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No, English is not my second language. Is that an attempt at a dog-whistling ad hominem attack? Because it sure seems like it.

It’s generally agreed by scholars that the Great Depression was an avoidable consequence of the Wall Street Crash. One of the bad decisions that otherwise could have prevented a recession from becoming a depression was that Hoover’s administration pushed for budgets which cut spending. This greatly amplified a deflationary spiral, which is the main reason that the financial crisis mutated into a full blown depression that affected the global economy.

That is my reasoning for blaming Hoover for the Great Depression. It’s not actually a controversial argument.

Economics often does not follow common sense. In fact, a lot of it turns out to be counter intuitive. That’s why businessmen often make for poor economists. Your belief that it does follow common sense indicates that you haven’t studied it very much. If you had, you would have encountered some of the many situations in which common sense is violated by the actual economic facts.

Like I said…common sense would say that the sun revolves around the earth. Common sense is often wrong.

As for your caricature of my ‘position,’ it’s actually a lot more complex than the way you describe it.

Let’s take your analogy of the transfusion of blood from one arm to the other. It simply isn’t an apt way to understand the way the economy works. For it to be true, the amount of capacity for production within the economy would have to be static, when it is in fact dynamic.

The justification for stimulus measures, be they fiscal or monetary, is that in situations where demand is so low as to produce an output gap, there arises the danger that capital investment will be insufficient. If that happens for too long, the productive capacity of the economy can become eroded. Stimulus measures counteract this danger by propping up demand so as to close the output gap and reinvigorate capital investment.

(If all that is too hard for you to understand, it’s not because English isn’t my first language. The problem is that, in order to understand economics, you have to learn a lot of technical vocabulary. I sense that you lack such vocabulary, which is why it irritates me that you presume to pontificate upon the subject. Using ‘common sense’ as a shortcut, to relieve yourself of the burden of reaching a deeper understanding, simply precludes you from the authority you attempt to communicate with.)

Another problem with your tranfusion analogy is that it wrongly presumes that there is a fixed and unchangeable amount of money in the system of an economy. That is wrong. A more apt analogy would be that the tranfusion is created out of thin air. Such is the nature of fiat currency.

You may argue that this is merely a mirage. That creating new money simply steals value from the existing money supply by causing price inflation. That is not the case in a situation where there exists a large output gap. Inflation only becomes a danger when the productive capacity of the economy is reached. Even at that point, the inflationary effects of stimulus spending can be avoided if the spending is directed towards increasing the productive capacity of the economy.

Good examples of stimulus spending that achieves this include;

  • building infrastructure which facilitates greater economic activity, and;
  • investments in education, which are effective because citizens with a higher level of education tend to have higher productivity.

Finally, your argument against the national debt. Here again we encounter a mistake that common sense has caused you to make. Repeat slowly after me:

Households are not the same kind of economic agents as monetarily sovereign governments.”

What do I mean by this? Well, monetarily sovereign governments have tools and powers which households do not. Households operate within an economic system. Governments, provided they control the supply of money, set the rules under which that system operates.

Governments can and do create money out of thin air, buy back the debt from the marketplace, and simply destroy it.

Governments can take steps to lower the interest rate they pay on bonds (that’s government debt obligations). Notice that at present, interest rates on bonds are at historic lows.

Governments can and do operate under large total debt burdens in such a way that makes little or no difference to their day to day operations, or indeed to the functioning of the national economies over which they preside.

Inflation is always a danger, but there are tools to deal with that. The fact of the matter is simple. An organization which holds the power to create money can never go bankrupt if its debts are denominated in that same currency.

The national debt seems scary if you think that households and governments are fundamentally similar in the way they operate and in the rules which govern their behaviour. Actually, it’s not at all. There’s a lot of evidence to suggest that when governments take on more debt, this facilitates a greater level of economic growth in the economy than would otherwise be the case.

Look, being mad, you’re not going to be very open to persuasion. Anger is not conducive to rationality. The purpose of this was to illustrate to others that what you write, what makes you angry, comes from an understanding of economics that is fundamentally flawed.

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