Smasharoo wrote:
They produce demand by spending the unemployment check, moron. Production has nothing to do with a recovery, idiot. Demand does.
And this is where the left's ideology gets in the way. The correct answer is "both". As I have pointed out numerous times when we've had this same debate before, the assumption that the right is pro-supply, and the left pro-demand isn't completely accurate. The right is "use whichever is needed at the time", while the left is
anti-supply. The left is anti-supply because they have to be to play to the "rich vs poor" dynamic they use to build up a voting base. As a result, the left has to leave half of the economic tool-kit unused when facing an economic problem. Your blanket statement that production has "nothing to do with a recovery" if evidence of this in your own thinking.
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Why did we quickly recover from the great depression? World War. Why? It created huge demand fueled by *entirely useless non productive government spending*.
Yes. The government went into debt buying up huge amounts of war materials. But this isn't what got us out of the depression. It was what the suppliers of those materials did with the factories and the capital they'd gained during the process which did. Obviously, demand is necessary, but without supply you end out with too many dollars chasing the same products around an inflationary circle. Both sides are needed. Not just one. You can't demand your way out of a recession any more than you can supply your way out of it.
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We recovered from a far, far, worse catastrophic downturn only when THE GOVERNMENT WENT INTO MASSIVE DEBT CREATING DEMAND. All of the massive technological and productivity growth that occurred in the 40s could have as easily occurred in '37. It didn't because there was no demand for it. The supply side argument, of course, is that if society had just been smart enough to build 10000 bombers on spec and spend billions on science projects no one had a desire to buy the engineering outcome of, thing would have gotten better that much sooner.
We didn't get out of that economic downturn because we borrowed money though. It's what we did with it. And spending it on social programs and temporary wage replacements in ways which do not allow the producers of goods to gain ground financially doesn't work. That's what we did for the first 12 years of the Great Depression, and it showed no sign of stopping. Even during WW2, the economy didn't really recover. It was the post war period in which the rapid recovery occurred, and that was because we suddenly found ourselves with a massive industrial machine looking for products to build and workers to hire, and a massive amount of labor looking for work. That combination fueled the recovery and a decade of unmatched prosperity.
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Get it yet? Demand destruction drives downturns, increased productivity drives expansion.
No one's talking about demand destruction here though. What I'm talking about is degrees to which things are positive for an economy. And at the top is a fully employed labor force who are producing more than they cost (a health free market economy). A distant second is employing labor to do less productive things, but at least keeping them active and receiving paychecks (the various jobs programs out there). Waaaaaay in third place, well into the "this is a bad thing" category is simply paying people a wage even though they aren't producing anything, but just to keep them able to buy stuff.
It may be better for the individual for them to receive 40k/year without producing anything, but it's much much worse for the health of the economy. Surely, you can see that paying people who aren't producing anything is a bad idea? Because at the end of the day, the funds to pay them has to come from somewhere and that "somewhere" ultimately is the total productivity of the nation.
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Economies don't exist in a rational vacuum, where these can be substituted for one another. Do you understand yet? During a period of expansion, stimulus has much less net effect than increasing productivity. During a contraction, productivity has virtually no effect.
Sure. But unless you want to eternally be in a contraction, you have to make allowances for productivity, don't you? Hence, the problem. You want to trim the sails when the storm surge and high winds are striking the ship. But you don't do so at the cost of the ability to open them up as soon as possible. The need to artificially create demand isn't because that actually helps get out of a financial downturn, but because it may be necessary in order to weather it. You get out of it by opening up the sails, so to speak.
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This is the entire point of having monetary policy *at all*. To smooth out the bumpy macroeconomic consequences of an actual free market. An actual free market is a two steps forward, one step back affair, constantly collapsing and overheating as small changes in information rebound back and forth impacting asset pricing.
So, to make the argument you're making now, WOULD REQUIRE ACKNOWLEDGING THAT WE'RE RIGHT NOW IN A PERIOD OF RECOVERY SO STRONG THAT STIMULATING DEMAND WILL HAVE NO EFFECT.
Is that the argument you're making?
No. I'm saying that we're in a period in which we *could* recover, but are not because people who think like you do economically find it much more politically advantageous to extend the crisis as long as possible. Combine that with the natural preference for "big business is bad!" among those currently in power and their predilection for "give a man a fish and feed him for a day" solutions, and you've got a recipe for a repeat of the 1970s economically speaking. The unfortunate reality is that the political left gains enormously if they can maximize the number of people reliant on government programs for their day to day lives and this provides them a great opportunity to increase that number. It's kinda silly to expect that they'd willingly give that up if they had a choice.
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It may, it may not. The value of your home relative to the dollar is unrelated to the value of the dollar. The value of the dollars you borrowed to pay for it isn't. If you have more debt than *liquid* assets, you should be praying for general and wage *inflation*. I can see how you wouldn't understand that, however.
Simplistically put, but sure. Um... I do have about twice as much in assets than I do in debt. I understand very well what an inflationary period would do to me financially. I'm sure I'll muddle through, but there's a larger aspect to this. Two aspects really:
1. We rewarding bad economic behavior. This is what I thought we were supposed to avoid, and what everyone was attacking those evil big businesses for doing. Borrowing too much money and relying on the government to save them. By advocating a "inflate our way out of debt" approach, and even arguing that this is good because all the people who have debts will find them decreasing relative to their wages over time is negative reinforcement, isn't it? If the government does this, or even just appears to be on track to do this, why shouldn't everyone just rack up as much debt as possible? Isn't that a bad idea?
2. It hurts the "other side". Yes. Those evil big business types. Who loans the money out? We're all bashing those lenders for not lending even though the government bailed them out, but how on earth can we expect them to lend money when there's a good chance we may hit a major inflationary cycle? It's like asking people to hit themselves in the head with a hammer and then wondering why they wont do it. On a more small scale point, but one which matters to "the little people", it kills the dream of prosperity which presumably fuels most people to work harder than they would otherwise. The US worker is significantly more productive per hour worked because each one hopes to some day become wealthy. Maybe not "rich", but successful. When you go into that sort of inflationary cycle, you reduce the relative amount of debt, but you *also* reduce the relative amount of wealth. That's a crushing blow to the middle class. I suspect that's also why many on the left are ok with this. They don't see this as a negative thing, since they like class warfare and know that the best way to win control over the working class is to prevent them from becoming middle class (or force them back into the working class via processes like this).
It's a bad idea... Unless your intention is to extend the duration of the financial downturn, and work to eliminate the middle class. In that case, it's a great idea!