The Great Divergence

[Jester]

Yes someone has to spend, but if nearly everyone has been overspending (which I feel is the case) I think the question really is. Is it better for the government to pick up this slack and spend or should we suffer the consequences of previous overspending and let the economy reshape itself to the smaller level it should have been at?

It is almost never the correct answer to make the economy smaller. Anything that actually decreases the amount of goods and services being produced is almost guaranteed to be bad.

Now, there is the question of fixing the trade balance sheet - saving more and spending less, in the long run, relative to other countries. One way or another, that problem will get solved, automatically if not by choice. But there are two very important caveats. One: switching into full-blown savings mode is going to exacerbate unemployment, which is already unacceptably high. Two: anything that shrinks the economy hinders, rather than helps, the ability to save in the long run. You don't save money, as a society, by earning less income.

Kan pretty much believes we should suffer the pain that we have coming to us. Current policy in the government wants to limit that and shuffle it off to later. It is possible that shuffling it off makes it avoidable because of how other things can change, but personally I think we are going to have to suffer more than we have for the errors that have been made.

(Important bits italicized.)

Kandrathe's argument only works at all by presupposing that there is some fixed quantity of "pain" that must be suffered. There is not. How countries react in the face of crisis strongly determines not only when and what type of pain they suffer, but how much. Taking actions that counteract the crash might cost money, but will ease the pain in both the long and short runs. Taking actions that exacerbate it will not "get it over with" so much as just increase the pain.

This is not left wing lunacy. This is what Milton "Free to Choose" Friedman said about the Great Depression. Retrenchment, liquidation and deflation are very, very serious dangers, far worse than an increased debt load, and not enough is being done to avoid them.

My problem is that the suffering isn't always hitting the people that caused some of the problems or made the mistakes. I think Kan also feels that the borrow and spend model that government is following does shift more of the burden to people that aren't at fault.

Saving the banks was a necessary first step, since nobody wanted a total economic collapse. It wasn't supposed to be one of the last steps as well, but that's where you are. A stimulus package focused primarily on alleviating the suffering of those who were not at fault is a great idea. Sadly, just about all further stimulus is politically impossible, thanks to a gutless governing party, and a lunatic opposition.

At least that is how I read most of what this debate breaks down into as you guys repeat it across most threads.

I can only plead that I at least try not to be the first to bring it up. Again.

-Jester