The Government's Role in the Economy

[Salvation122]

This is not to say that the money Keynes posits should be spent in a recession should not be spent wisely, and it also requires that we, you know, cut back on unnecessary bullshit when times are good. Keynes isn't saying we should, for example, drive ourselves ridiculously into debt to pay for national healthcare (or a terribly mismanaged and largely unnecessary war, if you'd rather.)

I've been thinking a lot lately that perhaps part of the government's services toward its people should be moderation of the economic system; I'm still not sure it's a place I'd want to live, but I think a system in which the government takes the information we have about economics and acts on it. Why not, rather than spend our way out of recessions, act during the boom-and-bust cycle to moderate growth and temper losses, like the cruise control of a car applying more or less power to maintain speed.

But we can't do that, because no elected official ever got his job saying let's limit growth and try to achieve sustainable stability. Unless and until the populace begins thinking long-term, the elected officials aren't going to think long-term. That change will take time, and probably several more costly recessions.

This is actually exactly what's supposed to happen, and (broadly) what Keynes suggests. Economic fluctuations are inevitable, but actual Keynesian policy (which has never really been properly implemented, and are largely in line with what you propose above) is supposed to act kind of like a compressor in audio recording - smoothing out the peaks of a boom period and the troughs of a depression to keep them within a reasonable limit.

You do this through debt spending (additionally spurred by lower taxes) in the trough, and repaying that debt in the boom. Unfortunately, that means that in the boom period, you have to hike taxes and interest rates. Voters never, ever like hearing that their taxes will be going up (unless you do it very, very carefully and/or levy the bulk of the tax increase on a relatively small number of people - say, cigarette smokers, or the rich) and businesses hate having interest rates go up. This leads to debt spending in the troughs that never goes away, which can lead to a positive feedback-loop problems (zomg inflation and debt defaults!) on large enough timescales, or shorter ones if you incur so much debt that you have to monetize some of it.

It's worth noting that - without taking into account deductions, which only exacerbates the disparity - those in the top tax bracket are paying less in taxes under Obama's proposed tax hikes than they were under Reagan, Patron Saint of Conservatives. And those numbers weren't corrected for inflation - 175k (the number I used) was a lot more money thirty years ago.

[Serious Paul]

I wish i shared your confidence in an answer. Any answer.

[Salvation122]

This isn't an answer; it's a very rough sketch of a framework which could (should, if the theory works) provide an answer. It's the most astoundingly complex math problem anyone's ever contemplated. Economics damn near makes Schrodinger's Equations look like simple arithmetic, because all of a sudden you have to account for human agency, which is notoriously hard to quantify.

Keynes says we should spend money. He doesn't say how. Anything government spends money on intrinsically generates a shitload of new externalities that then have to be taken into account, and federal spending is tied to Congressional infighting over who's district gets contracts and such. It is, in fact, a giant pain in the ass to do this stuff competently, so it isn't. But people much, much smarter than me have largely concluded that it would work if it was done competently.

[Crazy Elf]

Well there's the problem. You have a very intricate machine in that needs very precise management, and the person that gets to run that machine is decided by a popularity contest.

[Salvation122]

Well there's the problem. You have a very intricate machine in that needs very precise management, and the person that gets to run that machine is decided by a popularity contest.

Well, most of that is handled by Congress, not the President, so it's actually five hundred and thirty-eight popularity contests. But yes.

[Crazy Elf]

Same here, although not to the same magnitude (and it's a senate that passes the laws, ultimately). For the most part it works out okay here until fuckwits like Steve Fielding get involved (a born again fucktard that thinks he's much more important than he is), but there's still the problem of maintaining government. We had ten years of a guy who's biggest claim to fame before he had the top job was that he was the worst treasurer in the history of this country, and that didn't work out so well. Major economic boom for Australia, and the fucking shit-tard goes and SPENDS ALL THE FUCKING MONEY. Sure, there's a surplus in the end, but not nearly as large as it should have been if he had a brain, which clearly he was never blessed with.

Economic boom = big surplus budgets

Economic bust = big deficit budgets

If you don't save during the boom, you're fucked. If you're only in office for a few years, why save? No one will like you if you horde all the cash, and you need to get re-elected.

Democracy has its limits. That limit is about three people.

[Marius]

You do this through debt spending (additionally spurred by lower taxes) in the trough, and repaying that debt in the boom. Unfortunately, that means that in the boom period, you have to hike taxes and interest rates. Voters never, ever like hearing that their taxes will be going up . . .

Well there's the problem. You have a very intricate machine in that needs very precise management, and the person that gets to run that machine is decided by a popularity contest.

See, this is a very common mistake. This is NOT a machine that requires precise management. In fact, it should require very little management at all. Progressive income taxes and social programs naturally produce deficit spending in hard times and surplus in booms if they're left alone. Hard times mean fewer tax receipts and more people getting unemployment and welfare. Good times mean more tax receipts and fewer people needing unemployment and welfare. The machine really only needs tiny bits of tuning very, very infrequently, and it's attempts to actively manage it that cause most of the problems.

[Crazy Elf]

See, this is a very common mistake. This is NOT a machine that requires precise management. In fact, it should require very little management at all. Progressive income taxes and social programs naturally produce deficit spending in hard times and surplus in booms if they're left alone. Hard times mean fewer tax receipts and more people getting unemployment and welfare. Good times mean more tax receipts and fewer people needing unemployment and welfare. The machine really only needs tiny bits of tuning very, very infrequently, and it's attempts to actively manage it that cause most of the problems.

Like hell. Society advances all the time and new issues spring up that need to be dealt with. If you don't adjust things to an ever changing environment you totally fuck your country. Governments pay for more than just social programs.

[WillyGilligan]

Funny enough, PBS is running a documentary miniseries called the Ascent of Money. Not too much yet on government involvement, but I think it's coming.

[Marius]

Like hell. Society advances all the time and new issues spring up that need to be dealt with. If you don't adjust things to an ever changing environment you totally fuck your country. Governments pay for more than just social programs.

Of course, and I've suggested adjustment, as the decades roll by, to account for changes in society.That's different from "precise management," done season to season by politicians

[Crazy Elf]

Like hell. Society advances all the time and new issues spring up that need to be dealt with. If you don't adjust things to an ever changing environment you totally fuck your country. Governments pay for more than just social programs.

Of course, and I've suggested adjustment, as the decades roll by, to account for changes in society.That's different from "precise management," done season to season by politicians

Issues can spring up within days rather than within spending seasons. The world is far too dynamic for things to be left alone, or even left alone with minimal adjustments. On top of that this is really just supporting the whole, "The democratic process fucks up economic management," that I originally made.

[WillyGilligan]

Like hell. Society advances all the time and new issues spring up that need to be dealt with. If you don't adjust things to an ever changing environment you totally fuck your country. Governments pay for more than just social programs.

Of course, and I've suggested adjustment, as the decades roll by, to account for changes in society.That's different from "precise management," done season to season by politicians

Issues can spring up within days rather than within spending seasons. The world is far too dynamic for things to be left alone, or even left alone with minimal adjustments. On top of that this is really just supporting the whole, "The democratic process fucks up economic management," that I originally made.

Could you give a fer'instance? I'm just not able to see a fast moving issue that a government agency can realistically respond to within days. The biggest advantage I'm seeing to government intervention is the smoothing that we were talking about. Providing a framework that helps to check panic (insuring bank deposits), to occasionally discouraging some less desirable elements of the market (antitrust law), that sort of thing.

[Serious Paul]

Elf you're not worried about making things too easy to change?

[Crazy Elf]

Could you give a fer'instance? I'm just not able to see a fast moving issue that a government agency can realistically respond to within days.

Bushfires, for example. Within a few days the state and federal government had come up with funding for the affected families, as well as allocated resources and the like. On top of that pretty much all of Australia chipped in. Fact is it happened fast, and it was a big dip into resources. Crisis situations require this sort of thing. We gave out funding for the Indonesian tsunami, too, and lots of it. Military intervention for East Timor, New Guinea and the Solomon Islands, that all costs money. Also bailout money, which was handed out pretty quickly. The bailout money worked pretty well in Australia, and actually stopped us going into recession. It also happened pretty quickly. The ban on naked short selling and short selling in general in the stock market to prevent stocks being forced down in price.

All of that cost money, and decisions needed to be made quickly regarding them.

The biggest advantage I'm seeing to government intervention is the smoothing that we were talking about. Providing a framework that helps to check panic (insuring bank deposits), to occasionally discouraging some less desirable elements of the market (antitrust law), that sort of thing.

But government money isn't just used to push forward the economy. It's supposed to be used to build the country in every aspect rather than just in terms of GDP. If you're only worried about GDP, you may as well take over the country with military force and start dealing with China. They LIKE having to deal with military dictatorships, because at least they're constant and not shifting about like democratic systems, which change leadership like the wind.

Elf you're not worried about making things too easy to change?

Not really. There can be the capacity for easy change that still has to operate within a mandate. If you call the police you expect them to come over quickly, and you also expect them to respond in a certain way. If they came in a clown car and started making balloon animals on your front lawn there's a good chance that they wouldn't have the job for long.

[Salvation122]

Could you give a fer'instance? I'm just not able to see a fast moving issue that a government agency can realistically respond to within days.

Bushfires, for example. Within a few days the state and federal government had come up with funding for the affected families, as well as allocated resources and the like. On top of that pretty much all of Australia chipped in. Fact is it happened fast, and it was a big dip into resources.

The answer to that is to allocate a certain amount for disaster spending every year, and put whatever doesn't get used into a trust that can make up shortfalls later.

A better example would have been August 29, 1949.

Also bailout money, which was handed out pretty quickly.

And this.

[WillyGilligan]

Could you give a fer'instance? I'm just not able to see a fast moving issue that a government agency can realistically respond to within days.

Bushfires, for example. Within a few days the state and federal government had come up with funding for the affected families, as well as allocated resources and the like. On top of that pretty much all of Australia chipped in. Fact is it happened fast, and it was a big dip into resources. Crisis situations require this sort of thing. We gave out funding for the Indonesian tsunami, too, and lots of it. Military intervention for East Timor, New Guinea and the Solomon Islands, that all costs money.

I'm sorry. I thought we were discussing the government stepping in to manage the economy, as in the Keynesian plan of counter-cycle spending or regulation of business practices. Like Sal said, the brushfires can be handled with disaster funds without actually tinkering much with the economy directly

Also bailout money, which was handed out pretty quickly. The bailout money worked pretty well in Australia, and actually stopped us going into recession. It also happened pretty quickly. The ban on naked short selling and short selling in general in the stock market to prevent stocks being forced down in price.

This is more what I was talking about.

The biggest advantage I'm seeing to government intervention is the smoothing that we were talking about. Providing a framework that helps to check panic (insuring bank deposits), to occasionally discouraging some less desirable elements of the market (antitrust law), that sort of thing.

But government money isn't just used to push forward the economy. It's supposed to be used to build the country in every aspect rather than just in terms of GDP.[/quote]

I agree with the above, but we were talking about the economy. How it relates to the other functions of government is certainly an important topic, but it's going to be difficult to handle all of it at once. That said, a country with a thriving economy has more resources to deal with most of these emergency situations you listed. Pushing GDP has it's advantages.

[Crazy Elf]

I'm sorry. I thought we were discussing the government stepping in to manage the economy, as in the Keynesian plan of counter-cycle spending or regulation of business practices. Like Sal said, the brushfires can be handled with disaster funds without actually tinkering much with the economy directly

It's actually related. Due to the massive investment of government money after Black Saturday the economy picked up. Houses need to be rebuilt, environmental consultants need to be consulted, fire fighting specialists need a boost in funding, demolition experts need to clear the way for further building, and so on. Hell, even publishers are getting a kick because of this. The money that went into the aftermath of that disaster has actually kicked the economy along nicely.

On top of that money that's allocated to disaster relief isn't always enough to deal with the severity of some of the problems that crop up. More money than is allocated is often necessary.

New Orleans, anyone? How long has that been fucked up for? How much more would the US economy kick along if money were allocated to the rebuilding of the city? Guaranteed work, and lots of it, and a gravy train to boot. It would thrive. As it stands it's a disgusting stain from an overall disgusting rein in US history.

[WillyGilligan]

To me, using taxpayer money for disaster recovery, or the military, or maintaining historical monuments aren't tinkering with the economy. You do them for a primary purpose, and there are secondary economic effects. We use those resources regardless of the potential economic benefit. Compared to things like the bailouts, where we're spending the money in order to shape the economy and theoretically avert disaster.

New Orleans isn't a simple issue. That was the kind of disaster that reshapes a society. Even if we had every building rebuilt today. You'd still have people that wouldn't want to return, either because the place no longer feels like a safe home to them or simply because they've built a new life elsewhere in the time it takes to rebuild a city. There's also the question of whether it makes sense to rebuild this city that was already sinking before the storm hit.

I guess what I'm saying is that deficit spending is sometimes necessary, even in societies where the government stays out of economic management.

[3278]

New Orleans, anyone? How long has that been fucked up for? How much more would the US economy kick along if money were allocated to the rebuilding of the city? Guaranteed work, and lots of it, and a gravy train to boot. It would thrive.

This is absolutely correct. Resources would pour into the area from all over the nation, distributed in the fairest way we know how - that's what the tax schedule is for, after all - and into the local economy. Hell, we wouldn't even have to do this in a destroyed town: pick a locality, and dump money - which means resources, human or physical - from everywhere else into this place. Normally this is done in exchange for goods and services, but to simply enrich a single location, dump money into it without asking for anything back!

But your choice of location to moneydump is crucial if you actually do want something back. If we had to pick a locality to dump money into that would give us the best eventual return for the lowest possible investment, is New Orleans the best place to put it? Is there not an argument to be made for choosing somewhere that's less expensive for us to keep safe most of the time, and to rebuild when our safety measures fail, as assuredly they sometime will?

There's another way to look at this, too. While we could take a little from everyone, and give lots to a few people in dire need, wouldn't the better solution be to simply take money from those who can spare it, and give it to those that need it? Screw this namby-pamby indirect stuff, where we give jobs to the unemployed to build a place that's broken, why don't we just take money from those who have the most, spend some of it on necessary infrastructure and services, and give the rest to the people who need it most?

In other words, why invest only during a bailout, to dig yourself out of the hole you're in? Why not avoid the hole altogether by just constantly redistributing wealth from the haves to the have-nots, with government services paid in-between?

[Salvation122]

In other words, why invest only during a bailout, to dig yourself out of the hole you're in? Why not avoid the hole altogether by just constantly redistributing wealth from the haves to the have-nots, with government services paid in-between?

Because all the "haves" find ways to shelter their money or otherwise get the fuck out to somewhere that isn't effectively a command economy.