Peter Hume
Re; I see you haven’t answered my question as to the economic distinction between loss-making government-funded projects that are justified, and those that are not?
Ans; The insulation and building projects did not make a loss. They were not government trading activities. They were projects with cost overruns. They were less efficient than they could have been but that does not make them loss making.

Re; The benefit from the pink batts and BER was of a redistributive kind – some people were given other people’s wealth. It was not a net social benefit, it was a grand waste.
Ans; When sovereign governments write cheques the reserve bank honours them. That creates money in a similar fashion to the private banking system's creation of money (Economics 1.01). Whether that creation of money is inflationary depends on circumstances and in the situation the government faced the inflationary risk was negligible. The government is expected by the community to avoid both inflationary and deflationary shocks. Deflation would have caused massive apparent wealth loss but the actual physical assets of the community would not have changed significantly except in money value. The action taken did increase the real asset value of the community.

RE. The fact that anyone would think buying $100,000 buildings for a million dollars just goes to show the window-breaking mentality I have described.
Ans; Probably 80% of insulation installations were both beneficial and cost effective to the clients and the community. No building was ten times as expensive as it should have been. Some states were less efficient than others and some projects charged drainage and similar work to the library/hall project.
The rest of your comment is adequately covered by the author in the original article.
Please read and understand the last section of Keynes' Chapter 10 and remember he is being ironic.

I maintain that Keynesianism is an amalgam of unfalsifiable beliefs that ultimately rest in a denial of the possibility of economics itself, for the following reasons.

Before economics came along, the understanding of the economy was in normative terms: how it ought to be: eg rule against usury. This was in the time of the divine right of kings. The breakthrough of the early economists was to see that there are certain regular patterns in economic affairs. This gave rise to the possibility of a science describing economic “laws”: the systematic interconnectedness and regularity of economic phenomena.

I have five dogs. If I fed them equally, one would become fat and another skinny. So I feed them unequally.

Keynesianism is like a throw-back to the divine right of kings. The king can do no wrong. Authorised by God, he can create whatever economic reality he wants, just by passing laws. People are like a kind of animal owned by the sovereign, to vary their proportions as it sees fit.

Did you see 4 Corners last night? Apparently Bush spent, and put the country into debt, on stimulus handouts more than the USA spent on WWI, WWII, the Korean War, the Vietnam War, the moon landings, and the Iraq war *combined*. He went into more debt than all the Presidents since Washington combined.

And Obama is set to exceed him.

Yet here we have the Keynesians telling us that the way out of the recession is more debt, more spending, more consumption.

Yes the pink batts were not a trading enterprise of government. But absent the measure of profit and loss, what could “efficiency” possibly mean?

> “They were projects with cost overruns.”

They were spending projects with cost overruns.

“The government is expected by the community to avoid both inflationary and deflationary shocks.”
There is no evidence for this proposition.

Even if the proposition were granted, if the population expects the government to do magic by sacrificing virgins, it doesn’t mean the government has a duty to attempt magic by sacrificing virgins.

It’s both uneconomic and unethical: it depends on ‘divine right of kings’ and denial of economics.

What is the *economic* distinction between inflation and inflationary shock; or between deflation and deflationary shock? These are not economic terms. They are arbitrary political terms of endless licence for governmental meddling in what it cannot make better.

> “Probably 80% of insulation installations were both beneficial and cost effective to the clients and the community.”

1. Obviously a forced redistribution of wealth is beneficial to the recipient. That doesn’t prove it provides a net benefit to society or is ethical.
2. There is no evidence of a net benefit to the community. This is simply the idea that we create a net benefit by mere transfer. What they did was, take from its rightful owners a whole lot of real wealth which they then gave to politicians’ pet favourites, to provide them with overpriced goods, which those people would not voluntarily have paid for themselves, while simultaneously burning down houses. It’s voodoo.
3. And there is not even evidence that the transfers were from the relatively rich to the relatively poor; at lot of the time it must have been the other way around.
4. What about the other 20 percent?

“Please read and understand the last section of Keynes' Chapter 10 and remember he is being ironic.”

In what you are calling irony, Keynes was saying that the government might as well spend the money on something more useful rather than less. But the fact is, whichever way you look at it, Keynes was advocating debt, credit expansion, increased consumption, and government spending as the way out of recession.

But if printing money can make us better off, why only do it during a recession? Why not do it all the time? Why not keep doing it until we are all independently wealthy? We have discovered magic pudding.

What would it take to make you change your mind: to see that debt, spending, tax, credit expansion, and consumption do not create wealth ?

I've always admired your rigid application of logic, Peter Hume.

>>But if printing money can make us better off, why only do it during a recession? Why not do it all the time? Why not keep doing it until we are all independently wealthy? We have discovered magic pudding.<<

Here's a test for you.

Spot the difference between:

"The earth absorbs the soft refreshing rain,
And sends it back in flow'rs and fruits again" (Hymn 592)

and:

"Poor weather is bringing more misery to Pakistan as authorities battle to contain record flooding, with yet more heavy rain forecast. Rain is falling in parts of the north and east, with villages badly damaged and crops destroyed in fertile Punjab." (BBC News)

This enables me to paraphrase your contribution as follows:

"But if rain makes 'flow'rs and fruits' grow, wouldn't it be best if it rained all the time? Why would we not want it to keep raining, that way we'd all be fully supplied with 'flow'rs and fruits'"?

To insist that because broccoli is good for you, you should only eat broccoli, shows a profound misunderstanding of the application of economic theory.

Keeping adding water increases wellbeing to a point, and then reduces it.

And the creation of net wealth from nothing would start to be bad at what point?

And by what economic principle would we know what that point is?

Don't tell me, lemme guess: the point at which the government decides so? We know what the government is doing is optimal because the government is doing it?

What would it take to falsify the belief?

Peter Hume,
Let me just point out how ridiculous most of your arguments are. One or two examples might do. Australian citizens elect a government, say a new one. How long would that government last if it ignored economic problems?

The political parties put forward policies, most of them economic or welfare oriented, with the aim of being elected. After the election the successful party lays claim to having a mandate to implement those policies. That is a long way from the claims of the ancient kings that they were entitled to rule by divine right.

Over time both parties have recognized that is was best to charge the Reserve bank with maintaining inflation in the range 2 to 3% but governments have removed some of the tools the Reserve once had to apply the necessary pressure to maintain the rate within that range. That rate has been chosen because a deflationary rate tends to be harder to control. The concept is that it is easier to pull on a string than to push on one.

An inflationary shock would be if suddenly the rate appeared to be heading for 5%. I would have thought that the concept of a shock would not need further explanation.

You seem to be arguing that society has no obligation to care for the disadvantage, a category which would proliferate if unemployment jumped due to such things as a global financial crisis. You might be willing to live in such a society. I do not want to.

The GFC was largely due to the flood of $US caused by the USA creating bank balances to pay for its imports. Those bank balances were onlent to financial gamblers in a parasitic industry. In the depth of the Depression Roosevelt made comments that are quite relevant to today's situation.