Keynes Grandchildren Essay

[@contradevian]

Interesting article about Keynes today in the New Statesmen. I think Keynes gets a bad time, especially on HPC particularly from people who have never read him. Anyway..

Yet there is something breathtakingly far-sighted about the “grandchildren” essay. At its heart is the proposition that one day:

• capitalism will grow into something else;

• if that happens the cause will probably be technology;

• we will have a major psychological problem adjusting our lifestyles to a situation where money is not important;

• the love of money will come to be seen as a disease;

• economics will become as mundane as dentistry.

..and

So, what happened in reality? Take just the case of the UK. According to the Maddison Project data on global GDP, which measures historic output in terms of 1990 US dollars, British GDP per head in 1930 was $5,441. It took until 1972 to double, to $11,294.

If we switch to modern data, from Trading Economics, we can reset UK GDP per capita, adjusted for inflation, at $20,000 in 1973. It doubles to $40,000 by 2008, falling back to just under $38,000 today. That leaves us at below four times the output per head in 1930. So, to hit Keynes’s target, it has to double again in the next 15 years to $80,000. The chances of this happening are few. Even if GDP per head grows as fast as it did between 1992 and 2008 ($1,000 a year) it will take until about 2054 to achieve the target.

http://www.newstatesman.com/economics/2014/06/paul-mason-what-would-keynes-d

Edited June 17, 2014 by aSecureTenant

[interestrateripoff]

Keynes warned of the dangers at Versailles, at Bretton Woods he wanted to stop large trade surpluses being built up.

All economic theory has flaws but it would be interesting to see how the world would have turned out if various nations had not been able to build up large trade surpluses after the war.

[crashmonitor]

He got the bit about money not being important wrong. Far from a quadrupling of GDP freeing us from financial burdens we seem to be in even more financial hardship than we were back then.

We have a wasteful economy where everything costs ten times as much as then....houses and education come to mind. Long gone are the days when we all started work at 14, now we have turned it into a rite of passage until our mid twenties and with it comes debt. Talk about a sledge hammer to crack a nut....a socialists dream of wasting money.

No longer are houses simple, we aspire to several spare rooms, block paving, conservatories and the rest. All this costs money, even more than four times GDP allows.

Edited June 17, 2014 by crashmonitor

[zugzwang]

Keynes' ideas have been traduced, perverted and slandered by those who took his name and continue to misrepresent it, which is why I generally prefer to use the term Krugmanomics to describe what they do rather than (New) Keynesian. It was Keynes practical experience of banking and finance that set him apart from his fellow economists, just like his greatest disciple Hyman Minsky.

[wonderpup]

Keynes' ideas have been traduced, perverted and slandered by those who took his name and continue to misrepresent it, which is why I generally prefer to use the term Krugmanomics to describe what they do rather than (New) Keynesian. It was Keynes practical experience of banking and finance that set him apart from his fellow economists, just like his greatest disciple Hyman Minsky.

Krugman is exactly what he thinks he isn't, an apologist for the neo liberal school. Sure he attacks their ideas superficially but he also accepts without question their primary claim- that economics is a value neutral non political science.

This is the Neo Liberal 'big lie', the construct from which all of their ideology flows and gains it's power. By allowing this claim to an apolitical value neutrality to stand Krugman is doomed play out the role of the apostate who- even while attacking the faith he has abandoned- is yet defined by it's world view.

Krugman likes to say that economics is not a morality play- but that's not true- it is a morality play and always has been- the illusion of objectivity is created only because the moral backdrop is so constant as to appear an historical inevitability.

The reason we no longer have child labor in the west is because we decided that the' historical inevitability' of such labor was no longer quite as inevitable as we thought it was- but I have no trouble at all in imagining Krugman making a case for child labor, just as he made a case for low wages and dangerous. conditions in places like bangladesh on the basis that a poor and and dangerous job was the only alternative to no job at all.

In Praise Of Cheap Labor - By Paul Krugman

Workers in those shirt and sneaker factories are, inevitably, paid very little and expected to

endure terrible working conditions. I say "inevitably" because their employers are not in

business for their (or their workers') health; they pay as little as possible, and that minimum

is determined by the other opportunities available to workers.

And as long as you have no realistic alternative to industrialization based on

low wages, to oppose it means that you are willing to deny desperately poor people the best

chance they have of progress for the sake of what amounts to an aesthetic standard--that is,

the fact that you don't like the idea of workers being paid a pittance to supply rich Westerners

with fashion items.

In short, my correspondents are not entitled to their self-righteousness. They have not

thought the matter through. And when the hopes of hundreds of millions are at stake,

thinking things through is not just good intellectual practice. It is a moral duty

http://tigger.uic.edu/~bost/teaching/intromacro/article13b.pdf

Exactly the same arguments were (and are) made in support of child labor. So Krugman's 'inevitability' is composed of what exactly-immutable natural laws, or political choices and value judgments as to who gets to do what to whom?

[Bland Unsight]

Keynes' ideas have been traduced, perverted and slandered by those who took his name and continue to misrepresent it, which is why I generally prefer to use the term Krugmanomics to describe what they do rather than (New) Keynesian. It was Keynes practical experience of banking and finance that set him apart from his fellow economists, just like his greatest disciple Hyman Minsky.

Agree 100%. Presently reading Skidelsky's Return of the Master. Keynes didn't have all the answers, but he was trying to get to grips with how the economy actually worked rather than simply building some nonsense model where the structure of the model was determined not by what they were trying to model but rather the puny mathematics that they had and the answer that they wanted the model to give. Skidelsky argues that in the final analysis Keynes wasn't an economist - he was someone who got involved in economics because he felt that at that time, given the challenges the world faced, economics was too important to be left to economists. I'll buy that argument - most of the time economists don't really matter because the are just adding an after the fact narration to things that were going to happen anyway, but in times of crisis when technocrats make the weather economics matters because it provides a framework of 'knowledge' (belief?) that will in due course guide policy. At times like this what economists happen to believe at that time becomes a non-trivial part of the system of the world, regardless of how right (debt actually matters) or wrong (Greece will be saved by expansionary austerity) those beliefs are...

[the_dork]

yes an intellectual giant, who rightly saw economics as a form of 'dentistry' inevitably based on political arguments rather than precise value-free science.

Wrong about banking and also very racist/anti-Semitic by current standards.

According to him we should be on a 4 hour work day and concentrating on the arts by now, guess he was writing before phones, computers, foreign travel became standard consumption items...

[cica]

The reason we no longer have child labor in the west is because we decided that the' historical inevitability' of such labor was no longer quite as inevitable as we thought it was

Back in the day where you had to find your own food to eat, if you tried to do anything else you'd probably just starve. Slowly but surely people dabbled and new wealth was discovered. This wasn't some decision that was made - you'd die if your kids didn't work.

The reason we don't have child labour is because families can get even wealthier by educating their children and put them work later in life with acquired skills.

The end of child labour (existent since the dawn of time) correlates with the jump in wealth in the UK.

Edited June 18, 2014 by cica

[evetsm]

Keynes' ideas have been traduced, perverted and slandered by those who took his name and continue to misrepresent it, which is why I generally prefer to use the term Krugmanomics to describe what they do rather than (New) Keynesian. It was Keynes practical experience of banking and finance that set him apart from his fellow economists, just like his greatest disciple Hyman Minsky.

Keynes has not been misrepresented ,he was a bloody fool. He wanted floating currencies, hated Bretton Woods gold standard, and now when countries have legitimate trade surpluses because they are more efficient and more productive, competitors merely devalue their own currencies and gain temporary export pricing advantage without becoming lean, mean and productive. In the long run, this race to the bottom causes all sorts of misallocation , theft from taxpayers and , in the end, collapse.

That is Keynes legacy, playing out as we speak.

[evetsm]

Remember when Nixon defaulted on gold, thus ending Bretton Woods saying, "We are all Keynesians now"?

And since then the dollar has lost more than 80% of its value. The race to the bottom has nearly hit rock bottom

[the_dork]

No you are quite correct, his idea of international clearing union post-war would have been revolutionary. It was seen as going hand in hand with the new floating exchange rates which didn’t fully kick in until well after his time anyway.

There’s a new book out about the conference he went to at the end of the war that sounds intriguing

[evetsm]

Personally I would look at every curency being referenced to a central index.

And what do you propose that indec should be? I am telling you it has to be gold. And Keynes knew this, but probably for political reasons hated gold. Keyenes knew that in a free market, gold tracked real interest rates better than anything else. He studied 200 years of empirical data and said this was the most solid relationship in all economics. It has to do with gold having more monetary properties than any other substance known to man, and so its pure monetary demand most closely reflects economic demand.(maybe bitcoins will surpass gold)

So, any index you pick, other than gold, will be inferior to gold, by Keynes!

[wonderpup]

Back in the day where you had to find your own food to eat, if you tried to do anything else you'd probably just starve. Slowly but surely people dabbled and new wealth was discovered. This wasn't some decision that was made - you'd die if your kids didn't work.

The reason we don't have child labour is because families can get even wealthier by educating their children and put them work later in life with acquired skills.

The end of child labour (existent since the dawn of time) correlates with the jump in wealth in the UK.

My point was that the decision to end it was a political choice, a moral choice- after all there is no reason why the poor in the UK even today could not put their children out to work at age five is there? But they and their children are denied this 'freedom' because we as a society have decided that other principles are more important than freedom of contract in the labor market.

Krugman's defense of overseas cheap labor in atrocious conditions is based on his blind acceptance of the prevailing social and political norms of those societies- but to say this is how things are is not the same as saying this is how they inevitably must be.

So in the last analysis Krugman totally buys into the the neo liberal mythology that economics represents the objective study of immutable realities- when in fact those 'immutable' realities are in many cases the outcome of political and moral choices. The very boundaries of the market itself are the outcome of such choices. For example a few hundred years ago the slave trade was a respected and entirely legal business- a trade that had an impressive pedigree going back to the dawn of human civilization- but a choice was made that the slave trade was to be stopped. Not because it had ceased to be profitable but because it was considered morally wrong.

So 'the market' has always been a moral construct- not the product of some darwinian 'natural' process as is suggested.

Krugman therefore is not the humble objective observer of a neutral natural phenomena that he claims to be- and as a consequence he is in fact providing an intellectual justification for what is in many cases blatant exploitation.

[Executive Sadman]

Krugman is exactly what he thinks he isn't, an apologist for the neo liberal school. Sure he attacks their ideas superficially but he also accepts without question their primary claim- that economics is a value neutral non political science.

This is the Neo Liberal 'big lie', the construct from which all of their ideology flows and gains it's power. By allowing this claim to an apolitical value neutrality to stand Krugman is doomed play out the role of the apostate who- even while attacking the faith he has abandoned- is yet defined by it's world view.

Krugman likes to say that economics is not a morality play- but that's not true- it is a morality play and always has been- the illusion of objectivity is created only because the moral backdrop is so constant as to appear an historical inevitability.

The reason we no longer have child labor in the west is because we decided that the' historical inevitability' of such labor was no longer quite as inevitable as we thought it was- but I have no trouble at all in imagining Krugman making a case for child labor, just as he made a case for low wages and dangerous. conditions in places like bangladesh on the basis that a poor and and dangerous job was the only alternative to no job at all.

http://tigger.uic.edu/~bost/teaching/intromacro/article13b.pdf

Exactly the same arguments were (and are) made in support of child labor. So Krugman's 'inevitability' is composed of what exactly-immutable natural laws, or political choices and value judgments as to who gets to do what to whom?

I think you overestimate the sincerity of Krugman. He knows exactly what he is.

We all know his 'create a housing bubble demands at the dawn of the 21st century, and denial thereafter, his twisting of Keens words, his duplicity on gold.

And, just to top it off, his bizarre opposition to breaking up the banks under the frank-dodd plan. (glass steagall re-visited)

The man is a neo-liberal through and through, he is simply a PR man designed to put a socially acceptable face on the theft with lefty euphemisms. Nothing more.

[interestrateripoff]

No you are quite correct, his idea of international clearing union post-war would have been revolutionary. It was seen as going hand in hand with the new floating exchange rates which didn’t fully kick in until well after his time anyway.

There’s a new book out about the conference he went to at the end of the war that sounds intriguing

http://www.amazon.co.uk/Battle-Bretton-Woods-Relations-University/dp/0691162379/ref=sr_1_1?s=books&ie=UTF8&qid=1403096704&sr=1-1&keywords=battle+of+bretton+woods

You mean this the Battle of Bretton Woods?

[silver surfer]

He got the bit about money not being important wrong. Far from a quadrupling of GDP freeing us from financial burdens we seem to be in even more financial hardship than we were back then.

We have a wasteful economy where everything costs ten times as much as then....houses and education come to mind. Long gone are the days when we all started work at 14, now we have turned it into a rite of passage until our mid twenties and with it comes debt. Talk about a sledge hammer to crack a nut....a socialists dream of wasting money.

No longer are houses simple, we aspire to several spare rooms, block paving, conservatories and the rest. All this costs money, even more than four times GDP allows.

You make an interesting point.

Most consumer goods fall in price as producers become more efficient. But not UK property, why?

Part of the answer is, as you said, that we want more from our homes these days. And the trophy home in a special location will always be an aspirational purchase for someone with money. But the run of the mill, new estate slave box should be getting cheaper all the time, and if we could break the NIMBY stranglehold on green belts and planning regulations it surely would.

[interestrateripoff]

http://www.amazon.co.uk/Summit-Biggest-Battle-Second-fought/dp/1408704927/ref=sr_1_2?s=books&ie=UTF8&qid=1403096704&sr=1-2&keywords=battle+of+bretton+woods

The Summit: The Biggest Battle of the Second World War - fought behind closed doors

There's this one as well which came out this year.

[alexw]

No. He had a very original idea in fact. He wanted bilaterally adjusting currencies according to the trade balance between them. What he didn't like about Bretton woods referencing to gold was that it cemented the position of dominance of the United States with its massive surplus coming out of the war.

I think that is the kernel of an amazing idea. Because currencies are currently being manipulated/affected by capital flows not allowing trade to fall back into balance.

Personally I would look at every curency being referenced to a central index and that currency can be altered by a country unilaterally if it wishes to bring its trade deficit back to acceptable levels. This brings the power back to those with a demand surplus (trade deficit) over those with a demand deficit (tade surplus) when so often the latter lecture the former.

It'll never be brought in, if only because so much money can be acquired by not doing so.

Exactly.

The point eventsm is completely missing is that the western nations who are devalueing now, are doing so because of the out and out prior economic and currency manipulation by those those running trade surpluses. The idea that Germany, Japan, China, et al are running, in his words, "legitimate trade surpluses because they are more efficient and more productive", is just farcical. Germany has spent nearly 2 decades holding down it's wages to gain trade advantage, and China and Japan are both known and blatent currency manipulators going back decades. Thus there is nothing "legitimate" about it. In fact the only way you can run such trade surpluses for such a long time is via economic manipulation, because otherwise free floating currencies would correct the imbalances.

Keynes was spot on. The problem is that his (or other equally viable) ideas to prevent and punish merchantalist practices as practiced by china, germany and japan, et al, were never implimented. The world would be a heck of a whole lot better place if they had been, and it can be strongly argued that the 2008-to-current mess would never have happened because the merchantalist caused imbalances underlying it all would not have been possible.

[alexw]

And what do you propose that indec should be? I am telling you it has to be gold. And Keynes knew this, but probably for political reasons hated gold. Keyenes knew that in a free market, gold tracked real interest rates better than anything else. He studied 200 years of empirical data and said this was the most solid relationship in all economics. It has to do with gold having more monetary properties than any other substance known to man, and so its pure monetary demand most closely reflects economic demand.(maybe bitcoins will surpass gold)

So, any index you pick, other than gold, will be inferior to gold, by Keynes!

Err do you even know anything about the gold-standard era? And the horrendous negative economic consequences of it?

You can look at the euro as an example of the gold standard, because that's what it effectively is. Now consider the god-awful consequences of that currency on the southern periphery - and you think want to subject the rest of us to the same thing??

[evetsm]

Err do you even know anything about the gold-standard era? And the horrendous negative economic consequences of it?

You can look at the euro as an example of the gold standard, because that's what it effectively is. Now consider the god-awful consequences of that currency on the southern periphery - and you think want to subject the rest of us to the same thing??

try some facts instead of empty rhetoric.

Gold standards are eras of spectacular growth

http://www.forbes.com/sites/nathanlewis/2013/04/11/the-correlation-between-the-gold-standard-and-stupendous-growth-is-clear/

btw, this makes perfect sense imo. Because interest rates are not rigged and manipulated during the gold standard(by definition) and because rates, ie. the cost of investment,are market accurate, resources can be efficiently and accurately allocated by investors. There is less chance of zombie investment. Mispricing of rates leads to inaccurate perception of where true scarcity lies.

Edited June 19, 2014 by evetsm

[alexw]

try some facts instead of empty rhetoric.

Gold standards are eras of spectacular growth

http://www.forbes.com/sites/nathanlewis/2013/04/11/the-correlation-between-the-gold-standard-and-stupendous-growth-is-clear/

btw, this makes perfect sense imo. Because interest rates are not rigged and manipulated during the gold standard(by definition) and because rates, ie. the cost of investment,are market accurate, resources can be efficiently and accurately allocated by investors. There is less chance of zombie investment. Mispricing of rates leads to inaccurate perception of where true scarcity lies.

Hilarious. You choose one time period in history that had the gold standard when growth rates were high (completely ignoring the depression that followed shortly thereafter), state that correlation must therefore equal causation, and so I must be posting retoric without facts.

Pray tell why don't you look at all the other time periods when the gold standard showed it be god-awful?

Examples include right now in greece, spain, italy and portugal, since the euro is a de facto "gold standard", the great depression which was significantly worsened by staying fixed to gold (note that the UK which left the gold standard early on recovered much faster), and the 1848 gold shock?

The gold standard has numerous problems that the gold-bugs such as yourself completely ignore. The main one being that it is extremely pro-cyclical so that mega-booms and mega-busts are much much more likely (see euro and it's effect on ireland/spain/greece for prime recent example). There are other ones too, for example it hands extreme amounts of power to the current holders of gold, unless of course you plan to do a gold reset and nationalize it all?

[Bland Unsight]

Hilarious. You choose one time period in history that had the gold standard when growth rates were high (completely ignoring the depression that followed shortly thereafter), state that correlation must therefore equal causation, and so I must be posting retoric without facts.

...

+1

The novelist Robertson Davies summed up this kind of thinking succinctly; "The world is full of people whose notion of a satisfactory future is, in fact, a return to the idealized past." Money based on gold has its problems, fiat money has its problems. To suppose that you can have a system of money that meets all the needs the chosen system of money is intended to service is essentially to propose an impossible object as the solution to your problems and then be disappointed when it doesn't work. As long as we hope that money will be able to reliably transfer value into an unknown and unknowable future we are inviting disappointment...

The act of being able to assign a number to something is distinct to the act of assigning a meaningful number to something.

[evetsm]

Hilarious. You choose one time period in history that had the gold standard when growth rates were high (completely ignoring the depression that followed shortly thereafter), state that correlation must therefore equal causation, and so I must be posting retoric without facts.

Pray tell why don't you look at all the other time periods when the gold standard showed it be god-awful?

Examples include right now in greece, spain, italy and portugal, since the euro is a de facto "gold standard", the great depression which was significantly worsened by staying fixed to gold (note that the UK which left the gold standard early on recovered much faster), and the 1848 gold shock?

The gold standard has numerous problems that the gold-bugs such as yourself completely ignore. The main one being that it is extremely pro-cyclical so that mega-booms and mega-busts are much much more likely (see euro and it's effect on ireland/spain/greece for prime recent example). There are other ones too, for example it hands extreme amounts of power to the current holders of gold, unless of course you plan to do a gold reset and nationalize it all?

oh god, I am dealing with a fact free faith healer here. You did not even read it, f**l. He mentioned the only two, not one but two, gold standards that have existed in the past 200 years. And they both had stellar growth.

You have even one fact to counter that?

[alexw]

oh god, I am dealing with a fact free faith healer here. You did not even read it, f**l. He mentioned the only two, not one but two, gold standards that have existed in the past 200 years. And they both had stellar growth.

You have even one fact to counter that?

I read the first half of it then realized it was a fact free gold-bug article and could not bother with the rest. The article basically implies correlation equals causation with nothing to back it up. If correlation and causation worked that way then me waking up in the morning causes the sun to rise.

The article has no depth, no analysis, and basically cheerleads for the gold-bugs. It's infantile in the extreme.

If you want counters then re-read my previous post where I discuss some of the problems of the gold-standard, if you want more info google the terms I used.

[zugzwang]

I read the first half of it then realized it was a fact free gold-bug article and could not bother with the rest. The article basically implies correlation equals causation with nothing to back it up. If correlation and causation worked that way then me waking up in the morning causes the sun to rise.

The article has no depth, no analysis, and basically cheerleads for the gold-bugs. It's infantile in the extreme.

If you want counters then re-read my previous post where I discuss some of the problems of the gold-standard, if you want more info google the terms I used.

Poor illustration. The Sun is causally responsible for our circadian clock! Agree with you about gold though. A store of wealth, maybe. Currency? Not so much.