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| quote: | | Keynes is basically saying that you could pay half the people to dig holes in the ground, pay the second half to fill the holes again, and it would still have a positive effect on the economy in aggregate. |
No one should trust a theory that predicts greater prosperity from digging holes. Come on Occ, I can't believe you really agree with this. You've fallen into the classic "there really is a free lunch" trap that modern economists like Krugman have also fallen into. Government spending cannot create new wealth, it can only reallocate existing wealth. Yes government can temporarily stimulate the economy, but there is always a COST involved that most people ignore.
Your hole quote is appropriate in one way at least...In the world of government budgets, the hole is deficit spending, and the deficit is filled in financed with borrowed money. When the feds engage massive spending of any type, they crowd out private investment. With these spending programs and bailouts, you can't just look at the businesses being artificially propped up (the workers being paid to dig holes in your example) and say "See? They have money..They are better off..wooohoooo!!" There are always unintended consequences and invisible victims of such government boondoggles.. A good economist understands that government by its very nature, cannot give except what it first takes. It cannot create real prosperity out of thin air. Our government is trying to buy false prosperity today by punishing anyone who holds US dollars and the taxpayers of the next generation.
Keynesianism says that saving = bad and spending = good. Keynes believed that having money constantly circulating through the economy (even in unproductive government projects) would keep things on an upward trajectory. What he didn't understand is that money communicates information not by moving, but by differences in prices. He was like a naive individual who discovers that phones lines carry information with electricity. He then decides that pushing more electricity will send more information. In reality, all he would get is a squeal. Likewise, moving money through the economy does nothing if that movement does not transmit INFORMATION about the real value of economic choices. When people and businesses tighten their belts in a recession, they are sending crucial signals throughout the economy which eventually have an effect on prices. The most basic law of economics is supply and demand.. Falling prices will eventually trigger consumer demand and increased buying. The correction process will be painful (which is why allowing it to occur is not a popular idea), but the economy will recover as it always has. Government intervention can only hamper and prolong this natural recovery process, while making future generations much, much poorer.
It just needs to happen buddy. The bubble popped and we need to accept a little pain before things need to return to normal. In the case of GM, you are right in saying they are a poorly managed company. Union employees have basically created their own welfare state inside GM. The benefits and salaries are wildly extravagant for manual laborers. I have a feeling that if GM abandoned their guaranteed pensions of $50,000/yr for retirees and reduced the wage of line workers from $60/hr to a more reasonable $15-20, their financial woes would be eliminated overnight. The market has been telling GM that their costs are too high and they are in a financial mess today because they've ignored those signals. It is within their power to correct the situation. Government doesn't need to get involved.
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). I wouldnt have the patience - i'd just pimp slap them for being greedy pricks and throw them The Black Swan for a leisurely read, and be done with it (and then the boss would fire me).
