The Price of Change

Competitive Enterprise Institute

Spending ourselves rich

Fred Thompson

Hosing money on the economy

"Taiwan government presents consumption vouchers" (Taiwan News):

Under a government plan to boost the economy by encouraging domestic spending, about 23 million Taiwanese citizens and foreign spouses will each receive NT$3,600 worth of vouchers beginning Jan. 18, just one week ahead of the Chinese Lunar New Year holiday.

New Deal talk nonsense

Same Old New Deal? by George Will:

The assumption is that the New Deal vanquished the Depression. Intelligent, informed people differ about why the Depression lasted so long. But people whose recipe for recovery today is another New Deal should remember that America's biggest industrial collapse occurred in 1937, eight years after the 1929 stock market crash and nearly five years into the New Deal. In 1939, after a decade of frantic federal spending -- President Herbert Hoover increased it more than 50 percent between 1929 and the inauguration of Franklin Roosevelt -- unemployment was 17.2 percent.

"I say after eight years of this administration we have just as much unemployment as when we started," lamented Henry Morgenthau, FDR's Treasury secretary. Unemployment declined when America began selling materials to nations engaged in a war America would soon join.

The Krugman Recipe for Depression by Amity Shlaes:

What kept the picture so dark so long? Deflation for one, but also the notion that government could engineer economic recovery by favoring the public sector at the expense of the private sector. New Dealers raised taxes again and again to fund spending. The New Dealers also insisted on higher wages when businesses could ill afford them. Roosevelt, for example, signed into law first his National Recovery Administration, whose codes forced businesses to pay an above-market minimum wage, and then the Wagner Act, which gave union workers more power.

The New Deal Didn’t Always Work, Either by Tyler Cowen:

In short, .... wartime orders from Europe, not the well-known policies of the New Deal, did the most to make the American economy climb out of the Depression. Our current downturn will end as well someday, and, as in the ’30s, the recovery will probably come for reasons that have little to do with most policy initiatives.

A Recipe for the Next Great Depression by Thomas J. DiLorenzo:

Lesson Number One is that "the basic problem with central banks is that like socialist economic planners, they can never have more than a fraction of the vast knowledge needed to make a society work, knowledge that is dispersed in the minds of millions of people. In addition, when central bankers make mistakes – as they inevitably will, since they’re human beings – these mistakes harm not just the economy in a city or a region but the entire country. The Fed’s response to the current economic crisis, which it created by creating the housing bubble, has been to declare more and more central planning powers for itself."
....

Myth: Government Spending ‘Stimulates’ the Economy by Daniel Mitchell:

If Keynesian spending doesn’t make sense from a theoretical perspective, and also fails every time it is tried in the real world, why do politicians keep trying the same approach? Your guess is as good as mine, but the answer probably has something to do with the fact that politicians love to spend other people’s money, and Keynesianism is a convenient rationale.

the Prospects for a Stimulus Package

Price Fishback: What Do the New Deal and World War II Tell Us About the Prospects for a Stimulus Package?:

If not Keynesian policy, what was the New Deal? It was a broad-ranging mix of spending, regulation, lending, taxation, and monetary policies that can best be described as “See a problem and try to fix it.” In many situations the fix for one problem exacerbated other problems. The programs to raise farm prices hurt work relief recipients, while attempts to raise wages and prices contributed to more unemployment, and thus a greater need for relief spending.

One sign that Keynesian budget deficits were not the key to bringing the U.S. out of the Great Depression is what happened after the war. Every Keynesian predicted that the private economy would go into a recession because the large government budget deficits would be eliminated and so many men would be returning from the war jobless. Instead, as government deficits receded, private consumption and investment boomed. Resources were no longer allocated to producing munitions and instead were devoted to production of typical consumer goods and services.

So Now Saving Is Bad

"So Now Saving Is Bad" by Sheldon Richman:

Keynes is back! Unfortunately. If you want to make sense of most of the reporting and commentary on the econony these days, you have to realize that most reporters and commentators and politicians are working from the Keynesian position that, as Paul Krugman puts it, “[I]ndividual virtue can be public vice… attempts by consumers to do the right thing by saving more can leave everyone worse off.” This is Keynes’s so-called “Paradox of Thrift.”

From Economics in One Lesson from Henry Hazlitt:

The enemies of saving are not through. They begin by drawing a distinction, which is proper enough, between "savings" and "investment." But then they start to talk as if the two were independent variables and as if it were merely an accident that they should ever equal each other. These writers paint a portentous picture. On the one side are savers automatically, pointlessly, stupidly continuing to save; on the other side are limited "investment opportunities" that cannot absorb this saving. The result, alas, is stagnation. The only solution, they declare, is for the government to expropriate these stupid and harmful savings and to invent its own projects, even if these are only useless ditches or pyramids, to use up the money and provide employment.

Good reading: Visions and Frameworks in Macroeconomics

Visions and Frameworks in Macroeconomics

Via Roger W. Garisson (Auburn University), "Visions and Frameworks in Macroeconomics", three excellent powerpoints explaining:

- Keynes' Business Cycle theory
- Hayek's Business Cycle theory
- how the two compare

[AA] Second-year students will notice that the theory of Keynes is the framework we studied in Global Economics. The presentation shows that it doesn't really explain dynamic reality. You have to read just one, make it the Hayek powerpoint. It explains nicely how artificially low interest rates cause boom-bust cycles - hope it sounds familiar :)