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Originally Posted by aceventura3
We can dance around the central question all day long but at the root Keynesian people won't address the question of - when does government spending begin to have a negative impact on economic growth? There simply is no free ride with government spending.
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Keynes (and Obama for that matter) say that TEMPORARY, SHORT-TERM government spending can TEMPORARILY take the place, for a SHORT TERM, of private-sector spending in propelling an economy. Obviously the hope is that it's of SHORT enough TERM that it's not a burden later. The fact is, a pure Keynesian move like this has never truly been done before. What happened in the Depression/WW2 was different as I outlined above (and which you seem to pretty much concur with). This is untried territory. Any reasonable person has lots of question marks about it.
But look, the other options are:
- Put money into the top of society so it trickles down (Which is absurd, because you really think the rich got rich by giving money away? That's been a losing hand for 90% of America for the last 20 years.)
- Manipulating interest rates (A reasonable tool that broke irretrievably the day the fed set the overnight lending rate at 0% and the TED spread didn't move an inch.)
What else are you going to do, ace? Sit it out and hope the unemployment bomb doesn't drop on you or someone you love? Okay, fine, as a private citizen, you might do that. But if you're the president, what do you do? Tell people to keep hope alive while they collect social security? You gotta do something, don't you? You were elected to do something. What would YOU do?
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Originally Posted by aceventura3
I wonder if Kaynsian's believe the law of diminishing returns applies to fiscal policy or spending by the government. I can accept that government spending on something like education, when there was no previous spending on education could have a positive impact on economic growth. However, I think the benefit of government spending on education quickly diminishes when a basic infrastructure for education is in place and that additional spending by government becomes inefficient and wasteful. And that after a basic education infrastructure is in place private sector spending will be the most beneficial.
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Quite the opposite--Keynes claims a multiplication effect. Keynes postulated that each dollar the government spends is worth well MORE than a dollar, as it circulates through the economy. The buck you pay the guy to build the bridge gets spent in the bar that night, and the bartender spends it again to the beer company, and the beer company pays the secretary.... Each dollar gets multiplied. To me that sounds a bit like counting your chickens three times before they hatch, but it's what Keynes said. Google "Keynes Multiplier" for more on that--Wikipedia explains it well (and in somewhat fairer terms than I just did).