I got this email from Robert Reich about John Maynard Keynes

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You're the one that's not coming off as remotely logical or reasonable in this exchange. If anything is ticking people off it's your horrific ego. I don't care who you are, most people in this forum aren't receptive to arguments from personal authority.

Frank Herbert: “The beginning of knowledge is the discovery of something we do not understand.”

Bertrand Russell: “The trouble with the world is that the stupid are so confident while the intelligent are full of doubt.”

Thomas Jefferson: “The people cannot be all, and always well informed. The part which is wrong will be discontented in proportion to the importance of the facts they misconceive.”

Yeah..... pretty much. I mean, the bigger reason I am railing about this is that I am pretty sure you(Longshanks) don't know what the heck you're talking about, but have this horrific desire to prove that you actually do. From the way that you talk, you sound like you actually don't know much economics, and that you may not have actually read any of the things you've talked about reading. I mean, your desire for status, and a few things you've said that sound bizarre, really are massive red flags. I'm really being critical because someone like that deserves to be knocked down a peg. You may be honest to a fault, but you sound like a person full of bluster.

And all of your talk about economics, economists, and all of that, really sounds odd to me, because I actually have an economics degree. I can tell that a lot of what you're saying seems to clearly be bluster. Also, given that I actually have a degree in this subject area, if any of the two of us were to make claims from personal authority, it should be from me to you, not the other way around.

Also, this whole "agree to disagree" business is really kind of odd given that this forum is used to debate. Debating isn't about "agreeing to disagree", it's "put up your reasons and arguments and let's see what's more plausible". I don't actually care about persuading you. I care about intellectual content. We may agree to disagree, but I won't even get there unless you can convey your ideas to me in a manner where I see their plausibility and understand your reasoning.

Does that mean that John Keynes was admitted into Heaven after all?

The highest may be overstating it depending on how you view tax rates. The US is competing for the highest rate, however the loopholes result in a much lower rate than intended. In addition to the "income from foreign operations" loophole which is becoming gigantic and actually creates incentives to invest overseas income abroad. This is due to foreign income not being taxed until it returns to the US.

I'd hate to be preaching to the choir, but what is needed is a review of the corporate tax system, aimed at reducing loopholes and achieving a lower rate. Furthermore, the US needs to be more protectionist against China, because while the Chinese government is conducting their economy in a manner which benefits China, the US is conducting its economy in a way that ultimately benefits China.

The value of currency does play a part, but the fundamental point of the bailouts and subsequent quantitative easing, was to put money in the hands of companies, who would then create jobs and thus create demand. The debt is mainly caused by the two wars initiated by former President Bush, a large amount from tax cuts that did not result in high enough job creation to make up for their initial cost. I suppose one could say that the NPV on the "Bush Tax cut investment" was negative.

The biggest problem is that Americans know what services they want from government, but they are unwilling to pay for them. The more you want the government to do, the more its going to cost you. If you want to run 2 wars, the biggest military in the world, have troops in just about every country, social security, medicare, medicaid, drug programs, the war on drugs, the FCC. An ironic sidenote on the FFC is that the people who support it often do not support the EPA, so they care less about there being a huge f*****g toxic waste dump in their backyard, than they care about someone saying "huge f*****g toxic waste dump" on TV.

To summarize, the US voters need to decide what level of service they want, then how much they are willing to pay for it. The process of demanding a high level of services, but not wanting to pay for them cannot continue.

There is little doubt that social programs do need to exist, and that ways to avoid scams is an important part of the operation of a social program. There is no doubt that there will always be "thievery" from social programs, there are ways to reduce it. The biggest social program in the US is the military and industries supporting the military.

One could say that in the private sector the problem is too many checks and not enough balances and in the public sector its too few balances and too many checks.

Your statement is not clear.
1) If we're more protectionist towards China, they'll return the favor. The basic logic of protectionism leads to trade-wars. Also to heightened hostility in other areas.
2) From the way you've stated things, the problem really sounds like our bad policy making, not the Chinese.

I mean, the only way for me to really see your point as understandable is if the Chinese are already playing zero-sum trade policy games, but in that case, the better policy is to THREATEN a trade-war and get them to back down, as the costs of a trade-war hurt both sides more than the gains from any trade policy that favors one nation at the cost of another.

I mean, I might see this going back to your "excessive outsourcing" comment, but "excessive" isn't really an economics term. I am not really sure what you are trying to get at, as the best argument I see for your position is that outsourcing is not favoring the short-term interests of the US, or that global trade policy favors economically inefficient outsourcing. However, both of these positions would have to be argued, and not just stated because the de facto assumption is going to be that Smith's division of labor(given that Smith is Longshanks's favorite economist) still holds.


Is this a "Under capitalism man exploits man. Under communism, it's just the opposite" comment? The reason I ask is because it seems unusual because the two sectors of the economy are run in ways that are very different. I mean, one almost has to wonder what you consider a balance, and what you consider a check, because the US government clearly prevents one branch from having all of the power, despite the power-creep that's happened in multiple branches, which.... seems to be a balance. Corporations usually are more hierarchical in their structure. Also, corporations don't have as much checking either. I mean, the entire notion of "checks and balances" goes back to separation of powers, which is not a corporate ideal.

I suspect that the US would be hurt more than China in a trade war, given our dependence on China's low labour costs.

Actually, it will probably be a pissing contest on both sides. Not only that, but if the largest economy is dependent upon Chinese labor, then Chinese labor is probably dependent upon exports to the US. That being said, in a large world market, both sides would likely survive, it just would be an utter pissing contest.

About Robert Reich. Beware of midgets that speak out of both sides of their mouths.

I remember attending a talk given by (then) Secretary of Labor Reich. He was late in arriving and the master of ceremonies announced the the Secretary would be with us - shortly.

ruveyn

The Chinese government heavily subsidized and supports it's industry much more than the U.S does in a variety of ways. The Yuan is kept at an artificially low rate, companies get plentiful access to cheap capital from the government, the lack of any regulations that cannot be bypassed and so on. Therefore, it makes little sense for the US to respond to China with openness when China in turn are enacting very protectionist policies.

In essence, US government cuts taxes to create jobs - - > Money gained from tax cuts gets invested in job growth in China --> The Chinese government secures access to US innovations and technology -- > Chinese profit. The loser here is the US government, the companies make money and China makes money, yet the US government gets little to nothing in return.









Not its a comment on how government tends to overspend without regard for costs and income, where the private sector will underspend with excessive control of expenditures, despite having very high profits.

Sorry your thread got derailed Mike, I'll try and answer the question.

Public works and infrastructure are pretty much one and the same thing language usage has changed in the last 60-80 years, if you do a google search for 'office of public works' or department of public works' you will still see lots of government organisations around the world responsible for things like power, roads, railways etc, what you would call infrastructure.

To understand Keynes rationale you have to understand what he was actually arguing for.

Keynes wasn't just arguing for countercyclical policies, he was arguing that in times of recession, government should invest heavily in grand public works to provide jobs right now and also to provide new markets and possibilities for future growth.

The second bit is important, crucial to understanding why Keynes was right but it is always ignored.

When the government builds the Hoover Dam it has several effects:

1) It provides lots of jobs meaning people don't become destitute
2) It lowers the cost of electricity, improving profit margins for struggling businesses
3) It enables new private industries to flourish. Many millions of acres of desert was turned into productive farmland, Las Vegas turned into a city because of the new electricity and water supply.

It is item's 2 and 3 that improve the state of the economy, generate more taxes and allow the government to pay back the cost of investing in the Hoover Dam.

If however you try to do Keynesianism by paying people to bury 100 dollar bills and then paying them to dig the bills up again (as Ben Bernake argued for at one point) or by building a road to nowhere, you may well be providing jobs but you are not providing 2 & 3, new markets for future growth so your debt's just pile up and you bankrupt the nation.

When Gordon Brown said in 2008 that the government should spend it's way out of recession and used Keynes to defend his argument he was wrong, Keynes would never have supported his actions.

Why not?

Because Gordon Brown was running a 4% budget deficit at the height of an epic once-in-a-lifetime boom, if Gordon Brown was a Keynesian, he should have been running a 10% budget surplus during the boom years to build up a fighting fund for the inevitable bust. Keynes would have called him a feckless overspending idiot and told him to stop spending so much on unproductive shite...

Heavy subsidies though really are the Chinese subsidizing our consumption. I am unsure what your issue is because that kind of activity is generally a bad move. It involves a highly intrusive government policy to pick winners and losers, AND foreigners are the ones who benefit from cheap exports.

The Yuan being kept at an artificially low rate is really more of a situation to use threats on, NOT actions. As I already stated, if the US starts to escalate up a protectionist policy, the likely result is going to be a trade-war which will cost both sides.

If you just go back to your Adam Smith though, protectionism generally tends to be poor policies, not good ones. We shouldn't respond to the Chinese sabotaging themselves by sabotaging ourselves.

How can you invest US money into Chinese jobs? They use the yuan. The only way that this money can be invested is if somewhere down the line, a US product is bought with that money. Frankly, part of the reason why we have a large trade deficit is because the government is wracking up large deficits and using bonds to finance itself. When it does that, often foreign investors will buy these bonds. The only way they can buy these bonds is with US dollars. So, the money is definitely going to have to go back to the US, but it may be doing so to finance government bonds, and not as imports.


Both private and public sectors were said to do the exact same thing in your earlier comment, making your own interpretation of it very difficult. Also, when talking about corporations, you know the issue is more complicated than that. Most corporations involve significant debt-financing. Debt financing is used so that a corporation has more capital without watering down earnings per share. So, while I agree corporations are sitting on their profits, the problem with any analogies is that large organizations do not finance themselves anywhere similar to households.

In the US view I'm sure its fine, in the long view, China's policies have killed off manufacturing as an industry in most western countries. Furthermore, from a perspective of the market deciding who wins, China has cheated. Due to the demand that foreign companies must partner with a Chinese company, they have obtained information that would require years and years of industrial espionage to obtain, while the American companies thanked them.

how can I put this, a highly intrusive government has a policy to pick winners and loses, they picked that Chinese companies win and other companies lose.




You make some severe leaps here, are the Chinese sabotaging themselves? Because it seems that protectionist policies (including the Yuan exchange rate) ensures the survival and growth of Chinese industry. On the other side, the US has companies take money and invest it in a foreign country, in this case China (thus investing in Chinese job creation) which means US industry suffers. How can I put this, the bond thing you mentioned, the flow of capital would go US company - Chinese Company/Government - Lent to the US government. So, what the US company does is to exchange money it has with the Chinese company/Government (no charge) who then lends that same money to the US government at an interest rate.

The irony is that if the US company had invested in the US in the first place, the US government wouldn't need to borrow the money.



Yeah, that was a mistake I didn't notice until now. It was meant to say "The private sector has too few checks and too many balances, the public sector has too many checks and not enough balances". Debt financing is also used because its largely better than equity financing due to the interest tax shield. The comment was an oversimplification, it was not meant to be taken as textbook material, more like a funny observation. On the other hand, you could argue that corporations in a sense does finance themselves much like a household, you have the income from working and then you have the mortgage,

No, not really. The shift from an industrial economy to a service-based economy was long-before we all started ranting about China. Not only that, but the US is still the largest manufacturer in the world. Manufactured goods in the US is still technically increasing, just not as quickly as China.

http://greyhill.com/blog/2011/10/5/manu ... untry.html
http://www.shopfloor.org/2011/03/u-s-ma ... gest/18756


TM, that's irrelevant. If China is winning through actions that harm Chinese interests(such as massive subsidies), then let them win. The question is really what is efficient for the US economy. If they really want to dominate the shoe market, by giving us shoes for free, then let them. I could always use free shoes, couldn't you?


So.... Chinese policies have increased Chinese knowledge and thus made them more useful trading partners to us? I fail to see the problem. If they become more efficient in using resources, then that simply means that they have more they can trade with us. There is no economic problem with China getting more efficient.


I don't understand your objection. Your use of the words is kind of confusing, as you're trying to do some form of play on words, but it's around some leap you've made that I haven't accepted or something like that.


I don't make many significant leaps at all. If anything, the "leaps" I am making is that I am not making all of the assumptions in the economic models I rely on explicit because most people don't actually understand the basic macroeconomics, so there is no point pulling out Y = C + I + G + NX for people who don't know what those variables mean.

I said "protectionist policies tend to be". There are a few tricks, but most of those can be escalated into trade-wars and most of them require some manipulation based upon the intricacy of a particular abstract trade model. So, in some models mild tariffs are beneficial. Yuan manipulation *could* be, but probably is really just a long-term destructive policy leading to a severely imbalanced balance of trade. And the best way to handle that is to threaten, not to go into protectionism. Why? Trade war. We don't want to be protectionist as that undermines US interests.(Both in maintaining international peace, but also in establishing trade with other nations)

Secondly, if there were no protectionism, it's likely that different industries(or possibly even the same industries) would grow. Where does the money to subsidize come from? Industries. So, in order to subsidize China has to take from some industries to give to some OTHER industries. Which means that China has to be really competent at picking winners. Most governments are not, as seen with a lot of historical failures to actually pick winners. So, this could easily be China screwing itself. Especially given that subsidizing exports, really just means that they're trying to give us their products. Let's take the logic to it's conclusion: if China decided to just GIVE US products, and phase-in a system where they continued to give free products to the US(with no surprises or suddenness in the switch), would that really be to our harm? Well... there'd be economic adjustments that have to be made, but who doesn't like free stuff??


So, you're actually arguing that the US would have MASSIVE growth if US companies hadn't invested money into China??? US deficits come from government spending, so we wouldn't need the loans unless the government was already outspending. Government spending comes from politicians. Once you factor that in, Chinese lending to the government is the government's fault, not that of the Chinese or of businesses. I mean, let's say that instead of this money being lent to us by the Chinese, it's lend to us by Americans. What happens, well, INSTEAD of this money being invested into US industry, it's lent to the us government.

So, here's the current flow:
US lender->US company->China->US national debt

Here's what it'd be if we didn't trade:
US lender->US national debt

In neither case will that money go to US industry. It won't go there because US politicians are borrowing money and they have to get that money from somewhere, and that money will always come from investment. It will either be an investment made by foreigners and decrease our net exports, or it will be an investment made by US investors and decrease our investments we make in our own industries. And because the government is large enough to mess with interest rates, this can significantly impact the balance of trade. So, having more imports than exports is actually what economists expect from a nation that has massive debts and free trade.

I don't really understand where you are coming from, as you're making your own massive leaps. I don't think you actually have a familiarity with the basic macroeconomic models used to describe these phenomena. Trade issues go back to monetary issues. The reason why is because the balance of trade should normally autocorrect, because the only value of US money is to buy US products. The interest rate issues and everything else will balance out under market conditions unless some large borrower, or some monetary policy gets involved.


Not really. The metaphor breaks down. Mortgages are taken because consumers can't afford high-end but necessary investments. Debt is taken on by companies just because they want to increase earnings per share, and a good way to do that is to have some of the capital come from lenders, so that way equity isn't watered down.(As I already said) This is called "leverage" http://www.investopedia.com/terms/l/lev ... z1xucRXU22 It's entirely an effort to increase Return on Equity, which is not a household concern for the most part. Trying to reconstruct the metaphor at this point is silly.

The US companies have eradicated their own moat, thus giving up their competitive advantage vis a vis Chinese companies, who have retained their competitive advantages in the form of subsidies, tariffs and the Yuan tinkering. While still being more suited to produce in and for the Chinese market. Free shoes are great, but not if those shoes end up costing in the form of less domestic manufacturing, which means less jobs, which means more government spending and less tax income.

Look at China's behavior in trade and compare it to a drug dealer, giving out free high quality samples at first, subsidized by other ventures, then you will eventually have control of the market. With control in the market comes the freedom to dictate prices.

Your view on the borrowing doesn't take into account the loss of tax income through outsourcing, since the tax code does not require that taxes be paid on foreign income until the money is "taken back" to the US. This creates an incentive to invest abroad without having to pay taxes on the profit, which harms the income of the US government. Furthermore, government expenses rise in a period where jobs are lost due to more people claiming various forms of government benefits.

The model is fundamentally flawed, because U.S currency is useful for a lot more things than buying U.S products, you have an entire gang of Arab countries selling petroleum in US currency, multiple countries using it as reserve currency, It can also be invested in things such as gold which ultimately does not benefit the US.

I'm quite familiar with leverage, and fundamentally a company leveraging its equity, is no different than a consumer leveraging theirs, in order to undertake an investment that they either cannot afford to do, or which is more beneficial to do in that manner. For companies, borrowing creates a higher free cash flow from an investment because of ITS, for a consumer buying a house, it allows them to use the ITS, in order to leverage their equity for an investment they cannot afford to undertake, or which is not beneficial to do with pure capital.

TM, unless somebody is screwing with the monetary system, long-term trade balances should be relatively stable in terms of imports and exports. That's that. I've already given you the theory, so talking about an "eradicated moat" seems a little pointless.

TM, the point of a job is to create something that we wouldn't be able to get for cheaper otherwise. That's the very basic point found in Adam Smith's division of labor. That's a very basic point in economics. You don't have some great new idea, you have the old idea of mercantilism which you're trying to revive 200 years after it was debunked by Adam Smith. Cheaper goods are what the market provides, and this goes back to the industrial revolution where many experts were thrown out of work by the latest industries. This pursuit of better products, and cheaper methods of production will mean people are thrown out of work. It's always meant that.


*Yawn* Except China will never literally push everybody else out of the market because the Chinese don't have the money to buy that kind of market power, and even if they did, it's still a waste of a project anyway, as they'd be hurting themselves. Frankly, the Chinese simply haven't driven other manufacturing down. As I've already SHOWN the US has still maintained and kept some of it's manufacturing growing.

Even if the Chinese did corner the market, if they started to exploit that, the problem is that the barriers to entry for manufacturing aren't that high. Any poor nation can enter manufacturing and lots of other poor nations have. The main economic resource you have to have in order to be a manufacturer is cheap labor. That's really common. I apologize, but that entire monopoly argument is a poor fit with the evidence from international manufacturing, it's a poor fit with even what is reasonable for China, and it's a poor fit wit the theory because manufacturing doesn't have high barriers of entry ANYWAY.(which is how China got the gig in the first place)


This isn't a real concern. GDP growth has continued for the past 20 years, except for times of recession, which means that taxes have either stayed at the same level or probably grown with GDP(especially given that GDP growth has been biased towards high income earners anyway).

Not only that, but as I keep on telling you, the balance of trade is supposed to stay relatively balanced because the use of US dollars is only to buy US products. The reason why this would get out of whack would tend to be some massive distortion, and in the US's case, our massive deficits(which have existed for decades now) would be a probable cause, and most of these deficits are actually caused by US policy, NOT by a lack of taxes.


No TM, it's not fundamentally flawed. I'm simply trying to simplify things so that way I can help walk you through the steps that a basic macroeconomics textbook/class can get to you. There are instances where a trade imbalance is reasonable, but in those instances, it's probably NOT a bad thing. It's only a bad thing if this is caused by distortions because those distortions often don't respond to market forces very effectively, and there are definite distortions that would matter. I'm simply trying to keep things simple, even though I am aware of exceptions.


*sigh* Except a corporation does this forever, while most consumers really just want debt as a means of purchasing a few high ticket goods.

I mean, you can keep on trying to do this. And it is correct that both entities are responding to economic rules, but this isn't the same act for both entities. Corporations are in the business of expanding their income, so their debt is factored into their cost of capital which they use to calculate NPV for undertaking projects. Consumers don't do that.

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In any case, this entire conversation is getting boring.
1) I doubt you have the ability to recognize if you are wrong. I've given you plenty of information on the manufacturing base of the US, and yet you still somehow think that the Chinese are taking over. (more data: http://www.frbsf.org/publications/econo ... 11-25.html ) Also, your economic models are just getting kind of bizarre as if you don't understand the subject area well.
2) The entire point of this entire conversation is now me educating you on macroeconomics and trade economics, and this is a waste of time if your purpose is trying to debunk me. I'd recommend you get a good textbook or take a good class on trade and/or macro perhaps even just get some time with a good trade professor, as you're literally trying to resurrect a number of economic fallacies, including the big one of mercantilism, which was basically massively attacked/debunked by Adam Smith, and Adam Smith is the guy who Longshanks has identified as the "sane economist" and should we really disagree with his divine tax accountant wisdom???

The simple problem is that outside of recessions, the basic model for unemployment tends to stabilize around a certain percentage range so all this talk about "job loss" really doesn't mean a lot. At most it means higher labor market competition for certain workers, but once again, that's similar to a new machine that did labor for cheaper. You may talk about how this matters because of a recession, but a policy that tries to achieve success at the cost of it's neighbors is going to lead to a trade war in all likelihood. If all you want is to threaten a trade-war then you may have a point, so long as you've correctly identified areas where the Chinese are exploiting a particular trade model.

However, if your problem is simply that Chinese goods are cheap and that the Chinese government is giving export subsidies, then by the heavens let them. Any economist that tries to deny the most basic point, that saving money is a bad thing, is wasting your time, UNLESS he's talking about some special circumstances.(And you don't seem to be doing so)

In any case, here are some links to get some of the oddities in TM's presented ideas:
So, here's a chapter from a Price Theory book on monopolies to establish how hard an artificial monopoly would likely be to establish:
http://www.daviddfriedman.com/Academic/ ... er_10.html

Here's a macroeconomics textbook supplement to explore
http://bcs.worthpublishers.com/mankiw6/ ... id=0&rau=0 (the actual book can be found on Amazon http://www.amazon.com/Macroeconomics-N- ... pd_sim_b_1 )

Here's the wikipedia article on comparative advantage:
http://en.wikipedia.org/wiki/Comparative_advantage (Please note: it actually doesn't matter if the terms of trade are subsidized or not for comparative advantage to make sense.) http://ecedweb.unomaha.edu/lessons/feog5.htm The same basic model though, of comparative advantage, exists throughout economics, and even stems all the way back to classical economics(which is the time of Smith and Ricardo). Trade economics owes its conceptual frameworks to that model, even though the real world is admittedly more complex.

Also, here's an international economics textbook: http://www.amazon.com/International-Eco ... cs+krugman Paul Krugman is a Nobel Prize winning economist in the subject of trade, and the book should provide a relatively balanced overview. There are a few areas where a nation may gain through intervention, but this isn't the typical story. Economists have long rejected TM-style mercantilism due to their understanding of how the economy is adaptable.

Here is a lengthy essay on the matter by a professor on the subject of international trade: http://econfaculty.gmu.edu/pboettke/wor ... /Salin.pdf (It is overly libertarian but not incompetent)
Here is an essay by Paul Krugman on how the notion of "competitiveness" is just a steaming load when talking about international trade: http://www.pkarchive.org/global/pop.html
Here is an essay on how many of the conceptions used by TM are just false and throwing things off: http://www.pkarchive.org/trade/company.html (This is partially driven by TM's desire to maintain lots of questionable conceptual frameworks)
And finally, here's a call by Paul Krugman(who is a famous trade economist) to consider ideas like TM's to be "globaloney" http://www.pkarchive.org/trade/AdamSmithAddress.html

Now note: Paul Krugman isn't the disciple of Milton Friedman and the lover of a hands-off approach to the economy. If he promotes trade, he does so because it is correct, not because he's ideologically compelled to do so. (Also, this is Krugman before the NYT)

Apparently Krugman is in favor of (1) trade and (2) creating money out of thin air.

ruveyn