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PeakTrader:

We’re in a Keynesian Liquidity Trap, because of the nature of the long boom, from 1982-07.

The “masses” overconsumed and built-up debt, while relatively few, e.g. the top 20%, underconsumed and saved.

Moreover, income gaps, government, and trade deficits contributed to this imbalance.

So, there’s been a lack of demand. Lower interest rates and higher asset prices haven’t helped the masses as much as they’ve helped the top 20%.

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PeakTrader:

Ronald Reagan proved Henry Hazzlit wrong with his huge tax cuts and huge military build-up, which not only gave us a V-shaped recovery, it gave us the longest peacetime expansion, from 1982-90, until the expansion from 1991-01.

The point of expansionary and contractionary fiscal policy, like accommodative and restrictive monetary policy, is to smooth-out business cycles to achieve maximum employment over time.

Government should borrow from the future when the country is below full employment and save when the country is at full employment.

When the country is beyond full employment, e.g. in the second half of the 1990s, taxes should rise or spending should fall to slow growth to a sustainable rate.

Monetary policy has been much more effective than fiscal policy, because politicians control fiscal policy. They’ve failed to coordinate fiscal policy with monetary policy, particularly in economic expansions.

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In “The General Theory of Employment, Interest and Money, published in 1936,” Keynes believed an economy won’t necessarily self-correct for a long time. And so, a “Lost Decade,” or two, wasn’t necessary:

“Keynes advocated what has been called counter-cyclical fiscal policies, that is policies which acted against the tide of the business cycle: deficit spending when a nation’s economy suffers from recession or when recovery is long-delayed and unemployment is persistently high—and the suppression of inflation in boom times by either increasing taxes or cutting back on government outlays.

He argued that governments should solve short-term problems rather than waiting for market forces to do it, because “in the long run, we are all dead.”"

http://www.martinfrost.ws/htmlfiles/keynesian_economics.html

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How can you blame Keynesian economics when people don’t follow it?

Krugman is a NeoKeynesian, who has biases in using Keynesian economics, regardless of changing economic conditions.

Laissez faire not only caused the Great Depression, it caused frequent and severe boom/bust cycles, which created real hardship and suboptimal growth, to a large extent.

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http://www.peaktrader.com/phpBB2/posting.php?mode=newtopic&f=17

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PeakTrader:

Marque2 says: “The cost is in the design, sales force, insurance costs, taxes ….”

Yes, that’s right.

When capital replaces labor, e.g. from a higher minimum wage, better jobs are created, since workers create, build, ship, install, improve, maintain, operate, and manage those machines, and capital expenditures increase.

Currently, in the U.S., there’s an overabundance of capital and an education boom.

If one worker can do the job of 100 workers, that’s good for the economy. Then, the other 99 workers can produce other goods, which reduces scarcity.

Some jobs cannot be replaced with capital equipment. However, capital equipment can raise labor productivity.

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I agree, however, my point is not to increase employment, necessarily, but to increase real output.

There are more powerful factors to raise employment, and the U.S. economy is not the same as other economies.

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http://www.aei-ideas.org/2013/10/video-dad-makes-his-son-a-prosthetic-hand-with-3d-printer-for-only-5-vs-20000-for-traditional-prosthetic-hand/#comments

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PeakTrader:

Government creates wealth in many ways. However, it destroys wealth in many ways too. That’s the difference between good and bad policies.

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Ron, never understood supply & demand is like two sides of a coin. You can’t have one without the other.

When you have too much inventory, in your store, and no customers, production will not increase from more supply.

One theory is prices will fall to attract cutomers. However, prices are sticky and when there’s diminished marginal utility (or the opposite of pent-up demand), prices will need to fall far and fast.

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Of course, another “theory” is to increase purchasing power, e.g. through lower interest rates, higher asset prices, lower taxes, and higher spending.

However, that would require government intervention. We can’t have none of that.

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