Tuesday, May 15, 2012

Enemies of the People: This Group of Hawaiians Undermines Government Stimulus

If Keynesians are to be consistent, then they would have to say that the significance of production is not in the particular goods being created, or how they meet human needs, but rather the amount of spending that accompanies the production. Obviously, if what recently happened in Hawaii were to proliferate, Keynesians would go bananas.

This group of determined people got together and fixed a road that government authorities said would cost $4 million to repair. It is pretty clear from this story that the residents spent much less than that, which means (if one applies Krugmanian logic) that they reduced potential wealth by $4 million minus what they actually spent. (Sooner or later, I supposed, Hawaii would have received the "stimulus" money to fix the road.)

After all, it is not the road that creates the wealth. Instead, it is the money that is spent. Right? That is a constant theme from Krugman and other Keynesians, and everyone knows that the Keynesians cannot possibly be in error.

Given that these evil residents depleted the economy of wealth, I would say that they MUST be classified as "enemies of the people." Hey, maybe they might even make President Obama's infamous "Enemies List."

Update: Poster Jeff has provided this gem from Krugman: projects are not about what is created, but rather the spending. So, I guess this means that if the government pays people to dig holes and then fill them again, it is creating wealth because people will spend the money.

26 comments:

jason h said...

Oh the horror of Anarcho-capitalism! Roads repaired faster and cheaper by private individuals.

Zachriel said...

Heh. It was a road to a *state* park. In any case, money was spent. It not only stimulated the local economy, but provided important infrastructure. Oh, and it saved the taxpayers money, too.

William L. Anderson said...

Sorry, Zachriel. Saving taxpayer money only undermines the stimulus. The more that is spent, the better off the economy. That is Keynesian dogma and you are not permitted to violate it if you wish to keep your status as a good dissenter to this page.

I remember a while back when Krugman complained about a project being finished before the deadline and under budget because, as he said, the goal was more spending. (No, I cannot remember when he said it and finding the link probably would be like looking for the proverbial needle in the haystack.)

As for you, should you persist in this heresy of saving taxpayer money, you might have a bunch of people congregating outside your door with torches and pitchforks. Those Ivy League professors can get their dander up, you know.

Zachriel said...

William L. Anderson: Saving taxpayer money only undermines the stimulus.

You're missing the point. Money was spent. That's what matters. In fact, it indicates that the business owners felt somewhat confident about the future, implying that government stimulus wasn't needed.

Make sure you understand the basic principle; countercyclical policy. When the economy is contracting and people are afraid to spend, then the government steps in. When the economy is expanding and people are spending freely, then the government steps back.

Pulverized Concepts said...

It ain't over yet, at least as far as the article is concerned. The new bridge hasn't been "certified". That could take awhile.

Dennis said...

If a government takes money from taxpayer "A" and spends it to benefit taxpayer "B" this adds absolutely nothing to the economy. It's simply a transfer of wealth from one person who is not politically connected to someone who is.

The individuals who fixed the road in question were probably the same ones living along it. Therefore their personal expenditure is a direct benefit to them. Conversely, it would be of little or no benefit to someone living on the other side of the island, yet under a government run "infrastructure" program such individuals are routinely taxed to pay for projects that are of no use to them. The only thing that gets "stimulated" is the anger of taxpayers.

Jeff said...

Here's a link to the article I think you're referring to Professor Anderson:

http://krugman.blogs.nytimes.com/2009/04/14/time-for-bottles-in-coal-mines/

I've read it a few times and can't find where someone hacked his site to post such tripe. I suppose he actually did say that.

Zachriel said...

Dennis: If a government takes money from taxpayer "A" and spends it to benefit taxpayer "B" this adds absolutely nothing to the economy.

That is incorrect. If the money was idle, then spending it increases economic activity, at the expense of A's wealth.

Dennis said...

Define what you mean by "idle" wealth, Zachriel.

Dennis said...

Furthermore, what makes an "idle" resource the automatic property of the state?

burkll13 said...

idle resources happens when people spontaneously decide that they dont like making money.

Fearsome Pirate said...

Zachriel, if you're saying it doesn't matter how much money is spent so long as some is, you're not being an orthodox Keynesian. Keynesianism focuses on the quantity of money spent, period. Spending $10,000 to get the same result is more stimulative than spending $100 to get the same result. At least Krugman is consistent here in showing that following Keynesian logic is its own reductio ad absurdam.

Zachriel said...

Dennis: Define what you mean by "idle" wealth, Zachriel.

It could mean gold in the King's treasure box, or cash in a mattress.

Dennis: Furthermore, what makes an "idle" resource the automatic property of the state?

That has nothing to do with your claim, however, all governments have the power to tax, including democratic countries.

Fearsome Pirate: Zachriel, if you're saying it doesn't matter how much money is spent so long as some is, you're not being an orthodox Keynesian.

We weren't addressing the quantity spent, only that there would still be a stimulus (assuming slack in the economy). In this case, there is the additional benefit of infrastructure.

Dennis said...

Frankly there's not much cash in mattresses these days, and the King's treasure box is full of I.O.U.'s., not gold. You won't be funding trillion dollar stimulus programs with that.

A stimulus program of any magnitude would be forced to expropriate perfectly useful assets, not truly idle ones, thus effecting a transfer of real wealth to those who are politically favored from those who are not. "Stimulus" is just Marxist claptrap dressed up with modern verbiage.

Pulverized Concepts said...

Zachriel, what happens if I throw a hundred dollar bill onto the coals of my barbecue grill? Is the country that much poorer? If everybody incinerated all their money would that be the end of the world?

Zachriel said...

Dennis: Frankly there's not much cash in mattresses these days, and the King's treasure box is full of I.O.U.'s., not gold. You won't be funding trillion dollar stimulus programs with that.

No, but you made a blanket statement. In a modern economy, liquidity is more variable.

Pulverized Concepts: what happens if I throw a hundred dollar bill onto the coals of my barbecue grill?

You'll probably burn your fingers.

William L. Anderson said...

Pulverized Concepts: what happens if I throw a hundred dollar bill onto the coals of my barbecue grill?

You'll probably burn your fingers.


I must admit to getting a good chuckle out of that one! The blog always can use some good wit and humor!

Tom E. Snyder said...

Zachriel: "When the economy is expanding and people are spending freely, then the government steps back."

I will be 65 in August and I have NEVER seen the government step back in good times or bad.

Zachriel said...

Tom E. Snyder: I will be 65 in August and I have NEVER seen the government step back in good times or bad.

U.S. government as a percentage of GDP dropped dramatically after WWII, and significantly during the Clinton Administration. Other countries have also been able to rein in over involvement in the economy, such as in Sweden.

Fearsome Pirate said...

We weren't addressing the quantity spent

That was the point of the original article and the article by Krugman. You Keynesians are really masters of moving the goalposts, a crucial discipline JM Keynes pioneered himself in reviving the discredited theories of 17th-century mercantilists.

Fearsome Pirate said...

Government spending did not drop after WWII because a master Keynesian planner recognized the economy was coming back and ordered a countercyclical cut. It dropped because Hitler and Tojo had been defeated.

Zachriel said...

Zachriel: We weren't addressing the quantity spent

Fearsome Pirate: That was the point of the original article

From the original post.

William L. Anderson: After all, it is not the road that creates the wealth. Instead, it is the money that is spent. Right?

Money was spent, and if there is slack in the economy, it will tend to act as a stimulus. Also, the road does help create wealth.

William L. Anderson: Government spending did not drop after WWII because a master Keynesian planner recognized the economy was coming back and ordered a countercyclical cut. It dropped because Hitler and Tojo had been defeated.

Yes, and the government retracted from the private sphere, ending rationing and reducing spending—contrary to what you had indicated.

Anonymous said...

Yes, and the government retracted from the private sphere, ending rationing and reducing spending—contrary to what you had indicated.

Well, wars are responsible for the most insane and destructive spending sprees. It's impossible for a government to not step back on spending after the war ends. So, in this case, this is not a willful step back. It's like a step back when you are setting fire to a building: it's just a matter of not being burned to death.

Zachriel said...

Anonymous: It's impossible for a government to not step back on spending after the war ends.

Enemies, both within and without, is a common excuse for continued government control.

Hiram J Goldstein II said...

You know, Zachriel, quoting one sentence out of context doesn't really work on the Internet, since the whole post is right there in front of me. This is the first sentence:

"If Keynesians are to be consistent, then they would have to say that the significance of production is not in the particular goods being created, or how they meet human needs, but rather the AMOUNT of spending that accompanies the production."

Do you know what "amount" means? It is actually a synonym for "quantity." An example of the use of the word "quantity" is,

"We weren't addressing the quantity spent."

Whoa! What was it that Anderson said again?

"the AMOUNT of spending that accompanies the production."

Again?

"the AMOUNT of spending"

There's that word,

"AMOUNT."

Well, golly gee whillikers! Looks like the we actually were talking about the quantity of money spent! I used to think that it was only Paul Krugman who didn't know how to read. Now I am coming to believe that illiteracy is fundamental to the discipline of Keynesian economics.

Zachriel said...

Hiram J Goldstein II: You know, Zachriel, quoting one sentence out of context doesn't really work on the Internet, since the whole post is right there in front of me.

We were addressing a specific point by clarifying that money *was* spent, and that roads do help create wealth. What you might have responded with: "Yes, money was spent and everyone agrees that roads do help create wealth, but the spending was less so the stimulus should be less, so what say you?"

Hiram J Goldstein II: This is the first sentence: "If Keynesians are to be consistent, then they would have to say that the significance of production is not in the particular goods being created, or how they meet human needs, but rather the AMOUNT of spending that accompanies the production."

Not all spending is equal, and the same spending may or may not create a stimulus depending on the economic circumstances. A government stimulus is only needed when there is a general contraction and businesses are avoiding such investments. That's clearly not the case in this very limited instance. Furthermore, the road itself will generate increased business, resulting in its own stimulatory effect. In a healthy economy, government stimulus isn't needed because businesses spend and create their own economic activities.

Now if you can get businesses to repair the rest of the road system free of charge, it would save the taxpayers a lot of money. But, as we said, this was a very limited instance.