Stimulus is merely targeted inflation. it benefits some at the expense of others. It makes certain targeted classes relatively richer, and many feel richer, untill it is diffused through the economy and reflected in the price level. Our democracy demands that politicians give u something for nothing. "stimulus" and similar policies makes people believe it is possible, even if in the end it is only a delusion.
It's not sustainable in the long run. Look at the asian crisis: http://en.wikipedia.org/wiki/Asian_crisis#United_States_and_Japan Believe it or not, china is headed for such a crisis, altough it may take 10 years or so.
I never understood the production consumption debate when it was discussed as one over the other. Thats like having a playground seesaw with a plank on only 1 side of the fulcrum - it makes no sense and doesn't work. Henry Ford understood this when asked why he paid his workers so much - that without giving the worker's means to buy his cars he would be producing them for no one. If the demand for product increases and the population has the means to buy it, competition comes in and innovation pressures the lowering of production cost as the manufacturer offsets charging less for greater volume of sales. Win-win. Except when that virtuous circle is broken, like if the owners of capital hoard the income generated and starve the workers of purchasing power. Or the worker compensation that produces the product is moved elsewhere at a cost-reduction to the company but reduces the population's ability to purchase the goods when their savings are drawn down. Worker prosperity may be greatly or marginally generated in the area where the production has moved, depending on the hoarding level mentioned above. Giving people welfare checks doesn't address the circle being broken. Retraining doesn't address the competitive cost factor of cheaper labor elsewhere capable of doing the same work for less. There are those who sit on top outside the circle and benefit regardless, but they do not generate a general prosperity.
We produce art and scribble? How do you have a market with no products? If you farm all production out to China, you not only give them the economic upper hand, you can't produce the equipment your army needs to defend itself, when China grows stronger than you and decides to take you down. Also if you hollow out the "consumer" class with cheap indian and mexican labor, and continue to borrow, you no longer have consumers that can afford the highly inflated foreign produced products.
I think you have things quite in reverse. The OP's reference article is particularly brilliant and to the point. The general story of our world economy today is too much cash chasing too few goods (thus price inflation). Expansionary monetary policy has the ability to expand cash supply as production grows, which is wonderful if you are actually growing production, which we are NOT. There is a well studied concept in classical economics that creating supply actually stimulates demand (even if at a lower price, more gets consumed) - i forget the name of it at the moment, but its worth looking up as its relevent to this issue. We need a round of overPRODUCTION to fix things and stimulate a new era of genuine economic growth. Imagine how economically wealthy we'd be if all of this new recent money supply was actually chasing an increase in net assets? (more wheat, more energy, etc) Prices would not be able to go up, yet demand WOULD! Thats what we all would need. I touched on this issue in a recent blog... Here it is... (Letter to Obama and all presidential candidates (begging for change): My name is Michael Krause from San Diego, California, and am captivated by your past leadership, and mission to guide the country. But let me be blunt - I am not satisfied by your forward initiatives concerning energy policy (and consequently economic and political) as being enough. With the amounts and time frames of suggested fixes, your solutions with energy policy in particular are just Band-Aids that cannot possibly fix a tumor that needs to be removed. $15 billion per year for clean fuel research is simply not enough, nor actually indicative of true leadership. Fundamentally, the direction the United States has been pursuing, of overweight defense spending ($643 Billion/year for 2008), has been a function of attempt to maintain stable oil supply in the overall region. I cannot think of one example where the United States ever devoted a meaningful amount of troops to ever solve a humanitarian issue (the likes of Rwanda, Darfur, etc). Our past actions have never been entirely altruistic. I would like to see our future military actions be more motivated by humans rights and altruistic causes, not financial ones. This is a moral dilemma that the United States has miserably failed with, and attainment of your leadership is an opportunity to make right the future on this one. The entire economic recovery from 2001-2007 was predicated by a combination of war spending, increase of monetary supply, and credit creation. Now we are paying a very dramatic price for that superficial recovery. In simple economic terms, there was a lack of investment to offset the simultaneous increase in demand. It was a consumption driven recovery (whether consuming military machines or cars and disposable assets against home equity debt) where wages did not keep up with inflation. Oil would not be at $100 if we had found a way to increase total energy supply in the economy to offset the amount of monetary supply that came into the global economy during the same time period. Wheat, corn, and soybeans would not be seeing 100-300% year over year price ascents if ethanol subsidies would have never come to existence (remember, wheat and soybean production was forced down as a result of this) in addition to growing and record demand from developing economies. Supply is not keeping up, and therein lies an opportunity for you to solve economic problems by fixing the supply side. Proposals (like yours) to increase renewable fuel requirements from food crops are disastrous, as they turn what should be our food into energy. The jury has returned on this one; just look on food prices ever since Bush and congress passed ethanol subsidies. This is partly a function of world food demand growth and monetary policy, but a large bulk of this price ascent is indisputably caused by this poor policy planning. Put another way, would you rather pay $10 for a loaf of bread or $5/gallon for gasoline? Fundamentally, we all need to eat. Why should our global habits of driving inefficient cars and SUVs have an effect on our ability to afford to eat? So simply put, I conclude that the economic (and therefore political) future of the United States rests on policy driven by investment on the supply side, not merely consumption. Iâm not one to argue with expansionary monetary policy (and its effects of persistently increasing monetary supply) as it provides a perpetual catalyst for economic growth that a gold standard policy doesnât. But with using the tool of expansionary monetary policy comes the responsibility of an expansionary supply policy. That is what the United States has failed miserably with, and we are already paying the price. That means a few things most obviously; Since elevated commodity prices are hitting Americans most immediately â we need to cut our 20 million barrel/day oil consumption habit in half now, not in 2020 or 2050. Hereâs an idea of how to do it: a. Pass immediate vehicle efficiency standards effective within 3 years that double MPG requirements. b. To make it possible to obey these standards, rapidly deploy a battery car development and purchasing subsidy. Technologies such as this Stanford discovery that enable capacity improvements by 10 times on Lithium ion batteries (Link Here) will make it a realistic path. c. To offset new electricity demand from a new plug-in energy infrastructure, we need an immediate massive buildout of nuclear power plants. Nuclear waste handling initiatives (and public education) can accommodate acceptance of this. Most people do not know that nuclear waste can now be glassified, stored in casks, essentially made inert and leakproof into our environment. Furthermore, money can be spent to secure these waste storage facilities, providing meaningful employment opportunities. Education to allay the fear of nuclear power options will facilitate acceptance of this. Assuming option d (which follows) is not viable, nuclear power production is the only near term way out of our energy need issues that is both clean, safe, and realistically doable now. d. Additionally, adopt and subsidize a massive deployment of solar panels in sun-rich regions. A new company called Nanosolar has solar panel product that is supposedly eight times cheaper than conventional photovoltaics. If their claims are indeed true, their product wallpapered on every American roof could provide all of the energy the grid could possibly need to supplement growing energy demand. And with appropriate investment, this wallpapering could be done in 5 years. e. Invoke an international energy policy and energy research cooperative which enables other nations to follow our lead â particularly China, India, and the European union. We need to establish a forum of sharing all energy research progress with ally nations to make adoption costs and discovery sharing not burdensome. If they could import or even locally produce this great new battery and solar technology in combination with these innovations in solar energy production, they could follow our example and reduce their per capita energy consumption, thus lowering global fossil fuel demand. f. Enable a tariff (perhaps $10K) on all vehicles that do not pass certain MPG (or equivalent Kw/Mile) standards. This will provide consumer incentive to be more efficient, and thus environmental friendly, while still leaving the choice for the more affluent who should pay their proper part in our energy demand picture. For example, as more people demand more inefficient vehicles, that raises oil prices for everybody, essentially functioning as a way for the inefficient users of energy to financially punish the efficient ones. This is an indirect form of taxing the poor more than the wealthy. This must be dealt with. It is called fair accounting. Just imagine if we spent $300 billion/year (excess Iraq spending), or even $500 billion/year to do this, enabling all new passenger vehicles to be battery powered within an extremely short timeframe. Oil prices would plummet; energy supply would be a non-issue; food cropland would be able to return to its proper function: feeding our masses (not fueling them), thus food prices would come down. The American citizen would once again be on the path to better financial security. Most exciting is that a proposal like this would enable massive local investment in a time where our economy needs it the most. Infrastructure buildout (via production of nuclear power plants, solar panels) is an economically rewarding proposition that would provide jobs and increase incomes in a time we need it most. Long term, we would enjoy the benefits of cheaper energy (lower prices on all goods for consumers), higher government revenues from a more viable economy, less exports of US dollars to petronations (thus ending the continued economic support of many of our adversaries who rely on those funds), an end to a dangerous inflationary move that threatens the value of the dollar and viability of our economy, and a balancing of trade deficits due to less dollar outflows to pay for petroleum. In summary, we would be equipped to deal with the other economic problems that would remain in our society â Medicare, Social Security â less distracted by war involvement and war spending that simply does not leave the long term mark that direct investment into our economy does. The moral of my message is to request that we end the pursuit of the wrong direction of economic solution: consumption and war, and focus it into investment â in this case, what we need most: energy.
Keynes is DEAD.... in the long term...... Now is the long term so Keynes (and his Keynesian economic policy of government intervention)..... is also dead...... Small government + free economic environment --->> long term economic prosperity Big government + restrictive economic policies + fiscal stimulus ------>>> short term boost in "fiat" terms and long term stagflation and reduction (god forbid "recession").
We produce art and scribble? How do you have a market with no products? ------------------------------------------ We produce financial instruments, derivatives, carbon credits, etc. to sell. Otherwise we just buy and sell what other countries produce.
TICK, TICK, TICK An economy that consumes 6% more than it produces every year is nothing but a ticking... *TIME BOMB* Its just a question of WHEN the credit gets cut off, now
So we are kinda like the middle man...that other countries will want to cut out of the deal, because the expense, and having to put up with the morons in Washington, is not worth the bother.