One of the posts I hesitated to publish, as I have been worried that I am obsessing about China's role in the world economy, and the post was quite heavily centred towards China. In the second of the posts, I was taking an overview of the world economy, and was falling into the trap of obsessing about the details of national current account balances, external debts, and a whole host of figures. I even started to try to develop a standard way of looking at the prospects for different countries.
This kind of standardisation is the economist's trap, stopping using thought and replacing it with dogmatic theory and equations. I have noticed that the dismal science (the nickname for economics) has been coming under some fire of late, and I believe it deserves to be under attack.
With a few notable exceptions, the economists have completely failed to spot this catastrophe, and failed to even notice that the world labour force had doubled in the space of ten years (for new readers - this is one of the key themes of this blog, explained in context here). Perhaps the most worrying part is that, even though the crisis is now upon us, now that there are massive upheavals in the world economy, this 'little detail' of the doubling of the global work force has still not registered as a possible cause in the minds of economists.
I can not emphasise this enough - the world has just gone through what is possibly the greatest supply shock in history, and the entire economics profession has missed it. It is quite simply astonishing.
However, for a short time, as I was writing the second post, I fell into the same way of thinking as economists. I thought that I could create a formulaic way of understanding the positions of countries in the world economy relative to each other. Such an idea is, of course, impossible. Each country has too many individual characteristics, quirks, features and circumstances to be neatly slotted into an easy formula.
I was recently speaking with a friend, who is very interested in economics, and who asks difficult and challenging questions (which is a very good thing). He asked me to explain how it is that Germany with its social democratic system, encompassing many structural features abhorrent to free market economists, has such a successful export machine. I will confess that I was stumped to come up with an easy answer, and was left to waffle about German culture.
Now I have said that I was waffling about German culture, but this is to be unfair to myself. I have worked for a German company and have seen their business culture close up. I have also worked for a French company (in two joint ventures in China), a US company, and a British company. In all of these cases I was also working with companies internationally (they were all multinational companies), and have therefore worked indirectly with a very wide range of people of different nationalities - from Japanese, Spanish, Italian, Swedish, Australian through to Vietnamese and so forth.
What I can tell you with absolute certainty is that each culture brings with it certain strengths and weaknesses in business, and these strengths and weaknesses must impact upon the economic strength of their countries. It is, of course, difficult to generalise and encode such cultural strengths and weaknesses, so economists pretend that they are not there. However, such strengths and weaknesses do play out in the real world, and do have an impact.
As a simple example, if something goes wrong because one of your suppliers has let you down, a UK company might explain to their customer that the problem was that of their supplier. The Japanese company by contrast would be more likely to say that it is their problem, as they chose the supplier. In this case I am generalising based upon personal experience, and whether such experience can create a generalisation can be a matter of argument. It is not a firm fact, but a personal interpretation of experience. However, if the generalisation is broadly correct, it has profound implications for the way in which business operates in the UK and Japan, and this in turn has impacts upon the economy overall. Whether in this case I am right or wrong, it is impossible to deny the impact of such cultural factors - but this is just what economists do. There is a reality disconnect in the way they think about the world.
The point I am trying to make here is that economics is not about clever formulas, and complex equations, but is about who is the most competitive at providing goods and services. It is for good reason that marketing is sometimes called applied economics, because all economics finally comes down to the choices of individuals who are the final decision makers in a county's economic success or failure. At its most basic it is the question of 'do I buy product x from the Japanese, German or US company?' If, across an economy, lots of people are making choices to buy goods from, for example, Japanese companies, then the Japanese economy will likely prosper from such decisions.
It is within such decisions that economics really resides. The factors that determine such decisions are very complex at the level of the purchaser. However, if we look at each country, we will see that they will offer various strengths and weaknesses which will determine part of that purchase choice. In one case a country may have a costly government overhead that is reflected in the cost of operating a business, but companies might offset such costs with high productivity and/or a culture of innovation. In another case, it might be that government overhead is low and productivity is relatively low, but the conjunction of the two still offers a competitive advantage. The permutations are endless and each individual business may be different, each will respond to their broader environment in different ways, but overall there will be general strengths and weaknesses in each economy.
Such individual differences in economies make a difference, and can not be reduced to simple formulas. How can you provide a formula for a culture of innovation?
To give an idea of the complexity, some examples of factors that will determine success of an individual national economy are culture, law, taxation, regulation, type of education, levels of education, social stability, social support systems, size of internal market, availability of natural resources. This is just a selection from the top of my head, and a little further thought would produce any number of additional factors, some of which you might think are more or less important than those that have been listed.
The point here is that there is no formula for success, no secret 'Goldilocks' formula that is 'just right'. It is for this reason that mainstream economists struggle so much. They try to imagine a formulaic answers to economics, and forget that what finally drives economic success is the decision of a person purchasing a product or service finally drives the process from the bottom up. What finally drives such choices is not based upon a formula, but how the many factors impacting upon an individual business come together, and how that business works with those factors to advantage or disadvantage withing their particular market.
All of this is not to say that the big picture of economics is without merit, in other words that macro economics is without merit. Just as any economist uses the big picture numbers, so do I. However, regular readers will have noted, for example, that I have talked about the hard working culture of the Chinese in my discussions. In other words, whilst looking at the numbers, it is necessary to incorporate subjective judgements on top of the numbers. No equation can account for the many factors for success or failure in circumstances of so much complexity.
Not only is it necessary to combine the numbers with subjective judgements, but it is also necessary to think about what the numbers actually mean. Again, economists have got into a rut, and seem to accept numbers at their face value. It is such complacency that has made a fetish out of GDP figures. As I have pointed out (endlessly), the GDP figures that have been watched so closely have incorporated debt fuelled consumption multiplied into huge activity in the economy. Steady GDP growth in Western economies became a fetish, and everyone forgot to ask what the source of the activity might be. It was a dogmatic formula that stopped people from thinking. The formula was constant GDP growth = economy performing well. Quite simply, it was wrong, and is proven to be wrong. Activity built in debt fuelled consumption has to be paid for by less consumption activity in the future.
The problems of economic thought run far deeper than this however. I have been reading a lot of philosophy of science of late and, by accident, came across an academic paper discussing an absurd economic theory (1). The absurd theory in question approximates to a theory that drug addicts were making rational choices, and the author points out how completely absurd the theory is. I will not discuss the details of the argument regarding why this economic theory was absurd, but rather his conclusions about the way in which economic theory operates. He points to the absurdity of the models that they created, and how clever these models appeared to be. However, the models were all founded upon assumptions with no solid grounding whatsoever, and a little thought on their assumptions simply revealed that the economists were talking nonsense.
Such absurdity is currently all around us. For example, we see it in the policy of quantitative easing. Such discussions are always surrounded by dense economic theory, jargon and buzzwords. Even the expression quantitative easing does not express what it really means, which is a massive creation of money from nothing.
This is a policy in which there is a 'fetishisation' of economic activity, rather than productive economic activity. If there is not enough credit flowing through the economy, then government will make the credit out of thin air. At the heart of this thinking, if we really think about it, is the belief that wealth can be created, not through labour and innovation, but through government command. It is also the belief that if businesses are borrowing, consumers are borrowing, then the economy will be fine. The fact that printing money is merely redistributing the value of money does not seem to cross their minds, and it appears that they actually think they are actually creating money, rather than destroying the value of money. The fact that within the economies there is simply not enough real wealth creation to support this new money is completely absent from their thinking.
The same argument goes for the revival of Keynesian spending. I wish I could find the article to reference it here, but I read the most clear and concise description of why the Keynesian theory of government borrowing and spending is simply absurd. Essentially, under the theory, building something with absolutely no value is a good thing, as it increases economic activity. It is related to the theory that smashing a shop window is a good thing, as this also creates activity. Another article points out how prevalent window smashing view is, and how utterly silly it is. An example in the article quotes several reputable sources who proposed that the bright side of Hurricane Katrina was that it would create a boost to economic growth - through creating a stimulus for activity in the economy. After all, the massive damage meant that there would be a need for lots of new construction and so forth.....
These are the ideas that are prevalent in mainstream economics. Such thinking would see an economy in which we would build a new skyscraper, knock it down the day after it was built, in order to build it again. The fact that nobody might want to live in, or hire office space in the skyscraper is irrelevant, as it will create economic activity. Economic activity is 'good' for the economy.
Of course, when it is presented to the public, it is never presented in these terms. It is investment in infrastructure, or couched in terms of economic stimulus and so forth. However, it was investment, then it would be done anyway. It would have a reasonable probability that it would produce a return on the capital, and therefore would attract the capital. As for the idea that it is a 'stimulus', yes it is a 'stimulus'. However, the idea that a stimulus can only be good is a fundamentally absurd idea. If a person gives me an ice cream this is a stimulus, but if a person gives me an electric shock this is also a stimulus. I think that the former is good and the latter is very bad indeed.
In the case of all government stimuli, the money for the stimuli does not come from the government, but in all cases comes from the tax payer. It is either taken from the tax payer in the form of inflation or through direct taxation. The taxpayer's money is then used to do the equivalent of building a skyscraper which no one wants. How can this be a good thing? Would it not be better that the tax payers use that money for something that they actually want? Would it not be better that the money was available for saving, which means that it is available for investment, and can then be used for investment in something that produces things that people actually want? Nobody wants the skyscraper. Why on earth build it? It is literally flushing all of that labour and material down the drain. It moves resources into quite literally pointless activity.
These are the answers governments to the economic crisis. Making money out of thin air, and redirecting the capital of nations into completely pointless activity.
To add insult to injury, they are also pouring money into bankrupt banks. They are literally pouring money into black holes resultant from bad / irresponsible lending and investment. Today comes news of a massive additional bailout of Bank of America of $US 138 billion. This is not money from the government but, one way or another, is money provided by every tax payer in the US. The difference here is that, instead of using that tax payer money to build a useless sky scraper that no one wants, they are simply destroying the value of money, as the funding for such activity will inevitably end up being achieved through money creation and inflation. Will this actually result in any new wealth creation, will that money ever lead to real productive activity?
The answer is that this is not even in the discussion. It is simply beyond mainstream economists to ask this question - as all they are seeking is activity in an economy. They want to stimulate lending and credit, and do not care how it is done because, as long as people are spending, then all is fine. Spending is activity, and activity in an economy means a good economy. After all, GDP growth is 'good' and GDP growth measures activity.....
Such a view can only be described as delusional, and it is the recognition of this delusion that started this blog (with my essay 'A funny View of Wealth').
As a blogger, I freely confess that I am not a trained economist. I have simply looked at the world around me, and have found that many of the ideas of mainstream economists are simply absurd (which is reflected in the 'I just don't buy it....do you?' in the title of the blog). I have been a regular reader of the Economist, have read Adam Smith, and have an economics textbook as a reference. The only use I have for the textbook is in understanding the jargon of economics, so that I can understand the underlying principles of what is being discussed. Beyond that, the book is largely useless. As a technical explanation of the current economic structure it is fine, but as an explanation of the underlying economic world it is hopeless.
Since I started writing this blog, I have relied largely upon the observation of the real world and critical thought to get me through. None of what I have considered has been rooted in theory x or theory y. However, as I have written the blog, I have been increasingly exposed to different paradigms of economic thought, and ever greater depth of discussion of economic theory. What I have found is that there are voices in the world of economics that are also expressing their concern, that there are several others who also 'do not buy it' (e.g. the Austrian School of Economics). However, these voices are are ignored by governments and, as a result, Keynesian thinking has been alive and well in government (in various modified forms), for a very long time.
This mainstream thinking has been with us for a very long time, and has led to economies - such as the UK and US - being left in a terribly vulnerable state. I can not emphasise enough that it is a paradigm that can produce some of the most absurd thinking. It is a world in which Hurricane Katrina's after effects would recorded as an upwards blip in GDP growth, a world in which this 'growth' would be recorded as a positive thing. It is a world in which havoc and destruction can become a 'good thing'. If you want to understand the underlying principles of the economic mainstream, just keep this in mind. Hurricane Katrina = increased activity = GDP growth = good economy.
I have noted that many people who link to this blog, whilst positive about what is said, also give warning that it does not make pleasant reading, that it is a 'doom' blog. When we think that those who are deciding our economic destiny, people who think that the idea of building a sky scraper before knocking it down again might be a good idea, that creating money out of nothing is good, that Hurricane Katrina is good for the US economy, how can this blog be anything other than pessimistic?
Note Added Same Day: I have already had a couple of comments on this post and, at risk of messing up the RSS feed, will publish a reply. One comment goes to the heart of the problem with Keynesian spending.
The comment comes from Stever Tierney (see comment below), a regular and well informed commentator on the blog. Steve's comment was of great interest, as he has offered up the fairly standard answers for why a Keynesian boost is a good thing (this is not being rude, but an observation that you have understood the arguments). I recommend that you read Steve's comment before reading on.
The first point is this. Steve says the following:
'If the government uses the money to build a school, thats not something nobody wants. .'If the school was something that really was of such value, why was the school not built before? It is a very peculiar idea that, at the very time you are most short of cash, that you start finding a mass of projects that, at the time that you did have cash, were not of great enough importance to spend money on. Is this coincidence? Last year, we did not need the school, this year we do need it. This year it is an investment, but last year it would have been a waste of money. It all seems very convenient that all of these 'good' projects have suddenly appeared as good projects, and are suddenly no longer a waste of money. A bad project yesterday, but a good one today.....
It really does not make any sense at all. A project is either worthwhile or not worthwhile, and unless there is a huge coincidence, nearly all of these projects were deemed a waste of money (or they would have been undertaken) - right up until someone opened the government floodgates of spending. I really don't buy it....
...and please, do not anyone suggest that the project would always have been done if the money had been available.....
If a project is an 'investment' it will create a return. A government can (normally) borrow extremely cheaply, such that even a very small return on the investment would be justification. As such the money is always there, it is just that the spending can not be justified in any way that looks reasonable or coherent.
As such I will continue on an assumption that this is spending that has no underlying need.
In the case of building the school, there is more that can be said. If the school is being built as a replacement for a school that is already there, the old school will cease to be a school. In this case, we are back to knocking down sky scrapers so we can build a new one (I know that it might be possible to sell the old building, but the principle is there, as the new building is almost certainly going to cost much more than the old, or the new school would have been build already if it was necessary/desirable).
On the other hand, if we are going to build an additional school, then we are back in the situation of building the sky scraper that nobody wants to live in. Even worse, in the case of a school, it is an additional cost, and provides no income. At least with a half full sky scraper there is some possibility of some income to offset the costs of maintaining the building. In this case, not only is the building surplus to needs, but it will probably be an ongoing drain on the finances. In other words it will add costs but with very little benefit - it will just make the education system that bit more inefficient.
There are several other examples given by Steve, and I will leave you to work them out yourselves. There is, however, another argument put forward by Steve, and it concurs with the general points made by defenders of the current proposals for the Keynesian spending spree. I will quote Steve again:
Bridges and schools and roads and the like do have to be built. If the government 'moves the building forward' that was going to be done sooner or later anyway so as to keep people in jobs and prevent normally-viable businesses closing down that is not necessarily the wrong thing to do.This is the 'moving the building forward' argument. It might be summarised as, we were going to spend the money anyway, so why not just bring it forward. However, as these proposals are put forward, you will note there is a silence on the question of the future. Do we hear that there will be binding cuts on future expenditure on infrastructure? Do we actually believe that, in two years time, the money spent on the project today that was planned for two years time will actually be taken off the future infrastructure budgets? Do we really believe that, as these projects are moved forward, we will see a commensurate shrinking of future budgets. If a project is bought forwards 2 years, then in two years time will we see the same amount removed from the budget in 2 years, that a project bought forward three year will see the same amount removed from the budget in 3 years, and so on...
I think to believe that this will be the case is simply unrealistic. Furthermore, if the government were to do so, then the economy would simply contract by the amount of the expenditure now as a cut in the future. In this case, what has been gained? However, regarding the idea that they would cut the budget, I simply do not believe it. As such all of this so called 'bringing forward' is really just additional spending, and therefore falls under the 'building sky scrapers that nobody wants' argument.
Finally, steve gives the following argument:
After all, those still-employed people will otherwise be claiming benefits, defaulting on their mortgages etc.Yes, people will otherwise claim benefits, but there is a significant difference in the cost of employing people to build infrastructure that is not needed, and the cost of benefits. The former solution is very, very much more expensive. Such an argument only makes sense if the projects on which these people are employed can be justified on their own merits. However, as I hope I have demonstrated, these projects are the equivalent of my original sky scraper argument. They are pointless projects.
As for saving individuals from defaulting on mortgages, this is the same as just paying their mortgages directly. Is this really a solution? Why not cut out all of the costs of concrete, earth movers, and the other costs associated with building infrastructure, and just have the government pay mortgages. When it is put this way, suddenly (I would imagine) it becomes less attractive as a solution.
As much as the government tries to bury it, spending is just spending, and it is not investment. Furthermore the spending is paid for out of taxes. The amount of wealth that the economy creates/has stored is fixed at any moment in time. What is happening when Keynesian spending takes place is that the government spends a greater proportion of that actual wealth at the expense of the taxpayers.
I must make this 100% clear. There is no new wealth, just a redistribution of wealth.
If people pay more tax, they have less money with which to consume and save. If they have less money with which to consume, there will be a commensurate decline in the situation of those companies that support such consumption. If they have less to save, their will be a commensurate decline in the accumulation of capital available for investments.
Added to this, if the government is borrowing to pay for the spending, then they are borrowing from a finite base of capital, thereby acting as a competitor for capital with private business. as such, the government borrows at the expense of private business borrowing. Furthermore, in the future, the government will have to increase taxation to pay for the borrowing, thereby creating a contraction in the economy in the future.
If governments pay for the spending through printing money, they are paying for the spending through the indirect taxation of money. As fast as they print the money, they are taxing every investments, every item of expenditure, through the transfer of wealth from the existing money supply onto the new money (you can not give money value through printing it, it must take the value from the existing money supply). In such a situation, the amount of money printed will match the value taken from the existing money supply so that, as fast as you are printing the money, you are removing exactly that amount from the existing money as a form of tax.
As I have said, there is no new wealth added in Keynesian spending, just a transfer of money from individuals to the government.
An then we think what the government is doing with that money.....
If we think of what that same money might do in the hands of individuals, or as savings available for investment in private enterprise....
A quick note: Lemming has mentioned that productive activity is an idea that is difficult to pin down. I can understand the point Lemming makes in his comments, and sympathise with the views. However, it is not up to us to decide what others value in their lives. For example, if they are foolish enough to buy an over-priced car, that is their own foolish choice. I am not sure how or why we should interfere with such choices.
Note Added Same Day:
I have had no less than three comments from a commentator, Lord Keynes. Perhaps as a result of his name he is offering a defence of Keynesian approaches. I think that he must have been writing his comment as I was writing my reply to Steve Tierney, so I will not address the 1st comment (unless he believes I have not addressed it). However, I will address the other two posts.
In the first of the two, he says the following:
(1) For example, we see it in the policy of quantitative easing … Even the expression quantitative easing does not express what it really means, which is a massive creation of money from nothing.He is quite right, that this is a contradiction. On the one hand, governments treat it as if they are making money by magic, but the reality is that there is actually no real money created, just 'funny money'. I perhaps should have been more precise. When I mean I say creation of money from nothing, I should specify that that this is delusional perception. I am very clear that there is a transfer of value from the existing money supply, so I think I have made this clear elsewhere. I should make the distinction between what mainstream economists think, and what actually happens.
(2) In the case of all government stimuli, the money for the stimuli does not come from the government, but in all cases comes from the tax payer. It is either taken from the tax payer in the form of inflation or through direct taxation.
Does not statement (2) contradict statement (1)?
With regards to the second point, I am not sure I am clear on the point being made. Can you clarify your question? The ability of central banks to create money is not, I believe, a matter of great contention. The matter of contention is whether they should be able to do so, or how much money they should be able to create under what circumstances (for those that accept the principle). Of course, the terms in which money creation is discussed is never explicit, but that is another matter...
On the subject of Keynesian spending, Lord Keynes says the following regarding the school example, and presents a new argument:
Because schools are nearly always built with public money, and there has been a persistent trend since 1979 (the advent of neo-liberalism) in Western countries to cut public spending. Education was one of the many things to suffer.This is an argument that is one in which it is now suggested that the spending now is being used to make up for past failures to spend. In this we start hitting one of the problems not with Keynesian theory, but with the way that is being applied. In simplistic terms, the idea is that governments should pay down deficits during the 'good times'. However, this has not been done, and the suggestion here is that not only has this not been done, but expenditure on infrastructure has also been neglected. As such there has been deficits and neglect of the infrastructure.
Does this not say something about the terrible underlying state of the economy?
As it is, the UK government share of UK GDP has risen, and the US GDP share has fluctuated somewhat, but not changed dramatically. In absolute terms in both cases the spending by governments have increased. As such, whilst it might be claimed that education budgets have been cut, this chart here actually shows the growth in educational spending in the US. What we have is actually greater spending, and yet we have claims that the infrastructure has suffered...now the answer is to spend yet more to fix problems that occurred as a result of lack of enough spending in the good times, times in which spending increased.
The question this raises is: how much is enough, and if we can afford this spending in the 'good times' how can it be afforded now, or paid for in the future? Is it not the case that we just have to accept that there is not enough wealth creation to afford such spending?
Another point to make is that, if economic success is a result of good education, what level of spending should be directed at education. 5% of GDP, 2%, 10%? If it is such a basic good, then why not just pour in huge amounts of money? In reality we accept that there must be an optimum level of spending, before the money is wasted. Once again, if investment is increased in education today, when yesterday the money spent on education was considered to be at the right level, does this not say that the money is believed to be inefficiently allocated.
The answer in response will be; better that a person gets an education than sitting on benefits, but again there is the problem that yesterday it was not expected that the individual in question would benefit from further education, but today that person will increase their value in the workplace through education. If this is the case, why were they not encouraged into education before? They would have increased their value in the work place, gained a better salary and so forth. The economy would have benefited from better value from their input and so forth...As for building infrastructure, educating people is an expensive business. That means more tax, less consumption, and less money saved for investment (again).
With regards to the necessity for government funding of schooling, I would point to my post on education reform. My solution offers cost effective schooling in which individuals have freedom of choice, and a system focused on quality of outcomes. The system is one in which education becomes a real investment, in that the investment will be set at a level at which realistic expectations of returns on the investment are central. By contrast, government is pouring more money into the system with arguably ever poorer outcomes, and no way of measuring the so called 'investment'. It is quite simply, drop x amount of money in and hope for the best...
Lord Keynes also says of education:
'I would also add that there is more to educating children than just making them useful workers, but that’s an argument for another day.'There are a large number of creative industries, people who make money writing history books and so forth. In addition, at least in the UK, for many jobs the exact subject of a degree is not considered a matter of concern. A system that allows for investment and returns still allows for breadth of education, rather than simply training for work. There is no reason to believe that such degrees will not continue to be funded if return on investment is a consideration.
The final argument is a continuation of the first comment as follows:
I would continue to ask why something like the Hoover dam, the construction of which has had many benefits, is a “bridge to nowhere” project? In none of your discussions, do you address the fact that governments do try and calculate the economic benefits of much public infrastructure spending (the US actually is inefficient because of Congressional control and pork barreling, something other government systems, for instance in Europe, do not have)The question is, if it is going to make money, why would government finance be needed. A recent example of such a kind of project is the Channel Tunnel. This was privately funded and added a major piece of infrastructure. It has lost money, but nevertheless, it is still there, and still provides that infrastructure. A similar point can be made for the railway system in the UK, the massive boom in telecoms infrastructure.
On the other hand, it is also possible to look at Macquarie group, who have been making massive investments in infrastructure around the world (though I personally have some doubts about their business model), and making good profits. Some of these investments provide returns, some have been loss making, but the risk is not given to a public who have no choice through the tax system, but to investors willing to take the risks.
The trouble is, if the government is borrowing money, there is not so much capital available for such private investment. If you have the choice of what has appeared to be a low risk government bond, or a relatively high risk investment in an infrastructure project, you will go for the bond, unless the infrastructure project offers very big returns. In competition with this, you have governments raising money cheaply on the basis that if it goes wrong, which is a common occurance on infrastructure, then the taxpayers will foot the bill. How can private capital compete on such terms? It is a very difficult task, but they do still manage to compete.
It is the Fannie Mae/Freddie Mac story writ large. They came to dominate the mortgage market, as they were implicitly underwritten by the tax payer and could therefore raise finance cheaper. It made any true competition in prime mortgages virtually impossible.
So we can talk about the benefits of infrastructure, but the question is to ask why this has to be provided at risk to tax payer money, and at the cost of crowding private investment out of the market.
Furthermore, public works programs often simply maintain and repair crucial existing public infrastructure. The US, by all accounts, has crumbling public infrastructure simply because governments have not spent enough money to maintain them. Now is the perfect time to rebuild them.So again, we have a situation in which these expenditures were not considered affordable during the 'good times' but are affordable now that there is no money? Does this make sense? You are broke, so you spend money on things that you did not think were worthwhile when you were rich? According to this argument (to paraphrase another person's argument), you should work on refitting your kitchen at home when you are made redundant, even if you have to borrow the money to pay for the materials. It needs to be done, as it is looking run down, you have nothing else to do with your labour, so why not?
The why not is because you are already in debt, can not pay down that debt, and are hovering on the edge of bankruptcy. Even without debt, would this be a good idea? Would you recommend such a course of action to your friend? Heh, you may as well do something useful with your time, even if it puts you into debt with no idea of when or how you might pay it back.
In the end, it is all just a continuation of the delusions. A continuations of the belief that, when a problem has been caused by debt, the solution is more debt....It is the fetish that activity means wealth, and if we can just stimulate enough activity, consume enough, it will all come right. The fact that the stimulus is built on debt and devaluation of money, is a small detail that passes many by.....
A long and a rushed response as I have spent a bit too much time on the blog, so I hope that it answers the questions.
(1) Rogeberg, O (2004), Taking absurd theories seriously: Economics and the case of rational addiction theories, Philosophy of Science, 71, pp. 263-285
Note 1: The post on China that I did not publish was an explanation of why I obsess with China, as well as why I personally would like to see China succeed. As such it was a little too personal for publication.
Note 2: I was asked some time ago to write an article for a finance magazine, and am hoping that it will be published in the near future. I will link to this as soon as it is out.