Monday, Aug 10, 2009
Print more money.
Guardian: Stimulus or bust
Questions are being raised as to whether the policy of jump-starting the economy through a massive fiscal stimulus has failed. Has Keynesian economics been proven wrong now that it has been put to the test?
That question, however, would make sense only if Keynesian economics had really been tried. Indeed, what is needed now is another dose of fiscal stimulus. If that does not happen, we can look forward to an even longer period in which the economy operates below capacity, with high unemployment.
Posted by flintster1994 @ 04:15 PM (1056 views) Add Comment
9 Comments
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1. Brc99 said...
Judging by the comments beneath the article, the Guardianistas disagree with this piece almost unanimously.
2. Won'getfooledagain said...
Unfortunately I don't think there will be a solution until this Keynesian economics nonsense is put to rest after it has been tested to destruction.
3. enuii said...
I don't think Keynes could have anticipated the level of mess the UK is in now over 70 years ago. When he conceived his theory the UK was a completely different place, a major manufacturer with a budget surplus, no trade deficit and Sterling rather than the dollar was the global currency of choice. Personally I think that the UK is beyond Keynesian remedies and needs more drastic medicine for a long term sustainable recovery to occur.
4. drewster said...
Stiglitz is wrong. The economy is not operating below capacity.
MoneyWeek magazine has a devastating response to Stiglitz's nonsense (just replace 'US' with 'UK' throughout):
...
Take the 1970s. The Federal Reserve thought the [spare capacity] was 10% during the recession that followed the oil crisis, and so kept monetary policy loose.
But it later became clear that the oil crisis was a "supply shock", which resulted in a great deal of spare capacity being rendered obsolete (effectively destroyed) as businesses began to adjust to much higher oil prices. So overall levels of spare capacity, and potential GDP, were lower than assumed. Indeed, it was later estimated that the economy had been operating at full capacity as it entered the oil shock, so loose monetary policy caused inflation.
The external shock this time is the credit crunch - a "supply shock" of lending. Spare capacity (like estate agents' jobs) has been rendered obsolete, effectively destroyed, as consumers begin to adjust to much tighter credit. The loose monetary policy is likely to cause inflation again.
Mish also has an excellent response:
Keynesian Clowns Want To "Make Sure"
Keynesian clowns always want to make sure.
Then when the stimulus fails anyway, which it will, the clowns will blame it on failure to "Make Sure".
[Keynsians] have a distinct advantage: Their claim can never be proven or disproved given their inevitable fallback excuse "we failed to stimulate enough".
5. alan said...
I'm a bit concerned the UK government will lose credibility. Springing the extra QE £billions on the country won't add to the BoE credibility
The government is seen to be trying to save its skin. It should be doing what's best for the UK.
Taking on debt is OK, up to a point...after that the oness must be on the lender to ensure he gets his original capital returned.
Stimulus or Bust? I think we could stimulate a step too far.
6. mander said...
It is not correct to call a depresion/deflation just becouse house prices are going down and some related industries too. We have lived 50 years of house price rises until they got to these astronomical levels. A stimulus seems naive because they are hopping to have the house prices rising above the mention insane levels.
The American people do not believe in property anymore and they have the right to do that but having the tax payer swapped for credit default swaps via stimulus just because the banks are not willing to take on the risk it is not acceptable.
7. timmy t said...
More drugs or cold turkey?
Drugs will keep the addicts symptoms under control for a while, but the time will come when too much will kill him. Time to face facts. Party's over. Here comes the hangover. The more drugs we take the harder it will be.
8. the number cruncher said...
Won'getfooledagain & drewster
Do no not attack Keynesian economics because of the short sightedness of our political and financial leaders over the last decade or so.
Keynesian stimulus was only ever meant to be linked with saving during the boom years. Blair/Bush have not followed a Keynesian economic model at all. Do not call what is happening now as a Keynesian stimulus, call this stupid stimulus that will not work as we have too much debt.
Keynes had no answers to what is happening now and the Austrian school or monetarists among you after a short Sharpe shock may open us up political upheaval that ends up with a left or right wing populist in charge and possible bloodshed. Or is that the hidden agenda?
We have F****ed up royally and now have to navigate the stormy waters of some very unpalatable choices and simple solutions will not work.
9. the number cruncher said...
I thought this comment was priceless and summed up my thoughts better than I expressed them above:
"This isn't Keynesian economics, this is some people claiming it's Keynesian economics and acting like panicked fools, because they know that the hubris and profligacy of the last twenty years has put us in the shit, and they don't really know what to do. Their attitude is of feck it and in for a 100 billion then in for a trilliion. It's absolutely barking mad, and then this type of thing is rolled out in order to rationalise the actions of the crazy politicians.
Many dead people would be surprised to see what is claimed in their name, Karl Marx, Adam Smith and John Maynard Keynes just three that could be mentioned, amongst many."