Friday, September 09, 2011

Why Argue, If Not to Persuade?

I guess I'm the last believer in Socratic dialogue - argument as a tool to learn and clarify. Anyway, I was having this interesting discussion in comments about Keynesian economics when one of the major protagonists expressed fatigue (or was it disgust), and took his football and went home. So, in hope of attracting a wider audience, here is his last and most penetrating point:

"The whole point is that if before the ozone regulation a particular CEO has good reason to hold lots of cash this does not change after the regulation. The money she has to invest due to the new regulation will therefore have to come largely from other investments she would have made - thus no net benefit."

This point seems pretty far from self-evident to me. I'm not a corporation, and I'm not rich, but I have some modest savings, and some of it is currently parked in highly liquid form. At the moment, I have no plans to spend it. Suppose, though, that the government decided that the public health required that all cars on the road need to be equipped with flubberhausers, at a cost of $2500 each. I would spend it in a minute, since I can (a)afford it (b)need my car to get to work. It's unlikely that that expenditure would affect my near future expenditures very much - though ultimately it might provide my heirs with a smaller beer party - one point of Keynesian economics being to transfer expenditures from the future to the present - to speed up the velocity of money.

Corporations have slightly different logic, but I don't see enough difference to matter.

It doesn't escape my attention that there is a redistributionist element to this - the government would in effect being forcing industries to spend other than in the way they would prefer. Going from that fact to "it couldn't possibly affect money velocity" is the part that seems nuts to me.

In the case of ozone restrictions, this is something companies have seen coming from ten thousand miles away, so if they were putting money in their piggy banks, paying for ozone reduction was probably on their list.

Of course they would prefer to pay later, for all sorts of reasons, including their performance bonuses for the next few quarters. Best of all would be electing Bachman or Perry or somebody else who didn't give a crap about pollution.

It seems to me, that to make a persuasive anti Keynesian argument in this case, you have to argue that deferring the regulation is going to cause them to spend the same amount of money, right now, on other things. I haven't seen that argument.

Anybody? Bueller?