From: brian@quake.sylmar.ca.us (Brian K. Yoder)
Subject: Re: A Supply Side Call to Arms
Keywords: keynes,capitalism,economics,objectivism,fallacies 
Organization: Quake Public Access
Date: Sat, 21 Nov 1992 12:55:20 GMT

In article <1ee1hfINN9n3@usenet.INS.CWRU.Edu> bo275@cleveland.Freenet.Edu (Larry R Beam) writes:

>    For the narrow consideration  of immediate impact on income
>and employment, all government  spending is equivalent. 

Nonsense!  Spending on stupid things benefits nobody no matter where the
money comes from.

>Indeed,
>all spending by all actors in the economy is exactly equivalent
>in this sense. All spending in the domestic economy, whether by
>consumers, investors, government,  or foreigners, has identical
>impact on income and product, and so on employment. (Economists
>will  recognize this  fundamental  identity of  national income
>accounting: Y=C+I+G+(X-M).)

So, you are telling me that if everyone buys grains of sand from Pee Wee
Herman for $1000 each until everyone is broke, the economic effect would 
be the same as if they had purchased useful goods from efficient suppliers?
You have got to be kidding.  

>    This  analysis is  meaningful for  the current  time period
>only:  in  any  longer   analysis,  real  investment  is  quite
>different from  other spending. That's  because real investment
>is  (by   definition)  an  increase   in  society's  productive
>capacity.  

Is it?  What if it is an investment in inefficient production?  If
I invest $1M in a hot dog stand which is sin a location where there 
are no customers, there is no increased wealth.  Wealth (including
labor and materials) has been destroyed by such "investment", not 
created.

>Some government  spending  should be  thought  of as
>investment.  The building  (or  repair) of  infrastructure, and
>spending  on  education, are  examples  of  government spending
>which tend to increase the society's productive capacity.

To what degree?  What would the effect of spending 90% of GNP on
schools with gold-plated textbooks which serve roasted peacock
tongues (a rare and hard to cultivate delicacy) be?  Would such
"investment" improve the overally productive capacity?  I don't think
that even you would say so.

I also find it interesting that you refer to the capital stock as
"society's".  It only belongs to society under socialism.  That
couldn't possibly be what you desire is it?

>    In the  categories of  real investment  and investment-like
>government   spending,  America   has   lagged  badly   in  the
>Reagan-Bush years.  Supply-side policies  have resulted  in the
>movement  of huge  amounts of  resources into  purely financial
>investments--just   changes  in   the  ownership   of  existing
>productive  resources,  as  in  leveraged  buy-outs  and  other
>manipulations of paper. 

Would you care to prove that changes in ownership or corporate
composition do not give rise to increased productivity?  These
"manipulations of paper" can very often lead to very real increases
in overall wealth.  Remember, in a fiat money system such as we have today,
ALL monetary transactions are essentially "manipulations of paper".

Tell me.  What would motivate the various actors in these "malipulations
of paper" to engage in such behavior?  Whose money is being "lost"?
Have you ever seriously studied economics?

>In real investment, the building of new
>productive capacity, America has lagged  far behind most of the
>other industrialized democracies. Which is  a large part of why
>our growth has been so anemic.

Well, the fact that we tax anything that moves (particularly if it
dares to try to be productive) and and borrow or regulate away what
we can't tax.  Do you really think that a business which has plenty of
capital for expansion will grow at the same rate as one which is
short on capital?

I should also point out that since the US productivity started out high,
the relative growth in productivity can be expected to be higher where
there's more room to grow.

>    Also hugely  contributing to our  slow growth  has been how
>Reagan  and Bush  spent government  resources. They  pushed for
>spending  largely   on  military   build-up.  They  discouraged
>spending  on   infrastructure,  education,   health  care,  and
>research--all sorts of spending which would have contributed to
>the potential for future growth.

Why should they waste money on things which individual citizens are
not willing to spend their own money on? (education, health care,
research, etc.)  Or do you think that the government knows how to
spend your money better than you do?  I certainly know better how to
allocate my money in my company than the government does.  Should I
hire more employees?  Invest in better machines?  Marketing consultants?
Tell me which government agency knows better than I do how to allocate
MY money than I do, and also tell me what right they have to take such
authority.

>    On the same page  of The General Theory  on which JM Keynes
>tells the story (told in slightly distorted form by Mr. Howe in
>article 31664) of filling  bottles with bank-notes, and burying
>them in disused  coal mines, he  writes that "Pyramid-building,
>earthquakes, and even wars may serve to increase wealth, if the
>education  of  our  statesmen on  the  principles  of classical
>economics stands in  the way of anything  better." [p. 129] Mr.
>Howe makes the  mistake of reading  Keynes' sarcasm as straight
>stuff.  Keynes  is  clear,  to  the  point  of  being tediously
>repetitive, in  his preference for  spending on  such things as
>housing, hospitals, and roads.

Have you ever heard of Say's Law?  

How many hospitals and roads and housing are "enough"?  Why are these
goods any different from food or water or TVs or clothing or cabbage
patch dolls?  The need for homes is no different than the need for 
food or cars or anything else, from an economic point of view.

PRODUCTION is the real measure of wealth.  You cannot be wealthy without
production.  Spending is only a secondary effect of production (it 
is simply the trade of the products of production).  If we all just started 
spending without producing anything of value, can you guess what the
result would be?

I didn't think so.

>    Discretionary  government   spending,  with   the  explicit
>purpose of economic stimulation, can be exceedingly productive.

"Spending" produces absolutely nothing!  It is a matter of CONSUMPTION.
The important question in this kind of "investment" is whether there
is already sufficient "investment" in that area already, and whether
the "investment" is applied intelligently.  Governments are notoriously
poor at making such applications of capital, and furthermore have no
business ordering citizens around with respect to how they spend their
time and use their property.  We are not slaves, no matter how much 
Keynes would like to make us think that slavery is a prosperous way
of life.

>Swiftly  after  the  publication  of  Keynes'  General  Theory,
>deficit    spending    engaged     in    by    the    Roosevelt
>Administration--the    WPA,    especially--resulted    in   the
>construction of parks,  dams, public buildings,  and roads from
>which immense benefits continue to flow to the American people.

>No rational person can call it waste.

I am rational and I call it waste.  When people were poor and starving,
what sense did it make to be spending precious capital and labor on
making parks?  If those same resources were used in medical research
or milk production, or industrial capitalization, how many more people
would have advanced economically?  I am NOT saying that parks and dams
are never needed, but saying that "more roads", "more dams", and "more 
parks" are always better, is nonsense. 

Regarding the pyramids, it is interesting that Keynes uses them as 
an example.  All of the thought and resources and labor involved
were essentially wasted as far as the slaves involved were concerned.
Just think, if all that labor and capital had been dedicated to producing
homes, pots, pans, water systems, schools, etc. the real wealth of
the typical egyptian would have been immeasurably better than the 
endless slavery they had to endure, and for no real benefit to anyone
(including the Pharoh since all that work didn't even give him eternal life!).
If you think that egyptian slave society is so productive, why don't
you just start a voluntary one yourself?  You should be able to attract
thousands of Keynesian economists who think they can go out into the desert,
have the pharoh order them to build pyramids, and then live a life of 
plenty as a result of having stimulated the "economy".
 
--Brian
Newsgroups: sci.econ