Never seen Reagan called a “central planner” before.
By what mechanism?
The predictive track record of macroeconomics is not an opinion. It’s objective fact. Go look it up. Any economist’s 5 year or 10 year projection is utterly useless as a predictive tool. There is simply no evidence that economists have the power to predict what will happen in the economy further out than a quarter or two.
Low compensation compared to what metric? Saying that it’s too low implies that we know what the right level should be. So what is it? What level of consumption is the economy supposed to be aiming for? And how do we know?
As for the low workforce participation, do we have any idea what that really means? After all, the unemployment rate is pretty good right now. To make it look bad, you have to include the large group of people who aren’t looking for work. To know if that group is too large, too small, or just right requires you to understand their motivations.
What if work force participation is down because the baby boom is retiring? What if it’s down because all those sweet retirement deals negotiated in the 70’s and 80’s are leading to earlier retirement? What if it’s down because the combination of the EITC, student loans, food stamps, and other welfare programs has lowered the incentive to work? What if it’s down because today’s young people have different values and don’t need or want as much material success as previous generations, preferring instead to have more free time and spend more time on the internet? What if it’s down because all the regulations your side likes have driven up the cost of labor at the low end above the productive capacity of the people looking for work?
Every single one of these possibilities implies a different policy response, or perhaps no response at all if it’s just the way things are supposed to be.
What’s the right amount of money they should be spending, and how do we force them to do that? What if borrowing money to give to them just causes them to save more? What if borrowing more actually causes them to reduce spending because the economy is primarily worried about systemic instability from government fiscal imprudence? What if they aren’t buying as much stuff because they’re actually listening to the left and moving away from a materialistic lifestyle towards something more sustainable?
If we start moving to a sustainable economy, which the left seems to want, wouldn’t that by definition cause a reduction in demand for goods? If so, why on earth are you trying to artificially stimulate it? This is one of those areas where the left is just incoherent.
Of course, that implies that the big brains on your side are somehow seeing huge gaps in the economy that the market is somehow incapable of seeing.
Keep in mind that we’re no longer talking about Keynesian stimulus here. That’s a special circumstance for when an economy is temporarily depressed. Keynes never intended fiscal stimulus to be a never-ending flow of money from the government into the economy for the purpose of goosing it up. The purpose was to prevent a very short-term slowdown in demand from causing the destruction of real assets like factories that we would want to retain once the demand came back. We’re now almost 8 years from the financial crisis - pretty much an entire business cycle. Whatever justification there might have been for a Keynesian stimulus in 2009 does not imply that the justification holds today.
The whole notion that demand is what drives an economy and that economies can be boosted in healthy ways by artificially stimulating that demand is a modern invention of the left, because it’s so damned perfect in terms of giving them a rationale for all the stuff they want to do anyway (tax the rich more, borrow and spend, raise minimum wages and union wages, etc). But it’s the left’s Laffer Curve - a principle that has some truth in theory when applied in very specific ways, but generalized to be the rationale for every piece of spending or taxing you want to do, regardless of whether the underlying conditions are such that it makes sense.
And what if that low workforce participation is due to the very policies you are advocating? What if housing demand is low because generous student loan programs have caused ruinous debt for new college grads, which delays the purchase of durable goods and real estate and delays the onset of marriage and family which drives consumer behavior?
What if government fiscal stimulus is causing dislocations in that the stimulus is being targeted at the wrong things, while the debt incurred from the stimulus is decreasing investment in the areas that actually need it?
An economy is not made healthy by ‘demand’. A healthy economy is one in which the types of things being built matches the types of things people want, where education is targeted at skills most in demand, where the ratios of long-term to short term debt make sense based on the fundamentals of the economy, etc.
Here’s a simple hypothetical for you: Let’s say there was a glut of tables, so table makers were going out of business. People have all the tables they need. Just how much fiscal stimulus would be required to get more people to buy more tables? And if you could figure out a way to goose the production of tables to keep all those workers in place, do you think that would make the economy healthier in the long run?
We are spending a ton of money on education, but because our student loan funding is not tied to anything like the demand for certain skills, we are graduating a lot of people with degrees no one cares about, and we’re saddling them with huge debt to do so. How is throwing more money at the student loan program going to make that situation better?
If you think ‘infrastructure’ spending is a good solution, you have to answer the question of why some planners in Washington are in a better position to know which roads and bridges in Louisiana need to be built or repaired, when the politicians and voters of that state don’t agree? What is the cost to the economy of building a bridge to nowhere, or spending millions upgrading a bridge with borrowed money, if that bridge is rarely used or if the money would have been better spent on something else?
If you think central planners are competent to manage all this, I would just point you to California’s failing high speed rail plan, the cost overruns of Boston’s Big Dig, the billions spent on the Superconducting Supercollider or the Yucca Mountain repository without those projects ever even being finished. I could point you to the many, many projects that have been held up in seemingly endless environmental reviews, nuclear power plants taking four times as long to build as they should have because of incoherent or constantly changing regulations and requirements, and so on.
If you want to see this stuff run amok, have a look at the Ontario ‘green jobs’ programs, which were supposed to stimulate the economy by scrapping the fossil fuel power system and replacing it with renewables paid for with borrowed money. Sound familiar? This was done in the name of ‘stimulus’, but the actual result was sky-high energy prices and an economy saddled with debt and low growth. Ontario now carries more debt than California, and is in fact the largest non-country debtor in the world. And now their energy is much more expensive, which drives down the competitiveness of Ontario industry, cuts into consumer spending, and requires subsidies which makes the debt situation worse.
This is what happens when politics, special interests, and ideology conspire to ‘improve’ the economy at taxpayer expense.
Well, it’s not me…
Really? So now we’re about subsidizing the salaries of one of the wealthiest sectors of society in the name of progressivism? What if we actually have too many professors? But the jobs program isn’t really among professors - it’s for the administrators. Professors aren’t doing that much better in this environment. But man, those diversity departments are just goldmines for bureaucrats. College presidents make more money than CEOs of firms that have similar numbers of workers and customers.
The huge subsidies that have flowed into the post-secondary education system have not made college more affordable: They’ve made it less affordable by driving up tuition. The existence of student loans drives up tuition, which makes it less possible to get through college without taking on student loan debt. That pulls more people into that system, which further raises costs.
And that tuition money isn’t going to the professors. It’s being swallowed by the bureaucracy and being used to turns colleges into upscale resort facilities to attract more students with their sweet government money.
Were you under the impression that student loans don’t have to be paid back? Or are you arguing for free education? If so, I hope you realize that means the federal government would have to become involved in micro-management of the system, because demand will go through the roof. It amazes me when people who accept that supply and demand is a real thing will advocate for something like a free education for all without grappling with all that implies in terms of market effects.
It is as depressed as the people who opposed ‘austerity’ said it would be? Not even remotely.
But maybe not as much as you think you do. And it’s very likely that THEY don’t know as much as they think they do, because the systems they are trying to understand are complex, adaptive, and opaque. Hence the law of unintended consequences, which has still not been repealed.
Crusoe catches two fish a day with bare hands. He eats two fish daily. He opts to save a fish for the next day so he can build a net. Now he catches four fish. Only by forgoing consumption in the present and devoting resources to capital accumulation can future consumption be increased.
A simplistic model. If I’m a modern industrialist, I do not save up to buy new equipment, I go to an investment bank and take out a loan.
And thus the investors forgo current consumption and devote resources to investment in order to increase future consumption. Did you have a point?
Regards,
Shodan
If I invest a thousand dollars I am “foregoing current consumption.” If I invest a million dollars I ain’t – it’s not like I would otherwise spend it on groceries.
The point is you aren’t spending it on anything in the short term…you are investing it instead. Seems easy enough to follow, whether you agree or not. Your objections seem to indicate you don’t even understand the comparison though, or are just in a mood to nitpick instead of actually address the point.
I just think there must be a flaw in it somewhere. America’s post-WWII economic boom was not based on “savings,” it was based on taxing-and-spending. (And on what amounted to a cornered global market in high-end manufactured goods.)
What was the effective tax rate during the 50s?
And don’t you think the fact that much of the rest of the world had been bombed flat may have made some difference as well?
Regards,
Shodan
No, it was based on our near monopoly in production.
Yes, that’s why the U.S. had a cornered global market. But American industrial capacity would not have been so great without the New Deal. And the war-industrial buildup, of course, but that too depended at least in part on the New Deal. No New Deal, no postwar boom.
No, the point is that you wouldn’t spend it on consumption anyway since you have a surplus of income over needs and wants. Unless the government is forcing you to spend, that is.
I doubt Bill Gates is giving up much consumption. Hell, if you told me I couldn’t invest my extra money, I’d put it under my mattress.
The whole purpose of moving money from richer people to poorer people is that the poorer people will spend every penny. That does decrease investment, but in a low consumption environment, like we still have today, that doesn’t hurt. And if you don’t believe that we are not short on investment funds I invite you to explain the piles of cash big companies are sitting on.
Horseshit. Not saying the New Deal had no effect, but the US was heavily industrialized before the crash…it’s not like FDR was solely responsible for building all of the US’s industrial capabilities. Much of the industrial infrastructure predated him and would have been there when/if the US entered the war, which would have driven that same production regardless. Saying that without the New Deal we wouldn’t have had a post war boom is bullshit. A case could be made that perhaps it wouldn’t have been the same, but none at all? :dubious:
None of this has much to do with the point being made that you were responding to, however.
To get back on topic, it appears that the flaw in the analysis was that it assumed that stimulative spending would boost the GDP (which is not in question) but that that the stimulus would remain after the spending stopped. That was an unstated assumption in the report, and is not accepted macroeconomics. In fact there is evidence against it.
That the assumption was not clearly stated was why it took so long to find out what was wrong.
It appears the author more or less said “Oops - I shouldn’t have called it widely accepted.”
Not close. The war-industrial build up did not depend on the New Deal, and did not cure the Great Depression. WWII created demand, which was met with investment, not spending - remember war bonds?
You are just making this stuff up as you go along, aren’t you?
Regards,
Shodan
No, it has nothing to do with what America deserves. It has to do with whether it would work or not.
Did spending $787B give us the results Obama claimed? No, as your own cite mentions. Will spending eleven or twelve times as much do it, despite it’s $10 trillion contribution to the national debt?
Some socialist outlier thinks so. Big deal.
Still waiting for your cite of the effective tax rates in the US during the 50s.
Regards,
Shodan
Politicians and bureaucrats are not in a position to identify areas in which the economy has “lost potential”. That is the function of entrepreneurs in society. They identify instances in which higher value outputs can be derived from lower value inputs. They command resources given to them voluntarily by investors who have forgone current consumption. If investors are not making funds available to entrepreneurs, there may be a shortage of identified opportunities to turn low value inputs into higher value outputs.
Why is something a higher value output? Because there is demand for it. No demand, no market, something is not higher value.
Unless you think for some reason we’ve run out of ideas, the reason companies sit on their money - which is not making big returns - is lack of market/lack of demand.