If the governemnt taxes from one group to give to another, I understand this is not stimulus.
If the government did print a little money and gave it to everybody, you cannot deny it would not kick start the economy.
If they did it every so often, people would spend a little more.
I am really keen on learning the Austrian theories and if this Keynesian theory is fallacious, please point them
out.
yes, you can give a cancer patient shocks of adrelanine so they walk around for a day all energetic and excited, but they still have cancer
What Fez meant to say is that by artifically printing new money [ inflating ] then you are devaluing the purchasing power of the dollar and rising the level in prices on goods and services. Consumption doesn’t build a sound economy, savings does.
Sure, nominally the economics numbers will go up, but not in real terms.
If they did it every so often, people would spend a little more.
It would mislead people into making the wrong investment decisions because they think the pool of real savings is larger than it actually is. This works so long as the money supply keeps growing at an ever increasing rate. It ends when the capital base is completely destroyed (and as Mises said, people resort to eating the seed corn) or the rate of money supply growth slows – only then do people realise they made a mistake and a lot of the projects they undertook did not in fact have the necessary capital to support them.
I suggest reading Bob Murphy’s latest articles, particularly the ones about the current recession.
The most basic answer to this is, as another poster said, that an economy is not built on consumption but on savings. Also, money is only a medium of exchange; it is not wealth. Statements like the ones above are also non-sequitors. How does stealing from people via inflation make an economy grow?
You are correct, but this is a policy advocated by Keynesians in recessions. As poor people spend a higher proportion of their income than rich people, then a redistribution of wealth from rich to poor may help recovery (according to Keynesians). Of course, this is all nonsense because an economy grows via savings, not consumption.
You can deny it very easily because it simply isn’t true. The printed money would simply cause inflation. At best, it could temporarily stimulate the economy by tricking entrepreneurs into producing more, even though their prices rose with the pace of inflation, making their production unprofitable. This would then require more money to be printed ad infinitum until hyperinflation (hence the failure of the Philips Curve).
Spending does not cause economic growth, saving does. When you spend money, nothing new is produced; you simply consume already existing products. However, when someone saves their money and/or invests it, they help increase production because:
Increasing the money supply and lowering interest rates distorts market incentives and creates spending in areas there would not otherwise be and eliminates spending in areas where there otherwise would be thus creating malinvestments and also instituting a moral hazard because the time value of money in an inflationary setting is negative, thus eliminating the incentive to save and therefore starving markets in the future of real capital.
Taking money from productive sectors of the economy and giving them to unproductive sectors of the economy also clearly creates undesirable incentives that are unsustainable because production is the source of wealth. So if you penalize production and reward failure, you are clearly creating a system that will fail eventually. And failure is not effective.
Yep, and all you get is capital consumption in the end, as the means to expand production are non-existent or insufficient relative to the desired expansion.
Exactly. Consumption cannot stimulate economic growth, since all it does is use up the available capital stock. Economic growth comes from the expansion of capital, not the contraction of it.
To the OP, the examples that Krazy Kaju gave also refute the “Paradox of Thrift,” as put out by Keynes.
But when people consume more this is an increase in demand and will meen that firms will produce more doesn’t it? For example if the new money was used to buy cars then motor firms would see thi as an increase in demand and hence lead to more production
Like Krazy Kaju said, the consumption erodes the existing capital stock. Consumption isn’t really a bad thing, implicity we are stating what Mises called in his theory, “overconcumption and malinvestment.”
the question is , when people ‘demand’ more ‘consumption’ what are they demanding with? in your example, what do they offer motorfirms? if they are not producing more, then they have no more produce to bring to market to bid for motors with. the fallacy of keynesianism is to try to circumvent Say’s law. but this is impossible, therefore people are ‘consuming’ more without producing more, and necessarily eroding the capital stock, or in other words, future productivity,
they are engineering poverty.
Once you understand that the federal government does not have the authority to print fiat currency and force its citizens to use it, then your other questions become irrelevant.
I understand that they are not actually offering anything as this money has been created out of fresh air but they create an illusion that they have. In the long run this process is purely inflationary but it could it not be argued that in the short run that it will produce some form of increase in economic activity because if the government had not of created this money then surely the motor firm would not of produced these extra cars.
yes, the creation of and spending of fiduciary media will be a form of increase in economic activity if one is measuring quantities of media exchanged and calling this economic activity, but it is a destructive and counter productive economic activity.
Well, this won’t be for Austrians, but Kevin Murphy of the University of Chicago showed a lot of good math to suggest that the multiplier effect of government spending is actually negative so that for every $100 spent, $80 would be lost.
No. An increase in demand does not necessarily mean that their will be an increase in production. An increase in consumption means that firms will have less money with which to repair, buy, and produce capital goods. This is because an increase in consumption necessarily means a decrease in saving, leading to a an increase in interest rates. Higher interest rates means that firms cannot purchase repair/purchase/produce large amounts of capital goods because they simply cannot obtain the funding to do so.
We are done having to defend common sense…
the tables are turning…
you have to defend forced counterfieting by the federal government…thats stealing…
defend that…