Why The Stimulus Story Isn't Resonating: No Transparency, No Participation

from the politics-as-usual dept

Mon, Feb 9th 2009 11:02am — Mike Masnick

There's a pretty widespread belief that President Obama hasn't done a particularly good job convincing people of the need for the "stimulus" plan he's pushing. This is definitely seen in the incredibly lukewarm reaction to Obama's calls for nationwide house-parties to try to drum up support for the stimulus plan. Such meetups and house-parties worked during the election, because people believed in Obama the candidate -- but the evidence so far is that they don't believe in the stimulus plan. At all.

There are some interesting theories as to why that might be. My favorite economics reporter, David Warsh, has proposed an interesting (and somewhat compelling) theory: which is that most of the economists in Obama's inner circle believe in an economic theory of boom/bust cycles that the rest of the country doesn't believe in. Specifically, the new Keynsians don't put much weight in the "hangover theory," which is what Paul Krugman nicknamed the Austrian theory of business cycles, greatly simplified into:

In the beginning, an investment boom gets out of hand. Maybe excessive money creation or reckless bank lending drives it, maybe it is simply a matter of irrational exuberance on the part of entrepreneurs. Whatever the reason, all that investment leads to the creation of too much capacity -- of factories that cannot find markets, of office buildings that cannot find tenants. Since construction projects take time to complete, however, the boom can proceed for a while before its unsoundness becomes apparent. Eventually, however, reality strikes--investors go bust and investment spending collapses. The result is a slump whose depth is in proportion to the previous excesses. Moreover, that slump is part of the necessary healing process: The excess capacity gets worked off, prices and wages fall from their excessive boom levels, and only then is the economy ready to recover.

Now, Krugman then goes on to suggest why this theory is wrong, but Warsh and I both have trouble with his explanation. It's not very convincing (though, I'll be the first to admit that I'm pretty sympathetic to the arguments from the "Austrian school" of economics). I could go through why I think our most recent Nobel Prize winning economist is wrong, but this post is already getting pretty long (short answer: he ignores how certain parts of the economy are interconnected, and incorrectly brushes off the time that it takes to understand where new investment opportunities lie). In fact, as Warsh points out, the "hangover theory" makes an awful lot of intuitive sense to most people. But the problem is that the stimulus plan doesn't seem to be responding to the hangover effect. Instead, it's very much focused on what Krugman and the "new Keynesian" economists believe the real problem to be (everyone wants cash). Thus, the stimulus idea is get cash into the economy, pronto. But for everyone who believes in the "hangover theory" this sounds just awful. It just prolongs the problem by dumping cash into a system that's still adjusting, and simply fuels the next boom (and, eventual bust).

I think Warsh is definitely correct on the gut reactions many people are having to the stimulus package -- which is that it doesn't seem to be addressing the real problem at all, and seems ripe for abuse. I don't deny that getting more money into the system will stimulate something -- I'm just afraid of what.

However, I think there's also a second reason why the country remains incredibly apprehensive towards the stimulus package. That's because for all the talk about how this was a new era of transparency and how Obama was going to use the same participatory tools that help got him elected to govern, this stimulus package didn't do that at all. Instead, it was done in the same old way. The details were all worked out in the backrooms by the same beltway insiders, and then presented to the public as something to take or leave -- or maybe argue about at the margins. We were never invited to participate in the process at all. We weren't really given a chance to weigh in with our thoughts.

And, thus, we feel that this is politics as usual -- something many people were hoping would go away for a while -- on one of the biggest, most important efforts to deal with a huge economic mess. The best the administration could do was ask everyone to help support the plan he handed down -- rather than having everyone help him build the plan. That was a huge mistake, and it's reflected in how the plan has been presented and how it's been debated.

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Filed Under: austrian, business cycles, economics, hangover effect, keynesianism, krugman, obama, participation, stimulus, transparency

55 Comments

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Anonymous Coward, 9 Feb 2009 @ 11:50am

What's with the partisan talking points on techdirt?
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:Lobo Santo, 9 Feb 2009 @ 11:55am

Build Plans
Portions of the stimulus package are obviously bad news, but the plans to further the USA's infrastructure give me hope.
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Anonymous Coward, 9 Feb 2009 @ 11:56am

Re:
Everybody is partisan except people who are ignorant or those who lack balls.
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Former Eunuch, 9 Feb 2009 @ 12:00pm

Re: Re:
Eunuchs are non-partisan?

I don't think so!!

Angry Dude is a eunuch and he obviously has a one-sided view point on many things.

Also, most of us eunuchs are against people who have balls, which makes us partisan...
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Mike (profile), 9 Feb 2009 @ 12:10pm

Re:
What's with the partisan talking points on techdirt?

I'm curious what's partisan about this at all? I disagree with both the Dems and the Repubs concerning their views on the stimulus package.
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mike42 (profile), 9 Feb 2009 @ 12:22pm

Naw...
I don't think most Americans are against the stimulus because of a lack of transparency, or because of their economic beliefs. I think they are against it simply because they see it as rewarding failure, and at a time when many have felt the effects of their own failure (bankrupt, foreclosed, etc.) If they have to suffer the effects of their own money mismanagement or bad luck, why shouldn't the employees and shareholders of large corporations? (Note: that is a rhetorical question.)
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Anonymous Coward, 9 Feb 2009 @ 12:23pm

Re: Build Plans
Portions are bad news? I guess if you consider like 90% a "portion". It's nothing more than BHO paying off all of the cronies he promised during the campaign. Most Americans are smart enough to see that and want nothing to do with it. End of story.
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Anonymous Coward, 9 Feb 2009 @ 12:27pm

Yeah, the only way this could be construed as partisan is if you think that anything less than full support of the administration is partisan. Did you think any reluctance to support everything Bush proposed was purely due to partisanship?

Nearly everybody dislikes the bailout, for reasons that Mike said. They don't think it addresses the problem; they think it's politicians making noise about a problem in order to justify massive spending on whatever pet project they have. Keynesian economics is silly, but has always appealed to politicians who would like to think they could easily control the economy.

People would be happier, I think, with a few more executives going to jail, some legal reform (deregulation in some areas, more regulation in other areas), and tax cuts. Things that reform the system, rather than something that is clearly a one-shot boost.
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Baloney Joe, 9 Feb 2009 @ 12:30pm

Equilibrium
We need to let the system work out it's inefficiencies. Any change we make to the system will result in un-anticipated reactions in the system.

A toilet works because when you flush, the tank refills itself over a period of time. if you were to pour water into the bowl while you flushed the system would fail to function properly. Have faith in the design and all works as expected.
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Andrew Kerr, 9 Feb 2009 @ 12:33pm

I dont really like the idea of a stimulus plan at all... HOWEVER, if there has to be one, it would be nice if the gov would just lower the corperate tax rate from 36% down - perhaps 5%.

This would get money back in companies that employ people, and keep the ball spinning. Even if it was temporary, it sure would be nice.

my 2 cents.
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Eco-guy, 9 Feb 2009 @ 12:43pm

A context I understand
From my limited knowledge of economics, I consider the idea of massive public spending to stimulate the economy analogous to introducing a predator into an ecosystem to curb overpopulation of another species. In some cases, it's had the intended effect, in others, it's been a disaster. My gut instinct on this one is more column B.
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Eco-guy, 9 Feb 2009 @ 12:43pm

A context I understand
From my limited knowledge of economics, I consider the idea of massive public spending to stimulate the economy analogous to introducing a predator into an ecosystem to curb overpopulation of another species. In some cases, it's had the intended effect, in others, it's been a disaster. My gut instinct on this one is more column B.
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Anonymous Coward, 9 Feb 2009 @ 12:50pm

Screw the damn stimulus package! Like AnonyCow said, it's 90% rip-off anyway. Implement the FairTax and be done with it!!
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Anonymous Coward, 9 Feb 2009 @ 12:51pm

Eco-guy
That's not a bad analogy, and I may steal that for future discussions. It made something go 'click' in my head.

Both instances are examples of tampering in systems that have complex and chaotic interdependencies which we will never completely and totally grasp. Tampering may be necessary, but it should be as a last resort.

Pharmaceuticals are another similar case; we can never predict _completely_ the effect they will have on a body, but sometimes they are better than the alternative. I would like to propose that all economic plans should require as many years of double-blind testing as pharmaceuticals undergo.
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jonnyq, 9 Feb 2009 @ 12:53pm

Re: Build Plans
Transportation infrastructure should always be paid for under the current tax setup (gas taxes and such)

Upgrades to communication infrastructure will likely just end up being a handout to telecoms.
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anonymous hero, 9 Feb 2009 @ 12:54pm

The only thing that is a worse disaster
than the economy is the so-called Stimulus plan. It's 90% PORK BARREL legislation that D.C. is so infamous for.
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Matt, 9 Feb 2009 @ 12:59pm

Re: Re:
There's a pretty widespread belief that President Obama hasn't done a particularly good job convincing people of the need for the "stimulus" plan he's pushing.

That's what strikes me as partisan, and also false. Judging by the latest gallup poll (one of many with similar results):
PRINCETON, NJ -- The American public gives President Barack Obama a strong 67% approval rating for the way in which he is handling the government's efforts to pass an economic stimulus bill,

The only ones with a "widespread belief" that Obama isn't doing a great job proposing the stimulus are those that oppose him for political, rather than economic, reasons.
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jonnyq, 9 Feb 2009 @ 1:02pm

Re: Re: Re:
There's a difference in Obama's overall approval rating and public opinion of the stimulus.
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Mike (profile), 9 Feb 2009 @ 1:06pm

Re: Re: Re:
That's what strikes me as partisan, and also false. Judging by the latest gallup poll (one of many with similar results):

Approval rating is different than convincing people that the stimulus plan is needed.

And, I should point out, that my link on explaining why he wasn't doing a good job was to the liberal-slanted Salon.com, explaining why he had failed to win over many.

Furthermore, the lack of success with his "house-party" idea is pretty striking.

I am not a partisan in any manner. I would like to see Obama succeed because I would like the country to do well. But he hasn't been very convincing on the stimulus plan. There's an awful lot of pushback on it.
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Anonymous Coward, 9 Feb 2009 @ 1:08pm

Re: 17
Hah...an approval rating! Regardless of whether it's BHO or not an approval rating these days is nothing more than another propaganda tool. Tells us alot about your credibility. Who else here is ignorant if not foolish enough to believe in an approval rating?
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TomA, 9 Feb 2009 @ 1:08pm

Consensus
I am curious how the author envisions the general public having more input constructing a bailout plan. A giant wiki where 300 million or so add their 2 cents? We spent two years choosing a new administration, how about we give them 2 months or so before we declare business as usual and burryng them for not cleaning up the historic mess they were handed.
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Anonymous Coward, 9 Feb 2009 @ 1:37pm

they should have brought recovery.org online at the beginning of the process and used it to show what was in the bill not after when the bill is done.
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LogopolisMike, 9 Feb 2009 @ 1:39pm

"There's a difference in Obama's overall approval rating and public opinion of the stimulus."

Yeah, only 54% approve of the stimulus, and 64% believe it will help the economy "a lot or somewhat."

While pundits and blogs and cable news see dark clouds, most of the rest of America thinks something needs to be done and is tired of the runaround.

You need to fix your headline. The real story that isn't resonating is the blood in the water of the Obama administration due to the stimulus debates.
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Anonymous Coward, 9 Feb 2009 @ 2:12pm

Re: Consensus
A giant wiki where 300 million or so add their 2 cents?

Great idea. Maybe the folks over at http://www.stimuluswatch.org/ could come up with something...

Oh wait. They already did.
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AustroKey, 9 Feb 2009 @ 2:14pm

I call bs on the reasoning that most of the country believes in the "hangover theory". Let's see some concrete numbers before such statements are made.

Being against the stimulus package does not automatically make you a believer in Austrian economics. Although I guess being for the stimulus makes you a Keynesian (old or new ) or maybe just a stupid Keynesian.
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Anonymous poster, 9 Feb 2009 @ 2:16pm

Spendulous
Honestly this package is a fraud. If the purpose is to pull up the economy it won't work. It did not work during the 90s in Japan and did not work here in the 30s. To spend you must pull the money from somewhere. Think of it as dipping a bucket from the deep end of the pool and pouring it in the shallow end.

What will work are business tax incentives--tax credits for capital spending; tax credits for job creation. No waiting for shovels.

And none of the hopelessly stupid pile of projects that are put into this bill as payoffs
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Anonymous Coward, 9 Feb 2009 @ 2:36pm

you may not agree with the package, but you can't say that there is a lack of transparency since you can read every word of the package online.
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Matt Asay, 9 Feb 2009 @ 2:56pm

Re: Re:
Totally agreed. This isn't a partisan post. Stupidity is equally shared between the Republicans and Democrats, including their respective financial policies. But economics really should be above the partisan fray, and Techdirt is simply stating an obvious truth: we got ourselves into this hole and spending (the thing that got us into the hole) is not necessarily the answer, or at least the most compelling answer. Even if it is, how to spend should be a joint discussion.
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Anonymous Coward, 9 Feb 2009 @ 3:08pm

Re: Re: Build Plans
Shut up, jackhole. Your boy, Bush, didn't he start this crap?
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Anonymous Coward, 9 Feb 2009 @ 3:12pm

Re: Re: 17
Tells us alot about your credibility.

And that tells us all we need to know about about your credibility, too.
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Leonard, 9 Feb 2009 @ 3:20pm

I'm no economist, but...
most of you are not either. Neither is the OP. On the other hand that Nobel-prize winning Mr. Krugman is. Pardon me if I believe him over the lineup of posters here.

And to that I just might add:

1. I have been doing a bit of research on this subject. See my blog entry for today, where I try to explain the concept of economic stimulus and how it worked in the Great Depression. http://nightman1.wordpress.com/

2. Read some history. Those cyclical crashes of the past were the bane of the 19th Century, as they often led to devastatingly deep recessions--such as the superstar down-cycle of them all, the Great Depression. They caused millions of people great suffering and fear and want. Are you SURE you personally want to go through one of them just because it fits with your quasi-religious belief in the all-repairing goodness of laissez faire capitalism?
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Non-economist, 9 Feb 2009 @ 3:38pm

Paul Krugman isn't the boss of me
There are plenty of leading economists out there who don't see eye-to-eye with Krugman. In fact, I would say the closest thing to a consensus that I get from reading the blogs of people like Tyler Cowen and Arnold King is that the bill is bloated and that cutting payroll taxes and some very limited, concentrated infrastructure spending should be option A. Very few economists are in favor of the hodgepodge behemoth in front of the Senate right now. Most, I believe, think it sucks.
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Mike (profile), 9 Feb 2009 @ 3:46pm

Re: I'm no economist, but...
most of you are not either. Neither is the OP. On the other hand that Nobel-prize winning Mr. Krugman is. Pardon me if I believe him over the lineup of posters here.

Are you suggesting that von Hayek isn't an economist?

1. I have been doing a bit of research on this subject. See my blog entry for today, where I try to explain the concept of economic stimulus and how it worked in the Great Depression. http://nightman1.wordpress.com/

Um. That doesn't say anything. All it says is that Republican plans don't work. I agree. I think they're just as screwed up on this as the Dems. But there are a long list of economists (Nobel prize winning ones, in fact) who disagree with Krugman on this issue. The fact that you just link to him and say that's all the evidence you need is not at all convincing.

2. Read some history. Those cyclical crashes of the past were the bane of the 19th Century, as they often led to devastatingly deep recessions--such as the superstar down-cycle of them all, the Great Depression. They caused millions of people great suffering and fear and want. Are you SURE you personally want to go through one of them just because it fits with your quasi-religious belief in the all-repairing goodness of laissez faire capitalism?

Hmm. First, what's with the personal attack claiming "quasi-relgious belief..." That doesn't make you credible either. It makes you sound intolerant of ideas that challenges yours. I'm a student of economic history -- and spend plenty of free time actually reading economic papers. So to suggest that I don't know my history is simply incorrect.

Reasonable people can and do disagree about this, but your comment isn't about disagreeing critically, it's about bashing those who disagree with you.

Come back with some evidence and we can talk.
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GeneralEmergency (profile), 9 Feb 2009 @ 3:59pm

Re: Re: Re: Build Plans
Ahhh... The refreshingly articulated and expertly reasoned response of Bush Derangement Syndrome sufferer.

Are you at all aware of how completely Un-American you appear to be when the first words from your fingers are "Shut up, jackhole.", when participating in a public forum?

Could you not summon up a more cogent argument to the posters remarks than "Shut up"? Does your mother know you go around calling people "JackHole"?

Please...Next time take a few more minutes and allow your mind to --THINK- of a reasoned and eloquent response before typing.

It's the American thing to do.
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nasch, 9 Feb 2009 @ 4:20pm

Re: Naw...
I think another reason is that the $350 billion we already spent has had at best unclear results. We were hoping for increased lending and reduced interest rates, but that hasn't happened. Maybe it did do good things like keep more banks from folding, I don't know. But if that's the case, somebody needs to do a better job explaining what happened and why.
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Anonymous Coward, 9 Feb 2009 @ 5:30pm

Re: Paul Krugman isn't the boss of me
Headline: Krugman Awarded Nobel Prize for Socialist Economic Views by a Committee of Socialists. Sounds like The Onion.
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Derake, 9 Feb 2009 @ 5:53pm

Spending Bill not as bad as FED...
The 700+ billion or 800+ billion in the current porkulus bill are nothing compared. Quote from the article on Bloomberg Feb. 9 (Bloomberg) -- The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages. http://www.bloomberg.com/apps/news?pid=20601070&sid=aGq2B3XeGKok&refer=home
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Skeptic, 9 Feb 2009 @ 6:36pm

Re: Re: Build Plans
Please, provide examples so we understand your point better.
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Absolute Maybe, 9 Feb 2009 @ 6:52pm

Is This Like the Others?
I am old enough to have been through several of these "cycles", and I have to say that I've never seen anything like this before. Where I live there are skyscrapers sitting half built, literally abandoned. My business is WAY down over last year (as are my prices and # of employees). The big white elephant in the room that is here but nobody is mentioning is DEFLATION. That sets this in stark contrast to any of the "down" cycles we have had in my lifetime (45yrs). It just seems to make sense to me that if banks wont lend, business contracts, and consumers stuff there money into the mattress (figuratively of course), the only entity with the ability to spend is government...and they need to do it quickly before we really see what the effects of deflation are all about...God help us all if the deflationary spiral comes to pass cause it aint gonna be pretty
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Anonymous Coward, 9 Feb 2009 @ 7:12pm

Re: Is This Like the Others?
God help us if this "stimulus" bill passes.
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Anonymous Coward, 9 Feb 2009 @ 7:21pm

Re: Re: Re: Build Plans
http://article.nationalreview.com/?q=YjcyODIyZGM2MGU1ZDdkNDgxZDc3OTNjYjM4ZDY1ODI=
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Phillip, 10 Feb 2009 @ 7:06am

Re: Is This Like the Others?
Hmm, considering the gross levels of inflation we were experiencing right before this, sounds more like balance to me.
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Anonymous Coward, 10 Feb 2009 @ 8:39am

Re: Re: Re: 17
And that tells us all we need to know about about your credibility, too.

Everyone...look down there, just another dumb fish in the barrel.
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Anonymous Coward, 10 Feb 2009 @ 8:58am

Re: Re: Paul Krugman isn't the boss of me
It's definitely a smelly, tear dropping onion.
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Gene Cavanaugh, 10 Feb 2009 @ 10:25am

Obama and stimulus
On the "hangover" theory, undoubtedly correct, IMO. This may be only because I have been arguing the same thing for years now, but I continue to believe in it.
BUT, when you have a hangover you do those things to help you through it. A correctly done "stimulus" (misnomer, IMO) could be used to somewhat soften the transition, if done properly.
AND, on transparency - no argument, Obama blew it big time!
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flicmod, 10 Feb 2009 @ 11:14am

Re: Is This Like the Others?
"and they need to do it quickly before we really see what the effects of deflation are all about"

So when inflation happens and prices rise and products become more expensive, it's a good thing. But when the consumer says that saving for a rainy day is worth more than going out and buying the latest 72" plasma TV or a $300K house (which results in lower prices around the board) it's a bad thing?

Get off your Keynesian high-horse.
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Crabby (profile), 10 Feb 2009 @ 12:03pm

Re: Reform
Your last paragraph says it all.
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C (profile), 10 Feb 2009 @ 12:08pm

Re: The only thing that is a worse disaster
But... but... I thought this administration was going to be about change? (smirk)
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Crabby (profile), 10 Feb 2009 @ 12:14pm

Re: Re: Is This Like the Others?
Really. The media and government gripe that Americans spend too much money and don't save enough. Now that things are tight and Americans are saving more money and spending less, they're berated for that. I guess the stupid serfs will never please their (would-be) masters, will they?
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Leonard, 10 Feb 2009 @ 12:30pm

Re: Re: I'm no economist, but...
OK, that's one of you who know economic history.

My guess is few of the rest do. They just know that ever since Reagan (a period that encompasses most of the lives of many, perhaps), they have been hearing from every side that the Free Market can solve all problems and is therefore close to holy. That has become the Shibboleth of the Age.

Now we see its results. The regulators who didn't regulate the banks didn't regulate them because, as former Saint Alan Greenspan said, "I believed they would watch out for their own best interest."

Well, they didn't. And most of us know as a matter of common sense that when greed or fear is engaged, we can't be trusted to rationally make decisions in our own best interest either.

But the Free Market lovers go on postulating rational economic man. To keep going down that route and stick with your socially-sanctioned ideas of the power of said Free Market to fix everything and anything, in the face of contrary evidence, is to take an essentially religious stance toward that complex of ideas.

So, given the awfulness of the last Depression, a bunch of you are sitting here betting on the all-powerfulness of your Free Market at the possible cost, if you're wrong, of a very great deal of misery for you and/or a lot of people you know.

I don't for sure know that government economic stimulation will work. I don't have the time or means of surveying several thousand economists to see what their consensus on the subject is either. But stimulation worked in the Depression. See my blog, "Does Economic Stimulation Work?"

I would rather see something done than nothing, since one thing we know from the past is just how very horrible things can get if nothing is done at all.
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Absolute Maybe, 10 Feb 2009 @ 2:09pm

Re: Re: Is This Like the Others?
With inflation the Fed has the power to raise interest rates to slow the economy. Rates are currently effectively at 0% so the Fed becomes powerless in a deflationary scenario. As deflation continues people dont spend/consume and companies lay people off due to reduced demand which leads more people not to spend and banks dont lend because collateral will be of less value (upside down mortgages are a good example).
Funny how small you look from high on this Keynesian horse I'm riding...way down there.
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flicmod, 13 Feb 2009 @ 7:03am

Re: Re: Re: Is This Like the Others?
Prices have been INFLATED artificially by government messing with the interest rates. Prices shouldn't be as high as they are. That's the whole point. Yes, deflation takes power away from the Fed, but the Fed shouldn't have the power to just adjust interest rates in the first place. The market should be the one setting those rates because it's controlled by the consumer.

In a deflationary period, prices are reduced to levels where they should've been all this time. The companies that reaped the profits from high prices due to government interference are now thrown into disarray when they grew entirely way too much during inflationary periods. Inflation is the indirect cause of the layoffs you speak of because businesses think that prices will stay high all the time.

In reality, those companies shouldn't be as large as they are, nor employ as many people as they do because prices shouldn't be as high as the government is making them. The Fed is the reason why prices of an average home are above $250K and why many other industries are suffering from deflated prices. It's been proven that the Fed messing with interest rates in the 1920's was a direct cause of the depression that hit in the 1930's. Inflation doesn't fix anything except to consolidate power and wealth in a few hands.

The Fed needs to stop manipulating the money supply and interest rates. The market is like an ocean. It ebbs and flows, but it's still predictable and relatively calm. The Fed is a freaking hurricane in the ocean of economics. It causes disaster and tidal waves.

As I said. Get off your Keynesian high-horse...
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flicmod, 13 Feb 2009 @ 7:35am

Re: Re: Re: Re: Is This Like the Others?
Third paragraph, fourth line should read: "why many other industries are suffering from inflated prices".
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flicmod, 13 Feb 2009 @ 8:14am

Re: Re: Re: Re: Is This Like the Others?
Additionally, you say that the Fed has the power to raise interest rates to "slow the economy". When has that EVER happened? It obviously didn't happen during the housing bubble, or the dotcom bubble, or the tech bubble, etc., when the economy was growing at an unprecedented speed. The Fed has been feeding the consumer lower interest rates for years. China has kept higher interest rates compared to the US for the same amount of time and their economy has been flourishing. The average person in China has NO DEBT and still affords to live a relatively wealthy lifestyle. How is that not so in the US?

It's because the US (through the Fed) keeps the rates low, which encourages people to spend and borrow more. The Fed will NEVER raise interest rates as high as, say, China because they're duped by this myth called Keynesian economics that says that people need to spend to make the economy go round. It's simply untrue.

All these "problems" we're seeing with the economy aren't due to people not spending enough money (on the contrary!) or because of corrupt businesses. It's due to the fact that the government, aided by the Federal Reserve, encourages poor financial practices like spending yourself into debt. Then when people (or the government) runs out of tangible money to spend, they simply print more and insert it into the money supply. This further goes to lower the value of our currency because there are simply too many dollars in existence, which means it's worth less. Surely you can understand elementary supply and demand? All this comes together to create an INSANELY high price index on goods and services that people are duped into paying because the government and the media continues to spill propaganda on why it's good to spend money that you don't have: because it's unAmerican to let the economy "crash" when you don't spend.

This is preposterous. And your short reply shows more of that corruption when you say "As deflation continues people dont spend/consume and companies lay people off due to reduced demand which leads more people not to spend and banks dont lend because collateral will be of less value". This is circular logic. And your solution to the whole thing (spend more) perpetuates the circular logic. You're asking people to give up something (money) that you say they have less of. In that sense, their money actually becomes worth MORE because consumers are unwilling to part with their money because times are tight. If their money is becoming more desireable, then prices will decrease because products are LESS desireable.

But, with your policy, we should just let the government decide how much prices should be and force consumers to pay them blindly because it's "for the good of the economy".

Do you NOT see how your thinking is flawed? How the entire Keynesian system is flawed? It's all based on circular logic which leads to confuse and dupe consumers into doing what the government tells them to do.
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Michael, 14 Feb 2009 @ 12:25am

Solutions
These are non-spending steps the government could enforce to help recovery.

* Require dollars in banks to be backed by open-market values of commodities. This could be interpreted by banks to be literal and they could hold precious metals and jewels. It could be stocks in other companies, it could be futures (which I believe are defined as contracts for delivery of a given quantity of commodity at a pre-determined price on a given date (from a given option of transfer points)).

* When a company 'too big to fail' fails break it up in to classes of assets that make sense on the market (really grade whatever mortgages grouped together as an example) then auction it off over a period of say... 2 weeks. The current second highest bid should be posted every N hours, while the highest bid from the the same time the day before should be posted, or some other way of having an auction which is designed to maximize the final value and thus minimize the reflection of loss to the stockholders of the original company. Their stocks would be converted in to whatever the assets were worth.

* ELIMINATE PATENTS, I have yet to hear of a patent within my lifetime that did more good than harm to the economy.

* LIMIT COPYRIGHT, 10-20 years should be more than sufficient, any longer than that and it should be part of the culture's shared libraries.

* TRADEMARKS - As far as I know this one isn't really broken as written, just as idiotic corporations like Monster Cable seem to believe they work... Maybe make all legal fees for cases where trademark litigation fails owed by the one who lost? That'd be a good way to apply damages to them as well...

* Infrastructure regulation: Require that all natural monopoly infrastructure be provided by utility companies or directly by the local city/county/state planning as it makes sense AND EXCLUDE THEM FROM PRODUCING WITHIN THE SAME COMPANY. Thus, roads, power-lines, data-cables, and various pipes (Unfortunately the pipes are virtually impossible to segregate, so the sources and end treatment options will largely have to be as they are now) are infrastructure, while the things that they allow to move are quantities to buy from various competing producers. If the local community wants to also build a separate competing power plant, data-service or something else on the platform that's fine, it's separate and on different accounting books.
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