collegestudent22 wrote:It is like hair of the dog. Keynes calls for extremely low interest rates and stimulus spending to "cure" the bust, which results in a high degree of malinvestments leading to a new bubble, and therefore another bust. Exactly like drinking to stave off a hangover just causes another hangover later.
Well this just seems to indicate an ignorance of Austrian Economic Theory, certain aspects of which I actually have a good deal of respect. It is the fact that low-interest rates are sustained over a long period that causes the malinvesmtents; a constantly increasing money supply will force investors (who Keynses would hold are clouded by Animal Spirits) to seek out worse and worse investments, as investors compete over the same pool of capital and market share. Indeed Investors will take advantage of the lower interest rates to invest in more up-to-date capital infrastructure; a tendency towards over-investment and speculative borrowing will emerge if the "artificial" low interest rate environment is sustained. Indeed, this phenomena can be seen in almost perfect part in what happened my own country, Ireland.
So the problem is, as always, allowing the market to overheat. Failure to use contractionary measures to counter and control market trends. The initial lowering of interest rates, even under the Austrian Theory, will stimulate investment. Indeed, because of the negative mood of the depression, the confidence raising of expansionary policy will only be effected in part resulting in very cautious investments at the start.
Again, and again, I will say that the blame for the current crisis resides with those politicians and economists who believed that populist (and pro-cyclical measures) should be catered to. Thus interest rates remained artificially low even as credit supply contracted and the Government failed to raise taxes or pursue any other contractionary measure to cool down the expanding bubble and save money for the ensuing crash. Austrians are perfectly right to say that artificial low interest rates propagate the boom, they do - Keynes would argue for them only as temporary kick start measure. Indeed Interest Rates may need to be artificially raised if the market becomes to heated in certain areas.
Oh, and Keynes calls for very specific cures for the bust in very specific cases. Expansionary, yes but it's important to target the increase in Demand to those areas which require it and which are causing the block in the circular flow. A classic case being the liquidity trap in which low interest rates will do nothing and it becomes the Governments role to ensure new lines of credit or to use fiscal policy to target spending specifically at entrepreneurs who lack liquidity.
If this is the case, then it is a good argument why Keynes' calls for government intervention are nonsensical. Furthermore, the government doesn't run the economic policy in the US, the Fed does - economists (Keynesian ones, for the most part), not politicians. So if they don't follow your version of Keynesian economics, maybe you got Keynes' theories wrong.
What? So if Politicians do a bad job it's a good argued against them arguing for them to do a good one? If the Government becomes corrupt and fails to enforce the law then it undermines the argument that the Government should enforce laws well?
The U.S. Federal Government will spend money, this requires congressional approval as well as executive initiative - are these not both branches of Government? Furthermore, how exactly has the Fed' been in the hands of Keynesians, let alone competent ones, of late?
Enigmocracy wrote:I agree with the OP, but wouldn't limit it to prom. Cars, suburban houses, children, video games, amusement parks, fast food, etc etc all waste resources which could be better spent elsewhere. This is merely an abstract notion, and has very little implication on the real world.
The problem is, the economic and social global order does not provide a very easy way to redistribute these goods. Furthermore, the culture of wealthy, developed nations clings extraordinarily tightly to these goods, to the point that any attempt at taking them away would be met with impenetrable resistance. In addition, the culture in most developing nations fetishizes wealth in the same way developed nations do, and any increase in standard of living will merely lead to an increase in what is naturally expected, and not significantly affect utility overall.
Why better spent elsewhere? Their value to the individual is whatever utility they derive from it - seems to be high - making it a good choice for them and the value to the economy is their spending?
Utility Overall? Nonsense. Developing Nations drive for wealth will lead them from subsistence to a culture of saving (and for them this is actually needed) so that investments and capital creation can eventually be funded increasing utility. You only have to look at China to see it's envy of the West leading to its lending and eventual economic and political hegemony.
“People understand me so poorly that they don't even understand my complaint about them not understanding me.”
~ Soren Kierkegaard