Shadow Minister et al, I have just read and recommend articles on Keynesianism and appropriate policies for the current situation by economists Steven Kates and Peter Smith on the Quadrant Online site. Both demolish any rationale for the current splash-the-cash approach.

Kates writes: "But to believe it is possible for governments to spend our way to prosperity would be a major error in policy. There is no previous occasion in which such spending has been shown to work, while there are plenty of instances in which it has not. On every occasion that such spending has been used, the result has been a worsening of economic conditions, not an improvement."

Smith notes that: "Essentially governments should try to increase demand but in a way which hands the disposition of that demand to the market. This will ensure that forward looking market forces guide the pattern of demand and correspondingly the productive capacity of the economy."

I particularly recommend these articles to Kevin Rudd and his advisers.

The stimulus package(s) will not be able to cure the problem.

But that is not the intent.

The intent is to mitigate the worst effects of the downturn, to soften the blow, to assist in recovery and to help reduce the size and duration of the defecit.

We are going into defecit with or without government borrowing. The biggest part of a downturn-driven defecit is not government spending programmes, it is the collapse in revenue earnings. The government faces a double whammy - incoming revenue shrinks due to loss of company taxes, rising unemployment etc while at the same time, the need for outgoing expenses such as welfare increases, due to that very same rising unemployment. So in a downturn, the less money that comes in, the more that needs to be payed out.

Pump priming the economy with (properly targeted) government spending can help reduce the rate of business bankruptcies and job losses. While vehement anti-Keynsians may deny it, relatively small, properly targeted defecit spending now can help prevent a bigger defecit down the track.

Grim

The problem is not that Marx is a dirty word, it is that his theories are wrong.

It's not a question of taking what an economist has said as a matter of authority, it's a question of the explaining power of theory, and the theories of Marx, Keynes, and Friedman are demonstrably wrong. Implementing these theories is what has caused this mess!

But I have never seen a refutation of the Austrian theory of money, credit and the business cycle. I have seen lots of name-calling, lots of *claims* that someone else has refuted it. And maybe they have. It's just that no-one has actually been able to come up with anything more than an appeal to absent authority. Maybe you can refute Austrian theory. I would be pleased to see it. Can you? Unlike the Marxists, I don't ignore refutations, I seek them.

I have read and digested Keen's interesting article in full and the following thread.

Keen recognises that Marx's theory of value was wrong. So if his theory of value is wrong, what makes anyone think that his theory of money is going to be right? How could it be?

Both Marx and Keen make the mistake of seeing the creation of money by banks, and wrongly assuming this has nothing to do with government policy. In fact, it is government policy privileging the banks in the creation of credit that is what is causing the problem, because in the absence of such government policy, such banks would go broke, as they should.

"The essential problem in the world today is simply the level of credit"

True. But if we don't have a sound theory of money and credit, we will be unable to identify the cause and the cure. We will get matters back the front, as Marx did.

"The level of debt worldwide vastly exceeds the levels of available goods."

It exceeds the level of money in specie in reserve with which to redeem the debts

This is caused because government policies of money and banking protect banks from going broke when they make loans unbacked by money in specie. In a free market governed by the contracts of the parties, banks that did that would suffer loss and bankruptcy. What is causing the problem is government policy, because government profits from looting the population by privileging the banks. Without government’s control of money and banking, the problem wouldn’t exist.

"This situation must always inevitably create times when a 'radical adjustment' is necessary; such as we are going through now. Another 'recession we had to have', in other words."

Yes. That ‘radical adjustment’ is the recession. Everyone decries the bust, but the damage is done during the boom. The radical adjustment is necessary because capital is destroyed and people stop buying the government’s fraudulent valuation of its own money supply. The capital needs to be re-directed into productive lines, and that costs both time and money - real wealth.

"The problem is not how we deal with credit, but the concept of credit itself."

The problem is that most people do not understand what they are talking about, because they lack an understanding of the necessary basic concepts based on sound (non-refuted) theory of money and credit. Peter Hume explains the basic concepts in his post, and shows the errors in Keen’s argument, at the end of the thread in that link you sent me.

Government manipulation of the money supply causes the privilege and social injustice that the people, in their ignorance of sound theory, blame on ‘unregulated capitalism’. Then government pretends to be everyone’s saviour s with more of what caused the problem in the first place, which is what Rudd and Obama are doing now and a grand scale.

See:
http://mises.org/story/3340
http://mises.org/story/3353

"Peter Hume explains the basic concepts in his post, and shows the errors in Keen’s argument, at the end of the thread in that link you sent me."
Oops. You probably should have signed this piece "Wing Ah Ling" rather than Peter Hume. Offering quotes of yourself as irrefutable evidence for your own arguments is so passe, don't you think?
I did take the trouble to read your contributionns to the Steve Keens website; sadly the only 'hard' evidence I saw was of bad manners.
Once again, I am struck by the similarities between 'Wing Ah Ling/Peter Hume' and Runner. All three persona's offer "rock solid",irrefutable data, rather than opinions, and all three have absolutely no tolerance for anyone's opinions which contradict their own.
In truth, there is some worth in the Austrian School of economics. Mises (and Hayek) did make some worthwhile contributions to economic argument.
I still believe you keep putting the cart before the horse.
Morality -meaning how we treat others- should come first. Economics should describe how best we do this.
Putting economics before morality is to put numbers before people.
when 30,000 children die (every day) the emphasis should be on the word "children", not on the number 30,000.
Living, breathing, innocent children. If your economic model cannot encompass the idea that those children were loved, as much as you love your children...
then your model is wrong.

The point is Grim, that it is government policies that have caused the social dislocation and injustice which Shal and Steve Keen now want to use government policies to fix up. No-one has refuted the arguments that show that these problems aren't 'endogenous' to the banks, they are caused by government manipulating the money supply, creating a short-term artificial boom favouring some at the expense of everyone else, a short-term electoral benefit, while leaving a long-term economic mess and wreckage. Not *numbers*, Grim. Real people that are now unemployed and distressed because of these policies. The boot is on the other foot. I cant understand how you can't understand it.

The idea that we as a society will have a greater abundance with which to feed the poor, by giving government more control of the money supply, or anything else, is simply wrong. When the socialist countries in the twentieth centuries tried doing social justice by taking over land, and the supply of food, tens of millions of people starved to death. These well-intended policies of 'easy money' have just destroyed, and are in the process of destroying trillions of dollars worth of capital - wealth taken from ordinary people including the poorest, which will now leave them destitute or working the rest of their lives to pay for this official fraud and theft. Don't you get it? There is no ground for the government policies that people are urging to fix it - they are what caused it! So spare me your fake moral superiority.

As for the ethics, all government has to add, apart from economic chaos, is force, compulsion, violence and threats.

Both for ethical and for practical reasons, the solution is to abolish goverment's abusive and incompetent 'economic management', which are creating the problems that people in their utter ignorance are blaming on anyone but the government. If this were not so, Steve Keen would have been able to defend his own ignorant and clearly mistaken proposition.