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Keyenessians are procrastinators

DanT
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6/30/2012 2:10:43 PM
Posted: 4 years ago
Keyenessian economics is nothing more than economic procrastination.

There are 4 sources of demand;
1. Consumption
2. Exports
3. Investments
4. Government Purchases

Keynesians believe that if Consumption, Exports, and Investments fall short than the government should increase their purchases to make up the differences. This does not change the fact that the real demand has been depleted.

Consumption decreases when the product is no longer desired locally, or there is a decrease in the local real national income.

Exports decreases when the product is no longer desired abroad, there is a decrease in the real national income of foreign trading partners, or foreign firms offer a better deal than local firms.

Investments decrease when the firms are not doing well, because investors are less likely to see a return.

Government purchases are determined by government policy, and funded either through taxes of firms and households or through government borrowing. Keynesians propose deficit spending in order to avoid taxation, however this decreases investments because the government ends up borrowing money that would otherwise be invested in firms.

This spending is a substitute for the other 3 sources of demand and not fix the reason why demand decreased in the first place. The main reason for decrease in demand is that the product is no loner desired. Increasing government spending on undesirable products perpetuates the problem, while masking the effects of the problem. When the government stops it's stimulus spending on undesirable products, it leads another decline in the market. The stimulus spending leads to a false confidence in the market, causing an increase in investments; it does nothing to increase the desirability of the product. As such Keynesianism is nothing more than procrastination, prolonging undesirable products, and putting needed market changes on hold.

If there is a decline in the market's demand, the industries must either reduce prices or change their product. If a product becomes no longer, due to a decrease in demand, the industry must change their product. If the government bails out

One example of how government spending increases undesirable products, is the corn subsidies. Corn farmers grow more corn than there is a demand for, and so the corn farmers do not see a loss for growing too much corn, the government subsidies their corn. The corn farmers can now sell their corn cheaper, and as a result their excess corn is sold to be turned into a cheaper alternative to cane sugar. The corn farmers than grow more corn the following year, in order to get a greater subsidy, and sell more excess corn to be turned into corn sugar.

The demand does not change, and it causes a perpetual circle of increased government spending, and increased production of undesirable products to be sold for cheap.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
darkkermit
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6/30/2012 2:25:57 PM
Posted: 4 years ago
If this was true, then there would've been a huge bust after WWII since much of the economic growth during that period was due to government war expenditures. But no there was a great boom after WWII, and the gdp post war was higher than pre-war conditions.

If there is a net fall in aggregate demand this is due to an increase in liquidity preference, which happens during a recession. During a boom there is a decrease in liquidity preference.
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Lordknukle
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6/30/2012 2:26:24 PM
Posted: 4 years ago
Keynesians argue that aggregate supply does not go anywhere during a recession and it needs an increase of aggregate demand to stimulate it.

In reality, consumption during a recession or depression is rarely actually indicative of the true wants and desires of the consumer, but instead accommodations for the economic times.
"Easy is the descent to Avernus, for the door to the Underworld lies upon both day and night. But to retrace your steps and return to the breezes above- that's the task, that's the toil."
darkkermit
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6/30/2012 2:31:01 PM
Posted: 4 years ago
At 6/30/2012 2:26:24 PM, Lordknukle wrote:
Keynesians argue that aggregate supply does not go anywhere during a recession and it needs an increase of aggregate demand to stimulate it.

In reality, consumption during a recession or depression is rarely actually indicative of the true wants and desires of the consumer, but instead accommodations for the economic times.

people during a depression want a job. However the private sector isn't hiring. Businesses want to expand production, but people aren't buying. People want to buy, but can't because because they don't have a job.
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DanT
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6/30/2012 3:25:25 PM
Posted: 4 years ago
At 6/30/2012 2:25:57 PM, darkkermit wrote:
If this was true, then there would've been a huge bust after WWII since much of the economic growth during that period was due to government war expenditures. But no there was a great boom after WWII, and the gdp post war was higher than pre-war conditions.

exports was increased after WWII because every other industrialized nation was in ruins.
Furthermore, the post-war products were not the same as the war-time products purchased by the government.
During WWII nearly every industry switched to producing military equipment and supplies. After the war they switched to meet the desires of the population rather than the desires of the government.

If there is a net fall in aggregate demand this is due to an increase in liquidity preference, which happens during a recession. During a boom there is a decrease in liquidity preference.

Net fall in demand happens when the desires of the populace changes. The reason why horse drawn wagons is no longer a profitable industry is because we now have automobiles.

Take for example comic books. Once upon a time comic books was profitable. Now the comic book industry is no longer a profitable industry to get into. Some old comic writers are making money through movies and television, but actual comic sales are not profitable anymore.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
DanT
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6/30/2012 3:47:49 PM
Posted: 4 years ago
The Product life-cycle goes Market introduction, Market Growth, Market Maturity, and than Sales Decline.

Market Introduction is when a product is just introduced. Total industry profit is highest during Market Growth, and total industry sales is highest during Market Maturity. Sales Decline is an indication that the industry should change their product, either through improvements or through the development of a new product.

Recessions happen when multiple industries reach a sales decline, and the recession ends when they change to meet the desires of the consumers. Governments intervening prevents industries from making the needed changes, and is nothing more than procrastination, because it puts off those changes till a later date.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
darkkermit
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6/30/2012 3:51:45 PM
Posted: 4 years ago
At 6/30/2012 3:25:25 PM, DanT wrote:
At 6/30/2012 2:25:57 PM, darkkermit wrote:
If this was true, then there would've been a huge bust after WWII since much of the economic growth during that period was due to government war expenditures. But no there was a great boom after WWII, and the gdp post war was higher than pre-war conditions.

exports was increased after WWII because every other industrialized nation was in ruins.

If international trade is in ruin this causes gross domestic production to decrease due to comparative advantage. If China all of a sudden stopped trading with us, you really think our standard of living would go up, not down?

Furthermore, the post-war products were not the same as the war-time products purchased by the government.
During WWII nearly every industry switched to producing military equipment and supplies. After the war they switched to meet the desires of the population rather than the desires of the government.

If there is a net fall in aggregate demand this is due to an increase in liquidity preference, which happens during a recession. During a boom there is a decrease in liquidity preference.

Net fall in demand happens when the desires of the populace changes. The reason why horse drawn wagons is no longer a profitable industry is because we now have automobiles.

Take for example comic books. Once upon a time comic books was profitable. Now the comic book industry is no longer a profitable industry to get into. Some old comic writers are making money through movies and television, but actual comic sales are not profitable anymore.

Your looking at certain industries though. During a recession, there is a net decrease in aggregate demand. It isn't just some industry failing. The Great Depression was caused through constant bank runs. Tell me, how do bank runs indicate the desires of the population changing. If everyone were to take their money out of the bank and cause a recession: would the recession have been caused due to the desires of people changing?
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DanT
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6/30/2012 6:00:52 PM
Posted: 4 years ago
At 6/30/2012 3:51:45 PM, darkkermit wrote:
At 6/30/2012 3:25:25 PM, DanT wrote:
At 6/30/2012 2:25:57 PM, darkkermit wrote:
If this was true, then there would've been a huge bust after WWII since much of the economic growth during that period was due to government war expenditures. But no there was a great boom after WWII, and the gdp post war was higher than pre-war conditions.

exports was increased after WWII because every other industrialized nation was in ruins.

If international trade is in ruin this causes gross domestic production to decrease due to comparative advantage. If China all of a sudden stopped trading with us, you really think our standard of living would go up, not down?


Not what I said. What I said was our exports increased, not decreased, because all of our competitors were bombed out.

The US was not a battlefield in WWII; other than Hawaii and Alaska, which at the time were not even US states.
Great Britain, Germany, Austria, Italy, Japan, and France, were all economically devastated by the war. After the war they imported goods from the US in order to rebuild.
Rebuilding a devastated economy looks like economic growth, but is nothing more than economic restoration. If I have a factory, and someone blew up my factory, that would cause me to have a financial decline; if I rebuilt that factory, I would see a financial gain, but I would just be where I started. The only thing WWII did was waste allot of resources for those countries.
The US on the other hand, benefited greatly from the war; not because of any direct impact on the US, but rather the direct impact on foreign nations.
While all our competitors had to rebuild their own infrastructure, our infrastructure remained intact. This meant we had an advantage over our competitors. Our competitors looked to us for resources, and we used that money to increase our own infrastructure. This helped make the US the super power it is today.

The US faced the brief 1949 recession as a result of WWII; investments fell as a result of the decline in military spending. In 1946 military spending was $556.9 billion, and in 1947 it was $52.4 billion. It began to increase again due to the cold war tensions, and in 1948 it was $103.9 billion. Due to the sharp decline in 1947, and the fact the cold war increase in spending was gradual, gave investors little confidence in the industries, causing a bubble.

There was another brief recession in 1953 as a result of the post-Korean War inflationary period.

The recession of 1958 was the worst post-world war II recession, and was caused by a global decline in the demand for raw material. This was due to the fact that most of the countries devastated by WWII had been rebuilt. For example, it took 1 years to rebuild Japan. 1945 + 12 = 1957 That pretty much coincides with the recession of 1958.

Furthermore, the post-war products were not the same as the war-time products purchased by the government.
During WWII nearly every industry switched to producing military equipment and supplies. After the war they switched to meet the desires of the population rather than the desires of the government.

If there is a net fall in aggregate demand this is due to an increase in liquidity preference, which happens during a recession. During a boom there is a decrease in liquidity preference.

Net fall in demand happens when the desires of the populace changes. The reason why horse drawn wagons is no longer a profitable industry is because we now have automobiles.

Take for example comic books. Once upon a time comic books was profitable. Now the comic book industry is no longer a profitable industry to get into. Some old comic writers are making money through movies and television, but actual comic sales are not profitable anymore.

Your looking at certain industries though. During a recession, there is a net decrease in aggregate demand.

You can't just look at every industry as one entity, you need to look at them individually. The failing of one industry effects another. If one industry is unable to adjust it causes a domino effect.

It isn't just some industry failing. The Great Depression was caused through constant bank runs.
Oh, now who is just looking at 1 industry?
The great depression was not only caused by the Banks. The Dust Bowl played a huge role in it as well. As did the weather. There was a housing boom in Florida in the 1920's, and during that boom 2 major hurricanes hit Florida, devastating the homes. At the time home were not built to withstand hurricanes, and so many became homeless overnight. The failing of these independent industries contributed to the stock market crash.

Tell me, how do bank runs indicate the desires of the population changing. If everyone were to take their money out of the bank and cause a recession: would the recession have been caused due to the desires of people changing?

Bank runs take place when people lose faith in the banks, to keep their money safe.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
Contra
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6/30/2012 8:57:24 PM
Posted: 4 years ago
In the economy, there is a basic rule:

Your spending is my income, and my spending is your income.

Demand drives the economy, and causes more citizens to become hired, so you have an increase in employment. Demand causes businesses to expand capacity and invest when there is confidence, which relies heavily on sales. So, expand demand and you increase employment, investment in businesses, and cause the economy to grow.

When you cut government spending, since your spending is your income, cutting spending in gov't causes demand to fall. So, the economy recedes.

When you increase gov't spending, as I have established it would increase economic activity and make the economy grow. To prevent overheating of the economy and reduce the size of artificial economic bubbles, then the gov't is to reduce spending.

But, instead of favoring some product like corn, government would be best to invest in infrastructure, to create a solid foundation for the economy to grow upon. And to reduce deficits, gov't should increase the tax burden on the wealthy during the recession. This would not hurt the economy, since they are already not using the money to invest/spend in the economy. Once the economy is grown and the infrastructure is built, government spending could decline. You said this just reduces artificial demand, and causes the economy to shrink. However, since the economy is now at its full potential, and consumers are using the vast majority of their income on spending or investments, the gov't can reduce spending without adversely harming the economy, since the consumer has taken this role back. And, it would reduce GDP, but with the consumer base being vibrant, the economy would grow back.

Reducing spending gradually would have an even better effect, to prevent overheating of the economy and not depress the economy by a large amount.

But right now, the money base (monetary policy) can't save us. Since the money base has grown nearly 3x in size since 2008, this illustrates my point. Lack of aggregate demand is causing this weak economy. And gov't can rectify this.

Right now, I have established that spending = income, and the monetary base can't be expanded any more. The burst of the housing bubble was so disastrous that made consumer spending weak and remain this way. Business investment is low, because there is no reason to expand without strong sales. And this is why unemployment is so high. The solution is for government to increase its spending, especially in investments in education and infrastructure, so the economy has a solid base to grow upon, consumers grow in strength, and business investment expands. The private sector is then utilizing its resources, and gov't spending is a problem, since it requires taxes which takes out private investment potential. So, the gov't can reduce spending, and slightly reduce taxes as well to let the economy continue to grow. But, just reducing taxes would be less helpful than gov't investments.

As Darkkermit said, gov't spending in WW2 let the economy grow, and thus when spending declined, the economy remained strong, because the gov't spending increased economic activity and growth. Exports certainly helped, but cannot be said as the sole reason for the strong economy, as only 30% of jobs are related to export/ trade oriented industries.

And, if gov't invested in education, it would improve our nation's workforce skills, and let us export more and make us enjoy greater GDP through this avenue.
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Lordknukle
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6/30/2012 9:08:04 PM
Posted: 4 years ago
Contra, investment in education (human capital) would actually increase aggregate supply.
"Easy is the descent to Avernus, for the door to the Underworld lies upon both day and night. But to retrace your steps and return to the breezes above- that's the task, that's the toil."
Lordknukle
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6/30/2012 9:09:59 PM
Posted: 4 years ago
The main problem with Keynesian policies is that they never go away. Keynes said that vested interests aren't important-he was obviously so very wrong. With each wave of government spending, more vested interests are created and this spending rarely goes away. True Keynesians advocate for higher government spending during recessions and decreased government spending during booms. This is simply politically unfeasible.
"Easy is the descent to Avernus, for the door to the Underworld lies upon both day and night. But to retrace your steps and return to the breezes above- that's the task, that's the toil."
darkkermit
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6/30/2012 9:52:13 PM
Posted: 4 years ago
At 6/30/2012 9:08:04 PM, Lordknukle wrote:
Contra, investment in education (human capital) would actually increase aggregate supply.

LK, the aggregate demand equation is this:

Y = G + C + I + NX
G - Governemnt
C - Consumption
I - Investment
NX - Net exports

Investments are PART of aggregate demand. This is something that people don't seem to understandings and strawman keynesians on.
When Keynesians referring to savings they are not referring to investments. They are referring to money that is being hoarded and not being used for anything.
Savings =/= Investments.

Investments increase long run aggregate supply, but they are still part of the demand equation.
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Lordknukle
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6/30/2012 9:56:44 PM
Posted: 4 years ago
At 6/30/2012 9:52:13 PM, darkkermit wrote:
At 6/30/2012 9:08:04 PM, Lordknukle wrote:
Contra, investment in education (human capital) would actually increase aggregate supply.

LK, the aggregate demand equation is this:

Y = G + C + I + NX
G - Governemnt
C - Consumption
I - Investment
NX - Net exports

Investments are PART of aggregate demand. This is something that people don't seem to understandings and strawman keynesians on.
When Keynesians referring to savings they are not referring to investments. They are referring to money that is being hoarded and not being used for anything.
Savings =/= Investments.

Investments increase long run aggregate supply, but they are still part of the demand equation.

Oh, I think you misunderstood me.

I was talking about the effect of the increase of human capital, which is related to aggregate supply.
"Easy is the descent to Avernus, for the door to the Underworld lies upon both day and night. But to retrace your steps and return to the breezes above- that's the task, that's the toil."
darkkermit
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6/30/2012 10:07:19 PM
Posted: 4 years ago
At 6/30/2012 9:56:44 PM, Lordknukle wrote:
At 6/30/2012 9:52:13 PM, darkkermit wrote:
At 6/30/2012 9:08:04 PM, Lordknukle wrote:
Contra, investment in education (human capital) would actually increase aggregate supply.

LK, the aggregate demand equation is this:

Y = G + C + I + NX
G - Governemnt
C - Consumption
I - Investment
NX - Net exports

Investments are PART of aggregate demand. This is something that people don't seem to understandings and strawman keynesians on.
When Keynesians referring to savings they are not referring to investments. They are referring to money that is being hoarded and not being used for anything.
Savings =/= Investments.

Investments increase long run aggregate supply, but they are still part of the demand equation.

Oh, I think you misunderstood me.

I was talking about the effect of the increase of human capital, which is related to aggregate supply.

Doesn't mean it isn't part of aggregate demand.
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darkkermit
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6/30/2012 10:11:40 PM
Posted: 4 years ago
At 6/30/2012 8:57:24 PM, Contra wrote:
In the economy, there is a basic rule:

Your spending is my income, and my spending is your income.

Demand drives the economy, and causes more citizens to become hired, so you have an increase in employment. Demand causes businesses to expand capacity and invest when there is confidence, which relies heavily on sales. So, expand demand and you increase employment, investment in businesses, and cause the economy to grow.

When you cut government spending, since your spending is your income, cutting spending in gov't causes demand to fall. So, the economy recedes.

When you increase gov't spending, as I have established it would increase economic activity and make the economy grow. To prevent overheating of the economy and reduce the size of artificial economic bubbles, then the gov't is to reduce spending.

But, instead of favoring some product like corn, government would be best to invest in infrastructure, to create a solid foundation for the economy to grow upon. And to reduce deficits, gov't should increase the tax burden on the wealthy during the recession. This would not hurt the economy, since they are already not using the money to invest/spend in the economy. Once the economy is grown and the infrastructure is built, government spending could decline. You said this just reduces artificial demand, and causes the economy to shrink. However, since the economy is now at its full potential, and consumers are using the vast majority of their income on spending or investments, the gov't can reduce spending without adversely harming the economy, since the consumer has taken this role back. And, it would reduce GDP, but with the consumer base being vibrant, the economy would grow back.


Once again, I don't think you understand keynesian economics. The whole purpose of government spending is to increase deficits.

The funny thing is conservatives think that many conservatives think the best way to get out of a recession is to cut taxes, which is actually a keynesian policy as well,
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DanT
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6/30/2012 10:34:08 PM
Posted: 4 years ago
At 6/30/2012 8:57:24 PM, Contra wrote:
In the economy, there is a basic rule:

Your spending is my income, and my spending is your income.

Demand drives the economy, and causes more citizens to become hired, so you have an increase in employment. Demand causes businesses to expand capacity and invest when there is confidence, which relies heavily on sales. So, expand demand and you increase employment, investment in businesses, and cause the economy to grow.

The quality of demand is just as important as the quantity of demand.

Increasing government spending, through deficits, does not help the economy grow; what it does is mask the decline. At some point the deficit spending must stop, otherwise the deficit spending would it's self cause a recession.

When spending decreases the problem re-arise. As I already pointed out, the real demand has not been increased, only the aggregate demand has been increased. Nobody wants the subsidized corn for the price needed to make a profit, so the subsidies lower the price by creating government demand as a substitute for the demand of the consumer.

When you cut government spending, since your spending is your income, cutting spending in gov't causes demand to fall. So, the economy recedes.


When I stop eating candy I cut my carbohydrate intake; does that mean I should eat more candy in order to meet the 300g requirement? No it means I should eat more complex carbohydrates, instead of the candy.

The 4 sources of demand is government spending, investments, consumption, and exports.

Government spending has 2 sources; taxes (on households or firms), and borrowing (from private savings or abroad).

Money for investments come from households and abroad; when the government borrows money it takes away from investments.

Where the money is invested depends on the demand created by consumption, exports, and government spending.

When government spending declines, so does investments, but increasing consumption and exports would increase investments.

Consumption is dependent on local needs, and exports is dependent on foreign needs.

When you increase gov't spending, as I have established it would increase economic activity and make the economy grow. To prevent overheating of the economy and reduce the size of artificial economic bubbles, then the gov't is to reduce spending.


Say Government spending is $0, investments is $25k, exports is $25k, and consumption is $25k, the demand is $75k
Now say exports fall to $0, because foreigners no longer desire what we are selling; the demand is now $50k
Now as a result investments drop to $15k, which makes the demand $40k

As a result the Government steps in and increases their spending to $50k, making the demand $90k. Over time households save money, and investments shoot up to $30k, making the demand $105k.

The government now decreases their spending back to $0, making the demand $55k. The investments now fall back to $15k. As a result the money is inflated, and people lost a sh!t load by investing in a bubble.

In the end, nothing changed, except a bunch of people were made financially worse by the bubble.

In order to fix the issue, one must increase consumption and exports.

But, instead of favoring some product like corn, government would be best to invest in infrastructure, to create a solid foundation for the economy to grow upon.
Infrastructure without a purpose is useless.
The only way to fix the issue is to increase consumption and exports.
And to reduce deficits, gov't should increase the tax burden on the wealthy during the recession.
That would lead to more people being laid off.
This would not hurt the economy, since they are already not using the money to invest/spend in the economy.
Really? Than what do they do with it? Do they stuff it in their mattress?
Once the economy is grown and the infrastructure is built, government spending could decline. You said this just reduces artificial demand, and causes the economy to shrink. However, since the economy is now at its full potential, and consumers are using the vast majority of their income on spending or investments, the gov't can reduce spending without adversely harming the economy, since the consumer has taken this role back. And, it would reduce GDP, but with the consumer base being vibrant, the economy would grow back.

The problem being is that it does not increase consumption or exports; it increases investments. When the government spending stops, investments would fall again.

When the government subsidizes a business they are not increasing consumption, they are replacing consumption.

If a crate of corn costs $100, and the government subsidizes the business for the corn by $75, the crate of corn now costs $25 to the consumer. The consumer's demand being $25, the government's demand being $75, and the price as well as total demand being $100; if the government was to reduce their demand by $75 the total demand would $25 and the price needed to make a profit would be $100. If the corn salesman was to sell the corn to the consumer for $25, he would be out $75.

Increasing the savings of the consumer does not increase their demand for the product. If I had $100 trillion in my bank account, I still would not pay $500 for glass of water; a rip off is a rip off. That's not taking into account inflation, which may change my perspective as the $100 may actually be $0.50 with really high inflation rates.

Reducing spending gradually would have an even better effect, to prevent overheating of the economy and not depress the economy by a large amount.

Reducing spending gradually would just prevent the shock of the bubble. People would pick up on the decline, and would pull their investments gradually as well. You still end up at square 1.

But right now, the money base (monetary policy) can't save us. Since the money base has grown nearly 3x in size since 2008, this illustrates my point. Lack of aggregate demand is causing this weak economy. And gov't can rectify this.

Right now, I have established that spending = income, and the monetary base can't be expanded any more.

Where does the money come from?
It either comes from taxes, or it comes from borrowing.

If I have all my money in bank A, and I decide to move half of it to Bank B, I did not increase my wealth, I simply increased the number of banks I have my money in.

If I take out a mortgage to buy a house, I did not increase my wealth. The bank still part of the house equal to that which I owe on my mortgage. If I went to sell that house the bank would take out the money still owed on the mortgage from the sale.

As Darkkermit said, gov't spending in WW2 let the economy grow, and thus when spending declined, the economy remained strong, because the gov't spending increased economic activity and growth. Exports certainly helped, but cannot be said as the sole reason for the strong economy, as only 30% of jobs are related to export/ trade oriented industries.


As I pointed out, it was not the government spending which helped the economy, it was the increase in exports, and when the gov't reduced spending after the war it caused a recession. When the rest of the world stopped rebuilding it caused the largest post-war recession, which was felt globally.
And, if gov't invested in education, it would improve our nation's workforce skills, and let us export more and make us enjoy greater GDP through this avenue.

Need to first have products worth exporting.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
Lordknukle
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6/30/2012 10:44:20 PM
Posted: 4 years ago
At 6/30/2012 10:07:19 PM, darkkermit wrote:
At 6/30/2012 9:56:44 PM, Lordknukle wrote:
At 6/30/2012 9:52:13 PM, darkkermit wrote:
At 6/30/2012 9:08:04 PM, Lordknukle wrote:
Contra, investment in education (human capital) would actually increase aggregate supply.

LK, the aggregate demand equation is this:

Y = G + C + I + NX
G - Governemnt
C - Consumption
I - Investment
NX - Net exports

Investments are PART of aggregate demand. This is something that people don't seem to understandings and strawman keynesians on.
When Keynesians referring to savings they are not referring to investments. They are referring to money that is being hoarded and not being used for anything.
Savings =/= Investments.

Investments increase long run aggregate supply, but they are still part of the demand equation.

Oh, I think you misunderstood me.

I was talking about the effect of the increase of human capital, which is related to aggregate supply.

Doesn't mean it isn't part of aggregate demand.

It's not. Human capital is part of the factors that influence long term aggregate supply growth, along with physical capital and technology.
"Easy is the descent to Avernus, for the door to the Underworld lies upon both day and night. But to retrace your steps and return to the breezes above- that's the task, that's the toil."
darkkermit
Posts: 11,204
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6/30/2012 10:55:47 PM
Posted: 4 years ago
At 6/30/2012 10:44:20 PM, Lordknukle wrote:
At 6/30/2012 10:07:19 PM, darkkermit wrote:
At 6/30/2012 9:56:44 PM, Lordknukle wrote:
At 6/30/2012 9:52:13 PM, darkkermit wrote:
At 6/30/2012 9:08:04 PM, Lordknukle wrote:
Contra, investment in education (human capital) would actually increase aggregate supply.

LK, the aggregate demand equation is this:

Y = G + C + I + NX
G - Governemnt
C - Consumption
I - Investment
NX - Net exports

Investments are PART of aggregate demand. This is something that people don't seem to understandings and strawman keynesians on.
When Keynesians referring to savings they are not referring to investments. They are referring to money that is being hoarded and not being used for anything.
Savings =/= Investments.

Investments increase long run aggregate supply, but they are still part of the demand equation.

Oh, I think you misunderstood me.

I was talking about the effect of the increase of human capital, which is related to aggregate supply.

Doesn't mean it isn't part of aggregate demand.

It's not. Human capital is part of the factors that influence long term aggregate supply growth, along with physical capital and technology.

It's part of the factors of aggregate demand. You can consider consumption or investment, but its part of it. ALL forms of spending are part of aggregate demand. Human capital is a form of spending, therefore it is part of aggregate demand.
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Lordknukle
Posts: 12,788
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6/30/2012 11:07:42 PM
Posted: 4 years ago
At 6/30/2012 10:55:47 PM, darkkermit wrote:
At 6/30/2012 10:44:20 PM, Lordknukle wrote:
At 6/30/2012 10:07:19 PM, darkkermit wrote:
At 6/30/2012 9:56:44 PM, Lordknukle wrote:
At 6/30/2012 9:52:13 PM, darkkermit wrote:
At 6/30/2012 9:08:04 PM, Lordknukle wrote:
Contra, investment in education (human capital) would actually increase aggregate supply.

LK, the aggregate demand equation is this:

Y = G + C + I + NX
G - Governemnt
C - Consumption
I - Investment
NX - Net exports

Investments are PART of aggregate demand. This is something that people don't seem to understandings and strawman keynesians on.
When Keynesians referring to savings they are not referring to investments. They are referring to money that is being hoarded and not being used for anything.
Savings =/= Investments.

Investments increase long run aggregate supply, but they are still part of the demand equation.

Oh, I think you misunderstood me.

I was talking about the effect of the increase of human capital, which is related to aggregate supply.

Doesn't mean it isn't part of aggregate demand.

It's not. Human capital is part of the factors that influence long term aggregate supply growth, along with physical capital and technology.

It's part of the factors of aggregate demand. You can consider consumption or investment, but its part of it. ALL forms of spending are part of aggregate demand. Human capital is a form of spending, therefore it is part of aggregate demand.

While it's true that the method for obtaining human capital increases aggregate demand, human capital is just a combination of knowledge and is not directly linked to aggregate demand.

"Human capital is the stock of competencies, knowledge, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value"
"Easy is the descent to Avernus, for the door to the Underworld lies upon both day and night. But to retrace your steps and return to the breezes above- that's the task, that's the toil."
twocupcakes
Posts: 2,750
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7/3/2012 7:35:27 PM
Posted: 4 years ago
If the economy/industry needs to completely fail to improve then it is better in the long run for the government not to borrow to spend on them, until they figure out what needs to be done. However, if not, the government can borrow and spend to quicken the recovery process, the payoff the debt when the economy/industry is doing well.
Contra
Posts: 3,941
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7/3/2012 9:31:40 PM
Posted: 4 years ago
At 6/30/2012 10:11:40 PM, darkkermit wrote:
At 6/30/2012 8:57:24 PM, Contra wrote:
In the economy, there is a basic rule:

Your spending is my income, and my spending is your income.

Demand drives the economy, and causes more citizens to become hired, so you have an increase in employment. Demand causes businesses to expand capacity and invest when there is confidence, which relies heavily on sales. So, expand demand and you increase employment, investment in businesses, and cause the economy to grow.

When you cut government spending, since your spending is your income, cutting spending in gov't causes demand to fall. So, the economy recedes.

When you increase gov't spending, as I have established it would increase economic activity and make the economy grow. To prevent overheating of the economy and reduce the size of artificial economic bubbles, then the gov't is to reduce spending.

But, instead of favoring some product like corn, government would be best to invest in infrastructure, to create a solid foundation for the economy to grow upon. And to reduce deficits, gov't should increase the tax burden on the wealthy during the recession. This would not hurt the economy, since they are already not using the money to invest/spend in the economy. Once the economy is grown and the infrastructure is built, government spending could decline. You said this just reduces artificial demand, and causes the economy to shrink. However, since the economy is now at its full potential, and consumers are using the vast majority of their income on spending or investments, the gov't can reduce spending without adversely harming the economy, since the consumer has taken this role back. And, it would reduce GDP, but with the consumer base being vibrant, the economy would grow back.


Once again, I don't think you understand keynesian economics. The whole purpose of government spending is to increase deficits.

The funny thing is conservatives think that many conservatives think the best way to get out of a recession is to cut taxes, which is actually a keynesian policy as well,

I have been reading a lot of Paul Krugman lately, I get your point now. The ultimate goal of Keynesian economics is active fiscal and monetary policy (through the use of tax cuts/ and or deficit spending during weak economic times; and tax increases/ and or government spending cuts during stronger economic times to rein in on inflation) to smooth out the bumps of the business cycle to make economic changes less fluctuated.
"The solution [for Republicans] is to admit that Bush was a bad president, stop this racist homophobic stuff, stop trying to give most of the tax cuts to the rich, propose a real alternative to Obamacare that actually works, and propose smart free market solutions to our economic problems." - Distraff

"Americans are better off in a dynamic, free-enterprise-based economy that fosters economic growth, opportunity and upward mobility." - Paul Ryan