Economics

[Xel]

So I've been reading more about Economics lately. Up until this point the only kind of economics I really knew was the small amount you learn in school and Marxian Economics. I decided that was too little information and too few perspectives to build coherent political or other views on. So right now I seem to be getting information from the main neoclassical and Keynesian economics. Avoiding the more politically charged Austrian and Marxian varieties right now. So I ask you are there any particular economic schools you like/investigate and what are your economic beliefs? Right now I still think of things from a Marxist perspective but really I'm just learning what I can now.

 

[Razare]

Well my economic knowledge is from undergrad college, where I took the basic macro-economics and micro-economics classes.

These classes completely transformed my political perspective away from socialist towards a smaller-government view. It was primarily macro-economics class that shaped my view, and it was taught by a Keynesian economist, which could be construed as ironic.

I generally agree with the Keynesian economic view in a recession, the problem is I do not agree with the politicians implementing it, which causes me to lean towards the smaller government stance.

From my view, it comes down to what are you focusing on, economic theory or economic reality?

When dealing with just theory, you don't have politicians abusing your concepts for their own gain. Yet the political aspect is part of any economic reality.

It's like the Keynesian stimulus package that was 800 billion, well it really didn't have that much infrastructure spending, which was supposed to be what put people back to work. Instead, it funneled money to police, fire stations, and schools. Then there's the fact that the 800 billion was spread out over too long of a period, so it's more like an IV drip, rather than a shot.

I think most Keynesian economists would see it this way too, which makes you realize that the stimulus was just congressional fun money conveniently categorized under Keynesian economics, which gave them an excuse to spend that much.

 

[Razare]

Oh, and I know how government should ideally manage the economy. The thing is, I would never trust them to actually manage it this way. I would go so far as to say it is utterly impossible without a new form of government that has yet to be invented.

- Capitalism with minimalist regulation, and basic social programs that are fully funded.

- Independent central bank, that focuses solely upon monetary policy. The central bank does take into account full employment and GDP growth into its monetary policy, cutting rates during a recession.

- Economists determine average GDP growth, and taxes are set to take in profits during good times. The profits are stored in reserve and may not be spent until GDP falls into a slow or negative growth period. This cushions government spending so it doesn't require drastic cuts every recession.

- Taxes during good times should build-up a reserve of capital purely for stimulus spending for when the next major recession comes. This account would be a certain size, and once that size is exceeded, the left-overs would be remitted to the people. The tax would resume during the next economic boom. Stimulus may take the form of government spending, tax cuts, or simply writing checks to everyone.

- The government does not borrow money unless it is a world war in which its sovereignty is threatened.

- Companies of a certain size, have to have special regulatory requirements assessing what sort of damage they might cause the macro-economy. Breaking-up financial or insurance companies that are too large is a possibility.

There you go, if any government managed its economy in this fashion, it would be a beacon of stable economic growth. There would still be the occasional massive economic failure, you can never eliminate those, only reduce their incidence.

 

[Reverse Transcriptase]

Austrian economics ALL THE FUCKING WAY.

Keynesian economics is retarded for it's opinion that it can spur the economy in a recession or depression by spending more.

To spend more you gotta tax more, so it's a zero-sum game. Take into account that politicians use keynesian economics as reasoning for passing bad laws and creating bad programs that, under normal business circumstances, would not be passed. But because it's a recession, they can argue that it will help grow the economy!

The idea of spending more during a recession to help the economy isn't totally bunk, i guess, the main problem is that government never stops itself from growing, and we're already at an enormous debt.

^Razare, one of the problems with "rainy day funds" is that they get attacked too quickly, and create the impression to the government of much more security than there actually exists for their bloated programs.

I also, I think I take it back, spending more during recession doesn't sound like a good idea. I mean, because then you have to tax before or after the recession. I'd rather not have to worry about the money-for-recession fund doesn't hurt economic growth before or after.

Besides, politicians still suck at deciding the best way to spend money. The taxpayers are better at it. We simply have more people making more decisions that are crucial at their level.

 

[Razare]

I also, I think I take it back, spending more during recession doesn't sound like a good idea. I mean, because then you have to tax before or after the recession. I'd rather not have to worry about the money-for-recession fund doesn't hurt economic growth before or after.

What you're doing is attempting smooth out economic growth. So each high will not be as high, but each low will be shallower. Monetary policy goes a long way towards smoothing things out. This is why there hasn't been a depression since the Great Depression. Yet there's a time when monetary policy fails, we reached this juncture recently. The Federal Reserve lowered interest rates to 0% (which actually means less than 0.25%). Monetary policy can do little more other than modifying reserve requirements, and if this doesn't spur economic growth, your country is stuck in a depression. Keynesian policy was developed specifically for circumstances in which monetary policy could do no more.

In the real world, under a democracy, Keynesian policy cannot be implemented correctly, that's why I put that nice disclaimer right at the top. Nothing can be implemented correctly in a democracy, unless it is dumb luck, that's why I lean towards smaller government with less power. Basically, all the views I illustrated on what should be done, are impractical considering the nature of government.

 

[Razare]

Also, I think there's a good example for Keynesian economics working. Not here, but in China. When their economy started to tank along with the world's they implemented a stimulus plan with larger infrastructure spending and spent more money quicker.

This has caused reflation in commodity prices which are consumed by China and it would seem to me that their next phase of growth is just beginning. It's all about overcoming the propensity of the consumer to save instead of spend when the economy turns for the worse. This fear mechanism is utterly irrational and if left totally unchecked, yields unacceptable results that may in fact risk the sovereignty of governments.

Still, it's not something the US should be doing with borrowed money and little means to repay that money. We're a democracy, China is not. China can implement policies with an efficiency no democracy can match; an authoritarian government run properly is a dreaded power to behold.

 

[del]

My understanding is that calling a modern economist "Keynsian" is a bit of an anachronism, sort of like accusing a physicist of being "Newtonian." Everyone recognizes the limitations of Newton's view of physics, even if it is roughly correct under certain circumstances. Same with economics. This is why many of the criticisms against modern "Keynsian" economic theory are irrelevent.

I'd also point out that many (most?) of the so-called Keynsian economists are vehnemently against Obama's version of the stimulus, although they aren't against a stimulus in principle like the Austrians are. It's not that "Keynsian" vs. "heterodox" can be equated with pro- and ant-government, respectively. It is not that simple.

Also, why the heck are Austrian theories so popular all of a sudden? They've always seemed silly and don't make sense to me, but whatever.

That said I generally agree with Razare, although I suspect I'd have a slighty broader definition of "minimal regulation." I'm also very much for certain social programs like health care and education, and do believe the government has a place in providing certain public goods and those that are natural monopolies.

If the OP is interested in various "schools of thought" on economics, I've always found the literature in anthropology concerning economics to be more interesting than economics itself, although it doesn't really offer a theoretical system as much as it highlights the problems inherent in attempting to come up with a normative economic theory.