The View From 1776

Numbers Confirm It.  Ours Is A Socialist Welfare State

Read Robert J. Samuelson’s Washington Post opinion column: It’s the welfare state, stupid

Posted by .(JavaScript must be enabled to view this email address) on 11/15 at 11:50 PM
  1. Yes indeed there are a lot of wealth transfers going on in America. One of the most striking is the transfer of Federal largess from Blue states to Red states in the form of Federal expenditures versus taxes collected. Samuelson does make sense that in the long run the deficit needs to be reduced.

    Most economists understand (and common sense dictates) that for a healthy economy, the time for Government austerity is during boom years, and the time for deficit spending is during deep recessions.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/17  at  09:05 PM
  2. Mr. Jay, yours is the Keynesian theory of compensatory fiscal policy. Unfortunately it never has, and never will, work.

    The demagogue having been established in 1933 as the paradigm of legislative action, almost no politician will ever vote to reduce welfare-state spending without a loaded and cocked gun at his head.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/18  at  02:40 PM
  3. Thomas,

    If you maintain that during a recession that it is best to reduce spending by all parties, how does that get the economic engine going again? Austerity during a depression is obviously non-nonsensical.

    The only way a factory owner is going to hire more staff or build new plant and facilities, is if demand for his product increases.

    The only way for demand for his product to increase is for more customers to have enough money in their pockets to buy!

    This simple relationship between supply and demand is taught in Economics 101 in every college in the country (and not just in those "progressive liberal commie colleges" on the East and West coasts).
    Posted by .(JavaScript must be enabled to view this email address)  on  11/20  at  02:32 PM
  4. I will forward this article to him. Pretty sure he will have a delightful read. Thanks for posting! Reading this post reminds me of my recent employer!
    Posted by essays  on  11/21  at  07:39 AM
  5. Jay J,

    a) You wrote “If you [Thomas] maintain that during a recession that it is best to reduce spending by all parties, how does that get the economic engine going again? Austerity during a depression is obviously non-nonsensical. The only way a factory owner is going to hire more staff or build new plant and facilities, is if demand for his product increases. The only way for demand for his product to increase is for more customers to have enough money in their pockets to buy! This simple relationship between supply and demand is taught in Economics 101 in every college in the country.”

    First, I have nowhere read Thomas arguing austerity is necessary to ‘all parties’ in order to get the economy going. In fact, I have not read where he has prescribed any set policy (other than more personal saving) for ‘getting things going’ in the sense of the economy being ‘shapeable’ by a directed government policy (other than for it to get out of the economy shaping business). Implied in your misstatement of what Thomas (and others) has argued is the notion an economy is a measurable, fixed object subject to human management such that a particular outcome or set of outcomes can be had from it (rather like milking a cow). You are looking for guarantees where there can be none; and, whenever the result is suboptimal you look to fix blame politically because you assume economic activity is primarily political.

    You really need to learn the differences between what is: ‘political’, ‘economic’, and ‘politically driven economic malfeasance by politicians-with-a-god-complex’. ‘The economy’ is nothing more than an abstraction vaguely describing aggregate and myriad economic activities of all (6.5 billion of us) humans engaged in it. Any attempt at manipulating the whole of it by biasing some subset of it necessarily distorts the result (including the manipulators); and can’t be all that predictable except through massive and decades’ long experimentation. For us (or our government proxies) to arrive at the level of micro- and macro-economic comprehension it takes to manipulate a global economy involves proposing a succession of theories, testing and discarding those that don’t fit, followed by combining, recalibrating and synthesizing those that do, and then repeating the process as many times as it takes to produce a body of proven empirical data upon which economic geniuses can draw reliable conclusions (not just suppositions) for the prescribing of policies having little likelihood of backfiring. Attempts at manipulating just the local economy, results in negative global feedback (including warfare – as when you upset someone else’s economic cart) that partially negates the local manipulation and any attempt to recalibrate; ergo, this has to be global to be even remotely reliable; and that is politically undesirable for reasons other than economics. Unfortunately, such experiments would have to test not only what produces positive effects, but also what produces disastrous ones (in order to exclude undesirable policies from the final model) ; and the result would at best assist some at the expense of others. Keynes advocated just this sort of ‘testing on human subjects’ back when it could still be done nationally, as did the Nazis and early Soviets (as if their subjects wouldn’t mind).

    b) Your example of a factory-owner, productivity and money-supply is hopelessly simplistic; and a perfect example of the ineptness I ascribe to you above. Additionally, it assumes independent rather than interdependent variables; which cannot be the case. Money is not the starting point of economic activity but, rather, a by-product of it. You should read Charles Rappleye’s book ‘Robert Morris – Financier of the American Revolution’ ( http://www.amazon.com/Robert-Morris-Financier-American-Revolution/dp/B007BWCAOO/ref=sr_1_3?s=books&ie=UTF8&qid=1353802106&sr=1-3&keywords=charles+rappleye ). In it, he traces the Continental Congress’s attempts at financing the war using fiat-money with disastrous results. Congress then turned over the country’s finances to Morris, who (with others) created our first bank having a national scope; and from which the Continental army borrowed heavily. Eventually, this too failed to provide a reliable source of funding because it was built on a questionable practice (lending against what has not yet been produced), but by then the war was over and it was more a question how to repay the bank’s subscribers before, they too, were ruined. What is interesting (and what I draw your attention to) is Morris’s private economic activities before and during the war in which he amassed a small fortune starting from nothing and almost without benefit of money in any guise you would recognize. It also illustrates the importance of confidence in the money we accept in exchange for our goods and labor. The way Morris did it was to keep hundreds of small transactions going all at once, all of which resulted in some small profit to him and his trading partners. For example, he would contract for linens from Britain for a stipulated sum, which he would then use to buy lumber (in the form of a promissory note drawn on a bank in England) for shipment to Spain, and, simultaneously, engage with his lumber supplier to fill his order for goods against the same bank draft. In all of this, no actual money changed hands – only goods and credit. America was so cash poor at the time, and the risk involved to obtain money from each transaction was so great, that it made sense to leave the actual money sitting in an English bank. Morris was far from unique in this kind of juggling, but he was one of the more successful at it. At the same time, Morris was a prime actor ‘creating’ money this side of the Atlantic out of thin air, and illustrates where real money originates (from economic activity). Morris’s promissory notes (or Morris Notes) became a temporary substitute for cash at a time when a stack of Continental dollars (the official money) would not fetch a crust of bread. Morris lent Washington’s army more than 10,000 pounds-Sterling using his own credit as surety. His credit, in turn, was dependent on his continued private trading success. The army spent his notes obtaining supplies, which then entered circulation as though real money (for as long as they maintained confidence). For nearly two years, Morris Notes were the preferred medium of exchange from Baltimore to Boston. While Morris’s private system of simultaneous transactions bypassed any immediate need of cash, it did not eliminate any need of it and was not for everybody (most of us can’t jungle that well). The demand for cash in some form was intense to the degree his promissory notes became indistinguishable from it (at least for local purposes). Because his notes were backed by something more than a promise to repay (aka, trade), they were relatively stable whereas the Continental currency wasn’t.

    c) Regarding your final sentence “This simple relationship between supply and demand is taught in Economics 101 in every college in the country.” No, actually, it isn’t. Somehow, I doubt you have ever seen the inside of an economics class or cracked a book on the subject or you would never have made such an assertion. Basic economics does not cover things like ‘governmental stimuli’ for the simple reason they are neither simple nor pertain outside theory (i.e., not backed by a history of success; for example: http://www.economicswiki.com/economics/ ). Basic economics sticks to uncontested matters, and does not veer into advanced controversial subjects like Keynesianism or terra incognita according to JJ.

    As far as I can tell, few (if any) economics professors argue the case for economic stimuli as you do, and that includes Keynesian, post-Keynesian and liberal professors of economics (and, if you have such a professor, consider getting another - fast). What some of them do argue is a far more convoluted, limited, and nuanced case for ‘pump priming’ and government stimuli. What you have repeated here is the dumbed-down for the masses version hyped by media airheads (to pump up ratings) and unscrupulous politicians (selling us the notion something can be had for nothing if only we will vote them power to do it). Keynes, himself, abandoned his idea of pump-priming once he’d seen the results of it by inept politicians. Infusions of cash are not the only means for getting people to buy. You forget that money is elastic, changing in value in response to supply-demand, and making efforts at stimulus futile and inexcusably expensive. Besides government stimuli, there are also: simple barter, brokered barter (as Morris practiced it), risk-capitalization (banks or other lenders extending credit on assumption market has turned), resource-pooling, business restructuring (i.e., operating costs cut & prices slashed), inventory sales to reduce overhead, buying substitute goods (brand C instead of brand A or chicken rather than filet mignon), buying used, cutting behavioral taxes (e.g., environmental taxes on gasoline), cutting VAT and other taxes, deregulation of business, allowing deflation to take its coarse and as makes goods more attractive, cut the minimum wage (encourages businesses to hire more unskilled workers), &c. I am sure Thomas and some of his business savvy readers can suggest other ways to stimulate an economy that does not involve more government intervention. So, as anyone not a hopeless liberal-socialist can see, your premise asserting “The only way for demand … to increase is for more customers to have enough money in their pockets to buy” is demonstrably false and economically illiterate.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/25  at  07:42 AM
  6. Bob,

    Without attempting the Herculean task of rebutting your arguments line by line, let me respond to just your last paragraph, where you suggest other ways to encourage economic activity. I believe that most or all of these refinement are, in effect, substitutions for cash. A barter may not involve the transfer of currency, but nonetheless wealth is exchanged. Using "money" in the argument is a shorthand for all of these techniques, since it is exhausting (and it clouds the concepts) to argue on the level of such minutiae. The basic concept remains valid irrespective of the form of transfer.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/30  at  11:43 AM
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