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Conservatives relentlessly bash all the people who got it right about the economy; and at the same time insist we follow the austerity policies that Herbert Hoover laid down after the Crash of 1929. Among the bashees is John Maynard Keynes, whose book, The General Theory of Employment, Interest, and Money, is the classic example of getting it right, and being hated for it. One explanation for conservative hatred of Keynes is his complete lack of respect for large aggregations of capital and the people who own and manage them.
The first part of the book is directed at setting up basic ideas about supply and demand curves. Keynes defines aggregate demand as the sum of (i) the propensity to consume currently, which is a function depending on several variables primarily including net income, and (ii) demand for new investment in factories and equipment. Aggregate supply is a complex function based for our purposes on the amount of employment. At the equilibrium point, the aggregate supply of goods and services equals the amount of demand for goods and services. Using simple math, Keynes writes:
Hence, the volume of employment in equilibrium depends on (i) the aggregate supply function, f, (ii) the propensity to consume, c, and (iii) the volume of investment, D2. this is the essence of the General Theory of Employment.
Keynes says that as income increases, the propensity to consume increases, but not as much as the increase in income. Part of the increased income goes to increased savings. Keynes says that classical economists assume that demand for investment in factories and equipment will always increase by the amount of increase in savings by individuals. Keynes says that it doesn’t, except rarely.
Keynes observes that the total amount of employment is dependent on net income, which is equal to the sum of consumption and net investment. Net investment equals the difference between total investment and costs of and reserves for repairs and replacements, which amounts to total depreciation. If businesses increase their reserves for depreciation, total income goes down. As total income drops, so does aggregate employment. Keynes provides a concrete example:
In the United States, for example, by 1929, the rapid capital expansion of the previous five years had led cumulatively to the setting up of sinking funds and depreciation allowances, in respect of plant which did not need replacement, on so huge a scale that an enormous volume of entirely new investment was required merely to absorb these financial provisions, and it became almost hopeless to find still more new investment on a sufficient scale to provide for such new saving as a wealthy community in full employment would be disposed to set aside. This factor alone was probably sufficient to cause a slump. And, furthermore, since ‘financial prudence’ of this kind continued to be exercised through the slump by those great corporations which were still in a position to afford it, it offered a serious obstacle to early recovery.
Consider what a sinking fund is: a company puts money in a separate fund in an amount such that at the end of a specified period, there is enough to retire a debt, or purchase a replacement for a building or a piece of equipment. It doesn’t matter what the purpose of the fund is, the important thing is that the money is saved rather than spent immediately.
Keynes’ description of the last part of the 1920s also describes the US in the period leading up to the Great Crash of 2008. The percentage of wealth held by the top 1% of us increased dramatically. Little of that money was spent on consumption or on investment in productive enterprises. Much the money spent on productive enterprise was spent overseas, where it does nothing for US employment, or on houses, which are not themselves productive, and for which there was no market except through rancid mortgages
Instead of being spent in ways that would increase US employment, trillions of dollars were stowed away in hedge funds, private equity funds, endowments and foundations. Part of the gigantic paychecks for top management went to buy wine and third homes, but most of it went into hedge funds or was saved in some other form. In short, the Great Crash of 2008 was bound to happen, at least in Keynes’s analysis. Now we learn that corporations are holding obout $1.8 trillion in cash reserves.
No wonder conservatives hate Keynes. He lacks the proper respect for capital. He puts a big share of the blame for depressions on the rich people who own it and do nothing useful with it. His analysis says that the innovations of the financial industry are destructive to the extent they do not create increased employment. That reflects badly on people like Jamie Dimon, master of the derivative, and Lloyd Blankfein, who is busy doing the work of the Almighty by trading something.
Keynes must be discredited at all costs.
———–
Quotes are from the Prometheus Books edition, 1997 – first quote, page 30; second quote, page 100.
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Yeah, all those tax cuts for the rich that do NOT create jobs, no matter how many times or how loudly folks try to holler that they do. Instead, we get spectacles of conspicuous consumption that do nothing and help no one.
But… but… free markets are the best way to allocate capital.
I swear Hayek and Mises are a religion for some people. And they’ll happily condemn millions of productive working people because their religion gets it wrong sometimes.
Here’s a fun youtube of Keynes and Hayek.
They wouldn’t like him for his Economic Consequences of the Peace, another major contribution that was roundly ignored by the Entente.
Conspicuous consumption isn’t the problem, as long as the money is spent.
It’s gambling on derivatives, investing over seas and simply sitting on it that takes it out of circulation and causes problems.
The bottom line is these people make too much to spend.
I suppose it would be more of a challenge to explain why you like Keynesian policy. This is why you went with such a simple straw man argument.
First, understand that Hoover was an interventionist and follower of Keynes. That’s important to understand the big picture.
But which conservatives today even hate Keynesian economic policy? Wasn’t it the “conservatives” behind TARP?
The story you’re looking for lies in study of the Federal Reserve and in our one party system, the Incumbent Party. The business is public debt which has always been true for central banking. “Progressives” will drive it up to fund their programs that are apparently some vague antidote to unfairness. The right will drive it up the old fashioned way: with war and empire. Think of the President as the CEO of the golden goose corporation. The Federal Reserve Board are the board of directors. The American people are the shareholders (powerless but have a vote). Any true alternative voice is marginalized and silenced (apparently with your help).
The parallel you seek between the 1920s and the time leading up to 2008 lies in who controlled monetary policy and that was the Federal Reserve. This was their first bubble and it managed to pry a way a lot of loot from a formerly strong middle class. Interventionists, like today, managed to put the aftermath into the hands of the victims of the robbery, the ordinary Americans.
Nah. This is just a Tea Party type talking right? This is what you’ve been reading about and likely promoting: the brown scare. Actually, I was a progressive before the true nature of our system became apparent to me in the past few years.
Sorry but conspicuous consumption in the form of huge yachts that are floating castles, or mansions that are selling for upwards of 8 figures don’t add a damn thing to the economy and are conspicuous consumption at its very worst
Conservatives know that Hoover’s austerity programs made a bad situation and disastrous one and they know that the people voted him out because of it. They are hoping they can bully Obama and the Democrats into making the same mistake and reaping the political rewards. They don’t care how many people suffer for their goal. In fact, the more, the better.
Friedman etal. can’t be accused of economic malpractice. Their theories are consistemt with their mission.
Tell that to the shipbuilders and construction workers building 8 figure homes.
You can argue that their talents and productivity could benefit more people if redirected, but they do get a paycheck for building the yachts and mansions. Generally they’re higher end labor as well, as fitting marble into yacht bathrooms requires skills.
But how many of those 8 figure homes and yachts can actually be built and sold versus the products for the rest of society?
Yes, there are some jobs provided but can’t there be far more jobs provided if the money were spent in a more productive fashion and NOT in conspicuous consumption?
one thing keynes misses though, everyone misses it;
there is NO such thing as “prices are determined by a supply and demand model”
in fact, demand dicates price not supply, I can buy all the nikes I want, they cost the manufacturer less then other manufacturers, yet they cost twice as much
it is demand only that dicates price
at times short supply can increase demand, over supply can decrease demand but they are not connected any more then weather creating demand
we don’t say “weather vs demand dicates price” because weather can only be a factor sometimes as it compares with demand, AND the SAME thing is true for supply
prices are determined by demand period, nothing else needs to be attached to that fact
Also: bisexual.
Too.
I was taking issue with you saying:
They do add to the economy. The use of those 8 figure fortunes to gamble on derivatives adds to the economy much less – a few hedge fund managers or investment bankers handling the trades earn ridiculous amounts of money, but nothing is produced beyond entries in a ledger.
I agree that the talents of someone setting tile in a yacht could be better employed doing the same in a school.
One way to accomplish that is via high taxes on very high incomes. That tax revenue can then be used to buy the labor to set tiles in a school.
Book recommendation:
Keynes, The Return of the Master by Robert Skidelsky
Another excellent book:
John Maynard Keynes by Hyman Minsky.
One thing about thinking tax cuts for the rich will stimulate the economy – more money won’t make those who already have everything spend it on anything they can’t already afford. The Bush theft from our treasury didn’t make it easier for any of these people to buy a new Patek Phillipe watch, the money just left circulation and was denied to the rest of us so the oligarchs could squirrel it away.
You’re not serious, are you?
Yes, the mansions do add some to the economy but wouldn’t it be more useful for the economy if instead of $20 – $75Million dollar mansions and grounds that money were spent instead on affordable and ecologically sustainable housing (with solar and other green elements), parks and recreation areas, and business investment, all things that provide more benefit to a local economy (and the bank lending the funds) than the mansion?
What Keynes did to invoke the hatred of the capitalists was to expose the first myth of capitalism: the notion that there will always be an increasing demand. They hate him the way they hate the modern environmental movement for exposing the second myth of capitalism: the notion that there will always be an expanding supply. We now know that the “supply” is finite.
The capitalists always seek to externalize their costs, either on human capital or the environment. They want to privatize the profits, yet socialize the losses. They attempt to vilify anyone opposing this operational mode and its supporting philosophy (ie, voodoo economics, the concept that tax cuts will allow the rich to invest more money in the economy, thus creating jobs, which will eventually lift all up-the so-called “trickle down” hypothesis. However, statistics show this to be just plain incorrect. Every time this hypothesis has been acted on by congress, the deficit has risen, but jobs and incomes of the middle and working classes have not risen substantially, while the wealth of the top 1% has risen exponentially.).
Are we heading towards a second civil war? Read: “The Handmaid’s Tale”, by Margaret Atwood, for a glimpse of the imagined outcome of the current polarized divide in America, a prescient piece written during the Reagan/Bush era.
it’s a fact
I have a beautiful one of a kind piece of quartz, if I got 2 bucks for it that would be a score, even though it is one of a kind, however if everyone wanted it this thing would bring millions
demand, not supply
In addition Keynes was a Big Ol’ Gay Homosexual.
What’s not to hate?
You really should read Keynes. His theories would support this type of specialized employment. And this type of work is specifically economically productive. The goods produced by this work are greater than the raw materials used (a very simple definition of economic productivity). Keynes was specifically concerned that there would be workers unemployed for a lack of productive opportunities, due to excessive efficiency/automation/etc.
Keynes also suggested utilizing non-productive employment and investment in unnecessary works to maximize employment (paying people to dig ditches, and then paying them to fill them in). This is principally what many people (myself included) do not agree with Keynes on. Many forms of work are not economically productive (policing/regulation, military) and many are minimally productive (financial services other than economically productive lending, insurance). This is the critical area that many people disagree with Keynes on. It is in many ways a moral issue. It is the concept of economically productive citizens paying taxes that are used for wages for citizens who are not economically productive. It’s the same as why many people consider welfare to be wrong.
I disagree with Keynes’s theories regarding fiscal stimulus, but there is alot to like about him too. He recognized that economics isn’t a science, which I think many people forget (There are no scientific laws in economics). He also was correct that markets aren’t 100% efficient. And he was adaptive. He famously stated that he changes his view when the facts change. It would be interesting to see what he makes of our current economy with its corrupted markets.
The thing that troubles conservatives the very most is that Keynes said that government spending has to increase when private spending falls short of that required for full employment.
That’s what the freshwater vs. saltwater economics argument is all about.
Yes, I agree.
I think tax policy is the best way to do this. Investing in business is easy to do via tax policy, R&D credits, depreciation of capital equipment, etc. Higher marginal rates on income… 90% for incomes over $30M… higher taxes on unearned income (health care reform did this some with Medicare taxes on unearned income).
Spend on public projects – improve schools, libraries, etc with the revenues this the higher taxes bring in.
I’m not going to put words in your mouth… but how would you redirect that $20-$75 Million from a mansion to sustainable housing, etc? Again, I’m in agreement with you that the sustainable housing is a better use.
That’s conjecture based on your political preference. The products are not inherently mutually exclusive. The point I would make to you is that you need to consider if there insufficient economic capacity (capital, goods, labor, etc) to do BOTH. If there is not scarcity of resources, and there is demand for both, Keynes and Hayek would both agree it’s a non-issue.
$20-$75 million dollar houses are more than few and far between. Probably only a handful of them, and the handful of jobs, labor, and materials they take is unlikely to remove the economic capacity necessary for the other works you mentioned (maybe lower your target price range if you want to make a more effective argument). Luxury goods are usually this way. They are at the margins of the economy, and employ more workers inefficiently (and more skilled workers) which Keynes argues in favor of.
Progressives put the money to work on durable things people use.
Conservatives put the money into destroying things or into the pockets of their friends who don’t always spend enough.
There is a difference.
Uh, that’s solely because the supply is fixed — constant. When you say that price is demand-determined, you are implicitly assuming supply is fixed.
Sorry but that mansion that is costing millions of dollars drains resources, limited resources, and add little to society. Versailles and other mansions of its like, in the US and abroad, are unnecessary and unsustainable in the world of limited natural resources. Whatever limited economic benefit they provide, all falls apart on the down side of the costs to society for keeping those mansion heated and cooled for a limited family or single individual.
It is nothing worth aspiring too.
I’m curious to know what in particular you disagree with?
In a society where the cost of the supply has dropped with foreign production there is more money available to pay for the cheaper goods. So, you look at the typical customer’s typical costs of living and determine how much they can allocate to your kind of product. Then you soak them for every last penny they can and would likely pay for it. Cost of production only comes into the picture when it’s as high as or higher than the price you can charge. If the cost of production (including shipping & handling, etc.) is higher, then you have to consider shifting to another product where the available cash to buy it will be greater than the cost to put it on the shelf.
So, the supply demand curve is very real, but somewhat strange when you have this kind of change in cost of production.
But, we also have a public which is losing buying power due to job off-shoring and the destruction of unions. Then you have a shrinkage of the available cash to buy. Add in the mortgage craziness and suddenly nobody can buy anything (almost).
Letting housing prices drop closer to ‘normal’ ranges and then stabilizing them is key to a return to ‘normal’. However, even the return to normal only brings us back to something like 1999 and that’s not good enough. We need the average family income to rise, so they can buy and the only way to that is to employ them or force corporations to pay more (an increase in the minimum wage law — which isn’t going to happen) or just wait. We’re waiting just now.
The only other way forward I’ve thought of is to force corporations to pay out the cash they’re sitting on and help/encourage those receiving the dividends to reinvest in other corporations more willing and interested in putting that capital to work. Newer younger smaller corporations which show some desire to grow.
We need to push the capital to work and if the corporations of today don’t have the demand for their products, then maybe other products produced by other corporations will find sufficient demand…if they have the capital and can put it to work.
The markets are supposed to be good at allocating resources, but sometimes they fail. Now is a moment when gov’t could assist to force some reallocation of resources.
We low tax rate on the rich is destroying our economy. Capital Gains and Income tax needs to go back to at least 75% at the high end. We also need a tax on excessive executive compensation. The CEOs are killing their companies and with the companies they are destroying jobs.
So, your argument is solely based on your personal preference, not based on fact then? I disagree with you completely that the handful of mansions you targeted are using an excessive amount of any crucial limited resource. Please name the limited resources you claim are being wasted.
(regarding heating and cooling, larger buildings use efficient chiller or geothermal hvac. They are dramatically more efficient than the systems used by most houses).
So I spent a semester on Macro Economics that you encapsulated in one article. At least my professor made it enjoyable, as was your article. You have a commendable talent to make economics engrossing.
Next article on laissez-faire vs government intervention on behalf of neo-liberal capitalists and the decline of the middle class?
If one of those potential customers could pay millions. If the richest of those potential customers could only pay $200, then that’s the most you could get.
If you sought to sell these daily across the country and your cost was nil, then you would want to set the price a bit lower than that maximum, so you could sell many more. To determine that price you need to know what your typical or up-scale customers could and would pay.
Masaccio gets the essential of Keynes correct. It is surprising how many don’t. For many, Keynes is a synonym for government spending. It’s a bit more complicated than that. Then you get the Neo-Keynesians, a monetarist school. That’s another misappropriation of the name.
You also have to understand the limitations of Keynes. If it were just about aggregate demand, then building yachts or digging holes would be equivalent, just ways to increase aggregate demand. But what we need is velocity. We need increased aggregate demand and we need it to be channeled into a sustainable long term re-industrialization of the country. So not just quantity but direction, i.e. a vector quantity, hence velocity is required.
Oh and demand does not determine price. You have only to look at oil markets. If you took global demand for petroleum during the current slump into account, oil should be trading for around $30-$35/bbl. The reason that it is trading around $80 is the result of speculation in the futures market by big financial companies, like Goldman and Barclays.
Obviously we do not agree on this. If you think Tiger Wood’s needs a mansion on an island, or Shaquille O’Neal, or Rush Limbaugh or anyone else needs a mansion that is upwards of 20K to 100k sq feet than more power to you.
Yes, it is a personal preference but I see nothing that says society gains one iota for a limited universe of people to live in gated communities in such large mansions. Just as society did not gain anything for the robber barons of the late 19th and early 20th century to have their “summer cottages” at Alexandria Bay, so does our current society gain nothing for overly entitle individuals to live on islands around Orlando and a whole lot of negatives when they do so.
Fair enough. But NONE of the limitations apply to the situation we find ourselves in today. For today, his prescriptions for policy are right on, and progressives disagree with them at their own peril. There is NO other empirically sound prescription for policy for our current dilemma.
Keynes never said to invest in “unnecessary” capital projects rather than “necessary” ones — whatever that means. He said that ANY spending by government in a recession — particularly in a liquidity trap — was better than none at all.
We do not agree, but the point I am trying to make to you is that your argument is poor. You should read Keynes (and Hayek). And you should establish facts in your argument. Your argument reminds me of what I hear from neo-cons yelling until they’re blue in the face. Lots of baseless noise, and misappropriation of facts.
What facts? Seems we’ve both been presenting opinions. My facts are that large, multi-million dollar mansions do nothing to help society in any way and hurt it in some ways, through waste of resources and land and walling people off from each other. Are you saying that Keynes actually supported that level of disparity in society?
My limited understanding of Keynes is his acceptance of spending on government projects as necessary when private business was either incapable or unwilling to spend. Which lead to projects such as the Hoover Dam, the Work Projects Administration, and the Civilian Conservation Corps (amongst others). Keynes may well have supported the building of large mansions in lieu of no spending at all but I’d bet those large mansions were way down the list of things he felt spending should be used for.
As I’ve said, they are not efficient uses of capital, resources, or materials. What “facts” do you offer that say otherwise?
Keynes specifically spoke of paying workers to dig holes (The General Theory of Employment). That would be an “unnecessary” capital project, and he more or less said as much. He also said this should not be an ongoing policy and should be paid for out of existing savings.
A “necessary” capital project is one that is already defined as a responsibility of government that is required by the citizens (such as building new schools for growing population). This spending is a non-issue with regards to Keynes theories.
You are correct regarding your synopsis of Keynes theory on fiscal policy toward aggregate demand. I was not intending to argue what he said. I was pointing to the merits of what he said.
great point, what you just described, as I did, was demand, not supply
here’s another example;
I play tennis at an in door club, the water there is 3 dollars a bottle, the merchant has more water then he will ever sell for the week and he can get as much as he wants whenever he wants
however when a person comes off the court they buy his water, even though supply is exponentially abundant
demand sets price not supply, this is a fact
SOMETIMES supply can affect demand but SOMETIMES weather can affect demand as well, there is no difference between weather and supply, they only apply at times, not all the time
however demand always applies
I am not assuming anything, nikes supply is not fixed, nor is a bottle of water, nor is a can of soda
demand can be created from whole cloth, supply can be fixed or transient it doesn’t matter
demand sets price nothing else, other things affect demand and that’s the only relationship, supply is one of the things affecting demand but surely not the only thing nor the most important thing, nor does it always affect demand, I might even be persuaded that supply hardly ever does supply affect demand in todays economy
In terms of impact on the economy, it makes relatively little difference whether we spend money on weapons, mansions, or parks. The point is that money flows to workers, who need and spend it. One can think of WWII as America’s largest-ever public works project.
No supply is constrained. If I want to sell water that is “exponentially abudant” (nice image, but water is actually starting to have supply issues globally) at your tennis club I’m not allowed to. you’ve got monopoly pricing due to the tennis club agreeing to limit supply.
Don’t you also argue that zero isn’t really a number, that multiplication by zero is illogical?
and there is the rub in the club however the rub does not exist for nikes does it, or yankee tickets does it, or giants tickets
it’s simply demand, supply has nothing to do with pricing, all that matters is what the merchant believes the customers will pay, if they’re right then they keep the price at that point, if they are wrong they adjust either up or down REGARDLESS of supply
what the supplier believes he can get is then the price no matter what his supplies are
I think a good way of summarizing that part about demand and supply is that it only works if certain conditions are true: there’s no monopoly/oligopoly power in the market, the buyers and sellers are properly informed, etc. This is a thought that doesn’t seem to stay very long in the minds of “free market” exponents, if it’s even there at all.
I argued that you can’t multiply an item by zero, that would make the item non existant which is of course impossible, if I have 6 apples and multiply by zero I still have 6 apples, obviously I cannot possibly multiply 6 apples by zero in real life, it can’t happen
I had a conversation with a mathematician who pointed out, in real life I am correct, in math I am not, he also pointed out, contrary to popular belief, math does not have to be represented in reality
but ya, I did have a similar conversation about zero, I was in fact correct as confirmed by noted mathematicians and that point stands
great sumation cujo!
Nike doesn’t have unlimited raw materials, nor sweatshop workers to produce their shoes.
There definitely is a limited supply of yankees or giants tickets. That explains why scalpers can charge higher prices.
You still having trouble with zero? We had a similar fruitless conversation about that subject some time back. I don’t think anyone will convince you that your view on supply/demand is frankly a cracked view. I’ll stop now as it is fruitless.
I am saying Keynes specifically supported inefficient production, such as that which goes into luxury goods. I am saying your argument about the morality of those goods is immaterial. I have been pointing out that you have misrepresented Keynes theories.
You keep coming back to “efficiency”. Keynes actually pointed out inefficiency as being an economic positive for employment. This is the fact I have been pointing at in your arguments. You are misrepresenting Keynes with your emphasis on efficiency. You need to establish scarcity (i.e. one project depriving the other of something economically necessary, be it materials, labor, etc) in order for efficiency to matter under Keynes theories.
Yes, you are correct that his stated political preferences support significant public works. But your argument co-mingles that with his theories regarding aggregate demand. It’s another misrepresentation on your part.
off to the next thread all, would love to continue holding court over how incorrect “supply vs demand” but we would go on forever wouldn’t we
parting shot;
the point that there was a fixed supplier for my water at the club
not so for water at the us open, there are suppliers everywhere, yet they still demand and get their premium
demand sets the price guys, supply does not, supply affects demand only sometimes, not all the time and probably not not even most of the times, just like the weather
see all on another thread
What does that mean? We need Keynes but we also need more than Keynes. Re-industrialization is precisely what we need and face today.
I have no trouble with zero at all, re-read my post and possibly you will have no trouble either
my points all stand, you finding methods to claim the abundance of supply does not exist only further makes my point, the MERCHANTS found a way to make their abundant supply a non factor
advertising, target markets, whatever
I am sure we will see this discussion again on another thread
last parting shot;
if YOU base the prices of your goods on the supply you will SURELY go out of business, however if you base your prices on demand you will thrive
simple stuff
see all later
Yes, essentially neo-classical conditions, and as we have seen in the last few years the whole neo-classical edifice has collapsed.
The problem with your yacht/mansion example is that it is not simply inefficient production (OK, under crisis conditions) but ineffective production since it is unlikely that you can build sufficient yachts and mansions to affect the overall demand side of the equation.
It’s what’s called supply side economics. Just saw a bit on the news at how the big Internet corps are heavy into owning social networking. Gives them access to lots of personal information for targeting advertising.
Wasn’t Keynes support of “inefficient production” only in lieu of nothing being done? That is, it’s better than doing nothing at all, but that doesn’t mean he would have supported inefficient production if there were other and better options available. I’m saying we can have far better use of time, materials, production, resources, land, whatever, than spending on modern day VErsailles. You present it as if Keynes would have chosen the mansions as a first option rather than as a last option.
Oh Hayek, even Keynes Mises a few, by George.
The question is how to allocate labor. Keynes even went so far as to suggest paying people to dig holes, then fill them again. You can’t get more inefficient than that.
How do you make sure the sustainable homes are built? The capital needed exists, but it isn’t going to the people that want the sustainable homes.
Demand is an aggregate concept. It has nothing to do with a single transaction; in a single transaction the price is limited by the perceived utility of the transaction to the buyer and the ability to pay. One person’s purchase is another’s supply. And supply is limited by profitability; this means that the supplier’s minimum price is where he covers his cost, unless he is pushed into a loss by the prices other suppliers are offering.
Supply and demand are the aggregate quantities and equilibrium prices over a lot of transactions that are exchanges. And increases in the aggregate supply with no increase in demand tends to drive prices downward as suppliers compete for the last customer in the aggregate. And increases in the aggregate demand (either through having more customers or customers demanding larger quantities) with no increase in supply as customer compete to by the last unit of supply.
Ticket scalpers only come out when the demand for tickets dramatically outpaces the supply, such as a World Series game. And only for high-value tickets; typically, you don’t see ticket scalpers at high school games. Ticket scalping is an extreme example of arbitrage over time periods – the time of purchase from the team ticket booth and the time of sale at the game. Team allow scalpers to buy tickets because it provides faster revenue to them and covers the revenue from empty seats when the scalper guesses wrong about the supply and demand conditions.
I don’t know, just as I don’t know how to make banks lend to the small businesses that need the funds rather than them sitting on blocks of money or gambling in the markets.
You think it is better to have people unemployed then having high paying construction jobs?
It’s better to build things more useful than McMansions.
I think there are better uses for those “high paying construction jobs” than building modern day mansions costing many millions of dollars that sprawl over acres of ground.
It is not supply-side economics. Supply-side economics is “build it, they will come” and argues that the act of building something creates the demand for it. That can be true in some cases, but a special set of circumstances have to exist. Trying to goose the supply side with general tax cuts is a misguided policy. Targeted tax cuts, like tax credits for investment in green technology, can work to the extent that the companies receiving the tax cuts can endure the losses of startup above the amount of the credits. And this example shows why goosing the supply of obsolete technology like fossil fuels is a fundamentally stupid idea.
Advertising and marketing seek to goose the motives for purchase with appeals to the psychological utility of a product or service. Raising the utility of a purchase raises the amount the buyer is willing to spend or the quantity the buyer is willing to buy, which drives aggregate demand for a supply that is not necessarily increasing with demand.
If we were at full employment, I would agree.
Right now any construction helps.
Basing the prices on supply means that you are basing it on your costs of supply. If your average selling price turns out to be that price, your profit will be zero.
Basing prices on demand means that you have some idea of the number of people who want what your are selling and how much they want it and how much, despite what they want, they are willing to pay.
In fact, sellers base their prices on both. The cost of supply providing a price that is the lowest they should discount (sales, special offers, bundling of products) their goods and services.
I think everyone would agree a modern WPA would be the ideal solution. But that is not going to happen, so any jobs are helpful.
Krugman contrasts monetary policy/Friedman approach
“in open-market operation matters only if people believe it signals higher inflation later.”
versus fiscal policy where what people – CEO’S – believe matters little
“If the government goes out and hires a million people to dig ditches, the direct effect is that a million people have been put to work digging ditches. It doesn’t matter whether people believe it will work. Some of the effect might be partially offset if people believe the government will have to raise taxes later (though not completely offset– we’ve had that discussion). ”
And as I recall Keynes modified the digging ditches comment latter to say good projects are better! :-)
My own thought – - – As for the GOP’s monetary belief – well the time delay used in their proof of effectiveness has been all over the map – with no reason given – meaning no logic to the idea that there is more than a limited usefulness to monetary policy compared to fiscal policy. As to the Austrian school I can’t find a work that has both logic and a historical example of that logic in that example – and not something else – working in the manner the logic is claiming to expect.
In real life you can’t multiply 6 apples by 2 either. what is the meaning of 2 times 6 apples? you’re either counting instances of a set of 6 apples (in which case zero instances makes sense) or 2 times 6 apples is meaningless.
Your noted mathematician was humoring you. I’ve done enough of that. FWIW I’m a noted mathematician – at least to the extent of being acknowledged in a text book on Combinatorics and Statistical Design.
I am not presenting either option as better under Keynes theory. That is what you are doing. I am saying his theory doesn’t support a precedence between economically productive ventures. Also, I am pointing out that you are representing this as a false choice. Unless you can show scarcity (and there certainly isn’t scarcity of labor currently) the products are not mutually exclusive. Keynes theories favor of production of both in the interest of maximizing employment.
So this is my last statement on this. Read Keynes works. It’s worth your time, and you should understand what you’re referencing.
I agree entirely that policies that enrich the rich are economically harmful. But this is not akin to saying that they serve no purpose. The Conservatives hate Keynes (and, if truth be known, capitalism in general) because sound economic policies–full employment with demand and production in balance–undermines the political power of wealth. The purpose of Conservative “economic” policies is thus to conserve the power of the wealth.
Money held in reserve is Power. Most obviously, it lets you buy elections, pack the courts, and manipulate public opnion through a bought-and-paid-for press. More subtly–and more importantly–it lets you control the lives of others. Power at its most primitive.
Why do Conservatives resist full employment? Simply because full employment gives the employee bargaining power with respect to his employer. With wages and full production, the have-nots can buy the goods that they don’t have, thus breaking the moneyed aristocracy’s monopoly on goods and diminishing the power that comes with possession of good in times of short supply. With full employment and good wages, regular folks can buy politicians–not just the uber-rich.
In short, Conservatives hate Keynes and capitalism for the same reasons that they hate progressive taxes–especially estate taxes–and a sovereign, fiat currency. Like progressive taxation ånd and expanadalbe money supply, full employment is a leveler. It makes society more equal and more democratic. It’s a threat to aristocratic power.
As one who has worked on both multi-million-dollar mansions and low-end condos and apartments, I think you are missing the point of the argument against luxury construction, luxury cars, and luxury yachts. They are at least arguably harmful in economic terms because most of their value depends on scarcity, a scarcity enforced at least in part by diversion of resources from more productive purposes, such as workers’ salaries.
Remember what Consumer Reports used to always say about luxury cars like Cadillacs and Lincolns? The higher price did not reflect higher value or quality, just higher profit for the dealer. Under the badges, the Caddie and the Chevrolet and the Lincoln and the Ford were basically the same. The workers and suppliers got paid the same either way.
It’s the same with houses. The construction of a high-end house in an “exclusive” neighborhood is generally of no higher quality than that in a cheap apartment building–often the opposite. Generally, the apartment building uses more labor, stronger and more fire-resistant materials, etc. If anything, I suspect that the labor used per square foot on a mansion is signficantly less than that for public housing.
The higher per-square-foot cost of the mansion is much like the value of a hedge fund or the higher cost of a Cadillac: you are paying money for hype and scarcity, not added value or quality. The exclusivity of a mansion comes from proximity to a scarce, natural attraction that might be more valuable to society as a wole if left alone: the ocean, a lake, the mountains around Aspen or Sun Valley. Or the exclusivity and cost comes from nothing more than realtors’ hype and the developer’s decision to subdivide the lots in 5-acre parcels. You have Carrera marble flown in for your bathrooms and kitchen counters not because it is a better material but because it is something lesser mortals can’t have (and can’t afford to air-freight). By building one of these tasteless monstrosities, you are preventing the use of those resources on housing for many more people and on wages for rather more consturction workers.
I suspect the same logic works for boats and airplanes. Which is more economically productive and provides more employment? A 110-ft yacht, a dozen fishing boats, or a freighter? A private jet or a 737 in airline service? A golf course or a working farm?
We need to sharply ramp up the income taxes on the wealthy and up the inheritance taxes to close to 100%, because the rich just aren’t very good at spending money. The government is.
leave it to you to insult someone when you know they’re not comming back
no, he was not humoring me, nor is wiki
and again and again;
this is simple stuff to most people once they find out zero is not completely explained in school, as I explained to you before but you are simply refusing the obvious
one more timel
if I HAVE 6 apples and multiply them by zero I STILL have 6 apples, you CANNOT multiply something by nothing in the real world
one day you will join us in that world (since you insist on insults, there you go)