Which is why the broken window fallacy is a fallacy in a normal economy. In an economy with depressed demand, though, you don’t go and buy a TV set, you sit on the cash and both the window guy and the TV guy sit at home, unemployed.
Sigh.
Of course the unemployed buy things, but they buy alot less than the employed. I think we all understand that. Please don’t get caught up in the analogy - it’s only an analogy. High unemployment = lower demand.
Didn’t say that.
Didn’t say that either.
Didn’t say that either.
Why not?
How did they become unemployed? Tell me.
You do know that booms and busts are normal and natural, right? They aren’t necessarily caused by external forces or structural problems. And in the short run, it doesn’t matter - the first priority is getting back on our feet, otherwise we can’t solve the long-term problems.
If you look at the numbers, the stimulus measures back then generally worked, until Congress stopped going along with it. Much like today.
Dude, the earth is a closed system. That’s undeniable. You can’t talk about foreign markets expansion as if they are unlimited any more than you can talk about government spending as unlimited.
If you want to do the standard internet thread ending where you call me an idiot and run away, just do it now. Don’t waste my time any further.
More like idiocy – or to be more charitable, a well-intentioned-but-fundamentally-misguided idea that the movement (aka “velocity”) of money is what sustains an economy. Because Keynes and P Krugman work around government bureaucrats, it’s no surprise they think this way. Expand/invent government works projects, inject a trillion dollars of “quantitative easing” into the economy, etc. That’s their mental toolset.
I’m certain that a future revision of economics that’s based on thermodynamics, game theory, or a hybrid will finally knock down Keynesian and neo-Keynesian economics as the great red-herring of the 20th century.
Technically (as defined by GDP), the Great Depression did end “right after” (w/in 3 years) of the New Deal’s beginning. By 1936, the US had established a new record high GDP, which continued to rise until FDR agreed to slash the budget in 1937.
http://www.ourfuture.org/blog-entry/2009020603/fdr-failed-myth
Unemployment also improved dramatically - dropping by 15% (or by 10%), depending upon the method of counting unemployment you want to use. However, by 1937 it still remained high (around 22% or 15%, again depending upon how you want to count it). Unemployment wasn’t fully resolved until we entered WWII.
The point is, however, that the New Deal was extremely effective.
No, he didn’t say that.
The movement of money certainly can jumpstart a sluggish economy. Only labor sustains it. But sometimes you need to start with moving money to get the labor back into play. Keynes’ theory was how to get an economy going again, as a temporary measure. Anyone who thinks he expected stimulus spending to be permanent completely misunderstands him.
Yeah, so? That’s not an argument that they’re wrong, just an observation.
Sometimes the government is the only actor with the means to act in the public interest. That was what Keynes said.
Keynes works pretty well, except when politics gets in the way.
That will be difficult, since predictions based on Keynes have been proven without a doubt correct over the past five years, whereas those based on other models have been absolutely incorrect and have led to failed recovery and unnecessary suffering.
The idea that Krugman works around government bureaucrats is also laughable. If he did, they are certainly not listening to him, and he has made no secret of his dismay at the degree to which people of power and influence have been deaf to established economic principles and sound predictions.
Nonsense. The only certain endpoint for Keynesian policy is large scale financial ruin. Why? Because practitioners delude themselves into thinking that borrowing today to "stimulate’ an economy will be repaid (or offset) by massive productivity gains tomorrow. That has a chance of working if USA was self-sufficient in energy resources (oil), and the leading economic power while Europe lays in ruins after WW2. With today’s competition from China, India, etc and dependency on Middle East for oil, this borrow-now-for-prosperity-later will not work. It will devalue the currency and raise interest rates to sky high levels. At that point, the Keynesians will be left inventing YET ANOTHER intellectual reason why their stimulus didn’t work (which will be relabed as post-post-neo-neo-Keynesian.) “The reason $1 trillion stimulus didn’t work was because we should have injected $10 trillion! Oh, $10 trillion failed because $100 trillion was what was really required, and so on.” Their mindset is rooted around the manipulation of money … “velocity”, “liquidity trap”, yada yada yada.
See Paul Krugman’s name here: Council of Economic Advisers - Wikipedia
Yes, he’s an academic but he has deep social networks into the government circles. Perhaps you consider President Ronald Reagan as not part of the government? 
I won’t dismiss the idea that government may be the only actor to help the economy. However, the manipulation of money by bureaucrats to make it happen will eventually be exposed as the Grand Delusion of the 20th century.
Government my be the right institution but it’s the wrong tool.
Oh, that’s a delusion alright, but a political one, not an economic one.
We could easily pay off those debts with productivity gains, if we were responsible enough to. But instead, certain politicians choose to either increase government spending or cut taxes or both rather than paying off debt. We briefly had small surpluses in the Clinton years, the last time we managed to be responsible, but that was quickly squandered.
Please give more details on what you mean.
Well, that’s the thing. Reagan was certainly part of the government, but would you call him pro-government because of it?
Since no one else has said it yet: Enormously Wasteful Enterprises: band name!
Sounds like an uptight centrist/libertarian’s idea of a good band name.
This all bears no resemblance whatsoever to anything that has ever happened in reality. It sounds fevered and scary! Whoever told you all that was lying to you.
Maybe I’m misunderhearing you…I’ve only skimmed your cite while I’m traveling around this morning…but looking at the charts under “II. The Post-WWII Western European Miracle” I see that Germany didn’t get back on track until just about 1960 (that would be 15 years…i.e. ‘years’ plus a ‘decade’), same with France and Britain. Looks like, interestingly enough, that Italy was actually ahead of the curve…though the chart isn’t exactly precise it looks to me like they were back on track by the mid 50’s. That jibes with my own anecdotal memories (I was pretty young in the 60’s). From memory the various Asian countries had similar timelines of recovery (IIRC, the 60’s is when Japan really got back on track and started to be really competitive).
And this recovery IS remarkable. Think about it…they went from a totally devastating war to being back to where they were prior to the war in less than 20 years. That’s pretty remarkable.
-XT
Let’s get back to the heart of this, XT.
Sure you can.
If unemployed people become employed, they spend more. If they spend more, other get more money for their efforts. Those people in turn spend more, including on the product the formerly unemployed are producing. The system is now self-sustaining.
As for paying off debt - now you have more people working and therefore paying taxes, so tax revenue goes up. Use it to pay off the debt. Don’t squander it by electing politicians who will cut taxes instead.
Republicans like to say that the New Deal did not end the Great Depression; World War II did. The reason they say this is because they dislike domestic spending programs, but like military spending.
Nevertheless, military spending is government spending. What is more, it requires real money. Cutting taxes while raising defense spending is fiscally irresponsible.
From the election of Franklin Roosevelt in 1932 to 1940 unemployment declined from 23.6 percent to 14.6 percent. That can be credited to the domestic spending increases that happened because of New Deal programs. From 1940 to 1944 unemployment declined further to 1.2 percent. That was because of increases in military spending, but if the Second World War had not happened, and if the increases in government spending had been for infrastructure projects, and increases in the public sector of the economy the benefits to the general standard of living would have been greater.
Not interested in any discussion with you, even if I agree with you about this.
Obviously I disagree…mainly with your assertion of an absolute. If you want to modify it to ‘maybe you could’ then I’ll be happy to concede that it’s possible, though not a probable outcome, depending on a bunch of details missing from your original analogy. But to say that it’s always going to be the case? Um, no…I disagree.
It might work out that way, but it’s not a given. Or, to put it a different way, what evidence do you have that this has happened historically? That borrowing a lot of money simply to put a bunch of people who were out of work back to work and without expanding markets in any other way has made any economic system ‘self-sustaining’. I can’t think of a single historical example where this was the case without some external expansion, but if you can then I’ll consider it seriously.
-XT
I’m not a centrist/libertarian. 
I’m probably closer to that than John here is, and my thought on John’s band name would be ‘he shouldn’t give up the day job’…
-XT