“even if it could be done, a fundamentally sound economy doesn’t need to be ‘fine tuned’.”
Incorrect. Even a fundamentally sound economy will have good times when people are freely spending, borrowing, burning savings, because there are plenty of jobs, customers, and opportunities. Boom.
All that borrowing and spending will get people into an overextended situation where they decide that maybe they should slow down a bit and begin paying back debt, or maybe rebuilding savings. This causes a slowing economy, making more people pull back.
In short, both the boom and the bust are self-reinforcing short-term, but unsustainable long-term.
Keynesian economic philosophy applies to this normal business cycle that occurs even in fundamentally sound economies. The government should be pulling money out of the economy during the boom, so make sure the high does not get too high, as a bust is sure to follow. When the bust comes, the government should be putting more money into the economy to prevent the low from becoming too low.
We have not had a fundamentally sound economy for 40+ years, so any attempt to use data of the last 40 years to disprove Keynesian economic philosophy is akin to arguing that nutrition guidelines are balderdash since good nutrition does not prevent death from a gun shot wound.
“adding or losing weight has nothing to do with economics.”
It was a metaphor for a growing and shrinking money supply. And the metaphor does apply.
“according to adam smith in ‘the wealth of nations’, trade deficits are nothing to be concerned about.”
I must have missed that part. If he truly believed this, then he must have only been focused on the short-term, of deficits that were a fairly small percentage of the economy that can be absorbed by generally increasing economic activity.
Perhaps you are confusing Adam Smith and Dick Cheney.
Trade deficits are funded by new money being borrowed into existence, resulting in increasing debt. Trade imbalances that generate new debt faster than a sustainable rate, are ultimately unsustainable.
“ultimately, trade imbalances are self-correcting. it would be nice to always be on the plus side, but i don’t think that will happen.”
Yes, by cascade debt default into depression, if we do not attempt to attack and reverse the imbalances directly.
“debt is half of every single transaction. it’s not the bogeyman that people think it is.”
Oh, I fully agree. I do not think a money supply based on, and offset by, debt is a bad thing IF!!!!!
If we keep total debt at a reasonable level where it can be paid on and for.
Over the last 30 years, we have increased per household share of total debt from 2.5x median income to 5.5x median income.
That is NOT increasing debt at a sustainable rate. That, long-term, IS the bogeyman that will get us eventually.
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