[ExI] keynes vs hayek experiment coming: was RE: riots again

spike spike66 at att.net
Mon Sep 24 16:48:55 UTC 2012



>... On Behalf Of BillK
>...

>...The US military budget is more than the rest of the world put together.
Neither Obama or Romney intend to reduce it. ...BillK
_______________________________________________

BillK, I disagree, and we have a test case coming up within three months.
During the last negotiations about a year ago regarding increasing the US
government's borrowing, the limit was allowed to increase to a level that
would postpone another negotiation session until after the November
elections.  Both sides saw some advantage in this, for the consequences of
the US government's living within its means will be uncomfortable indeed,
just as some households insist they just cannot live on what they earn, as
they borrow themselves to bankruptcy.

As a condition of increasing that borrowing limit, both ends (and the
middle) of the political spectrum put in place conditions that were designed
to be unpalatable to the other side, carefully designed to force the other
guy to the bargaining table.  The agreement stipulated that if certain
budget conditions were not met, then taxes would go up dramatically (the
Bush tax cuts would be allowed to expire) and spending would be cut equally
dramatically across the board, cutting domestic programs, defense (about
half the cuts would come out of defense) and everything else.  This process
is known as sequestration.  If sequestration occurs, most of the US budget
deficit will be eliminated in a remarkably painful process felt across the
political spectrum.

Much to everyone's surprise, the carefully engineered negative consequences
failed to yank the other guy back to the table, and now the legislators are
playing a game of chicken.  Mr. Romney says he will do this and that to
prevent this budget Armageddon, but isn't convincing.  Sequestration is the
default course of action.  Mr. Obama has only said if they don't cut defense
enough and cut too much of the domestic stuff, he would veto.  However those
proportions have already been worked out by congress and are not easily
renegotiated, so there is a high probability he would not be given the
opportunity to veto. 

So now we have a unique opportunity to actually test the notions of Hayek vs
Keynes, starting 2 January 2013.  They Hayek crowd would take a deep breath
and say:  OK, let the sequestration happen.  Sooner or later the US must
stop spending beyond its means, and we know it will be painful, but it must
happen, so let's get on with it, the economy will eventually recover and be
stronger than before, and far less dependent on government spending.  The
Keynesians would predict... well, I don't know what the Keynesians would
predict, I don't understand that theory well enough.  If we have any
Keynesians here, do offer a prediction please.

spike




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