Of Trickle Down - and Demand Side.

[DSGE]

That's why "demand stimulus" would work.

of course it never can work because liberal tax/print/borrow and spend merely causes a mal-investment bubble that bursts and deepens the recession. A little Econ 101, class one, day one for you.

That's rich, since the fact that you talk about mal-investment shows you've had no formal education in economics.

Even so, F.A. Hayek, one of the pioneers of Austrian Business Cycle theory (which you seem to be fond of like most internet retards), wanted an NGDP target (given that we have a central bank)! If it caused mal-investment, maybe one of the guys who invented the whole concept wouldn't have supported it?

 

[regent]

There are a number of problems with economics even as a social science. There are few laws such as the law of gravity, few labs to experiment, so economists have to rely on what has happened or is happening, and that is confusing. There are so many variables in the economic picture and the variables are constatly changing. Let's say that there are ten variables that cause a recession and do we even recognize all the variables and then do we know how the variables mesh to cause a recession? How can a lab reproduce that? Economists create laws which may cease to be laws in some situations.
If there were hard and fast laws would all these schools exist each with their own laws and theories? How many other sciences have so many schools, so many theories. so few accomplishments?
So many studies done with the business cycles and what do we know of them, not theorize, but know? Economists also help confuse the science with their terminology which may just be a coverup for their confusion. Friedman may have come up with the first real economic law, "capitalism runs on greed."

 

[DSGE]

There are a number of problems with economics even as a social science. There are few laws such as the law of gravity, few labs to experiment, so economists have to rely on what has happened or is happening, and that is confusing. There are so many variables in the economic picture and the variables are constatly changing. Let's say that there are ten variables that cause a recession and do we even recognize all the variables and then do we know how the variables mesh to cause a recession? How can a lab reproduce that? Economists create laws which may cease to be laws in some situations.
If there were hard and fast laws would all these schools exist each with their own laws and theories? How many other sciences have so many schools, so many theories. so few accomplishments?
So many studies done with the business cycles and what do we know of them, not theorize, but know? Economists also help confuse the science with their terminology which may just be a coverup for their confusion. Friedman may have come up with the first real economic law, "capitalism runs on greed."

Well that's part and parcel of not being able to conduct randomised controlled trials. We have to rely on econometrics, which is still an extremely young field. If you're unhappy with the current state of economics, then become an economist and make some improvements.

Economists also help confuse the science with their terminology which may just be a coverup for their confusion.

Examples?

 

[regent]

There are a number of problems with economics even as a social science. There are few laws such as the law of gravity, few labs to experiment, so economists have to rely on what has happened or is happening, and that is confusing. There are so many variables in the economic picture and the variables are constatly changing. Let's say that there are ten variables that cause a recession and do we even recognize all the variables and then do we know how the variables mesh to cause a recession? How can a lab reproduce that? Economists create laws which may cease to be laws in some situations.
If there were hard and fast laws would all these schools exist each with their own laws and theories? How many other sciences have so many schools, so many theories. so few accomplishments?
So many studies done with the business cycles and what do we know of them, not theorize, but know? Economists also help confuse the science with their terminology which may just be a coverup for their confusion. Friedman may have come up with the first real economic law, "capitalism runs on greed."

Well that's part and parcel of not being able to conduct randomised controlled trials. We have to rely on econometrics, which is still an extremely young field. If you're unhappy with the current state of economics, then become an economist and make some improvements.

Economists also help confuse the science with their terminology which may just be a coverup for their confusion.

Examples?

Well just one, Ceteris Paribuss

 

[DSGE]

Economists also help confuse the science with their terminology which may just be a coverup for their confusion.

Examples?

Well just one, Ceteris Paribus

Is a phrase which confuses the science? A shorter way of saying "all other things being equal", is something that makes economics confusing?

 

[regent]

Examples?

Well just one, Ceteris Paribus

Is a phrase which confuses the science? A shorter way of saying "all other things being equal", is something that makes economics confusing?

Why not just say all things being equal? Does using latin when unneeded make the discipline more scholary, more accurate, more able to predict? Maybe not but it does fill up some of the time in a 101 class. It would be more honest and perhaps scientific for the school of economics just to say, we don't quite have it together yet, we agree on little, except terminology, and we may never have it together, but we are useful in the political arena. How many Americans still believe that socialism leads to communism?
As someone said: If you laid all the economists end to end they still couldn't reach a conclusion.

 

[Norman]

With demand and supply I feel its important to understand what they mean. Because there are 2 (or more) ways to use the terms and I always see them misused.

1. Demand and supply as in money and things you can buy. Thinking this way means supply is of course everything because economies run on real stuff and money has no intrinsic value. It's value is based on the things it can buy.

2. Demand and supply as in buyer and the seller. In these terms supply and demand is the same thing as when you buy something someone must sell something, the value thereof is captured in the CPI. This also applies only to newly made goods.

When it comes to the supply and demand side economics the 2. explanation is the correct one. No school argues that we should focus on creating money (though some might argue we need to create money in order to create supply etc.).

What demand siders are thinking is that we need to have more money available for the buyers so they can buy things.

Supply siders on the other hand would think we need more money available for the sellers so they can invest.

Demand side is more oriented on consumption while supply is more oriented towards long term production.

Both sides are represented usually by idiots. Neither usually considers where the money is coming from to give. And also neither usually considers the current level of demand or supply bias of the economy (metric for that doesnt even exist AFAIK) - nor the governments bias in that. You would probably be called a supply sider if you supported lowering capital gains tax from 100% and vice versa.


I think the first discussion to have is whether government should stimulate at all during recessions. Is it better to pay down debt or take it during recession? Or perhaps its best to be completely neutral and not take any debt at all (save the money supply). Maybe there is no right answer and its a variable.

I do realize that supply and demand side doesnt necessarily involve stimulus. But can also be used during "normal" times. But we probably are not discussing that.



My own belief that is that USA was a supply side economy long time ago. But has grown to maybe the biggest demand side economy. The trade deficits and negative trade of balance are largest in the world, while poor investing has occurred to offset that. I think one of the reasons for this is the fact that USA government takes huge amounts of debt and then basically blows the money without investing anything while consumers use the money to buy goods from china. Its a bit bubble like behavior.

Thus you could call me a "supply sider". I do rather call myself neutral, but I only call myself supply sider because I think USA is tilted so far to the demand side.

 

[samjones]

Keynes rose to prominence during the depression, particularly in Europe, due to his thesis that the business cycle could be mitigated during slumps by the introduction of capital derived from deficit spending by the government into the economy, particularly in the form of public works which would directly employ people, providing them a paycheck and increasing aggregate demand. Keynes postulated that as aggregate demand rose, production would rise to meet said demand and the engine of the economy would start to turn, pushing the economy out of recession.

Keynes described this stimulus as priming the pump, which is dependent on the theory of reverberation and the multiplier effect. In essence, as the government worker is paid to fill pot holes or dig and fill ditches, the wages they are paid would be spent in the market buying goods and services. As they bought a loaf of bread from the baker, the baker would use that money to buy flour and yeast from the miller, who would buy gasoline and mechanical parts to keep his mills operating, and on down the line. Keynes postulated that at every step, greater economic activity is created than the sum of the capital infused.

Keynesian economics is one reason for increasing funding of public works projects during severe recession.

I have to believe that the people who are contributing to this thread are not so simplistic as to assume or believe that there is only one reason for huge public policy initiatives.

There are other motivating factors.

Faced with an idle work force and the ability to borrow money as extremely low rates, public works projects are simply common sense for any government. Some of these public works projects will benefit the country for decades and indeed, centuries - doing them in an economic environment favorable to the US government only makes sense.

I know that you brought up repaing pot holes and maintaining ditches, but those aren't public works projects and those aren't the types of projects that I see around my city. I see much-needed road expansions and new transportation lines and major buldings being raised. I can't imagine a more sensible time for the government to do those types of projects than right now.... why not pay them to work instead of paying them to take public assistance?

Secondly, the government is at least empowered by the Constituion and truthfully it's mandated by the Constitution to use its power to tax and borrow to ensure the well-being of its citizens. From the very beginning this was envisioned by the founding fathers and has been reinforced for hundreds of years by the country's greatest Presidents.

The Infrastructure section of ARRA '09 was not only good policy, but it was a mandate of government. If nothing like that had been passed in the face of the economic crisis that had slashed the DJIA in half then I would have argued strongly that Obama and specific members of Congress should have been impeached for a failure to execute their oath of office.

I'm sure you agree with me on that.

 

[editec]

In several threads around the board, debates rage regarding the superiority of "Trickle Down" or "Demand Side" economics on a macro scale. What becomes rapidly clear is that most people arguing these positions don't know what the terms mean. What is "Trickle Down Economics?" What is "Demand Side Economics."

Let's start with "Demand Side." The first thing to understand is that it doesn't exist. There is no "demand side" school of thought, there never has been one. Most of those who claim to support "demand side" do so based on complete ignorance. A thought process of "supply side is Reagan, we hate Reagan and want the opposite, which is demand side." They couple this with a fuzzy misunderstanding of the theories of Lord John Maynard Keynes. Keynes was NOT an idiot, Keynes did NOT claim that demand drives markets. Whether one agree or disagrees with Keynes, the foundation of Keynesian theory is sound. Keynes did not promote the idiocy that most of those using his name as justification claim that he did.

Then there is "Trickle Down." As with demand side, there is no such thing a trickle down. It is a name that demagogues coined to deride the theories of Arthur Laffer. Laffer created a fusion of Austrian and Classical economics coupled with a spin on Keynes where tax cuts, even with rising deficits, were used to stimulate business cycles. The theory being that cuts in corporate taxes would create more jobs and that the benefits would trickle down to all levels of society.

So most of the "debate" we see is based on myth and ignorance. Should public policy be based on myth and ignorance?

This thread is created in hopes that debate on the real economic schools of thought, Classical, Austrian, Keynesian and Chicago will be discussed in a more accurate manner. So that those who speak so loudly may glean some semblance of knowledge regarding the subject they pontificate upon.

Standard Disclaimer: My bias is Rothbard, for those who know who he was.

Really?

Then perhaps the first thing you ought to do is learn what you're talking about.

You very clearly don't have a clue what Keynesian economic theory is about.

Let me guess...you read The Road to Surfdom and confused it for a treatise on macro-economics, right?

 

[regent]

In several threads around the board, debates rage regarding the superiority of "Trickle Down" or "Demand Side" economics on a macro scale. What becomes rapidly clear is that most people arguing these positions don't know what the terms mean. What is "Trickle Down Economics?" What is "Demand Side Economics."

Let's start with "Demand Side." The first thing to understand is that it doesn't exist. There is no "demand side" school of thought, there never has been one. Most of those who claim to support "demand side" do so based on complete ignorance. A thought process of "supply side is Reagan, we hate Reagan and want the opposite, which is demand side." They couple this with a fuzzy misunderstanding of the theories of Lord John Maynard Keynes. Keynes was NOT an idiot, Keynes did NOT claim that demand drives markets. Whether one agree or disagrees with Keynes, the foundation of Keynesian theory is sound. Keynes did not promote the idiocy that most of those using his name as justification claim that he did.

Then there is "Trickle Down." As with demand side, there is no such thing a trickle down. It is a name that demagogues coined to deride the theories of Arthur Laffer. Laffer created a fusion of Austrian and Classical economics coupled with a spin on Keynes where tax cuts, even with rising deficits, were used to stimulate business cycles. The theory being that cuts in corporate taxes would create more jobs and that the benefits would trickle down to all levels of society.

So most of the "debate" we see is based on myth and ignorance. Should public policy be based on myth and ignorance?

This thread is created in hopes that debate on the real economic schools of thought, Classical, Austrian, Keynesian and Chicago will be discussed in a more accurate manner. So that those who speak so loudly may glean some semblance of knowledge regarding the subject they pontificate upon.

Standard Disclaimer: My bias is Rothbard, for those who know who he was.

Really?

Then perhaps the first thing you ought to do is learn what you're talking about.

You very clearly don't have a clue what Keynesian economic theory is about.

Let me guess...you read The Road to Surfdom and confused it for a treatise on macro-economics, right?

And so it goes. It may take the political arena to give some credence to the field of economics, and rightly so. For example, it seems that both political parties now agree that when a recession or depression hits, the government, be it Repubilcan or Democratic, now have a responsiblity to help, cure or act. That's an economic/political change since 1929. . If so, Keynes has won that day, government has a responsiblity. Now the question is, how to act.

 

[Uncensored2008]

You left out the kind of important point that the cause of some recessions is "insufficient aggregate demand". That's why "demand stimulus" would work. If a recession were due to supply shocks, demand stimulus would do nothing but cause inflation, with no effects on real output.

I think what's actually happening is that you're maybe misunderstanding the term "demand-side". You've suggested that people who are "demand side" just want demand stimulus all the time. That's absurd, and hopefully people like that don't exist. If they do, and you deal with them more than people who actually know any amount of economics, don't let their idea of "demand side" supersede the real one. "Demand side" just means that business cycles can be caused by aggregate demand. As such, it's synonymous with "Keynesian" to an extent. He did write the book on it, after all. But it doesn't mean that everybody why is "demand side" wants fiscal stimulus. And it especially doesn't mean you should keep doing demand stimulus when not in a recession.

I'm saying that those who identify themselves as "demand side" do so in an 'anti-supply side" mode.

I challenge you to find ANYONE using the term "demand side" prior to 1990. The term and identification is merely a knee-jerk reaction to supply side ideas.

 

[Uncensored2008]

I mostly agree with you, but isn't there something to be said about at least trying to design good government regulation that can protect the US? The economy is complex, but it's not impossible to do a few simple things that will protect American manufacturers, and make Chinese manufacturing look more expensive and less desirable for businesses.

China's a powerhouse that's set to have an economy double the size of the US in 2050ish; workers demand only $1/hr, work 15 hour days and live on site - how the heck do you compete with that kind of cheap labor? If our government does nothing, what's to keep American companies in the US?

I think our government needs to at least do something to protect American interests and keep manufacturing here instead of moving overseas, like a tariff on certain types of imports, or a subsidy to help out a manufacturing sector. Agree that subsidies/tariffs are often politicized and become meaningless and even harmful (as you state), but we need to keep trying.

China is a myth. Cheap labor based on the transition from an agrarian to an industrial economy allows for a great deal of production. China is simply a hundred years behind the West. However, just as we have seen in Taiwan, Korea, Singapore, et al, that is a gap that closes fast. In 25 years the labor costs and worker demands of China will be on par with Singapore and Korea, then another source of cheap labor will be needed.

What will keep manufacturing on domestic shores is automation. The days of thousands of assembly workers pulling a lever all day are gone forever. The key to American prosperity is knowledge. We dominate technology. Sure, chips are mass produced in Asia, but the design and the technology is American. Intel, AMD, Rockwell, Texas Instruments, Motorola, et al - they are North American companies developing the next generation of chips.

The next big thing is Biotech, dominated by America.

 

[DSGE]

You left out the kind of important point that the cause of some recessions is "insufficient aggregate demand". That's why "demand stimulus" would work. If a recession were due to supply shocks, demand stimulus would do nothing but cause inflation, with no effects on real output.

I think what's actually happening is that you're maybe misunderstanding the term "demand-side". You've suggested that people who are "demand side" just want demand stimulus all the time. That's absurd, and hopefully people like that don't exist. If they do, and you deal with them more than people who actually know any amount of economics, don't let their idea of "demand side" supersede the real one. "Demand side" just means that business cycles can be caused by aggregate demand. As such, it's synonymous with "Keynesian" to an extent. He did write the book on it, after all. But it doesn't mean that everybody why is "demand side" wants fiscal stimulus. And it especially doesn't mean you should keep doing demand stimulus when not in a recession.

I'm saying that those who identify themselves as "demand side" do so in an 'anti-supply side" mode.

I've honestly never heard the phrase used like that. If it does happen though, maybe it'd be a good idea not to let imbeciles shape the terminology of a field; rather yell at them for not understanding demand-side economics.

I challenge you to find ANYONE using the term "demand side" prior to 1990. The term and identification is merely a knee-jerk reaction to supply side ideas.

I don't disagree that the phrase "demand side economics" started being used because of the phrase "supply side economics". But the thing is, "supply side economics" is an actual school of economics that some real economists subscribe to. This "demand-side economics" you've presented where the aim is to just constantly increase aggregate demand does not exist anywhere in the economics community. If it exists at all, which I sincerely hope it doesn't, then it's only ever proposed by people with minimal education in economics, in which case I'd refer you to the above paragraph.

 

[Uncensored2008]

Really?

Then perhaps the first thing you ought to do is learn what you're talking about.

You very clearly don't have a clue what Keynesian economic theory is about.

Let me guess...you read The Road to Surfdom and confused it for a treatise on macro-economics, right?

You are welcome to present any ideas you, or DailyKOS might have on the subject.

 

[KevinWestern]

China is a myth. Cheap labor based on the transition from an agrarian to an industrial economy allows for a great deal of production. China is simply a hundred years behind the West. However, just as we have seen in Taiwan, Korea, Singapore, et al, that is a gap that closes fast. In 25 years the labor costs and worker demands of China will be on par with Singapore and Korea, then another source of cheap labor will be needed.

What will keep manufacturing on domestic shores is automation. The days of thousands of assembly workers pulling a lever all day are gone forever. The key to American prosperity is knowledge. We dominate technology. Sure, chips are mass produced in Asia, but the design and the technology is American. Intel, AMD, Rockwell, Texas Instruments, Motorola, et al - they are North American companies developing the next generation of chips.

The next big thing is Biotech, dominated by America.

I agree that the key to prosperity (in America) is knowledge, and I would add a good education system too. Now I'm not saying reforming this idea of education on a Federal level (ie Bush's No Child Left Behind approach), what I'm saying is that we need to somehow decentralize our education process in order to somehow make it much more (1) specialized and (2) streamlined. How? That's a good question. All I know though is that the idea that everyone must attend 4 years of college and complete years of general study courses too (at $15,000/semester) is bogus, expensive, and inefficient. Also, we generally approach education with this "one size fits all" lens, and I think we can do better than that.

As for the China myth. Even if the cheap labor does eventually fizzle (which it will), there are still going to be 1 billion plus Chinese, and you still have to deal with the fact that they have a very impressive economy right now today, and that it's vital that we set America up today to compete with this economy effectively. The Chinese government is doing everything it can to make the market tip unfairly in the favor of Chinese manufacturing (through market manipulation like subsidies), shouldn't the United States - now - at least be doing some things to offset these subsidies by taking actions at home and perhaps giving some mirroring protections to US industries?

In the long run, I would like the US and Chinese to negotiate so that subsidies across the boards are reduced, but in the short run simply "do nothing" will not yield the best results. We need some government intervention to protect the United States with some of our own temporary tactics.

 

[samjones]

Now I'm not saying reforming this idea of education on a Federal level (ie Bush's No Child Left Behind approach), what I'm saying is that we need to somehow decentralize our education process in order to somehow make it much more (1) specialized and (2) streamlined. How? That's a good question. All I know though is that the idea that everyone must attend 4 years of college and complete years of general study courses too (at $15,000/semester) is bogus, expensive, and inefficient. Also, we generally approach education with this "one size fits all" lens, and I think we can do better than that.

The Land-Grant's are fairly specialized and streamlined. I doubt you're getting an Engineering degree from one of them in 4 years, but I also doubt you're filling your semesters with humanities should you choose to pursue an Engineering degree.

I agree that college is too expensive.

 

[EdwardBaiamonte]

We need some government intervention to protect the United States with some of our own temporary tactics.

why not cut the liberal BS and say what intervention and why on earth you think it would work!!

 

[KevinWestern]

We need some government intervention to protect the United States with some of our own temporary tactics.

why not cut the liberal BS and say what intervention and why on earth you think it would work!!

I did.

I said that the Big Chinese Government right now is giving subsidies to certain industries to make them artificially more competitive, and as a result hurting the competitiveness of those same industries on the US side.

I said as a temporary tactic, we should be giving subsidies or doing something to combat this threat in order to protect American manufacturing. If China makes the price of product A $5 when it really costs $6 (because of subsidies), the Americans should do the same for its manufacturers who produce product A as well!

Why would it work? Because if the Chinese product costs $5, and ours $6, which product do you think is more likely to get purchased (holding quality as a constant)?

Liberal BS? Give me a break. What's your solution? Do nothing? Let China protect its own industries and hope that somehow we'll be OK by not protecting ours.

 

[regent]

Keynes answer to the business cycles was simple, in an economic downturn government gets involved and pumps money into the economy. Sure we go into debt, but when the crisis is over and the nation is buzzing along we pay back the borrowed money. Simple enough but what is not simple is getting politicians to pay back the money.
Politicians want to spread the largess about and hope it attracts votes so the borrowed money doesn't get paid back. Was Keynes wrong or the politicians, or the maybe the people for going along with the politicans, and not insisting the money be paid back.

 

[EdwardBaiamonte]

I said that the Big Chinese Government right now is giving subsidies to certain industries to make them artificially more competitive, and as a result hurting the competitiveness of those same industries on the US side.

so what??? that means we as consumers get lower prices and a higher standard of living thanks to a subsidy from the Chinese people.

I said as a temporary tactic, we should be giving subsidies or doing something to combat this threat in order to protect American manufacturing.

if you protect American industry while the rest of the world doesn't protect their industries then American industry will fall further and further behind which will become apparent when the welfare is withdrawn. You, as a liberal, have presented a formula to kill American industry which is typical for a liberal.