I agree 100% that his ideas have been hijacked and distorted by big government apologists. But let's criticise Keynes for what he actually recommended, not what other people made up in his name. I did mention the debt constraint facing all governments, and the political tendency towards structural deficits. There are also issues with the sustainability of the welfare state (which didn't exist when Keynes wrote the General Theory) and its impact on the operation of free markets. So, what's to be done? A few things spring to mind: 1) there must be a 'hard' peacetime cap on total government debt ratios 2) budget deficits, at least during periods of economic growth, should have strict limits or even be outlawed altogether (balanced budget amendment). Greece's disaster would have been prevented by this alone. 3) there must be a regulatory mechanism to address the problem of credit bubbles, and the inherent put/public backstop to the financial system. The current regulations are clearly inadequate. The Austrian liquidation approach is clearly politically unfeasible, no serving politician will let a 1932 moment happen willingly, and the occasional Ron Paul naive enough to try will be ejected from office faster than PASOK or Fianna Fail were. To avoid excessive stagnation via burdensome regulation, perhaps there could be two classes of bank, with only the more regulated and conseratively run banks getting any deposit insurance and implicit government backstop. 4) public sector pay must be linked to tax revenues and/or GDP, again by a systematic formula so politicians don't succumb to short-term pressures to grab votes at the expense of the system and the greater good. When the private sector has been crushed, maintaining let alone increasing public pay is irrational and harmful.
Well, I did say that tax cuts could be used for consumption OR investment. I have no problem with a cut broad enough to spur both more or less immediately. The biggest problem with tax cuts is that they can increase short-term deficits because most government spending is in fixed costs and without offsetting spending cuts, the short-term loss of revenue leads to increase financing needs. Of course, if the cuts spur future growth, that incremental deficit spending may turn out to be self-financing.
Breen, Convertibility has already provided you with adequate references to both theory and data, and Brass contributed as well. That's enough as far as I'm concerned.
That's all well and good, except it misstates the fundamental nature of the problem. Our monetary system doesn't lack regulation. It lacks the will to use it. Regulators are corrupted by the very industry they're charged to regulate. That's why Ron Paul's solution - complete deregulation - is anything but naive or simplistic. It's genius. Remove the honey pot in the form of fiat money, a central bank, and voluminous regulations, and corporate leverage over the economy, finance and welfare evaporates overnight. This is a good thing. All your ideas are great. Except even if they were passed, they'd be changed, tinkered, twisted, and eventually perverted into something that looks nothing like what you wrote above. The only solution is to remove the regulatory authority from Government, and let the free market police itself, which it does quite nicely. Save that, only a constitutional amendment that includes exhaustive and strict GDP, CPI, M3, and other economic definitions and the required actions to remedy in such and such a case, would suffice. That won't happen. Constitutionally, the Federal Government has no authority to regulate all this crap anyway, so perhaps we ought to start there? I would also add that the primary reason we have economic stagnation is the massive overhang of bad debt in the system. The carrying cost on the debt is like a gigantic parasite attached to the economy's neck that siphons precious capital off every year, in the form of interest payments, that would otherwise be used towards productive endeavors like investment and consumption. This is the natural course of things. Credit excesses are purged through default, restructuring, deflating prices, which allows the redistribution of assets from weak hands to strong hands, at cheap prices, who make better and more productive use of capital assets. This is the way it's always worked. And it's the way it will always continue to work. Economics is an old science, and it's fixed. There is no financial alchemy here. It's impossible. When we get down to brass tax, total US credit market debt is 60 trillion dollars. At an average IR of ~3%, that's 1.8 Trillion dollars a year (12% GDP) that goes to service debt interest (public, private, corporate). That's a lot. That number needs to come down substantially, and in doing so, yes, hard asset prices will depreciate, and states and munis will go bankrupt. This needs to happen, too. Bankruptcies and recessions force restructuring, and the economy needs to undergo that, however painful. The alternative is to print money endlessly to postpone the day of reckoning, until we get a run on the dollar. The idea here is that somehow we can live beyond our means, with no consideration of reality, forever. The result would be far worse than any Depression we face in the near term. And the Great D red herring is just that. The Great Depression was prolonged by about 10 years because the Fed refused to lend out it's massive gold reserves to commercial banks to reflate the money supply. Bernacke admitted as much. We would endure a Depression, but it would last only around 2 years. Possibly a ~20% contraction tho... hehe. What can we do? We're between a rock and a hard place, here. Save some revolutionary, breakthrough technology, like free energy, teleportation, or something of that nature, the jobs are gone. The economy is structurally deficient and is propped up by a debt mirage. Sure, we can wait until household balance sheets are net positive again, but that might much longer than America can borrow?
Achilles and Ghost, I've read your posts, mainly to clear my head after reading Breen's drival. (Sort of a cathartic exercise, you might say.) In particular, Ghost's suggestion, to wit: "To avoid excessive stagnation via burdensome regulation, perhaps there could be two classes of bank, with only the more regulated and conseratively [sic] run banks getting any deposit insurance and implicit government backstop." made me smile and think: "Well yes, isn't that what Glass-Steagall was about?" And Achilles, how is it possible to have free markets without careful regulation to protect them from capitalists? Aren't free markets and self-regulation mutually exclusive concepts? I've always thought so. The more I read here, the more I tend to believe that fixing the U.S. economy would first require fixing the country's political process. If I'm right about that, then some drastic changes in the constitution would be needed. But wouldn't that be impossible given the present defective constitution and a dysfunctional Congress that has let the non-democratic executive and judicial branches usurp its power. It seems the U.S. is locked in a catch-22 situation with no exit other than chaos. (Don't misinterpret my remarks as implying that total democracy in a nation where only a small fraction of the population is well-educated is the way to go. Just look at India!)
If "drivel" is too big a word for you to use correctly, you might not be in any position to determine what qualifies as being such. The reason Romer's paper is actually more credible, among other reasons, is that it empirically refutes what appears to be her nominal political affiliation, which I assume is at least "left-ish", by undercutting the Left's preferred remedy for recessions, i.e. direct government spending, as the optimal remedy. "Arguments against interest" are always more credible than arguments which just ever so conveniently happen to re-affirm our preexisting biases. When ACSFME or whatever the government employees union is called comes out with a paper saying "government spending is peachy-keen" anyone who doesn't take that with a grain of salt is a fool. It's like a Christian coming out and supporting evolutionary theory. You know the person isn't doing it just for self-interest or show.
Piezoe, you can employ the tactic of attacking me personally, but for your argument to hold together you have to deal with Romer. Logic man sees that; its obvious. Convertibility and Brass who you cite to, rely on Romer; and Romer contradicts you. As usual a personal attack usually signals an argument in trouble.
Logic man, not all tax cuts are the same. Not all tax cuts promote growth through investment in assets. That is a nuance that most on Right do not understand. Many people who call themselves conservatve support all tax cuts and suggest that all tax cuts will produce growth, many think that tax cuts produce growth through stimulating aggregate demand; which they don't. I don't want to suggest that I am for high taxes generally; I want to suggest that I would not use growth to support all tax cuts. So, when you talk about tax cuts and growth you have to be very specific about what taxes you are talking about. Happily the tax cuts that promote growth are the most dynamic and the least effective at raising a lot of revenue in the first place.
I often read what you have written. I disagree with much of your contentions and interpretation. In my personal opinion, much of it is drivel, i.e., nonsense not supported by fact. It appears to me that you have a somewhat closed mind and are strongly driven by your personal ideology, but to be frank I'm not certain what that is. You very likely are a fine person, and we would no doubt get along fine if we knew one another personally. I know that you are aware that there are many contentious area of economics, and that highly respected economists often disagree with one another. I hope you'll be content with not having everyone agree with you. I am perfectly content with you not agreeing with me. Ed, now that we are friends, I hope you won't mind me calling you Ed, I am going to post an article written in plain English by Christina Romer in another post below as soon as I can locate it. It represents the thinking of the Christina Romer that I have read, from oddly seems very different from the Christina Romer that you are familiar with. I wonder if we are speaking of the same person. By the way I strongly agree with the Romer whose writings I am I am familiar with.