What Is Wrong with "Trickle Down Economics"?

[gturner]

The back-to-gold Austrians cannot even get empirics right. Inflation has not been exceptionally high during the last four years which is hardly a surprise, a housing bubble burst, house prices fell.

Exactly, but nobody is buying houses these days, so why is their price counted as an important part of the inflation measure? Isn't that like basing inflation on the price of all the other crap that people don't buy, like vinyl Bee Gee's LPs at a yard sale?

Yet home prices are a big part of people's financial portfolios, so the consumers net worth has declined tremendously (to 1970's levels).

Measures of inflation using the older basket of good put the inflation rate at 8%, which is off the chart that you provided. Gas prices have doubled (though natural gas has gone way down), food prices have risen significantly (farming and transportation costs have gone way up), and beer prices are almost unbearable (the only manly measure of inflation).

By the way, there is nothing inherently stable about gold. Its price is subject to market forces like that of any other product so a gold-based currency would be prone to far more price level volatility than one in which the monetary base is controlled by the central bank.

That's why everyone abandoned the gold standard. All it reflected was the latest crazy attempt by a central bank to corner the gold market. Maybe someone should mention the Hunt brothers and the silver market.

 

[gturner]

At best, you could say neither Keynes nor Friedman had it exactly right. To claim one was right and the other was wrong is simply an ideological statement and indicates nothing of value.

As the Soviet Union finished collapsing, there was a joke that went. roughly

Gorbachev is at a Summit with Bush and says, "They say the President of France has a hundred lovers. One of them has AIDS and he doesn't know which one. They say the President of Libya has a hundred female bodyguards. One of them is an Israeli spy, but he doesn't know which one. I have a hundred economists. One of them is right, but I don't know which one."

Here's a good one about state-backed curency.

It is 1982. A Polish man goes to the government bank with 300 zlotys, but he cannot decide if he wants to deposit it. "Why are you so worried?" asks the teller.
"What if you go bankrupt?"
"Your deposit would be insured by the Polish government!"
"What if Poland goes bankrupt?" asks the man, still worried.
"We have the guarantee with the whole socialist bloc backed by the Soviet Union!"
"What if the Soviet Union goes bankrupt?"
"That wouldn't be worth 300 zlotys to you?!'

 

[horatio83]

The back-to-gold Austrians cannot even get empirics right. Inflation has not been exceptionally high during the last four years which is hardly a surprise, a housing bubble burst, house prices fell.

Exactly, but nobody is buying houses these days, so why is their price counted as an important part of the inflation measure? Isn't that like basing inflation on the price of all the other crap that people don't buy, like vinyl Bee Gee's LPs at a yard sale?

Yet home prices are a big part of people's financial portfolios, so the consumers net worth has declined tremendously (to 1970's levels).

Measures of inflation using the older basket of good put the inflation rate at 8%, which is off the chart that you provided. Gas prices have doubled (though natural gas has gone way down), food prices have risen significantly (farming and transportation costs have gone way up), and beer prices are almost unbearable (the only manly measure of inflation).

By the way, there is nothing inherently stable about gold. Its price is subject to market forces like that of any other product so a gold-based currency would be prone to far more price level volatility than one in which the monetary base is controlled by the central bank.

That's why everyone abandoned the gold standard. All it reflected was the latest crazy attempt by a central bank to corner the gold market. Maybe someone should mention the Hunt brothers and the silver market.

Of course using core inflation is dubious in times when food and energy prices are rising.
But even if actual inflation is higher than the one from the statistics I fail to see the problem.
First, in the presence of money illusion and nominal wage rigidity higher inflation leads to a quicker decline of real wages which should lead to more employment.
Second, inflation erodes debt and debt is obviously one key problem after the financial crisis. Even profitable firms do not invest or even have to close when they face debt/liquidity issues and indebted households don't consume much. This is Fischer's old argument, deflation is a bad thing precisely because it doesn't lead to the necessary melting of debt during a recession plus it leads to liquidity hoarding, why lend money if you can just stick it under your pillow and tomorrow buy more with it as everything has become cheaper.
Third, and this is the political-economical merging of points one and two nobody wants to talk about, labour doesn't mind a small real wage decline via inflation if it increases employment whereas capital dislikes inflation. As capital has gained political power since the end of the social democratic age in the 70s/80s political institutions are today fairly inflation-phobic.

 

[stj]

Parables about marginal utility has nothing to do with real world economics. Myths about markets based on them falsify the reality.

The German hyperinflation of 1923 is inextricably linked to the Reich's defeat in WWI, so it is not a successful counterexample. Even if it were, it does not support the assumption that central banking leads to hyperinflation, dark suggestions about bank conspiracies notwithstanding. Most of all, none of this demonstrates that the government must actively pursue policies aimed at increasing the profits, income and property of the wealthy, which is what all versions of "trickle-down economics" is about. All this line of argument does is demonstrate the grossly fallacious nature of conservative economics.

All any conservative economist has to do to justify his panacea is demonstrate empirically that when his favorite stick beats the workers, economic growth ensues at such a pace as to increase the general welfare. Everyone that tries to do this, finds counterexamples in economic history. Gold, laissez faire or whatever, all have led to dire results at some time, while their opposites have led to good results at some time.

In a capitalist economy the general rate of profit determines the level of activity. No academic economist has an explanation for the rate of profit. Although the Keynesians are at least empirically correct that their policies can moderate the business cycle, they do not have a theory of the general rate of profit either. Therefore, if there is a secular trend (i.e., over a period equivalent to two or more business cycles) toward a decreasing rate of profit, their solutions to a temporary disequilibrium will cause malinvestment, secular inflation and economic stagnation.

This is a terrible indictment, except that conservative economics always worsens the situation and also leads to prolonged periods of economics stagnation and imperialist war. The conservatives, being fundamentally uncivilized, have no problem with undermining society but the results are eventually catastrophic. I suppose they find this emotionally gratifying, but the rest of us really do have a right to live, even if it means that the value of money is not eternal.

 

[gturner]

Parables about marginal utility has nothing to do with real world economics. Myths about markets based on them falsify the reality.

The German hyperinflation of 1923 is inextricably linked to the Reich's defeat in WWI, so it is not a successful counterexample. Even if it were, it does not support the assumption that central banking leads to hyperinflation, dark suggestions about bank conspiracies notwithstanding.

If was linked to an economic policy to devalue the currency, a policy which was pretty brilliant and was working successfully toward its intended aim, until they lost control of events. Linking it to WW-I is irrelevant, because they could've been doing it as the result of losing a copyright lawsuit with France or anything else.

For other examples, Zimbabwe in 2007 had hyperinflation that was doubling prices every 24 hours. In 1990, Brazil had an 80% per month inflation rate, Peru had a 400% per month rate, and Argentina had a 200% per month inflation rate. Bolivia had the same rate back in 1985. Somehow I missed new of the great South American war of 1990.

Most of all, none of this demonstrates that the government must actively pursue policies aimed at increasing the profits, income and property of the wealthy, which is what all versions of "trickle-down economics" is about. All this line of argument does is demonstrate the grossly fallacious nature of conservative economics.

Trickle down economics wasn't aimed at increasing the profits of the wealthy, it was aimed at allowing people and businesses to actually keep more of the profits, income, and property that they were earning. I suppose a country could take all the money from their top earners and blow it on Western or Soviet weapons, as much of the Middle East did, but how does that help the poor?

The question isn't whether confiscatory tax rates hurts the economy and the people being taxed, it definitely does in almost all cases (the rare exception being people who are snorting their income in Columbian blow). Despite what Marx may claim, hurting someone else doesn't in itself make you better off.

All any conservative economist has to do to justify his panacea is demonstrate empirically that when his favorite stick beats the workers, economic growth ensues at such a pace as to increase the general welfare.

Um, we don't beat workers with sticks, we pay them. Companies even compete for their labor, and often pander to them. That's why we have pet days, daughter days, casual Fridays, and free pizza Thursdays. The communists certainly beat workers in the head with sticks, and even shoot them in back of the head if they don't meet the production quota, using the fear theory of management.

In a capitalist economy the general rate of profit determines the level of activity. No academic economist has an explanation for the rate of profit.

Probably because it wouldn't make sense. If it takes me ten trades a day to turn $100 into $120, but it takes my partner Fred just one trade to do it, I'm generating 10 times his economic activity, he's showing ten times more profit per trade, but when we leave work we've both made $20 to spend on pitchers of beer. If your theory can't even explain what happened in a working guy's day, it's probably exceedingly useless for anything else, as well.

But then Marxists don't even have a remotely plausible theory of what capital is, much less how it operates. Something about the evil oppressor man and a vast conspiracy, leading to the brilliant solution of paying pay workers with vodka and shoe polish.

 

[stj]

Zimbabwe, suffering from a generation decimated by AIDS (the way this is overlooked in Africa's recent trouble I can only ascribe to racism, I'm ashamed to say,) civil strife between ethnic groups and economic warfare, is not a good exemplar for the theory that central banking (or is it fractional reserve banking itself?) causes hyperinflation.

So far as the great South American war is concerned, Peru, the country that came closest to the hyperinflationary armageddon government/bank conspiracies supposedly create, was in fact engaged in war with Sendero Luminoso and MRTA. True, the most notorious incident occurred at the Japanese Embassy, and it all involved brown people. I guess news about that sort doesn't penetrate the ivory white towers of Planet Capitalist. Some of these examples show how crazy the apocalyptic terrors hyped by the conservatives really are. Civilization doesn't necessarily come to an end if the value of money is decreased!

Trickle down economics wasn't aimed at increasing the profits of the wealthy, it was aimed at allowing people and businesses to actually keep more of the profits, income, and property that they were earning.

Since regressive taxation rates remain just as high or even increase; since social services benefiting the poor are cut; since massive government spending (especially military) that benefits the rich more is increased; since allowing the rich to hoard their money decreases investment and creates unemployment; since there are deliberate efforts to lower wages and living standards for the large majority of the populartion, this is a damned lie! Yes, we all know your religion, Mammon is God and the Rich are the Chosen People. For the rest of us, your determination that working people didn't really earn their money, as in their retirement funds, betrays a malice that borders on the Satanic.

I suppose a country could take all the money from their top earners and blow it on Western or Soviet weapons, as much of the Middle East did, but how does that help the poor?

I have been amused at the raving mad, foaming at the mouth BS about Communism and Marxist economics, but if you don't know that every Middle Eastern country is cursed with a capitalist economy, you really need to sign a power of attorney so someone else can handle your affairs.

 

[stj]

And I know that Milton Friedman's economics works and Keynes does not because history has proven Friedman's theories and not Keynes, it hasn't worked in the 1930s, the 1970s or today, printing money, taxing and spending more does not stimulate the economy, all your doing is taking money out of one pocket and putting it in another. The government performs no magic on money taxed that makes it more stimulative than if the original owners of that money kept it and spent it on their own wants, desires, needs and investments.

The place where Friedman's economics got their best shot at being fully applied was Pinochet's Chile. Not only doesn't work as advertised, it has costs in blood. Mind you, there wasn't a terrible world war and civil war and mass rebellion and chaos and people terrified and desperate, it was just people like you working a business model.

Much government spending is in fact investment, which most certainly does have positive effects on economic growth. And much of this investment simply does not take place under private auspices. Further, rich people can afford to hoard money, which does in fact reduce economic growth. The claim that "government performs no magic" is a falsehood. Elementary academic economics is almost entirely indoctrination in crank ideology.

There is a fundamental problem in the mindset. For most people, the problem is not being overtaxed and overregulated by the government, but being underpaid by the boss and underserved by the government. It's true that employers will penalize independent thinking, so fear can strongly affect your opinions. In countries where the rich are less powerful, they are prone to hiring offduty cops and soldiers to murder people.

 

[gturner]

Zimbabwe, suffering from a generation decimated by AIDS (the way this is overlooked in Africa's recent trouble I can only ascribe to racism, I'm ashamed to say,) civil strife between ethnic groups and economic warfare, is not a good exemplar for the theory that central banking (or is it fractional reserve banking itself?) causes hyperinflation.

I'm sure a communist revolutionary leader (Mugabe) and his wacky Marxist ideas about economics, along with his minions and butchers who enforce them (The ZANU-PF), have absolutely nothing, NOTHING, to do with the decimation, starvation , and shocking discovery that starving Africans can, in fact, actually get vastly poorer than they already were.

I'm sure that AIDS only hit Zimbabwe, and no other African country that didn't experience hyperinflation, or coincidentally have a Marxist leader.

Capitalists always assumed that there was some level of African poverty that was the floor, below which people couldn't fall further because they'd find moss and frogs to eat. Once again, communism proves its genius, pushing the boundaries of human misery to new heights.

Meanwhile, I run into Rhodesians who are running into fellow Rhodesians (which is itself amazing) at the high-end butcher shop looking for Ostrich, elk, and other meat, reminiscing on the racist days when Zimbambwe wasn't a starving hell hole and black people weren't shot in the back of the head en masse, starved to death by region, or forced to dance on the graves of their executed family members while singing songs extolling the virtues of communism.

So far as the great South American war is concerned, Peru, the country that came closest to the hyperinflationary armageddon government/bank conspiracies supposedly create, was in fact engaged in war with Sendero Luminoso and MRTA. True, the most notorious incident occurred at the Japanese Embassy, and it all involved brown people. I guess news about that sort doesn't penetrate the ivory white towers of Planet Capitalist. Some of these examples show how crazy the apocalyptic terrors hyped by the conservatives really are. Civilization doesn't necessarily come to an end if the value of money is decreased!

Of course not. As the Romanian joke went, "Mommy, we will we still have money when we attain true communism?" "No honey, we won't have any of that, either."

What's amusing is that you can wipe out a capitalist county's monetary system, their entire life savings, and their entire economy, and five years later they're back in the game. Under communism, generations are raised in the same cinderblock apartment block with no food and no heat, listening to an AM radio that's spent 70 years boasting that they won the war of production.

Trickle down economics wasn't aimed at increasing the profits of the wealthy, it was aimed at allowing people and businesses to actually keep more of the profits, income, and property that they were earning.

Since regressive taxation rates remain just as high or even increase; since social services benefiting the poor are cut; since massive government spending (especially military) that benefits the rich more is increased; since allowing the rich to hoard their money decreases investment and creates unemployment; since there are deliberate efforts to lower wages and living standards for the large majority of the populartion, this is a damned lie!

Uh, no. We weren't the ones who were literally starving tens of millions of people to death to build the new socialist state. Then they built on their success by killing tens of millions more workers. One of my chat buddies is a girl who grew up in the Komsomol (cute skirts!). I'd introduce you, but she's so extremely angry and violent that she'd kill any communist where they stand with a bullet through the head, without blinking, because she lived through their hell and survived. Now she's a US military officer, and her contempt, loathing, and hatred is undiminshed.

To her, all communists deserve to die, and all communists must be killed to pay for the pain they've inflicted. There is no bargaining, and no justification. Your victims are hunting you, like you were a Nazi SS officer in world of Jews. You can babble all you want, but the people who were there, and who lived under your system, would rather die than do it again. Doesn't that say something about what you believe, that the very people you steeped in dogma, propaganda, training, and socialist education are your worst enemies and greatest fear?

Modern communists have to look for new suckers, because their old suckers are licking thier wounds and plotting revenge. You're rapidly running out of people to fool, and the internet is shrinking the world around you.

Yes, we all know your religion, Mammon is God and the Rich are the Chosen People. For the rest of us, your determination that working people didn't really earn their money, as in their retirement funds, betrays a malice that borders on the Satanic.

Uh, again, no. I've never had much money, and I'm from the region of the US where Democrats go to find poster children for abject poverty. You are from the rich area of the US, where Democrats come from, to exploit us for political advantage, to take more and more of what little we produce and connive to make us produce even less, so what we lose what little we have so you can lead your crazy revolution that ends in our murder, while you sip lattes in Manhattan and talk about the plight of the working people, as if you'd ever actually met one. Communism never worked in the US becuase workers despise you for what you are. That's why you're bypassing workers and taking your insanity directly to goverment dependents, essentialy the hangers on at court and their goverment dependents. You have to pitch to the non-working parasite class because that's all communism is, its core of lazy, disaffected, greedy people who want to live on the back of others.

I suppose a country could take all the money from their top earners and blow it on Western or Soviet weapons, as much of the Middle East did, but how does that help the poor?

I have been amused at the raving mad, foaming at the mouth BS about Communism and Marxist economics, but if you don't know that every Middle Eastern country is cursed with a capitalist economy, you really need to sign a power of attorney so someone else can handle your affairs.

Sorry, I was talking about Libya, Iraq, Yeman, and Syria (and all the Stans), who were Soviet client states that were Arab National Socialists, armed with Soviet weapons. You know, the oil rich nations where the region's poor people sent money because the felt sorry for the region's poor people who lived under socialism.

 

[horatio83]

I frankly admit that I am sympathetic to Marxist thinkers. Even when I don't agree with them they often provide interesting insights.
Yet the diffuse notion of capital is indeed the key problem of Marxism as an economic theory whereas mainstream economics has a fairly clear one: you are more productive with a computer than with a typewriter, more productive with a lawnmower than with a scythe.

Yet we do not want capital to gain a lot of political power relative to labour because wealth is unequally distributed. If it were hypothetically absolutely evenly distributed the balance of powers between labour and capital would be irrelevant. Yet it isn't, the political power of capital sits in the hand of very few, the 1% (if you take a look at actual data it might very well be rather the 0,1%).
So this is my social democratic (Being a good classical liberal I care about empirics. Social democracy, visible in Scandinavia or the post WWII consensus from 1945 until roughly 1980 in all the West lead to good GDP growth, low income inequality, decent education and so on. It is simply empirically the best system.) position. I disagree with communists as they ignore that capital is simply economically productive and I disagree with capitalists as they ignore that the political power of capital is undemocratic and has already partly transformed our Western democracies into oligarchies. The form might still be democratic but the content isn't.
Last but not least social democracy is moderate and inherently conservative (Roosevelt saved capitalism from the capitalists, prevented with the New Deal that another system like fascism in Europe could become a viable option.) whereas fascism, communism or anarcho-capitalism are anything but.

 

[horatio83]

Much government spending is in fact investment, which most certainly does have positive effects on economic growth.

This is probably wrong, the welfare state and subsidies take up a large proportion of public spending and while infrastructure and education have surely far higher rates of return than the average private investment one cannot view government as merely investive.

But of course the right-wing view of government as mere consumptive parasite is equally wrong. Ironically it is precisely their types of spending, socialism for the rich (bail-outs, tax reductions) and military spending, which is purely consumptive. Neoliberalism does after all not exist anywhere, it is just an ideology (That's why Ron Paul is so unsuccessful, he takes ideology seriously. It is a bit like with really existing socialism, taking it principles seriously was a safe path towards becoming a dissident. Of course Paul isn't a dissident but you get my point, taking an ideology which doesn't match its notions in reality seriously is the best way to reveal this mismatch.).

Back to your original point, I think it is telling that the infrastructure (at least in the US) and education (everywhere else in the West) are neglected. Although these are investments with high rates of return, in the case of education perhaps even double digit ones, the anarcho-capitalists developments during the last 30 years have included what you could call a fight against education. The system isn't rational, it undermines its own foundations and for me pure conservatism, fear of collapse, chaos and revolution, would suffice to favour social democracy.

 

[gturner]

I frankly admit that I am sympathetic to Marxist thinkers. Even when I don't agree with them they often provide interesting insights.
Yet the diffuse notion of capital is indeed the key problem of Marxism as an economic theory whereas mainstream economics has a fairly clear one: you are more productive with a computer than with a typewriter, more productive with a lawnmower than with a scythe.

And if you're really productive you turn you lawnmower into capital, start a business, perhaps get a loan using your mower and house as capital so you can buy more mowers, and hire a crew as you expand. A person here in town even made millions by hooking power spray painters to his tractor to paint farm fences, both sides at once, just by driving down the fence row.

Yet we do not want capital to gain a lot of political power relative to labour because wealth is unequally distributed. If it were hypothetically absolutely evenly distributed the balance of powers between labour and capital would be irrelevant.

How can capital gain power when it's a thing, like a deed or a car tiitle, that can be used by the owner in powerful ways in the market place? Recently we've been successfully reining in the power of capital by collapsing the housing market so family wealth has dropped by around 30%, and tightening loans so capital can't be used to start small businesses, but does anyone outside the administration think that's a good thing?

Yet it isn't, the political power of capital sits in the hand of very few, the 1% (if you take a look at actual data it might very well be rather the 0,1%).
So this is my social democratic (Being a good classical liberal I care about empirics. Social democracy, visible in Scandinavia or the post WWII consensus from 1945 until roughly 1980 in all the West lead to good GDP growth, low income inequality, decent education and so on. It is simply empirically the best system.) position.

We called that period "Euroschlerosis", slow income growth, perpetually high unemployment, and reliance on a constant influx of Muslim immigrants to work without the heavy overhead of labor regulations.

Sweden, for example, thrived under free-market policies in the 1800's and the first half of the 1900's. In the 1950's their tax rates started going up, and in the 1960's and 1970's their government ballooned, dropping them from 4th in per capita GDP to 14th by the early 90's, and severly limiting the ability of Swedes to use their personal capital to start a business. Of the top 100 Swedish firms today, only 2 were started after 1970, whereas American business is full of recent garage startups like Microsoft, Apple, and Cisco, along with countless restaurant chains, management firms, and all sorts of other enterprises. In Sweden, to be a big company today you had to get in before the lock. Sweden also had high levels of income and income equality, and low unemployment, before the expansion of their social welfare state. The Swedes who fled to America have 50% higher incomes than Swedes who stayed in Sweden. So since the 90's the Swedes have been rolling back the state.

In Norway's case, their government is primarily funded by selling oil and gas to the rest of Europe. If you want to know what a government could do with all the social spending without any of the taxes or deficits, there's your example.

I disagree with communists as they ignore that capital is simply economically productive and I disagree with capitalists as they ignore that the political power of capital is undemocratic and has already partly transformed our Western democracies into oligarchies. The form might still be democratic but the content isn't.

But workers own capital (unless you're going with the conspiracy theory that capital isn't a thing people own, but a class of alien overlords, while labor is the humans brought here by Xenu).

Last but not least social democracy is moderate and inherently conservative (Roosevelt saved capitalism from the capitalists, prevented with the New Deal that another system like fascism in Europe could become a viable option.) whereas fascism, communism or anarcho-capitalism are anything but.

Roosevelt sold workers out to the capitalists, cutting deals with big business to free them from things like union contracts, and then put in a string of wage freezes. Along with Hoover, his response to an stockmarket crash (a collapse in the value of capital) was to soak the rich. The recovery from the crash was well underway by 1931, and we'd regained most of the losses. But Hoover reacted to the drop in government revenues by trying to grab the same size piece from a smaller pie by dramatically raising the tax rates. That was a disaster, and Roosevelt doubled-down on it, extending and dramatically deepening the depression. Whenever the economy would start twitching back to life, he'd stomp on it again.

Top down, centralized control doesn't work, and can't work, because no human brain can understand all the transactions of the market, nor the reason for them. For example, in my region of the country Roosevelt threw all the coal miners out of work by dictating a fixed price for coal, I suppose on the theory that coal is coal and an economy needs coal. But all coal is not remotely the same. There is metallurgical grade anthracite (very pricey) to bituminous to lignite. Each of those types also has grades based on sulfur content, ash content, heating content, and moisture content. Since my region mined the good stuff, which costs a lot to dig out, the mines closed down. That hurt steel production, since you can't make steel with lignite.

I suppose you could argue that he hurt those evil capitalist mine owners, but the people standing in the soup lines were the miners. At the time the left was screaming about Roosevelt being a big-business old-money capitalist who sold out the American worker, while the right denounced him as a big-government megalomaniac who was destroying American business. Both things were true. Fortunately the Supreme Court rolled back most of his attempts at regulating the economy, and we managed to recover, rebounding strongly in 1940 despite a drop in foreign trade. By 1941 we were booming again, with housing starts and car sales leading the way. Due to Roosevelts mucking around, we were one of the last countries to recover from the depression.

 

[Robert Maxwell]

The recovery from the crash was well underway by 1931, and we'd regained most of the losses. But Hoover reacted to the drop in government revenues by trying to grab the same size piece from a smaller pie by dramatically raising the tax rates. That was a disaster, and Roosevelt doubled-down on it, extending and dramatically deepening the depression. Whenever the economy would start twitching back to life, he'd stomp on it again.

That is not even a little bit true. FDR's stimulus policies reduced unemployment and boosted the economy. It was when his opponents convinced him to dial it back that things got worse again. Your portrayal here is the exact opposite of reality.

 

[horatio83]

How can capital gain power when it's a thing, like a deed or a car tiitle, that can be used by the owner in powerful ways in the market place? Recently we've been successfully reining in the power of capital by collapsing the housing market so family wealth has dropped by around 30%, and tightening loans so capital can't be used to start small businesses, but does anyone outside the administration think that's a good thing?

The bit of capital you or I own, the computer, the lawnmower, the house, the stocks in our pension plan, does indeed not have any influence.
But like any other market capital markets can lack competition if there are only a few players in the market. In order to establish free markets you merely need to enforce property rights but if you also want these markets to be competitive you need a powerful competition agency. Do I really have to point out that capital markets are not competitive, that the securitization of mortgage loans (Econ 101 tells you that spreading risk should be a good thing) partly failed because it was done by a few big banks who rule the market?
This was not my main point though and your question was how capital can be more than a mere thing, a mere production factor. Take a look at Sheldon Adelson, a casino millionaire. Due to Citizens United this guy can literally undermine American democracy with foreign, in this case Chinese (he has a casino in Macau) capital. Who is now the real communist?

About social democracy, your points about Scandinavia and Roosevelt are simply factually wrong. It takes progressive politics to keep income inequality in check:

As my above point about Adelson who infuses capital from a communist country into the US presidential campaign has already illustrated, the true radicals are the people who favour unfettered capitalism.

I am not an anti-capitalist because capitalism has been the most efficient economic system in the history of humankind. Instead of millenia of virtually zero growth nowadays GDP triples (long-run growth rates are around 1.5%) over an average human lifespan of 75 years. But keeping the not-so-nice sides of this system, rising income and wealth inequality, the destruction of our ecosphere and the oligarchical undermining of our democracies, in check, not living in some radical form of economic anarchy but in a moderated and regulated system, is a no-brainer. If you want economic anarchy, so be it, I favour the rule of law.

 

[Robert Maxwell]

I am not an anti-capitalist because capitalism has been the most efficient economic system in the history of humankind. Instead of millenia of virtually zero growth nowadays GDP triples (long-run growth rates are around 1.5%) over an average human lifespan of 75 years. But keeping the not-so-nice sides of this system, rising income and wealth inequality, the destruction of our ecosphere and the oligarchical undermining of our democracies, in check, not living in some radical form of economic anarchy but in a moderated and regulated system is a no-brainer.
The young guy in black throwing stones at police officers as well the Koch brothers and their minions favour anarchy. I favour the rule of law.

Very well said.

 

[gturner]

The recovery from the crash was well underway by 1931, and we'd regained most of the losses. But Hoover reacted to the drop in government revenues by trying to grab the same size piece from a smaller pie by dramatically raising the tax rates. That was a disaster, and Roosevelt doubled-down on it, extending and dramatically deepening the depression. Whenever the economy would start twitching back to life, he'd stomp on it again.

That is not even a little bit true. FDR's stimulus policies reduced unemployment and boosted the economy. It was when his opponents convinced him to dial it back that things got worse again. Your portrayal here is the exact opposite of reality.

Even FDR's economic advisor said the spending didn't work. Not even a little bit.

The number of hours worked was lower after the New Deal took effect than they were after the crash (1929-1932). The crash dropped labor hours by 18%. The New Deal dropped labor hours by 23%, and private sector labor hours by 27%. So okay, the government jobs programs were making employment not as horribly bad as it would've been under the same government policies, but without the jobs programs. That's not a great recommendation. "You're all out of work because I screwed up the economy - again, but look, I brought you shovels!"

Without the New Deal, the economy should've recovered by 1935 (according to Nobel Prize winning economists). All the market elements were in place for a recovery, but Roosevelt kept jacking around. He kept reducing competition (socialists don't seem to understand its benefits, and despite their claimed fear of monopolies, that's what Roosevelt was creating).

He threw out the anti-trust acts so major industrialists could collude on prices and practices, putting quotas on new expansions so as not to create more evil competition (and of course eliminating both the costs of plant expansions - and the market for the equipment needed to expand).

In return for their new collusion and monopoly powers, the big industrialists had to agree to wage increases that priced workers out of the market. That was Roosevelt's plan, apparently, ignorantly thinking that you can ignore supply and demand in the labor market. The effects of all that was greatly reduced output and hiring - ie. lower GDP and higher unemployment. Thankfully the Supreme Court struck that down in '35, but that didn't matter to Roosevelt. He just refused to go back to enforcing anti-trust laws, despite all the obvious collusion and price fixing that was still going on.

Then the big dip in '37 came along. It was the direct result of New Deal policies, not their repeal, as the large wage rises that caused the massive surge in unemployment were the result of the Supreme Court upholding Roosevelts National Labor Relations Board law on forcing wages up.

Supreme Court rules against him - the economy improves. Supreme Court rules for him - the economy worsens.

Things got so bad that in 1938 Roosevelt relented, confessed that he'd created cartels, and allowed anti-trust prosecutions to go forward. The Supreme Court ruled against him again on wages and strikes, and the recovery finally began in earnest.

Countries that did the opposite of what FDR did recovered quickly, and never reached the abysmal depths that we did.

 

[Robert Maxwell]

The recovery from the crash was well underway by 1931, and we'd regained most of the losses. But Hoover reacted to the drop in government revenues by trying to grab the same size piece from a smaller pie by dramatically raising the tax rates. That was a disaster, and Roosevelt doubled-down on it, extending and dramatically deepening the depression. Whenever the economy would start twitching back to life, he'd stomp on it again.

That is not even a little bit true. FDR's stimulus policies reduced unemployment and boosted the economy. It was when his opponents convinced him to dial it back that things got worse again. Your portrayal here is the exact opposite of reality.

Even FDR's economic advisor said the spending didn't work. Not even a little bit.

The number of hours worked was lower after the New Deal took effect than they were after the crash (1929-1932). The crash dropped labor hours by 18%. The New Deal dropped labor hours by 23%, and private sector labor hours by 27%. So okay, the government jobs programs were making employment not as horribly bad as it would've been under the same government policies, but without the jobs programs. That's not a great recommendation. "You're all out of work because I screwed up the economy - again, but look, I brought you shovels!"

Without the New Deal, the economy should've recovered by 1935 (according to Nobel Prize winning economists). All the market elements were in place for a recovery, but Roosevelt kept jacking around. He kept reducing competition (socialists don't seem to understand its benefits, and despite their claimed fear of monopolies, that's what Roosevelt was creating).

He threw out the anti-trust acts so major industrialists could collude on prices and practices, putting quotas on new expansions so as not to create more evil competition (and of course eliminating both the costs of plant expansions - and the market for the equipment needed to expand).

In return for their new collusion and monopoly powers, the big industrialists had to agree to wage increases that priced workers out of the market. That was Roosevelt's plan, apparently, ignorantly thinking that you can ignore supply and demand in the labor market. The effects of all that was greatly reduced output and hiring - ie. lower GDP and higher unemployment. Thankfully the Supreme Court struck that down in '35, but that didn't matter to Roosevelt. He just refused to go back to enforcing anti-trust laws, despite all the obvious collusion and price fixing that was still going on.

Then the big dip in '37 came along. It was the direct result of New Deal policies, not their repeal, as the large wage rises that caused the massive surge in unemployment were the result of the Supreme Court upholding Roosevelts National Labor Relations Board law on forcing wages up.

Supreme Court rules against him - the economy improves. Supreme Court rules for him - the economy worsens.

Things got so bad that in 1938 Roosevelt relented, confessed that he'd created cartels, and allowed anti-trust prosecutions to go forward. The Supreme Court ruled against him again on wages and strikes, and the recovery finally began in earnest.

Countries that did the opposite of what FDR did recovered quickly, and never reached the abysmal depths that we did.

You're kidding, right?

Japan--generally considered to be one of the first to recover from the Great Depression--did so through stimulus policies.

Are you just totally making this stuff up? I mean, seriously?

 

[horatio83]

Countries that did the opposite of what FDR did recovered quickly, and never reached the abysmal depths that we did.

This is false. In my own country Chancellor Brüning's austerity lead to increasing unemployment which was one among many causes for the rise of fascism. Once the nazis had been in power their war economy lead to a decrease of unemployment as any kind of publicly created demand does in a recession. It doesn't matter where this demand comes from, whether it is the New Deal, the war economy of the nazis, the war economy of the Americans or whether you dig holes in the ground and close them up again (of course from a consumptive-utilitarian the former is the best option as people cannot eat tanks).

This is not socialism but basic economics, in a recessions wages and prices are sluggish for numerous reasons so a fall in demand does not lead to falling prices and wages and a new equilibrium with full employment but rather to an underemployment equilibrium.
In such a situation the only players who can counteract the vicious cycle of a recessions (firms don't invest when they face falling demand, consumers don't spend when they face the thread of unemployment) is the government via printing money or deficit spending. You can read the articles or textbooks which show the underemployment equilibrium dynamics or you can simply boil it down to the formula of "somebody has to buy stuff".

Or you can remain an ignorant Hooverite and believe that deficit spending, i.e. simply implementing government projects like a road a few years earlier than initially planned, is the same as central planning, believe that austerity and the confidence fairy end recessions. I stopped to believe in fairies a long time ago.

 

[gturner]

You're kidding, right?

Japan--generally considered to be one of the first to recover from the Great Depression--did so through stimulus policies.

Are you just totally making this stuff up? I mean, seriously?

How is forbidding factory expansions a "stimulus"? How is setting wages far higher than productivity gains would support a "stimulus"? How is allowing collusion and monopolistic practices a "stimulus"? How is freezing wages - or prices - a "stimulus"? How is prosecuting a family business for selling food at a more competitive price (The Supreme Court struck him down on that one, thank god) a stimulus?

His economic policies were so bad that he had to use a variety of stimulus measures just to make sure people were still breathing, and all his stimulus amounted to was giving unemployed people shovels and telling them to move dirt, which they did.

 

[Mars]

And I know that Milton Friedman's economics works and Keynes does not because history has proven Friedman's theories and not Keynes, it hasn't worked in the 1930s, the 1970s or today, printing money, taxing and spending more does not stimulate the economy, all your doing is taking money out of one pocket and putting it in another. The government performs no magic on money taxed that makes it more stimulative than if the original owners of that money kept it and spent it on their own wants, desires, needs and investments.

The place where Friedman's economics got their best shot at being fully applied was Pinochet's Chile. Not only doesn't work as advertised, it has costs in blood. Mind you, there wasn't a terrible world war and civil war and mass rebellion and chaos and people terrified and desperate, it was just people like you working a business model.

The problem was that most Chileans expected the government to pick their neighbors pocket and redistribute towards them, the only way Friedman's economics would work in Latin America was if a dictator takes over and implements it, Latin Americans normally vote for socialist policies that keep their countries poor by not allowing the people to get rich. Rick people in Latin America are either associated with government or with criminal enterprises, because socialist policies don't allow for the accumulation of legitimate wealth, the place people go to for opportunity is the United States because that opportunity does not exist in Latin America

Much government spending is in fact investment, which most certainly does have positive effects on economic growth. And much of this investment simply does not take place under private auspices. Further, rich people can afford to hoard money, which does in fact reduce economic growth. The claim that "government performs no magic" is a falsehood. Elementary academic economics is almost entirely indoctrination in crank ideology.

Trouble is the government is often indifferent to the results of that investment, if it loses money if just reaches into taxpayers wallets and grabs some more, for it is your money it is losing not theirs. Capitalists lose their money if they make bad investments, not yours.

There is a fundamental problem in the mindset. For most people, the problem is not being overtaxed and overregulated by the government, but being underpaid by the boss and underserved by the government. It's true that employers will penalize independent thinking, so fear can strongly affect your opinions. In countries where the rich are less powerful, they are prone to hiring offduty cops and soldiers to murder people.

So how does taking away money from those bosses make them pay you more?

The important thing to consider is that capitalists don't create jobs for no reason, they create jobs to turn money into more money. The money that goes into salaries goes to pay people who work to create more money for the employer, there are very few private jobs that don't do this, it is out of profits for this work that future paychecks are cut. Salaries for government jobs come out of taxes, and the taxes governments collect have little to do with the work performed by government employees, salaries come out of tax revenue the jobs in government don't pay for themselves unlike those in the private sector which do. The payback for government jobs is getting the politician reelected, thus jobs exist in government because they get politicians reelected, and those that don't often disappear and the money is redirected toward other things.

 

[Robert Maxwell]

You're kidding, right?

Japan--generally considered to be one of the first to recover from the Great Depression--did so through stimulus policies.

Are you just totally making this stuff up? I mean, seriously?

How is forbidding factory expansions a "stimulus"? How is setting wages far higher than productivity gains would support a "stimulus"? How is allowing collusion and monopolistic practices a "stimulus"? How is freezing wages - or prices - a "stimulus"? How is prosecuting a family business for selling food at a more competitive price (The Supreme Court struck him down on that one, thank god) a stimulus?

His economic policies were so bad that he had to use a variety of stimulus measures just to make sure people were still breathing, and all his stimulus amounted to was giving unemployed people shovels and telling them to move dirt, which they did.

FDR's public works programs put people back to work. That is a fact.

Did it put all of them back to work? No. Did it put enough of them back to work? Probably not.

Would supply-side policies have worked better? Fuck no.

End of thread.