Keynesian economics is valid
Debate Rounds (4)
"Recessions are caused by insufficient Aggregate Demand"
"Government spending can boost Aggregate Demand"
"Monetary policy alone is often insufficient to boost Aggregate Demand"
Additional definitions are unacceptable, although these definitions may be negotiated.
First round: accept the debate. Second: openings, no rebuttals. Third: rebuttals. Fourth: closing.
The focus of Keynesian economics is flaw on deep and fundamental levels, I accept the task of debating against Keynesian economics as a viable economic doctrine for the 21st century.
#1 and #2: Recessions are caused by inadequate aggregate demand (AD), and government can help. AD is the sum of all spending: private (personal and corporate) and public (government). In a recession AD falls because the private sector either chooses not to, or cannot spend and invest. Normally, the economy is kept afloat by private spending. But when private spending fails, government can temporarily step in, and boost AD. Higher AD will lead to more growth and more employment.
#3: Monetary policy alone is often insufficient to stimulate AD. This is because a Central Bank (CD), like the Federal Reserve, cannot lower interest rates below zero. As the Fed predicted in 2009, a -5% interest rate was needed. This was impossible, so something else had to be done. Government should have spent more.
Now let me introduce some other arguments.
First, the historical argument. The Keynesian spending induced by WWII ended the great depression. This is a consensus among almost all mainstream contemporary economists. Had this (or other) Keynesian spending not have happened, the great depression would have extended into the 1940s or even the 1950s.
Second, the government must do what the private sector will not or cannot. Government builds and maintains highways, a cornerstone of the American economy. No private company could or would do this, because it wouldn't be economically profitable. The internet was also a byproduct of government assistance. Again, no private company had the resources or motivation to create the internet. NASA is another example. Beating the Russians to the moon doesn't make money, so private enterprise could never have accomplished it. (Note: I do support what private enterprise can do, and rather enthusiastically. But when it comes to things that the private sector won't or can't do, government must.)
Third, suppose government endorses Keynes' ideas, and builds a highway. They hire construction, raw materials, materials, and distribution companies, as well as workers. How is this bad for the economy? This creates GDP and jobs.
Fourth, as a practical matter, virtually all mainstream economists today accept Keynesian principles. These include (liberal) Nobel laureates Krugman and Stieglitz, institutions such as the Federal Reserve, the ECB, and most other central banks, and important conservative economists, including John Taylor and Benjamin Bernanke.
Fifth, contrary to popular belief, the policies that lead to the 2008 financial crisis were not Keynesian. These include the deregulation of the financial sector (mostly under Clinton with Larry Summers, a small bit under Reagan), which almost no Keynesians supported, and the practice of making reckless loans, which is stimulative, but not Keynesian.
Sixth, let me address the debt issue. While debt is not fun, look at the Japanese economy. They have a debt/GDP ratio of 227% (source: trading economics: http://www.tradingeconomics.com...). While the Japanese economy is not performing optimally, this amount of debt is not preventing their economy from recovering under (KEYNESIAN :) Abenomics. We only have a debt to GDP ratio of slightly over 100%, and it has not yet caused problems for us. Empirically speaking, we could probably handle 130% debt/GDP (according to Nobel laureate and Keynesian Paul Krugman) or further. Also, as a note, social security is currently overfunded by 2.7 trillion dollars. So actually, our debt is around 14.3 trillion, and thus out debt/GDP is below 100%.
Low AD causes recessions
Government spending boosts AD
Monetary policy cannot always address inadequate AD because of a liquidity trap/zero lower bound
Keynesian stimulus ended the great depression
Government can perform essential functions that the private sector will not or cannot (infrastructure, the internet, NASA)
As in my highway example, government can create GDP and jobs
Keynesian economics is more or less a consensus among modern economists
Keynesian economics did not cause the 2008 crisis
The US can easily handle more debt caused by Keynesian economics
I. The Infinite growth fallacy.
The market system is self is fundamentally flawed for operation in a 21st century climate, How ever the Keynesian model which centers around Aggregate demand as its core measurement of economic health is tied to the economies ability to continuously grow. Keynesian economics, as a product of the 20th century's is based on 20th century understandings of global resources. Despite the Global Economic depression of the 1930's ( which was not caused by any one single factor alone) the last two-centuries have been marked by nearly unhindered economic growth. Keynesian Economic theory is such that any point a Market short fall arrives the Government will step in, spend a lot of money and velocity of money ( the circular flow) will, stimulate the economy.
Stimulus for the purpose of stimulus in the economy is a simulation of economic growth but creating artificial forces in the market either by artificial demand ( government buying ^%$# up) or artificial production by subsidizing production under specific terms-or-even the subsidizing against a product (http://www.bloomberg.com... ). I want to remind you that at this moment we are talking Government intervening in the market for the specific purpose of creating an economic stimulus. We aren't talking about something logistical in a vacuum. Of course the governments can build Roads and of course they can fund Research and development. But we are talking about the concept of building a road for the sake of building the road in order to stimulate the industries related to road building. This practice can only simulate market forces otherwise at work. The end product is a simulation of growth while we wait for the market system to find a new resources to exploit, a new industry to form or any new economic force to generate more wealth.
At the end of the day the vast majority of economic doctrines which find their roots in the 20th century can function only with in the constraints of a specific set of parameters met in a specific configuration of a market system. Keynesian economics is rooted in an age of progress fueled by resource consumption, a set of market parameters that are no longer met in the economic reality. In order for Keynesian model to be successful the economy MUST grow continuously. But that is no longer a viable option.
II. Modern Economic Realities
Our modern economic reality is one where Global resources are continuously being exploited to fuel an ever more difficult to achieve rate of growth. In China, there are entire ghost cities... built with no residents. http://www.zerohedge.com... Which is being done in an effort to Stimulate economic consumption...but it is widely known that China is hitting the end of its ability to create artificial demand. Entire cities sit empty in a country that cannot produce enough food domestically to feed its population. http://www.globaltimes.cn.... Global resources simply cannot meet the current life style demands of our Global population while operating under current Global market practices for current global market goal.
China is proving that there is no economic messiah coming, no new economic sector is going to open up, no new growth will occur in the developed world and the developing world is hitting a wall that we all knew would occur at some point. The Demand for resources from an Indian middle class is now conflicting with American and European resource demands There isn't enough production capacity on this planet to have 7 billion Americans( reference to life style choices). The government cannot wave a magic want and create jobs... nor can it create new consumable resources by stimulus. it won't work this time, it isn't working this time.
The system faces threats from Automation http://www.economist.com... ... Climate change : http://climate.nasa.gov... and More.
III. World War II
So this is the most over used Keynesian talking point in existence. Even though there is truth that the total mobilization of resources for war ended the Depression in the Victorious United States ( we where the only ones who really came out on top.) The set of circumstances which allowed for that event CANNOT BE DUPLICATED. We all know the reasons why :
Too few resources are used to create too much damage. Our weapons are too efficient to be useful anymore. In truth this argument about World War II highlights the darkest side of Keynesian theory. It simply doesn't care. Keynesian Economics does not concern it self with the human totals, in this respect it is a simply dangerous system with a dark view on the world, expressed openly with the saying 'we are dead anyways'... I grant you this statement is not false but to tout it openly as a driving philosophy is very.........dark.
IV. Monetary policy
It is not really practical to separate Keynesian economics from the frame work of Modern Money mechanics, The modern money mechanics which are built with an out look of continuous growth, as is obvious in the design of a currency issued at interest by a private entity, a system designed in the 20th century no less and here is perhaps the greatest of instabilities in Keynesian monetary policy. ( yes I am going to say it.)
Its the currency of faith. Its Unicorn money, Leborchaun gold or Half Life 3... what ever you want to call it, its based on nothing but the trust that its its worth something. It doesn't represent any resources... or it doesn't represent ( directly) economic productivity... it represents nothing tangible. For that reason, the currency of today is unmoored from reality. Fundamentals are virtually none existent in dealing with the currency. This is a flaw that makes the system unstable and we see it in our daily lives... real world, real time when the currency becomes unstable due to factors both predictable such as the end of peak oil, the wave of Automation taking jobs ( resulting in) the dismantling of capital structure. Than less predictable elements like Human action and motivation ( which Keynesian economics readily dismisses).
Because the currency does not represent the amount of resources available, or the amount of resources consumed or even the amount of productivity in the labor force, it cannot be used as an effective ability to measure economic activity in the system to any reasonable effect. In today's world, such a currency can be nothing but abusive of its host nation and corrupt for its own institutional stability. The 21st century world needs a system which is an effective way of accounting for-and managing of global resource availability,consumption,effectiveness and efficiency of resource use and so on. None of which is offered by the Keynesian economic system designed in a Century of growth.
Here is a scenario for you.
Say you have $500.00 in the bank. Tomorrow, you need to replace a tire, -120. Than your daughter gets sick-you have a co-pay -80... you pay your power bill, -180, you're total remaining balance is $120. This is basic, how ever GDP does not subtract, it ads these numbers together. If you attempted to do this in your basic accounting you'd be broke in no time. G.D.P views expense as a positive, thus the Broken glass fallacy arises. ' so long as money is spent who care who spends it' But this is a once more dark approach but importantly it is a flawed approach for over all economic well being. G.D.P is a good measurement if you want a paper economy... if you want a economy that favors its financial sector over other industries, for this the GDP. is an all important indicator of financial services.
A paper economy doesn't last...
If you want an economy that serves its people, a good first step might be to consider a economic barometer such as the Genuine Progress Indicator (GPI) http://en.wikipedia.org..., to summarize simply : The expense you encour at a doctors office is a net positive to the economy. Its a neutral transaction that creates no additional wealth. This too strikes at the heart of the Circular flow theory of Keynesian Economics.
Let me address your arguments point-by-point.
"The market system is self is fundamentally flawed for operation in a 21st century climate"
"How ever the Keynesian model which centers around Aggregate demand as its core measurement of economic health is tied to the economies ability to continuously grow. Keynesian economics, as a product of the 20th century's is based on 20th century understandings of global resources. Despite the Global Economic depression of the 1930's ( which was not caused by any one single factor alone) the last two-centuries have been marked by nearly unhindered economic growth."
Several errors. AD is not a measurement of economic health. Actually, AD = GDP. And growth over the past two centuries has in fact been hindered: see the 1930s, and the 1970s.
"any point a Market short fall arrives the Government will step in, spend a lot of money and velocity of money ( the circular flow) will, stimulate the economy."
Not any point, just depressions and recessions. Also, how can government spend "velocity of money?" So you know, velocity of money is primarily used by Monetarist models, not Keynesian ones.
"Sstimulus for the purpose of stimulus in the economy is a simulation of economic growth but creating artificial forces in the market either by artificial demand ( government buying ^%$# up) or artificial production by subsidizing production under specific terms-or-even the subsidizing against a product."
Due to further grammatical crimes (felonies? :), I can't tell what this means, but I assume it means "Stimulus is bad, when government buys things the market is distorted." Even if these "market distortions" cause issues, is it not better to try to prevent or mitigate a crisis? Would you not try to prevent or end the Great Depression? I think I would.
"Of course the governments can build Roads and of course they can fund Research and development. But we are talking about the concept of building a road for the sake of building the road in order to stimulate the industries related to road building. This practice can only simulate market forces otherwise at work. The end product is a simulation of growth while we wait for the market system to find a new resources to exploit, a new industry to form or any new economic force to generate more wealth."
This is rather incoherent, but I think it means that the public sector alone cannot support an economy. I agree. But the private sector cannot support an economy on its own either. Government must assist.
" Keynesian economics is rooted in an age of progress fueled by resource consumption, a set of market parameters that are no longer met in the economic reality. In order for Keynesian model to be successful the economy MUST grow continuously. But that is no longer a viable option."
This is very vague. Please provide a concrete argument so I can refute it.
"Our modern economic reality is one where Global resources are continuously being exploited to fuel an ever more difficult to achieve rate of growth. In China, there are entire ghost cities... built with no residents. http://www.zerohedge.com...... Which is being done in an effort to Stimulate economic consumption...but it is widely known that China is hitting the end of its ability to create artificial demand. "
See my debate here (http://www.debate.org...) to see that resource consumption is not necessary for growth. I am not a supporter of Chinese ghost cities. Not all stimulus is well designed. But the right stimulus can be profound. Keynesian stimulus (WWII) ended the Great Depression.
"So this [WWII] is the most over used Keynesian talking point in existence. Even though there is truth that the total mobilization of resources for war ended the Depression in the Victorious United States ( we where the only ones who really came out on top.) The set of circumstances which allowed for that event CANNOT BE DUPLICATED."
Hey hey hey. I don't want another world war. But this kind of stimulus - massive spending in industry - can help.
Let me address "IV - Monetary policy" all at once. I assume this objection is the classical "fiat money will ruin us all. And those federal reserve b*st*rds too." Fiat currency is used in literally every economy on earth. In the US, it has been used for around 100 years. Fiat money has not ruined our economy. It has given our federal reserve the power to mitigate crisis. According to Friedman (most certainly Anti-Keynesian), the Great Depression was caused by the fed not doing enough. Fiat currency gives the fed power, which even anti-Keynesians want. Non-fiat (gold standard) money would destroy the fed. Every recession would be as bad as 2008 - or even worse, 1929.
Also, here is my response to "V - GDP." Keynesian economics does not just support a paper economy - it supports a real one. Keynesian stimulus ended the great depression, arguable the darkest period in peacetime history. Keynesian economics meant that starving American families could put bread on the table. Look at the post-WWII economic miracle, experienced in the United States, Europe, and even Japan (and far later, China).
Here is the thing that you misunderstand. Keynesian economics does not intend to "prop up a paper economy on wasteful and destructive stimulus." This is simply untrue. Keynesians really want government to stimulate the real economy, when real people are hurt by misfortune, when there is no other option.
Explain to me how this scenario is harmful. The economy is in a severe recession. Government chooses to build some highways. The government hires construction, materials, raw materials, and transportation companies and workers. This creates decent jobs, and increases GDP. So now, the economy has grown (greater AD) and has more jobs. What is wrong with this picture?
Keynesian economics is intended to stimulate the economy when it is in dire need. And it has worked: see WWII.
Reiteration of Arguments
1. Keynesian economics is essentially a consensus among mainstream economists. This is not ad populum, because these are qualified experts.
2. While this is overstated, Keynesian economics ended the Great Depression.
3. Government can perform essential functions, like building highways, creating things like the Internet, and making achievements like those of NASA. Not to slam the private sector, but no private company could or would have done these things.
4. Simple mathematical/analytical exercises, like the highway parable, show why well designed stimulus works. Not all stimulus is well designed, but at its best, Keynesian economics has great potential.
5. Keynesian economics does not cause recessions by over stimulating the economy. Keynes himself wanted government to cut spending and balance the budget when not in a recession.
6. The US economy can easily handle more debt. And the debt/GDP ratio overstates our debt by at least 2.7 trillion dollars.
And next time, use the built in spell check please. It makes your arguments more comprehensible. Or don't: more points for me.
Back to you, Con!
I am not sure if your really not understanding my arguments or your attempting to avoid key points while shoveling the blame off. Either way I will reiterate.
(1) The 30's and 70's where not relevant to the reference. These recessions where not dark ages in which progress stopped and so I restate it that the last 2 centuries has seen nearly unhindered growth in the economy.
(2) Stimulus is a Simulation of growth... Perhaps you don't understand what I am getting at. How does a Market economy get out of recession? - It grows. How does it grow? New industries, new markets... new resources to exploit. If Growth Stagnates, recession follows. Stimulus is a way of simulating growth via artificial market forces.
(3) The age of growth is done... the market system is obsolete.... Done, ka-put... That's the point... That is why for all of the Huge of Resources government attempted to mobilize in the last 6 years... we are still in a Jobless recovery, still with the problems that created the crisis unresolved.
(4) Resource consumption, not needed for growth? ... Because we can build houses, make food, build businesses and so on with numbers on paper. If all you care about is the number on a piece of paper than yes... GDP can grow with out consumption and what you will get is a bloated financial sector and an over priced stock market. This argument is utterly absurd and you tried to make argument by self referencing... that is irritating.
(5) "Hey hey hey. I don't want another world war. But this kind of stimulus - massive spending in industry - can help."
You missed the point.
(6) Let me address "IV - Monetary policy" all at once. I assume this objection is the classical "fiat money will ruin us all. And those federal reserve b*st*rds too."
It is much easier to argue with a straw man than the real mccoy.
There have been many dark ages, even in the post-industrial revolution west. I cite the civil war in America, the Potato famine in Ireland, the 1930s (US and Europe) and the 1970s (US and Europe, primarily Britain).
Stimulus is not purely a simulation of growth. It is crutch for the private sector, not a wheelchair. Of course a purely stimulus run economy would be a disaster, but so would an economy where depression ravaged the country unchallenged. There is significant economic data to prove that sufficient and properly designed stimulus can assist an economy: even a cursory glance at historical examples or non-partisan (i.e. CBO) econometric models reveals that. Meaningful industrial spending alongside private sector growth can help an economy out of a recession. But in a recession, the private sector weakens. It is necessary for government to pick up the slack, so to speak, of a lagging private sector. You misunderstand my arguments. I have never said that government stimulus can cure all economic ills, but rather that it is an acceptable emergency measure.
I highly doubt that the age of growth is done, and that the free market is obsolete. This is unsubstantiated. Most of the "joblessness" is attributable to other factors, such as insufficient labor participation. Free market systems were (and I maintain, still are) the primary engines of growth for the 20th century. Please defend this baseless criticism of capitalism.
I did say that growth can happen without natural resource consumption. The digital economy is growing at 17% annually, and its only primary resources are capital and human capital, which are absolutely renewable. In other words, an economy can grow as long as it continuously creates value. A market system encourages companies to compete to bring greater value to the consumer. This doesn't necessarily mean building more houses; it could mean higher wages or new industries that grow off of renewable resources.
I don't see how I missed the point. Industrial spending coupled with a market system has been incredibly productive over the past century.
And as for your straw man assertion, you did not really bother to articulate your argument. Honestly, do some spell and grammar checking. If you devise an argument that can't be understood, than you should expect that it won't be understood in the way you would like it to be. But if you examine the actual content of what you said, it is ridiculous. I challenge you to find an economy with a GDP greater than $1 trillion that does not use fiat money. Everyone in the economy, except for libertarians, unfailingly uses fiat money. Even according to Milton Friedman, the Federal Reserve should control the money supply, and with non-fiat money (i.e. gold standard), the Fed has no power. Honestly, the Fed does not cause inflation. Inflation is a naturally occurring (and in moderation, a healthy) phenomenon.
For the last time, let me reiterate the most basic points of my argument, which have passed over your head:
1. Government intervention has created the Internet, highways, and NASA, all of which have served the American people tremendously.
2. Industrial stimulus has been definitively shown (yes, the WWII argument again) to boost economic growth. Thus, it is reasonable that a well designed industrial stimulus has the potential to boost economic growth. That is a profoundly good thing.
3. The US economy can easily handle the debt from more spending. First off, 2.7 trillion dollars of our government's debt is actually borrowed from social security, so in effect, debt is 2.7 trillion dollars lower than the oft-cited 17 trillion dollar figure. Also, Japan is handling a 215% debt/GDP ratio.
4. Keynesian economics is essentially a consensus among most mainstream economists, both liberal and conservative. Again, this is not ad populum, because, clearly, economists are experts in the field of economics.
And one last time, I am not suggesting that the US economy should be run off of solely government stimulus, merely that stimulus can help support a troubled economy. Why is this so unreasonable?
Since this is my last argument in this debate, I would like to thank my opponent for a stimulating (pun intended) exploration of Keynesian economics. This personally strengthened my belief in Keynes, and I have learned a significant amount from this. Thank you.
Though out this debate, you have continuously tried to argue against conservationism and Austrian economics as if there was no other economic philosophies besides Keynesian and Austrian... I am not an Austrian- I am a Technocrat. I have spent this debate attacking Keynesian Economics with out promoting Resource Based economics because RBE was not relevant to the topic. You failed to grasp that I was deliberately not stating my position on economics because it wasn't relevant.
In closing arguments, You never fully addressed the issue of war, obviously modern weaponry is too advanced to be economically useful in the way it was in the 2nd world war but you shied away from this point instead of confronting it. WW2 is an invalid example of why Keynesian Economics is relevant going forward because that mass mobilization of industry was unique to its situation and cannot be duplicated... that was my contention, it remains unrefuted in a meaningful way as the debate concludes.
Your contentions about bust cycles in the market are irrelevant. Humanity has seen almost unhindered progress in it's scientific and economic advancements in the last 2 centuries, when scaled up to a period of 2 centuries the 1970's and the 1930's where speed bumps but progress was made even than.
You don't refute the point. Stimulus IS a simulation of growth... you have not separated Keynesian economics from the growth model, or really made a good case for its stability and sustainability going forward. Your references to historical data only help drive my point home, the unique set of circumstances that have driven growth in the western world Namely the exploitation of Oil. We know That peak oil is finished,that extracting oil is more and more expensive and complicated.
The period of real growth is over. 47% of U.S. employment is threatened by total automation in the next 20 years, while the digital editions are replacing alot of formerly blue and even some white collar positions such as entertainment media, with crowd sources,crowd funded material from a widely democratic system, but even this aside the growth in profit margins is not and should not be mistaken for growth in the actual well being of people in the economy. Profit margins are higher than ever across the board and yet. http://finance.yahoo.com... The behavior of corporate entities goes directly against your contention of market behavior that companies will raise wages and etc. We don't see that behavior at all.
Be it American Robotics " Baxter" or the Keva Systems now owned by Amazon- Automation is taking physical jobs while bloggers are replacing journalists... you tube is replacing subscription cable. http://www.bloomberg.com... The only growth left to have is on paper, if you honestly believe that digital growth is equating to real economic growth... well... there is a lot more thinking on the topic you need to do.
As for industrial spending and the market system being effective... I have spent this debate pointing out to you that it isn't the 20th century anymore. If you need any additional evidence that it is No longer the 20th century, I suggest consulting the 3.2mm/year rise in sea levels. The legacy of the market system long after the market system fails.
None of what you reiterated is relevant... You have not established even in the slightest that Keynesian Economics can or will carry Humanity through the 21st century. Of course Government intervention created the Internet, of course they built the highways. We know, its the coolest of stories, it doesn't make a good case for Keynesian economics going forward into the 21st century. You have how ever made a good case for 20th century Keynesian practices. Kudos for that.
This is usually where I would invite you to debate me again, win or lose. However, your conduct during this debate has smug,arrogant and I will not extend an open invitation to you- even as a courtesy. You're a jerk quite frankly. I am quite sure you understood atleast this much.
1 votes has been placed for this debate.
Vote Placed by Jifpop09 2 years ago
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