Ten things debaters should now about econonmics

Discussion in 'Economy' started by dblack, Nov 27, 2011.

  1. dblack
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    dblack Gold Member

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    I found this while researching some issues around the screwed up health care market. It seems like a wonderful resource for just about everything we debate on these boards. Might be a good candidate for a board 'sticky' or somesuch:

    Ten Things Debaters Should Know About Economics

     
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    Last edited: Nov 27, 2011
  2. cbirch2
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    cbirch2 Active Member

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    This is like the list of the most basic microeconomics topics, not macroeconomics.

    Keynes isnt dead. Heres a review of your three reasons and why theyre wrong.

    Taxes: This one is actually right. If the government raises taxes immediately just to spend it immediately as well, the net effect is 0 (unless government makes some unusually good investments). But that rarely happens

    Borrowing: This one is dead wrong. You have two points. The first is that borrowing increases interest rates, which stifles growth so the effects offset eachother. But this isnt always true. Right now the united states has the largest deficit as a % of GDP since WW2, but we also have record low interest rates. Your second point is that borrowing crowds out investment, which is halfway valid. About 53% valid actually. 47% of debt is foreign owned, so issuing debt actually brings money into the economy in the short term, statistically at least. Not to mention that investors buying treasuries are looking for safe assets, so may not invest in other more risky assets. so treasuries allow the government the opportunity to invest money that normally would have been invested in things like bonds rather than productive things.

    This is of course temporary. the government will have to pay it back through taxes, but if the economy has grown that will be easier than it was during the recession.

    Printing money: The conservative notion that printing money = inflation is wrong in a depression. In the recession the banks were trying to deleverage, prices were decreasing, the economy was deflating. As people withdrew their assets from the bank in fear that the bank would collapse, the banks equity began to shrink. The fed loans to the bank and buys bad assets (through "printing" money, although its not actually printed), in order to maintain the balance sheet of the bank.

    This isnt inflationary, because it just insures that depositors can get the money they have already deposited at the bank. In economic terms, it keeps M1 constant by increasing M0. Its not simply giving people more money to spend...its allowing them to spend what they already own.

    But there is a deeper point to me made about inflation. With interest rates basically at 0 monetary policy through open market operations cannot induce more spending. The basic point you make is that printing money cant do anything because the supposed increase in demand from an increase in dollars is offset by a decline in the price of dollars. This misses one thing. By printing money and causing inflation, the fed can keep nominal interest rates at 0 while real interest rates go negative. The fed would normally try to induce growth through lowering interest rates instead of increasing the monetary base (M0). If nominal rates are at 0 and you want to lower them further, you can print more money which makes real interest rates negative and induces growth.


    Liquidity trap economics. Learn.
     
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  3. dblack
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    dblack Gold Member

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    Heh... I thought the Keyns bit might raise a few hackles. Seems some are intent on propping him up and putting sunglasses on him. Anyway, it wasn't really my intent to debate that. I just thought the overall document was a good resource for debates related to economic issues.

    Feel free to ignore the "Keynes is Dead" item. Lord knows many of our leaders do.
     
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  4. cbirch2
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    cbirch2 Active Member

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    People that think keynes is dead are thinking wishfully.

    The only reason you can say that is because you failed to read or understand anything i said in the last post.

    Even milton friedman, the epitome of anti-kenyesian economics, would agree that the quantitative easing programs of the fed ("printing money") preserved real wealth. They kept M1 constant by increasing M0. Thats what friedman used to advocate, targeting M1!

    So no, keynes is not dead.
     
  5. dblack
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    dblack Gold Member

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    Alrighty then. :razz:
     
  6. editec
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    editec Mr. Forgot-it-All

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    Of COURSE a Kyeneians response is a short term policy .

    So too ought to be any similar policies on the SUPPLY side.

    Point of fact, EVERY economic policy has a shelf-life.

    Such economic (or at least ought to be) policies designed to get a balance between supply and demand.

    Those policies ought to be in effect only as long as it is needed.

    Fact is that the TAX CUTTING for billionaires that started with REAGAN (those would be supply side policies, BTW) went on FAR too long (30 years and counting), which is in part why we're in this mess today.
     
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  7. Dragon
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    Dragon Senior Member

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    Some of the other points require modification to recognize the reality of non-optional purchases in some circumstances. Also, w/r/t the Keynes point, recognition that not all capital in private hands will be invested in the production of wealth and the creation of jobs. Otherwise, some good points.
     
  8. Sundial
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    dblack, what you've got here is a version of economics, and one that's substantially wrong - not every part of it, but enough to make it dangerous.

    For example: People as self-interested rational actors. It's not entirely wrong; people are usually self-interested, and sometimes rational. But they're irrational and altruistic often enough to make this version of neoclassical economics dangerously wrong.

    Debts and deficits: the "loanable funds" model is wrong. There is no pre-existing pool of money. Government does not compete with private borrowers, and private borrowers do not compete with each other.

    The act of lending - also known as the act of borrowing - creates the money that is lent.

    Government borrowing does not drive up interest rates. This is bit of theory is factually disproven by the combination of higher than ever government borrowing combined with historically low interest rates that exists today.

    Government borrowing creates private sector assets which enrich the private sector. The result is higher private savings, increased use of private sector resources (unemployed workers, for example), and economic growth.
     
  9. Sundial
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    It's fashionable to bash government, but government investments aren't always - or even usually - bad. For example: Federal interstate highways, GPS, the internet.

    Furthermore, private investment is by nature intended to benefit private interests. Any public benefits are not only not intended, but - from the point of view of private interests - wasteful inefficiencies, ie: lost profits.

    When the government borrows money (and spends it) it leaves the amount of money in private hands unchanged. The only difference is that private interests own Treasury bonds that didn't exist before. Treasuries are private savings. The increase of Treasuries is an increase in private savings. Public debt = private savings (wealth).

    An increase in private wealth results in an increase in private spending. When spending increases, that means demand goes up. If all private resources are being used (ie there is no unemployment) the result is inflation. When all private resources are not being used (in other words, there are unemployed workers), the result is employment of unused resources and increased production. Assuming the private sector can keep up with increased demand - by employing more resources and increasing production - the net result is not inflation. Only greater wealth - in other words, an economy that produces more for everyone.
     
  10. Wiseacre
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    Wiseacre Retired USAF Chief Supporting Member

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    My view of Keynesianism is that it's good at helping an economy get through the rough spots and assisting people who need temporary help. But it ain't a cure for what ails ya, it's not going to turn an economy around because gov't spending does nothing for productivity. Particularly if the gov't spending decisions are done for political purposes rather than sound economic reasons. And I believe you're supposed to pay off or reduce the debt when the good times return.
     

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