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Originally Posted by ratbastid
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.
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Obama's premise is that only government can solve our current problems, I think his premise is flawed. I also think that he has failed to outline the long-term impact of his plan.
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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.)
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there are already signs the economy will hit the bottom and then start to improve before the "stimulus" takes hold. It reminds me of the story about a guy going to the doctor with a common cold. The doc say to take two aspirin and call him in a few days. the guy is better, and thinks the doctor visit and taking the aspirin was the cure.
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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.
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Sure there is a multiplier, but that can be offset by inflation or increased taxes in the future. The government creates money, but they don't. the government spends money that was taxed, so they spend a dollar taken from someone. No net multiplier. The government uses deficit spending, this is paid back with interest in the form of inflation or higher future taxes - short-term multiplier then it gets reversed plus interest.