The Instigator
Benshapiro
Pro (for)
Losing
0 Points
The Contender
Subutai
Con (against)
Winning
4 Points

Keynesian economics is better than Austrian economics for the US economy

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Post Voting Period
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after 1 vote the winner is...
Subutai
Voting Style: Open Point System: 7 Point
Started: 12/17/2014 Category: Economics
Updated: 2 years ago Status: Post Voting Period
Viewed: 1,860 times Debate No: 67247
Debate Rounds (4)
Comments (15)
Votes (1)

 

Benshapiro

Pro

First round is for acceptance. Shared burden of proof.

By better I mean that Keynesian policies would lead to more economic output than Austrian policies would.

"Keynesian economics”
was used to refer to the concept that optimal economic performance could be achieved – and economic slumps prevented – by influencing aggregate demand through activist stabilization and economic intervention policies by the government. Keynesian economics is considered to be a “demand-side” theory that focuses on changes in the economy over the short run.
http://www.investopedia.com...

"Austrian economics" Austrians reject the idea that there is anything at all the government can do to stabilize macroeconomic fluctuations. Libertarian school of thought where the economy should be left alone without any intervention.
http://mises.org...;





Subutai

Con

I accept.

Just to clarify, I will be arguing for Austrian economics over Keynesian economics in this debate. I will define Austrian economics more extensively in the next round, as it will be relevant to my argument.
Debate Round No. 1
Benshapiro

Pro

Thank you to my formidable opponent for your acceptance.

The full wording of the resolution is important: "Keynesian economics is better than Austrian economics
for the US economy"

The US economy has a unique benefit over all other world economies.
The US is the world's reserve currency. This means that all other economies must hold US currency in order to trade with us. Since the US is nearly tied or on par (with China) as the world's largest GDP economy, it is inherently desirable to trade with US. More on this later.

I would like to ask the voters to play close attention to sources during this debate. I understand that my opponent is arguing that Austrian economics is better than Keynesian for the US economy so it would be expected for him to use sources that support this school, but any think tanks, opinions, theoretical scenarios, etc., should not be accepted.

I'm sure that many people reading this debate have little to no knowledge of economics. It'll be important for me to explain some key economic concepts before moving forward with proving the resolution. In order to show that the resolution is true, one must have adequate knowledge of fundamental economic principles. By understanding fundamental economic principles, readers will have more insight as to whether the Keynesian or the Austrian school is better for the US economy.

First,

What is an economic system?

"An organized way in which a state or nation allocates its resources and apportions goods and services in the national community."
http://www.businessdictionary.com...

Economic systems are necesssary because resources are scarce or in finite supply. Scarcity is fundamental to economics. If nothing was scarce there would be no reason to economize anything and "economics" wouldn't exist.

There are many different types of economic systems but in the US it's a mixed economy.

A mixed economy means that there is a balance of economic power between the government and the private sector.

Schools of economic thought

There are many different schools of economic thought. These include: Keynesian, Austrian, monetarist, neoclassical, chicago school, etc,. We'll focus on just the Keynesian vs the Austrian school.

The Austrian school believes that economic activity will be maximized without intervention from government. It's a very libertarian and laissez-faire view of the economy. They believe that the national debt should have a 0 balance. They believe in supply-side economics: that the more producers produce, the more the economy will be stimulated. The Austrian school also believes that during recessionary periods the government should not step in and try to help.


The Keynesian school believes the opposite. This school believes that economic activity is maximized by government stimulus. The Keynesian school believes that the private sector is inherently unstable if left alone to pursue their economic interests. During a recession the Keynesian school believes that the government should manipulate interest rates to stimulate demand and result in stimulating the economy. The lower the interest rates are, the more money people will borrow. So the Keynesian school is a demand-side rather than supply-side theory of how the economy works. They also believe that the national debt is necessary and even helpful to encourage economic activity if the crowding out effect will not occur.

GDP

Gross domestic product is the value of all goods and services produced domestically within a year. The formula for GDP is:

GDP = C + I + G + (X - M)

C = consumption spending (accounts for 70% of economic activity)

I = investment

G = government spending

X = exports

M = imports.

What we can deduce from this is that government spending will increase economic activity. So whatever +G or increased government spending results, GDP will increase. So economic activity is maximized by government stimulus. This supports the Keynesian view of maximization of economic activity vs. the Austrian view.


Secondly, the US is the world's reserve currency meaning that other countries must hold our currency in order to trade with us.

Reserve currency: "A foreign currency held by central banks and other major financial institutions as a means to pay off international debt obligations, or to influence their domestic exchange rate. A large percentage of commodities, such as gold and oil, are usually priced in the reserve currency, causing other countries to hold this currency to pay for these goods."
http://www.investopedia.com...

Take a look at how US currency dominates the world's reserve currency:





http://www.wsj.com...

So what this graph tells us is that the mast majority of currency that is held by foreigners is debt in US dollars. If the debt is in US dollars this means that no matter what level of national debt the US incurs, other countries must hold our dollars in order to trade with us. Since the US is inherently desirable to trade with, being nearly on par with China as the world's largest economy, government spending is a unique privilege to whatever is the world's reserve currency. The US is the world's reserve currency so we have this unique privelege.

Opportunity cost

Opportunity cost is the implicit cost of whatever you gave up to pursue a course of action. For example, for 4 hours I can work at a lemonade stand and get paid $2 an hour. However, I could've worked at the mall and gotten paid $8 an hour over those same 4 hours. The opportunity cost or implicit cost of working at the lemonade stand is $6 per hour.

The point in mentioning opporunity cost is that the US in a position to keep the national debt at an even balance, but has the privelege to spend beyond beyond our means resulting in increased GDP (+GDP), enhancing economic growth while the holders of our currency bear the burden. This is a burden that these foreign countries are willing to bear because the US is inherently desirable to trade with.

So since government spending increases GDP and given that the US is the world's reserve currency that all other countries are willing to hold no matter what level of spending occurs (+G resulting in increased GDP), Keynesian economics is better than Austrian for the US economy.


Subutai

Con

I would like to thank benshapiro for presenting his arguments.

My arguments this round are going to be rather short. I will give a more in-depth definition of Austrian economics, and then go on to explain why the Austrian model of the business cycle is superior. I will have much more to say in the next round when I argue against Keynesian economics.

Definitions

"The Austrian school is set apart by its belief that the workings of the broad economy are the sum of smaller individual decisions and actions..." In other words, it doesn't concentrate on aggregates like most other economics theories (including Keynesianism) do. Austrian economics is a more microeconomical system, concentrating on the individual economic interactions instead of large governmental interactions.[1]

The Austrian model of the business cycle can be presented as follows: "In contrast to Keynesianism, the Austrian School of thought holds that the business cycle is driven by the supply side if the economy, not demand. If interest rates are too low, we will have over-investment. This may lead to over-production, which may trigger a crisis. During the crisis, supply declines until it is once again equal to overall demand. Then a new cycle starts." In other words, instead of concentrating on the cycle of booms-and-busts and GDP, Austrian economics focuses on interest rates in explaining such, and preventing them in the future.[2]

Praxeology

"Praxeology is the deductive study of human action based on the fact that humans engage in purposeful behavior, as opposed to reflexive behavior like sneezing and inanimate behavior." Austrian economics is based on praxeology, as opposed to Keynesian economics. It essentially argues that economic interactions can't be simplified into a mathematical model.[6]

Jean-Baptiste Say had this to say about it: "...have not been able to enunciate these questions into analytical language, without divesting them of their natural complication, by means of simplifications, and arbitrary suppressions, of which the consequences, not properly estimated, always essentially change the condition of the problem, and pervert all its results." Indeed, as John Wild said, "It is impossible to reduce experience to a set of isolated impressions and atomic units. Relational structure is also given with equal evidence and certainty. The immediate data are full of determinate structure, which is easily abstracted by the mind and grasped as universal essences or possibilities."[7]

Further, praxeology conforms to Popper's social science theories well. "The second way that Popper supported the Austrians was in his advocacy of situational analysis and the rationality principle for the explanation of events in the social sciences. This is practically identical to the Austrian approach, by way of praxeology, the logic of human action, with the basic principle that human beings act purposefully. Popper followed the Austrians in other ways, in methodological individualism, in the theory that most institutions arise as the unintended consequences of actions, in the uncertainty of knowledge."[8]

In other words, economics can't be abstracted into a simple deterministic model. Keynesian economics relies on studies and data to draw it's conclusions. However, this isn't how the study of economics should be conducted. Because of it's very nature, it needs to be more individualistic and less mathematical for the analyzing to make any sense.

Recessions

The whole point behind Keynesian economics is to stimulate booms. Unfortunately, these tend to end up as busts. The government starts by lowering interest rates, which encourages lending. Because the Federal Reserve determines where this new money goes, it generally puts it in a market that it wants to see boom (housing, for example). This market experiences and obvious boom, due to the overabundance of money. Meanwhile, other industries suffer because of this boom. This leads to a declining economy, as the once-peddled increasing economy was based on the lie that the economic really was expanding.

Friedrich Hayek said, "To combat the depression by a forced credit expansion is an attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production." In addition, "The only wise policy for government is to leave money and the banking system to the competitive forces of a free market to eliminate the inflationary booms and recessionary busts of the business cycle, so markets can effectively keep people’s saving and investing decisions in balance for well-coordinated economic stability and growth."[3][4]

At its heart, a recession results from a loss in total capital. Since capital is the accumulated wealth that is owned by business enterprises or individuals and that is used for the purpose of earning profit or interest, a decrease in capital means a decrease in economic activity, which is the very definition of a recession. Accumulating capital itself is known as saving, which is essentially spending not used for personal consumption. Saving is essential for the production of consumer goods, and with it, everything that goes on before retailing a product.

With that, "...economic recovery requires that the economic system rebuild its stock of capital and that to be able to do so, it needs to engage in greater saving relative to consumption. This is what will help to restore the supply of credit and thus help put an end to financial failures based on a lack of credit. Recovery also requires the freedom of wage rates and prices to fall, so that the presently reduced supply of capital and credit becomes capable of supporting a larger volume of employment and production. Recovery will be achieved by the combination of more saving, capital, and credit along with lower wage rates, costs, and prices. In addition, recovery requires the rapid liquidation of unsound investments."[5]

Sources

[1]: http://www.investopedia.com...
[2]: http://lexicon.ft.com...
[3]: http://www.capitalideasonline.com...
[4]: http://mises.ca...
[5]: http://mises.org...
[6]: http://en.wikipedia.org...
[7]: http://mises.org...
[8]: http://www.the-rathouse.com...
Debate Round No. 2
Benshapiro

Pro

Resolution: "Keynesian economics is better than Austrian economics for the US economy"


"Better" (per opening round):
"By better I mean that Keynesian policies would lead to more economic output than Austrian policies would."

Important stipulation: For the US economy.

Shared Burden of proof.


The reason why Keynesian economics is better than Austrian economics for the US economy is because deficit spending produces more economic output than a balanced budget would. Keynesians believe that deficit spending (government spending beyond what they can collect in tax revenue) produces more good than harm (if it doesn't result in increased interest rates) while Austrians believe that deficit spending inherently produces more harm than good.

"Austrian school economists (advocates of free market capitalism) are consistent in opposing government debt."
http://libertarianinvestments.blogspot.com...


Here is the formula for GDP (Gross Domestic Product): GDP = C + I + G + (X - M)

GDP is the value of all goods and services produced domestically in one year. It is a measure of overall economic output.
http://www.investopedia.com...

G = government spending. So just by increasing government spending (+ G) we can deduce that an increase in GDP will result.


The question becomes: has the national debt shown to have any adverse effects so far? Have the substantial increases in the national debt in the last half of the decade resulted in increased inflation or decreased confidence in the US dollar? We'll find out.


First, let's see why every dollar of government spending produces a benefit greater than initial amount spent. I'll cover the money multiplier effect:

Consumption spending accounts for 70% of GDP (consumption spending is simply what people spend money on). If the government spends borrowed money in the form of government wage increases or job opportunities through public project funding, people will have more money to spend. People will tend to spend more on goods and services the more money they have [1]. So once government spending increases the amount of money people have in their pockets, the more those people will spend. The more people spend, the more demand there is for goods and services. In order to keep up with demand, businesses will need to employ more people. By employing more people, those employees now have more money to spend on other businesses. Okun's law shows that when unemployment falls by 1% GNP (Gross national product) rises by 3%. The result of this spending is a compounded increase in GDP so the result of this is net positive and I'll why why this is the case. This is all due to the multiplier effect. This is the formula for the money multiplier:
[1] http://www.investopedia.com...

Money multiplier formula:


Y = income
G = government spending




K = money multiplier
MPC = marginal propensity to consume (how many cents per every dollar that is spent with an additional increase in income)

Assuming a modest marginal propensity to consume at 0.80c per every $1.00 in additional income (MPC = 0.8) the formula is as follows:



This means for every $1 in government spending, $5 of additional income will result. This supports my point that government spending will have a compounding effect and will result in a net positive from the initial loan.


So now that I've shown that government spending has net positive effects on GDP, how has our substantial deficit spending harmed us by lost faith in the US dollar or through inflation?


INFLATION as a result of increasing national debt?

Here is inflation over the past decade:


http://www.usinflationcalculator.com...

In september 2004 our national debt was $7.3 trillion and in september 2014 it was $17.8 trillion. Our national debt has more than doubled in the last decade, but inflation is decreasing! The current trend from 2009-2014 is averaging about 2%. Having 2% inflation is actually ideal according to Federal reserve. The Federal reserve sets monetary policy for the US.

"The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve's mandate for price stability and maximum employment."

http://www.federalreserve.gov...


So the possible argument that the national debt increases inflation can't be observed. If my opponent claims that the national debt is bad because it increases inflation will have to face the hard data.

LOST VALUE or LOST CONFIDENCE in the US dollar as a result of national debt?

For this contention lets look at demand for the US dollar. What does the data show about the US dollar? Has demand for the dollar lost value over the last decade? For this we'll have to see what it means to be the world's reserve currency.

Reserve currency explanation: "A foreign currency held by central banks and other major financial institutions as a means to pay off international debt obligations, or to influence their domestic exchange rate. A large percentage of commodities, such as gold and oil, are usually priced in the reserve currency, causing other countries to hold this currency to pay for these goods. Holding currency reserves, therefore, minimizes exchange rate risk, as the purchasing nation will not have to exchange their currency for the current reserve currency in order to make the purchase. "
http://www.investopedia.com...

So what does the demand for US currency look like despite increases in the national debt?






http://qz.com...




So as we can see, the US dollar is just as strong, if not stronger than ever as the world's reserve currency. This means that foreigners have the highest demand for the US dollar by a large margin. This trend continues despite the national debt increases.

So now that we've established that the demand for the US dollar is stronger than ever, has the US dollar lost value? Let's take a look at the exchange rate of the US dollar compared with other leading world economies:



http://www.oanda.com...

The US dollar has been extremely consistent in exchange rate value with other world economies. So the notion that the US dollar is weakened by national debt would be false also.

Conclusion

I have shown how Keynesian economics is better than Austrian for the US economy. Better was defined in round one: "By better I mean that Keynesian policies would lead to more economic output than Austrian policies would."

Keynesians believe that deficit spending is beneficial as long as interest rates don't increase (they haven't) but Austrians believe that deficit spending is inherently undesirable.

Here's proof just for those curious showing that interest rates haven't increased with all the government borrowing:


http://www.treasury.gov...

I have shown that GDP unquestionably increases with government spending and have provided economic rationale as to why this is the case. I've also shown that government spending has a money multiplier effect so the economic benefit exceeds the initial cost of the loan. I've addressed concerns over the negative effects that government spending might have on the economy with hard data to back it up.

Considering all of this, Keynesian economics is better than Austrian economics for the US economy due to increased economic output resulting from deficit spending according to the GDP formula (+G) and the money multiplier effect. Austrians believe that deficit spending is inherently undesirable.

Thanks and over to my opponent!


Subutai

Con

I would like to thank Benshapiro for presenting his arguments.

The Broken Window Fallacy

Economics, because of its nature to work with institutions that yield significant amounts of power, is a discipline that has a number of fallacies. One of them is the broken window fallacy, or the tendency for economic policies to be judged only on their short-term and immediately foreseeable consequences. As Henry Hazlitt puts it, however, "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups." Government stimulus is one of the prime examples of how this fallacy is rampant in economic policy.[1]

My opponent commits this fallacy often, and so does Keynesian economics. Government spending has to come from somewhere. Increased government spending requires that taxes be increased, which means that consumption has to decrease. Keynesians came up with the multiplier to show that government spending would increase the GDP more than consumption. However, "The theory (a simple Keynesian macroeconomic model) implicitly assumes that the government is better than the private market at marshaling idle resources to produce useful stuff." This makes little sense. The government, divorced from the everyday economic interactions people have, should not be better at distributing resources than those taking part in the interactions themselves. At best, government spending is the same as consumption, but in the real world, it's probably worse. Government spending only drags down GDP.[2]

Government stimulus also leaves long-term costs that that outweigh the short-term "benefits": "Finally, any attempt at “stimulus” leaves a long-term cost after any short-term benefits have long dissipated... fiscal deficits have only a short-run expansionary impact on growth and then become negative. Thus, constantly increasing deficits result in persistently low economic growth and an exploding ratio of public debt to GDP." The reserve currency argument relies on the short-term situation being a guide to the long-term. The massive debts the US are incurring are not sustainable, even if the US dollar does remain the world's currency (which isn't plausible). In fact, Paul Krugman himself has criticized the argument that the US can run persistent trade deficits simply because the dollar is the world's reserve currency. This is no way to continue.[3][4]

There are two responses to the inflation argument. One, there may be something else more important than government spending controlling inflation (like the current state of the economy). And two, inflation is underestimated because it leaves out various things. Take a look at this chart here:



[5]

Energy and college tuition are left out of the CPI. Even more tellingly, the three industries with the three biggest increases in the CPI are energy, medical care, and college tuition, all of which the government has had a big stake in in recent years. When things like apparel and recreation are considered (that have little subsidy from the government), inflation is much lower. Heavily government-sponsored industries incur much higher rates of inflation than less government-sponsored industries.

The Government cannot create capital or wealth - all that government does in enacting a stimulus bill is divert capital from more efficient enterprises to less efficient enterprises under the guise of "increased spending", when the real importance is in increased capital. Further, it follows that for every job the government "creates", another job is lost. Overall, at best, stimulus can only achieve the same level of output as if private industry had been allowed to work; and most likely, the government's stimulus will be less efficient, meaning that the recession will be worsened instead of improved.

Deficit Spending

I mentioned in my first argument that recessions are the result of a loss of capital in an economy, and that saving is the way to re-establish capital in an economy. "Recovery will be achieved by the combination of more saving, capital, and credit along with lower wage rates, costs, and prices. In addition, recovery requires the rapid liquidation of unsound investments."[6]

What government stimulus does is further reduce the amount of capital in the economy when the cause of the problem is too little capital to begin with, the result being that the recession is worsened. "The reason that stimulus packages cause a further loss of capital is that their starting point is the consumption of previously produced wealth. That wealth is part of the capital of the business firms that own it. The stimulus programs offer money in exchange for this wealth and capital. But the money they offer does not come from the production of any comparable wealth by the government or those to whom it gives money - wealth which has had to be produced and sold and thus put into the economic system prior to the withdrawal that now takes place. The starting point for the government and its dependents is an act of consumption, which means a using up, a loss of previously existing wealth in the form of capital... any fresh production and employment that results [from government stimulus] is incapable by itself of replacing the capital that was consumed in starting the process."[6]

Going back to the broken window fallacy, government spending doesn't help to restore employment either. The jobs that the government creates can only be created at the expense of already created jobs: "Any jobs supposedly created by the government are actually stolen by the government from someplace else or sometime else. That is, the government can create jobs in an industry through subsidizing it, but jobs will be lost in other industries not receiving such beneficial treatment. Government deficit spending that creates jobs now comes at the expense of fewer jobs during the times when the government runs a surplus. Jobs are shifted through time, but over time there is no net gain."[4]

Finally, when the evidence is looked at, government stimulus doesn't seem to do a good job anyway. Take, for example, the most recent recession. "...The administration’s promise that the [ARRA] would keep unemployment rates from reaching 8.8 percent and would create some 3 million jobs - 90 percent of them in the private sector - did not materialize." Further, "From 2008 to 2009, the ratio of the deficit to Gross Domestic Product (GDP) rose from 3.2 percent to 9.9 percent. This 6.7 percent massive dose of fiscal stimulus represented the largest deficit burst since 1942.... If demand-side stimulus worked, the economy’s growth today should be China-esque." But, it hasn't. It has been the slowest recovery in modern (post-WWII) history."[7]

Conclusion

Government stimulus does not work very well at restoring the economy after a recession, as it doesn't allow for the restoration of capital. It also commits the broken window fallacy. Because Keynesian economics relies on this, it only makes sense that Keynesian economics is invalid. Austrian economics gives the economy what it needs.

Sources

[1]: Hazlitt, Henry.Economics in One Lesson.
[2]: http://www.wsj.com...
[3]: http://www.forbes.com...
[4]: http://krugman.blogs.nytimes.com...
[5]: http://www.zerohedge.com...
[6]: http://mises.org...
[7]: http://reason.org...
Debate Round No. 3
Benshapiro

Pro

Thanks Subutai.

Resolution: "Keynesian economics is better than Austrian economics for the US economy"

"Better" per round 1: "By better I mean that Keynesian policies would lead to more economic output than Austrian policies would."

Shared BOP.

My opponent concedes that Keynesian policies are better in the short run:

"Government stimulus also leaves long-term costs that outweigh the short-term 'benefits': 'Finally, any attempt at 'stimulus' leaves a long-term cost after any short-term benefits have long dissipated... fiscal deficits have only a short-run expansionary impact on growth and then become negative." (underline mine)

Under my opponent's own quoted argument, Keynesian economics is better (leads to more economic output) in the short run.

Since Keynesian economics has already won over Austrian in the short-run, my opponent must successfully argue that Austrian economics is better in the long run to have any chance at making arguments a tie.

I have no way of responding to anything my opponent says in the final round. I expect that no new arguments will be presented. My opponent has dropped numerous arguments from round 3 that will remain dropped for the concluding round because he had a full round to respond and did not.


The data shows that inflation hasn't increased in the last decade despite big increases in the national debt: dropped

The data shows that demand for the US dollar is stronger than ever as the world's reserve currency over the last decade despite increases in government spending: dropped

The data shows that interest rates haven't increased despite increases in government spending over the last decade: dropped

The data shows that the dollar has held a remarkably consistent exchange rate with other leading world economies despite increased spending over the last decade: dropped

Government spending increases GDP according the GDP formula: agree (according to his argument).


Broken Window fallacy

'The broken window fallacy' is where the destruction of a valuable asset (a window) is believed to be good for the economy because money will be spent on fixing the window but fails to account for the lack of disposable income incurred by the person paying to repair the window. This isn't analogous to Keynesian policies because (1) gov. spending doesn't destroy tangible assets of wealth like a window (2) it ignores the multiplier effect (3) asumes that the money would've always been spent rather than saved had the window not been broken otherwise (4) gov. spending doesn't require immediate repayment so compounded economic growth will occur by the multiplier effect.

There hasn't been any short-term immediately forseeable consequences by government deficits as my opponent asserts (if a decade can be considered short term) on inflation, demand for our currency, the interest rate, our exchange rate, among many other variables as the data shows.

My opponent quotes Henry Hazlit, a proponent of Austrian economics, so of course he says gov. spending is an example of the broken window fallacy. The scenario isn't analogous at all and is quoting from a biased source.
http://www.hazlitt.org...

My opponent says that "Government spending has to come from somewhere"

But the dollar is **fiat** currency! It isn't backed by anything. The only thing that makes the dollar valuable is the belief that it has value. As long as people believe that, no matter how much gov. spending occurs, it will still have value. This is one of many reasons why Keynesian economics is better than Austrian for the US economy because the dollar is the world's reserve currency (fiat + high in demand by other world economies) by a very large margin so gov. spending is highly desirable.
http://www.investopedia.com...

"Increased gov spending requires that taxes be increased"

This is not true. Deficit spending is spending beyond what is collected in tax revenue. Taxes under GW Bush decreased despite massive government spending. The debt "celing" is always increasing as well.
http://www.forbes.com...

http://www.gpo.gov...

https://www.fas.org...;(see pg 24)

The assertion that gov spending drags GDP down as your source stated was from an opinion article stated as an opinion by the article itself (opinion of a rightwing economist.)

My opponent says that the National debt is not sustainable but offers no explanation why. It's also absurd to believe that the US dollar will lose its world's reserve currency status when looking at the data of held US reserves rather than relying on the opinions of those who disagree with Keynesian policies.

"In fact, Paul Krugman himself has criticized the argument that the US can run persistent trade deficits simply because the dollar is the world's reserve currency."

This is a blatant misrepresentation. Krugman said: "It"s often asserted that it"s only because of the dollar"s special status that America can run persistent trade deficits. But that"s just not true: other countries whose currencies have no special role can do the same, and have."

He is saying that not only America can run trade deficits, but countries like Australia too can continue to run persistent trade deficits. He then showed this graph:



Inflation argument

My opponent says that the current state of the economy might be controlling inflation. This is an implicit admission supporting my argument that inflation hasn't increased.

"Inflation is underestimated."

Rising tuition, medical care, energy costs

My opponent says that these costs have been inflated because government has had a big stake in these industries. This a baseless assertion. Considering supply and demand, Obamacare, an influx of people returning to college as a result of the recession, and skyrocketed gas prices due to competition from China are much more likely causes for price increases in these sectors.


"Gov cannot create capital or wealth - only diverts capital from more efficient enterprises."

The government doesn't divert capital if it's borrowed money - it's capital creation with the promise of debt repayment at a future date.

My opponent says that saving (thereby increasing capital to counteract a loss in capital caused by a recession) is the remedy for getting out of a recession but quotes mises.org., a site named after Ludwig Von Mises who is one of the founders of Austrian Economics.

Here is a better source that says the opposite: consumer fear leads to savings and worsens recessions.

"Fear

This fear causes them to cut back on spending, causing the economy to slow even more."
http://www.investopedia.com...


My opponent sources Krugman (Keynesian economist) for a quote that was never said by him to support his points.

"...Government deficit spending that creates jobs now comes at the expense of fewer jobs during the times when the government runs a surplus. Jobs are shifted through time, but over time there is no net gain. [4]"
[4] http://krugman.blogs.nytimes.com...


Since the reasoning given above was baseless, not what was sourced, and not backed by any external data it shouldn't be accepted.

My opponent says that the ARRA was the cause of additional economic stagnation but this was during the height of the housing bubble. His assertions don't show any causal link whatsoever.


My opponent has dropped numerous arguments and agrees that Keynesian policies are better in the short run. Keynesian economics is better than Austrian economics for the US economy due to increased economic output resulting from deficit spending according to the GDP formula (+G) and the money multiplier effect. I've shown that the data is stable over the last decade (long run) as well.

Thanks for the debate!

Users who should NOT vote on this debate: WilliamOfOckham, Wycek, 1Historygenius, nor any new account.








Subutai

Con

I would like to thank benshapiro for this debate.

Introductory Points

I understand what my BoP is. My opponent not only misunderstands my argument, he doesn't understand what my BoP is. The "short term" benefit of a Keynesian cycle is an artificial boom that leads to a crash later. In a sense, Keynesian economics is myopic. Just because Keynesian economics appears to make the economy look better in the short term (which it really doesn't because the boom is artificial), Austrian economics is better because it eliminates those busts, and the long-term increase in the economy doesn't have an artificial foundation. Also, my BoP is to show that Austrian economics is better for the US economy than Keynesian economics. I think that if I show the long-term benefits of Austrian economics outweigh the long-term benefits of Keynesian economics, I will win this debate.

I haven't dropped anything. I responded to the inflation argument by showing that the measure of inflation used was inaccurate, and then showing how inflation has actually increased. I've argued that the US dollar argument is based on the continuation of the US dollar as the world's reserve currency; however, in the long run, this certainly won't hold true, and we'll just have a pile of debt - at some point, the debt we have will become unsustainable. Interest rates have been held down by the US government, so my opponent's point here can't be analyzed - this is simple Keynesian economics. Finally, government spending only takes away from consumption, and there's no multiplier, so at best, GDP will remain the same. I've already argued this. My opponent is making baseless assertions that I have dropped and agreed to his arguments when that isn't the case.[1]

I should also note that my opponent dropped everything from my round two argument. He never responded to my praxeology argument, nor did he respond directly to my recession point. This is the heighy of hypocrisy on his part.

Broken Window Fallacy

The broken window situation is analogous to the economic situation because the same idea applies - money is spent and money is taken away. Government spending takes money from taxpayers and spends it somewhere else. This cannot make any net profit because the money is the same. "The starting point for the government and its dependents is an act of consumption, which means a using up, a loss of previously existing wealth in the form of capital... any fresh production and employment that results [from government stimulus] is incapable by itself of replacing the capital that was consumed in starting the process." I've shown how getting out of a recession requires saving, and I've shown how the multiplier can only be one or less, so the broken window situation applies here.[2]

Also, the broken window fallacy was first articulated by the French economist Frederic Bastiat. Hazlitt simply stated it in his popular book.[3]

Like I've said before, the dollar will not be the world's reserve currency forever. There's going to come a point when countries will want they're money back, and we won't have the money to give them. "The dollar is very susceptible to losing its vaunted reserve currency position by the first major trading country that stops inflating its currency." There will come a point, maybe in the near future, that this will no longer hold, and the US needs to get ready for it, or stop what it's doing to the currency, either of which involves a switch from Keynesian economics.[4]

Taxes have to increase for government spending to increase. Where else is the money going to come from? I've negated the multiplier effect (which my opponent never responded to). If taxes don't increase, the government is going to have to incur debt.

As for debt, while debt is also bad in the long term, debt is also bad in the short term when in comes to economic recovery: "Recent research confirms the dangers posed by high levels of government debt. Reinhart, Reinhart, and Rogoff examined over 110 years of economic data to conclude that advanced economies whose debt levels reach 90 percent of GDP face much slower economic growth. In 2009, Carmen Reinhart and Rogoff wrote This Time Is Different, a book The Economist called “a magisterial work on the causes and consequences of crises stretching back 800 years. Their conclusions were based on a vast new accumulation of cross-country data, covering 66 countries across all regions of the world and spanning eight centuries. This dataset made it possible to study country debt episodes and crises much more comprehensively. Reinhart, Reinhart, and Rogoff’s recent work on the impact of high public debt on growth and interest rates is based on this groundbreaking dataset."[5][6][7]

Also, I should note that under the Keynesian system, the debt is supposed to be paid off during boom periods, but the US hasn't done that. There isn't supposed to be any long-term debt.

Inflation

I never admitted anything. There may be something in the economy that's overriding the effect of the government spending (there are many variables that affect inflation). Also, the numbers are there. Surely the recession, for example, would have inflated other industries as well. The government does have a large stake in those industries, and inflation increases as a result of it.

My opponent seems to think that someone promoting their side is always wrong. My opponent's sources have mostly been Keynesian (when explicitly agreeing with him), so I might say the same of his argument. My opponent makes no attempt to refute my argument, only hiding behind the fact that it was made by someone who supports Austrian economics. All he does here is argue that fear affects people, which it does. A lack of capital (and saving) is the root of recession, while fear just makes recessions worse. Fear doesn't cause recessions (excpet in exceptional cases). Mises is a repsectable economist.

My opponent's entire refutation rests on ideas that I already cautioned against in my opening round. To sum it up, saving helps restore the line of credit, the loss of which was the cause of the recession to begin with. It's not like money that is saved is not used in the economy: "It is simply channeled elsewhere than into consumer goods. Financial institutions that accept such deposits lend them to customers who invest in their businesses. This is the process of creating the capital that is the sine qua non of sustainable, long-term economic growth."[8]

Conclusion

I have argued how praxeology is the best way for examing economic situations, and how recessions are the result of a lack of capital, arising from problems in saving. Recovering from recessions also has its root in saving. My opponent's arguments about government spending and the multiplier effect are invalid because they commit the broken window fallacy, and are based on a misunderstanding of how economics works. The US cannot be the reserve currency forever, debt is bad (especially long-term debt), and the Keynesian economic model doesn't even call for long-term debt. Overall, Austrian economics is better for the US economy than Keynesian economics.

Sources

[1]: http://www.wsj.com...
[2]: http://mises.org...
[3]: http://www.investopedia.com...
[4]: http://mises.org...
[5]: http://www.heritage.org...
[6]: http://online.wsj.com...
[7]: http://www.economist.com...
[8]: http://www.fee.org...;
Debate Round No. 4
15 comments have been posted on this debate. Showing 1 through 10 records.
Posted by tejretics 2 years ago
tejretics
OK :p
Posted by Subutai 2 years ago
Subutai
This actually spawned a thread in the forums, where it was essentially concluded that what you said was true.
Posted by tejretics 2 years ago
tejretics
"Users who should NOT vote on this debate: WilliamOfOckham, Wycek, 1Historygenius, nor any new account."

That is horrific misconduct. This was NOT STATED IN THE FIRST ROUND, and Pro has *NO* authority to decide who votes in the middle of the debate on an Open Voting system. Specifically eliminating users is *absolutely* horrible conduct.
Posted by tejretics 2 years ago
tejretics
"Users who should NOT vote on this debate: WilliamOfOckham, Wycek, 1Historygenius, nor any new account."

That is horrific misconduct. This was NOT STATED IN THE FIRST ROUND, and Pro has *NO* authority to decide who votes in the middle of the debate on an Open Voting system. Specifically eliminating users is *absolutely* horrible conduct.
Posted by 1Historygenius 2 years ago
1Historygenius
Con's round 3:

- Pointed out that the U.S. dollar cannot hold as world reserve forever and then the U.S. will be in real trouble. Keynesian economic does not fix the problem. The U.S. cannot forever can keep system when eventually in ten, or fifty, or a hundred years, other countries will want theirs back. Con also finds that economies do have a breaking point when regarding debt
- Current Keynesian management of those three critical industries has caused inflation, Con argues, and that seems to be true. It should not matter how many people are returning to college as long as prices seem stable, but tuition has also risen because government's encouragement of borrowing through loans which causes more consumption in college that rises prices. Obamacare is a government plan and the energy sector is highly regulated.

Overall, it seemed to me that con won.
Posted by 1Historygenius 2 years ago
1Historygenius
Round 2:
Pro:

- Establishes that the concern for the U.S. is if inflation has increased or there has been lost confidence in the dollar as a result of Keynesian policies
- Argues borrowed money helps increase economic activity because government projects increase people working and raises wages which causes more people to spend money
- Gives CPI inflation rate which shows inflation going down
- Shows strength of U.S. dollar

Con:

- Refutes back that government spending has to come from somewhere and wherever it comes from is weakened from less capital
- Shows inflation for the three most major industries government is involved in, all of which have high inflation from government's intervention into them and government can only stimulate these sectors, not allow them to prosper. Two of three are out of the CPI.
- Points out that since recoveries require more saving and the expansion, government can not do it since it takes the place of lost capital and no recovery occurs since the private sector has little to expand with. Government's intervention actually pulls away job creation from businesses.

Round 3

Pro:

- argues con has conceded Keynesian economic works in the short term. The problem here is that Con used "benefits" in quotation marks meaning it is actually skeptical that it helps. Another problem is that I think it is clear we are overall debating that overall which policy is best and which should continued to be implemented for a long time.
- Con did not drop inflation, but pointed out laws with inflation data
- I do think Con temporarily dropped the U.S. dollar strength, but rebounded in his last round and with GDP, I think more of Con's argument is that it would decrease since government spending is taking over private sector growth and overall causing less GDP.
Posted by 1Historygenius 2 years ago
1Historygenius
Round 1:

Both sides give arguments. Here's what I got from Pro:

- Because GDP includes government spending to increase
- No matter the size of the debt, foreign nations will continue to accept U.S. currency and the U.S. is able to spend beyond its limits in order to create economic growth

Con:
- People will not do exactly as thought and won't all act the same, so economic models and equations fail
- In order to recover from recession, the capital lost needs to be regained and Keynesian policies fail to do this by taking capital out of an economy and send it somewhere else giving a false sense of recovery and often ending up in a worse condition
Posted by 1Historygenius 2 years ago
1Historygenius
The first problem with this debate is the following:
"any think tanks, opinions, theoretical scenarios, etc., should not be accepted. "

This should have been said in the first round so Con could agree to it, a rather sleazy statement by Pro. Think tanks, no matter if they are right-wing like the Heritage Foundation or left-wing like the Center for American Progress, put a lot of hard work and money into what they argue and then often times are asked to bring this information to Capitol Hill or the White House. These aren't Fox News or MSNBC. Think tanks are actuslly very valuable and useful.

Economists, historians, government officials, and journalists are the ones who usually give their opinion on an economic topic, so by blocking opinions Pro cut off a large amount of information and arguments by credible people even if they do spew to one side.
Posted by 1Historygenius 2 years ago
1Historygenius
"Users who should NOT vote on this debate: WilliamOfOckham, Wycek, 1Historygenius, nor any new account."

HA HA HA HA! Expect a vote from me soon.
Posted by Subutai 2 years ago
Subutai
What the heck?
1 votes has been placed for this debate.
Vote Placed by 1Historygenius 2 years ago
1Historygenius
BenshapiroSubutaiTied
Agreed with before the debate:-Vote Checkmark-0 points
Agreed with after the debate:-Vote Checkmark-0 points
Who had better conduct:-Vote Checkmark-1 point
Had better spelling and grammar:--Vote Checkmark1 point
Made more convincing arguments:-Vote Checkmark-3 points
Used the most reliable sources:--Vote Checkmark2 points
Total points awarded:04 
Reasons for voting decision: If Pro really did not want some users to vote on this debate for whatever reason, he should have said so in the first round for Con. That still does not mean I wouldn't have voted and we have a system to report votes for a reason. If any of my votes are bad, users would report them. The rest of my RFD is in comments, but I am giving Con conduct because of Pro's attempt to not accept certain voters. My RFD is being type up and worked on right now and will probably be out over the next day or two to give the arguments point to someone.