Comments on: Obama’s Keynesian Error

By: OBloodyhell

OBloodyhell — Fri, 02 Jan 2009 04:53:15 +0000

> Government could “prime the pump” of the economy by taking the saved (and thus static money) and spending it.

This might vaguely have had some value in the old days when paper money (or specie) was the dominant form of the money supply, you might actually have had some people who kept it — hoarded it — in reserve.

Nowadays, no rational person keeps large amounts of cash/specie on-hand. They keep most of their money in the bank, which means, if *you* aren’t investing it, then someone else IS investing it.

There’s no mattress people keep their money in, any more. So “priming the pump” makes little or no sense of any kind any more. The pump’s already there and running. It’s the valves which are stuck, if you want to retain the water analogy. How do you get the valve controllers to open them up?

I still think that the flow of money is still highly relevant, but not that it’s the only relevant issue towards a stable, balanced, and growing economy.

By: Bill Stepp

Bill Stepp — Thu, 01 Jan 2009 13:38:49 +0000

Jonathan,

IMO Keynes deserves plenty of blame. He advised Roosevelt II to “prime the pump” in 1937, and he is a major inspiration for the Krugmans and DeLongs of the world.

By: Shannon Love

Shannon Love — Tue, 30 Dec 2008 01:01:32 +0000

My analogy with the analog telephone was meant to convey the confusion between the movement of electricity down the wire and the changes in voltage that actually pass the information along. By analogy, a Kenesian would believe that to push more information down the wire, one would increase the current flowing through it. In reality, one increases the rate at which the voltage changes up or down.

People are exchanging information by exchanging money. You cannot move more information by creating the artificial movement of money. This is also why inflation and deflation do not work. They merely attempt to alter the transfer of money without attaching any particular information to it.

By: dre

dre — Mon, 29 Dec 2008 23:52:00 +0000

“a consulting electrician was engaged and recommended raising the transmission voltage”

Dr. Edward Whitehouse

By: sol vason

sol vason — Mon, 29 Dec 2008 22:06:20 +0000

“The movement of money allows people to communicate to one another the value they place on different economic activities.”

You have identified the invisible hand. Thank you. I never understood money until this moment. This means that a strong central government will always prevent a free economy from allocating resources so as to maximize each individual member’s utility. The stronger the government, the more deprivation the people must suffer, especially if the government is motivated solely by humanitarian goals.

By: david foster

david foster — Mon, 29 Dec 2008 19:54:29 +0000

“like a naive individual who discovered that phones lines carry information with electricity and then decided that if he pushed more electricity through the line he would convey more information”…something like this was actually tried during the early days of the Atlantic telegraph cable. Signals arriving at the other end were so weak that they couldn’t be read reliably…a consulting electrician was engaged and recommended raising the transmission voltage.

They burned out the cable.

By: C. Smith

C. Smith — Mon, 29 Dec 2008 19:01:44 +0000

Can you also distinguish a Tenth Amendment fallacy at work?
If the spending requirements originate from the Fed, but the tax details of funding them come from the states, I’d contend that there would be improved transparency and accountability, in stark contrast from the Cosmic Credit Card approach currently in use.
Forced to have a sane input/output model for the cash flows, we could even avoid cavitation on ye olde financial pump.
I know, it’s wishful thinking.

By: C. Smith

C. Smith — Mon, 29 Dec 2008 19:00:59 +0000

By: Jonathan

Jonathan — Mon, 29 Dec 2008 18:43:49 +0000

Yes. The rationale for Keynsian pump-priming is a variant of the broken-windows fallacy. It also confuses cause and effect: it assumes that businesses aren’t spending and investing because money and credit are tight, rather than asking whether the investment slowdown results from reduced incentives as might be created by increased taxes and a politically-driven climate of uncertainty.

Keynes shouldn’t get too much blame here. He was a shrewd and insightful man and might not have supported our current government’s grandiose spending plans. Unfortunately, some of his ideas are now routinely taken out of context and used as all-purpose rationalizations for increased government control of national spending.