The Democrats have it wrong

Perhaps in economic philosophy but Keyesianism in practice has proven to be anything but a viable economic position and I will provide just a single example of that.

The US debt is approaching $15 trillion and that is represented by the issuance of Federal Reserve (promissory) notes (both physical and digital) that promise redemption in lawful money (gold and silver coins produced by the US Mint being the only lawful money in the Unites States) under Title 12 of US code. Federal Reserve notes are only Constitutional so long as they are a promissory note to be redeemed in the future with lawful money (Julliard v Greenman established this in the Supreme Court decision on legal tender currency).

Under current US law as established by the Gold Bullion Coin Act of 1984 the American Gold Eagle coin (along with American Eagle Silver and Platinum coins) is the lawful money of the United States and a $50 American Gold Eagle contains one ounce of pure gold. The obligation of the US government to redeem $15 trillion in American Gold Eagles represents a debt obligation of the US government of 300,000,000,000 ounces of gold. The US government has a contractual obligation to redeem these Federal Reserve notes in gold coins under the law. Obviously this is far more gold than the entire world gold reserves and even if the US government began to redeem this debt obligation with only 150 million ounces per year (one ounce for every household) it would take 2,000 years just to redeem the Federal Reserve notes represented by the national debt alone.

Contractual obligations must be met in any capitalist economy and yet the US government has created a contractual obligation by the issuance of promissory legal tender notes that it has no way of fulfilling. That is Keynesian economics in reality and it is an unquestionable failure.

 

Actually under the economic philosophy of Keynesianism the government would accumulate a surplus during years of prosperity to be used in the event of economic downturns. In reality that never happens.

An example of that was the Emergency Bank Act under FDR where the US government borrowed the gold money held by the American People and issued legal tender promissory notes for it. In 1974 the Congress repealed that act once agian allowing Americans to own gold coins (lawful money) but it failed to begin redemption of the promissory notes it had previously issued. The government borrowed from the People but has, to date, not fulfilled its contractual obligation to redeem the promissory notes its issued.

Always remember that the gold in Ft Knox does not belong to the US government, It belongs to the American People and was merely borrowed from them during a time of financial crisis. When the "good times" came the government had an obligation to repay its borrowing of the money it had taken from the People.

 

No, Keynesianism is irrational in practice as it relates to capitalism because in reality it violates contract law which is the foundation of capitalism.

 

You're referring to your own ideology, using that to ignore the practicalities of capitalism. Its one of the main faults of libertarians (and why socialists love them!)

 

I believe that all economic philosphers would agree that contract law is the foundation of capitalism. In practice, as illustrated by my example, the US government is in violation of contract law.

Whether a person believes in capitalism or not what we do know is that in practice Keynesianism violates the very foundation of capitalism which is the contract. That is not an opinion but a well documented fact.

Keynesianism is a tool of the politican to steal from the worker and give to the wealthy. If the US was capable of redeeming all of the Federal Reserve (promissory) notes it has issued to the American People the American People would unquestionably be the wealthiest people on Earth. Redemption of just $2200 in lawful money for Federal Reserve notes would be the equivalent of a new $66,000 Mercedes. That's what $2,200 in lawful money is equal to.

Keynesianism in practice is nothing less than the theft of the labor of the individual. I don't give a hoot what it is philosophically as what it is in reality violates the Right of Property of the Individual.

 

In practice, Keynesianism is required to maintain an economic system prone to crisis. Ideological splurge won't change that.

In terms of its ability to maintain the reproduction of capitalist profit? Certainly.

The theft is in the economic rents, characterised by underpayment, created by capitalism's attack on property rights.

By ignoring the reality of capitalism, particularly the nature of the labour market, I don't see any evidence that you're motivated by the protection of the property rights of the individual. I only see an ideological slant based on ignoring economic reality

 

Sustaining deficit spending is not the only option to raise aggregate demand.

If you and I must maintain a reasonably balanced budget, then government can as well. When you or I want to procure something, we either pay cash, or we wait until we save the cash, or we use some credit. When we use credit the terms we are given have a black & white definition of the credit; limited amount of credit, limited term of credit, defined interest, etc. So even though we might be doing deficit spending by using credit, we are doing so within strict guidelines and finite time frames.

I suggest the government function with the same philosophy. Ignoring emergency situations, if government knows we need to spend $100 billion on roads during the next 3 years, then ratchet up the taxes and/or reduce other costs in order to fully fund the program during the 3 year period! Again, ignoring emergency situations, being fiscally proactive is a very easy thing to do...

 

So please answer in language I understand; Are you saying that pursuing a balanced budget will lead to doom and gloom? Yes or No??

 

There wasn't anything complex in my post. It is irrational, in the context of maintaining capitalism, to eliminate the utilisation of fiscal policy. An ideological prance over a balanced budget drastically restricts fiscal policy and therefore hamstrings the capitalist supporting government.

 

Keynesian economic policies were never meant to be permanent. It was supposed to only be pursued temporarily in case of an economic disaster. Unfortunately, we've pursued it permanently with deficit spending the last 70 years.

Keynes himself said those words. I don't care what you appreciate. I was referring to the flaws behind the conception of Keynesian economics as an economic policy. I wasn't talking about supply-side economics, I was talking about how the idea of keynesian economics was conceived.

The damage you appreciate is of course only in the short run. Surely you aren't misinformed enough to believe that sky-high unemployment is permanent in a major economy like the US?

You do realize that unemployment wasn't sky high during normal economic times before deficit spending?

I understand how economies work. The lack of deficit spending in an economy does not mean increased unemployment.

 

Haven't you tried this fallacy before? Keynesianism is a political economy school of thought. A vital one at that, assuming one wants capitalism to continue

You didn't understand his comment. That led you to make inappropriate references to 'short run implications'

Would you reject hysteresis in unemployment? If so, I hope you're going to back that up with some quality evidence.

One only needs to refer to supply-side shocks and the drastic effects they can have for the security of capitalist profits.

Without fiscal policy, which will necessarily include deficit spending, you can expect capitalism- a system which is always prone to crisis because of market concentration- to eventually collapse

I noticed of course that you didn't actually respond to the comment. Are you denying that human capital is destroyed through unemployment?

 

I really like how you ignored the crucial part of my comment. Keynesian policies were meant to be a temporary recovery policy from a recession, not a permanent financial policy. If Keynes favored maximum deficit spending to boost the economy indefinitely, he wouldn't have set a maximum of US debt at 25% of GDP.

Then you clearly explain it instead of talking about the importance of the short run. I understand that it does carry weight, but that doesn't make the long-run implications null and void in economic policy. You've failed to explain this belief of Keynes.

Throughout the 19th and 20th centuries, recessions have undoubtly ocurred. However, no recession here that was caused by fluctuations in the market lasted more than 2 years, and employment steadily picked up at the end of the recession.

The US has a population that continues to take infusions of young immigrants that bolster our workforce. The Consumer economy is built largely on service jobs that can't be outsourced. These jobs are in essence, permanently held by Americans. America has one of the best educated workforces in the world as well as the most skilled as a result of our college system and the "brain drain" from China, India, and the rest of the world. We also have a technological base that can't be matched in other countries. Give a reason why we WILL have continued high unemployment when our workforce has so many advantages over foreign workers.

Supply-side shocks did cause brief disruptions, but that did not mean continued high unemployment for the entirety of the 19th century. The point I was making was that its possible to have high employment without deficit spending.

Deficit spending is a part of fiscal policy, not all of fiscal policy. You're being narrow-minded in believing that taking away deficit spending equals taking away all fiscal policy. We can of course have a federal reserve bank managing our currency during recessions without taking in debt every year.

I'll respond now:

First of all, human capital is not completely destroyed during unemployment. workers do not lose their skills and work experience (nor personal characteristics) just because they lose their jobs for a brief stint. College graduates do not lose their knowledge just because they Unskilled workers can easily obtain entry-level jobs to develop skills as well once the economy recovers from a temporary fall (and unskilled workers always have their personal traits.)

But additionally, America has such an advantage of human capital over the rest of the world right now that a brief stint of unemployment isn't enough to deter non-service industry companies (like electronics, business, auto manufacturing) from hiring skilled and talented American workers.

 

I ignored nothing. Keynesianism should always be part of capitalism as economic crisis is always a threat. Perhaps you'd like to whinge about other explanations for government expenditures? Attempting to suggest some notion of Keynesian 'permanent policy' is a deliberate attempt at misrepresentation.

You misapplied Keynes' comment. If anything, your inappropriate reference would be applicable to bastardised Keynesianism (given that weak approach was about enforcing a consistency between macroeconomics and neoclassical orthodoxy)

And they've threatened the continuation of capitalism! But let's backtrack. You didn't respond to my post. Here it is again:

Would you reject hysteresis in unemployment? If so, I hope you're going to back that up with some quality evidence.

I appreciate that you go with the standard 'self-correcting' optimism. That of course is completely reliant on an utopian understanding of the labour market which, with some irony (given its attack on individualism), assumes completely technical relations with regards labour

Typically a crucial part!

No, I'm acknowledging the practicalities of fiscal policy and how ideology from those without an understanding of the nature of capitalism will ensure severe restrictions on its application

Who said it was? Of course you have tacitly admitted that human capital is destroyed by unemployment. Well done! You've managed to reject the self-correcting economy prance spewed by right wingers in one sentence.

 

Keynesian policy as in lavishing tax funds as an attempt to "increase demand for jobs" would count as a temporary measure turned permanent.

Keynesian policies were proposed as a solution to a problem, not a preventative answer. Keynes obviously did not enjoy the idea of permanently taking on immense debt (over 25 % of GDP) to enact his policies.

And bastardised Keynesianism is pretty much what we have in place today. Spending money to stimulate the economy temporarily without considering if the money would do any good in the long-run (see unnecessary politicized projects from Stimulus Bill)

Yet Capitalism has survived well unaffected until the Federal Reserve, Hoover's incompetence, and FDR.

I did reject the possibility of hysteresis in the American economy.


You've clearly failed to respond to my post (and reasoning). Here it is again:

The US has a population that continues to take infusions of young immigrants that bolster our workforce. The Consumer economy is built largely on service jobs that can't be outsourced. These jobs are in essence, permanently held by Americans. America has one of the best educated workforces in the world as well as the most skilled as a result of our college system and the "brain drain" from China, India, and the rest of the world. We also have a technological base that can't be matched in other countries. Give a reason why we WILL have continued high unemployment when our workforce has so many advantages over foreign workers.

You're very good at ignoring my comments that contradict your arguments.

see here:

Supply-side shocks did cause brief disruptions, but that did not mean continued high unemployment for the entirety of the 19th century. The point I was making was that its possible to have high employment without deficit spending.

Still, taking away Keynesian deficit spending does not equate to taking away all federal monetary policy. You are wrong on this point and you would do well to admit it.

I'm sure the US monetary before Hoover and FDR did have impacts. The switch to greenbacks provided funding for the Civil War, the Federal Reserve did limit the sporadic appearances of speculative bubbles. I don't see how taking on debts would have made these policies more effective in application. Show me why instead of talking around this point.

Too bad the American economy isn't the textbook example of an economy seeing destruction of its human capital during unemployment. If you read my actual comment in full (once again you ignore the important stuff), you would have seen my reasoning.

workers do not lose their skills and work experience (nor personal characteristics) just because they lose their jobs for a brief stint. College graduates do not lose their knowledge just because they Unskilled workers can easily obtain entry-level jobs to develop skills as well once the economy recovers from a temporary fall (and unskilled workers always have their personal traits.)

But additionally, America has such an advantage of human capital over the rest of the world right now that a brief stint of unemployment isn't enough to deter non-service industry companies (like electronics, business, auto manufacturing) from hiring skilled and talented American workers.

Finally, admit that no matter what happens in our economy, our service industry jobs can't be outsourced and will always stay here because these jobs serve domestic customers at a mostly localized scale. Additionally, with our technological and educational advantage, we don't have to worry about a lack of human capital anytime soon compared to many other nations.

 

Sounds like you're still in the 80s where Keynesianism was deliberately misinterpreted to fit the Phillips Curve-inspired nonsense.

You again twist what we mean by the school of thought. Bastardised Keynesianism died in the 80s, as part of the nonsense debate with monetarism

Capitalism has always been under threat (and, in some instances, destroyed). Capitalists have of course reacted where appropriate, such as the rise of the welfare state to reduce the threat of worker militancy

That's grand. If you reject hysteresis in unemployment you must be able to present some evidence in support. I look forward to it!

It had no relevance to my comment. You provided poor reference to migration and naive reference to international differences in education.

You rarely actually respond to my comment, so the likelihood that you have contradicting arguments is rather low. Here, for example, you've ignored the drastic limitation of right wing thought: i.e. the attack on individualism whereby, often without knowing it of course, a naive 'technical' understanding of the labour market is assumed

If you're going to assume to be knowledgeable over economic history, please back it up with evidence! I'd prefer to have peer reviewed journal, but provide me with anything you have.

You've gone of a random splurge here. Perhaps deep down you want to give an old hatted cheer over perceived effectiveness of monetary policy? Perhaps some IS/LM inspired drivel from an old debate long since rejected??

I only see your inconsistency. You referred to human capital being 'completely destroyed'. No one suggested that, but- with a basic understanding of the English language- you surely admitted that human capital is destroyed. That would be a good idea as, to suggest otherwise, would be cretinous.

If you can refer to how supply-side shocks leads to only temporary frictional unemployment episodes then be my guest. I might laugh though, sorry!

Why then does the US, compared to her Western comrades, have such abundance in low paid labour?

Outsourcing is a non-issue which you're only using because you haven't got anything else to say

You might not care about the destruction of human capital. Rational economic reactions won't be your chum though!

 

Currently, today's "recovery efforts" have revealed poor usage of federal funding in the stimulus package. Additionally, the federal auto bailout confiscated private property (company stock shares) from investment firms and gave them to the UAW. If thats not politicized, i don't know what is. This isn't a matter of economic principle, this is a matter of federal waste (Which fortunately for you neo-keynesians is not really taken into account in economic studies).

I'm not referring to the period of monetary policy with Abba Lerner. Im just referring to the current way we splurge our money on increasing dependency on the government for ordinary people with our expanded welfare system and how we "invest" in the economy with our military-industrial complex funding.

Now your talking about this threat as the militancy of workers instead of how capitalism can't take recessions. Earlier, I said

Throughout the 19th and 20th centuries, recessions have undoubtly ocurred.

You responded with:
And they've threatened the continuation of capitalism!

So you've changed your story from an economical perspective to a social phenomenon argument? While a few lower-class workers turned to radical political parties, the majority of Americans had the sense to continue to believe in capitalism. Additionally, back then, unions (different from today's unions) actually fought to improve conditions for all workers and as a mostly grass-roots organization, did not tamper in corrupt politics.

I like how you ignored that I said i reject hysteresis in the American economy, not economics in general. Must I continue to repeat my reasoning (which you ignored twice already)?

Yes it does, because the labor and educational advantages we have are appealing to many specialized companies in electronics (Apple, Microsoft), as well as auto manufacturing (many foreign car companies rely on assembly factories in america). Why do you think Germany is being so successful right now when all the other EU countries are stagnant or suffering economically? Its because their workforce has the advantage in human capital (more manufacturing expertise and experience).

I listed an example of Germany as how an industrialized country can keep most of its jobs by using its advantage in human capital and education. I don't see how thats naive nor irrelevant. Im not assuming I know everything about the labour market (unlike some people). Its just that we have these clear advantages in our workforce so that while we may lose some jobs to outsourcing, it is impossible to have long-term high unemployment. If you are so informed in this area, please present your reasoning on how hysteresis in the American economy would occur.

Supply-side shocks did cause disruptions during the embargoes with England from 1810-1830s. After the 1830s all the way till the 20th century, recessions were mainly fueled by over-speculation, faulty federal monetary policy, or post-war peace. If you're knowledgeable in this area, please give your reasons for these recessions if you disagree with mine.

No, I was merely stating that taking away Keynesian policies does not equate to taking away fiscal policy (which you stated).

Im not going to be a liar and say that human capital emerges intact from a recession. Additionally, Im not referring to a textbook model of an economy. The American economy has special advantages over others and the slight effects on human capital would not have a long-term impact on our global competitiveness.

Because we have these low-paying jobs cannot be outsourced. They are jobs in our service industries (restaurants, shopping, services, etc.) and because we have a larger consumer population to cater towards, we have a larger pool of low-paid labor.

Outsourcing is how many specialized non-service industry jobs were lost. In a typical 2 month period in the few years before the recession, almost 10,000-30,000 jobs were lost. Job loss due to outsourcing during the recession was estimated to be 700,000-1 million jobs. I don't see how thats a non-issue.

You ignore my important meaning of the comment, in that the American economy can survive the slight effects on human capital during a recession better than many other industrialized nations. I don't care about the destruction of human capital in general because thats irrelevant in this case. Too bad you didn't quote the other 3 paragraphs of my reasoning!

 

Poor usage? Try to be more accurate in your terminology. Perhaps you’d like to present some sort of macroeconomic modelling that you deem to be enlightening? Just something more than opinion skewed by ideology.

A nonsense claim! I’m not a neo-Keynesian. Indeed, I’ve attacked the neo-Keynesian approach (which was about ensuring consistency with neoclassical microeconomics).

Which still makes that “[a]nd bastardised Keynesianism is pretty much what we have in place today” comment completely wrong!

That there are multiple sources of economic crisis is darn obvious. We of course see how policy making can be used to react to those threats. The welfare state is one example. We see similar flexibility in macroeconomic policy where, for example, the tendency towards market concentration (and the cost-plus pricing consequences it encourages) has increased the need for interventionism. The replacement of the invisible hand with the visible hand undoubtedly has implications for government conservatism (as it protects capitalist profit)

Nope, I’ve simply noticed that you make claims without an economic history support. For example, if you’re going to refer to the 19th century you’re going to have to refer to economic change generated through economies of scale opportunities. In particular, the rise of a managerial class that has significantly widened the boundaries of the firm.

It amuses me that you talk about ignoring points when I asked you to support your comment with evidence. Stop with the inane stalling and present some. If you reject hysteresis in unemployment you must be able to present some evidence in support. I continue to look forward to it!

Nope. You’re making uninteresting references to the distinction between developed and developing countries. It has zero value.

You’re ultimately replying to a comment that stated the following:

I appreciate that you go with the standard 'self-correcting' optimism. That of course is completely reliant on an utopian understanding of the labour market which, with some irony (given its attack on individualism), assumes completely technical relations with regards labour

You’ve just not replied with anything at all relevant to it.

In conclusion, you can’t refer to one peer reviewed journal to back up your stance.

It takes away effective fiscal policy. You’re typically left with minor aspects, such as the use of automatic stabilizers (which ironically are understood through Econ 101 Keynesianism)

Good. And therefore you destroy the self-correcting bobbins in one sentence. The destruction of human capital necessarily restricts the production possibility frontier. It also has important effects for other aspects of economic result, such as the nature of comparative advantage.

Red herring. All Western countries have low paying jobs that cannot be outsourced. You cannot use that to explain the US, compared to her Western comrades, has such abundance in low paid labour. Try again!

You’d only have a point if you somehow stood out as the only country with a service industry.

This isn’t a cunning comment. First, you refer to ‘slight effects’. Try and back that up with evidence! You’ll struggle (and I assume you will dodge). Second, you’re making claims over American economic uniqueness. In some regards you’re right. Western Europe certainly cannot compete with the lack of upskilling and the working poverty rates.

 

This is just a political BS excuse for having no fiscal responsibility. The idiots in politics, from the president on down, are incapable of 'reasonable' fiscal policy, therefore, the response to this dereliction of duties is to impose a balanced budget policy. Of course some deficit spending is okay, but deficit spending to support politics with NO plan whatsoever for payback, is nothing but BS...

 

You've merely ignored the argument in order to ensure you do not have to challenge your own ideology. Shame, but all too common

 

865B collected 1.494B paid out.

There is indeed a 675 Billion dollar deficit but this is not really legitimate math.

The problem is that rather than investing the money collected for social security and medicare .. they have been throwing it into general revenue.

If we collect 865 Billion today .. and invest this at 7% how much do we have in 45 years ?

Answer = 18 Trillion

Rather than investing the money that folks made in contributions, the Government has been spending it.

Now we are up the proverbial creek without a paddle.

Even if we were to cut benefits by 600 Billion (this would be a nightmare) but for the purposes of argument.

We will take in roughly 2.2 Trillion and spend 3.8 Trillion in 2011 which equals a deficit of 1.6 Trillion.

We still need to come up with 1 Trillion to balance the budget.

More realistically we may be able to cut the deficit between what is collected and what is paid out to 300Billion "if" the cuts were made immediately.

Unfortunately the demographic bomb is hitting as we speak. The number of folks that will be receiving payments is exploding and will continue to increase dramatically for a decade or more.

We are now up the creek without a paddle and there is a hole in the boat.

 

Maybe across the pond you have a different way of doing things, but here in the USA, there is little to find amusing with the $14+ trillion debt, continual deficit budgets for years to come, and tens of trillion$ in unfunded government programs. I don't have an economic ideology. I simply know how to balance a check book, how to live within my means. Idiots in Washington do not! If you believe targeting a balanced-budget is doom and gloom, then 'any' limitations whatsoever on deficit spending would also be doom and gloom! I think out of control spending is reckless...

 

That's an ideology in itself. Of course suggesting that the macroeconomy can be compared with Dave's wallet lacks a little credibility!

 

I found humor in that so okay, I have come to the conclusion you are not being completly honest as in some person that likes discussion and willing to play devils advocate but really you could do better, kind of obvious no one is really takeing your argument/ideas seriously. Kind of the way I veiw most so called Liberals or Progressives yet I search for a better adjective and the only one that comes to mind is (blank) I really can't think of one that really fits ideally so I'll be back later, maybe, okay I'm gonna run it up the flagpole and stick my finger in the wind to see which way she's blowing.

 

Much of the discussion deviates from the topic of this thread so I will attempt to bring us back to the basics.

Democrats seek to impose tax increases as a condition of raising the national debt limit and addressing the deficits by reducing spending.

Republicans refuse to raise taxes as a condition of raising the national debt limite and addressing the deficits by reducing spending.

The only point of real contention is whether to raise taxes or not which is a demand being made by Democrats.

Of note many liberals state that the huge deficits can be blamed on the Bush era tax cuts. They cite a lack of revenue as being the cause for the deficits.

In reality spending by the federal government has increased by 60% since 2000. Yes, there were tax cuts but the spending increased dramatically. The invasion of Afghanistan, the invasion of Iraq, the drug prescription plan for Medicare, the creation of the Dept of Homeland Security, the TSA, etc., were all expendatures authorized by Congress without corresponding funding being provided. In the 10 years since the Bush tax cuts federal revenues might have been reduced by roughly $3.7 trillion but expendatures just reflected by the deficits during that time period reflect that the government spent roughly $9 trillion more than its revenues. Even had the Bush era tax cuts never existed we'd still have increased the national debt by about $5 trillion. That reflects a spending problem.

I have heard it proposed that a major step in reducing the deficits would be to simply stop all of the additional spending that was imposed over the last ten years. Get out of Iraq and Afghanistan, end the prescription drug coverage for Medicare, dismantle the Dept of Homeland Security and abolish the TSA. Alone this would not balance the budget but it would reduce federal expendatures dramatically. Many liberals and conservatives would whine about these increased expendatures being terminated but they are all a part of the problem.

End them all and allow the Bush era tax cuts to expire at the end of 2012 and we come even closer to a balanced budget. The Democrats don't have to call for tax increases as taxes are already scheduled to increase in 2013. Liberals like to point to the Clinton adminstration and simply restoring the tax rates that we had under Clinton for ALL Americans and eliminating expendatures that didn't exist under Clinton is a logical solution to part of the problem.

As noted though this only addresses a part of the problem because the other half relates to FICA/Payroll taxes not providing enough revenue for Social Security/Medicare. This is completely unrelated to the Bush era tax cuts and has nothing to do with income taxes or general expendatures. Either we're paying out too much in benefits, a spending problem, or not collecting enough in FICA/Payroll taxes, or both. Liberals and Democrats are going to have to come to grip with this fact.

Raising income taxes does not address the shortfall in funding for Social Security/Medicare as they have dedicated taxation that is unrelated to income taxes. They are not funded with income taxes and if the call is for income taxes to be used for Social Security/Medicare then we need to abolish FICA/Payroll taxes which completely changes Social Security/Medicare. That would be a call for a complete overhaul of Social Security/Medicare or its elimination completely as anything would be on the table if that were to occur. That isn't saying that a complete overhaul isn't a good idea but if that's what Democrats want then they had better be prepared for any possible results.