Keynesian Economics and Recession Counter-Measures

IMO, it seems like the "cycles" of economic ups and down seem to be more of an artifact of analysis than any actual immutable phenomenon. It seems like the actual cycle is:
1. Greedy people get into power and lift rules allowing them to suck more wealth from the lower and middle class.
2. Economic recession occurs.
3. The lower and middle class rebels and put more progressive minded people into power.
4. Those people instutute restrictions and programs that reset the economy on the proper foundation of wages and general welfare.
5. Prosperity ensues.
6. People get complacent or distracted by other issues.
7. Greedy people get into power ...... Aren't these just treasury bonds? At least in the case of the US I think that is the case. AFAIK anyone can buy them including foreign countries. Someone posted a good graph in the humor thread awhile back that showed a more important stat which is the amount of debt as a percentage of GDP. That is what really matters. Using your household example: It is good enough to be a decent analogy but its not quite right. It works if you assume that the person taking out more loans is then using them to increase their "personal GDP". If using that money they can ensure that in 10 years they will be worth 10 times as much as they are now, then their current debt will become trivial.You can either pay down the debt, or make the debt irrelevant by growing the economy. The way to do that is to focus on generating wealth which is the idea of the increased borrowing. If you use that money to create jobs that produce wealth, like in manufacturing, then you will see a return on investment and it will be worth it.If you use the borrowing to give everybody a $1000 then that is a foolish waste because those people will either horde the money, or spend it on stuff that may not have originated in your economy, so you didn't generate any wealth.IMO, Obama is doing the right thing when today he announced a massive public works project. Getting people back to work making things, is exactly the remedy you need. He will be setting up and subsidising industries that will be viable long after the money is spent such as green manufacturing.

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

If you make this statement then you obviously missed the point of what I said. The jolt is an investment in producing wealth. Infastructure is a long term asset that produces gains far greater than the burden you take from building it in the first place. This is a proven technique that not only worked for the US but is in fact working for other countries. Look no further than China and India for examples of this in action.It is the same theory behind taking out a student loan versus taking out a loan for big screen TV. The money you spend on your education is in theory making you worth more which makes the proportion of the debt you took out on your education mean less to you. On the flip side, the money you spent on that TV which just depreciates over time is a net decrease in your value because it doesn't produce anything.Spending money isn't always bad. Spending money that doesn't do anything is which is why the first economic stimulius package was a stupid idea. Then you should be incredibly pissed off at the doubling of our national debt (even more so when you consider liabilities we have taken on by partially nationalizing investment firms) for spending on non-investment activities. War is basically flushing money down the toilet because all of the effort and wealth used to build a bomb or a tank, etc will cause the net wealth of the nation to go up by 0. Becase we borrowed money to make war, it is probably worse than that. That is why you should only do it when it is ABSOLUTLY necessary. Our founding fathers understood this quite well. All wars in our country have put us into debt and have either sent us into recession or depressed the economic growth that could have occurred had the wealth generating centers of our economy not been focused on making value-less instruments of war.On the other hand, putting the effort and wealth of the nation into building a highway which improves commerce, or building a school that will produce a more educated workforce, or building the next generation of solar panels adds directly to the value of the nation and by extension the dollar.In sort, spending money is not the same as printing money. The process already did. The policies that got us into this mess were voted out last election in the US. The only thing that cutting taxes while we were at war as well as increasing domestic spending under a "fiscal-conservative" administration has done is produce an economic bubble that burst before they could get out and blame it on the next guy.

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

I think a lot of people forget that from the level of the government money is fake. It is an abstraction of value. It is a statistic to manage economies and interface for trade with other nations.When a bank makes a loan, they are essentially creating money in the future by putting up a placeholder for something that doesn't exist yet, like a new house, that will likely have value. The problem with the housing crisis was that the banks "created" more money than there was real and tangible value in the houses that were being sold. You only noticed it once the bottom fell out and people realized that they were living in homes that were worth less than the amount they owed on it irrespective of their ability to afford it. Remember, there are a significant number of forclosures that are happening not because people can't afford their homes, but because their home is now a massive liability.

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

First of all, I took a lot of my time to write a post that described no only WHAT I thought the solution was but also WHY. It just seems like this response from you, rather than engage me in a substantive discussion, is to be incredulous by analogy.The economy is not built with steel and the current economic woes are not the same as a plane crashing. __I never said that it would be fixed in 2 years. It will probably be a decade or more before a new green industry can stand on its own. We not only have to erase an achievement gap in education we need to exceed other countries if we want to remain competitive while at the same time be less populated than the East.We have some hard times ahead of us. Heck, there are even shanty towns propping up in some places like after 1929. But the progressive ideas of the New Deal got us out of that and they will get us out of this too if we let them.If we don't let the upcoming reforms happen or if we dismantle them again like Nixon/Regan did then we will become a second rate player like we were before WWI but it still won't be the end of the world. Neo-Conservative ideology is in fact dead, it is just a matter now of when we decide as a society to bury it rather than let its rotting corpse stink up our country.

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

It is a massively widespread myth that WWII was a boon for our economy. The myth is perpetuated because it was the only war that didn't result in a recession in the aftermath but in fact if you look at the trend that the economy was going before the war, the war in fact depressed the growth of the economy.Had we not been forced to fight in WWII, we would have had massivly higher growth in a peacetime economy. Imagine the industrial muscle that was leveraged against Germany and Japan used to create industrial wealth rather than worthless items such as a bullet or a bomb.Eisenhower (a republican I might add) spoke at great length about this after the war. He recognized that the wartime economy and the conversion back into a peacetime economy was sending us downward and guess what he did. He hiked the top income tax to 90% and pumped that money back into infastructure. You can thank him the next time you drive on an interstate highway. The result was that he saved the economy from the burden it bore from WWII.All that being said, no one should take my comments as thinking that WWII was unnecessary. Like I said before, sometimes you need to fight wars but we should ABSOLUTLY dispell the myth that wars are good for the economy. Wars do not generate wealth unless you are physically raiding it from someone else.

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

You need to either stop with the analogies or use better analogies.If you bought a house for 400k that was now worth 200k with no hope of ever regaining its value, would you contine to spend 60% of your income for your housing?That is the very real position that many people are in. The first round of problems were for people whos rates reset. Then as the dominoes fell this next class of homeowners was hit with the reality of what it means when you call something a "bubble". It means that these houses were never worth what they were sold for to begin with and to continue to think that they were is fantasy that helps no one. The only way for us to start climbing out of the housing mess is for us to hit rock bottom which has not yet happened.

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

Of course we "ain't seen nothin' yet". We still have a man named Bush in the oval office and guys like Henry Paulson ripping the copper wire out of the walls of the Treasury Department. We cannot begin to heal while people still have their fingers in the wound.Now there are a few appropriate analogies for you.

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

Which is a decent assumption IMO when you consider what "wealth" really is. Most generally, wealth is the work that individual people put into shaping their environment into something that is desireable. So loosly, you get more wealth the more people you have as long as those people are working. Hence the fast rise in wealth of nations like China and India who are putting their people to work and the stagnation of other populated nations who happen to be populated but are under regimes that could care less about their people.Wealth is people doing work. As long as population keeps increasing, probably yea. Absent population you can also increase wealth by increasing productivity which is also showing no signs of stopping. 1000 years ago 1 person farming produced much less wealth than 1 person farming today using modern technology. There may be many breaking points. For example, the one piece of wealth that you cannot create is natural resources. When these are used up the pooch is how you say...screwed. The wealth of a nuclear power plant is reduced to its components, which is significantly less than the plant itself, the moment we no longer have uranium to run it. My understanding is that no an economy does not have to canabalize another one. Wealth and money are abstractions for real and tangible things that we need and/or want. As long as they can be grown/built/improved/etc you can always generate new wealth without having to have taken it from another economy. You always have to have the natural resources to do the growing/building/improving/etc but that goes back to what I said above. The basic unit of wealth is not dollars its matter. I think that contractions are inevitable but there are not cyclical like some claim. A natural disaster will cause a contraction. If you presume like I do that there will be more wars, that will cause a contraction. Greedy politicians that tear down common sense regulations cause contractions. These are events that just happen and are unfortunate just like any other event that we don't like. Some we can wholly prevent, others we cannot. Not while we are only tied down to this planet no.Edited by Jazzns, : No reason given.

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

Yes and that also includes just simply raw landmass. But you have to put work into it to give it value. If it didn't work that way, then there would simply be a fixed values for all nations that was the sum of all their material resources. But a country that sits on a copper mine has much less value than a company that mines the copper ore, refines it, purifies it, and turns it into consumer electronics. The work adds significant value and therefore wealth to what was essentially a rock in the ground.We often value things that are more than the sum of their material components often for nothing more than their artistic quality. Yes but not all materials in all configurations have the same value. Using the same example as above, a bundle of conductive wire and a microprocessor have vastly different value for the same amount of raw material. Yes I even said that the basic unit of wealth is matter. But I think the point I was trying to make that you seem to have missed is that if you can increase you ability to work with those materials, you increase their value. Technology makes us more productive which allows us to either work raw materials more efficently or to a level that we previous were unable to concieve of. In the case of the farmer, he can probably grow more crops per acre of food that is more calorie dense. In the case of the microprocessor, we simply did not concieve of our ability to create something like that 100 years ago. And microprocessors in and of themselves have made us more productive in all other facets of life. I don't think there is any disagreement about this except the extent at which a breaking point may occur. The REAL resources that are finite are the ones we can not recover or not recover easily and when you really get down to it, those only constitute things that you can only make in a supernova such as all the stuff with big atomic numbers on the periodic table of elements. But we can probably even overcome a deficit of those resources if we figure out how to get them cheaply from elsewhere in our galaxy.Other things like hydrocarbon resources are entirely recoverable as long as we have the will to do it.Landmass will be an issue at some point but we seem to keep inventing things that allows us to be more efficient with that too.There really are a lot of resouces to go around, it is just that economics and politics often factors into our ability or will to go get them. I don't think it needs to be an question of higher or lower standard of living. It is a question of a different standards of living and there is no question that not only resouce/economic concerns will factor into that. We also have the fact that we cannot continue to pump 500 million years worth of accumulated carbon into our atmosphere and still have a habitable place to live.The issue with the cheap goods is simply a reflection of our current lifestyle which is to favor disposable/convienence consumerism over any alternatives. We do that now because its cheap and easy. If you can no longer get those goods we will probably shift into a more durable goods society. In fact IMO you are already starting to see that being done a little but mostly being encouraged by the green movement.Consumer level bottled water is the biggest scam ever invented. :-) This is not true as I have explained above. The assumes that there is equal capability and/or willpower to produce the same amount of value from those resources. Even if you rationed the resources out, the race then will be the achievement and creativity to do something innovative with them. Just take a look at how Japan as become an economic power. Its not like they have a whole lot of resources to leverage, but they are extremely innovative and hard working.There is a measure out there somewhere that I have seen before talking about how many dollars per ton of export a country produces. IIRC highly industrialized countries that have small amounts of resources like Japan have very large dollars/ton of export. In the USA, our dollars/ton of export has been going down steadily. It was very high during the period of the New Deal. Which ties us nicely into the topic.A country that is just selling its natural resources like wood or ore will have a lot lower dollars/ton of export than a country that is selling machinery or machined goods. How can you possibly control for political intervention and natural disaster in any analysis of economic cycles? That is in the same sense as a scientific study? Perhaps that why there is no "official" Nobel prize for economics. Short of the doomsday scenario where we use up all the metal and heavy elements of the entire galaxy I don't see why not. Logically no they cannot, but practically it seems like reality and history is showing that they in fact can. Not necessarily because you can find counterexamples. Russia has a lot of resouces but their recent economic boom was only because of the inflated price of oil. They are not innovating or putting their people to work creating real value. Now by virtue of their resouces they certainly have more potential than many places in the world but they currently are not doing a very good job of producing wealth with those resouces. They are just exporting oil...

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

All of those are technically renewable resouces. They just take energy to produce. That will probably be the first big limiting factor. Why does it have to be either or. In reality, it will probably be a combination of the two and the difference will likely be a matter of political considerations.Poverty now has more to do with politics than lack of resouces or technology.

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

1,2,3 = Agreed I think you are right but rather than a discussion about averages it seems like you really want to get to what the implications are. For example, what does this mean for poverty or our ability to sustain "wealth".Like I said in my previous message, the nitty gritty of who gets what chunk of the nations wealth, and perhaps more importantly who gets access to resources to be empowered to produce their own wealth, is largely a political question and not an economic one.One of the reasons that western society has been able to sustain growth is because they give their people the freedom to pursue wealth. Economically depressed nations are often in their state simply because the people don't have the freedoms and rights they need to generate wealth and protect it. Yea, in the US the GDP, even up until recently, was still going up even as personal value for most American citizens was tanking. You can in fact technically grow your economy by enslaving your populace and forcing them to produce wealth.Getting back to the topic, this is primarily why IMO the recession counter-measures of spending during a downturn is the right way to go as long as it is being spent properly. The spending is essentially an equivalent to an organizational tool to induce wealth creation. In the US, assuming Obama gets to do what he plans, he will be using the money to prop up industries that have barriers to rapid adoption and support in the current economic climate and market conditions.Oil is cheap again and the startup cost for the mass production of alternative energy systems is high. Something external needs to change that dynamic in order to build a new industry and that costs money.

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

Oh totally, the politics don't have to be internal only. The US is as horrible at doing that as Europe was previously. Look at China and Sudan currently too.None of the discussion so far had anything to say about the theft of wealth which is what all that basically is. When people are not properly compensated for the wealth they DO create then that is stealing.Buy Fair Trade all, that is if you can now adays.Edited by Jazzns, : No reason given.

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

I totally disagree. It is far riskier to do nothing. There is a ton of history and analysis on the Pro side of doing something like this.Not only does this need to happen, we need to lock in a percentage of GDP that gets spent every single year on both infastructure building and education to make sure that there is a continual process of restructuring both industry and the workforce.The only thing IMO that is the controverisal part of this is the whole "lower taxes" party of the equation. That is where I for one disagree. Taxes need to be raised and raised significantly on the top incomes. In addition, once we are out of the woods taxes need to be raised accross the board in a progressive manner.And for any conservatives out there who think different, I'll simply point to the previous Republicans who produced beneficial economic policies by raising taxes including Regan (sort of) and Eisenhower.

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

Exactly, and even though he kept the income tax rate low, he raised just about every other tax you can think of. He spent the money in the way that I think you fear, in things that aren't serious investments into the future but make the current economy look "okay".When you go on a credit care binge it IS in fact fun before you get the bill. =)

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

Well, considering that we have a $60 trillion derivative market still capable of failing, what is happening right now is basically economic whack-a-mole to try to keep as everything as much above water as possible. The real fixes, in the US at least, are not even in the pipeline yet. The beginning of the end will be when the markets get re-regulated. Credit default swaps should be eliminated or tightly regulated. Credit card companies need to be reigned in (there is another bubble waiting to burst). Tons of other things need to happen before the economy starts to fix itself for real.Even if we get out of this current mess by putting a new foundation on the economy (infastructure, manufacturing, etc) it will only be a matter of time before greed gets us back into the hole again.