I don't think you can. Randall Wray: "Investment creates saving. Budget deficits create saving. You need the spending before you get the income that you then decide to save. The second step is to decide what form in which you want to save it. If [it were argued] that treasury debt might be preferred over corporate debt, then we’ve got a portfolio decision that could mean higher interest rates on corporate bonds. That, of course, depends on Treasury’s “debt management” strategy. However, as we know, budget deficits, all else equal, place downward pressure on overnight interest rates (relieved through government bond sales unless the Fed wants ZIRP—zero interest rate policy). So: a) deficits create saving, so cannot reduce the amount that “might go into useful private investment”; and b) deficits place downward pressure on interest rates, not upward pressure."
See also Bill Mitchell:
http://bilbo.economicoutlook.net/blog/?p=381 (scroll down to "The Myth of Crowding Out" or just read the whole thing)
Gov't can. Very simple example:
Increase foreign aid + increase borrowing to cover it. This takes away from private investment to go somewhere that isn't domestic.
(that's not to say we shouldn't do foreign aid at the expense of some private investment loss, but that it can crowd out private investment if it's large enough)
Question about taxes. When a business is taxed its only on profit no? So why would taxes discourage someone? You can never "lose" money due to taxes just not make a hypothetical greater amount.
Am i missing something?
corporate taxes can change the reinvestment rate (and absolute number of course) as well as divert resources to accountants and lobbyists (because of how our tax systems) as well as affect dividends. But it shouldn't affect quantity and prices of goods/services.
No one was ever able to explain to me how taxation on profits impact hiring decisions.
People start saying shit like "risk", but I have tried to apply basic statistical modeling to it and it just doesn't add up.
They might decide to hire more accountants than workers, but that's about it.
Those that argue corporate taxes affect current employment simply don't understand how companies maximize profits. Firing a worker to respond to these taxes would reduce profits, not increase them.
But taking money away from reinvestment can affect future hiring. That said, with such low effective tax rates and such low borrowing costs generally, we aren't even seeing this except at maybe the small business level.
Agreed. After I hit submit, it occurred to me that scientific models are hard, too. Economics currently lacks the means (or will) to institute a scientific method.
Science relies on testability. Macroeconomists can't just take a country and be like "okay bitches, we're going to see what happens when we do policy we think will fuck you up" Well, unless you're England.
It can only analyze data from the past and try to overcome the immense omitted variable bias issues that can present itself. And unlike science, reality depends on human psychology which is not that predictable.
I don't think there's a lack of will. It's just not really feasible on the macro level. As chichikov points out, regression analysis is the attempt to solve the problem as best as it can (so there is a will). But it's naturally always going to be a mostly reactionary thing.
Economics has problems, but to say that the things it gets right are "basically intuitive and no big deal" is unfair. We find some economic claims intuitive or obvious only because intellectual progress has been made in the field. Not many of Smith's contemporaries read what he was writing and dismissed it as obvious. People were terrified of leaving the gold standard. Many were convinced that the Soviet model of comprehensive central planning made all kinds of sense. Keynes wasn't just saying what everyone already knew. The obvious comparison is to physics just before Newton. Newton clearly built on Descartes' work, but Descartes' physics postulated the conservation of speed! He even did experiments purporting to demonstrate this, and at one point he makes the claim that if you had a large body absolutely at rest a smaller body, no matter how fast, would be totally unable to move it via collision. That's just ridiculously wrongheaded to any modern high school graduate, but conservation of momentum is not actually "intuitive and no big deal". It's a huge deal. That it's intuitive now just speaks to the usefulness of education.
I think that, in general, there's more disagreement in economic just because there's more money involved. A huge amount of what the government does is aimed at having some sort of economic effect; there are strong political incentives to be able to produce an economist who agrees with you. Plus many people who can reasonably be supposed to have better than average economic understanding have very strong self-interested reasons to prefer particular policies. Climate science isn't nearly as relevant to the public debate, and there's a lot less money involved.
I agree with this. Economics is very intertwined with politics and it fucks shit up badly. I believe within academia, economics has a lot less dissension and they are more open to changing their minds with the right evidence than those outside of academia because of self-serving interests.
Just look at Mankiw. Dude made one argument against Obama and then 4 years later made the exact opposite argument against Obama because he now worked for Romney.
I think this is all correct. Economics is a science. It's just a hugely corrupt one due to the massive incentives created by the need for economic justification of particular policies preferred by the plutocracy. (I wasn't going to use 'plutocracy' but I just had to once the alliteration got going.) That said, the profession is, as a whole, better than one might think if one only paid attention to media, which tends to promote elite interests (and hence amplifies the segment of the economics profession that is corrupted by those interests). For example, very few actual economists
will disagree with the proposition, for example, that the stimulus helped job growth.
MMT (and post-Keynesianism more generally) is the next revolution in economics, mark my words. Neoclassical economists are dinosaurs. New Keynesians like Krugman aren't far behind the neoclassical economists.
More likely what will happen is what it gets right will be incorporated and what it gets wrong will be tossed aside, like it generally happens.
Also I think it's more accurate to label it as a soft science.
