A Form of Fiscal Stimulus That Could Work?

[krazy_kaju]

I think most forms of fiscal stimulus are absurd because of these reasons:

1. Every cent the government spends has to be taken from the private sector in some form - it either has to be taxed, borrowed, or printed. In either case, firms and households are left with less money (or wealth) to spend. Thus, at best, government spending would do very little to stimulate the economy. Some mainstream economic studies back this up by showing only a 1.1 or 1.2 multiplier from spending stimulus (though some other ones show multipliers below 1, meaning that spending stimuli are unpractical).
2. Ricardian Equivalence - Because firms and households could expect higher taxes in the future from deficits, some of them would move around and halt some profit making activities while stashing away more cash.

Overall, I think that traditional spending stimulus in the forms of pointless public works such as repairs of public roads, bridges to nowhere, highways in the middle of nowhere, etc. is harmful. It seems to me, though, that some forms of fiscal stimulus could boost economic growth if and only if they manage to somehow increase profitability of firms.

One idea I have is a fiscal stimulus that focuses on the building of renewable energy power plants like solar-thermal, solar panel, wind, and geothermal power plants. If the government built such plants and then handed them over to private companies to run and manage, the consumers’ electricity bill would actually fall, since the vast majority of the cost of renewables is the intitial capital costs of the building. In such a case, the power plant would create jobs and earn a profit, while businesses and consumers would have lower electricity bills, making it possible for consumption on other goods as well as saving/investment to increase.

Another idea I have that I think I have posted here about before is the government helping with the construction of office buildings or factories or other productive buildings. They could be given away or sold at a discount. Since the construction of such capital goods would lower costs on certain businesses, these businesses would be able to hire more workers and produce more goods than otherwise.

In both of these cases, I think a fiscal spending stimulus could work.

Now don’t get me wrong; I’m still very much anti-government. A free market wouldn’t create the need for any kind of stimulus and, besides, I view government as being an immoral institution. But what are your opinions about this?

[Esuric]

@krazy kaju

One idea I have is a fiscal stimulus that focuses on the building of renewable energy power plants like solar-thermal, solar panel, wind, and geothermal power plants. If the government built such plants and then handed them over to private companies to run and manage, the consumers’ electricity bill would actually fall, since the vast majority of the cost of renewables is the intitial capital costs of the building. In such a case, the power plant would create jobs and earn a profit, while businesses and consumers would have lower electricity bills, making it possible for consumption on other goods as well as saving/investment to increase.

“Green” technology is inefficient and extremely expensive, which is why society is not yet willing to allocate scarce resources towards such unremunerative employments. Basically, your argument is that the government should take resources away from businessmen who are driven by the profit motive (aka the demand for efficiency and responsiveness to consumer preferences) and redirect it (resources) towards technology with extremely low marginal productivity via subsidies. When oil fat became scarce, and when its prices went through the roof, entrepreneurs invented Kerosine–no government intervention required. I’m not even going to mention the fact that the government would probably inflate in order to finance this nonsensical proposal, which would set off the ABC, and all of its consequences.

@krazy kaju

Another idea I have that I think I have posted here about before is the government helping with the construction of office buildings or factories or other productive buildings. They could be given away or sold at a discount. Since the construction of such capital goods would lower costs on certain businesses, these businesses would be able to hire more workers and produce more goods than otherwise.

Consumers know what they want, and the politicians don’t. Entrepreneurs, who are trying to gain market share (satiate consumer demand) will allocate scare resources via the price mechanism and competition. The government doesn’t know how to produce factories, nor is it regulated by market prices and competition. Your plan would force savings and stimulate the affects of cyclical downturns (scarcity of consumption goods) while skipping the boom phase (permanent bust). The government cannot create something out of nothing, nor can it allocate with any degree of efficiency.

@krazy kaju

In both of these cases, I think a fiscal spending stimulus could work.

Put down Marx and pick up Mises.

[krazy_kaju]

@Esuric

“Green” technology is inefficient and extremely expensive, which is why society is not yet willing to allocate scarce resources towards such unremunerative employments.

The reason why it is so expensive is mainly because of the initial capital costs of construction renewable energy power plants. Maintenance and labor costs for these are relatively low and there are no fuel costs (after all, the sunlight, wind, water flow, and underground heat are free). So if the government funded the construction of such a power plant out of its own pocket, then that power plant would be able to produce energy cheaper than other plants, thereby reducing the energy costs that burden households and businesses in the area that the plant operates in.

Basically, your argument is that the government should take resources away from businessmen who are driven by the profit motive (aka the demand for efficiency and responsiveness to consumer preferences) and redirect it (resources) towards technology with extremely low marginal productivity via subsidies.

Not direct subsidies, but yes, subsidies nonetheless.

And yes, it would direct money away from the private sector and towards the government. The catch here is that it wouldn’t drive out private investment on a 1:1 ratio. Firstly, it the borrowing that would finance the deficit would crowd out both investment and consumption, meaning that investment by itself would not be crowded out on a 1:1 ratio. Secondly, the lower energy costs to consumers would actually boost consumer spending and business investment.

When oil fat became scarce, and when its prices went through the roof, entrepreneurs invented Kerosine–no government intervention required.

I’m not arguing in the nonsensical belief of having government trying to solve some made up “energy crisis” by investing in green technologies. I’m talking about government stimulating the economy by directly intervening to lower energy cost by bolstering the supply of energy.

I’m not even going to mention the fact that the government would probably inflate in order to finance this nonsensical proposal, which would set off the ABC, and all of its consequences.

Printing money doesn’t necessarily follow from deficit finance.

@Esuric

Consumers know what they want, and the politicians don’t. Entrepreneurs, who are trying to gain market share (satiate consumer demand) will allocate scare resources via the price mechanism and competition.

Agreed.

@Esuric

The government doesn’t know how to produce factories

Somehow, it manages to get office buildings for its workers, prisons, roads, and other government buildings/structures built. It’s called private contracting.

@Esuric

nor is it regulated by market prices and competition.

I never argued that there would be zero inefficiencies.

@Esuric

Your plan would force savings and stimulate the affects of cyclical downturns (scarcity of consumption goods) while skipping the boom phase (permanent bust).

My plan wouldn’t force anything. The government would borrow money (preferable to taxation, since it is voluntary) and then spend it on construction a power plant (or multiple power plants). This would lower energy costs, thereby boosting consumer spending and business investment. Of course, government would then have to extract tax money by force, which I still view as immoral, but I don’t think it can be argued that this entire plan wouldn’t help with economic growth. And as all plans, this plan would face it’s limits. As most economists agree, a mistimed stimulus would do nothing but redistribute wealth.

@Esuric

The government cannot create something out of nothing

I’m not arguing for the creation of something out of nothing.

nor can it allocate with any degree of efficiency.

I’m also not arguing that the government should be allocating resources instead of the private sector. I am arguing that certain types of fiscal stimulus can be successful if and only if they improve business profitability in the long term.

@Esuric

Put down Marx and pick up Mises.

1. Been there, done that. I read Mises and Rothbard along with my Econ 5050 textbook.
2. Thanks for replying to my thread.

[Esuric]

@krazy kaju

The reason why it is so expensive is mainly because of the initial capital costs of construction renewable energy power plants. Maintenance and labor costs for these are relatively low and there are no fuel costs (after all, the sunlight, wind, water flow, and underground heat are free). So if the government funded the construction of such a power plant out of its own pocket, then that power plant would be able to produce energy cheaper than other plants, thereby reducing the energy costs that burden households and businesses in the area that the plant operates in.

The initial costs and maintenance costs are enormous. The silicon crystals are grown too slowly, and it costs too much to produce them with perfect clarity, which is what solar panels need in order to capture light. This means that the solar panel producers have to pay an enormous sum for functional silicon crystals, or less (but still a lot) for flawed inefficient ones. But the biggest problem is that customer service takes forever–it’s extremely centralized. When something breaks down there’s enormous downtime, which kills capital intensive businesses. It’s simply not profitable, which is why profit-maximizing producers and home owners don’t invest in it.

@krazy kaju

And yes, it would direct money away from the private sector and towards the government. The catch here is that it wouldn’t drive out private investment on a 1:1 ratio. Firstly, it the borrowing that would finance the deficit would crowd out both investment and consumption, meaning that investment by itself would not be crowded out on a 1:1 ratio. Secondly, the lower energy costs to consumers would actually boost consumer spending and business investment.

It would do more than drive out private investment: (a) It would consume scarce resources and allocate it to inefficient costly technology (which the government would pay too much for, since it’s not bound by the profit motive), and (b) increased taxes means capital flight and general stagnation. Gas, coal, and nuclear energy are far more efficient (provide much more energy per dollar).

@krazy kaju

My plan wouldn’t force anything. The government would borrow money (preferable to taxation, since it is voluntary) and then spend it on construction a power plant (or multiple power plants). This would lower energy costs, thereby boosting consumer spending and business investment. Of course, government would then have to extract tax money by force, which I still view as immoral, but I don’t think it can be argued that this entire plan wouldn’t help with economic growth. And as all plans, this plan would face it’s limits. As most economists agree, a mistimed stimulus would do nothing but redistribute wealth.

Look up “forced savings.” If this plan was financed by taxes instead of inflation it would immediately bring about a depression.

@krazy kaju

Somehow, it manages to get office buildings for its workers, prisons, roads, and other government buildings/structures built. It’s called private contracting.

Do you think this actually helps your argument? Do you know how inefficient the government is when it comes to infrastructure? It over-pays, gives the jobs to unions, and doesn’t care about quality, which is why our infrastructure is in such a mess.

@krazy kaju

Printing money doesn’t necessarily follow from deficit finance.

Sure it does. The welfare state is financed by the FED. Do you know how the FED operates, or why it exists?

@krazy kaju

1. Been there, done that. I read Mises and Rothbard along with my Econ 5050 textbook.

Are you familiar with the socialist calculation debate? The role of the price mechanism and profit motive? Your economic textbook was probably written by some idiot welfare economist, who believes utility can be cardinally measured, and has never heard of dynamic efficiency (as opposed to static surplus analysis).

[krazy_kaju]

@Esuric

The initial costs and maintenance costs are enormous.

And for the nth time, the entire point of this fiscal stimulus is that the initial costs would be paid by government. That would provide the traditional fiscal stimulus of employing workers for the project and increasing the profitability of the firms involved in construction on top of the long-term fiscal stimulus of lower energy costs for households and firms. And though the maintenance costs are significant, they are cheap compared to maintenance + fuel costs for oil and gas power plants.

The silicon crystals are grown too slowly, and it costs too much to produce them perfectly clear, which is what solar panels need in order to capture light. This means that the solar panel producers have to pay an enormous sum for functional silicon crystals, or less (but still a lot) for flawed inefficient ones.

1. There are other forms of solar energy (e.g. solar thermal) that do not use photovoltaics.
2. I’m not talking about only solar energy, but also about other forms of renewable energy (e.g. wind, geothermal, hydro, possibly even nuclear) which have high initial costs but relatively low long-term costs.
3. The costs of the photovoltaics would be on government since those would comprise the initial costs.

@Esuric

But the biggest problem is that customer service takes forever–it’s extremely centralized. When something breaks down there’s enormous downtime, which kills capital intensive businesses. It’s simply not profitable, which is why profit-maximizing producers and home owners don’t invest in it.

Solar power plants get around this by having back up generators which can quickly be turned on or off, based on need.

@Esuric

It would do more than drive out private investment. It would consume scarce resources and allocate it to inefficient costly technology (which the government would pay too much for, since it’s not bound by the profit motive), and would raise taxes on businesses, causing capital flight and general stagnation.

First off, you’re saying “it would do more than drive out private investment; it would drive out private investment.” Any familiarity with modern economics would inform you that the phrase crowding out applies to both the crowding out by borrowing and/or taxing and the crowding out caused by consumption of scarce resources.

Secondly, there would be a net benefit since the result would be lower energy costs. So though the deficit would have to be eventually paid at interest, the households and firms in question would have a net benefit from a net increase in disposable income.

@Esuric

Gas, coal, and nuclear energy are far more efficient (provide much more energy per dollar).

Coal is amazingly cheap and I’m strongly in favor of bringing it back in force by slashing regulations. That said, none of that repudiates what I’ve said so far. To summarize:

1. The vast majority the price of renewable energy comes from initial capital costs.
2. By taking the initial capital costs upon itself, the government could stimulate the economy by permanently reducing energy costs.

@Esuric

Sure it does.

Nope.

The welfare state is financed by the FED.

So? That doesn’t mean that deficit financing has to be financed through credit expansion or money printing.

@Esuric

Do you know how the FED operates, or why it exists?

Yes. And that is completely irrelevant to the content of this thread. But if you wish to drown out your own arguments by switching subjects, please, go ahead. Be my guest.

@Esuric

Look up “forced savings.”

I’m already familiar with the term. If you thought I became a mod by fooling around, you are severely mistaken.

If this plan was financed by taxes instead of inflation it would immediately bring about a depression.

I’m not saying it should be financed by either taxes or inflation. Deficit financing during the bust followed by taxes to pay off the debt. In net, the taxes would not have to be raised as significantly, since tax revenues would naturally increase from the growth that would occur due to greater disposable income from lower energy costs.

@Esuric

Do you think this actually helps your argument? Do you know how inefficient the government is when it comes to infrastructure? It over-pays, gives the jobs to unions, and doesn’t care about quality, which is why our infrastructure is in such a mess.

The majority of these inefficiencies come from maintenance. The government would have no role in maintenance, as the power plant(s) would ultimately be run by private businesses. In any case:

1. I never said that the fiscal stimulus should be carried out under current U.S. laws which mandate high gov worker pay.
2. There are ways to lessen government inefficiencies.
3. I never denied that there would be at least some inefficiencies.

@Esuric

Are you familiar with the socialist calculation debate?

Yes. You haven’t posted enough on these boards to know, but I have gone onto revleft to argue with leftists over the socialist calculation debate and I answer questions posed here about it. I have a copy of Socialism on my bookshelf which I have read (unlike some, who like to buy books but never read them - and I’m not insinuating that you’re one of those people - I’m just saying I find that really annoying).

@Esuric

The role of the price mechanism and profit motive?

No shit, Sherlock. Do you think Jon would choose someone for mod who doesn’t? Do you even know who Jon is?

@Esuric

Your economic textbook was probably written by some idiot welfare economist, who believes utility can be cardinally measured, and has never heard of dynamic efficiency (as opposed to static surplus analysis).

1. My point was that I have an understanding of both Austrian school and mainstream economics.
2. My textbook was written by my macro professor, who is actually a very smart man and relatively pro-free markets compared to the modern mainstream (he’s a Friedmanite). He’s offered to help set up a libertarian organization on campus.
3. There’s such a thing as good economics and bad economics. You can continue being condescending and you can continue throwing around straw men and ad hominems in order to mask my arguments, but the rest of us here on this board are interesting in advancing the Austrian school of economics as well as the science of economics in general.

[Esuric]

Re-read my last comment, because I responded to your edits. I don’t want to bounce around.

[Stranger]

@krazy kaju

One idea I have is a fiscal stimulus that focuses on the building of renewable energy power plants like solar-thermal, solar panel, wind, and geothermal power plants. If the government built such plants and then handed them over to private companies to run and manage, the consumers’ electricity bill would actually fall, since the vast majority of the cost of renewables is the intitial capital costs of the building. In such a case, the power plant would create jobs and earn a profit, while businesses and consumers would have lower electricity bills, making it possible for consumption on other goods as well as saving/investment to increase.

Another idea I have that I think I have posted here about before is the government helping with the construction of office buildings or factories or other productive buildings. They could be given away or sold at a discount. Since the construction of such capital goods would lower costs on certain businesses, these businesses would be able to hire more workers and produce more goods than otherwise.

Well the devil is in the details, as always. How do you decide which technologies to pick, where to build them, how many? This can either be decided by entrepreneurs or bureaucrats. Bureaucrats are not interested in efficiency or profit. That is the economic calculation problem.

[krazy_kaju]

@Stranger

Well the devil is in the details, as always. How do you decide which technologies to pick, where to build them, how many? This can either be decided by entrepreneurs or bureaucrats. Bureaucrats are not interested in efficiency or profit. That is the economic calculation problem.

Yeah, I admit there are some inefficiencies, but I think that, overall, these inefficiencies wouldn’t be enough to take away the net positive impact of the stimulus completely, though those inefficiencies would certainly reduce the overall impact. There could be some possible ways to at least reduce the overall inefficiencies - e.g. contracting with energy companies to find a good location to place the power plant(s) and contracting with various private firms for the construction.

[Stranger]

@krazy kaju

Yeah, I admit there are some inefficiencies, but I think that, overall, these inefficiencies wouldn’t be enough to take away the net positive impact of the stimulus completely, though those inefficiencies would certainly reduce the overall impact. There could be some possible ways to at least reduce the overall inefficiencies - e.g. contracting with energy companies to find a good location to place the power plant(s) and contracting with various private firms for the construction.

By “contracting” you mean the same process where the governments “contracts” for weapons, logistics, prisons and so on?

[krazy_kaju]

@Stranger

By “contracting” you mean the same process where the governments “contracts” for weapons, logistics, prisons and so on?

Yes. And yes, it isn’t perfect, but at least it’s better than having the government do all of it on its own.

[Esuric]

@krazy kaju

And for the nth time, the entire point of this fiscal stimulus is that the initial costs would be paid by government.

And where will the government get the resources to finance such a costly/nonsensical plan? Magic? You should read this guy named Bastiat.

@krazy kaju

That would provide the traditional fiscal stimulus of employing workers for the project and increasing the profitability of the firms involved in construction on top of the long-term fiscal stimulus of lower energy costs for households and firms.

It will increase the profitability of firms by taking resources away from them, increasing the cost of capital, lowering the productivity of labor, and for what? For technology which is less productive than its well-established cheap competitors?

@krazy kaju

And though the maintenance costs are significant, they are cheap compared to maintenance + fuel costs for oil and gas power plants.

First of all, they aren’t cheaper. But even if we ignore this, you ignore the cost of time. When something breaks down, they have to call the manufacturer, wait for them to arrive, all while fixed costs are mounting and productions comes to a stand still. The cost of time + the cost of maintenance is enough to make this investment unremunerative, even if the government steals from the private sector and gives it to individual firms.

@krazy kaju

1. There are other forms of solar energy (e.g. solar thermal) that do not use photovoltaics.
2. I’m not talking about only solar energy, but also about other forms of renewable energy (e.g. wind, geothermal, hydro, possibly even nuclear) which have high initial costs but relatively low long-term costs.

Wind and hydro are fine, but they need to be located near areas with powerful wind and water currents. Does your plan intend to build rivers near every major factory?

@krazy kaju

2. By taking the initial capital costs upon itself, the government could stimulate the economy by permanently reducing energy costs.

The government doesn’t “take initial capital costs upon itself;” it sends the private sector (productive sector) a bill.

@krazy kaju

So? That doesn’t mean that deficit financing has to be financed through credit expansion or money printing.

No, it means that taxes are going to go through the roof, causing depression and revolutions. Do you think people would finance the welfare/warfare state if they had to pay for it with taxes? No, they pay for the welfare/warfare state through inflation, and they do this because they don’t understand the ruinous affects of inflation and government deficits. The tax revenue doesn’t even come close to the governments expenditure, which is why we owe trillions in debt and unfunded liabilities. The amount of interest we pay per year is barely covered by tax revenues.

@krazy kaju

Yes. And that is completely irrelevant to the content of this thread. But if you wish to drown out your own arguments by switching subjects, please, go ahead. Be my guest.

It’s not irrelevant at all. In fact, it’s probably the most damning argument against this garbage.

@krazy kaju

Solar power plants get around this by having back up generators which can quickly be turned on or off, based on need.

Let me guess, the government provides these back up generators as well, with tax revenues right? Will they provide the back up generators for the back up generators next?

@krazy kaju

I’m already familiar with the term. If you thought I became a mod by fooling around, you are severely mistaken.

I don’t know why you’re a mod to be honest. No one who knows anything about Austrian economics would spew this nonsense. Either way, if you understand forced savings, then you should know what I’m talking about. Forced investment comes to fruition only when consumers are forced to save. The resources are scarce and must be allocated by the price mechanism and competition. Your plan would literally plunge the economy into a depression.

@krazy kaju

I’m not saying it should be financed by either taxes or inflation. Deficit financing during the bust followed by taxes to pay off the debt. In net, the taxes would not have to be raised as significantly, since tax revenues would naturally increase from the growth that would occur due to greater disposable income from lower energy costs.

You don’t know what you’re saying.

@krazy kaju

Yes. You haven’t posted enough on these boards to know, but I have gone onto revleft to argue with leftists over the socialist calculation debate and I answer questions posed here about it.

So why have you abandoned Austrian methodology and embraced static welfare surplus analysis?

@krazy kaju

2. My textbook was written by my macro professor, who is actually a very smart man and relatively pro-free markets compared to the modern mainstream (he’s a Friedmanite). He’s offered to help set up a libertarian organization on campus.

My textbook was written by my Micro professor who told me today that exchange is a zero-sum game. Apparently, the producer steals consumer surplus and vice versa (cardinal measurement of utility).

@krazy kaju

3. There’s such a thing as good economics and bad economics.

This is very bad economics.

@krazy kaju

You can continue being condescending and you can continue throwing around straw men and ad hominems in order to mask my arguments, but the rest of us here on this board are interesting in advancing the Austrian school of economics as well as the science of economics in general.

Listen, your belligerent plan to socialize investment has been dealt with. The problem is not in my explanation, but in your confusion.

[Stranger]

@krazy kaju

@Stranger

By “contracting” you mean the same process where the governments “contracts” for weapons, logistics, prisons and so on?

Yes. And yes, it isn’t perfect, but at least it’s better than having the government do all of it on its own.

I can’t really tell the difference.

[krazy_kaju]

Look Esuric, I’ve already answered all the concerns you brought up in your last post in my OP and my other replies. The rest of your post is a combination of straw men, ad hominems, and screaming dogma blindly while throwing your fists in anger like a wild little crying baby. If you have anything of value to contribute, please do so. If not, GTFO of my thread.

[Esuric]

@krazy kaju

Look Esuric, I’ve already answered all the concerns you brought up in your last post in my OP and my other replies. The rest of your post is a combination of straw men, ad hominems, and screaming dogma blindly while throwing your fists in anger like a wild little crying baby. If you have anything of value to contribute, please do so. If not, GTFO of my thread.

Explain. What straw men are you referring to?

[krazy_kaju]

@Esuric

Explain. What straw men are you referring to?

Reread my replies.