Digging and refilling holes is a metaphor, it's not meant literally. It's used in economics discussions to refer to any kind of economic activity that's taking place just for the sake of it.
Debt and money printing are intimately linked in our system, to the extent that they're nearly the same thing, which is why I used them interchangeably.
If you go back a few hundred years, money printing was pretty simple: the King wanted more money than he could raise through tax to pay for a war, so he'd debase the currency by reducing the quantity of gold in it. We don't use gold anymore so there's no theoretical limit on how much money can be created.
The creation of central banks introduced an indirection. Nowadays governments pretend to not print money. Instead they always "borrow" it. Sometimes this is actually legitimate borrowing, because the lender is someone domestic or foreign who has some surplus currency and wishes to earn interest on it. But very often the lender is the central bank. The central bank is described as independent, but in fact is just another arm of the government. It is granted special powers by law, and in many countries (e.g. the UK) the head is appointed by the government, answers to government and their salary is paid by taxes. Specifically the Central Bank is allowed to type a higher balance into its own computers, and banks are required to respect that balance. So the Treasury issues bonds, and the CB buys those bonds with newly "typed in" money, and this is just an obfuscated way for the government to print money in the end. They literally borrow from themselves.
You may wonder what happens to the interest payments, if the government is borrowing from itself. The answer is that the Treasury pays the central bank which keeps the interest payments for a while ... and then the Treasury takes them back!
Repayments meanwhile simply disappear, the money is wired to the central bank and then deleted. This really puts into perspective how meaningless the whole charade really is.
> The former stimulates the economy at the roots, the latter generates immediate employment and long-term wealth.
Well, spending on welfare is an economic depressant, you're paying people to not work. The second part is on firmer ground: Keynesians argue that the government should spend abstractly on "infrastructure" during recessions to stimulate employment (in the construction sectors primarily), and this will create wealth.
But this argument also has great problems. It's not yet as discredited as counter-cyclical monetary policy. You'll see governments refer to this concept routinely. However it doesn't work, conceptually:
1. With only a few exceptions if an infrastructure project was actually worth it the private sector would want to be building it already (because it'd have clearly positive ROI). The exceptions are ones where you need eminent domain to seize large quantities of contiguous land, which pretty much means railways, airports and roads (but usually not roads these days). So either the government can simply take over private sector activity, which doesn't actually improve the economy (same stuff gets built), or it can invest in things with expected negative ROI.
2. Governments have a long track record of being very bad at calculating infrastructure ROI.
The problem is that there are very limited opportunities to build heavy transport projects these days. Look at the difficulties the UK has faced with HS2, Heathrow third runway etc. You have to demolish a lot of homes and people don't like it, and environmental law offers many opportunities for delay, so in practice by the time an infrastructure project gets off the ground the recession was already years in the rear view mirror.
Combine these things and infrastructure spending by governments, counter-cyclical or not, often ends up just being a waste of resources, or very ambiguous at best. The poster child for this problem right now is Belt & Road, although in the past EU spending was also famous (Spain's airports to nowhere, etc). An airport in a place with no demand i.e. not a city, is not literally digging a hole and filling it again, but it's somewhat similar from an economic perspective. You move a lot of earth and in the end it's not useful for much.
> I understand them to say of 2008:
That's not quite what they say about 2008 no lol :)
von Mises would have done nothing in 2008. Just let the recession proceed without interference until it reaches its natural end. Fundamentally those houses just weren't worth much and the debt was bad, no way to go back in time and fix that, so you just have to take the economic hit and let things shake out. It sucks but you can't unspill milk, better to focus on what went wrong and how to avoid a repeat.
The Austrian analysis of 2008 is that it was caused by government interference in the market, specifically, governments became very keen on the idea of everyone being able to own their own home. US law and regulation was changed to strongly incentivize banks to issue mortgages, in particular, Fannie Mae/Freddie Mac started buying up pretty much any mortgage going even if it wasn't a good investment, but that didn't matter because the government was always willing to take them. Eventually it all came tumbling down. The fix would therefore be (a) stop government interference in the housing market, (b) forbid fractional reserve banking, which is why banks have to be bailed out when they fail.
There's more to unpack about welfare being "paying not to work" - 82 year olds, absence of employment in mining towns - but you've put the argument for small government well. You made me imagine a monkey driving a bulldozer.
Keynes' error was to pretend that the monkey is a qualified operator who follows the drawings. But the more democratic a nation becomes, the more its leadership resembles a cork bobbing on the tide. Furthermore, economics does not have perfect insight, so even a benevolent dictator will certainly fuck it up if she meddles.
Then, in a recession, you can take action to alleviate the pain somewhat, but you will inevitably just store up future pain for yourself. You could mitigate that future pain once the crisis has passed, but you won't, because the mitigation will alienate the voters. The pretence that you'll accept even a tiny amount of pain in the good times is the self-deception of an addict.
How am I doing?
This then reduces to the trolley problem. Where the one person on the side track is only presumed to be there, but might actually be further down the main track, and might get rescued anyway.
Here's my problem with von Mises. The cause of 2008 was a period of deregulation, basically Jamie Dimon going "trust me, bro" and kicking his lips. It's not an economic cause, it's a political one; but if we examine economists' contribution to the issue, we see decades of free-market-fundamentalism which, I put it to you, created massive overconfidence. The neolibs got exactly what they wanted and created a peculiarly neolib crisis. So the Austrian school is just as fingers-in-ears deaf to political folly as Keynes.
Right, 82 year olds can't usually work anyway so state pensions are indeed not holding back the economy. It gets blurrier in the somewhat common case where state pensions can be awarded at, e.g. 55 (see Greece, US air traffic controllers...). I was mostly thinking of minimum wages, out-of-work credits, long term disability benefits in the case where working is actually possible, etc.
I think your description of Keynesian monetary policy in terms of addiction is interesting!
You can view 2008 as either caused by regulation or deregulation, it's a fascinating event in that way, and is why different parties were at loggerheads over it.
The view that it was caused by deregulation is as you say: banks were allowed to do risky things that leveraged up their risk until they were going to fail, and this provoked the crisis.
The view that it was caused by regulation is to observe that the only reason banks aren't allowed to collapse in the first place is the odd way in which they are regulated. A banking license is a regulatory permission to tell people they have $1000 on deposit whilst not actually being able to service such a withdrawal. In the case of a normal company like FTX, that's fraud. With the right license, it's not.
If retail banks weren't allowed to do anything with deposits except keep them safe, they could not have become endangered by bad aggregated mortgage debt, and then could have just been allowed to fail. It would have hurt investors a ton but bubbles always do - the ATMs would have kept working though and that's what politicians really respond to, the crisis of the innocent working guy. To fix this situation you don't pass a law, you repeal a law, hence, caused by regulation.
Debt and money printing are intimately linked in our system, to the extent that they're nearly the same thing, which is why I used them interchangeably.
If you go back a few hundred years, money printing was pretty simple: the King wanted more money than he could raise through tax to pay for a war, so he'd debase the currency by reducing the quantity of gold in it. We don't use gold anymore so there's no theoretical limit on how much money can be created.
The creation of central banks introduced an indirection. Nowadays governments pretend to not print money. Instead they always "borrow" it. Sometimes this is actually legitimate borrowing, because the lender is someone domestic or foreign who has some surplus currency and wishes to earn interest on it. But very often the lender is the central bank. The central bank is described as independent, but in fact is just another arm of the government. It is granted special powers by law, and in many countries (e.g. the UK) the head is appointed by the government, answers to government and their salary is paid by taxes. Specifically the Central Bank is allowed to type a higher balance into its own computers, and banks are required to respect that balance. So the Treasury issues bonds, and the CB buys those bonds with newly "typed in" money, and this is just an obfuscated way for the government to print money in the end. They literally borrow from themselves.
You may wonder what happens to the interest payments, if the government is borrowing from itself. The answer is that the Treasury pays the central bank which keeps the interest payments for a while ... and then the Treasury takes them back!
https://www.theguardian.com/business/2012/nov/09/bank-of-eng...
Repayments meanwhile simply disappear, the money is wired to the central bank and then deleted. This really puts into perspective how meaningless the whole charade really is.
> The former stimulates the economy at the roots, the latter generates immediate employment and long-term wealth.
Well, spending on welfare is an economic depressant, you're paying people to not work. The second part is on firmer ground: Keynesians argue that the government should spend abstractly on "infrastructure" during recessions to stimulate employment (in the construction sectors primarily), and this will create wealth.
But this argument also has great problems. It's not yet as discredited as counter-cyclical monetary policy. You'll see governments refer to this concept routinely. However it doesn't work, conceptually:
1. With only a few exceptions if an infrastructure project was actually worth it the private sector would want to be building it already (because it'd have clearly positive ROI). The exceptions are ones where you need eminent domain to seize large quantities of contiguous land, which pretty much means railways, airports and roads (but usually not roads these days). So either the government can simply take over private sector activity, which doesn't actually improve the economy (same stuff gets built), or it can invest in things with expected negative ROI.
2. Governments have a long track record of being very bad at calculating infrastructure ROI.
The problem is that there are very limited opportunities to build heavy transport projects these days. Look at the difficulties the UK has faced with HS2, Heathrow third runway etc. You have to demolish a lot of homes and people don't like it, and environmental law offers many opportunities for delay, so in practice by the time an infrastructure project gets off the ground the recession was already years in the rear view mirror.
Combine these things and infrastructure spending by governments, counter-cyclical or not, often ends up just being a waste of resources, or very ambiguous at best. The poster child for this problem right now is Belt & Road, although in the past EU spending was also famous (Spain's airports to nowhere, etc). An airport in a place with no demand i.e. not a city, is not literally digging a hole and filling it again, but it's somewhat similar from an economic perspective. You move a lot of earth and in the end it's not useful for much.
> I understand them to say of 2008:
That's not quite what they say about 2008 no lol :)
von Mises would have done nothing in 2008. Just let the recession proceed without interference until it reaches its natural end. Fundamentally those houses just weren't worth much and the debt was bad, no way to go back in time and fix that, so you just have to take the economic hit and let things shake out. It sucks but you can't unspill milk, better to focus on what went wrong and how to avoid a repeat.
The Austrian analysis of 2008 is that it was caused by government interference in the market, specifically, governments became very keen on the idea of everyone being able to own their own home. US law and regulation was changed to strongly incentivize banks to issue mortgages, in particular, Fannie Mae/Freddie Mac started buying up pretty much any mortgage going even if it wasn't a good investment, but that didn't matter because the government was always willing to take them. Eventually it all came tumbling down. The fix would therefore be (a) stop government interference in the housing market, (b) forbid fractional reserve banking, which is why banks have to be bailed out when they fail.