Can Fiscal Stimulus Revive the U.S. Economy?

[jillian]

I have to admit to being a bit nonplussed jillian. But I'm determined to keep an open mind on this.

Then you're a better person than I am.

 

[Kevin_Kennedy]

No? Heck you should read some history. I'd suggest anything to do with the English Factory Acts of the early 19th Century would be useful.

I believe she was referring to our current financial crisis as the logical end of the free market system, which is incorrect considering we did not have a free market system in place.

 

[Diuretic]

Then you're a better person than I am.

No jillian, I am a stubborn so and so. I get an idee fixe (I'm liberated, I can use pretentious French phrases in "discourse" once more) and that's that. I make a terrier look half arsed

 

[Ravi]

Can Fiscal Stimulus Revive the US Economy? - Frank Shostak - Mises Institute

Of course it can. The economy thrives on consumer confidence. A stimulus, if done correctly, can restore consumer confidence and thus the economy.

 

[Kevin_Kennedy]

Of course it can. The economy thrives on consumer confidence. A stimulus, if done correctly, can restore consumer confidence and thus the economy.

A stimulus from the government must be taken from the private sector through taxation or inflation. By doing this the government deprives the private sector, where wealth and jobs are truly created, from "stimulating" the economy. You believe that the government knows better than the market itself where to allocate resources?

 

[Diuretic]

Well the recession is the market trying to correct itself. I think what you're describing would be the complete collapse of the dollar itself, which is basically what we're on the road towards. In that case, people would start bartering with whatever they could to get what they need, and eventually a new currency would probably become the standard. Whether it was government implemented like the dollar, or whether it was simply something of value that the people themselves trusted can only be speculation at this point.

Okay, I think I understand this. But isn't that internally? What about international trade? If the dollar collapsed, how would the US (and of course I mean not just government but every economic entity) handle its relations outside the US?

I think I get the recession point too. In this country back in the 1990s one of our Prime Ministers was pilloried for telling the country that we entered a recession "we had to have". But he was right. We'd overheated and we needed to go into recession to get some sort of reality into the economy (the real, everyday economy at that). But we didn't collapse, it was, as the economists like to say, a "correction", it hurt a few people but we stabilised, the old equilibrium thing. Bit painful but in the end beneficial.

 

[Ravi]

A stimulus from the government must be taken from the private sector through taxation or inflation. By doing this the government deprives the private sector, where wealth and jobs are truly created, from "stimulating" the economy.

For a while, perhaps, but in the long run the jobs are created because money is being spent.

You believe that the government knows better than the market itself where to allocate resources?

Sometimes, yes, the government knows better how to make the economy thrive. Simply because acting does away with consumer fear.

 

[Kevin_Kennedy]

Okay, I think I understand this. But isn't that internally? What about international trade? If the dollar collapsed, how would the US (and of course I mean not just government but every economic entity) handle its relations outside the US?

I think I get the recession point too. In this country back in the 1990s one of our Prime Ministers was pilloried for telling the country that we entered a recession "we had to have". But he was right. We'd overheated and we needed to go into recession to get some sort of reality into the economy (the real, everyday economy at that). But we didn't collapse, it was, as the economists like to say, a "correction", it hurt a few people but we stabilised, the old equilibrium thing. Bit painful but in the end beneficial.

If the dollar collapses international trade is going to suffer as well, but it's difficult to speculate exactly how it would play out. There are many more factors to consider than in a simple face-to-face transaction.

 

[Kevin_Kennedy]

For a while, perhaps, but in the long run the jobs are created because money is being spent.

However, if the market doesn't support those jobs then it is going to take the government constantly propping them up to keep those jobs going.

Sometimes, yes, the government knows better how to make the economy thrive. Simply because acting does away with consumer fear.

The government can't possibly know better than the market itself because the market isn't something that is predictable.

 

[Diuretic]

If the dollar collapses international trade is going to suffer as well, but it's difficult to speculate exactly how it would play out. There are many more factors to consider than in a simple face-to-face transaction.

Frankly, I shudder to think. As I said, I've got no technical knowledge but if the world's biggest economy were to fail, if its currency were to fail, I would think we'd be back to bartering wouldn't we? I don't know if any of us could afford to adopt some sort of ideologically-driven hands off approach. I reckon around the world right now - correct me if I'm wrong - that everyone is doing a Keynes. I reckon every government that needs to is looking at deficit budgeting and stimulating the national economy. I don't know if any of them are contemplating letting things find their natural nadir, economically speaking. Can you imagine the electorate standng by to watch an economy "correct" itself? Do you think ordinary folks would be convinced that was the best thing to do?

 

[Diuretic]

I believe she was referring to our current financial crisis as the logical end of the free market system, which is incorrect considering we did not have a free market system in place.

Perhaps so. But there have been - historically speaking - analogues of the free market and, frankly, they were found wanting. Hence regulation.

The laissez-faire approach has been tried.

Why regress?

Maybe I'm reading you all wrong but do you believe there should be no regulation at all in society? I mean as far as working conditions, the operation of the economy and associated issues.

 

[Kevin_Kennedy]

Frankly, I shudder to think. As I said, I've got no technical knowledge but if the world's biggest economy were to fail, if its currency were to fail, I would think we'd be back to bartering wouldn't we? I don't know if any of us could afford to adopt some sort of ideologically-driven hands off approach. I reckon around the world right now - correct me if I'm wrong - that everyone is doing a Keynes. I reckon every government that needs to is looking at deficit budgeting and stimulating the national economy. I don't know if any of them are contemplating letting things find their natural nadir, economically speaking. Can you imagine the electorate standng by to watch an economy "correct" itself? Do you think ordinary folks would be convinced that was the best thing to do?

Well, I think that's part of the problem. These politicians are more worried about getting re-elected than they are actually solving the problem. They want to look like they're doing something so that the people don't get rid of them.

 

[Kevin_Kennedy]

Perhaps so. But there have been - historically speaking - analogues of the free market and, frankly, they were found wanting. Hence regulation.

The laissez-faire approach has been tried.

Why regress?

Maybe I'm reading you all wrong but do you believe there should be no regulation at all in society? I mean as far as working conditions, the operation of the economy and associated issues.

The "operation" of the economy should be left to the free market, not regulated by the government. As far as working conditions go, people are free to choose where they work. If they believe it's in their best interest to work a crummy job then who am I to tell them otherwise?

I do, however, believe that government should be regulated.

 

[Diuretic]

A stimulus from the government must be taken from the private sector through taxation or inflation. By doing this the government deprives the private sector, where wealth and jobs are truly created, from "stimulating" the economy. You believe that the government knows better than the market itself where to allocate resources?

Some interesting assumptions there. The public sector too creates jobs. Usually jobs which are socially necessary and which the private sector has no interest in creating because of a lack of profit. Those jobs are necessary for society. Government takes taxes on a regular basis. One would think that government builds up a surplus in the good times, that is when the market economy is doing well. Corporations pay their dues as they should and governments use or save those funds. When the marke fails, as it does on a regular basis, then government steps in and spends its saved funds to keep the economy from collapsing, waiting out the drop in the business cycle and maintaining the economy until the cycle starts moving into an expansionary phase. Government saves capitalism from collapse and it does so on a regular basis.

 

[jillian]

I believe she was referring to our current financial crisis as the logical end of the free market system, which is incorrect considering we did not have a free market system in place.

No. "she" isn't. She is referring to the fact that because of deregulation, corporations, including banking institutions, were able to act without restraint. This has been an abject failure. The market does not correct itself because the MIDDLE CLASS only exists if it is protected by regulation. Laissez faire capitalism, an abject failure, resulted in only two classes.... rich and poor. A recipe for disaster.

Unless of course you want to live in a banana republic.

 

[Diuretic]

Well, I think that's part of the problem. These politicians are more worried about getting re-elected than they are actually solving the problem. They want to look like they're doing something so that the people don't get rid of them.

Would you vote for a politician who allowed the economy to collapse? Or would you vote for a politician who did something to save it?

 

[Diuretic]

The "operation" of the economy should be left to the free market, not regulated by the government. As far as working conditions go, people are free to choose where they work. If they believe it's in their best interest to work a crummy job then who am I to tell them otherwise?

I do, however, believe that government should be regulated.

Should children be permitted to work in underground mines? Should adult workers (let alone children) be permitted to work in unsafe conditions?

 

[Kevin_Kennedy]

Would you vote for a politician who allowed the economy to collapse? Or would you vote for a politician who did something to save it?

If by collapse you mean allow the economy to correct itself, then yes I would vote for that politician. If by did something to save it you mean bail out failed businesses and make things worse then no I would not.

 

[Ravi]

However, if the market doesn't support those jobs then it is going to take the government constantly propping them up to keep those jobs going.

I don't think so. Once the economy starts moving again new, non-government created jobs will be created...even if the jobs the government creates are only temporary.

The government can't possibly know better than the market itself because the market isn't something that is predictable.

That's just silly. The market is predictable to a certain extent. Here's my prediction: restore consumer confidence and the market will soar.

 

[Diuretic]

If by collapse you mean allow the economy to correct itself, then yes I would vote for that politician. If by did something to save it you mean bail out failed businesses and make things worse then no I would not.

No Kevin I meant, collapse, that's why I used the word, "collapse".