Now there are several ways of doing this. The young engineer writes out all the equations and then begins to solve them. The engineer was educated in the laws of electromagnetic theory and its applications to circuits and then understanding these laws, which are demonstrable in the real world since it is from this world that they came, the engineer determines the performance of the circuit. The experienced engineer who has done this for many years can intuit the performance by saying this goes up and this then goes down.
Now economists like to think that they too have theories based upon fact. Don't ever let them trick you on this one, they are based upon belief. A great example is in the NY Times today from the Gnome from the South, who states:
Why did spending plunge? Mainly because of a burst housing bubble and an
overhang of private-sector debt — but if you ask me, people talk too
much about what went wrong during the boom years and not enough about
what we should be doing now. For no matter how lurid the excesses of the
past, there’s no good reason that we should pay for them with year
after year of mass unemployment.
So what could we do to reduce unemployment? The answer is, this is a
time for above-normal government spending, to sustain the economy until
the private sector is willing to spend again. The crucial point is that
under current conditions, the government is not, repeat not, in
competition with the private sector. Government spending doesn’t divert
resources away from private uses; it puts unemployed resources to work.
Government borrowing doesn’t crowd out private investment; it mobilizes
funds that would otherwise go unused.
Just read through this and you can see the belief set. For example, does Government spending take money from private use or not? Well not rally but somewhat, yet again ....
The answer is it all depends, it is not black and white. People respond to beliefs, not to facts. I call this the Extended Rowe Conjecture. Namely there is a battle between belief and fact. Belief often wins. If the Government increases corporate taxes to pay for its excess, or even alludes to the potential, companies move and respond so as to counter this.
Also there is a systemic loss from the labor pool. Tens of millions of jobs have just downright disappeared. Why? Outsourcing? Not really, we have become dramatically more productive, a fact that has been building for decades. This drives out human labor. It is inevitable. So should Government continue to pay these people in anticipation of a return. It is akin to Waiting for Godot. He will not come.
Government spending terrifies people. Why, because of the added regulatory burden, the costs to comply, and the list goes on. Furthermore it poses a greater risk of uncertainty.
Posts
