Wednesday, April 5, 2017

It would, indeed, be more sensible to build houses and the like; but…


Graph #1, from Robert Schroeder at MarketWatch
How did we end up with so much Federal debt? People answer that question in different ways. But a graph full of excuses is not a macroeconomic explanation.

As a rule, nobody borrows money to not spend it. If there is Xteen dollars of debt, we can reasonably assume that about Xteen dollars of borrowed money were spent one way or another. We can assume that the money was spent. A detailed list of the things it was spent on accounts for nothing, particularly if the purpose of the spending was to increase the real income of the community.

The wars, tax cuts, and stimulus packages on Schroeder's graph were all supposed to be good for the economy. If the spending didn't work as intended, then we have bigger problems than what the money was spent on.


From Chapter 10:
If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.
 

2 comments:

Oilfield Trash said...

"If the spending didn't work as intended, then we have bigger problems than what the money was spent on."

Do we have a consensus on what our intentions should be? If we do how are we measuring them to determine if they are working?

The Arthurian said...

1. policy is a statement of intent
2. Congress achieves consensus in order to create policy.
3. This graph shows that policy has failed.