Thursday, October 8, 2009

Ooooohhhhhh ,. . . brain. . . hurt . . .

Reading this article was difficult. Enough so that it made my brain hurt at times (no pain, no gain?).


In practical terms this meant that any increase in businessmen's pessimism about the future must be offset by increased government spending to compensate for an increased propensity to hoard. Keynes was quite aware of a possible conflict between the two roles of government. Increased government spending, he warned Roosevelt, might depress private investment by an equal amount even in conditions of high unemployment if businessmen were worried by the objects of the expenditure or the methods by which it was financed, in short, he recognized the possibility that government policy may in itself be the cause of the pessimism for which government spending then had to compensate.

. . .

Labor was involuntarily unemployed only when it wished to work for a reduced real wage but was unable to do so, because it could not reduce its real wage by accepting a lower money wage; any reduction in the money wage causing the general price level to fall leaving real wages unchanged.

Although the article is from 1981 (or earlier?), it made me think of all the things our government is currently trying to do.

What I got out of reading and thinking is; "that our government can't spend us out of the current situation and that its best action may be to simply STOP trying". I think that "STOP trying" is what a great majority of the Tea Party movement is all about. We would rather go through a period of suffering than lose our country altogether through bankruptcy, or transformation to socialism/communism.

The part about being unable to work for a reduced wage was a real mind twister for me (in my present circumstance). What the mental struggle is, is that a good deal of economics involves circular catch-22 relationships and reasoning.


Gordon R. Durand said...

Oooh... ouch. Macroeconomics. That does hurt. First you have to believe as many as six impossible things before breakfast. Then you have to keep in mind the law of unintended consequences. Finally, ceteris paribus, which they never are.

Back when I was studying this stuff under a grant from Claiborne Pell, macroeconomics seemed like the most interesting thing. Later I read Milton Friedman and microeconomics seemed to make more sense.

You can't study the actions of human beings in aggregate. Minnows and starlings maybe, but not humans. You might as well ask, "Which way is that herd of cats going?" North! Mostly, and west! Now south! Some of them! Wait...!

7 of 9 said...

Sami & I were talking about this exact idea just last night at dinner. I was comparing the Great Depression to now and how we need to NOT have the government bail us out but let us all suffer slowly through it. By the end of the conversation/explanation I was getting so turned in circles and confused. Sami kept tossing her "why not just..." questions at me. WOW, you guys helped affirm this. thanks