investment vehicles than they perhaps deserve, and although it might be necessary, when the SEC fails it makes everything worse.

Martin Brock January 29, 2009 at 10:36 am

If we did anything maybe we could make voters responsible for any deficits accumulated under the president they elected. I think any one who voted republican these last 2 elections would be on the hook for some $80,000 per family member." – muirgeo

I have a better plan. Make voters responsible for any spending under the presidents they elect – deficit or not.

Sounds like the same plan to me. So muirgeo has volunteered to shoulder the cost of the $850 billion "stimulus" package without me? Where do send I him the bill for my share?

jorod January 29, 2009 at 10:55 am

The stimulus plan looks more and more like a way around earmarks restrictions.

Morgan January 29, 2009 at 11:16 am

Martin, my suggestion was intended in humor, but I'll point out that it's not exactly the same as muirgeo's.

His plan creates pressure for a balanced budget – after all, no one wants to get stuck paying more than his "fair share", and so the mandate is to maximally spread the burden by ensuring that all spending is covered by current taxes.

Mine creates pressure for smaller government – again because no one wants to pay more than his "fair share" – but this time every dollar spent by government is "unfair".

It doesn't escape me that the likely result would be a very different, and likely not very desirable, form of government. But as I said, it was intended in humor.

Oil Shock January 29, 2009 at 1:51 pm

Martin,

Lots of words, but I don't see any thoughts that refuting anything I stated. I will try to state it one more time. Earlier stages of a ponzi scheme, it is much more likely that it will get exposed with just small market corrections than bigger ones. By creating a greenspan put against such corrections, not only is the Fed unintentionally disrupting market mechanisms of exposing the crooks, they are also sowing the seeds of a much bigger financial conflagration in the future. Did the environmentalist drop a petrol bomb on the forest? No. Did they have good intentions? Yes. Is their good intentions indirectly responsible? Yes.

Martin Brock January 29, 2009 at 3:20 pm

Oil Shock,

Every word I write is not an attempt to refute you.

A Ponzi scheme is exposed at an early stage if 1) investors demand an account of the Ponzi's real assets or 2) many investors try to cash out, 2 being a special case of 1. Neither happened in Madoff's case. The question is: why not?

The Greenspan put does not account for Madoff's success. The Fed never bought any shares of his fund or lent him any cash through the discount window, and he didn't trade T-bills. I doubt that member banks played either. Market corrections presumably made Madoff's scam even more attractive to gullible investors. Blaming the Fed for Ponzi also makes no sense.

"The Fed did it" is not a meaningful explanation of every financial abuse. It's more like the droning of a broken record.

Oil Shock January 29, 2009 at 4:11 pm

Martin…

You repeat this nonsense and I don't see it in any of my posts.

"The Fed did it" is not a meaningful explanation of every financial abuse.

May be you are unable to understand my point, or I am an extremely poor communicator. Either way, I ain't going to argue this with you.

muirgeo January 29, 2009 at 6:06 pm

Muirgeo – an honest question:

If this stimulus package is so good for us, then why are we limiting it? Why shouldn't we double it?

And if inflating spending, entitlements, and federal bureaucracy is really the answer, then wasn't Bush (by your definition) closer to real progress than Clinton?

Posted by: Ike

Ike,

You should read some of Keynes to better understand it. In times of strong economic growth the government should be decreasing the debt. When there is a freeze in demand as there presently is the government is the spender of last resort. We will likely need to spend even more but political realities and practicle realities need to be consdiered as well. As Keynes would say this is not about government taking over the means of production but simply saving capitalism from itself by kick-starting the economy until the private sector can take ove. Makes pretty much sense o me but it doesn't fit into the neatly squared dogma of classical liberal thinking. But rigid ideologies are that way.

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