In my latest column for the Freeman Online, I differentiate (in 700 words) between consumption and spending. The Keynesians (and Krugman groupies) see spending as mechanistic and necessary so we can repeat the circular "economy" in which we make stuff, put it on the shelves, and then "spend" so that we can clear the shelves so that people will have something to do: make more stuff to put on the shelves.
There are a number of other excellent articles as well. Wendy McElroy looks at the attempts by Sen. Harry Reid to effectively "federalize" the local police, thus making them even less accountable than they are now. Sheldon Richman comments on the latest "re-regulation" of the financial sector, and Steven Horowitz examines Austrian capital theory.
Have a great weekend.
Friday, July 23, 2010
Consumption and Spending, and Other Links
Posted by William L. Anderson at 10:10 AM
Subscribe to: Post Comments (Atom)
Wendy's has already made the In Case You Missed It RSS Feed.
Krugman is a genius and a brilliant economist. I don't care what anyone of you say...If you want to call him names fine but that looks silly coming from Frosburg state university...Attack on substance...
Paul Krugman is an expert on monetary policy – he wrote the classic paper on balance of payments crises (and probably could have got the Nobel Prize just for that), his work on Japan in the 1990s shaped everyone’s thinking of how to handle potential deflation, and his assessment of the crisis and needed response in fall 2008 was right on the money.
Krugman is known to many academics as a trade theorist and as a pioneering modeler of growth with increasing returns. But just because Keynes wrote eloquently on Indian currency reform did not prevent him from also understanding what had gone wrong with the world economy – and how to substantially fix it.
Krugman also has exactly the paper trail that you would like to see from any potential Fed chair. He has written pointedly and with complete clarity about all the leading policy issues of the day.
There is no question where he stands, for example, on “too big to fail” financial institutions: he’s opposed and would push for fundamental financial reform and tough oversight.
Anonymous #2: You have obviously never visited this blog. I'm not sure why you chose a post that doesn't mention Krugman to make your comment but "Attack on substance... is what Mr. Anderson does in every other post on this blog. Your weird copy-and-paste comment (googling random phrases in your comments return the original sources) comes across as a pathetic attempt at PR. Reading your comment answers a lot of questions I had about why people still take him seriously. It's sad.
Gee, had I known Krugman was such a great economist, and that Keynesian theory had all of the answers, I never would have started this blog.
Oh, by the way, nix the crap about Frostburg, as though that is supposed to be something substantive. Anyone who believes the Ivies are the be all to end all has not followed our economic fortunes lately. Ivy grads have been making our economic policies for the past two decades, and you can see how well they have done.
Wow, way to batter a man of straw! That strawman won't bother *you* anymore, I betcha! You beat the stuffing right out of him!
In the meantime, neither Keynesians nor Paul Krugman confuse spending with consumption. After all, Krugman is the one who keeps harping on infrastructure spending as the solution to our economic woes... infrastructure spending, *by definition*, not being the same thing as consumption but, rather, is a capital investment in a good that will be used for further exploitation of resources or production of goods or services. Neither Krugman nor any other Keynesian will *ever* state that all spending is consumption, and you can't find a single instance of them doing so.
Furthermore, what is an economy *for* if it is not to supply goods and services and provide employment in order to keep idle hands from fomenting mischief? Just curious. After all, the failure of Communism was caused by its inability to supply goods and services due to the fact that directly planned economies are simply impossible due to the complexity of modern economies (thus why we capitalists have a token system with pieces of paper with pictures of dead people, this token system trains the economy via a system of rewards for desired outcomes to generate whatever intermediaries are necessary without needing a central planner). Are you saying that this failure to provide goods and services was *not* the cause of the fall of Communism?
Furthermore, what is an economy *for* if it is not to supply goods and services and provide employment in order to keep idle hands from fomenting mischief? Just curious.
What people are *for* is to live their lives as they see fit. The “economy” is a metaphor for what is generally described as purposeful activity of human beings. If their property and contracts rights are protected, they tend generally to engage in producing and buying and selling. Since value is purely subjective, the only way to have knowledge of the subjective values of goods and services is through free market prices. This generally leads to prosperity. Communism failed because there were no free market prices (among other reason like the mass slaughters necessary to prohibit free market prices). The attraction of Communism to “intellectuals” is that it is a system that calls for control of the populace as rats in a cage by “experts”. Keynesianism has a similar hold on the weak-minded “experts”.
Thanks to Daniel Hewitt for this:
Krugman’s running argument with himself…..
We need to implement Joe Gagnon’s $2 trillion queasing plan.
Monetary stimulus won’t work when we’re up against a zero lower bound.
Yes it will.
No it won’t (liquidity trap).
Yes it will.
A repost of one of my prior comments:
Well now. We’ve had admissions from Badtux that you can’t model micro behavior and that the nature of human will is a “religious” or philosophical question, meaning the issue cannot be decided with math. By the way Badtux, since you appear to dispute the idea of “free will”, what is your philosophical position on the nature of man’s will and also the Austrian theory of “acting man”? Must one use math to make the determination? Show your work.
While you are at it, why don’t you refute in a scholarly article “Austrian Macroeconomics: A Diagrammatical Exposition” by Roger W. Garrison?
The entire book is free online so you have no excuse in not refuting it in a detailed and scholarly manner.
We’ve also had the admission from Another Anonymous that when the government steals purchasing power from holders of existing money in order to pass out new funny money, that such a process is not really theft:
“gummint has the legal right to commit this theft and fraud. Not everybody shares your odd brand of morality, indeed what I think is morally imperative (deficit spending) is morally wrong in you eyes, for non-empirical reasons”
So, this is not a math problem either, but a moral and philosophical one. I note that even if the process is morally “OK” with AA, he doesn’t dispute that the process is really occurring. According to AA, purchasing power is being swiped surreptitiously from holders of existing money pursuant to a process that is morally fine because it is necessary and helpful. And gumints are just allowed to get away with swiping stuff. Just cuz.
So economies have no purpose, Bob? Just spring out of nowhere as purposeless anarchy? Hey, feel free to embrace glorious, glorious anarchy. Even though, err, it has never worked, never in the entire history of this planet. Those nations which have created wealth were democracies, and democracies inherently value the orderly production of goods and services and provision of jobs in order to better the lives of the majority of the people, i.e., a capitalist economy where the majority of capital is doing productive things rather than invested in carrying guns for feudal warlords (what people generally find to do in non-capitalist economies), because that's what gets politicians elected.
And it has worked, thus far. Even the current economic situation in the United States is far, far better than any situation anarchy has ever produced. So you may embrace anarchy, but I don't. History shows anarchy simply does not work, just like communism doesn't work. And as a reality-based penguin, I'm all about avoiding what provably doesn't work...
Oh, I posted my response to your religious screed (last one) in the proper thread. Asking me to refute made-up nonsense is like asking me to refute the notion that God or the Great Penguin created the Earth from scratch 16,000 years ago by waving his hands or flippers and shouting Oooba gooba joooba squawwwwk! Given that there is provably an infinite amount of made-up nonsense that can be created(*), attempting to refute made-up nonsense is a fool's chore. It is the responsibility of the scribblers of made-up nonsense to provide the facts and figures which show that their scribblings match observed reality, not the other way around.
-- Badtux the Reality-based Penguin
(*)Eventually you run out of subatomic particles in the universe to use to express made-up nonsense. But that is effectively infinity anyhow, so... (shrug).
Looks like BadTux would have been better off pretending he never saw Mr. Roddis' comments.
A history lesson for BT.
What BT does not know.
Of course I don't know that linked stuff, anon, because you just linked to holy scriptures a.k.a. holy scriptures pulled out of the bunghole of ideologues with an axe to grind, not to peer-reviewed journal articles based upon original sources. Please go look up the difference between "fact" and "opinion" and get back to us, kthanks?
- Badtux the Opinionated Penguin(*)
(* But I don't confused opinion with fact, unlike religious ideologues.)
The hypocrisy is amazing. of course, if you have an issue with the methodology behind formulas that use aggregate data to define economies, you are an unscientific religious fanatic. if you believe in the infallibility of flawed equations, because your peers do too, you are smart.
- Burkll, the guy who thinks doing this is pretentious
And if you believe that equations that describe what has actually happened in real economies when various things were done may be useful in figuring out what will happen today if those same things are done, you're a realist. It just so happens that Keynesian economics happens to accurately model what happens at the zero bounds with slack resources (high unemployment). It doesn't accurately model what happens elsewhere, and I don't use it elsewhere... but that's why I'm reality-based, rather than a religious zealot.
- Badtux the Reality-based Penguin
Now that I think about it, I *am* a religious zealot. I believe that reality is real. I believe that by studying reality, we can describe what we see in rigorous and mathematical terms. I believe that describing what we see in rigorous and mathematical terms can then be used to predict what happens in similar situations where the same variables are being manipulated. I believe these things because they are useful -- they allow us to do cool things like create semiconductors, describe the trajectory of artillery shells and rockets, describe what will happen to unemployment if we print money when interest rates have been depressed to the zero bounds, and so forth. So I am, in essense, a utilitarian -- one who believes things because they have proven to have utility in this reality. But that is of course a religious belief, since I cannot prove that reality is real, this could all after all be merely a dream in the memory banks of a giant mainframe that is being used to model all of us in a giant version of The Sims, and we only think we're real. All I can prove is that it isn't useful to believe that reality isn't real, because then you disappear down a rabbit hole of nonsense that has nothing to do with, well, getting things done.
Utilitarianism isn't a sexy philosophy because it is more concerned with questions of "what's the most useful thing to do as proven by data" rather than questions of abstract beauty and untestable theories of morality and faith. And it does require an untestable religious belief that reality is, well, real. Of course, we do have a term for people who don't believe that reality is real, in this society. That term is "clinically insane."
- Badtux the Utilitarian Penguin
you're a computer guy, im sure youve heard the term Garbage in, garbage out, right? the funny thing about Keynesianism, it seems to always have some oddball excuse that bends the rules for whats happening rather than reevaluating the method.
"what's the most useful thing to do as proven by data"
again, theres an assumption of infallibility in the process of acquiring the data. the problem facing austrians is there is no mathematical rebuttal. the lack of ability to create competing models is a function of the complexity of variables in an economy, but the absence of a mathematical model to explain all does not make the competing models right.
the idea of a liquidity trap is based on an assumption that people can delay consumption indefinitely, which is absurd in anybodys reality, but if the flawed numbers back it up, it must be true. this is bad science.
-Burkll13, the guy whos CERTAIN doing this is pretentious.
Bob: When you say "purchasing power is being swiped surreptitiously from holders of existing money", just what do you mean by "purchasing power"? I stated that it is an empirical fact that if purchasing power means ability to buy real goods and services, then in depression conditions, like now, this evil process does not change the ability of the "holders of existing money" to buy real goods and services. If you are not being hurt in any real, concrete, measurable way, what is moral wrong?
I think it should be noted that Krugman's theory has evolved since the 1970s, and he is not the same economist in terms of theory that he was 30-40 years ago. For example, he did not always write on liquidity trap theory.
Post a Comment