Wednesday, Jun 09, 2010
Mainstream Keynesian economics is facing its last hurrah
FT: Time to plan for post-Keynesian era
Some good opinions on moving forward, for example - "Second, governments should explain, and the public should learn, that there is little that economic policy can do to create high-quality jobs in the short term. Good jobs result from good education, cutting-edge technology, reliable infrastructure and adequate outlays of private capital, and thus are the outcome of years of sustained public and private investments. Governments need actively to promote post-secondary education."
Posted by mountain goat @ 12:56 PM (1011 views) Add Comment
17 Comments
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1. flashman said...
I was wrongly accused of being a libertarian yesterday. I assume this is because I am not a Keynesian. In my view it is almost childish to be an 'ian of any kind. Common sense and experience invariably guides an intelligent adult to some kind of mid point. It’s the same thing with left versus right wing arguments and the public versus private sector debate. They are all excercises in futility.
2. rumble said...
Like being a vegetarian? Surely a label describes a person's overriding point of view, which might not be middle of the road?
"ruled burliest"
3. another alan said...
Some of the comments below the FT article are worth contemplation
"curative fish"
4. mountain goat said...
Hi Flashman. I posted this because it gave a more balanced view to the Keynesian debate than I usually find and had some constructive opinions. I think this debate will go on for some time as more countries side towards "austerity" as shown in the latest G20 statement. These measures will not lead to a trampoline recovery and that will give some ammunition to the Keynesian argument. They will claim the recession lasted longer than it needed to because of austerity measures.
I did not follow that thread yesterday sorry. I think I tend to be more bearish than you, considering the recovery "an illusion caused by unsustainable stimulus" to quote Mish. However, I usually enjoy your contributions because you are prepared to defend your position sensibly. I have less time to blog these days but do still look in regularly. I wince at some of the postings here, like someone describing all public sector workers as parasites yesterday. At least most of us here can agree on being bearish on house prices, and perhaps that is all we should agree on, to keep debate going.
5. the number cruncher said...
I thought the point about Keynesian economics was to go into a recession with a surplus and spend to get it out as a buffer to the business cycle. Problem was no one wanted to save in the good times. Keynes was a big fan of the free market, and investments in sound long term policies to improve the economy. Trouble was politicians only selected his theories when, like Brown, they are facing a recession and want to spend their way to short term goals like electoral success.
Poor Maynard, doomed to have his words twisted by knaves to make a trap for fools and be the bête noire of the right wing and the Chicago school neo-cons. His only real sin was to point out that you cannot expect the free market to deliver social justice or stability.
He is joined by Adman Smith who's name is destined to justify the very policies he loathed and tried to warn the world to avoid and Machiavelli who wanted to create peace and prosperity but will be forever linked in the popular mind as deceitful, viscous and warmongering.
6. icarus said...
Good to see some focus on the revenue side, since most discussion about government debt is about expenditure. "Governments and the public should insist that the rich pay more in income and wealth taxes – indeed, a lot more. The upward re-distribution of the past 25 years has made our economies into extravagant playgrounds for the super-wealthy. Politicians of both the mainstream left and right in the US and UK have fawned over those who pay their campaign bills in return for low taxation. Even playgrounds should collect tolls – when it is billionaires in the sandpit". One of the consequences of globalisation has been the ease of tax avoidance or evasion by the rich. Taking the burden of taxation away from income, profits and consumption and towards LVT is another consideration.
Re mountain goats first para @ 4 - Ireland began cutting back deficit spending in 2008, when its banking crisis began to spread and its budget deficit as a percentage of GDP was 7.3 per cent. The economy promptly contracted by 10 per cent and the deficit exploded to 14.3 per cent of GDP.
Another thought. The domestic private sector is trying to net save because of all the debt it's in. But somebody's saving is somebody else's borrowing for consumption or investment, so it cannot net save unless somebody else net borrows. That leaves the domestic public sector and foreigners. In the absence of foreigners 'borrowing' (running trade deficits) the private sector can net save only if the government net borrows. It's a bit like O'Flaherty's Second Law of the Conservation of Filth - "In order to get something clean you have to get something else dirty".
7. flashman said...
"Surely a label describes a person's overriding point of view"
I would hate to have a label. To me it would imply that my mind had stopped evolving in tandem with my ever evolving surroundings. I always find that there are so many rights and wrongs in polar opinions that it is impossible to pin my hat on any one overriding point of view. Of course I might take a provocative stance for debate purposes or even for fun but I vary rarely find an overriding point of view that I could box myself into for any length of time. The world is an infinitely complex place and everything keeps shifting in a kinetic fashion. Vegetarianism is a good example. It's obviously generally good for millions of people and in many ways it’s good for the planet. On the other hand, I've seen a vegetarian’s hair fall out due to a deficiency and I remember a pregnant woman having to have emergency vitamin and mineral injections. Monkeys do great on a vegetarian diet but every now they rip another monkey to shreds and eat it.
Following Keynes is similar to following a religion. The original text is quite good but the practitioners are often rotten. On the other hand, sometimes following the text faithfully can do a great deal of harm (similar to when a religious person sticks to their text and refuses to allow their child to be treated by a doctor).
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9. This comment has been removed as it was found to be in breach of our Blog Policies.
10. rumble said...
"I would hate to have a label"
Reveal your philosophies and there will be numerous labels for you. You've dismissed the English language. I bet even that statement has a label - clichéd preppy rebel is clumsy, I'll work on it.
"it would imply that my mind had stopped evolving in tandem with my ever evolving surroundings"
No, it only describes your current state, not your future. One can quite easily follow a system in general, but not entirely, yet still describe oneself as a whatever-ian. And more than welcome to change your label if you're comfortable with moving on.
"vegetarian’s hair fall out..emergency vitamin..."
Spectacular for some, but outliers. And odd to subscribe to a philosophy that doesn't work for you.
11. mountain goat said...
Icarus - " But somebody's saving is somebody else's borrowing for consumption or investment, so it cannot net save unless somebody else net borrows. "
I have heard this before, perhaps from you. But it leaves me confused. I probably don't understand the debt based money system properly. If the economies of the world are growing and producing wealth I don't understand why we need to have borrowers for there to be savers? Can't everyone save? Is this overly simplistic?
IMO the economy is better off if everyone has net savings, rather than some people needing to be borrowers for someone else to be a saver. Obviously some people are better able to skillfully manage risk and they can productively become borrowers. Perhaps even most business' can do this. But I think most people can't do this so should be net savers.
12. hpwatcher said...
IMO the economy is better off if everyone has net savings, rather than some people needing to be borrowers for someone else to be a saver.
Mine too, but Labour and BOE seem to want everybody to spend, spend spend and then claim benefits. God, what was that lunatic Brown thinking of - and it is crystal clear that Brown was a lunatic.
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14. letthemfall said...
mountain goat
Perhaps it's easier to understand in terms of exchange of goods. The baker, say, gives the grain grower so many loaves of bread one year in return for so many bushels of grain the next. So the baker is saving whereas the grower is borrowing. I suppose it is more complex than this (I'm no student of economics), but this is the essence of saving and borrowing, and shows how not everyone can be savers at the same time. But modern economies could not work without borrowing.
The problems come when the borrower does not come up with the future goods, which is the situation the West is facing in relation to the East at present. Since we have heavily borrowed from China to get all the tat (aka disinflationary products), now we have to forego future purchases until we've paid it off. Or so the story goes. The question of who does the most foregoing is another matter. Georgie boy wants to be the public sector but not his rich mates (aka "wealth creators" - Beckett laugh).
15. icarus said...
mg @10 - google "private saving public borrowing" for an Investors' Chronicle article showing that govt borrowing is the counterpart to private saving by definition - an accounting identity. There's an interesting article on the subject:
http://www.creditwritedowns.com/2009/09/the-g20-summit-hijacked-by-neo-liberalism.html
16. rumble said...
Things not going your way today?
"new foghorns"
17. Goldbug9999 said...
I think were over complicating things. You can have net savers without net borrowers because if people save by mattress stuffing then no borrowers are required,.
However ..... you cannot have a functioning economy where *everyone* is a net saver because eventually everyone would have enough savings to not have to work, which would undermine moneys most important role in the economy - namely to make people economically active in order to obtain it.
Although it was probably never intended for this purpose, inheritance tax performs a vital role in preventing to much wealth flowing to young people and thus discouraging them from being economically active. In a ideal economy everyone should start life with a big fat 0 funds, but have good opportunities to earn money and eventual save for retirement.