Who Pays for Big Government?

[UnderConstruction]

Originally Posted by lustylad

What happened swishy? Did you lack the self-discipline to keep me on ignore for more than a day? What does that tell you? It tells me you're a typical libtard, a thin-skinned liar and a fraud who fails at everything you do. That's why you have to free-lance all the time. As a free-lance dipshit and a free-lance dicksucker.





No, you didn't, but then you never do anything right. You might want to ask the mods who is the idiot.





Whoopee-do. Undercunt couldn't stand the way his ass kept being handed to him "behind his back" where he couldn't reply without looking like an even bigger dipshit.

.

You've really hurt me. I'm crying over here. Why do you have to be so mean you big doodoo head.

The way you act also tells me something about you. It tells me you are the typical bully who didn't get enough love from daddy. On top of that you were blessed with a tiny penis. So throughout your life, you've been a bully. I should feel sorry for you, but I don't really give a fuck. Go play in traffic dipshit.

[lustylad]

Originally Posted by UnderConstruction

You seem way too logical to hang out in here though lol.

The Cap'n is very logical. You should try it sometime, undercunt. Logic is what I use to back you into a corner every day. Instead of using logic to fight your way out, all you know is to toss lame insults or hit the ignore button.

Originally Posted by CaptainMidnight

Saltwater school economists continually tell us that we need big spending initiatives and "stimulus packages" to get us out of slumps.

Hey Cap'n, do you have a link with a quick and dirty summary of the differences between so-called saltwater and freshwater schools of thought? I come across it a lot but am not really familiar. Thanks.

Question for historians: Who was the first POTUS to have sex in the Oval Office? I'm thinking Warren Harding?


.

[UnderConstruction]

Originally Posted by lustylad

The Cap'n is very logical. You should try it sometime, undercunt. Logic is what I use to back you into a corner every day. Instead of using logic to fight your way out, all you know is to toss lame insults or hit the ignore button.





Hey Cap'n, do you have a link with a quick and dirty summary of the differences between so-called saltwater and freshwater schools of thought? I come across it a lot but am not really familiar. Thanks.

Question for historians: Who was the first POTUS to have sex in the Oval Office? I'm thinking Warren Harding?


.

Logic? Yeah calling me a cunt and faggot repeatedly is real effective. You want so very bad to be something you'll never be.

[Texas Contrarian]

Originally Posted by lustylad

Hey Cap'n, do you have a link with a quick and dirty summary of the differences between so-called saltwater and freshwater schools of thought? I come across it a lot but am not really familiar. Thanks...

No specific link to recommend, but I found that if you google "freshwater" and "saltwater" economics, you'll see a ton of resources that seem to offer good, concise explanations.

My take, in a nutshell ...

The terms seem to have been in use for some time now, and generally refer to the divide in economic philosophy that began to occur during and immediately following the 1970s, when it became increasingly apparent that something had gone awry with the old Keynesian models developed in the post-WWII years by economists associated with well-known universities near the Atlantic coast (hence the term "saltwater"). Among them was the iconic Paul Samuelson, whose texts have been used by millions of students for generations.

At institutions such as the University of Chicago, the University of Minnesota, and Carnegie Mellon University, a competing school of thought began developing. It held that the ability of government to boost the economy with deficit spending and monetary activism was overrated, and in many instances harmful over the long haul. Its adherents developed rational expectations theory and generally supported much less in the way of government and central bank activism, and held that free markets should be allowed to operate without being unduly stifled by an oppressive level of taxation and overregulation.

In recent years, it seems that the lines have become a bit blurred, as many younger macroeconomists don't seem to want to be pigeonholed into any specific category. Instead, they often wish to meld together what they deem to be the best (and/or the least bad!) elements of multiple schools of thought.

It seems as though they're on a mission to demonstrate that no major school of thought is wrong about everything (undoubtedly a fair assumption).

[UnderConstruction]

Originally Posted by CaptainMidnight

No specific link to recommend, but I found that if you google "freshwater" and "saltwater" economics, you'll see a ton of resources that seem to offer good, concise explanations.

My take, in a nutshell ...

The terms seem to have been in use for some time now, and generally refer to the divide in economic philosophy that began to occur during and immediately following the 1970s, when it became increasingly apparent that something had gone awry with the old Keynesian models developed in the post-WWII years by economists associated with well-known universities near the Atlantic coast (hence the term "saltwater"). Among them was the iconic Paul Samuelson, whose texts have been used by millions of students for generations.

At institutions such as the University of Chicago, the University of Minnesota, and Carnegie Mellon University, a competing school of thought began developing. It held that the ability of government to boost the economy with deficit spending and monetary activism was overrated, and in many instances harmful over the long haul. Its adherents developed rational expectations theory and generally supported much less in the way of government and central bank activism, and held that free markets should be allowed to operate without being unduly stifled by an oppressive level of taxation and overregulation.

In recent years, it seems that the lines have become a bit blurred, as many younger macroeconomists don't seem to want to be pigeonholed into any specific category. Instead, they often wish to meld together what they deem to be the best (and/or the least bad!) elements of multiple schools of thought.

It seems as though they're on a mission to demonstrate that no major school of thought is wrong about everything (undoubtedly a fair assumption).

In the freshwater school, what mechanism does the government have to stabilize the economy? Keynesian has built-in measures if demand falters. Is freshwater like supply-side in that it is very dependent on production? Would you also say that the argument has become largely theoretical, since elements of both are used?

[lustylad]

Originally Posted by CaptainMidnight

My take, in a nutshell ...

The terms seem to have been in use for some time now, and generally refer to the divide in economic philosophy that began to occur during and immediately following the 1970s, when it became increasingly apparent that something had gone awry with the old Keynesian models developed in the post-WWII years by economists associated with well-known universities near the Atlantic coast (hence the term "saltwater"). Among them was the iconic Paul Samuelson, whose texts have been used by millions of students for generations.

At institutions such as the University of Chicago, the University of Minnesota, and Carnegie Mellon University, a competing school of thought began developing. It held that the ability of government to boost the economy with deficit spending and monetary activism was overrated, and in many instances harmful over the long haul. Its adherents developed rational expectations theory and generally supported much less in the way of government and central bank activism, and held that free markets should be allowed to operate without being unduly stifled by an oppressive level of taxation and overregulation.

In recent years, it seems that the lines have become a bit blurred, as many younger macroeconomists don't seem to want to be pigeonholed into any specific category. Instead, they often wish to meld together what they deem to be the best (and/or the least bad!) elements of multiple schools of thought.

It seems as though they're on a mission to demonstrate that no major school of thought is wrong about everything (undoubtedly a fair assumption).

Nice summation. I should have known the references had to do with coastal versus inland. In my view, the relevance and practical applicability of each school of thought really depends on the prevailing economic conditions. That sounds lame, but economics is a social science and the way human beings collectively behave in their economic lives is always changing over time. So no single school of thought can expect to have all the answers all the time. You can be right yesterday, wrong today, and even right again tomorrow.

I think Keynesian prescriptions were more potent in the 1930s than they are today. Friedman's emphasis on monetary tools was useful in curbing inflation in the 1970s but isn't as helpful in avoiding deflation today. Too bad neither of them is still alive. I would love to hear Friedman's views on quantitative easing or Keynes' reactions to our modern-day addiction to non-stop deficit spending.

You mention the “iconic Paul Samuelson”. He was a brilliant economist whose thick best-selling textbook introduced me to the discipline years ago. Yet like all economists, he often got it wrong. Based on Keynesian theory, he warned that a sharp recession would occur once the government's WW2 spending binge was over. As it turned out, the US economy adjusted fairly smoothly and converted to peacetime production without a serious downturn, even though federal spending nosedived from 43% of GDP in 1944 to only 9% of GDP four years later! I like to point out this history when Keynesians today whine about the supposed economic damage inflicted by what they define as “austerity”.

.

[UnderConstruction]

Originally Posted by lustylad

Nice summation. I should have known the references had to do with coastal versus inland. In my view, the relevance and practical applicability of each school of thought really depends on the prevailing economic conditions. That sounds lame, but economics is a social science and the way human beings collectively behave in their economic lives is always changing over time. So no single school of thought can expect to have all the answers all the time. You can be right yesterday, wrong today, and even right again tomorrow.

I think Keynesian prescriptions were more potent in the 1930s than they are today. Friedman's emphasis on monetary tools was useful in curbing inflation in the 1970s but isn't as helpful in avoiding deflation today. Too bad neither of them is still alive. I would love to hear Friedman's views on quantitative easing or Keynes' reactions to our modern-day addiction to non-stop deficit spending.

You mention the “iconic Paul Samuelson”. He was a brilliant economist whose thick best-selling textbook introduced me to the discipline years ago. Yet like all economists, he often got it wrong. Based on Keynesian theory, he warned that a sharp recession would occur once the government's WW2 spending binge was over. As it turned out, the US economy adjusted fairly smoothly and converted to peacetime production without a serious downturn, even though federal spending nosedived from 43% of GDP in 1944 to only 9% of GDP four years later! I like to point out this history when Keynesians today whine about the supposed economic damage inflicted by what they define as “austerity”.

.

https://www.youtube.com/watch?v=N6RWWWjE2Rc

QE

https://www.youtube.com/watch?v=HLzfUBRhF3U

[Texas Contrarian]

Originally Posted by UnderConstruction

In the freshwater school, what mechanism does the government have to stabilize the economy? Keynesian has built-in measures if demand falters. Is freshwater like supply-side in that it is very dependent on production? Would you also say that the argument has become largely theoretical, since elements of both are used?

Keynesianism does not specifically contain "built-in" measures to resuscitate the economy; rather, it simply provides the doctrinal framework within which policymakers may undertake fiscal and monetary operations of their choosing. Within that framework, one of the first things policymakers did was to create (in the 1930s) and later expand unemployment insurance, which together with other safety net programs creates countercyclical spending of the sort that did not occur in the 1920s and before.

Although today's "freshwater" economists do not necessarily oppose that, they are generally not on board with the sort of large-scale fiscal expansion recommended by their Keynesian brethren.

Originally Posted by lustylad

I think Keynesian prescriptions were more potent in the 1930s than they are today

Although I am a bit skeptical of their efficacy even in the 1930s, it seems fair to say that they work even less well now.

A very interesting explanation, in my opinion, was offered by labor lawyer Thomas Geoghegan, writing in The Nation. Although I disagree with much of what Geoghegan (rhymes with Reagan) wrote, I think he makes some very key points.

Among them:

Keynes absolutely abhorred trade deficits. I suspect he would see a lot wrong with how we import and borrow a great deal compared to what we save, produce, and export, and we've been covering that up and papering it over with 40+ years of monetary activism. During a long period of "dollar diplomacy" followed by what many began referring to as "dollar hegemony," we've been able to get away with that -- so far.

See Geoghegan article @ http://www.thenation.com/article/163...uld-keynes-do#

Originally Posted by lustylad

Too bad neither of them is still alive. I would love to hear Friedman's views on quantitative easing or Keynes' reactions to our modern-day addiction to non-stop deficit spending.

Although it's obviously unclear whether he would have been likely to have supported the quantity of QE embarked on by central banks in the U.S., Europe, and Japan today, Friedman was an early supporter of the idea.

http://www.forbes.com/sites/timothyl...-case-for-qe3/

http://noahpinionblog.blogspot.com/2...istory-on.html

http://macromarketmusings.blogspot.c...ould-have.html

Rand Paul clearly seems to think Milton Friedman was of the Austrian school. That's flatly wrong, as a couple of rather spirited debates between him and Murray Rothbard showed.

And my read of Keynes strongly suggests that he would have big problems with non-stop deficit spending. Of course, back in the days during and prior to the years when he produced his famous works, it was customary to run surpluses -- or at least budgets that were approximately in balance -- other than during wars or other crises.

Originally Posted by lustylad

You mention the “iconic Paul Samuelson”. He was a brilliant economist whose thick best-selling textbook introduced me to the discipline years ago. Yet like all economists, he often got it wrong. Based on Keynesian theory, he warned that a sharp recession would occur once the government's WW2 spending binge was over. As it turned out, the US economy adjusted fairly smoothly and converted to peacetime production without a serious downturn, even though federal spending nosedived from 43% of GDP in 1944 to only 9% of GDP four years later! I like to point out this history when Keynesians today whine about the supposed economic damage inflicted by what they define as “austerity”.

The Samuelson text was my introduction as well, as I'm sure it was for quite a few million others.

And, yes, he and virtually all Keynesian economists of the day thought we'd be right back in the soup after World War II ended. But despite the Great Depression and a terribly costly war, we as a nation had a very deep pool of savings and were the world's greatest creditor nation. With millions of new household formations and a nascent baby boom, there was enormous pent-up demand for housing and almost everything else industry could ramp up to produce. And, following several years of wartime rationing and suppressed consumption, our parents and grandparents had the resources to pay for it.

Additionally, most of the industrial capacity of what would otherwise have been our chief global competitors had been bombed away, and would take many years to become close to fully resuscitated. Our manufacturing and exporting economy really started rocking.

[Texas Contrarian]

Someone just sent me this and asked what I thought about it:

The Keynesian Illusion

That short article is one of the clearest, most concise summaries of the issue that I've ever seen. And the author can't just be dismissed by the Paul Krugmans of the world as some uncredentialed blogger -- he holds a Ph.D. in economics from MIT.

For years now, academic economists and various "economists-for-hire" have been telling us that government spending, irrespective of what the money is actually spent on, is a wonderful elixir for the economy. Nonsense. That's how we get silly claims such as the one that food stamp dispensation produces a multiplier effect that raises output by about $1.75 for every dollar spent. If that sounds like a "shell game," or a game of Three-card Monte, it's because that's essentially what it is.

But such claims of high multiplier effects provide the intellectual undergirding coveted by big-spending politicians, who love nothing more than buying votes with other people's money.

[Whirlaway]

Thanks for that link.....good read.....concise and clear on key points.

Originally Posted by CaptainMidnight

Someone just sent me this and asked what I thought about it:

The Keynesian Illusion

That short article is one of the clearest, most concise summaries of the issue that I've ever seen. And the author can't just be dismissed by the Paul Krugmans of the world as some uncredentialed blogger -- he holds a Ph.D. in economics from MIT.

For years now, academic economists and various "economists-for-hire" have been telling us that government spending, irrespective of what the money is actually spent on, is a wonderful elixir for the economy. Nonsense. That's how we get silly claims such as the one that food stamp dispensation produces a multiplier effect that raises output by about $1.75 for every dollar spent. If that sounds like a "shell game," or a game of Three-card Monte, it's because that's essentially what it is.

But such claims of high multiplier effects provide the intellectual undergirding coveted by big-spending politicians, who love nothing more than buying votes with other people's money.

[CuteOldGuy]

Thanks, Cap'n. Excellent article.

[Texas Contrarian]

One interesting thing to note about David K. Levine (author of the piece linked in my previous post) is that he has long aroused the ire of famous Keynesian economists such as Brad DeLong, and even "Krugtron the Invincible" (as he is referred to by Niall Ferguson). Disagreeing with those two sometimes prompts a response evocative of what tends to happen when someone disses principle tenets held by a fiery preacher of the gospel. This is like a religion to those guys, and Levine touches a sensitive nerve.

For example:

http://www.bradford-delong.com/2015/...conomists.html

But many others, such as University of Chicago professor John Cochrane, don't exactly share DeLong's views:

http://johnhcochrane.blogspot.com/20...-illusion.html

And perhaps Levine hurt Paul's sensitive feelings with this open letter posted several years ago:

http://www.huffingtonpost.com/david-..._b_289768.html

Note the last few sentences of that open letter, wherein Levine noted that the recession was technically over, and the economy growing once again, before much of the "stimulus" money had even been spent.

To neo-Keynesian economists, the "beauty" (if you can call it that) of the models that purport to demonstrate the effectiveness of fiscal demand management is that no one can prove with mathematical rigorousness that they don't work in the real world.

Of course, no one can prove that they do, either. (And there's plenty of empirical evidence that they don't.)

[Whirlaway]

A powerful observation...........simple, easy to understand, and devastating to the argument(s) in favor of stimulus spending IMO.

This observation is a thing of beauty.

Originally Posted by CaptainMidnight

...

Note the last few sentences of that open letter, wherein Levine noted that the recession was technically over, and the economy growing once again, before much of the "stimulus" money had even been spent.

[Texas Contrarian]

The essential point that I wished to make by starting this thread is that if progressives wish to greatly expand government, they are going to have to look well beyond the top one percent for the needed "revenue enhancements." Many people seem not to realize that Europe's social democracies are financed by far higher levels of taxation on everyone, not just the "wealthy" -- and that despite a generally greater level of income inequality, the tax regime in the U.S. is actually quite progressive compared with most other rich nations. Lower income Europeans pay a much larger share of their income to tax collectors than their American counterparts do.

I might additionally note that increasing taxes on the very highest income earners, although politically popular, is not as easy a lift as assumed by many supporters of the concept.

For instance, consider the carried interest tax provision, the allusion to which has come up frequently in Hillary's campaign rhetoric of late (despite the fact that back in 2007, and notwithstanding public pronouncements to the contrary, she and the other New York senator, Schumer, alternated between doing nothing to end the provision, and actively working to block efforts to do so).

Check this:

http://www.slate.com/articles/busine...ers_could.html

(Note: The astute reader might catch a couple of relatively minor inaccuracies, but the author gets the key points right.)

The simple fact is that relatively few people understand this issue, or for that matter even have any idea what carried interest is, so it isn't as juicy a target for demagoguery as so many other things. When the spotlight isn't shone on an issue, politicians at the very highest levels are careful to avoid offending their wealthiest and most generous campaign contributors.

And that is, of course, true of those representing both political parties.