Getting cause and effect backwards

This post at The Pretense of Knowledge about the cognitive dissonance anti-consumerist supporters of Keynesian stimulus (i.e. college hippies), reminds me of an often misunderstood cause and effect in our economy.

The underlying belief of government stimulus spending is that spending itself is wealth.

But, the cause and effect go the other way. Spending does not cause wealth, wealth causes spending. 

Before my early ancestor, Unk, initiated the first trade with your early ancestor Puhg, Unk had to first create something that Puhg wanted. Likewise for Pugh.

So, while Unk got really good at gathering apples (investing), enough so that he had more than he needed at the moment (savings), Pugh was honing his skills catching fish (investing again), more than he needed. Unk trade a few of his extra apples, that he valued less, with Pugh for some fish, which he valued a bit more.  Likewise for Pugh.

In the trade value was created for both Unk and Pugh.

Now supporters of Keynesian stimulus will tell me that government stimulus “spending” is really “investment”, just like the investment Unk made in improving his apple gathering productivity. The government “investment” improves “our” productivity.

And, in some cases, that may be true. However, I noticed on a recent trip through several states that many of the shiniest and most architecturally adventurous new buildings, many adorned with art, happened to be government buildings.

I noticed some new private buildings, too. They were more conventional, less flashy. Maybe government knows something the private building owners don’t. Perhaps they know that groundbreaking architecture and public art adds to productivity. Certainly there are some private buildings like that as well.  But, I wondered how “we’ve” become more productive with such an elaborate edifice for a public works building, in one case.

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6 thoughts on “Getting cause and effect backwards

  1. Seth:

    Excellent post!

    Horwitz is exactly correct regarding his account of economic history. Consumption oriented policy is Keynesian. Yet paradoxically, the anti-consumption crowd is pro-Keynesian policy e.g. stimulus.

    Drilling down into the anti-consumption notional propositions beyond its paradox mentioned above, the notional proposition is based on the non-economic proposition of “the-way-things-ought-to-be” regarding consumption with the overriding message being the anti-consumption proposition is noble and all other consumption habits are ignoble. It’s merely a notional proposition and an extension of the fair argument/fair fallacy: fair is what you are doing and what the other guy is not doing.

    Consumption can be identified in categories and phenomena such as early adaptors, maintenance consumption, conspicuous consumptions, etc., etc. Those consumption categories and phenomena are attached to freely choosing individuals and what they consume in the aggregate. Moreover, the rational consumer consumes in an attempt to reach the height of satisfaction/utility regarding said consumption.

    If aggregate consumption yields basket X or basket Y of goods and services, then rationally speaking, the basket also represents aggregate maximum utility of freely choosing individuals and their consumption preference.

    Returning to the anti-consumption crowds notional proposition based on the-way-things-ought-to be, their real argument is that aggregate maximum utility is not their preference of aggregate maximum utility. That is, the aggregate decisions of the freely choosing many is not in line with planned aggregate decisions of the few i.e. anti-consumption crowd.

    It boils down the anti-consumption crowd’s preference is noble and the aggregate decisions of the freely choosing many is ignoble. It’s an old proposition that the plans of the few are somehow, someway more wise then the wisdom of crowds.

  2. I was recently reading an article in my local newspaper about the brand new Police Headquarters building being constructed. The article mentioned that the city has a policy that 1% of all new building expenditures are reserved for “public art.” That is to say, stupid-looking statues and paintings that will be on display in the new Police building.

    The article presented this as if it were some incredibly frugal and responsible use of tax dollars. “Look at how restrained we are, we cap art expenditures at a measly 1% figure that is absolutely fixed for all new projects!” As if anyone in the private sector would spend 1% of their entire building cost on art…

    • Thanks for the comment and for pointing that out. The fact that government builds in a percentage for art is good evidence that it doesn’t spend money as carefully as the private sector.

      If including art with public projects is so important, perhaps, instead of spending taxpayers dollars on that art, they could ask for donations.

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