Thread: Is more debt worth Keynesian policy?

Can getting into debt to "stimulate" the economy be beneficial?

This is nonsensical question. Keynesian policy would actually be about reducing debt (with austerity, by destroying growth, actually increasing debt problem)

Originally Posted by Reiver

Keynesian policy would actually be about reducing debt

Unless a country has previously held on to budget surpluses to cultivate a savings account, it will not be possible to pursue Keynesian policy in a recession (increasing government spending) without increasing debt in the near term.

The debate is whether government spending can actually create growth, and whether any increase in taxes collected from this growth are greater than the future taxes that will be necessary to pay off the debt.

And one more question- Why does the government need to spend more money than it already is spending? Some countries are already spending large quantities of money, and have been doing so continuously, yet they have entered into a recession. Perhaps the problem was that they spent too much money during the good times? In which case, is spending even more money during the bad times really the appropriate remedy?

Originally Posted by Anders Hoveland

Unless a country has previously held on to budget surpluses to cultivate a savings account, it will not be possible to pursue Keynesian policy in a recession (increasing government spending) without increasing debt in the near term.

Again, you're simply confusing ideological outcome (which impacts on, for example, expenditure through its impact on a social welfare function) with economic reality. We know, for example, that unemployment does indeed destroy human capital and therefore restricts future production possibility

The debate is whether government spending can actually create growth, and whether any increase in taxes collected from this growth are greater than the future taxes that will be necessary to pay off the debt.

Again, you simply ignore what has happened. Following a collapse engineered by neo-liberalism we're now seeing austerity generate double dip recession problems. Restricting government expenditure has indeed harmed growth. If one wants to reduce debt one first uses government to demand manage in order to attempt to maintain employment levels.

Your thread's question is nonsensical

You seem to be arguing for an increase in government spending. How exactly can this be accomplished without either
1. prior savings (which most countries do not have)
2. increasing taxes
3. borrowing more money
???

Or are you trying to say that the benefits of getting into more debt will be accrued so fast that the debt can be almost immediately payed off ?
Otherwise I just do not see how your posts are not nonsensical.

Originally Posted by Anders Hoveland

You seem to be arguing for an increase in government spending.

Wrong again! I've simply referred to how your initial question is a load of tosh. The use of Keynesianism, for example, can be associated with understanding how to reduce debt. We see that with austerity which has been associated by increases in debt as irrational policies further harm the economy. Perhaps you've been corrupted by neo-Keynesianism and the use of the Phillips Curve to suggest some social welfare function 'unemployment-inflation' choice can be chosen as a permanent option? Time to catch up if that's the case as that stuff is old hat

For the purpose of this thread, then, define what you mean by 'Keynesianism' and 'Austerity'. I understand (perhaps not?) your basic criticism of austerity and support of keynesianism, but what policy exactly do you support? Could it not be argued that a country is already pursuing a keynesian stimulus policy, without having to increase its spending even more?

Originally Posted by Anders Hoveland

For the purpose of this thread, then, define what you mean by 'Keynesianism' and 'Austerity'.

Austerity is a right wing dogmatic reaction that kicks economic rationality in the teeth. Keynesianism? Its a diverse school with various sub-schools that offers an understanding of capitalism. Originally based on the work by Keynes, it integrates numerous disciplines (e.g. behavioural economics) within economics to provide macroeconomic conclusion. A post-Keynesian, for example, will be able to refer to firm pricing policy to understand how instabilities can be magnified.

...but what policy exactly do you support?

I'm a socialist. I don't 'support' Keynesianism. I merely acknowledge its importance in stabilising an economic paradigm prone to crisis. The point is not to croak 'in my opinion', its for you to realise that your original question just doesn't make sense

Large Changes in Fiscal Policy: Taxes versus Spending:

Executive Summary:

Executive Summary

We examine the evidence on episodes of large stances in fiscal policy, in cases of both fiscal stimuli and fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based on tax cuts are more likely to increase growth than those based on spending increases. As for fiscal adjustments, those based on spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based on tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions. We confirm these results with simple regression analysis.

Read the paper...click here---> Paper.

Originally Posted by Anders Hoveland

Can getting into debt to "stimulate" the economy be beneficial?

Depends on the circumstances the the purpose of going into debt.

When the Govt borrows money, that money is generally loaned by wealthy folks (because they have the bulk of the assets). If the money would otherwise not being used in stimulative ways, *and* if the Govt spends it or takes some other action that creates demand for economic activity, and the economy is not otherwise at or near full capacity, then it can stimulate economic growth.

But if the debt is driven by tax cuts that mostly benefit the same wealthy who are lending the money, then all you are doing is providing more cash to the wealthy by tax cuts who turn around and lend the money to the Govt, then not much is accomplished except adding to the debt.