Monday, December 08, 2008

Obama's Keynesian Plans For More Waste

Via Alex Tabarrok I see the following funny paragraph in a New York Times article about Obama's new planned massive spending increases:

"Mr. Obama also responded to criticism of waste and inefficiency in such programs by promising new spending rules, like a requirement that states act quickly to invest in roads and bridges or sacrifice federal money."

That is almost hysterically funny because there is no better way to insure waste and inefficiency than implementing a "use it or lose it" rule for money sent to any state or agency or department.

Someone in Tabarrok's comment section claimed that Obama didn't mean for this rule to be used to prevent waste, but to speed up implementation, and that the comment on waste and efficiency was said in another context. Perhaps that is so (I haven't listened to Obama's speech), but even if it is so it should be noted that this rule nevertheless makes Obama's talk of wanting to counteract waste and inefficiency self-satirical.

It should further be noted that waste is in fact something that Keynesians (which include Obama and his associates and supporters) welcome. After all, waste is a form of spending too, and J.M. Keynes himself made this proposal in his General Theory:

"If the Treasury were to fill old bottles with bank-notes, bury them at suitable depths in disused coal-mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of repercussions, the real income of the community, and its capital wealth, would probably become a good deal greater than it actually is."

15 Comments:

Blogger Wille said...

Funny you should take up the Keynes quote, Roger Bootle does the same in the Telegraph today.

That such Mickey Mouse economics is allowed to persist and be put forth by supposedly intelligent people just blows my mind.
How is burying bottles of money to later dig them up going to improve the productivity or real wealth of a nation?
Anyone who could explain this to me in a way that I will actually believe will get a a months supply of beer.

10:45 AM  
Blogger Matias said...

Really funny is the evil notion that war is "good for the economy". Why can't governments just build huge fleets and blow them to smithereens without killing anyone, if it creates that much wealth.

5:16 PM  
Anonymous Anonymous said...

I can't see any evidence of waste in Obama's plan, even after reading the article. Even if Obama was paying people to dig holes and another group to fill those holes in, it wouldn't be a waste.

When you employ hordes of workers, they will have the money to buy new cars, pay their mortgages, and buy products locally. This transfer of money gets the economy moving again, and this model has been proven countless times. More importantly, this gets people active and engaged, which cuts down on crime considerably. Crime generally happens when 1) people are desperate 2) people are idle. This eliminates both problems.

The big waste was Bush's tax cuts and stimulus packages, where he disproportionally gave money to the rich in hopes they would employ more workers. This of course didn't work since they just saw the money as a bonus for themselves. He did a little better with his stimulus checks, but that was still a problem because it wasn't a sustainable solution, and added to our national debt. That of course lowered the value of the dollar, which lead to rising commodity prices, which lead to people unable to afford to pay for things

6:13 PM  
Blogger Futurum Exaktum said...

Wille, you need to hold in mind that "wealth" is defined by the ruling party. After all, it's just "money" basically some numbers scribbled on a piece of cotton paper.

The endgame are to keep the occupants of a society busy, that since idle hands make devils work. Even if i see myself as a libertarian i must hand it to Keynes, his a bloody genius.

9:39 PM  
Anonymous Anonymous said...

I'm in my mid-20's and I now understand why (relatively) so much people come out of recessions as cynics. I mean, the things 'experts' are saying and doing are just a disgrace for humanity (as a philosopy, not as a collectivistic ideology), and makes one think why so much progress in the natural sciences is accompanied by so my degression in the social sciences. The alpha and the omega here is government/the state, enemy of society.

Futurum, I recommend reading this article by Rothbard on Keynes which may make you relax your claim that Keynes was a genius: http://mises.org/etexts/keynestheman.pdf
Imho he managed to use just enough intelligence with an overload of elitist arrogance and skill of the English language into a lot of evil social(ist) psuedo-science.

Arend

10:38 AM  
Blogger 1 said...

"Why can't governments just build huge fleets and blow them to smithereens without killing anyone, if it creates that much wealth"...

Well that's a good idea as long as these fleets are filled with liberals...

No real person is killed and more dead liberals means a better economy since there would be less effort at social engineering...

"Wille, you need to hold in mind that "wealth" is defined by the ruling party. After all, it's just "money" basically some numbers scribbled on a piece of cotton paper."...

Hmmm, on what planet and in what galaxy is this happening on?

2:30 PM  
Anonymous Chris G. said...

Anonymous,

Are you serious when you say,

"When you employ hordes of workers, they will have the money to buy new cars, pay their mortgages, and buy products locally. This transfer of money gets the economy moving again, and this model has been proven countless times."

This is waste because to pay these people you are transferring wealth from areas that people would want to keep their money or invest their money to areas that the state would rather have the money.

Correct me if I'm wrong Stefan, but this may help in the short term as people are given jobs and make money but as new private sector businesses open they will have to compete with the government for jobs making it more costly for them to do business. So in the long run it will take longer to improve the fundamentals of the economy because the state has been artificially deciding how to use the nations labor and at what price it should be employed.

9:36 PM  
Blogger Ke said...

Matias, war is good for the economy if you win the war and destroy opposing countries' productivity. That's what happened in WWII.

Anonymous, when you say that they will have the money to buy new cars and pay their mortgages, ask yourself where the money is coming from. The money is coming out of tax dollars and debt created out of thin air. All it does is rob the more productive individuals and hand it out to the people with government created jobs.

Proven countless times? Where are your sources? Was it proven with Stalin, Mao, and FDR's new deal?

There you go blaming everything on Bush just like a typical liberal.

10:58 PM  
Blogger Ke said...

Futurum Exaktum,

If your logic is correct, Zimbabwe would then have the most wealth in the world. No, sir, wealth is not money scribbled on a piece of cotton paper. That's paper currency.

11:01 PM  
Blogger Flavian said...

One funny thing about Keynes proposal is that a deflation under a fractional reserve gold standard would come to an end in the same manner, since if paper money with a nominal gold value is destroyed because of contraction in the banking system and thus the purchasing power of gold increases, gold mining efforts and thus credit demand on behalf of the gold mining sector would grow and stabilize nominal expenditure.

Nature already provided us with lots of money in the ground.

11:59 AM  
Blogger Wille said...

Matias, war is good for the economy if you win the war and destroy opposing countries' productivity. That's what happened in WWII.
No it's not, for two reasons:
The economic activity diverted to the war effort could have been used by the markets for less destructive and more productive ends, which would have made even the winning side more wealthy.
Secondly, wealth creation is not a zero sum game: If I build a house, it does not make anyone else any poorer.

12:27 PM  
Anonymous Anonymous said...

Real wealth comes from production of goods and services that are valued by individual people.

Digging a hole just to refill it creates no wealth for humanity. You can't eat a re-filled hole. You can't drive a re-filled hole. You can't live in a re-filled hole.

If you want to get the economy moving, you need to get people working at producing goods and services that other people actually value.

Otherwise you're just wasting time and creating a class of self-righteous beggers, which is where Keynes's line of thought ends up.

Furthermore, real economic growth comes from the formation of innovative capital at a pace faster than replacement.

Where is the innovation in digging a hole and refilling it?

Don't use circular logic.

- Steve

1:23 PM  
Blogger Tomas said...

I think anonymous #1 is a pretty funny guy, he states a lot of nonsense and doesn't afraid of anything.

Ke as well. When you destroy another countrys productivity you're better off, apparently. Meaning that if the US bombed out every last country of the world, they would be immensely wealthy! And after that, the state of New York could bomb out the rest of the states, and it would be even more wealthy! When New Jersey then sets fire to Manhattan, they will have reached unimaginable wealth and prosperity.

3:44 PM  
Anonymous brucesprg said...

The projects that Obama is proposing: rebuilding the crumbling infrastructure, making schools and government buildings more energy efficient and bring schools into the 21st century are things people actually want. The only question is this something we can trust the government to do right?

9:36 PM  
Anonymous Per-Olof Samuelsson said...

"...war is good for the economy if you win the war and destroy opposing countries' productivity. That's what happened in WWII."

I think this comment is slightly weird.

Of course, winning a war is good for the economy, inasmuch as resources used for the war effort can now be redirected to more productive uses. But what has this to do with "destroying opposing countries' productivity"? Other countries' productivity is a good thing, too!

Besides, the end of WWII was good for some of the losing countries, too. Germany experienced what is called an "economic miracle". And Japan has become an "economic superpower" since that time.

(Of course, the "German miracle" has something to do with Ludwig Erhardt being a disciple of Wilhelm Röpke, who in his turn was a disciple of Ludwig von Mises. The Soviet Union also won the war, but there was no corresponding miracle there.)

(And this is not meant as an argument against war as such. Sometimes a war is necessary. But it is never good for the economy. Only ending the war is good for the economy.)

10:42 PM  

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