Adair Turner on government spending
Adair Turner, chairman of Britain’s Financial Services Authority offers his take on government policy and “spending” side of policies.
From Reuters comes this comment on the speech. I haven’t seen much coverage.
Wednesday night may have marked the “emperor’s new clothes” moment of the Great Recession, in which the world suddenly realizes its rulers are suffering from a delusion that doesn’t have to be humored. That delusion today is economic fatalism: the idea that nothing can be done to break the paralysis in the global economy and therefore that a “new normal” of mass unemployment and declining living standards is inevitable for years or decades to come.
That such economic fatalism is nonsensical is the key message of a truly historic speech delivered on Wednesday by Adair Turner, chairman of Britain’s Financial Services Authority and one of the most influential financial policymakers in the world. Turner argues that a virtually surefire method of stimulating economic activity exists today and that politicians and central bankers can no longer treat it as taboo: Newly created money should be handed out to the citizens or governments of countries that are mired in stagnation and such monetary financing of tax cuts or government spending should continue until economic activity revives.
So what evil awful thing would happen if the government literally created $314 billion in zeros and ones in its Fed bank account, and then sent every American a $1000 check.
Would their be some inflation? A bit, but $300 billion is only 2% of the size of our annual economy, some of this money would be saved, and there is a lot of producer-side slack, so I wouldn’t even expect to see an inflationary change of more than a point or so. Note that this would be one-off as well, and in fact likely fade away as the little spending boomlet wound its way down.
I am all for the helicopter drop option, perhaps $500 per quarter for a year, per person. Inflation would rise to the 4-5% range, and if there was any danger at all of it going higher, the fed could easily tighten. What’s the downside here? Because you will certainly see a jump in demand. Just ask Walmart, who got nailed by the payroll tax increase.
like i always said,
the payroll tax holiday was a present to Walmart and their Chinese suppliers.
I was reading a Thom Hartman piece on Common Dreams, discussing how the conservatives bought into supply side economics. They have never, that I know of, attempted to explain how it was that prior to the growth of Madison Ave., people learned of, and beat a path to the doors of, producers, in order to scoop up all the wonderful goodies businesses just, on a whim, decided to produce, “just in case anyone wants them”. The whole thing is so backassward that a 5 year old can see through it, so how did it become accepted truth? If you build it and they DON’T come, your investment, time and money are toast. Even the most risk-seeking Daddy Warbucks would pause, I would think. BWTFDIK? I’m just a potential mark.
Sandi,
It sounds more like you have a problem with Says law than Supply Side Economics. I wouldn’t turn to a progressive journalist to learn about these subjects. That’s sorta like turning to a journalist at Creation Science digest to learn about the Theory of Natural Selection.
Purchasing items is actually a form of mediated trade. at the bottom line you must be trading something you or someone else produced and gave to you for the something you are borrowing.
Both things that are being traded, even if one is money, had to be produced before they are traded.
Do you know what barter is and how money arises from such a system?
Was it this piece: Two Santa Clauses or How The Republican Party Has Conned America for Thirty Years
– Thom Hartman
I personally do not like to be told falsehoods because that tends to lead to bad solutions. I read several paragraphs in and there were errors on top of errors.
As an example this paragraph:
“In Hoover’s world (and virtually all the Republicans since reconstruction with the exception of Teddy Roosevelt), market fundamentalism was a virtual religion. Economists from Ludwig von Mises to Friedrich Hayek to Milton Friedman had preached that government could only make a mess of things economic, and the world of finance should be left to the Big Boys – the Masters of the Universe, as they sometimes called themselves – who ruled Wall Street and international finance.”
That’s on par with nutty claims that Jews rule the world, and factually inaccurate.
Hoover was NOT a laissez faire capitalist. None of these people ever preached that finances should be left to the “Big Boys – the Masters of the Universe”. This guy Hartmann is spreading lies and defamation. He is motivating people to hate others on false grounds.
If you want a more accurate article on Hoover’s policies see this article: http://online.wsj.com/article/SB122576077569495545.html
Chad,
How is that different than a tax break followed by issuing money to itself? Has that “worked” yet?
I followed an article over here complaining about stereotyping Krugman as only having one solution, money printing and government spending. That’s all this is.
Sandy, My IPad decided to spell correct a typo making my sentence silly.
It was buying, not borrowing. Say’s Law says that for a trad to occur the goods first have to be produced. Seems obvious right? Production always comes prior to consumption also.
Where do these products come from? It is an iterative process. Originally staring with people producing for themselves first, and trading excess goods with others. The production must come first as any 5 year old can tell you. You can’t sell your lemonade till you make it. 🙂
Any questions? Proper economic theory can answer much more than this.
Brad:
“Proper economic theory can answer much more than this.”
Ah hah. While I can get a sense of your manner in response to the tone of Sandi’s comment, I will assume then you have some real knowledge of ‘economics’. It is telling that you think there is proper economics somewhere….who is proper? I prefer demand/supply notions…
Michael Pettis offers some analysis somewhat relevant to how things work when comparing systems and historical record…
http://www.mpettis.com/2013/02/21/a-brief-history-of-the-chinese-growth-model/