Keynesian Economics and Recession Counter-Measures

Of course we "ain't seen nothin' yet". We still have a man named Bush in the oval office and guys like Henry Paulson ripping the copper wire out of the walls of the Treasury Department. We cannot begin to heal while people still have their fingers in the wound.Now there are a few appropriate analogies for you.

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

I accept most of that. But everyone from Marx to Friedman via Keynes seems to infer that periods of non-growth are to be expected.Regardless of political changes can any economy really expect to grow continuously without ever shrinking?I don't know the economic answer but the common sense answer would seem to be NO. How does that work? What return do bonds buyers get and at what point does the government have to clear it's debt by buying bonds back? Again all of this seems to rely on the assumption that every economy will be richer in the future than it is now. In other words on the assumption of overall global economic growth.But is an ever increasing global economy a realistic target?
At what point does growth necessarily cease regardless of investment, political policies or whatever?My main point of confusion is the idea that economies can be expected to keep on continuously growing. How does this actually work in practise? Dopes one economy necessarily expand at the cost of another shrinking?Can the global economy keep on expanding or are contractions inevitable and even necessary?Is growth sustainable indefinitely?

Which is a decent assumption IMO when you consider what "wealth" really is. Most generally, wealth is the work that individual people put into shaping their environment into something that is desireable. So loosly, you get more wealth the more people you have as long as those people are working. Hence the fast rise in wealth of nations like China and India who are putting their people to work and the stagnation of other populated nations who happen to be populated but are under regimes that could care less about their people.Wealth is people doing work. As long as population keeps increasing, probably yea. Absent population you can also increase wealth by increasing productivity which is also showing no signs of stopping. 1000 years ago 1 person farming produced much less wealth than 1 person farming today using modern technology. There may be many breaking points. For example, the one piece of wealth that you cannot create is natural resources. When these are used up the pooch is how you say...screwed. The wealth of a nuclear power plant is reduced to its components, which is significantly less than the plant itself, the moment we no longer have uranium to run it. My understanding is that no an economy does not have to canabalize another one. Wealth and money are abstractions for real and tangible things that we need and/or want. As long as they can be grown/built/improved/etc you can always generate new wealth without having to have taken it from another economy. You always have to have the natural resources to do the growing/building/improving/etc but that goes back to what I said above. The basic unit of wealth is not dollars its matter. I think that contractions are inevitable but there are not cyclical like some claim. A natural disaster will cause a contraction. If you presume like I do that there will be more wars, that will cause a contraction. Greedy politicians that tear down common sense regulations cause contractions. These are events that just happen and are unfortunate just like any other event that we don't like. Some we can wholly prevent, others we cannot. Not while we are only tied down to this planet no.Edited by Jazzns, : No reason given.

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

No. China and India are growing. So was the US (seems that 3rd Q GDP is -.5%).If the economy cannot keep making a larger pie, then why didn't the economy stay at the same size it was 10 years ago? 50? 100? 200? 500? Sure, there are many periods of stagnation (hell, the swedish economy did not really grow from the 1400s to the 1600s) and recession (see the 1880s, 1920s, 1930s), but the overall trend is growth. Kind of like the human population. It starts small, stumbles, grows, stumbles, hits a ceiling, finds a way to break the barrier, grows, but it has been a long time since the population has been significantly reduced (yes, sounds callous, but what's 100 million dead* compared to 5+ billion in net gain throughout last century?)*figure represents those killed by wars and dictatorial regimes, so is not representative of total deaths. Nor is the net gain representative of total number of births.

Likewise I don't think the UK is officially in recession yet either. But nobody doubts it will be soon. OKBut there must be a finite limit on what the world's physical resources can support. Both in terms of population and wealth.Can more and more people really ger more and more wealthy continuously without end?Surely not?

Yes and no. It is no coincidence that the most wealthy nations also have the most material physical resource wealth per capita (including energy usage).Wealth by any economic measure must surely be material. No? True. Technology is undeniably a way of increasing material resources. But I still think wealth in economic terms and material resources are intrinsically linked. Thus we seem to require a balance between enough growth in population to increase productivity whilst not having too many people consuming finite natural resources that are in short supply.It is this balance that I am unclear as to how we can know we have reached. OK. But if the industrialised West is to continue to enjoy the standard of living (i.e. the level of material wealth) that it does can the cheap production of goods in poorer nations and the relative inequality in energy consumption that these rapidly growing economies currently experience continue without halting their growth? If everyone were to have equal access to the finite natural resources available the wealthiest countries would experience a steep decline in material wealth and related standard of living whilst the poorest would experience a steep increase.In this respect at least there must be a balancing act in terms of the wealth of individual nations and and who grows and who contracts. No? My brief investigation into economic theories (some wiki'ing of Keynes, economic cycles etc. etc.) suggests that most economists disagree.Regardless of political intervention and natural disasters most seem to argue that there is a production cycle inherent in capitalist systems.I have to admit that I don't really understand why this is the case.......? Agreed. But it seems to me that the individual wealth of nations now and the ability for each to economically grow now is far more tied to the limited physical reources available now than anyone is admitting.Can the industrialised West, China, India and the ex Eastern Bloc nations as well as African countries all hope to experience economic growth and increased wealth generation simultaneaously?Is not the whole capitalist system based to some extent on an inherent inequality of resource?In other words some economies growing and consuming more natural resource at the expense of other economies access to these same natural resources?Edited by Straggler, : No reason given.

well, like Jazzns said, 1 farmer today can produce far more than 1 farmer 100 years ago (although I think Jazz used 1000).That's why I brought up the population. Are you suggesting that there is a barrier that cannot be broken? A limiting factor that cannot be removed? Let's use oil. Oil is a scarce resource (and soon to be virtually non-existant. Without oil, the economies around the world would not have grown as they did. Without oil, the economies in their current form will not persist. So what do you do?Well, one option is the Toyota Prius (50mpg) or the Aptera (~100 mpg). Getting more out of what you have. That reduces the effect of the limiting factor.A second option is to find a replacement to oil. Thus we have grease powering CU buses, although I think at this point its still mixed with diesel. Or, you know, hydrogen. Or electricity (non hydrogen generated, that is). Wind is a forever renewable resource capable of generating mass amounts of electricity. No need to burn coal, a limited resource. Hydrogen, if you can produce it cleanly, is a renewable resource (the end product is water, which is what it hopefully started out as; as of now, most hydrogen is actually produced from oil). These are two fuel alternatives that can enable not just the US economy to grow but also India, China, Africa, Europe, the world. A post-oil economy has tremendous benefits for the entire world economically.The point is, so long as a limiting factor to growth can be removed, economies will grow. Ultimately I do think there is a stopping point, but by the time we reach it most everyone will be able to live a decent life. Long live inflation!

If I'm not mistaken, it's the fault of overproduction. Capitalism is not very good at knowing when to stop making something. Surpluses really are not a good thing. You can't sell it for what it's worth because the market already has enough, but you have to pay the means of production because its already been made. So you cut prices, taking a loss. But this is basic supply/demand. I think it takes really screwing it up in order to land a recession, because generally supply/demand works.So the question then, I think, is why do we get bubbles? And why do bubbles burst? If you can control bubbles and bursts, you can begin to check the worst excesses of capitalism (which is why there is not a single market that is completely unrestrained capitalism, and if conservatives want to know why, I recommend they check out the depressions of the late 1880s where you would have a decade of growth followed by a decade of stagnation). While you're on wiki, you may as well check out the GDP growth of the world over the last several years. You'll find that, yes, the entire world can grow. Okay, so I have a bunch of trees in my yard. Great for making lumber and paper. I don't have the ability to make paper or lumber, but I can harvest the raw product. You, in your own country, can make lumber and paper. You pay me for my trees, and I use that money to buy what I need. You sell your semi-finished goods to another country. You use that money to pay for what you need. The third country finishes the product, selling it to anyone who needs paper and a desk to write on. They use the money they get for what they need. A isn't giving up his resources without compensation, and so on up the chain. So no one is using resources at the expense of the other. And if country D wants to make desks and paper, then he begins competing for the resources, which means C and D have to haggle with B, who's out for his own best price. Or, if China and India want cars, they need oil, which has the great effect of pushing the cost of oil up because there are more people using the same amount of resources.I don't think I answered your question, but then, it's only 1:30 in the morning. Sorry for the muddled mess.

Not really. As intimated in the OP I am frankly a bit baffled by the whole area of economics. I don't really know what I am suggesting. If anything.I am questioning what seems to be the implicit assumption that economic growth is continually possible for all.This seems highly counterintuitive and I remain unconvinced that it is possible. Oil is only one limiting factor. Food is another. Clean water is another. Land mass yet another. There are no doubt numerous others we have yet to consider.At some point the population will exceed that which technology can provide food, water, energy and living space for unless:A) A large and increasing portion of the population live in relative extreme poverty in terms of these resources.B) Technological advance continually outstrips the demand of an ever increasing population.Given that if all these resources were currently distributed equally amongst the worlds population we in the West would suffer a dramatic degradation in standard of living I would suggest that we are well on the road to A) already.Thus I question the idea that the developing nations can continue their growth whilst we in the West continue to experience economic growth of the sort we are used to, indefinitely.At least not without assuming that incredibly powerful but as yet unknown technological solutions to resource problems are just around the corner.What if these technological assumptions are wrong..........?

Yes and that also includes just simply raw landmass. But you have to put work into it to give it value. If it didn't work that way, then there would simply be a fixed values for all nations that was the sum of all their material resources. But a country that sits on a copper mine has much less value than a company that mines the copper ore, refines it, purifies it, and turns it into consumer electronics. The work adds significant value and therefore wealth to what was essentially a rock in the ground.We often value things that are more than the sum of their material components often for nothing more than their artistic quality. Yes but not all materials in all configurations have the same value. Using the same example as above, a bundle of conductive wire and a microprocessor have vastly different value for the same amount of raw material. Yes I even said that the basic unit of wealth is matter. But I think the point I was trying to make that you seem to have missed is that if you can increase you ability to work with those materials, you increase their value. Technology makes us more productive which allows us to either work raw materials more efficently or to a level that we previous were unable to concieve of. In the case of the farmer, he can probably grow more crops per acre of food that is more calorie dense. In the case of the microprocessor, we simply did not concieve of our ability to create something like that 100 years ago. And microprocessors in and of themselves have made us more productive in all other facets of life. I don't think there is any disagreement about this except the extent at which a breaking point may occur. The REAL resources that are finite are the ones we can not recover or not recover easily and when you really get down to it, those only constitute things that you can only make in a supernova such as all the stuff with big atomic numbers on the periodic table of elements. But we can probably even overcome a deficit of those resources if we figure out how to get them cheaply from elsewhere in our galaxy.Other things like hydrocarbon resources are entirely recoverable as long as we have the will to do it.Landmass will be an issue at some point but we seem to keep inventing things that allows us to be more efficient with that too.There really are a lot of resouces to go around, it is just that economics and politics often factors into our ability or will to go get them. I don't think it needs to be an question of higher or lower standard of living. It is a question of a different standards of living and there is no question that not only resouce/economic concerns will factor into that. We also have the fact that we cannot continue to pump 500 million years worth of accumulated carbon into our atmosphere and still have a habitable place to live.The issue with the cheap goods is simply a reflection of our current lifestyle which is to favor disposable/convienence consumerism over any alternatives. We do that now because its cheap and easy. If you can no longer get those goods we will probably shift into a more durable goods society. In fact IMO you are already starting to see that being done a little but mostly being encouraged by the green movement.Consumer level bottled water is the biggest scam ever invented. :-) This is not true as I have explained above. The assumes that there is equal capability and/or willpower to produce the same amount of value from those resources. Even if you rationed the resources out, the race then will be the achievement and creativity to do something innovative with them. Just take a look at how Japan as become an economic power. Its not like they have a whole lot of resources to leverage, but they are extremely innovative and hard working.There is a measure out there somewhere that I have seen before talking about how many dollars per ton of export a country produces. IIRC highly industrialized countries that have small amounts of resources like Japan have very large dollars/ton of export. In the USA, our dollars/ton of export has been going down steadily. It was very high during the period of the New Deal. Which ties us nicely into the topic.A country that is just selling its natural resources like wood or ore will have a lot lower dollars/ton of export than a country that is selling machinery or machined goods. How can you possibly control for political intervention and natural disaster in any analysis of economic cycles? That is in the same sense as a scientific study? Perhaps that why there is no "official" Nobel prize for economics. Short of the doomsday scenario where we use up all the metal and heavy elements of the entire galaxy I don't see why not. Logically no they cannot, but practically it seems like reality and history is showing that they in fact can. Not necessarily because you can find counterexamples. Russia has a lot of resouces but their recent economic boom was only because of the inflated price of oil. They are not innovating or putting their people to work creating real value. Now by virtue of their resouces they certainly have more potential than many places in the world but they currently are not doing a very good job of producing wealth with those resouces. They are just exporting oil...

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

All of those are technically renewable resouces. They just take energy to produce. That will probably be the first big limiting factor. Why does it have to be either or. In reality, it will probably be a combination of the two and the difference will likely be a matter of political considerations.Poverty now has more to do with politics than lack of resouces or technology.

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

I have been looking into this some more and appreciate your comments as (I think) they have made things clearer.I think I am confusing and conflating economic growth with increased average personal wealth per head of population. Let me explain my current understanding and see if you think I am right (Kerusu the same applies to your comments) -1) Growth in economic terms is a measure of production. A larger population should generally result in an increase in production. Thus increased population will generally result in increased economic growth.2) Technological advances will increase the level of production possible per head of population. Thus technological advance will also result in increased economic growth.3) Therefore in terms purely of economic growth as long as finite resources have not been diminished to the point of non-availability we would expect an increasing population making technological advances to grow indefinitely. Is this correct?However.......4) The "wealth" (and I am not sure what the definition of "wealth" is in this context) per head of population (of the world for example) can go down even if the eceonomy of the world overall is growing. Only if economic growth outstrips population growth will average personal wealth actually increase. If the world economy is growing but the population is growing more rapidly then the average wealth per individual must be in overall decline. No?5) Equally even in a shrinking economy the wealth per individual is only diminishing if the population is not shrinking at an equal rate.In short - My confusion was the idea that a growing world economy necessarily means that everyone in the world is effectively geting richer (on average, obvioulsy not individually). Thus my common sense aversion to indefinite growth is misplaced.The economy can grow but unless that growth equals or exceeds the population growth the wealth per head of population can still actually fall. Even in a growing world economy.Is that right?

This is an interesting statement. China has to grow its economy by something like 6% each year if its people are to keep their standard of living. In order to increase the standard of living (or bring more people out of poverty), a greater growth rate is required. Luckily they've had over a decade of 10% annual growth.In the US, our economy has technically grown since 2000, but on average GDP/capita has fallen by about 2,000 USD.The entire economy is growing, China's PPP* is up, US's is down.Your statements seem to make sense to me, but Jazzns has done a far better job with this, so I'll leave it to him.*Purchasing Power Parity, taking into effect cost-of-living and inflation if I'm right (though standard GDP measurements may as well). Thus, china has the world's second highest PPP/capita, even though its GDP/capita is lower (low cost-of-living). Sweden's GDP/capita is higher than its PPP/capita (high cost of living).

1,2,3 = Agreed I think you are right but rather than a discussion about averages it seems like you really want to get to what the implications are. For example, what does this mean for poverty or our ability to sustain "wealth".Like I said in my previous message, the nitty gritty of who gets what chunk of the nations wealth, and perhaps more importantly who gets access to resources to be empowered to produce their own wealth, is largely a political question and not an economic one.One of the reasons that western society has been able to sustain growth is because they give their people the freedom to pursue wealth. Economically depressed nations are often in their state simply because the people don't have the freedoms and rights they need to generate wealth and protect it. Yea, in the US the GDP, even up until recently, was still going up even as personal value for most American citizens was tanking. You can in fact technically grow your economy by enslaving your populace and forcing them to produce wealth.Getting back to the topic, this is primarily why IMO the recession counter-measures of spending during a downturn is the right way to go as long as it is being spent properly. The spending is essentially an equivalent to an organizational tool to induce wealth creation. In the US, assuming Obama gets to do what he plans, he will be using the money to prop up industries that have barriers to rapid adoption and support in the current economic climate and market conditions.Oil is cheap again and the startup cost for the mass production of alternative energy systems is high. Something external needs to change that dynamic in order to build a new industry and that costs money.

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If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. --Thomas Jefferson

Because it needs to be said, it doesn't help when the US protects the United Fruit company*. That is, not only do the depressed countries not have those freedoms generally speaking, they also tend to have the west helping perpetuate the system of exploitation that helps create a high standard of living for the select few and poverty for the rest. Of course, this ties into your point about how it is politics, not actual economic realities, that really perpetuates poverty.I'd like to believe this is less of a problem today, but I doubt it is.*A precursory glance over it's history, and the actions in the 1950s:United Fruit Company - Wikipedia