For those who don’t think this is a serious issue think again or decide in your New Years resolutions that you might think about taking up thinking. What we have been seeing here with Paulson is what may be the destruction of the United States by making its fiscal situation untenable. Its been one stimulus package after another. And yet none of these stimulus packages could have gone ahead but for the fallaciousness of the Keynesian multiplier and the foolishness of using Gross Domestic Product as the indicator of the level of economic activity.
But going further back then that. When George Bush first came in he figured he wanted to limit federal spending to 4% real growth per year. Ignoring the silly wording that means he was happy to jack up the already bloated spending by 4% per year. What kind of craziness is this? Its the craziness you get when you get your economics degrees from prestigious universities filled with morons who have fallen for the Keynesian multiplier. And of course the practice of spending was way worse than the theory.
The Keynesian multiplier and the incorrect use of Gross Domestic Product as a measure of economic activity form a self-reinforcing duo. I argued this case over at the Great Randi’s site. Now its one thing to read a straight explanation of Gross Domestic Revenue and why it is so vitally important. But its sometimes useful to see people arguing about it rather than just a straight description.
I’ll include some of my own posts from over there. Poor Randi. He probably doesn’t know what he’s done. He’s set up a blog that has become a citadel for the enemy. Its the stronghold of truest voodoo. As he keeps on writing his very good posts his young bully-boy morons feed “off the crumbs that fall from his table…” as they wage a never-ending war in favour of old fallacies and against new knowledge.
It may be that he is too old to recognize what is going on after all these years.
Keynes was completely wrong. One must SAVE to get out of a recession. While it is good for the economy for people to save at any time its critical during recessions for people to practice fiscal triage. For the government to cut spending, and for people to cut back also, in their own interests.
The reason for this is to devote as many resources as possible to business-to-business spending.
Looking at Gross Domestic Revenue we see that it is
G+ Gross I (ie business-to-business spending) + C + X -M.
We see that if real resources are going to government expenditure and to consumption that is less real resources to go into business refurbishment. Or spending within the business. And it is money spent internally from which wages are paid out of.
The same goes for savings. Savings are re-lent and that winds up being spent within business. So Keynes was wrong. In fact he was a complete idiot. He didn’t understand economics at all.
POST ii SOME OF THIS REPEATED FROM EARLIER IN THIS BLOG
I majored in economics. Yes the good reasons the Austrians are marginalized is that they are field slaves and not house slaves. The others are court-economists and are pretty useless although they have some sound predecessors like Friedman and Buchanan.
Gross domestic product scrupulously misses out all the spending that you need to know in order to be able to get out of the recession. Its perverse. Thats why people perceive the recession prior to the official one being announced. Business-to-business spending tanks first. But government and consumer spending only starts falling away when their is awesome amount of damage done and real distress is felt. Hence your recession really started probably around August 2007. But it wasn’t official until now.
If you could cut taxes on retained earnings and make up for the loss with massive government spending cuts, the private economy would recover almost immediately. We would see that since the resources would be directed to business-to-business spending. But funnily enough the recovery would not necessarily show up in the figures. In fact if you did things right the figures would be saying that things were going wrong.
You see with GDP they have it like this:
GDP = C+ net I + G + X – M
What is left out of these figures? What is left out is the one thing that you need to know. That is to say business to business spending. And supposing you cut government spending, business to business spending recovers and the recession is ended. But when you went to look at the figures you might add them up and see that GDP had reduced!!!!!!!!!!!!!
This is the crap state that mainstream economics is in at the moment.
There are other matters involved though. There are matters to do with debt levels, cash balances, the money supply and exports that have to be dealt with to begin business expansion from a healthy point of view.
“On another note, what is the exact mechanism by which an increase in G leads to a decrease in “inter-business spending.?”
Well you are going to have to pay for that government spending right? So if it comes from taxes thats less business spending. If it comes from borrowing thats less business spending too. And if it comes from money creation then thats more business spending but with less resources to those businesses so that inflationary and various bubbles will develop.