It's Official: Obama is an idiot | 122 comments
D'accord (0.00 / 0)
What creates unemployment? When nominal aggregate demand is insufficient to purchase all the goods and services that would be offered with the economy operating at full capacity an output gap results and unemployment rises as businesses lay off workers as they contract production to reduce supply to adjust the lower level of demand.

The purpose of government spending is twofold. First, the government must either spend or reduce taxes when demand for goods and services falls short of what the economy is capable of producing or an output gap and unemployment will result. In a perfectly flexible economy, the elasticity of supply and demand would reset prices and wages automatically, but this is just on the case with a modern economy where prices and wages are "sticky."

Secondly, according to the preamble of the Constitution, one of the purposes of the government it constitutes is to "promote the general Welfare." This has been interpreted to mean that the government shall undertake to provide what promotes the general welfare, i.e., advance public purpose, in specific areas, when the private sector is either incapable or uninterested in doing so, and also assisting the private sector as needed. There is never a reason to just spend in order to spend. Of course, spending should be worthwhile and it is a just a conservative presumption that spending is not worthwhile and wasteful. However, the same result can be accomplished by reducing taxes, so the government can always increase NFA that way, as Warren Mosler suggests here, where he recommends a payroll tax holiday along with a $500 per capital block grant to all 50 states, most of whom are tanking due to falling revenue.

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Ummm.Wait A Sec (4.00 / 1)
The purpose of government spending is twofold. First, the government must either spend or reduce taxes when demand for goods and services falls short of what the economy is capable of producing or an output gap and unemployment will result.

Secondly, according to the preamble of the Constitution, one of the purposes of the government it constitutes is to "promote the general Welfare." .... There is never a reason to just spend in order to spend.

Except, of course, for the first purpose.

As Keyens once said, paying people to dig holes & then fill them up again would do for ending the Depression.  Not the best way.  But it would do.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

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better than the military keynesianism we currently use (0.00 / 0)

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Actually, It's The SAME As The Military Keyensianism We Us (0.00 / 0)
We just "dig" the holes with bombs, and fill them up with bodies.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3
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yeah the bodies part is what makes it worse ;) (0.00 / 0)

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Morally, Yes (0.00 / 0)
Economically... details, details.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3
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Another Way to Underconsumption (4.00 / 2)
I read recently that massive concentration of wealth in few hands in a society also causes underconsumption. The idea being that 1,000 people spending $100 million would have greater economic impact than 1 person owning that $100 million. I'd never thought of it that way. But it also ties into a post Paul Rosenberg (I believe) did awhile back about the relationship between progressive taxation and economic bubbles. Taxing wealth aggressively is healthy for society, if not the egos of the lucky few who figure out how to hoard that kind of wealth, short of being born into it or marrying it.
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I Believe tjfxh Mentioned This Somewhere (4.00 / 2)
I don't think anyone doubts the capacity of taxation to alter spending & consumption patterns.  Which is why some folks want to make sure that no one thinks very clearly about the subject.

I remember raising the issue with an economist back in the 70s that it was intuitively obvious that $1 meant a lot less to a millionaire than it did to someone working for poverty wages, and thus it clearly increased net human welfare to redistribute wealth.  He objected that we had no empirical evidence for it.  I pointed out that millionaires gain and lose thousands of dollars, if not more, in the stock market every day without even noticing--something no one working for minimum wage could ignore, and that sure looked like empirical evidence to me.

Nearly 40 years later, I'm still waiting for a come-back reply.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

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Excellent (0.00 / 0)
I'll have to remember your argument. It's brilliant and obvious.
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i can come up with some arguments against it (0.00 / 0)
they're generally stupid in a wealthy economy imo, but some run as follows:

taxation on the wealthy reduces savings = reduces investment
excessive consumption --> inflation in wage goods --> cycle of increasing wages, progressive taxation, and inflation
etc etc etc
taxation on wealth --> disincentive to grow wealthy --> reduced overall risktaking / entrepreneurship / investment --> lower aggregate production

in a nonwealthy economy (i.e. where scarcity of capital is a more serious issue) you have similar arguments but the stakes are upped.  not clear whether or not they're any less stupid but you do have an additional dimension to contend with (societies attached to nonwealthy economies tend to get dominated in global capitalism)

anyway, all of these arguments depend on looking at the actual social context and defining policy accordingly (and in accord with your own beliefs about what makes the most sense - there are certain presumptions that go into all of these things about how people behave and what kinds of social organisation work).  for example, if you have a fairly equal society and demand as a whole is outstripping supply and you're interested in pursuing capitalist growth (this is one of thsoe presumptions) then it would make sense for you to policywise divert some money towards accumulation (whether through the state or the private sector or individuals).

but that is not the situation we're in - we have demand that is too low, excessive inequality (economically - not just politically), failing infrastructure, relative (if slight for now) decline globally, etc - which is why all the policies pursued by the u.s. elite today are so incredibly moronic when taken as a whole if they are interested in the welfare of the united states.  

of course, i come to that conclusion partly because i can't bring myself to believe that they in some sense the financial class is seceding and is just waiting for another market to plow their money into and don't give a f"£k about anyone else.  even though they keep saying that's what they're doing.

and of course, no one seems to notice that their 'choice' leads to public spending in the only area that's politically palatable besides benefits for old people- what's euphemistically called 'defense' - in order to keep society going...and hence we get wars.  because what point are toys, armies, and miliatary bases and entire communities built around them if they're not going to be used?  they have to justify themselves somehow.

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First Off, Those Aren't Counter-Arguments (0.00 / 0)
Those are entirely different arguments about the macroeconomic performance of economies with different sorts of tax structures.  They are related arguments in terms of a range of potential policy implications, but they don't address the same fundamental issue that I brought up, which is a foundational challenge to the assumption that the value of a dollar in the economy is the same, no matter who has that dollar.

In fact, none of the arguments you present would restore that presumption, they would only, at best, show some sort of countervailing effect--although that is highly doubtful in light of a 2005 study by the Center for Economic Policy Research that I plan to blog about this weekend, which shows that the neoliberal era (1981-onward) has produced lower growth rates in developing nations than the previous quarter century, when more egalitarian policies dominated.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

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oh don't get me wrong (0.00 / 0)
i agreed totally with your basic point - the idea that a dollar has equal value to someone who makes $5.80 an hour as someone who makes $580 an hour is idiotic.  i don't actually see how anyone could disagree with that.

neoliberalism is a complicated thing - i don't think you can understand it in a developing country context without combining it with something like world systems theory or dependency theory.  also, the specifics are very different from the media-related stories in some cases (e.g. the level of state involvement in india's 'post-liberalisation' economy would make most american policymakers scared).

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India and China Both (4.00 / 1)
are HUGE economies, and are clear exceptions to how the neoliberal development order has played out.

And I wasn't getting you wrong.  I just wanted to make sure that others didn't lose the distinction that I know you understand.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

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It's Official: Obama is an idiot | 122 comments
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