A possibly Keynesian story

[jon_leonard]

Suppose the US suddenly develops a taste for Moai: Immense stylized sculptures carved from volcanic island rock. So an industry of expert carvers develops, along with additional transport infrastructure to get them to the mainland, and then drive them to places like Nebraska (they may be too heavy for current trucks and roads

Comments

[jon_leonard]

Ah. I was more pondering the question of what's the economically appropriate answer.

From a political perspective, the older and the more established the industry, the more it has the relevant contacts in government, and the more rent-seeking behavior it can get away with. (Rent-seeking I do understand.)

So yeah, the question isn't of great practical value, but I would like to understand the macroeconomic implications, while still having confidence that Congress will do the wrong thing.

[steuard]

I don't know whether I should be tickled or saddened that my home state of Nebraska is a focal point of the hypothesized national devotion to Moai. It's an amusing image for me in any case. (And hey, Nebraska already has Carhenge; maybe it's not as far-fetched as it seems.)

My first highly inexpert thought on your actual question (or at least, something related to it) is that the banking industry is qualitatively different than the Moai industry (or even the housing industry): sure, the Moai industry is highly interconnected with other parts of the economy, but banks are what provide the leverage and credit that businesses need to produce economic growth in the first place. Given that special status, my (again highly inexpert) plan would be to subject the relevant aspects of the banking industry to a few extra governmental regulations, specifically to reduce the likelihood of a collapse in that sector.

[mrmorse]

Everything I know about Keynes I've learned from Krugman and other economics bloggers, but my impression is that one of the standard examples of Keynesian stimulus is to pay a bunch of people to dig some holes and pay a bunch of other people to fill them in again. The goal of Keynesian spending is to increase spending, and therefore any spending is good spending. Other considerations favor actual useful spending, but that's not a requirement from Keynes' perspective.

I should emphasize that I don't know what I'm talking about, but that is my understanding.

[nemene]

Simple answer, let the free market handle it reguardless, Keynesian is wrong and government stimulus is never a good answer if for no other reason then the precedent it sets.

As for answers that could possibly get anywhere in influencing government decisions... I don't have one.

[anonymous]

Jon - I'm hardly an expert here, but I don't think that Keynesian econmics has anything to do with any particular business, but rather the overall cycle

[anonymous]

Doh, Michael Cohen replying here.

[jon_leonard]

Right: The core of my question is how to tell that a recession is an "ordinary business cycle" recession, or due to some weirder cycle like my far-fetched story above. If you just look at things like GDP and employment, it looks very much like the Keynesian story. So either there's some way to tell the difference, or Keynesianism doesn't work as described, or the inevitable cost to a dampened business cycle is tremendous waste.

I believe you have a correct understanding of how Keynesian government spending is supposed to work. I'm trying to sort out how much to believe it, and when.