Jardine (continued),

The big problem is that you wrongly see all government intervention as "central planning" and assume it to be an attempt to replace the market. You don't seem to realise that despite their self optimising nature, markets are imperfect!

Problems with leaving it all to the market include, but are not limited to:
• Markets ignore externalities (both negative and positive)
• Markets are inherently biased towards the interests of the rich
• Markets are inherently biased to short term decisions
• Markets tend to also be biased towards the bigger participants
• Risk management can be a much bigger problem for smaller participants
• Not all market participants have equal access to information
• Some market participants (often newer ones) can't fully participate due to lack of access to credit.

So there are many situations where government intervention can be justified.

But with the money supply the case for government intervention is much stronger because there is a positive feedback loop. When the money supply is expanding, there are more opportunities to make a profit, so there's more private sector investment, so debt increases, which expands the money supply, so there are more opportunities to make a profit... and eventually constraints on real resources will lead to high inflation.

Conversely when the money supply is contracting, there are fewer opportunities to make a profit, so less private sector investment, so fewer loans, so the money supply shrinks even more... and unemployment keeps rising.

The effect is exacerbated by individuals being more confident to spend in the boom times, but saving more because of concerns about their own future in the busts.

The sensible response is for the government to actively run a negative feedback system. There are two ways to do this: firstly the government can literally do the opposite of the private sector, and run surpluses in the booms and higher deficits in the busts. Secondly they can adjust interest rates to change private sector behaviour - although this loses its effectiveness when interest rates are already very low.

(tbc)

Jardine (continued),

The worst thing for the government to do is attempt a procyclical response like immediately trying to balance the budget.

There are many variables; far too many for anyone to write an algorithm to give you a definitive answer on what to do in any given situation, let alone for me to explain to you in 350 words. So the solution is to look at events, work out what's going on, and react accordingly. Sometimes there will be strong evidence that expansionary policy is needed; other times more contractionary policy will be better. There will be some occasions where the case for a particular action is not so strong. And yes, there will also be occasions where it's a value judgement. Life's like that.

TOR

Ho hum ad hom.

Unfortunately the question whether government should increase its borrowing is not answered by Thomas O'Reilly's faux psychologising based on links to Wikipedia about narcissistic personality disorder.

Got those calculations there yet feller?

Aidan
Ultimately, underlying all the economic issues are deeper issues of epistemology: how we know whether economic propositions are true or not.

There are many genuine challenges and real issues about this, but I say that the very least requirement is that the propositions must comply with the principles of logic, otherwise we've got nothing. That’s why I keep going on about it.

Now given it's common ground you don't know all the factual variables, how do you know what is "evidence" for your theory, and what is not?

For example, suppose an economist says:
"1. The government increases the supply of $5 bills by doubling it, and the money supply increases by as much;
2. After that, the supply of apples goes down by 5 percent;
3. THEREFORE the decrease in the supply of apples is BECAUSE OF the increase in the money supply."

Can you see any problem with that line of reasoning?

How is that any different from you saying what the “evidence” for increases in stimulus spending is?

The government spends more or less, and unemployment goes up or down, say. How do you know whether it's because of, or despite the governmental action in question?

I have never said the market is perfect, and have no need of that hypothesis.

But whatever the defects of the market, the State will not be in any better position unless you can demonstrate what you have so far failed to demonstrate, or even understand.

It's not enough to just assert a mere value of a parameter of your own choosing - (this is essentially what Mao did by deciding that the one measure of economic progress was steel production) - for example, an inflation rate of such and such.

It's not because I don't agree with doing it, although I don't.

(cont.)
It's because the very nature of economics is that we have to reconcile what is gained with what is sacrificed. You're not doing that, and when I ask you to prove that you’re doing it, you don’t answer the question.

So you're not comparing apples with apples, because private capitalists must confront gains with costs. But your technique is only to assert and assume that, at your asserted point, any downsides of State action were automatically justified.

But if that's not your technique, then you still haven't explained how you distinguish justified from unjustified interventions, in a way that takes account of the downsides equally impartially on the both sides of the question.

I say "inflation rates" proves you wrong, and according to you, we are both now agreed, by your own standard of proof, that you are wrong.

If the ECP can only be solved by reference to other market data that have not yet been extinguished by socialism, then you are conceding that central planning and governmental action displace market data to the extent of the governmental intervention. For example if the USSR nationalises commodity production, but commodity prices are still available because of the existence of commodity markets elsewhere, then you're admitting that the only thing stopping governmental action from causing complete economic and social chaos, is the existence of private property and markets aka capitalism.

I'm not even asking you to agree. But so far, you don't even seem to understand. You think it's all solved by you simply asserting that you know, and then when challenged to provide evidence or reason, you admit you can't!

Jardine,

I'm glad you now recognise that markets aren't perfect and that you're willing to consider the question of whether economic propositions are true or not.

I strongly agree that the propositions must comply with the principles of logic. There's a need to avoid false assumptions as well as avoiding non sequiters. And reality checks are always needed.

Which brings us to your question:
"The government spends more or less, and unemployment goes up or down, say. How do you know whether it's because of, or despite the governmental action in question?"
The answer is partly basic psychology (understanding the circumstances of people's willingness to work and employers' willingness to employ them) and partly the effects of sectoral balances. But the basis is simple enough: when the government employs people directly, obviously that decreases unemployment. If the government contracts something out to the private sector, it still results in people employed to get the job done. Even if the client isn't the government, it results in people employed to get the job done. There's a pretty clear relationship between spending and employment. The cost is likely to be a partial rise in the inflation rate (but only a very small one unless real resource constraints are reached) and a short term partial reduction in currency value (again only very small, and no I don't have a formula to calculate the exact size. Partial in this context means other factors could reverse the result).

Unemployment is itself a huge waste of resources; usually by far the biggest waste in the economy. I find it obvious that the benefits of getting more people into productive work could easily dwarf the cost; if you don't, I'd appreciate a brief explanation of why so my explanation won't have to be too long.

For other economic interventions, some sort of benefit cost analysis or IRR based measure would be appropriate. But when you make those calculations, you WILL encounter the problem of how to quantify the value of externalities. Dismissing anything subjective as worthless is not an acceptable solution, as it is itself subjective.

@Jardine: "TOR Ho hum ad hom."

Ad hominem abuse ridicule from Jardine K. Jardine includes: "BWAHAHAHAHAHAHAHAHAHAHAH!" and "your infantile belief system" and "you squirming fool" and of course: "According to you, we're all going to boil to death if you don't HURRY!"

Nope, I never said that last item. So why are you lying Jardine? Did you believe you'd get away with lying?

re: "based on links to Wikipedia about narcissistic personality disorder."

There was no 'wikipedia links.' So again I ask, Why are you lying? Can you see any problem with that line of reasoning (or lack of) Jardine?

re: "because the very nature of economics is"

Mmmm, another lie or merely confused. No "nature" exists in conceptual frameworks that are purely theoretical and hypothetical and not real in nature.

Nature has nature, frogs have a nature, humans have a nature, fish, seaweed and grass have a nature. There is no "nature" in non-things that do not exist (except inside your head.) But there is a "nature" to what goes on inside your headspace because you are human (I assume).

There is NO 'nature of economics'. Why are you making things up Jardine instead of telling the truth?

For Educational purposes:

(NPD) : How to Recognize a Narcissist
http://www.halcyon.com/jmashmun/npd/index.html

Narcissistic personality disorder is a mental disorder in which people have an inflated sense of their own importance, a deep need for admiration and a lack of empathy for others. But behind this mask of ultraconfidence lies a fragile self-esteem that's vulnerable to the slightest criticism.
http://www.mayoclinic.org/diseases-conditions/narcissistic-personality-disorder/basics/definition/con-20025568

Unmasking Narcissists - Sam Vaknin
http://www.youtube.com/watch?v=sU305NqXT94

Here are DSM’s requirements for “earning” the unenviable diagnosis of NPD:
4. Requires excessive admiration [regularly fishes for compliments, and is highly susceptible to flattery].
7. Lacks empathy: is unwilling [or, I would add, unable] to recognize or identify with the feelings and needs of others.
9. Shows arrogant, haughty [rude and abusive] behaviors or attitudes.
http://www.psychologytoday.com/blog/evolution-the-self/201311/6-signs-narcissism-you-may-not-know-about
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