Much of the time austerity is stupid. But to constantly be in an expansive mode as the West has been since WWII is insane. It seems that everyone forgets that Keynes never suggested that you could go from one round of spending and deficits to another and do that ad infinitum!!! Austerity is not the "work out" for a recession. You need an expansive monetary policy a bit of government spending ... you need a bit of lard on the bread to take the hunger pains away. But what if it's not a recession? What if after the lard is ladled on nothing good happens? Austerity may be stupid but sometimes it is not a matter of choice. Sometimes Mother Nature brings the whirlwind and only those in the strongest storm shelters survive. See the movie TAKE SHELTER -- http://www.imdb.com/title/tt1675192/
http://georgewashington2.blogspot.ca/2010/03/m1-money-multiplier-still-crashing-each.html Here's an interesting fact that you may not have seen yet. The M1 money multiplier just slipped below 1. So each $1 increase in reserves (monetary base) results in the money supply increasing by $0.95 (OK, so banks have substantially increased their holding of excess reserves while the M1 money supply hasn't changed by much). Since January 2009, the M1 Money Multiplier has crashed further, to .786 in the U.S. as of February 24, 2010:
Brass Tocs, there is a lot of substance and time in what I wrote and explained here...anyone can compare it to what you wrote; take it or leave it. Convertability, just cause you found it in Wickpedia doesn't make it so. Christina Romer was famous before she became part of the Obama economic team becuase at Berkely she authored the state of the art study on fiscal multipliers. If you read her paper you will see that she could find no evidence of any fiscal multiplier effects either with government spending or with tax reduction. She theorized as a conclusion that if she could find an effect it would be more likely to come with tax reduction. So, there is your state of the art evidence for fiscal multiplier effect. No one has ever demonstrated or shown that such an effect exists. It remains a useful myth of political ideolgues.
From Mankiw's blog Spending and Tax Multipliers (little dated but Romer did find multipliers) By contrast, recent research by Christina Romer and David Romer looks at tax changes and concludes that the tax multiplier is about three: A dollar of tax cuts raises GDP by about three dollars. --- Also from the blog: In their new blog, Bob Hall and Susan Woodward look at spending increases from World War II and the Korean War and conclude that the government spending multiplier is about one: A dollar of government spending raises GDP by about a dollar. Similarly, the results in Valerie Ramey's research suggest a government spending multiplier of about 1.4. --------- There are links to their work. ------------------------ ------------------------ Romer speech from 2011: WHAT DO WE KNOW ABOUT THE EFFECTS OF FISCAL POLICY? SEPARATING EVIDENCE FROM IDEOLOGY (Page 10-11 showing fiscal spending does work): "There is another excellent new cross-section study looking at government spending. It uses evidence both across states, but also over a number of years. Emi Nakamura and Jón Steinsson collected detailed data on defense procurement by state going back to 1966. Nakamura and Steinsson point out that when national defense spending increases, spending goes up more in states with a large defense sector for reasons that have nothing to do with the current economic conditions in the state. California is just more sensitive to increases in national defense spending than, say, Illinois. They then look to see if these relatively exogenous increases in defense spending show up in higher output and employment at the state level. They find that they do. In fact, there is a very substantial and economically important impact." ---------- ---------- I'm not sure what paper you're looking but it appears she's been a believer in the fiscal multiplier. This latest downturn was a failure for fiscal policy as she contends the spending wasn't great enough.
I know I have been advised to not design tax plans, but if you really believe the economy is consumer driven, you could just raise taxes sky high, since it is a well known fact that the government spends every penny they have and then some. You can be guranteed if you give it to the government, they will spend it. Why give it to little amateurs? These government guys are professional big spenders and they spend a billion at a time. If after giving them every cent we have and the economy is still not booming we can always admit failure and do it Ed's way.
Why are you throwing words that I did not say or mean. Where did I say borrow to spend and show it as growth. I have rooted for nearly no borrowing in other words reduced spending i.e. waste like defense, space programs, foreign aid, G20 summits and scores of other areas to add. The name of the game is balanced budgets, low borrowing, higher employment, more disposable incomes, higher consumption. In today's environment, when budgets are not balanced, debt ceiling after ceiling needs to be raised................where are you going to find funds to invest into production i.e. buy jobs to be created. Please advise from which PLANET the funds for your investment into production are coming.
Once again I see Brass mis representing Keynes... http://reason.com/blog/2012/04/17/keynes-the-closet-supply-sider Keynes was against the very sort of large structural deficits that characterize contemporary federal budgets and policy, believing instead that deficits should be "temporary and self-liquidating." And Keynes believed that any sort of counter-cyclical spending by government should be directed toward increasing private investment, not simply spending current and future tax dollars on public works projects. Or, to put it another way: If the federal government had a strong track record of responsible spending, it would mean one thing if it went into hock for a short period of time to goose the economy (again, whether this would work is open to question). It means something totally different when a government that spent all of the 21st century piling on debt and new, long-term entitlement programs responds to an economic downturn first by creating yet another gargantuan entitlement (Obamacare) and taking on even more debt in the here-and-now. But if Keynes wasnât a Keynesian, what was he? As it turns out -- fasten your seat belts and take a deep breath â he was a supply sider. Yes. Itâs true. He believed that, up to a point, cutting taxes would actually increase government revenues and vice versa. Here is a quote of Keynes that I stumbled upon in a 2004 Heritage Foundation paper by Arthur Laffer, the modern-day guru of supply side economics: When, on the contrary, I show, a little elaborately, as in the ensuing chapter, that to create wealth will increase the national income and that a large proportion of any increase in the national income will accrue to an Exchequer, amongst whose largest outgoings is the payment of incomes to those who are unemployed and whose receipts are a proportion of the incomes of those who are occupied... Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget. For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more--and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss. Pretty funny. Lord Keynes had some snark in him! As Randy Jackson would say: âNice, dude, that was very nice.â
everybody remembers Keynes for his idea to spend when times is hard, but nobody remembers his idea to run a surplus when times is good. I'm all for lower taxes all the time for everybody, but in retrospect, the Bush tax cuts were a bad idea at that time. Somebody ran the numbers and said the best thing Obama or congress could do is nothing. Doing nothing even beats the Ryan plan in ten years. Let the tax cuts expire and the mandantory spending cuts kick in.