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

[BillK]

On Mon, Sep 24, 2012 at 5:48 PM, spike wrote:
> 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.
>
>

I think you are out of date and much too trusting of politicians.  :)

See:
http://www.bbc.co.uk/news/business-19076024

1 August 2012

US budget: Congress leaders reach short-term deal
Harry Reid Democratic Senate Majority Leader Harry Reid has called for
a "spirit of compromise"
US Congressional leaders have agreed to keep funding the government
until next March, narrowly avoiding an end-of-year showdown over taxes
and spending.
-----------------

Another fudge. And guess what will happen in March 2013?
That's right - Three weeks of panic headlines, crisis mode enabled,
then another fudge.

They (and Euro pols as well) will keep kicking the can down the road
until it all collapses.

The correct (but very painful) policies will only be chosen when there
is absolutely no alternative.

BillK