Comment 29846

By A Smith (anonymous) | Posted March 30, 2009 at 17:09:47

Ryan >> People need to live somewhere. Houses prices would never have inflated as they did if the reckless financial mechanisms that led to the housing bubble...

Starting in 2002 and ending in mid 2006 (tinyurl.com/426qvt), median home prices rose between 10-30% year over year. If the government workers who calculate inflation had included actual home prices and not just borrowing costs (due to low interest rates)in their calculations of inflation, this problem would never had existed. Government gave the lenders access to cheap money for too long and the result was too much lending.

>> As usual, you assume causality in a manner that reinforces your prejudices. The recession was not caused by an increase in government spending...

From 1993 to 2000, real increases in government spending increased an average of 1.16% per year and real GDP went up 3.73% per year. From 2001 to 2008, real government spending grew at 2.35% a year and GDP grew at 2.16% a year. What is it about these numbers (tinyurl.com/czx4yr) that are untrue?

>> In this particular case, I can't point to a web page that explains keynesian economics. You'll need to go out...

Anyone unwilling to consider a strong correlation (backed by actual numbers) simply because it attacks their political beliefs, shouldn't be taken seriously.

Look at Japan (tinyurl.com/69q499), they did the Keynesian drill in the nineties and it was a disaster. Conversely, Canada cut spending, to reduce the deficit and we were one of the best performing economies in the world (1993-2000).

>> I claimed only that when the economy goes into recession caused by a panic and collapse in financial markets, the government needs to step in as the lender and borrower of last resort until the private economy recovers.

Why? What is it about the government that gives them the expertise to know who is a good borrower and who isn't? That's what lending is all about, giving money to people in the hopes that they can produce a positive return on capital. If the government simply borrows money and gives it to companies who will destroy more of it, how does that help anyone?

If government wants to help the private economy, the best way to do this is to slash it's own consumption and give tax breaks to the private sector. Of course, why would government cut their own meal ticket when they can just charge it to the taxpayer funded credit card?

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