Economics

Road to Nowhere

We cannot dig, build, or pave our way out of economic malaise.

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“There is no more persistent and influential faith in the world today than the faith in government spending,” wrote economist Henry Hazlitt in his classic book Economics in One Lesson. Our economy is doing poorly; the government can fix it. Our roads are crumbling; the government can fix them. Better still, according to the faithful, pouring money into roads, bridges, rails, buildings, and high-speed Internet lines will fix our economic problems and create jobs.

American public works are hardly in perfect condition, and economists have long recognized the value of infrastructure. Highways, bridges, airports, and canals are the conduits through which almost all goods are transported. But the kind of infrastructure spending the government has been indulging in since 2008 is unlikely to produce much of a stimulusâ€"certainly nothing with the scale and speed the administration is banking on as the 2012 elections approach.

The economist Mark Zandi of Moody’s Analytics, one of the most influential stimulus enthusiasts out there, claims that when the government spends $1 on infrastructure, the economy gets back $1.44 in growth. But economists are far from a consensus about the returns on federal spending. Some find large positive multipliers (meaning that every dollar in government spending generates more than a dollar of economic growth), but others find negative multipliers (meaning every dollar in spending hurts the economy). As Eric Leeper, Todd Walker, and Shu-Chum Yang put it in a recent paper for the International Monetary Fund, “Economists have offered an embarrassingly wide range of estimated multipliers.”

An additional complication is that, according to stimulus advocates such as former Obama administration adviser Larry Summers, spending is stimulative only if it is timely, targeted, and temporary. Current stimulus spending on infrastructure isn’t any of those things, as I found in a recent paper co-authored with my Mercatus Center colleague Matt Mitchell. 

By nature, infrastructure spending fails to be timely. Even when the money is available, it can take months, if not years, before it is spent. That’s because infrastructure projects involve planning, bidding, contracting, construction, and evaluation. According to the Government Accountability Office, as of June 2011 only 62 percent ($28 billion) of Department of Transportation infrastructure money from the 2009 stimulus had actually been spent. 

The only thing harder than getting money out the door promptly is properly targeting spending for stimulative effect. Data from Recovery.gov, the administration’s online clearinghouse for information about stimulus spending, shows that stimulus money in general and infrastructure funds in particular were not targeted to those areas with the highest rates of unemployment. Keynesian theory of the type many in the Obama administration favor holds that the economy can be stimulated best by employing idle people, firms, and equipment.

Even properly targeted infrastructure spending may have failed to stimulate the economy, however, because many of the areas hardest hit by the recession were already in decline. They were producing goods and services that are not, and will never again be, in great demand.  The demand for more roads, schools, and other types of long-term infrastructure in fast-growing areas is high, but these areas are more likely to have low unemployment relative to the rest of the country. 

Perhaps more important, unemployment rates among specialists, such as those with the skills to build roads or schools, are often relatively low. And it is unlikely that an employee specializing in residential-area construction can easily update his or her skills to include building highways. As a result, we can expect that firms receiving stimulus funds will hire their workers away from other construction sites where they were employed, rather than plucking the jobless from the unemployment rolls. This is what economists call “crowding out.” In this case labor, not capital, is being crowded out. 

New data from Garett Jones of the Mercatus Center and Dan Rothschild of the American Enterprise Institute show that a plurality of workers hired with stimulus money were poached from other organizations rather than coming from the ranks of the unemployed. Based on extensive field researchâ€"more than 1,300 anonymous, voluntary responses from managers and employeesâ€"Jones and Rothschild found that less than half of the workers hired with stimulus funds were unemployed at the time they were hired. Most were hired directly from other organizations, with just a handful coming from school or outside the labor force. So much for putting idle resources to work. Jones adds that during recessions most employers who lose workers to poaching choose not to fill the vacant positions, leaving unemployment essentially unchanged. 

There is no such thing as temporary government spending, which stimulus spending needs to be in order to work. Infrastructure spending in particular is likely to cost the American people money for a very long time. The stimulus was layered on top of the $265 billion average annual expenditure on infrastructure and capital investments and the $2.9 trillion nominal increase in infrastructure spending during the last 10 years.

What are we getting for all that money? Waste, for one thing. Infrastructure spending tends to suffer from massive cost overruns, fraud, and abuse. A comprehensive 2002 study by Danish economists Bent Flyvbjerg, Mette K. Skamris Holm, and Søren L. Buhl examined 20 nations on five continents and found that nine out of 10 public works projects come in over budget. Cost overruns routinely range from 50 percent to 100 percent of the original estimate. For rail, the average cost is 44.7 percent greater than the estimated cost when the decision was made. The figure is 33.8 percent for bridges and tunnels, 20.4 percent for roads. 

According to the Danish researchers, American cost overruns reached $55 billion per year on average. This figure includes famous disasters such as the Central Artery/Tunnel Project (CA/T), better known as the Boston Big Dig. By the time the Beantown highway projectâ€"the most expensive in American historyâ€"was completed in 2008, its price tag was a staggering $22 billion. The estimated cost in 1985 was $2.8 billion. The Big Dig also wrapped up seven years behind schedule. 

Strangely, lawmakers are blindsided by these extra costs every timeâ€"even when the excesses take place under their noses. Take the Capitol Hill Visitor Center in Washington, D.C. This ambitious three-floor underground facility, originally scheduled to open at the end of 2005, was delayed until 2008. The price tag leaped from an estimate of $265 million in 2000 to a final cost of $621 million. How can eyewitnesses to this waste still believe such spending is good for the economy?

The biggest mistake made by infrastructure spending enthusiasts is to assume that it is the role of the federal government to pay for road and highway expansions in the first place. In a 2009 paper, Cato Institute urban economist Randal O’Toole explained that, with very few exceptions, roads, bridges, and even highways are inherently local projects (or state projects at most). The federal government shouldn’t have anything to do with them.

Taxpayers and consumers would be better off if these activities were privatized. If states are not ready for privatization, they can do what Indiana did a few years back, when it granted a 99-year lease for its main highways to a private company for $4 billion. The state was $4 billion richer, and it still owned the highways. Consumers in Indiana were better off, because the deal saved money and the roads got better since the private company committed to spending $4.4 billion in maintenance. Experience in other countries has shown that privatization leads to more construction, innovation, and reduced congestion. 

A certain amount of public spending on public works is necessary to perform essential government functions. But federal spending on roads, rails, and bridges as a means of providing employment or creating economic growth is an expensive fantasy. 

Contributing Editor Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University, writes a monthly economics column for reason.

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  1. Let’s build more shit, name it after people who are still alive (like Biden), and then never pay for it again.

    1. Credit cards mean that money is free, right!?

  2. You mean that when the government puts money into the economy after first removing it from the economy and then skimming off the top to pay useless bureaucrats, that the economy isn’t stimulated?

    That’s ridiculous!

    1. Sometimes I think we should just ban office buildings.

    2. Not all money in private hands is “in the economy.” If it were there would be no need to boost demand.

      1. Right, we need massive stimulus so we can return to the healthy, sustainable demand levels of 2006, plus more debt service.

      2. Demand for what?

        1. Goods and services.

          1. What specific goods and services?

            What exactly is it that people are not choosing to purchase that they should be purchasing?

            Why are people so damn stupid that they don’t know what to buy, and what makes people in government so omniscient as to know what it is that the rubes aren’t buying?

            1. Houses. And bridges. Roads. DON’T MAKE ME SEND YOU TO A RE-EDUCATION CAMP YOU DAMNED CAPITALIST!

            2. It doesn’t matter. Consumer spending (individuals purchasing goods and services) is about 2/3 of GDP. That can be depressed by consumers acting perfectly rationally, say by saving during a period of economic uncertainty. Or they can simply not have enough money. But when that behavior is left unchecked it can create a vicious cycle of lower demand and lower employment. But first you have to accept the premise that the major problem in our weak economy is weak consumer demand (again, 2/3 of GDP) and not mean government looters hurting the feelings of godlike producers.

              1. And you don’t believe for a second that weak demand is driven by weak supply of goods that people want due to government intervention in the market?

              2. But first you have to accept the premise that the major problem in our weak economy is weak consumer demand

                Demand for what?

                What is it that people aren’t buying?

                What is it that government should buy, or that people will buy if the government gives them money (that must be extracted from the economy)?

                Do goods not need to be produced before they can be purchased?

                If the producers are looted (after all they’re just greedy capitalists sitting on piles of cash), what will they produce and who will they employ while producing it?

                1. Demand for stuff. It doesn’t matter, we’re talking about an aggregate. If more people have more spending money, that tends to get spent. Ideally that should come in the form of higher employment and wages rather than cash handouts, but both are more stimulative than cash handouts to the wealthy, who have the luxury of saving. What “producers” won’t do is invest in production when there is no consumer demand for their product. There is overcapacity across the entire spectrum of businesses in this country. The problem is weak consumer demand, both through consumer cautiousness and lack of money.

                  Do you propose to reduce unemployment by further increasing capacity? How exactly does that work?

                  1. What “producers” won’t do is invest in production when there is no consumer demand for their product.

                    What product? Aggregates are an accumulation of specifics. Without specifics, aggregates do not exist. So the specifics do matter.

                    The problem of lax demand is that the products out there are not what people want. Giving people more money won’t change that.

                    Capital needs to be reallocated to produce things that people want.

                    Do you propose to reduce unemployment by further increasing capacity? How exactly does that work?

                    It’s not a matter of increasing capacity, it’s a matter of shifting capacity.
                    Capital needs to be reallocated.
                    For a couple decades much capital was invested in the building and selling of homes. That bubble burst. Now capital needs to shift from that to something new. What exactly? I don’t know or I’d be rich. But neither does anyone in government know, or they would be in business instead of government.
                    However propping up the housing industry and discouraging capital from being reinvested will only prolong the problem.

                    1. Demand for what?

                      What is it that people aren’t buying?

                      Everyone in America should once again start wasting their money by buying houses for two or three times what they’re really worth, then everything will be great.

                      I’m obviously kidding, but schmucks like “Tony” actually think this way.

                      All kidding aside, I would argue that an economy that depends upon consumer spending as much as ours does isn’t a healthy economy, even if it sometimes gives the illusion that it is.

                    2. I do think a wholesale revision of what we mean by a “healthy” economy will be necessary at some point–we can’t just keep growing forever on a finite planet. Regardless, there is nothing healthy about a series of lame excuses for funneling wealth upward.

                    3. we can’t just keep growing forever on a finite planet

                      Yeah we can. You see, wealth is created. The great pie in the sky can be made bigger.

                      Regardless, there is nothing healthy about a series of lame excuses for funneling wealth upward.

                      There is no fixed pie in the sky. What you call “funneling wealth upward” I call “making the pie bigger”.
                      Sure, some people have bigger slices than others. But growing the pie also grows the individual slices.

                    4. I’m curious, how does capitalism manage to violate the laws of physics?

                    5. how does capitalism manage to violate the laws of physics?

                      straw man

                    6. Capitalism is not governed by the laws of physics. Physics is the ever changing study of how physical matter works not economics. Economics has no laws it is only the study of how money is circulated. the only correlation you could possibly make is that in both physics and economics nobody knows all of what controls either, and thats why we continue to study both just seperatly.

                  2. “the wealthy, … have the luxury of saving.”

                    I’ll give you credit, Tony.
                    Ugly people don’t go to the beach and subject the beautiful people to their ugliness.
                    But you’re not afraid to subject smart people to your economic ignoramitude.

              3. But first you have to accept the premise that the major problem in our weak economy is weak consumer demand (again, 2/3 of GDP) and not mean government looters hurting the feelings of godlike producers.

                Or, you could accept the premise that the major problem in our weak economy is consumers who put themselves too far into debt over the last 20 years, and that deflation is a perfectly rational market response that the government shouldn’t try to engineer out of existence using the very tool that got the consumers into those problems to begin with.

                1. You’re right, it should find a way to redistribute wealth downward so that there would be no need for bubble-inflating easy credit to afford more than a tiny sliver of the population a decent modern lifestyle.

                  1. You’re right, it should find a way to redistribute wealth downward so that there would be no need for bubble-inflating easy credit to afford more than a tiny sliver of the population a decent modern lifestyle.

                    Sorry, but not everyone needs to live in a home with granite countertops and a 50″ plasma.

                    1. If you can say that then I can just as easily say no one needs a billion dollars or the luxuries it buys.

                      You guys are always quick to declare a limit to the lifestyles of the poor but any talk of doing the same for the rich is heresy.

                    2. True. No one needs that. But those who aquire those things do not deserve to have them confenscated because you still have it in your head that ends can justify means.

                    3. You guys are always quick to declare a limit to the lifestyles of the poor but any talk of doing the same for the rich is heresy.
                      ———————————-
                      think a little, Tony. The lifestyles of the poor are self-limiting. Only govt thinks it can challenge that economic law, usually by taking from someone else. That’s not governance, it’s theft.

                    4. You guys are always quick to declare a limit to the lifestyles of the poor but any talk of doing the same for the rich is heresy.

                      LOL at this beta nerd goonery. Here’s what you said in your previous post:

                      it should find a way to redistribute wealth downward so that there would be no need for bubble-inflating easy credit to afford more than a tiny sliver of the population a decent modern lifestyle.

                      A “decent modern lifestyle” by what definition? Even in the halcyon days of 90% marginal rates, this was defined as one car, a small yard, and a 1,000 square foot house with modern appliances. This would STILL be considered a “decent modern lifestyle” today, even amongst a greater share than that “small sliver.”

                      Your lust for other people’s money is so palpable I can practically see you salivating through the screen.

      3. Inherently false statement by someone that’s never picked up a book on economics in his life, ever.

      4. Pennies in jars? Cash under the mattress?

        1. I, personally, have a room in my basement that’s full of cash. Late at night when the moon is full I get buck naked, except for my monocle, and roll in it.

      5. And yes. All money in private hands is “in the economy.” The only money not “in the economy” is the money the Treasury hasn’t printed yet.

      6. Take all accumulated wealth and give each poor person a couple of thousand dollars, making everyone in America the “99 percent”. Or something.

        And where’s my goddamn pony???

      7. Demand is indeed recovered

        Now what?

        Demand isn’t the problem and has never been.

  3. I think in the past building a railroad across the country would creat jobs by allowing more people to go to untapped resources, but with todays access already in place the gain per dollar spent is negligible if any. The only similar gains today would come from say building a dam to provide water for new farm land or in California’s case provide water to existing farms that the EPA no longer allows water to due to the fish smelt.

    1. Exactly. Infrastructure development obviously has the most economic impact in underdeveloped societies.

      A country only needs so many interstate highways until it eventually reaches the point of diminished returns.

  4. Methinks one shouldn’t have any more faith in economic models than in climate models.

  5. Libertarians aren’t without their job creating canards.

    1. Referring to the article:
      1: AEP isn’t opening a natural gas plant because of the environmental factors. They’re doing it because natural gas is super cheap compared to coal.

      2: The “economists” the article cites are from the Bureau of Labor Statistics. The Federal government. That’s right, the same entity feeding you this bullshit is also telling you it’s not hurting you. “Daddy’s not raping you sweetie, it doesn’t hurt a bit.”

      3: It’s the Washington Post. One of the most liberal mags out there.

      Man Tony, you really do live in a fucked up distortion of reality.

      1. Attacking the source as biased, how entirely predictable. Wonder if there’s anyone willing to engage the article on the merits and not be a total pussy.

        1. Would you rather counter the first two points then?

          Entirely predictable. Make a claim then refuse to address the key issues with your argument.

          You’re just a troll Tony. Prove me wrong.

          1. Yeah but he’s the smartest troll we have these days. Not saying much, granted.

      2. 1: AEP isn’t opening a natural gas plant because of the environmental factors. They’re doing it because natural gas is super cheap compared to coal.

        Negative, ghost rider. Gas plants are easy to permit. That’s really the upside for an electric utility. The fuel cost has come down, but nothing touches coal. To give you an idea about how cheap coal is, 2/3 of the cost of coal is the freight cost in getting it there.

    2. That content-less article is summed up nicely in the last sentence I could read before the stupid pay wall:

      “Companies have long complained that spending money following rules means there’s less left over to invest in research or expand their businesses.”

      Which is true. Regulation reduces future demand for productive workers in an industry, even if the existing operation requires the same amount of workers. This is so because expanding operations becomes much more expensive, due to the regulation.

      Stoopid.

  6. Stimulus spending not only doesn’t work – it destroys the economy. Government spending, whether paid for with taxes, borrowing, or printing cash, drags the economy.

    Government sucking up all that wealth to spend on wasteful crap also crowds out private investment.

    Lastly – government spending is always wasteful, corrupt, inefficient, and generally a boondoggle.

    1. Then why did the biggest surge in federal spending in US history, WWII, not result in a massive slowdown? Facts not relevant enough to get in the way of your slogans?

      1. Why is it that the economy surged after the end of WWII when the government spending ended?

        1. I can answer this question correctly, but Tony will never believe/read it:

          Not wasting capital on useless crap like tanks freed it up for the demand of goods that people actually wanted, like cars and food.

          1. Close, but not quite.
            Not wasting capital on useless crap like tanks allowed it to be employed in boosting the supply of goods that people actually wanted, allowing people to be paid in creating that supply of good that they actually wanted, and then allowing them to purchase those things that they actually wanted.

            Supply precedes demand.

            1. Kinda what I meant, but was trying to sum it up in one sentence. Capital used on tanks cannot be used to produce anything else; creating an inflated demand of other goods as we saw with the rationing that occurred throughout the 40’s. When this capital was finally released, the supply side exploded, which allowed the suppliers to create even more demand, etc. causing a boom.

              1. The economy actually slumped for some time after the war ended because rationing was still in place along with progressive economic interventions. Since people couldn’t get shit during the war, and were only allowed to work where the government wanted them, the economy didn’t really “surge”. The end of war production needs AND the end of rationing and new deal policies finally freed up the capital, and demand was really stimulated by the fact that Europe was completely leveled forcing them to buy everything from America. War casualties reduced the unemployment problem.

            2. Generally speaking, you’re wrong. Demand precedes supply. It doesn’t matter how many widgets you make, if people can’t afford to buy them they won’t get sold. The reason the economy prospered post-WWII was because more people had more money in their pockets thanks to an increase in government spending that employed them and, after the war, educated them, allowing them to spend that money on goods and services.

              1. It doesn’t matter how many widgets you make, if people can’t afford to buy them they won’t get sold.

                It doesn’t matte how much money you give to people, if there aren’t goods to buy then it doesn’t much matter.

                But if you allow people to produce things (and get paid in the process), then they will have both goods to purchase and money with which to purchase them.

                If you loot the producers without letting them produce anything or write any paychecks, all you are doing is destroying wealth.

                1. There will always be goods and services if there are people with money to spend, because if your holy producers get pissy and stop producing, a less whiny and entitled entrepreneur can come along and supply the good or service for which demand exists. The driver of all the activity we’re talking about is consumer demand.

                  And nobody’s talking about “looting the producers.” You’re just equating anyone with wealth with “producer,” in a tired old rhetorical sleight of hand that exists only as a Republican party talking point.

                  But if I were to say what if we taxed merely excess capital in order to pay for programs to stimulate consumer demand (since it’s just sitting there otherwise–and why increasing it via tax cuts doesn’t do anything), you’d completely change the subject. You’d start talking about the morality of taxation. Happens every time.

                  1. You’re just equating anyone with wealth with “producer,”

                    In general wealth that is not in the form of something that was produced is invested in stocks or shares in a company that produces something.

                    So the wealthy may not be producers directly, but much of their wealth is invested in production.

                    Which makes them producers.

                  2. “what if we taxed merely excess capital.”

                    “excess capital”

                    fkn Marxist.
                    Kill them first before it’s too late.

              2. No, people “had more money in their pockets” becuase they had been engaged in a process of forced saving for four years. The U.S. economy didn’t exactly boom during the war. Huge portions of the population were taken out of the labor force.

                1. Tony never talks about the post-WWII spending influx caused by years of wartime rationing.

                  Then again, that’s just Tony, who also has a hangup over accumulated wealth.

                  1. Addendum:

                    The Colonel is right; it did take a bit of time after WWII for production to ramp up, and for the WPA and the Raw Deal policies to be eased, but eventually people spent like crazy to get stuff they couldn’t get during the war.

              3. Demand precedes supply.

                Then you’ll be kind enough to tell us what the market demand was for Apple’s iPhone prior to its original debut.

                And please note that, since the sales occurred after production, you can’t use Apple’s sales figures to arrive at your answer. Give a holler when you have your answer. Thanks.

              4. Generally speaking, you’re wrong. Demand precedes supply. It doesn’t matter how many widgets you make, if people can’t afford to buy them they won’t get sold.

                Typically, you demolish your own case. If people can’t afford to buy things won’t get sold. Supply precedes demand. Demand isn’t desire demand is desire plus something to trade.

                That understood, you are in one sense correct, but at an aggregate level merely borrowing or taxing or inflating doesn’t constitute increased aggregate demand because no more resources are available to exchange.

                Government cannot do anything to increase aggregate demand because government cannot do anything but shift resources via different means which depresses production, thence depresses real aggregate demand. The depression is a perfect example of this.

                Obvious examples: unemployment insurance and minimum wage suppress aggregate demand because it depresses aggregate production.

            3. Supply precedes demand.

              How many manufacturers make something in the hopes someone will demand it in the future? It happens, but it seems to me that normally the process would be to determine if there is some demand, then produce the product to meet that demand. I have trouble believing the average (successful) businessman is in the habit of supplying a product or service with no evidence it will sell.

              1. Manufacturers do make things in the hopes that consumers will buy them. You are confusing the forecasting of consumer demand with that demand itself as demonstrated through voluntary transactions. Forecasts are not demand; voluntary transactions evidence demand.

                Producers can and do spend time and money forecasting whether a planned good or service will create sufficient demand to be profitable, but if they are wrong they must adapt or perish — and the fact that 70%+ of venture-backed startups fail conveys the difficulty of this forecasting. A free market rewards those who accurately forecast consumer demand for their goods and services, but make no mistake: the fact that this forecasting occurs does not change the fact that supply precedes demand — logically, production must precede consumption.

      2. During WWII we outsourced our unemployed to the battlefields. Our servicemen were nice enough to level the production capacity of our competitors.

        As soon as FDR died, the New Deal II was cancelled by Congress. Once peace broke out – we were the only undamaged industrial power left. Without FDR’s nonsense, we prospered.

      3. It did result in a massive slowdown. The economy never recovered until the war ended and the government ceased it’s meddling.

  7. Not all money in private hands is “in the economy.” If it were there would be no need to boost demand.

    Okay, Robin Hood.

    1. Is it under the mattress?

  8. Pennies in jars? Cash under the mattress?

    Don’t forget all that underutilized land.

    We must put a gun to the heads of ignorantly selfish people who stubbornly refuse to dedicate their wealth to the Collective!

  9. What exactly is it that people are not choosing to purchase that they should be purchasing?

    Refrigerators.

    And McMansions to put them in, silly!

    1. SUVs and cheap crap from China!

  10. In theory, some infrastructure spending can add real value to the economy. Unfortunately, we’ve put so many preconditions and extraneous demands on the construction of infrastructure, that it is unlikely to ever generate the economic value necessary to justify its cost (and I’m talking about value generation, not capture. So, no, externalities isn’t anywhere NEAR a legitimate response). Let’s face it, to build a road from production center A to market B, you’ve got to pay union scale, restrict bidding to ensure sufficient female and minority contractors, get environmental clearance, get aesthetic clearance, build a second road between Congressman C’s summer home and district, and build a high speed rail line between D and E with projected ridership of fifty people annually.

    1. “In theory, some infrastructure spending can add real value to the economy.”

      It might appear that way, but every subsidized infrastructure project since canals and railroads led to massive unintended (foreseeable) consequences that crippled those systems and usually the settlement they supported. It is impossible to have efficient land use and infrastructure when it is subsidized.

      1. I will give you a prime example of this and it happens all the time.Cities create growth plans. The city decides housing shall be north so the city will build massive roads to the north for the predicted growth. The owners of the property that now have nice roads raise the price of their land because of the new roads, access is king. Guess what happens that land is now more expensive then the the land south where no roads were built so people buy the land south of town and build homes leaving the city with new roads to nowhere.

    2. In theory, some infrastructure spending can add real value to the economy.

      In theory that is correct. The problem is there is no mechanism that ensures that and there are many forces at work to ensure this doesn’t happen.

      The profit motive is the only mechanism that will maximize resource allocation that is valuable to the economy.

      ‘Investment’ is fraught with risk even when peoples’ own capital is on the line. Often it fails to provide benefit. The idea that there will be anything except accidental and rare cases that government can provide economic benefit is preposterous.

  11. But when that behavior is left unchecked

    Seriously. Die in a fire.

  12. Demand precedes supply. It doesn’t matter how many widgets you make, if people can’t afford to buy them they won’t get sold.

    Paging Steve Jobs….

    1. The creation of the iphone did not magically inject $500 into everyone’s pockets. It was a product that met consumer demand for high-tech gadgets. Surely great businessmen can manufacture desire for products, but it wouldn’t matter for shit if nobody had any money to buy stuff with.

      1. Yeah…everybody wanted an i-phone before they knew what one was. They wanted the internet before they saw what it could do. They wanted a car before they’d even seen one. They had a high demand for power windows before they were conceived of. Every family had a burning desire for a PC in 1979.

        You are nuts.

        Innovators create well in advance of demand on the speculation that their creation will produce demand. Not to mention the jobs they produce building their creations (putting money in the pockets of their workers so they can SPEND it on the products they are building).

        Build a better mousetrap…people will buy it!

        1. I’ve already saved $100K for a flying car.

          Now if only supply could meet my demand.

        2. Yeah, it’s sad how stupid people like Tony are. If demand preceded supply, then there would be no such thing as an unsuccessful invention! Because otherwise why would anyone create something for which there was no demand? That makes absolutely no sense whatsoever.

          Sockpuppet thinks he’s a genius, but he doesn’t have the first clue about what the next Big Thing is going to be any more than most of the rest of us do. If he did, he’d invent the damn thing himself.

          1. Sockpuppet thinks he’s a genius, but he doesn’t have the first clue about what the next Big Thing is going to be any more than most of the rest of us do. If he did, he’d invent the damn thing himself.

            Tony, like most Krugmanites, persists in the myth that this is a liquidity-driven recession as opposed to a debt-driven one. Keep in mind that Krugman was calling for Greenspan to blow a housing bubble after dotbomb blew up.

            No matter the problem, their solution is ALWAYS, “More liquidity! More liquidity! We’ll deal with the consequences later! The economy always roars back!” They constantly beg the question that things will simply get better “just because”, and patently refuse to answer when asked “Which economic engines will drive employment?”

            Because the real answer is that they just don’t know. They constantly expect the private sector to keep giving and giving, and never bothered to really ask what would happen when the private sector couldn’t or wouldn’t do what they expected. That such government “stimulus” relies on a healthy private sector to begin with doesn’t even enter their minds.

        3. Innovators create well in advance of demand on the speculation that their creation will produce demand.

          Are we talking about businesses or casinos?

      2. Wow are you an ass! “Great businessmen” manufacture products that are desirable – not the desire itself.

        Then the government decides if we deserve those products. I’d like a diesel Honda or Mazda – but the EPA says no.

      3. The creation of the iphone did not magically inject $500 into everyone’s pockets.

        No. But everyone who paid $500 for an iphone was richer for it, were they not?
        They gave Jobs $500 which made him richer, and they got an iphone which made them richer.

        Everyone wins!

        1. And if twice as many people had an extra $500 to spend, twice as many ipads could have been sold, making everyone win double.

          1. Where does that extra $500 come from?

            1. From the Money Fairy, of course.

      4. It was a product that met consumer demand for high-tech gadgets. Surely great businessmen can manufacture desire for products, but it wouldn’t matter for shit if nobody had any money to buy stuff with.

        You’re presuming that the $500 was actual money produced by private sector wealth, as opposed to $500 of credit that paid for tommorow’s demand today.

        Debt–ALL debt–is nothing more than pulled-forward demand. When the math catches up, you have to accept that a downturn is inevitable, and any attempts to kick the can will just make future downturns worse.

        Unless you think what’s going on in Greece is a perfectly acceptable means of running an economy.

      5. but it wouldn’t matter for shit if nobody had any money to buy stuff with.

        And how does taking from one to give to another increase overall ability to buy? If I devalue your money with more QE and give that printed money to someone else how did that increase real demand? If I tax you to give to someone else how did that increase real demand? If I borrow against your future taxes, how does that do anything but depress your demand since you know you will be hit?

  13. Demand precedes supply.

    This is wrong, as is almost everything that comes out of “Tony’s” sad little head.

    Pretty much nobody in the world knew that they wanted a freaking iPod or an iPad until it actually existed.

    And this is true of just about every great invention in the history of mankind. With a couple of exceptions like food and shelter, which are basic necessities of survival, the general demand for products comes AFTER they are created, not before.

    1. But a huge portion of goods and services are not gadgets but basic necessities and other predictable things. And people may not have had a specific desire for an ipad before it was invented, but the only reason Apple’s business model worked was because people did have a desire for high-tech gadgets. Combine that desire with spending money and you have demand, without which no ipads would have been sold.

      Taxes are at historic lows, corporate profits at historic highs, so according to your theories the economy should be buzzing with activity. If instead the problem is not enough people spending money buying goods and services that already exist, we get what looks like the economy we have. I don’t see any reason to believe operating on your theories we would ever get to full employment. Don’t businesses prefer labor to be a buyer’s market?

      1. Taxes are at historic lows

        Most moronic statement of 2011. You documentation for that?

      2. Nope, sorry pal, you can’t claim that demand precedes supply because of a generic demand for “gadgets” or “stuff”. That’s a bunch of weasel crap.

        Just go ahead and admit what everyone here already knows: you don’t have a clue about what the Next Big Thing that hasn’t been invented yet is going to be any more than the rest of us do.

      3. “If instead the problem is not enough people spending money buying goods and services that already exist, we get what looks like the economy we have.”

        You are talking about commodities. The only way wealth can be created selling commodities is by expanding the market. There are only so many people who can buy Coca-Cola. Supply and demand have stabilized, except for the minor perturbations produced by swings in the economy. Increasing Coke demand has little stimulative effect.

        True stimulus comes from innovation. Producing something the world has never seen before (a computer, a cell phone…) that everyone wants. Keynesian philosophy squelches this type of innovation by taking away the capital that would have been used to innovate and redistributing it (i.e. trying to stimulate the demand for Coke).

        1. Or building transportation infrastructure or the Internet. What’s being argued is Say’s law, which may work in a barter economy but not a monetary one, since hoarding does indeed happen, and is happening now.

          If that money were doing something besides being hoarded, say educating people or building or repairing infrastructure, it could contribute to the process you’re talking about. Technology is somewhat of an exception to the rule for the reasons presented, but it’s not enough to create full employment.

          1. The sad thing is that most Keyensians don’t know dick about Say’s law, since Lord Keynes himself didn’t refute it, he just danced around the issue before knocking down a strawman version of the law.

            http://mises.org/daily/1803

          2. If that money were doing something besides being hoarded

            What does that mean? How is it being hoarded? If it is in a bank then it is being used. If it is invested then it is being used. If it is in any form other than physical cash stashed away then it is being used.

            It’s just not being used in a way in which you feel it should be being used.

            1. Again, you’re trying to change the subject to morality. The concept at hand is the paradox of thrift. If people tend to save during a recession, the resulting decrease in demand and then decrease in growth results in lowering total savings.

              It’s an important example of how perfectly rational behavior on the part of individuals can add up to negative aggregate consequences.

              1. If people tend to save during a recession, and that savings is put into the bank, then that results in funds available to be invested in something that will create value.
                When post-bubble capital is reallocated, and prices reflect actual value, then the economy starts humming again.

                1. Nice theory, doesn’t work in practice.

                  1. OK, Tony. How did any economy ever recover from a recession without a central government and banking system powerful enough to rescue it?
                    Because that has not always been the case.
                    So the very first recession ever should never have ended. It would have been a death spiral until everything collapsed.
                    All recessions would do that. They would never end.
                    Ever.

                    It’s your theory that doesn’t work in practice.

          3. Yeah…money is being horded…I, personally, have a room in my basement that’s full of cash. Late at night when the moon is full I get buck-naked, except for my monocle, and roll in it.

            WRT infrastructure…you prove my point. CREATING infrastructure (then innovation) was a boon to this nation. FIXING infrastructure (now a commodity) has no where near the bang for the buck. a) because we already have it and b) the only growth we get in return is to recoup the minor loss in efficiency that was lost due to the crumbling roads, highways and bridges.

            You don’t get the same return doing maintenance as you got when providing a new service.

            1. Maybe, but we do employ people fixing the infrastructure (which must be done anyway). Putting money in people’s pockets is enough to increase consumer demand, and fixing infrastructure is just a way to do it while also being productive. We could also build more, such as rail in anticipation of transitioning away from gas-burning transportation. It’s not like there’s not plenty to do to get the US up to 21st century standards. The ironic thing about laissez-faire advocates, who tend to celebrate innovation, is that they are always finding excuses to hold the country back.

              1. We could also build more, such as rail in anticipation of transitioning away from gas-burning transportation. It’s not like there’s not plenty to do to get the US up to 21st century standards.

                How is using 19th-century transportation part of 21st century standards?

            2. Sockpuppet doesn’t even know what the definition of “hoarding” is. People aren’t saving or “hoarding” their money, they’re trying to stabilize their freaking balance sheet by paying off their huge debts, which is a much different thing.

              And it’s important to note that when Sockpuppet says that Aggregate Demand is down, he’s basically talking about one thing: the demand for ridiculously overpriced houses. Demand for just about everything else in the economy has clearly stabilized or is increasing, because otherwise we’d still officially be in a recession.

              1. the demand for ridiculously overpriced houses

                Malinvestment. Capital needs to be reallocated and prices need to reflect actual value.
                The government taking action to prevent the reallocation of capital and prop up home prices is prolonging the bad economy.

                Only when home prices are allowed to reflect their actual value will the recession end.

      4. I don’t see any reason to believe operating on your theories we would ever get to full employment.

        Full employment is easy. There is full employment in N. Korea.

        Why the hell does anyone want full employment? What good is that?

        Optimal employment will never exist until the labor market is allowed to clear.

    2. And this is true of just about every great invention in the history of mankind.

      For how long does a great invention continue to be a great invention? When does it become just something else everyone already knows about, that some manufactures just to make a buck?

  14. Where does that extra $500 come from?

    The Money Fairy. (aka B Bernank)

    duh

  15. corporate profits at historic highs, so according to your theories the economy should be buzzing with activity

    I’ll play.

    Why should Evul Corporate Oppressors risk investing a shitload of retained earnings on expensive investments in plants and equipment (not to mention the people to operate them) when there is a possibility the NLRB will try to stop them?

    1. Because if there really were profits to be made (i.e., demand existed for their products), then a less risk-averse business might come along and do the investing. Whether labor is treated with dignity and respect is an entirely separate matter. We could, I suppose, increase employment by eroding worker rights and wages, but that wouldn’t be nearly as productive as increasing the number of workers at civilized wage levels and with full access to rights.

      Besides, the NLRB has existed since the 1930s. We’ve had full employment at times since then and we’ve had high unemployment. We’ve also had both in eras of high and low taxes (though the correlation seems to be the reverse of what you guys argue). So maybe aggregate demand really is the more important factor.

      1. What the fuck are you talking about? When taxes and regulation were significantly reduced in the early 80s, this country experience growth (wealth creation) at a rate unprecedented in human history.

        Take a look at the DOW from 1980 to 2000 (even before the bubble).

        YOU ARE INSANE!

        1. What are you talking about? There was a major recession in the early 80s, and unemployment was higher than it is today. It ended when interest rates were lowered (as it had been caused by high interest rates). In other words, it had a Keynesian solution. During the last 100 years there is scant evidence that low taxes or regulations increase employment, and in many instances the opposite seems to be the case. The 80s saw economic growth but hardly “unprecedented in human history” since both GDP growth and employment growth were higher in the 50s and 60s.

          1. During the last 100 years there is scant evidence that low taxes or regulations increase employment, and in many instances the opposite seems to be the case.

            We’ve had recessions in just about every decade regardless of the tax level. You’re going to have to find something else to corellate.

          2. http://stockcharts.com/freecha…..a1900.html

            1982-2000

            Dow- 808-11497 up 1400% in 18 years.

            1. http://stockcharts.com/freecha…..a1900.html

              1950-1970

              DOW- 166-985…593% in 20 years.

      2. Because if there really were profits to be made (i.e., demand existed for their products), then a less risk-averse business might come along and do the investing.

        Well, the bubble began to pop nearly three years ago now, and no “less risk-averse business” has appeared on the scene to do the investing you think they should — yet you suggest that the uncertainty created by massive government intervention has nothing to do with this? You have the burden of proof on that one.

      3. We could, I suppose, increase employment by eroding worker rights and wages

        Workers ‘rights’ are merely privileges granted to the employed at the expense of the unemployed.

        Employers are subject economic law and must price their product such that they make a profit. Unions cannot affect that except to put their host out of business.

        What they actually do is restrict entry into the labor market to restrict the supply of labor. Hence the universal revile for ‘scabs’.

        Unions don’t care for workers, unions care for employed. The unemployed who are willing to offer a better valued service be damned.

        At best unions are monopolists, top to bottom, and like all monopolists maintain their monopoly with government force and like all monopolists benefit at the expense of the economy as a whole, but primarily at the expense of their competitors, which is anyone who is also selling labor: the unemployed.

  16. Now if you’ll excuse Tony and the rest of his Keyensian buddies, they will be spending the rest of their lives trying to prove a negative regarding government stimulus and it’s failures.

  17. Another problem is that that when private corporations like Trans Canada want to build infrastructure like the Keystone XL Pipeline the president delays construction for political gain.

  18. a less risk-averse business might come along and do the investing.

    You truly are a disingenuous cunt.

  19. How dare Ms De Rugy criticise state sponsored high-speed Internet. Instant access to images to jack-off to has transformed the masterbation support industry.

  20. Insko’s Law: Keynesianism + Monetarism = Stagflation.

  21. “according to stimulus advocates such as JOHN MAYNARD KEYNES, spending is stimulative only if it is timely, targeted, and temporary.”
    It’s really impressive that people who worship at the altar of Keynesina economics don’t understand Keynes.

  22. “We cannot dig, build, or pave our way out of economic malaise.”

    Luckily, even if we could, we wouldn’t need to. Here in New Jersey We’ve got 100s of miles of track that just sits there, unused or mostly unused, but in perfectly good condition, or only used for freight. All that needs to be done is someone load some passenger cars and locomotives and you could vastly expand public transportation networks, and thereby save people fuel and money.
    Only in this country do we have such luck of such continued competence and effort built up from the past providing us with so much infrastructure that we now just let go to waste because of our stupid fucking regulations. Just the other day I was at the Palisades Mall, and I confirmed what I had long wondered, yes, the train tracks by it are still used for freight, and it’s right next to the commuter parking lot area for that mall. In a rational world I would have simply hopped on a train to get to that mall from my apartment in Hackensack instead of driving. There’s really no reason, other than our laws, why that should be any different.

    1. “There’s really no reason, other than our laws”…
      and that rail is an an obsolete 18th cent. technology,
      and that only you will want to use that service, at the times offered, and the price offered
      et bloody cetera

      1. except for all thousands upon thousands who commute daily by train…

        the hell are you even talking about? obsolete? tons of people use the trains. Maybe not long-distance intercity so much for most of the country, but even for that there are tons of people who use the northeast corridor/acela lines.

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