Japan, Corporate Profits, Kalecki and Living Standards

I’ve discussed the concept of how budget deficits can lead to higher corporate profits in the past.  I am not the only one or the first one to do this of course.  Anyone who has studied some advanced economics is familiar with Michael Kalecki’s profits equation.  It’s been used widely in recent years given the budget deficit situation in the USA and the record profit situation.  James Montier of GMO used it earlier this year as has John Hussman in his work.

So I was confused when I saw this piece at Zero Hedge which tried to imply that there is no connection between budget deficits and corporate profits.  Of course, plucking the case of Japan out of thin air and making sweeping conclusions doesn’t invalidate the work of Kalecki, Montier or anyone else, but I think ZH has a point.  I just don’t think they’re articulating it the way they should.

First of all, there is most certainly a high correlation between Japanese corporate profits and their budget deficits.  The following images (the first from ZH and the second from the Ministry of Finance) make this crystal clear:

The fact that budget deficits can lead to high corporate profits is disconcerting to some people.  And for obvious reasons.  It might lead some people to conclude that the government has a magic money tree that they can pluck from which will just make everything all better any time the economy looks like it’s in a bind.  Of course, the equation behind living standards is not as simple as that.  What this relationship tells us is simply that as the government spends more the non-government’s income increases.   This is an accounting identity.  If the government buys $100MM worth of jets from Lockheed Martin then a whole bunch of guys and gals living in Fairfax County, VA have swollen bank accounts as a result.  That’s all easy to understand.  But what it doesn’t tell us is anything about the quality of the government’s spending or the impact it has on the overall quality of output.

If the government turns on the spending spigot there is no guarantee that the private sector will continue to create goods and services that are of high quality that will increase our overall living standards.  Yes, the government could buy every single piece of plastic that Apple Corporation cranks out of their Chinese warehouses and it might not matter one bit to our living standards.

We had this debate with MMT when we discussed the importance of S = I + (S-I) in the early days of forming Monetary Realism (MR).  Saying that the government’s deficit is the non-government’s surplus is only a slice of the overall story and really tells us very little about the overall health of the economy.  It’s more important to understand how domestic Investment plays the primary role in how increases in living standards are generated.

So no, when I say that the government’s budget deficits have led to higher corporate profits I am certainly not saying that this automatically means the nation is better off.  It just means I have read some Kalecki and understand accounting identities.  But accounting identities require more in-depth analysis than merely saying “my spending is your income – it’s an accounting identity!”  They require understanding the make-up that how that income and spending ultimately influences living standards.  And anyone who thinks that government spending leads to automatic increases in living standards has completely missed the point here….

-------------------------------------------------------------------------------------------------------------------

Got a comment or question about this post? Feel free to use the Ask Cullen section or leave a comment in the forum.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

More Posts - Website

Follow Me:
TwitterLinkedIn

Comments

  1. Wow. So you’ve probably managed to piss of Zero Hedge AND MMT in one post. Are you a masochist?

  2. This is a really excellent summary. I don’t think it should piss off anyone.

  3. Has anyone developed a “multiplier” measure for what kinds of spending are most effective in increasing living standards? It’s a thorny issue (long-term, education in science and math probably has the best ROI, but it takes generations to pay off), but this kind of analysis MR seems really suited towards.

  4. This debate is so messy because what you end up with is 100 different definitions of “living standards” and 100 different ways those living standards are improved.

    But I think the appropriate focus is on ways that government spending impacts private domestic investment because that’s where most of the boost in living standards (time, by my definition) comes from. But that doesn’t mean we throw all govt spending out the window….

    We need to develop some way to quantify all of this. Since we’ve only been working on MR for 10 months we’re not there yet. :-)

  5. SS; A masochist hurts themselves. Maybe you meant sadist, but I don’t think CR means harm in criticizing a too simple relation of deficit to corporate profits.

  6. Well I’m disappointed in your lack of progress.

    J/k. I like the idea of maximizing domestic reinvestment (within reason).

    One of the reasons I’m opposed to the idea of centralized money creation is the fact that motivated bankers on the ground are going to know better what local communities could use money for than a bureaucrat in Washington. One has to rein them in with regulation, but it’s a definite merit of our system. Same should hold true for government spending as well. Like you said, the trick will be: how best to quantify (while eliminating graft).

  7. Shouldn’t they just stoke up the military R&D? Given that most of today’s technology comes from the military, it might be the best bang for the buck?

    R&D is a hit and miss business, so I think it is probably best for the government to spend up big on R&D first and then let the private sector take over the running once the “idea” is established.

  8. I’m all for community banking. However, JPM. BoA, WF, CG hardly qualify.

    By the same logic, compared to an executive at one of these, ‘motivated’ local government officials should know more about their communities’ needs.

  9. “But accounting identities require more in-depth analysis than merely saying “my spending is your income – it’s an accounting identity!”

    Not corporate profit is key – but like CR writes – wealth creation it is:

    When the govt spends money it is most likely not creating wealth since just literately a few cents on every dollar spent goes into some productive work (building infrastructure, R&D…). Most of the govt money spent goes into the social system, debt service, wages for civil servants and so forth. And in times of crises even more so. Govt spending is always just a shift or swap of money.

    The case of China shows us that if there is a country with no social system govt money spent is much more efficient – at least in the short run – since most of the money may go into infrastructure projects. But in our western civilizations this is almost never the case. In the long run though it is still just a shift of money since the govt is no other than the citizens.

    Wealth creation from govt spending in the long run is a myth since the govt in the long run just spends money either from future generations or if the budget is balanced and the govt spends only money from taxes collection it is still just a shift of money from the Giver (citizen) to the User (govt – which is in fact the very same citizen).
    People often forget that we – the citizens – are the govt and tend to think the govt is an entity independent from citizens (deus ex machina). “Unfortunately” this is not the case.

    There are only three ways to create wealth:
    1. Resources (raw materials, commodities)
    2. work quantity (how long are people willing to work and how efficient are they)
    3. work quality (economic value added)

    Govt jobs hardly fall under any of the categories listed above. Japan and most parts of Europe (except Scandinavia, Eastern Europe) rely hardly on category 2 and 3. So the US (northern America) has an advantage since wealth creation is possible within all three categories. China and other Asian countries still rely mostly on category 1 and 2 but work quality is improving rapidly.

    In the long run govt can’t create wealth and its debt is in negative correlation with corporate profits since govt debt is corporate and individual future tax. The time-lag is crucial and very hard to estimate.

  10. Meh, I think it’s a false analogy.

    I’m not buying that a local loan officer isn’t more motivated than a local government official, even if they are affiliated with a gigantic bank. Besides, it’s not just the motivation that matters, but the kind of motivation. You make loans (i.e. create money) in order to be profitable. If you aren’t profitable you will likely find yourself out of a job.

    Local government officials could theoretically send requests for money creation up the chain of command, but they don’t have the authority to create money to meet local growth needs.

  11. In terms of gdp growth, extending unemployment benefits i.e. at the lower end of the income scale has the most immeidate growth effects.

    Tax cuts suffer ‘bleeding’ – ie often result in greater saving rather than spending, and reducing consumption taxes is ‘better’ than income taxes. eg reducing gas tax encourages more activity so more consumption.

    In terms of where to direct it when the private sector refuses to invest is a harder one.
    Roads are pretty useless for employment, unless there’s a housing development say.

    Generally it’s more effective to skill up your workforce I believe as its symptomatic of a national emphasis on what you want your country to be doing. eg Germany.

    Then you should be countering inflation as that results in demand destruction. That of course is the opposite of what is being done today.

    Finally, supporting asset prices is very damaging and is theft from future generations, and requires inflation.

    However it favours the wealthy and the older set who wield the most power.

    Sorry no links to back up what I’m saying.

  12. And yet, economies are typically smaller than when govt does NOT spend money [on social needs].

    In addition there is more stability and less crime across a country as funds are redistributed and aspirations across the country are increased because the basics are provided for hence allowing focus on other activities.
    Compare that with China where everyone has to save for health care costs for example.

    The thing everyone forgets with the private sector is that a lot of money MUST be wasted as 10 companies try their hand at something and 2 survive.
    And not necessarily the best product or service but those with the best salesmen and/or price point. VHS over Betamax is a good example.

    I’m not saying that private enterprise is a bad thing (clearly it’s not), just that it’s often misrepresented and with over powerful sectors like finance, it doesn’t matter how good you are – you will get screwed if they fk up.

    In addition Governments make decision that the private sector never would and at least are supposed to look out for the taxpayer interest – even if they’re not great at actually achieving that.

    Take healthcare. The UK National Health Service is far from perfect, however we spend £1 in £12 on it, and it’s free at the point of use [ok, some treatments end up being effectively rationed].

    The private US system spends $1 in $6 on healthcare with no discernible extra outcomes across the population (basically heavily skewed to richer people). It’s basically very good at extracting maximum dollars from the people – which is what all “good” businesses do.

    Imagine if you could recoup those dollars spent on health in the US and put them to use in other parts of the economy. I’d guarantee you a jobs boom that’s for sure (assuming other policy changes).

    Lots to discuss anyhow.

  13. Hire people to do something the country needs. They then take those salaries and use them for things THEY need. Does it get much better?

    Re-hire some teachers. Renovate roads. Fix hydropower dams that are about to crumble and kill hundreds of thousands downstream. Renovate rails. Build some nuclear plants. Whatever, there’s loads to choose from.

    Rocket science it ain’t.

  14. “[the govt's] debt is in negative correlation with corporate profits” huh? There’s a strong correlation between deficit spending and corporate profits shooting up shortly thereafter.

    The money constituting the debt really does grow on trees. The state has just decided that it needs to pay interest for it.

  15. Why is it so disturbing for some people to understand that when the govt spends money someone else earns income? Do all these anti-govt groups really think that the govt doesn’t line the pockets of certain corporations? Why does it have to be some sort of weird conspiracy theory or negative thing? The govt is a lot like any other entity. When it spends money someone else gets the income. No conspiracies. No lies. Just basic accounting. It’s amazing how some smart people just refuse to understand this due to sheer ideology….

  16. If the government spends taxes, it has redistributed spending. That can be a good thing, if done wisely.
    Deficit spending — yes, that provides income that can find its way to corporations or private business owners or Saudi princes or Chinese gangsters, etc.
    But that deficit spending has consequences, surely?
    It either has to be financed by later tax resources, or printed, or by future production which might not materialize.
    It might distort the economy by creating inflation, or discouraging saving.
    It might distort politics by creating a government that hands out favors to special interests.
    It might distort the social fabric, as it does when you put a society on the dole.
    Just because you *can* do something without negative consequences appearing immediately doesn’t mean it’s a good idea.

  17. Johnny,

    I never said govt spending was “without negative consequences”. It depends on the distributional effects. It’s always about influences on living standards though. Anyone who thinks all spending is good for living standards is being foolish. but we have to be careful about painting with a broad brush. There are many people out there who will say govt spending is always bad. And they’ll create any argument possible to paint govt spending in a negative light. Sorry, but that’s highly misleading. It’s all kind of funny because you never see people saying private sector spending is inefficient. For instance, Altria Group makes a product that kills people. It literally kills people. And it’s heralded as one of the great free market enterprises in the world. I am all for free markets and corporations, but why do we attack the inefficiency of govt spending so broadly when there are a lot of corporations out there that do bad things and no one makes a peep? I don’t care if you smoke Altria’s products. Good for you. But let’s be real here. There are a lot of companies that make products that hurt society in various ways. All spending is not good. In fact, it’s often the silly spending in the private sector that causes the biggest disasters (see the housing bubble – and yes, the housing bubble was primarily the fault of people who just couldn’t resist chasing an asset class they couldn’t afford though govt obviously played some role in the whole thing).

  18. I’d guess most of the bad mortgage loans were made by ‘local’ loan officers who were subject to imperatives dictated from on high.

    Moreover, the point of ‘block’ grants and similar measures, which have played a major positive role in the recovery package, is to devolve discretionary spending power to more local levels of government.

    The whole financial crisis has been a concrete demonstration that especially where money creation is concerned, the private sector is not invariably superior to the public one.

    ‘Private’ = ‘good'; ‘government’ = ‘bad’ is the kind of simplistic logic that created the problems. Similarly that the ‘profit motive’ will always lead to good results; or that public servants are never motivated to serve the public interest. Solutions are going to require something a little more sophisticated.

  19. Please, no one is espousing free market fundamentalism. If regulations for proper lending had been put in place (or, rather, left in place) and securitization curtailed, the financial crisis likely wouldn’t have happened. The best solutions tend to be a blend of public and private cooperation. Give either camp the preponderance of power and abuse will generally happen.

  20. I was writing about weather govt spending is WEALTH CREATION or just income redistribution! This is written in the second paragraph if you read again please. This is very different from a mere dispute about income redistribution. I’m not arguing or judging if income redistribution is good or bad since in the first place it is neutral to wealth creation (I’m not talking about SOCIAL ISSUES).

    It is not disturbing to understand that when the govt spends money that someone else earns income. This is undisputed. But it seems to be very disturbing for some people to understand that this doesn’t create wealth. The money the govt spends is either borrowed or from tax collections. The money borrowed is future tax collections so the conclusion is that whatever the govt spends is just a shift of money from the Giver to the User (with a time-lag) and therefore can not create wealth. Why is THIS disturbing to understand? Or can anyone prove that an accounting exchange on the asset (or liabilities) side creates wealth? If anyone can, please show me I’m interested in it.

    It seems that many of you carelessly mix up economic and social issues, income redistribution and wealth creation and that hardly anyone thinks or knows about how wealth is created (on an pure economic basis).

    In the long run wealth creation is more important to me then income redistribution since one can only redistribute if he can create wealth in the first place.
    The conclusion is that govt spending might help to jump start the economy (China) but it has barely an effect on wealth creation. Is this conspiracy theory?

    Furthermore it seems to me that this MR-Theory twisted many brains around that are now believing that in todays accounting only an asset side exists since the govt can magically create wealth by the mere issuing of debt without any liabilities. They seem not to understand that even fiat money has its liabilities side!
    The term “money out of thin air” is often used here and in context with govt it seems to be a force that creates wealth. When I use this term it is always in context of the fed monetizing govt debt. But all the MR-Theorists use this term literately. Therefore I will try never to use it again since I respect the laws of nature where no such thing exists like creating something out of nothing.

    Now let me clarify another MR-Myth: YES, the govt can run out of money. But it is a question of quality and not quantity. So the govt can run out of GOOD money but certainly not easily out of paper chips or virtual deposits. Since “citizens = govt” I assume that every citizen is interested in the quality money and not just in the mere quantity of it.
    The MR-Theory is harmful for any understanding of the monetary system and again it violates any laws of nature where nothing is infinite except human stupidity according to A. Einstein.

  21. jonnySingapore, with respect but you are mixing up social and economic issues. I was not arguing whether there is less crime or more with or without govt or what the private sector can screw up. I just showed that govts in western countries have usually to spend most of its money to social liabilities (even more in crisis) and not on infrastructure which would jump start the economy. And my intention was not to determine whether this liabilities are good or bad – it is a fact.
    I even argued that in the case of China the govt can jump start the economy but this is not equal to wealth creation.

    The discussion about the role of the govt in our society is important and has many facets but I usually concentrate only on a few issues at the time since we have to be brief here.

    To the waste of money through the private sector: Not every company is found with billions of dollar credits. Most small and medium size (or even large) companies where (and will be) found through savings or with some tools out of the own garage. Venture capital is private equity which is not just pure bank credit.

    To calm down some govt supportes: I would argue that the very important Basic Research at universities should be supported through the govt. But there is no guaranty of future wealth creation since this research is highly “inefficient”.

    Health care is an entirely different issue since I do not know any system (even in Europe) right now that is problem free and sustainable in the long run. With or without govt intervention.

  22. And yet for the last 100 years (probably more) we have not, as a rule, been resource constrained by anything real. The constraint has been access to greenbacks.

    If MR enables more people to see that, I don’t see where the harm is – quite the opposite.

    Real wealth isn’t money. Real wealth is access to the essentials, and furthering science and productivity in areas that matter. And time to live your life. Because life isn’t about working. Working is something we do to sustain life.

  23. I think we agree. The respective roles need to be well articulated and complementary.

    In the current Fed/banking system, the boundaries seem rather too ambiguous to me.

  24. Yup, agreed. Which I’m not surprised, I agree with 99% of everything you post here :)

  25. Just like the private sector, gov CAN CREATE & INVENT WEALTH/PRODUCTION…you really need to read detailed history of the US science & economy & not just Austrian/right-wing writings:

    Some gov inventions that directly increased standards of living & production (increasing supply) by gov scientists/docs/professors (and most below were done via GOV MONEY CREATION aka ‘deficit spending':

    1. Insulin for diabetes –hundreds of millions would be dead otherwise–it was 100% fatal before insulin

    2. Antibiotics

    3. MRI machines

    4. Internet (no, not ARPANET .. ARPANET was for the military, internet was the civilian project)

    5. GPS

    6. Genetic engineering/biotech

    7. Radar (eseential for air travel/marine safety)

    8. Nuclear power (now provides 20% of US power, 80% of French power, etc)

    Now for inventions by private sector due to gov contracts directly caling for it & funding it (otherwise, it would not have been developed)

    1. Computers (for gov census & artillery ballistics computations)

    2. Lasers

    Do you know why there was a boom in science/engineering in the US after WW2? Because the US gov paid for/gave ‘free’ university educations to every military household (transferable GI Bill), which was about 12+ million households –about 33% of the nation… before GI Bill, only 5% of that nation could afford university education.

    About half of all military then went to university to become educated as millions of new engineers, scientists, doctors, etc

    Do you know why there was sustained suburban housing boom? Because all military on GI Bill (12+ million households -about 33% of the nation) again got a gauranteed, gov subsidized low-interest mortgage when before only the wealthy could afford a home in the suburbs..

    this created a huge demand & boom (and the military also qualified for subsidized small business loans.. so thousands new contracting/construction companies sprang up as those military veterans started their own businesses to feed that demand)

  26. BTW, instead of leaving Germany & Japan as bombed out rubble, the US created money (aka ‘deficit spending’) to fund the reconstruction of Germany & Japan into industrial powerhouses (most of the created money was used to buy US-made materials & services).

    And tax rates DROPPED (so there is no bullshit ‘Ricardian equivalence’).. tax rates were about 91% in 1930s-50s, dropped to 70% in 1960s/70s, then dropped to 34%-39% in 1980s.

    What higher tax rates to pay for the huge deficit spending/money creation/borrowing done in WW2?

    Hint: it’s all fiat

    Stop thinking of money/savings as commodities like fish, coconuts or other examples used in outdated Austrian ‘Robinson Crusoe’ false analogies–SAVINGS DO NOT fund investments in fiat currency systems

  27. Dear Jason H, the mere invention of anything doesn’t create any wealth. (Usually) the private sector using and developing this inventions helps to create wealth and jobs… Wealth creation is not about WHO invents something and certainly not about the history of inventions.
    Like I wrote in another post wealth is created among others through work quality (economic added value). The mere invention doesn’t add any economic value.

    But I wrote in some other posts that I’m not against govt at all. I see the role of the govt to support basic research (at universities) but then again the private sector shall find usage for the inventions and develop them further, produce goods… The risk of the market has then again to be on the private company taking advantage out of the invention and not the govt has to burden this risk as well. So the role of the govt has to be clear. It burdens the risk of “failing” basic research and the private sector burdens all other risks afterwards.

    I don’t really understand why many of you here always freak out if someone just mentions the “almighty” govt even without really criticizing it.
    I think its you guys having some ideological problems since criticizing the govt or the mere mention of it together with the private sector is prohibited.

  28. The high tax burden in the US throughout the 70’s led to an investment stop in the private sector and capital goods became obsolete. The consequences was the rise of Europe and Japan (taxes and workforce were cheaper) to technological leaders and later in the 80’s the steady shift of manufacturing to China. So the process of too high taxes during an exceedingly long period which led to a backlog of capital goods could never be reversed again since the jobs where already outsourced and a replacement of capital goods was already irrelevant when taxes started to fall. It might have prevented some outsourcing and it prevents today the “new technologies” to leave the US. Whether the taxes today are too low is another debate…

    Even though money is not a commodity, which is indisputable, it has still liabilities. Or do you know any accounting system which is not fraudulent and has only an asset side? Please bring first the prove that an accounting exchange on the asset side creates “something” (balance sheet extension)!
    Dear Jason H, I guess you should stop thinking that you can create something out of nothing, like your believe in the “out-of-thin-air-theory” let you assume. With this believe you are violating any laws of nature and it even doesn’t seems to bother you.

  29. BTW I was many times in Germany, Poland, France and many other countries destroyed in WW2 and believe me Dresden, Berlin, Warsaw and so forth are there for REAL. They are not just a dot on a (fiat) paper map.

    Its not all fiat, its all real. So all your fiat dollars you spend every day are backed by the goods and services you produce every day.

  30. You do come across as “govt bad, govt bad, govt bad” in many of your posts. The reactions are to be expected.

  31. Of course money needs to have some real-world equivalence or it just inflates until there is an equilibrium again. (Or worst case spirals into hyperinflation)

    But when there is more supply than people can pay for, it makes sense to inject new money in the system. Being money-restrained is just silly.

    Today, we are money-restrained. Not supply-restrained. Go look at a Home Depot parking lot. Count empty spaces.

  32. Agree. But an oversupply of goods and services doesn’t necessarily originate from an undersupply of money… In that case you can throw in as much money as you want and nothing will happen since this money disappears under the pillows and in saving accounts until it finds a useful investments (or goods and services) or people start to outbid each other at the stock exchange or securities market as experienced today. Economic data is poor but stocks are almost as high as in the heydays.

    I would argue that this is the case today. Money is plenty available. The fed balance sheet illustrates this and the decreasing success of QE’s and Operation Twist supports that fact. I mentioned before that I think the debt structure is to blame. Todays debt structure prevents the liquid flow of money and therefore the economy stalled. So since the economy stagnated we have now an oversupply of goods and services. Liquidity is key, but not the mere amount of money available but the flow (changing hands) of it. Only if we overcome the frozen liquidity people will soon start to buy new goods and services, money will change hands and hiring will pick up.

  33. Hm. I should point out that I tend to envision the everyday circulation of consumption-production as a separate entity from the financial sector.

    Yes, the financial sector is swimming in money. (QE QE QE). But it’s not really reaching Joe Consumer. We might be celebrating that unemployment has crept below 8% again but it wasn’t that long ago that anything above 3% was considered painfully high.

  34. My view is that wealth of a nation can be viewed as akin to the level of coinage in Scrooge McDuck’s vault. If the government borrows from foreigners and dumps that money into the vault, national wealth increases (perhaps temporarily.) If the government spends domestically, no change. If it spends abroad (such as foreign wars), the level decreases. Anything that drains coinage from the vault (foreign aid, drug trafficing, petroleum purchases, offshoring of production for domestic consumption) decreases national wealth. So, deficit spending, if it were funded domestically, spent domestically and relied on purely domestic “raw materials” would not affect national wealth.

    What government deficits do is take funds (voluntarily as in selling T Bills or involuntarily as in taxes) that represent taxpayers’ savings or surplus and redistribute those funds. In times of crisis, such as in 2008/9, when the banking system was frozen with fear, the normal distribution channel, lending, was not working. So government needed to assume the distribution (maintain velocity of funds) task.

    To a degree this situation still exists 4 years later, especially in housing finance and weak demand for borrowing. So some degree of deficit spending is still advisable. But deficit spending to spur the economy should be throttled back as the banking distribution channels return to normal volumes suggesting that demand for funds and the supply of funds have returned to a state of normalcy. Deficit spending purely because existing (entitlement) programs have grown without control is a different issue.

  35. The deficit is caused by three things:
    1. Tax cuts
    2. Iraq war
    3. Afghanistan war

    And of course somewhat exacerbated by dropping wages to tax from as companies fire people.

    Any claim that the deficit is caused by growing entitlement is just ridiculous.

  36. BV, while I appreciate your contentious posturing, your snide jabs at Cullen are unwarranted and unacceptable.

  37. The other solution is to prevent profits from leaving the everyday circulation. Would you like that better?

  38. Cullen this sounds a lot like “trickle down”. No question someone “earns” IE gets income from gov. expenditures. It is not a question of not understanding the concept but rather the additional understanding of the inequity of the process. The upsetting aspect you choose to label ideology is the fact that most cases of government spending is directed by some degree of cronyism, that is the political side of government expenditures. Government by nature is political, and politics is in turn emotional or human. I would think it futile attempting to isolate economics, emotions, and politics, IE humanity, in any attempt to simplify what is by nature complex. If there were simple solutions we would have had the answers long ago.

  39. George,

    I am not here saying whether it’s good or bad. I am simply pointing out what is happening. The government is spending a huge amount of money every year and that money is flowing to consumers and corporations. Some people don’t like the fact that govt spending boosts corporate profits because that conflicts with their anti-govt view of the world. These people misunderstand how the flow of spending in the economy works. That’s all I am saying. Of course the flow can be inefficient and even counterproductive. But that’s a separate point.

  40. That being the case, then let us try to not become frustrated by the intervention of ideologies and other rigidities expressed by your all too human readership. Btw your efforts are appreciated, and in my humble opinion create a valuable service to your fellow man, particularly the thinking variety.

  41. Hey George

    Was attracted to your comment because of “trickle down” and “cronyism”.

    You make a great point about the futility of separating politics and econ. I wonder if the answer lies somewhere in realizing that this is even true in private spending decisions, not just govt. How often do we see private citizens organize boycotts to try and influence other peoples spending choices? Its not rare that someone somewhere tries to bring light to a practice within a company in the hope that others will stop patronizing that company. That is pure politics, yet its also a natural (and I say necessary) part of our economic sphere.
    I think we tend to forget that politics starts in the private sector.

    Govt officials are going to support those things they believe in, and money spent by the govt is money earned (and spent somewhere else) by a private citizen. One guys boondoggle is another guys family support income. Whatever you do there is likely someone who thinks you are making too much or that you are ripping people off. This is not meant to justify any and all expenditures, public or private, but simply to realize that cutting expenditures anywhere will affect a lot of people who are doing the “right thing” too. Its all interconnected. Eliminating the DOE, for example, would have not only an affect on the employees of the DOE but also the people they buy stuff from. Its not trivial, its someones livelihood. We cant escape our interdependence no matter how we try.

  42. ya, when the private banks aren’t creating enough money to expand the money supply (such as during a balance sheet recession/stagnation), then it’s up to the gov to spend money (via deficit spending) into the economy to fund increased hiring & production to grow the economy…

    and the increased production of goods/services offsets the increased money supply to reduce inflation