Fact of the matter is, a large part of their businesses comes from the government. To say that these are 'private' companies is absurd. Neither one would have gotten off the ground without government contracts. The same is true for every other large company you can think of; GE, Westinghouse, IBM, Halliburton, Morton-Thiokol, Raytheon, General Dynamics, et al. When was the last time Raytheon or General Dynamics built a general aviation contract? Your contention is a charade. Specializing in domestic defense spending??? What the . . .
By that logic, any company that receives business from a government can't be considered private, which is moronic. I don't even know why you're trying to argue for something so blatantly incorrect.
There is no perfect economic theory and economics theories have very poor predictive utility. It is an exercise is quantifying the past, not divining the future.
Those guys were no Keynesians. Keynes theory calls for trimming spending and raising taxes and running a surplus when the economy is strong. Those guys, at least the last three, spent like crazy and cut taxes and ran huge deficits when the economy was good. They are anti-Keynesian.
Homework time, buddy - Nixon called himself a Keynesian and those other Republicans followed his example.
Nixon was a friend of Ayn Rand and Alan Greenspan. He may have called himself a Keynesian but he was a free market cowboy penned in by Keynesians All those other Republicans followed him down the road, cutting away the Keynesian influence and generating undeniable evidence that their anti-Keynesian economic philosophy is a disastrous calamity over the long term.
All those Republicans increased the federal debt through their corporate welfare. But then, as Cheney pointed out, the prevailing philosophy was "deficits don't matter". That is, they don't matter until a Democrat is in the White House.
Keynesian economics isn't bunk it works when it is tried, all the data and the analysis by credible economists has shown this ["BUT THE OBAMA STIMULUS DIDN'T WORK!!1!!1!" - "Actually it worked fairly well for what it was supposed to do, but it was too heavy on tax cuts to try to appease Republicans because obama was obsessed with trying to be the the president of national unity and it wasn't big enough because the obama administration didnt understand how bad the crisis was and didnt think it was politically possible to get more stimulus- the GDP over the main stimulus hole was over 3 trillion dollars, the stimulus provided nowhere near this amount of relief" Whether the government is competent enough to balance the budget (it doesn't really need to actually get surpluses- because it's debt to gdp ratio that is the important data point and so with say 2% real growth and 2% inflation, if the budget stays balanced the debt stays the same and gdp gets bigger) is an interesting point, and I'd argue a strong argument for elected democrats (republicans and "starve the beast" under Reagan and Presidents Bush is the biggest show of fiscal irresponsibility in this nations history) Austerity economics is bunk, see Europe for future details. (In fairness the single currency without single country thing is hugely damaging to them to- but non-euro austerity countries like Britain are still doing terribly (around 2% below pre-crisis GDP))
The phrase Austerity economics is misleading and probably misunderstood. There is no such idea that austerity will increase growth or stabilise the economy, austerity is a necessary measure taken to ensure you dont enter a massive debt hole and default. Its all very well spouting 'Spend, spend and more spend', but that money has to come from somewhere and hence needs to be paid back, with interest.
Yeah my use of that particular phrase was probably not the best. The idea of expansionary austerity is alive and well in the mind of the UK chancellor George Osborne, as well as a whole bunch of US Republicans it seems. That is what I was saying was bunk, that if you just cut spending, the confidence fairies will give you a brilliant recovery. I'll go with, the idea that austerity is not contractionary fiscal policy is bunk. Also that austerity is a good idea in any fairly large democracy that has it's own currency at a time of depressed economic conditions (with unemployment above long-term levels [i.e. unemployment is not just frictional+structural, there is cyclical unemployment) is also not supported by evidence.) In the long run Keynesianism is very much alive. However when the economy is not in a liquidity trap if there is a deficit then there is a very good case for cutting spending or raising taxes. (i.e doing something to deal with the deficit.)
Absolutely, I think that the idea that government intervenes in the market is a widely accepted notion, it's the level of intervention that remains debated and in my view even more importantly, how it intervenes. Its interesting that you mentioned the UK. I reside in the UK, and it's quite clear that the majority of Osbournes rhetoric on austerity is precisely just that...rhetoric. Government borrowing is still huge, and the majority of 'cuts' have been relatively weak. It will be interesting to see whether the Conservatives will continue this path should they win the election next year. Personally I think the tax burden is still too high. State intervent or not, business needs to breath.
Ok good, (looks like we can have a sensible discussion here rather than me giving data and reasons and stuff and someone else going "no, government doesn't work you silly socialist") I broadly think that in the majority of cases (looking at a stable government of a relatively large democracy that has it's own currency) that when unemployment (this should be measured broadly using measures that include underemployment- which is a huge deal in the UK especially) is above the structural+frictional level (i.e. there is unemployment that is causes because of the business cycle so unemployment is above it's long run point) then the government should intervene with deficit spending until this cyclical unemployment goes away, and then draw down this as the economy recovers and there is no longer any need for it. I would say that in these situations spending on infrastructure is a good thing, a very good way of deficit spending in the US (not relevant in the Uk due to the way local government is financed) is giving state and local governments aid- as they have balanced budget rules and so will have to lay off public sector workers (teachers, policemen, firefighters etc.) and cut back on infrastructure projects, this is easy stimulus and ideally I'd have some kind of automatic stabilizer system so that this would be done automatically in times of real economic crisis (you need very very clear rules so that states can't game the system in any way though) Other good stimulus is actually extended welfare payments as these will get spent. When one looks at history (WPA) you find that directly employing people to do work is actually a fairly efficient way of doing things [obviously we'd prefer getting the private sector to do it but the government directly employing the long-term unemployed is really a very good idea in my opinion- preferably maybe with some kind of partial training element and then attempting to get private sector to hire these people as the economy gets back on track- both because giving people work gives them wages and so stimulus and also because it breaks down the hysteresis effect of long-term unemployment] Some short-term tax credits can also be a good idea, things like tax credits for hiring (or in very bad times- keeping workers- though is tricky to manage) or tax credits for investment or programs like the one the UK (don't know if it still runs) where the government will pay some percentage of the cost of households buying solar panels. (Both stimulus and green energy ) Things that don't make very good stimulus in general are permanent tax cuts (though if you must do this- and you can make the argument that tax cuts are fast acting stimulus so in a crisis it's a pretty good idea sometimes- if you must then aiming them at low-income people [or in USA removing tax on unemployment benefit would be a good one]) as they tend to get saved, now people sometimes hear this and go "well, good! People saving is a good thing, it's their money they should be able to what they want with it!" Whilst this is true, money that is saved is obviously not spent, and spending is what the economy needs at that time. [In the UK I dislike the corporation tax cuts- but I'm broadly in favour of the lump-sum employers NI cut as it is more favourable [as a percentage of the balance sheet] to small businesses] In terms of letting businesses breathe, I'm of the school of thought that the way to do this in a crisis like there is now is buy helping out the worse off, and using stimulus to get people back to work, as this will (in most cases- businesses that sell inferior goods do well in a crisis and so sorting it out will hurt them) then help businesses. Also permanent tax cuts obviously have a permanent impact on the budget position which is a bad thing (deficits don't really matter in the short term in a liquidity trap- but when the economy gets back to long run unemployment levels the budget certainly needs some sorting out) As for Osbornes cuts, there are certainly cuts, the key area to look at is fiscal deficit againsts potential GDP ratio (cutting this may sound like a good thing but in a liquidity trap it is actually a bad thing and bad for growth) the reason the deficit hasn't fallen very much is because everything is still fairly terrible for a lot of workers, welfare spending has increased, the way to cut welfare spending is almost always (yes deal with some structural problems with it too) getting people back to work. The time for austerity is in the boom. (Though usually this only requires not cutting taxes and not lavishly increasing spending but in some cases tax rises or spending cuts are needed- booms are generally [when Politicians don't pursue completely wrongheaded policies] much longer than busts- and when looking at public finance viability the key figure is debt to gdp ratio, obviously when the budget is balanced, inflation+real growth and making the fiscal position much nicer as the debt is worth less and the economy is bigger.
Its all very well talking about cyclical spending, and I agree with 80% of what you suggest, as do the majority of economists, but there are certain situations where you are limited. For instance in the UK we are in the unique situation that structural deficit spending was astronomical and hugely unsustainable before the recession hit. This has massively limited what we can achieve now. If we had run a budget surplus during the boom then large borrowing to solve cyclical unemployment would have plan number one, which brings me to my point of view on the matter. '...then the government should intervene with deficit spending until this cyclical unemployment goes away' Great. How? And this is the real issue. By using tax money to create 'initiatives'? By employing people temporarily in the public sector? Government never succeeds in solving a problem without creating 5 others in the process (in my experience), and this is where my hand-holding with keynesian ends. I think the best way to solve cyclical unemployment is to use money borrowed to give business tax cuts on reciept of employment. It does not increase the burden on business and increases employment. My local city dropped its business rates here in the UK and as a result landed 500 new jobs from Jaguar-landrover. If we (the west) can learn to run a structural budget surplus it will bring greater stability for future generations, which is needed since most of our children are going to be paying the interest on our excess for the next 50 years.
The UK structural deficit really wasn't that high pre-crisis, it's educational to note that the debt to GDP ratio in 2007 was lower than it was in 1997, the country's debt position pre-crisis was better than when labour came to power. Deficit spend on infrastructure programs works very well. As I said in my previous post, I don't like permanent tax cuts to deal with it, for the very simple reason that if every time you have an economic crisis you respond with a permanent tax cut, you still have the tax cut when you come out of it (so you either undo the tax cut in which case it wasn't permanent in the first place) or it stays there and more debt piles up. This happened in america with the Bush Tax Cuts. Also tax cuts tend to get saved rather than spent. Other than infrastructure spending (as to whether the government directly employs these people or just hires businesses which hire the people- doesn't really matter just have to get spending flowing) any kind of short term tax credit to get spending going is a good thing, like an investment tax credit (tend to not be a brilliant idea as in the middle of a crisis not a great deal of firms are looking to invest- but you can also do things like tax credits for hiring [or not firing]) The stimulus works as it creates jobs then these people have higher incomes so they spend more and more jobs are created. Thinking of a UK example, maybe the government should employ people to build more council housing- I've read a bit about the debate about people with spare rooms in council housing losing some benefits- so there is an incentive to move elsewhere, but that there currently aren't any council accommodation spare for them to move into. So building more houses could be a good idea- I think I read something about rents being really high as well, more housing in general might just be a good idea. If this is not the case then fill potholes, build roads or railways or bridges or schools or hospitals. Either pay the private sector to do this, or a probably better idea, directly employ some long-term unemployed people to do it maybe.
The task of economics is to show what is unseen. What you are not seeing here is all the jobs that are destroyed by stimulus spending. Whether that money comes from taxes, borrowing or inflation, each of those comes with a price that damages the economy and destroys jobs. So at best it is a zero sum game. However, stimulus spending takes money away from productive uses that are desired by society and puts it into unproductive uses, which leaves society poorer off in the long run.
Tax credits have proven less than effective for dealing with immediate problems like unemployment and investment because it usually takes time for companies to adjust to them and have their lawyers figure out how to take advantage of them to minimize their tax burden regardless of their intent. Even so, if they are one time incentives they will do nothing to change employers or workers behaviour. By far, the most effective use of government spending to stimulate an economy is on the direct purchase of goods and services. If the Obama stimulus had been $800Billion for infrastructure and $80Billion in tax cuts instead of the exact opposite the US economy would be booming by now because the huge flood of money would have been deployed to buy actual things that have to be made, spreading the money across the supply chain instead of losing in the abstraction of money, which in times of economic calamity will be hoarded and used to pay down debt. Increased infrastructure spending generates a far higher multiplier in economic activity than any tax cuts or credits by at least an order of magnitude. In the US there is over $5Trillion of public infrastructure projects whose planning is completed, ready to go projects in search of funding. At least $2Trillion of those are considered critically necessary immediate replacement or improvement projects for ageing infrastructure that has deteriorated to the point of imminent failure. In both the US and the UK there are party factions ideologically opposed to any increases in government spending for anything so the party leaders appease them by fighting any increased spending on infrastructure. This places the parties on the right in the position of selling out the nations economic future so the wealthy can pay a bit less tax this year, never mind that all the bridges and highways are falling apart and there is no money to fix them let alone improve them to meet expected future needs. Conservatives, as a whole, did not used to be so blindly stupid.
You should also take into consideration the economical and financial stand point at both those periods of time. In 1997 we were not to far out of the early 90s recession and Black Wednesday, it is understandable that public spending would be higher. In 2007, we were 15 years without recession and just just 7 years earlier than that we were running a budget surplus. Under what circumstance did the Labour government feel it was a good idea to rack up a structural deficit that large at all?! Ruthlessly expanding the state and borrowing when it was unnessecary has left the UK in the position it is now. Cyclical fixes wont sort it out, we need serious structural reform, and that involves letting the private sector do what it was designed to do. Its interesting that both yourself and the above poster mention infrastructure. It seems to be the holy grail for progressive governments, but I fail to see why. Enhancing infrastructure is always a good thing, bit it isnt the get out of jail free card that some seem to think. If you have a 20% unemployment rate, a lagging private sector and an unproductive economy, what you need is private investment that creates long term sustainable work, not a road that will employ 50 people for 6 months. The perfect example of this is the last 2 years of Labour government (2008-10). We had decent growth. Why? Because they were borrowing massive amounts of money to put into one off projects, that left us with some new roads, some nice bus stops and some great leisure centres. What now? Nothing. The projects finished, the jobs went with them as did the growth. We will be paying the interest on the money borrowed for those projects for years, and for what? How many long term jobs did it create? How much sustainable growth? Productivity? A tragic waste of money that would have been better spent on tax cuts, allowing business to use that extra money to employ long term. On a political note, the left seemed to understand this concept when we had the olympics. "Its not real growth!!! Its a one off spurt because of the Olympics!!" Yet when the same applied to there wasteful pet projects they suddenly lost there economic clout and started banging on about attacking the poor. Extremely frustrating.
Of course you should, and I don't think labour did a good job with finances from 2003 to the start of the crisis either but their management of the situation was infinitely better than the conservative party would have you believe. Infrastructure spending is a very very good idea (tax cuts are not) the reason for this is yes, you employ the however many workers whilst they build whatever they build- which is in itself a good thing as improving infrastructure is a good thing, but critically you also provide them with an income- they will then spend elsewhere and others will benefit, that is the whole point. As I have said repeatedly, a large amount of tax cuts are saved, whereas spending is spent and so the economy gets that benefits. Suppose instead of all those projects the government had cut taxes on corporations. What would they do with this money? Would they invest. No because there is no consumer demand. This is the reason direct spending on things is better stimulus than tax cuts- you get the demand- the workers get incomes which they spend in things- businesses get this money and are less likely to reduce their workforce (which in turn means more people spending) the suppliers of materials for whatever you are building have demand for their goods- which means their workers will get money which they will spend etc. etc. Simply by taxing businesses less you don't create jobs in that situation- as the businesses look at the economy and see that expanding is not a good idea because consumer demand is still terrible.
It is never a good idea to increase government debt and reduce taxes in times of economic prosperity, neither is it a good idea to massively increase infrastructure spending since that will strain resources and increase the cost considerably, which is what Labour did. It is far better to wait for an economic downturn to make massive long term infrastructure investments, which can deploy available capital and employ idle resources at reduced cost, which can boost the entire economy into a new period of growth if it is extensive enough. It does not accomplish anything however when the next government institutes austerity measures that destroy any momentum the economy may have gained. The cycle of government seems determined on unending fiscal and economic calamity. When times are good the liberals increase borrowing and the conservatives make permanent cut taxes, both of which increase deficits and ignore long term debt. When times are bad liberals raise taxes and conservatives make permanent cuts to taxes and spending, ignoring the long term debt. It is always the exact opposite of what is needed for long term economic and fiscal stability regardless of the party.
First of all you have to debate whether the amount you borrow and hence the debt you are paying back is worth the short term employment and productivity. There will obviously come a point where the debt burden is great enough that borrowing it for minimal gains becomes non sensical. Did Labour cross that point? Perhaps. But really, as you have pointed out, the real issue is demand. Issuing tax cuts to business on reciept of employment would ensure that the money is spent, and spent where it can do its best work...private sector employment. The rise in employment would increase demand since there would not be as many people unemployed, and hence more people with more money. Its all about convincing the private sector to do what it needs to do. If you just announced a tax cut, you would be correct in saying that a large portion of that would be saved. (The banks would be putting it to productive use so it wouldnt be stagnant, but it certainly wouldnt be making its way to the 'front line' so to speak). However, if you offer the tax break when certain conditions are met, you can ensure that the private sector will oblige your requests, and hence you can insure it is spent where it is needed with attractive persuasion. In short I think the government should do everything it can to prevent inflation, undesirable interest rates and monopoly. It should let the private sector do the work on employment and productivity.
"government doesn't work" Keynesians such as Nixon, Reagan, Bush I, Bush II had no problem with our government intervening in foreign affairs. If they had been principled at all, they would have demanded that our government refrain from getting involved overseas.
The Roman Republic and Empire were an example of "Keynesian" economics through central planning and the coercive use of force of the State.
