Jump to content
House Price Crash Forum
Sign in to follow this  
zugzwang

Ritual Incantation - The Economic Gibberish Of The Keynesian Apparatchiks

Recommended Posts

Another Keynesian-skewering classic from David Stockman. :)

http://davidstockmanscontracorner.com/ritual-incantation-the-economic-gibberish-of-the-keynesian-apparatchiks/

If you want an illustration of the utter intellectual bankruptcy of our Keynesian policy overlords just review the attached Wall Street Journal piece on yet another downgrade by the EC of its official economic growth forecast. What’s illuminating is not that the savants of Brussels were wrong by a country-mile yet again, but that they persist in a mechanistic numbers game that resembles nothing so much as ritual incantation.

Yep, the Keynesian priesthood is operating from sacred texts and magic numbers. One of these revelations says that 2% inflation was decreed by the great god of GDP and that any shortfall will precipitate his wrathful extractions from growth and jobs. But there is not a shed of empirical evidence for 2% versus 1% or 3% annual change in consumer inflation—–even if it were honestly measured. Its just revealed word as transmitted by the Keynesian priesthood.

Another sacred tenent avers that in handing down the laws of proper economic life, the Keynesian creator ordained that governments everywhere and always must strive to bring GDP growth to its full employment “potential” rate. No exceptions. World without end.

While the texts are not clear on the precise numeric value of this divinely ordained rate of potential GDP growth, today’s congregants claim that it’s about 3%, reflecting the historic trend growth of the labor supply plus productivity gains. In fact, however, we have achieved only about half of that—about 1.8% per annum—-in the US during the last 14 years, and even a lesser fraction in Europe.

Accordingly, this imaginary trend line of “potential GDP” is now far above actual output levels. This yawning gap between the real economy and its revealed potential, in turn, enables the Keynesian priesthood to demand an endless crusade by the fiscal and central banking agencies of the state to close it.

This essentially means that the state’s economic apparatus is now all about stimulus, all of the time.

In fact, the state’s central banking branch has gotten so deep into ritualized Keynesian governance that it’s essentially attempting to micro-manage vast accumulations of GDP—-about $17 trillion each in the US and Europe—-on a monthly basis.That’s entirely what the meeting statements and post-meeting press conferences are all about.

Yet this is absurd.

The information flow in a $17 trillion economy is far too vast to be digested and assessed by the 12 mortal members of the FOMC, and their policy control instrument—-the bludgeon of interest rate manipulations—- could not possibly shape its short-run course in any event. That’s especially true since the macro-economy is not a closed system, but one open to every manner of complicating and countervailing influence from trade, capital flows and financial impulses in a $80 trillion global economy.

Share this post


Link to post
Share on other sites

Who?

Since when have Germany (Europe) been Keynsians? What a plum.

er...trying to rig demand by rigging rates down to almost zero. A form of counter cyclical chicanery, that is causing a deflation firestorm. Typical unintended consequences of a Keynesian Economy by Committee.

Actually the Fed has been doing europe's QE for them.

Share this post


Link to post
Share on other sites

Who?

Since when have Germany (Europe) been Keynsians? What a plum.

At a guess, the "Keynesian" bit is the "we must stimulate more" mantra that keeps the free money flowing off the printing press.

Plenty of flaws. Like, running a big deficit in a cyclical boom ...

2005 revisited

Yesterday’s budget sounded a note of optimism. The economy is growing, the deficit is shrinking, and …

… hang on …

… the deficit? We’re running a still-huge deficit when we’re in the cyclical boom? Right, straight back to the bubble-economics that got us into trouble in the first place!

2005 was kind-of the opposite. The economy was slowing, the credit bubble had grown beyond sustainable, house prices were stumbling, and we were staring at recession. The government of the day spent its way out with a huge dose of Ballsian stimulus: add fuel to the fire, buy a couple more years feelgood at the price of turning that recession into the biggest slump for 30 years.

The chancellor of the day rationalised breaking his own rules by explaining that when he had talked of a balanced budget, he meant over the economic cycle. So at the bottom of the cycle in 2005 he would spend more, and make it up when the economy recovered. Ed Balls said much the same even as his idea collapsed in flames. And now … today’s chancellor has made clear his own commitment to Osbrownomics: run a huge structural deficit and – currently – claim the credit when a cyclical boom takes a few quid off the headline figure.

Hmmm … not really so different to 2005 after all …

On the plus side, the mood music about savings is a real change, and a welcome one. It will probably work for some time, propped up by “safe haven” status for the global super-rich. But that of course is another bubble involving prostituting our economy most wantonly! One day sentiment towards Sterling will change, and then what can survive a round of Weimar inflation in commodities including food and energy?

Share this post


Link to post
Share on other sites

Plenty of people say they aren't really following Keynesian economic policies - just hijacking the name and claiming to follow them.

The Keynesian flag is the last refuge of a scoundrel.

Edited by billybong

Share this post


Link to post
Share on other sites
Guest UK Debt Slave

Plenty of people say they aren't really following Keynesian economic policies - just hijacking the name and claiming to follow them.

The Keynesian flag is the last refuge of a scoundrel.

There's some truth in that

But you still have to recognize that in order for Keynesian economics to function, there must he long term economic growth..........forever

This is where it falls down very badly

In fact, capitalism, if it was followed, would fail for precisely the same reason........too many people, not enough "stuff"

Share this post


Link to post
Share on other sites

Plenty of people say they aren't really following Keynesian economic policies - just hijacking the name and claiming to follow them.

The Keynesian flag is the last refuge of a scoundrel.

Yep.

Karl Marx lived to say that "If those people are Marxists, then I am most certainly not." Christ would certainly have said the same of those who call themselves Christians. Keynes appears to have, in a small way, joined that company.

Share this post


Link to post
Share on other sites
In fact, capitalism, if it was followed, would fail for precisely the same reason........too many people, not enough "stuff"

Capitalism doesn't have a problem with that.

Because capitalism accepts that you can get poorer as well as richer.

The underlying problem with limits to growth isn't any economic system, it's population.

Share this post


Link to post
Share on other sites

There's some truth in that

But you still have to recognize that in order for Keynesian economics to function, there must he long term economic growth..........forever

This is where it falls down very badly

In fact, capitalism, if it was followed, would fail for precisely the same reason........too many people, not enough "stuff"

capitalism is about creative destruction, recycling, economising(doing more with less) and saving.

constant growth in output(gdp) is a Keynesian / banking construct to grow the credit books of banks forever by foregoing saving and borrowing to consume. This model is bankrupt.

Share this post


Link to post
Share on other sites

er...trying to rig demand by rigging rates down to almost zero. A form of counter cyclical chicanery, that is causing a deflation firestorm. Typical unintended consequences of a Keynesian Economy by Committee.

Actually the Fed has been doing europe's QE for them.

Rigging rates down to zero isn't Keynesian though, neither is money printing

Share this post


Link to post
Share on other sites

Rigging rates down to zero isn't Keynesian though, neither is money printing

they are MMT though, a hyper keynesian school.

MMT is popular with politicians because it cant fail...and guarantees growth

Share this post


Link to post
Share on other sites

Rigging rates down to zero isn't Keynesian though, neither is money printing

Keynes did not want to print money, not because he did not believe in counter cyclical stimulus, but because he did not believe it would work because rates are bounded by zero below.

The scoundrel Keynes wanted more horsepower in his stimulus, he chose fiscal rigging.

Share this post


Link to post
Share on other sites

capitalism is about creative destruction, recycling, economising(doing more with less) and saving.

constant growth in output(gdp) is a Keynesian / banking construct to grow the credit books of banks forever by foregoing saving and borrowing to consume. This model is bankrupt.

Hmmm, not much appetite for that. Blanket excuses from many hpcers in 2008 and onwards for those who've outbid others by hundreds of thousands of pounds, as being victims. Leading to financial repression and saving the VI, and ever more extreme anti-capitalism to be carried by younger non-VI. Enemies of humanity, the excuse givers.

For the 'non-victims' renter-savers, including one hpcer into their mid 30s I'm thinking of with 2 young children, multiple rental moves, seeing houses that 2007 buyers had bid up to £300,000 now selling for £400,000 - £450,000.... there's been nowhere to run to, nowhere to hide (except paying rent and day to day, year on year financial repression) as asset owners count their locked house price inflation.

Growth topped out, and intervention to keep the VI in position - new sustainable long-wave growth required correction first, with lots of new entrant market participants.

Sell, Sell, Sell…….The Central Bank Madmen Are Raging

by David Stockman • November 21, 2014

[..] And those earnings surely embody a high water mark in a world where Japan is going down for the count, China’s house of cards is truly collapsing, Europe is plunging into a triple dip and Wall Street’s spurious claim that 3% “escape velocity” has finally arrived in the US is soon to be discredited for the 5th year running. So it goes without saying that if “price discovery” actually existed in the Wall Street casino, the capitalization rate on these blatantly engineered earnings (i.e. inflated EPS owing to massive buybacks) would be decidedly less exuberant.

In truth, nothing has changed about the precarious state of the world since yesterday. Except….. except the Great Bloviator at the ECB made another fatuous and undeliverable promise—- this time that he would do whatever he “must to raise inflation and inflation expectations as fast as possible”; and, at nearly the same hour, the desperate comrades in Beijing administered another sharp poke in the eye to China’s savers by lowering the deposit rate to by 25 bps to 2.75%.

Let’s see. Can it possibly be true that European growth is faltering because it does not have enough inflation? Or that China’s fantastic borrowing and building boom is cooling rapidly because the People Bank of China (PBOC) has been too stingy?

[..] No, the problem in Europe is not too little inflation in the short-run; it is staggering levels of taxes, public debt and interventionist dirigisme that represents a permanent, debilitating barrier to growth. Draghi already has driven deposit rates through the zero bound at the ECB deposit facility, and now its spreading rapidly through the banking system to businesses and consumers. So precisely who will finance this soaring mountain of public debt at negative real returns when the fast money is flushed out of the ECB’s now plummeting euro? The “algos”, needless to say, didn’t get to that question during this mornings frenzied buying.

[..]In short, there is a tidal wave of industrial deflation coming down the pike—- owing to two decades of world-wide central bank financial repression that has fueled vast malinvestments in mining, manufacturing, transportation and trade. That, in turn, will trigger a monetary race to the bottom by the central banks—a race that is already underway owing to Japan’s Halloween Massacre of the yen.

http://davidstockmanscontracorner.com/sell-sell-sell-the-central-bank-madmen-are-raging/

Share this post


Link to post
Share on other sites

they are MMT though, a hyper keynesian school.

MMT is popular with politicians because it cant fail...and guarantees growth

I am not sure MMT is fully Keynesian and I would not describe either a zero interest policy as necessarily MMT or current policies pursued by the major economies as MMT. I'd be interested in reading anything by MMT proponents stating they believe zero interest rates should be a policy aim at all times or arguing that they support current policies. Here's Bill Mitchell on Japan for instance:

http://bilbo.economicoutlook.net/blog/?p=29506

For the avoidance of doubt the article is called "Japan returns to 1997 idiocy rules!"

There has always been a tendency to throw around terminology on HPC without fully understanding the underlying ideas (TBH I have fallen into the trap at times) to the detriment of real understanding and debate.

Share this post


Link to post
Share on other sites

I am not sure MMT is fully Keynesian and I would not describe either a zero interest policy as necessarily MMT or current policies pursued by the major economies as MMT. I'd be interested in reading anything by MMT proponents stating they believe zero interest rates should be a policy aim at all times or arguing that they support current policies. Here's Bill Mitchell on Japan for instance:

http://bilbo.economicoutlook.net/blog/?p=29506

For the avoidance of doubt the article is called "Japan returns to 1997 idiocy rules!"

There has always been a tendency to throw around terminology on HPC without fully understanding the underlying ideas (TBH I have fallen into the trap at times) to the detriment of real understanding and debate.

I agree. The Keynes I read about on this site is often depicted as a very different economist to the one I studied at school and university.

If one's understanding of Keynes is based on a few Austrian school blogs, then I see how this could happen.

Share this post


Link to post
Share on other sites

I agree. The Keynes I read about on this site is often depicted as a very different economist to the one I studied at school and university.

If one's understanding of Keynes is based on a few Austrian school blogs, then I see how this could happen.

I think the Austrian attack is not on Keynes, but on practitioners who think they are following Keynes, quoting Keynes and being taken to task for things not working. What I observe is Governments taking a part of Keynes Boom/bust and applying things like prudence and golden rules, but failing to anchor any of it to a standard, simply letting things slide on the pretence of being sensible and under control. Any real control would mean loss of power at the next election. Seeing as Politicians Always lose their seats in the end, Its all a bit pointless and very very short term.

MMT takes Keynes to another level.

Share this post


Link to post
Share on other sites

I agree. The Keynes I read about on this site is often depicted as a very different economist to the one I studied at school and university.

If one's understanding of Keynes is based on a few Austrian school blogs, then I see how this could happen.

Keynesianism is constructed on the misrepresentation of Keynes' General Theory. The neoclassicals took the bits that could be made consistent with their own C19th (static equilibrium) ideas and discarded the truly revolutionary stuff about financial markets, debt and uncertainty. Latterday Keynesians like Paul Krugman continue to disregard these aspects of the macroeconomy.

Share this post


Link to post
Share on other sites

they are MMT though, a hyper keynesian school.

MMT is popular with politicians because it cant fail...and guarantees growth

Would you pls remind what is MMT?

Share this post


Link to post
Share on other sites

I think the Austrian attack is not on Keynes, but on practitioners who think they are following Keynes, quoting Keynes and being taken to task for things not working. What I observe is Governments taking a part of Keynes Boom/bust and applying things like prudence and golden rules, but failing to anchor any of it to a standard, simply letting things slide on the pretence of being sensible and under control. Any real control would mean loss of power at the next election. Seeing as Politicians Always lose their seats in the end, Its all a bit pointless and very very short term.

MMT takes Keynes to another level.

In the long run were all dead.

Share this post


Link to post
Share on other sites

In the long run were all dead.

Some would see the young rent all their lives vs overvalued property, witness bailouts for VIs in the name of 'be careful what you wish for' and have lack of advancing themselves via policies which override corrections for others to get a position - whilst they kick back finding ways to justify their homes being worth £750,000 and drawing their fat pensions and generally living in high comfort until they pass away... with many of them convinced it's a future of BTL and property inheritance for decades ahead as being 'just how it is'.

Share this post


Link to post
Share on other sites

Darkest picture for global business outlook since 2009, US deterioration '...of greatest concern'.

The plunging price of oil since June has been a leading indicator: global economic growth is in trouble, despite six years of unprecedented central-bank free-money policies that caused asset prices to soar but has accomplished little else. This scenario has now been confirmed by businesses that help drive the economy forward – not by economists and Wall Street hype mongers: their outlook for the next 12 months has plummeted since June to the worst level since crisis year 2009.

Business leaders are an optimistic bunch. Projecting a 12-month period that is worse than the past 12 months is frowned upon; because business leaders are supposed to make their business grow, even when it looks tough out there. They’ve been optimistic over the years, despite multiple recessions in the Eurozone, a slowdown in China, a quagmire in Japan, and disappointing growth in the US, where “escape velocity,” dangled out in front of our noses for five years, has become a figment of Wall Street imagination. Throughout, business optimism has been fairly strong, according to Markit’s Global Business Outlook, a survey taken in February, June, and October.

But results from the October survey, released today, are a doozie. The number of businesses around the globe that expect activity to rise over the next 12 months exceeded the number expecting a decline by 28%, the worst in the survey history going back to 2009.

This “net balance” was down from 39% in June. The peak of global business optimism in the survey’s history was in February 2011, when the net balance hit 48%. Manufacturing wasn’t that much of a problem; optimism fell “only” to the level of June 2013. But in the all-important service sector, by far the largest sector in most economies, optimism plunged to the lowest level in the survey’s history.

...

But the biggest hit on a global scale came from the largest economy, the US. While manufacturing businesses showed a decline in optimism, the big problem was the far larger service sector.

The Flash Service PMI for November, released today, hammered home the point: service sector growth slowed with nerve-wrecking consistency for the fifth month in a row, from its peak of 61 in June (above 50 denotes expansion) to 56 now. It was, the report said, a signal of “a sustained loss of momentum since the post-crisis peak seen in June.”

And so the outlook of US companies about future activity – “reflecting domestic concerns and a subdued external demand environment” – dropped to the worst level since the survey began in 2009. While hiring intentions remained positive, expectations for corporate profits fizzled, and the already weak link in the US economy, plans for capital expenditures, established a new post-crisis low.

The net balance of US businesses expecting an increase in activity over the next 12 months plunged from 69% in February 2012, when post-crisis hopes of escape velocity were at their peak, and from 51.4% in June this year, to 31.2% now, the worst on record. While manufacturers were hanging in there, with a net balance of 42.5%, the all-important service sector saw its net balance descend to a new low of 28.9%. These businesses listed among their concerns “fragile global economic growth, heightened geopolitical risk, ‘Obamacare,’ domestic policy uncertainty, and strong competition for new work.”

http://wolfstreet.com/2014/11/24/its-official-businesses-think-the-global-economy-sucks/

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   203 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.