In fact, Christina Romer’s original projection of the stimulus was that ten years out GDP would actually be .2% LOWER because of it, due to the ongoing costs of financing the debt required to fund it after the stimulative effects wore off. But it was felt that this tradeoff was worth it to make the crash less severe.
But then, her forecast turned out to be wildly optimistic and things turned out even worse. So I wouldn’t even take her much milder beliefs in stimulus as being ‘widely accepted’. There is still a healthy debate among economists as to whether the stimulus ‘worked’, or if it did whether the multipliers were anything like what was promised. The problem is that lacking a control economy, we really have no idea what would have happened in the null case.
I have been trying to research this, but I can’t find good evidence that industrial capacity boomed, or even really increased, during the New Deal. It may have increased during WW2, but even that’s not clear. Productivity definitely did increase, but that seems to be due to new technology, a large portion of the workforce was laid off, and eventually a large chunk of the nation went off to war. I don’t see that capacity or actual production resumed steady or sustainable growth until 2-3 years after the end of the war. Production jumped massively during the war years, but that dropped like a stone in 1945.
*A lot of technology was invented in the 30’s and 40’s, to the point where many nations couldn’t keep up with the development. Airplane designs were turned over something like once ever two years, and most nations had to use leftovers because they couldn’t afford to develop anything or buy the new designs.
While researching the post-war years, have a look at what the Keynesians, led by Paul Samuelson, were saying would happen unless the government undertook a massive spending stimulus to create jobs that would accommodate all the returning servicemen and replace the slack demand from all those wartime industries shutting down. As I recall, a major depression was predicted without it. Instead, a huge economic boom kicked off. Keynesians have never really answered for how that prediction went so horribly wrong.
Non-stimulus like the Marshall Plan? (Which helped American markets.) Not to mention the baby boom, continued high military spending, the redemption of things like War Bonds that were bought during enforced saving during the war and the pent up demand for things like automobiles which were unavailable for years.
And military spending, while not as high as it was during the war of course, was a lot higher than in the '30s.
As an example, my father started to work for the UN in 1946, and considered himself very lucky to be able to get a car ahead of most others.
In this case government didn’t have to directly stimulate demand, the economy did it quite well itself.
Nah. Government monetary policy prevented liquidation and adequate assessment of ongoing projects. Also those that currently command our resources are poor identifiers of profit-making endeavors. These are people who have been riding the bubbles and have been bailed out. The decisions they make are overly influenced by political considerations. In a free-market economy, skilled entrepreneurs and investors command resources, because if they go broke, nobody will give them money anymore.
i believe in the collective wisdom of consumers to assess their particular resources in relation to their needs and wants. I do not believe the bureaucrats should prod,herd, or ultimately deceive them into goosing econometric aggregates by falsifying interest rates or commanding scarce resources to conduct projects of unknowable value.
Demand can only be increased in the long run if current consumption is forgone. Goosing consumption can only decrease wealth since resources are diverted away from capital accumulation.
The bare fact is that government spending plummeted and the Keynesians were doomsayers even though they had knowledge of the policies you list. Similar to when Keynesians were doomsayers when the “budget sequester” episode was imminent.
What is pent up demand? Forced savings? War bonds? More savings? Are you admitting that one of the most prosperous periods in American history was preceded by a period of saving? Interesting.
Which government edicts are preventing Apple from investing? There is also plenty of VC money. You’re sitting on a pile of a billion bucks under your mattress. The government takes a million from you. And now you say “wah, wah, I have no money to invest?”
Pudding yesterday, pudding tomorrow, but never pudding today. Don’t consume today because you should consume tomorrow? But when tomorrow comes it is today, and you still shouldn’t consume. There are indeed times when there is a capital shortage - but now is not one of them.
The bubble happened because companies forecast an unrealistic increase in demand, and has adequate capital to ramp up to meet this demand. My company then was selling to startups, and we sold as much as we could make. Then reality set in, pets.com went under, and we were all left with a crapload of inventory.
So capital accumulation only makes sense if there is a profitable place to invest it. And a really productive place, not bidding up the price of tulips or Beanie babies or internet stocks. And an investment only is profitable if it results in production someone will buy. Capital accumulation by itself is not useful. The money in Jack Benny’s vault did no one any good (except maybe the alligators.)
Government investment has ROI also. If it is higher than the current incremental return rate for industry taking some money in taxes and investing it in infrastructure or R&D is of net benefit to the economy.
Yeah government projects are of unknowable value. So are industry projects. You can do all the predictions you want, but you never know for sure. When I was at Bell Labs my group got funded based on our return to our internal customers. We did many spreadsheets, but they were all bull - and most of the benefits we created were not covered in the spreadsheets.
So let’s not hold government to a higher standard than industry. Definitely not while using the Internet funded by Darpa.
One problem with the debate about ‘socialism’ is that we apparently can’t agree on what that is. If Canada is socialist, then the world is socialist outside of the U.S. And no one believes that.
On the other end, some people treat socialism as synonymous with Marxism or Communism, and that clearly isn’t correct either.
So how about this for a definition:
Modern Capitalism - allowing the market to operate freely, unless there are serious needs for temporary intervention. A limited social safety net may be in place, but the vast majority of transactions are completely free, taxes are as low as possible while still maintaining a basic safety net, etc. On the bad side, it may have significant distortions due to cronyism and ‘business friendly’ interferences in the market by government (crop subsidies, special carve-outs for favored industries, ‘infant industry’ subsidies, etc)
Social Democracy - A largely capitalist system, with more interventions designed to help the poorest and to protect people from perceived flaws in capitalism such as safety regulations and increased welfare programs for the poor. Taxes are higher on the rich as a form of wealth transfer to the poor, but the middle class is left largely alone.
Socialism - A system that taxes a significant percentage of wealth from everybody, and uses it to manage the economy for everyone. The key difference between socialism and social democracy is that social democracy is really about forcing the richest in society to help the poorest, while leaving the middle class alone. But in socialism, everyone gives up a large amount of their income in exchange for large government benefits for everyone. Therefore, in a socialist country there is more direct control over the economy than there is in a Capitalist system or in a social democracy, even if it doesn’t rise to the level of absolute control that would occur in a Communist country.
Take education: In a capitalist country, education is private, and everyone pays their own way. In a social democracy, the wealthy and upper middle classes pay for their own educations, and the poor are subsidized in the form of student loans or student aid in proportion to their needs. In a socialist, education is free for everyone, and that is paid for by taxing everyone - rich and poor included.
Or take health care as another example. In a capitalist system, health care is private, and people who can’t afford care rely on private charity or private insurance. In a social democracy, the rich still pay for their own health care and the system remains private, but the poor are given either subsidized health care, free health care, or subsidized/free insurance. In a socialist country, health care is free for all, paid for by taxes on everyone.
A country can have a ‘socialist’ health care system or a socialist education system and still not be a socialist country if it still has large capitalist elements in other areas. So there’s no bright line between socialism and social democracy, or even between capitalism and social democracy, but there are features of each that, when considered in aggregate can define the country. I’d say that if you have a socialist health care system, a socialist education system, a tax system that takes more than 50% of the income of the people with a strongly progressive component, and heavily regulated industries otherwise, your country can be called socialist. A country like Canada, New Zealand or Sweden, which may have a socialist health care system or some other ‘socialist’ features but which is still predominantly free and which has moderate and less progressive taxes would not be categorized as a ‘socialist’ country.
Does that sound like a reasonable set of definitions? Because if we can’t agree we’ll just keep talking past each other, and both sides will continue to employ the No True Scotsman fallacy when necessary to avoid considering the hard questions.
I’ve gone over this many times, but high capital gains taxes can do significant damage to entrepreneurial investment, which has the characteristic of taking a significant amount of time to be realized and which by its nature may not have offsetting capital losses. This effect gets worse as the risk of failure goes up.
Wealth taxes and high marginal tax rates are intended to deplete the wealth of the investor class, including venture capitalists. There’s no venture capital if capital is heavily taxed. If there had been a 91% tax rate when Elon Musk made his money on Paypal, he would not have had the resources to start up either SpaceX or Tesla.
The other way government impedes investment is through capricious regulation. This hits long-term investments and projects that require large amounts of up-front capital the worst.
This is not a trivial effect - it destroyed the nuclear industry in the United States. The chief problem with nuclear power is the cost spiral incurred by having to tie up billions of dollars in a project that was supposed to be ready in 5 years, but instead took 20 years because of protests, lawsuits, and a government that kept changing the regulatory landscape while construction was underway, causing extremely expensive re-designs and re-starts.
Government regulation of drug manufacture and sale is a primary cause of high drug prices. When it costs a billion dollars and over a decade of testing to bring a drug to market, after which the patent has a finite lifespan before the profit margins are destroyed by generics, drugs become necessarily very expensive.
And what if that someone will only buy what you are building because they are ‘stimulated’ to do so? What happens to your company when the stimulus goes away?
This is the best argument AGAINST a stimulus. It distorts the economy, confuses producers, and leads to misallocations of capital. It causes new projects to be created not because they represent the most efficient use of capital, but just because some politicians decided they should be started to ‘stimulate’ the economy. All the companies seeing demand increase for their goods have to ask themselves whether the demand is being driven by ‘stimulus’ money or whether it reflects a real need in the underlying economy. The information value of capital flows is diminished, leading to errors. Get it wrong and you expand too much, then when the stimulus fades you’re in big trouble.
An ROI artificially determined by politicians, which hasn’t been tested in the market, and which will just result in more money being invested if they were wrong. If predictions of ROI by smart people were always correct, every new startup would be a success, and firms funded by venture capital would be rock-solid ventures because they are vetted by committees of venture capitalists who actually have a track record of being right.
The fact is, most startups fail, and most estimates of ROI are wrong. That’s why you don’t want to centralize that kind of decision-making, but instead want thousands of investments so that in aggregate you can begin to approach a reasonably consistent ROI. Centralizing investments into gigantic projects decided on by people with A) no experience in business, B) who make decisions politically, and not based on ROI, and C) are playing with other people’s money, is a good way to piss away a lot of taxpayer’s capital. Have a look at the ongoing disaster that is California’s high-speed rail project. Had that been a private investment, it would never have been started. And it’s going to be a gigantic boondoggle that taxpayers will be shelling out for far in excess of the value it brings to them.
If, as you say, the private market is swimming in capital, and there are obvious opportunities that your politicians know about for projects that would return higher-than-average ROI, explain why those rapacious capitalists aren’t already investing in it? Do you think they’re in the habit of leaving money on the table, or ignoring obvious high-ROI investments?
But businesses are focused like laser beams on ROI, whereas politicians are also considering their election possibilities, social justice, and other political goals. Business decisions are generally made by the people inside that industry and with intimate knowledge of the weaknesses and and strengths of their market. They are also investing their own money instead of taxpayer money, which gives them a much greater incentive to get it right. For those reasons alone I would expect government to be much worse at this.
Take the NASA SLS program for example. That project would NEVER survive in private industry. Any businessman would look at its cost structure and capabilities and compare them to SpaceX’s Falcon Heavy and other competitors in development and go running for the hills. NASA doesn’t even want to build the damned thing. And yet, billions are being spent every year on it, for no reason other than there are a lot of jobs at stake in powerful Senator’s states.
Government is TERRIBLE at running industries and in choosing where investment should go. Here in Canada, our heavily subsidized state/private partnership of Bombardier is nearly bankrupt, and would have gone bankrupt before already if it weren’t being propped up with constant subsidies. Now they’ve got their hands out for more - and will almost surely get it because they are in Quebec and the federal government wants to play nicely with Quebec. And no politician wants to be responsible for the loss of thousands of jobs.
In Ontario, the government decided that it was competent to decide how to invest in future energy. So they mandated a ‘green’ economy and promised that it wouldn’t be more expensive than the old one. That turned out to be complete nonsense, and Ontario now has the most expensive energy in North America, despite having significant hydro and nuclear sources. If a private business had tried to set up a solar or wind powered energy farm, they would have just gone out of business. It would have been a smaller venture, which would have exposed the province to less risk, too.
Here in Alberta, we didn’t learn from that. So our new left-wing government has mandated that all coal power must be shut down within 10-13 years, without having even a start at a reasonable plan to replace it. Their handwaving is about ‘green jobs’ and ‘investments in renewables’ that will just make everything peachy.
These decisions are being made by a collection of people with zero experience in any industrial environment, let alone power production. The decisions are political and the ‘investments’ will be done with money that is not theirs and they will suffer no personal pain if it fails. This is not a recipe for smart investing, and gigantic state-driven projects expose everyone to large risks. We’re putting everything in one basket, and there’s really no option for failure.
How about holding them to the same standard? Tell you what - the next time a politician votes for a large project, have them sign a promise that they will resign if the project goes more than, say, 50% over budget. Because that’s what would happen to a private businessman. How about telling them that if the cost overruns by that amount, there will be no funding without a referendum by the people paying the taxes for it?
You don’t seem to get that business and government are just very different things, and that governments cannot effectively do what businesses do. They don’t have the right incentives, they don’t have the information, and they don’t have the skills.
The ‘internet’ was not funded by DARPA. DARPA built ARPANET, which was a precursor to the internet. And it was never built as a public communications system - it was built as a fault-tolerant network for the military, and then expanded into government science offices and universities. There was never an intent to make it commercial at all, and in fact, there was a huge fight when businesses first started wanting to build on it, because people in academia and science thought that allowing the hoi-polloi and crass business interests and profit and all that bad stuff in the door would ruin it.
Furthermore, at that time there were already multiple other private market ‘internets’ starting up. Had Arpanet never existed, we’d still have an internet today, albeit with different protocols.
Most of the innovations that enable the modern internet were developed completely privately.
The internet today is funded almost entirely by private actors, and is by far the most unregulated economy on the planet. So if you want to use the internet as an example of success, I’d be happy to go there. As a comparison, you might want to look at the results of a real government attempt to build out a public internet - Minitel in France. I don’t think you’ll like what you find.