Economics Questions

Re: How do the Austrians refute the stimulus money thoeries

limitgov — Sun, 21 Jun 2009 04:29:27 GMT

inquisitiveteenager:

If the governemnt taxes from one group to give to another, I understand this is not stimulus.

If the government did print a little money and gave it to everybody, you cannot deny it would not kick start the economy.

If they did it every so often, people would spend a little more.

I am really keen on learning the Austrian theories and if this Keynesian theory is fallacious, please point them

out.

We are done having to defend common sense....

the tables are turning....

you have to defend forced counterfieting by the federal government....thats stealing.....

defend that....

Re: How do the Austrians refute the stimulus money thoeries

krazy kaju — Sun, 21 Jun 2009 01:31:52 GMT

sammc699:
But when people consume more this is an increase in demand and will meen that firms will produce more doesn't it?

No. An increase in demand does not necessarily mean that their will be an increase in production. An increase in consumption means that firms will have less money with which to repair, buy, and produce capital goods. This is because an increase in consumption necessarily means a decrease in saving, leading to a an increase in interest rates. Higher interest rates means that firms cannot purchase repair/purchase/produce large amounts of capital goods because they simply cannot obtain the funding to do so.

Re: How do the Austrians refute the stimulus money thoeries

Wilmot of Rochester — Sat, 20 Jun 2009 22:35:56 GMT

Well, this won't be for Austrians, but Kevin Murphy of the University of Chicago showed a lot of good math to suggest that the multiplier effect of government spending is actually negative so that for every $100 spent, $80 would be lost.

Re: How do the Austrians refute the stimulus money thoeries

nirgrahamUK — Sat, 20 Jun 2009 21:19:40 GMT

yes, the creation of and spending of fiduciary media will be a form of increase in economic activity if one is measuring quantities of media exchanged and calling this economic activity, but it is a destructive and counter productive economic activity.

Re: How do the Austrians refute the stimulus money thoeries

sammc699 — Sat, 20 Jun 2009 21:06:08 GMT

I understand that they are not actually offering anything as this money has been created out of fresh air but they create an illusion that they have. In the long run this process is purely inflationary but it could it not be argued that in the short run that it will produce some form of increase in economic activity because if the government had not of created this money then surely the motor firm would not of produced these extra cars.

Re: How do the Austrians refute the stimulus money thoeries

limitgov — Sat, 20 Jun 2009 21:06:01 GMT

Once you understand that the federal government does not have the authority to print fiat currency and force its citizens to use it, then your other questions become irrelevant.

Re: How do the Austrians refute the stimulus money thoeries

nirgrahamUK — Sat, 20 Jun 2009 20:45:03 GMT

the question is , when people 'demand' more 'consumption' what are they demanding with? in your example, what do they offer motorfirms? if they are not producing more, then they have no more produce to bring to market to bid for motors with. the fallacy of keynesianism is to try to circumvent Say's law. but this is impossible, therefore people are 'consuming' more without producing more, and necessarily eroding the capital stock, or in other words, future productivity,

they are engineering poverty.

Re: How do the Austrians refute the stimulus money thoeries

TheOrlonater — Sat, 20 Jun 2009 20:41:31 GMT

sammc699:

But when people consume more this is an increase in demand and will meen that firms will produce more doesn't it? For example if the new money was used to buy cars then motor firms would see thi as an increase in demand and hence lead to more production

Like Krazy Kaju said, the consumption erodes the existing capital stock. Consumption isn't really a bad thing, implicity we are stating what Mises called in his theory, "overconcumption and malinvestment."

Re: How do the Austrians refute the stimulus money thoeries

sammc699 — Sat, 20 Jun 2009 20:11:34 GMT

But when people consume more this is an increase in demand and will meen that firms will produce more doesn't it? For example if the new money was used to buy cars then motor firms would see thi as an increase in demand and hence lead to more production

Re: How do the Austrians refute the stimulus money thoeries

TheOrlonater — Sat, 20 Jun 2009 20:01:32 GMT

To the OP, the examples that Krazy Kaju gave also refute the "Paradox of Thrift," as put out by Keynes.

Re: How do the Austrians refute the stimulus money thoeries

krazy kaju — Sat, 20 Jun 2009 17:12:23 GMT

Jon Irenicus:
all you get is capital consumption in the end, as the means to expand production are non-existent or insufficient relative to the desired expansion.

Exactly. Consumption cannot stimulate economic growth, since all it does is use up the available capital stock. Economic growth comes from the expansion of capital, not the contraction of it.

Re: How do the Austrians refute the stimulus money thoeries

Jon Irenicus — Sat, 20 Jun 2009 11:21:09 GMT

You can deny it very easily because it simply isn't true. The printed money would simply cause inflation. At best, it could temporarily stimulate the economy by tricking entrepreneurs into producing more, even though their prices rose with the pace of inflation, making their production unprofitable. This would then require more money to be printed ad infinitum until hyperinflation (hence the failure of the Philips Curve).

Yep, and all you get is capital consumption in the end, as the means to expand production are non-existent or insufficient relative to the desired expansion.

Re: How do the Austrians refute the stimulus money thoeries

Jacob Bloom — Sat, 20 Jun 2009 05:32:43 GMT

Increasing the money supply and lowering interest rates distorts market incentives and creates spending in areas there would not otherwise be and eliminates spending in areas where there otherwise would be thus creating malinvestments and also instituting a moral hazard because the time value of money in an inflationary setting is negative, thus eliminating the incentive to save and therefore starving markets in the future of real capital.

Taking money from productive sectors of the economy and giving them to unproductive sectors of the economy also clearly creates undesirable incentives that are unsustainable because production is the source of wealth. So if you penalize production and reward failure, you are clearly creating a system that will fail eventually. And failure is not effective.

Re: How do the Austrians refute the stimulus money thoeries

krazy kaju — Sat, 20 Jun 2009 05:18:14 GMT

inquisitiveteenager:
If the government did print a little money and gave it to everybody, you cannot deny it would not kick start the economy.

You can deny it very easily because it simply isn't true. The printed money would simply cause inflation. At best, it could temporarily stimulate the economy by tricking entrepreneurs into producing more, even though their prices rose with the pace of inflation, making their production unprofitable. This would then require more money to be printed ad infinitum until hyperinflation (hence the failure of the Philips Curve).

If they did it every so often, people would spend a little more.

Spending does not cause economic growth, saving does. When you spend money, nothing new is produced; you simply consume already existing products. However, when someone saves their money and/or invests it, they help increase production because:
1. Less spending means that prices fall, making it easier for entrepreneurs to buy/produce additional capital goods and thus expand production.
2. More money in banks and in the stock market means more money that entrepreneurs can borrow to buy/produce capital goods.
3. Money directly invested by entrepreneurs by expanding the capital stock increases productivity and thus increases economic growth.

Re: How do the Austrians refute the stimulus money thoeries

MatthewWilliam — Fri, 19 Jun 2009 23:30:54 GMT

I suggest reading Bob Murphy's latest articles, particularly the ones about the current recession.

inquisitiveteenager:

If the government did print a little money and gave it to everybody, you cannot deny it would not kick start the economy.

If they did it every so often, people would spend a little more.

The most basic answer to this is, as another poster said, that an economy is not built on consumption but on savings. Also, money is only a medium of exchange; it is not wealth. Statements like the ones above are also non-sequitors. How does stealing from people via inflation make an economy grow?

inquisitiveteenager:
If the governemnt taxes from one group to give to another, I understand this is not stimulus.

You are correct, but this is a policy advocated by Keynesians in recessions. As poor people spend a higher proportion of their income than rich people, then a redistribution of wealth from rich to poor may help recovery (according to Keynesians). Of course, this is all nonsense because an economy grows via savings, not consumption.