Re: Personal wishful thinking vs. Reality - Saab General Bulletin Board - Saabnet.com
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Re: Personal wishful thinking vs. Reality
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Posted by James [Email] (more from James) on Sun, 8 May 2011 19:25:47 Share Post by Email
In Reply to: Personal wishful thinking vs. Reality, Reality, Sun, 8 May 2011 12:36:19
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If you took offense to the Darwin comment, I apologize - I meant it in the context of survival of the fittest, which of course is true in any political system as you point out... certainly was not meant to be degrading or a put down... so you are right, it was a silly comment... I don't mean to be off-putting or rude...

Aside from that, fiat money vs sound money is kind of a side issue (monetary policy). I suppose one can look at it however one likes, and a complete picture matters, but as I was saying, I was referring to Keynesianism as purely the fiscal policy side. That pro-Keynesian economists have common monetary policy views doesn't necessarily change that. Clearly we are going around in circles here. That's why I think we are partly arguing semantics.

But I'll comment specifically wrt 2 points:

wrt the "Keynesian Fallacy": "The real economic problem in a recession is not the recession itself but the bubble preceding it."

absolutely. correctly using (Keynesian) cyclic fiscal policy, that bubble would be managed as much as the recession that follows. the magnitude of each would be reduced somewhat as compared to the annually balanced budget case. If the budget is not balanced cyclically however, then the deficit is structural, and that is a big problem! in my view, a budget therefore must be carefully structured with a contingency reserve, and only that may be used for fiscal stimulus (be it direct stimulus or tax based stimulus). The fallacy of your fallacy is it assumes Keynesianism is 1 sided, and is based on examples of governments running structural deficits in the name of Keynesianism. Hence Keynes vs Keynes.

wrt cutting government expenditures in bad times being ok to balance a budget:

nope. not ok. government expenditure is a form of stimulus. tax reduction is a form of stimulus. The downside of expenditure is that, without care, it is (unfairly) targeted (eg GM) rather than broad based like a tax. The upside is that it may be quicker to implement (lags are very important in all of this!). But regardless, if you take away stimulus, you slow the economy. If you slow the economy in bad times, you raise less tax. If you raise less tax, you no longer balance the budget, in spite of cutting expenses in an attempt to balance the budget! That's the policy trap. Same deal whether you raise taxes or cut expenditures... it's the impact of loss of stimulus on the economy that matters.

Conversely, if one lowers taxes (or subsidizes business) in good times, one is exacerbating a bubble. Many people want lower taxes in good times or bad times regardless. Those people need to recognize that they need to give up services accordingly (which to your credit, you do, but not all are like you!) to avoid running a structural deficit.

Hopefully this is clarifying, but I think I am repeating myself again + I feel like I'm treading too close to the edge of acceptability for this bb... so I think this is another agree to disagree moment. ;-)

James...







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