Does America get "it"?

[detbuch]

Originally Posted by spence

Transfer payments aren't included just so you don't count the same money twice. Just because the recipients don't produce they certainly do still consume.

That they consume doesn't mean they are adding something to the economy or to GDP. The transferred money just allows different recipients than those from whom it was taken to use it for consumption. There is no added money to be spent, just different consumers spending the transferred amount. The Keynesian multiplyer effect, in my opinion, is bogus. Postulating that as the same money is spent and respent a number of times, each instant adds to the national income so that, $100, for instance, initially spent effectively becomes say $300 after a number of transactions doesn't take into account that every time a given consumer spends it, it is no longer in his possession. It is still $100, moving down the line, shrinking by factors such as taxing and saving. No extra money has been added to the gross national income. Every transaction expands the income of one party, but contracts that of the other. No net gain is accrued. And contrary to your assertion, according to Keynes, the same money IS not only counted twice, but more so. So there is no addition to GDP, therefor no reason to add it to GDP.

On the other hand, if government spends borrowed money rather than tax money to fund its "programs," that is new money which does add to GDP. Unfortunately, it also adds to the debt load and eventually contracts GDP to pay for interest, which money comes from more taxation, which shrinks the private sector addition to GDP (making it a wash monetarily but contracting the ability of the private sector to expand). Or it borrows more to pay for debt thus raising the national debt. Apparently, the "Keynesian" economists see some magic formula in all this that will solve itself--they reject the "invisible hand" of classical economics, and replace it with the magic hand of Keynesianism.

Can the government aid the market in expanding? Absolutely. A sort of multiplyer effect can work not by merely circulating the same existing money supply, but by multiplying/adding to it to meet the demand of a larger population of consumers for MORE circulating money, not just the same limited supply that just changes hands. If that supply meets the demand, markets can organically expand. If too much money is "printed" that will exceed the need for expansion creating excess money, ergo inflation.

I don't think anyone intended the Stimulus to generate organic growth, rather it's a stabilization mechanism to prevent lasting damage and to this purpose I think it was successful.

Lasting damage to whom? Was the expansion of the already untenable national debt a lasting damage? And how can we tell so soon whether the entire cycle of damage is lasting? And what would be more financially difficult to correct, bank failure or government failure? Or have we reached a point big government and big business and big banks are so interconnected that they are indistinguishable? Is this state of affairs a lasting damage to a free market?

The rest of it just comes down to a belief in Keynes or not.

-spence

Which Keynes? The New Keynesianism, or the Neo-Keynesianism, or Post Keynesianism? It keeps changing from the original Keynesianism and often merging with other economic isms so that many claim that even Keynes would not agree with it. Apparently, the Keynesians have not got it quite right yet. Still evolving to new forms. No doubt they will eventually solve the riddle, and economic heaven will have arrived.

[scottw]

the entire premise of the argument of government transfers as economic stimulus is absurd and the only reason that Spence can even attempt the claim is be cause he and the study view reduced taxation and entitlements as essentially the same=grace and generosity granted by governement, it(he) ignores the fact that taxes have to be collected(at a cost), entitlement payments have to be delivered(at a cost) and in many cases those dollars are being borrowed(at an even greater cost)....I've read estimates that for every tax dollar collected the end user under welfare, and I assume the other transfers as well, see about 30 cents of that dollar.....and of course, reducing taxation and regulation does nothing for the expansion of government and the proliferation of the entitlement state

loved this..."Just because the recipients don't produce they certainly do still consume.".....yes, it's becoming more and more the case isn't it?

[detbuch]

Originally Posted by scottw

the entire premise of the argument of government transfers as economic stimulus is absurd.....and of course, reducing taxation and regulation does nothing for the expansion of government and the proliferation of the entitlement state

loved this..."Just because the recipients don't produce they certainly do still consume.".....yes, it's becoming more and more the case isn't it?

Yes, and the "trajectory" of so-called Keynesian economics and its linchpin deficit spending is, inadvertantly, toward the growth of centralized government which, in turn, has its own inescapable
"lynch"pin--the entitlement welfare state fueled by government transfer of wealth either through taxation, borrowing, or "stimulus."

Simply transferring, through taxation, money from those who produce, to those who do not, introduces one-sided transactions when the non-producing recipients of transferred money consume. They are recieving a necessary or desirable commodity or service and are returning some of the money that they have recieved from the producers. In other words, the producers are selling the product and giving it to the non-producer after they have, in essence, bought it back with their own money. For money to have value it must be a medium of exchange that represents actual work or production, and it is that actual work or production that is being traded, as part of the national economy, for the goods which it purchases. That is the essence of trade that gives value to both buyer and seller. That is the foundation of a free market.

But wait--the gifted money still can be used by the seller to buy other goods or to invest. Yes, but on the whole, if the money was first confiscated from the market economy, then a return of that money to the market which has expended more money to produce the gift, the market has shrunk by the value of the gift. Not to mention, as ScottW has pointed out, there is even more unrequited money that is transferred from the market to government to administer the distribution of gifts.

Now, you might say, there are always those who truly need, and society must find ways to help them. Except in the most merciless societies, ways have always been found. When a government goes beyond transferring to true need, and further, goes beyond the power granted to it by the people to make transfers, that is the beginning of, at least, an economic tyranny.

It stands to reason that transfers that go beyond true need become disincentives for recievers to produce. The adage which says that the more something is rewarded, the more of it that you get, or the more you punish something the less of it you get applies. The more that people become "disabled" by charity which replaces what they could earn, the larger becomes the dependant or semi-dependant "class." And the more the producers must sell their goods for money that is merely a return of that which was confiscated from them the less producers you get.

A phenomenon (which those who rail against the "system" and demand more "equity") occurs which is as the producing class shrinks, and the recieving class grows, the greater the disparity of wealth distribution becomes. In order for the producing class to survive, it has to recoup more for its products to make up for the double loss of income lost firstly through taxation and then loss of income that would have been gained had they received value for the goods they give away for a return of some of that money. Real wealth is earned by fewer producers.

Of course, there has to be collusion between the big producers and the government to maintain the process. Only so much can be bled from them, so government must "support" them with "bailouts," subsidies, tax breaks, stimulus, and so on. And yet it must also feed the "needs" of the growing dependent class. So taxation is not the only visible means of transfer. Government must resort to "borrowing" to pay for the growing dependant class, and increasing the money supply (another way of borrowing) to support the shrinking producing class. There is obviously not enough "real" money (that which represents actual labor or production) to sustain the system. So money of no value is infused and combines with real money to support the economic house of cards. The government takes on unsustainable debt through a cycle from which it cannot escape. And the shrinking economy, if it is at all to be "real," a producer of actual wealth, must somehow pay for that debt.

All of the above is a result of government intervention beyond that which is required of it to support a free market. It creates the problems for which it creates the solutions from which more problems arise. And so on. In the end, the government is "lynched"--hoisted by its own petard. And we get hung out to dry along with it. The only solution is to either get free of such government or totally acquiesce to it.