Many Keynesians argue that in order to stimulate the economy you must increase consumption. There methods of doing so result in a decrease in investment. They argue that without an increase in consumption, investment will naturally not take place because people will not demand goods. One of the biggest fears for buisness in this currect economic climate is lack of sales and this has led to the calling of more government intervention (e.g stimulus, government work progects, ect.). They argue that when profit from consumption resumes then investment will enter the economy. How would an Austrian respond to " If entrepreneurs are not recieving profit let alone enough revenue to maintain their business; why would the private sector make the risky but necessary investments to help the economy recover?!!!!!!?!!!!!!"
Dave,
It is not as easy as putting it down to "lowering real wages". The wages are too high at the current level of spending. Furthermore, if you adhere to some of the more radical Keynesian claims and believe that prices are sticky in general during a recession, then this actually means that real wages are heightened through this process. It is not a worker trick as much as a worker fulfillment. As I believe I have shown on multiple occasions now they key here is not that workers are "fooled" through a general fall in prices, as is one of the common narratives as to how inflation affects the economy. If done perfectly this would not involve any fooling in the first place.
"We are imagining some Bizzaro world assumption, that workers can be tricked, but where is any real world evidence this is so? Keynes just made it up."
Weren't you citing Austrians talking about sticky wages a few posts back? As I stated I'm sure that there's plenty of real world evidence for sticky wages, indeed Rothbard did work in AGD showing that wages rose slightly in the first part of the Great Depression. You could call Keynes' claim a misinterpretation, but I think it's foolish to say that he made it up.
What Keynes made up was that inflation can trick the workers.
The wages are too high at the current level of spending.
I think we are going in circles here. Then why aren't they all hired, and from the money they make they will buy up what they make?
Your answer was their wages are too high. Meaning once the wages are lowered by any means, including an impassioned speech, what is the answer now to why arent they all hired?
You can't have it both ways.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
"I think we are going in circles here."
I agree
But I think we disagree about who is in error. Guess we'll have to leave it at that.
All I can say is that someone who is serious should carefully take this apart and analyze it to see for himself what's what.
In any case, none of this is my original stuff, I found out recently. Austrians have long ago seen through Keynes' smokescreen of double talk.
They noted that if the problem is "lack of demand", what it can only really mean is that the employer will lose a dollar a meal if he hires at the current high wages, and thus getting more people in to buy will solve nothing.
What the solution really is, they also noted, is trickery into lowering wages, and once that is done by any means, equlibrium is acheived and the folks start coming into the shops to buy. No need to increase demand, it is already there at that wage. After all, there is a demand curve, telling us that at some wage, the demand will be enough to hire everyone.
Both things they noted have been borne out in this discussion.
My sources: http://mises.org/daily/5077/ [look for the word "Hutt" on that page, it's in the key paragraph].
Also: http://brookesnews.com/gerard-jackson/keynes%E2%80%99-dangerous-fallacies-and-errors/
Thanks to G. Sanchez, who linked to those pages in his latest article.
Neo, you wrote something I would like you to clarify, please.
You said about money printing "real wages are heightened through this process."
Earlier you wrote that about money printing that "the increase in demand by firms for goods primarily increases output sold with relatively small increases in prices...Inflation results later after we reach approximately full employment."
In other words, that printing money does not lower wages enough to change things, and may even raise wages.
So if there is enough demand, the initial wage is certainly going to provide full employment if there is enough demand. In other words, at the going wage, the employer's costs of production, including wages, are less than the selling price he is asking. He will profit nicely. All he needs is someone to buy the stuff at the current price. Which means the marginal value of labor is just fine, right?
If so, then before any money printing all of the unemployed can be hired at the initial wage, and the demand comes from the newly hired workers.
After all, we are not talking about a malinvestment. He is not making something undesirable, because if he was printing money would not lead people to buy what they don't like. The problem is poverty, lack of demand because there is no one to buy the stuff. But if he hires the workers, they will buy it. Why shouldn't they? It's good stuff, they have the money, they were not overpaid, so the employer is not losing money, what's wrong with this picture?
When I asked this earlier the reply was:
"It all has to do with the the marginal value of labor. In real wages Group C is asking for too much in wages relative to what they produce with the spending increase."
I have three questions:
1. Could you kindly elaborate, with a numerical example, what it all has to do with the marginal value of labor?
2. Could you kindly explain, with a numerical example, what you mean by "relative to what they produce with the spending increase"?
3. You wrote that the money printing is only going to increase demand, but wages are going to stay the same or even go up.
So why do we need money printing to increase demand? Hire the workers and they will supply the demand.
"indeed Rothbard did work in AGD showing that wages rose slightly in the first part of the Great Depression. You could call Keynes' claim a misinterpretation, but I think it's foolish to say that he made it up.indeed Rothbard did work in AGD showing that wages rose slightly in the first part of the Great Depression. You could call Keynes' claim a misinterpretation, but I think it's foolish to say that he made it up."
Actually Rothbard showed that the reason for this was because of the government, so inflating the money supply would be a bad idea. As for labor unions which were not a big problem in the United States yet (in the Hoover administration) they could have been taken care of in Great Brittan if the government didn't give support to union violence. It was government policy that kept wage rates up. Keynes wanted to cure something (sticky wages) that was being caused by government
In fact Keynes hailed the American record of keeping high wages, kind of contradictory. I'm no expert in this stuff but how can you hail a record of keeping wages high and then complain of sticky wages
Electronic page 307
http://library.mises.org/books/Murray%20N%20Rothbard/Americas%20Great%20Depression.pdf
Wolman concluded that “it is indeed impossible to recall any past depression of similar intensity and duration in which the wages of prosperity were maintained as long as they have been during the depression of 1930–31.”13 He noted, however, that pressures to cut wage rates were building up almost irresistibly, and that some construction labor had been able to maintain their employment by accepting sub rosa wage cuts. Wage cuts responding to severe losses at the end of 1931 took place secretly for fear of the disapproval of the Hoover administration.14...
...It is no wonder that British economist John Maynard Keynes, in a memorandum to Prime Minister Ramsay MacDonald, reporting on a visit to America in 1931, hailed the American record of maintaining wage rates.16