Dissecting The Keynesian Myth Of Pent-Up Demand
Submitted by David Karsboel, Chief Economist Saxo Bank
| Attachment | Size |
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| Saxo Bank Research Note -- Where is the pent-up demand.pdf | 328.54 KB |
(9 votes)
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rc whalen02/09/2010 - 08:06
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Reggie Middleton02/09/2010 - 05:12
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Chopshop02/09/2010 - 02:41
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on Fri, 09/04/2009 - 08:00
#58524
The IS-LM model (Keynes' creation) is no longer applicable in today's environment.
on Fri, 09/04/2009 - 08:46
#58583
To be precise, IS-LM was was entirely Sir John Hicks's interpretation of Keynes's monetary theory, and even he rejected the model in 1976.
on Fri, 09/04/2009 - 12:08
#58942
Good comments -- thanks for pointing out this very important distinction. It is disingenuous for Keynes' theories to be discredited for "not working" when his ideas are not being applied, and arguably haven't been for decades.
on Fri, 09/04/2009 - 08:02
#58528
good article ; i appreciate the personality that is injected. Mr. Karsboel wins
on Fri, 09/04/2009 - 08:04
#58530
We created the Chinese boom. Bad move except for multinationals. Yes we can't grow by consumer demand anymore because the jobs are gone. You tell me when they are coming back and we will see growth again.
on Fri, 09/04/2009 - 08:24
#58554
Yes we can't grow by consumer demand anymore because the jobs are gone. You tell me when they are coming back and we will see growth again.
after the Revolution
on Fri, 09/04/2009 - 08:48
#58592
and why exactly do we need the American consumer for growth?
the risk to the upside is huge, just imagine China is not faking their statistics... demographics clearly point towards growth. but it may take a while and it will happen outside the US. But US companies will ultimately benefit hugely.
For everyone interested in what the American consumer looks like these days, check this out:
http://peopleofwalmart.com/
on Fri, 09/04/2009 - 08:56
#58606
http://peopleofwalmart.com/ <-------- the things shown on this page are REALLY REALLY REALLY sad, disturbing and a perfect mirror image ( without the reverse symmetry ) of most of American society. again REALLY REALLY REALLY SAD
on Fri, 09/04/2009 - 09:37
#58670
F-U cheecky basterd. You are pathetic. I can show pictures of the worst of society, whatever society you come from, and make gross generalizations. This is NOT America. Wall-Mart is not representative of the best of our country. If you want the best, go to King of Prussia, PA, Rodeo Drive in LA, Tysons Corner, VA, Scottsdale Fashion Center, AZ. You are a moron. America is the greatest country in the world! Fuck-you!
on Fri, 09/04/2009 - 10:10
#58725
This is STRIKINGLY similar to the "argumentation" Denis " Beaker Looking Motherfucker " Kneale put up yesterday. Don't be a sour puss. I have to look at kids with chains in the noses and split tongues ( voluntarily ) almost daily; but in my case they are a sub-minority; while this is prevailing majority pictured in those photos.
on Fri, 09/04/2009 - 10:21
#58738
Rodeo Drive in LA or Tysons Corner, VA are most definitely NOT typical America, not to mention New York (that is a different country). Most foreigners are VERY surprised when they venture out into the Midwest, or God forbid, farm country. Now, Wal-mart, that is real America (I have no pleasure in saying it).
on Fri, 09/04/2009 - 10:27
#58759
yo Andy; exactly. I have been travelling to LA, NYC,SF,Detroit, etc etc. And New York and part of LA are most definitely NOT what America is all about. To me New York has a more European spirit in it than American one. But that's just me; but i know one thing for sure; Rodeo Drive and Malibu, Beverly Hills etc are NOT real America.
on Fri, 09/04/2009 - 10:34
#58775
No, man, working in New York gave me no feeling of Europe, but San Fran, unbelievable. I love that city, not only because of the liberal spirit, but there is culture there, amazing views, restaurants, women (not as many straight ones as one might like, not that there is anything wrong with that)
on Fri, 09/04/2009 - 10:24
#58754
I bet you are the guy with the goat tied-up in the back of his pick-up... come on it is just fun humor... I don't think that Cheeky meant that everyone in the United States is like that... but the Wal-Mart shopper is becoming somewhat representative of greater American society. And I recently went to Scottsdale Fashion Center and there were a few questionable looking people there also.
on Fri, 09/04/2009 - 09:41
#58672
Really puts in perspective how far society has fallen from the 1950-60's "Leave It To Beaver" days... when people had some sense of pride in how they looked and how others perceived them... to now. And we still have farther to fall... the latest thing for young people in the United States is to wear their pajamas to class... we have even seen them come in for 'new employee orientation' in pajamas. As for me... I'm sending this link to my parents who live in Bentonville, Arkansas and worship Wal-Mart... very funny.
on Fri, 09/04/2009 - 10:25
#58756
My gf works for a local mental health facility for children, many of whom act out sexually...
Who shows up for a new job opening to work hands on with the kids? None other than two twenty something chicks in booty shorts with their tits and asses hanging out... now, I can certainly see an argument for giving them an interview... but a job is another thing altogether...
on Fri, 09/04/2009 - 10:27
#58761
+10
on Fri, 09/04/2009 - 08:20
#58550
" - as if we can consume ourselves rich."
Echoes of Pete "get the fuck out" Stark.
on Fri, 09/04/2009 - 08:22
#58551
Yes we can! :)
on Fri, 09/04/2009 - 08:24
#58553
A good quote (although I forgot from whom) is :
"Your total demand is equal to your supply, because your supply [of goods and services] is what limits what you can have demand for [from an economic point of view]. This goes for individuals as well as nations"
So, what is the US production of goods and services? 30% of GDP? Well, then 70-30 = 40% of GDP has to go...
on Fri, 09/04/2009 - 08:24
#58552
Desire might be there, but no money to pay.
I always wonder why no economist is able to see that by cutting cost and sending jobs away demand will be destructed.
For a while that was masked with easy credit but not anymore.
on Fri, 09/04/2009 - 08:26
#58560
All he is saying aplies to The US, UK Spain and Ireland. Everyone else is doing ok. The US part of the worldeconomy is going to shrink.
on Fri, 09/04/2009 - 08:27
#58563
Can someone help me understand what the last paragraph is implying? If we shouldn't invest in consumer driven companies but rather investment driven companies than what companies should we invest in? All companies invest in new technologies to create a product which is eventually demanded by a consumer.... right? Is he just infering that any company you find in a mall you shouldn't invest in?
on Fri, 09/04/2009 - 08:31
#58565
great article,as a child of the eighties my investment horizon has always been 1990 on.
if you aren't lucky enough to read stuff like this or steve keens debt to GDP work etc then you might be unaware they've been pulling forward demand since 1982
oh dear!
on Fri, 09/04/2009 - 11:06
#58753
I just wasn't impressed because the CPI or unemployment chart of his I saw just showed a straight linear adjustment. Which can't be right.
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
on Fri, 09/04/2009 - 08:49
#58593
The fallacy is that there is always pent-up demand. The problem comes from the lack of income or lack of credit to execute on that demand.
on Fri, 09/04/2009 - 09:42
#58674
I agree 100%. For years, developed nations have "benefited" from low inflation due to global wage arbitrage. We expected to be able to have our cake and eat it too.
Thing is, the race towards the lowest wage necessarily leads to deflation. While deflation may be a positive thing in a debt-free world, it is absolutely detrimental to a debt-infested economy.
Moreover, all debt-based fiat currency are inherently deflationary as well: when debt is paid off, it sucks back all the money that was printed PLUS interest -- the end result is less money in circulation than before.
An inflationary monetary policy requires wages to rise as well. Numerous studies have highlighted the lackluster growth of income around the world. In being too paranoid about the price-wage spiral, economists now face the horrible problem of debt-deflation.
on Fri, 09/04/2009 - 08:52
#58596
Got questions over how much the writer actually knows about Keynesianism.
He writes about "the demand that Keynesians assume will be released if rates are cut enough" - well here's the deal, the Fed estimates that in the current climate, "cut enough" is only satisfied when rates reach -5%. So rates cannot be cut enough.
http://www.ft.com/cms/s/0/23b62bfc-338b-11de-8f1b-00144feabdc0.html
Given this proposition, all the chat about pent up demand seems entirely academic. Yet ironically, Keynes came to write is General Theory precisely in order to explain how the economy could end up in a position - his famous liquidity trap - where traditional monetary policy would be ineffective, and the government, through fiscal policy would need to take up the slack.
I am no fervent adherent of Keynesianism, but this attack on Keynesianism is on the face of it pretty nonsensical.
on Fri, 09/04/2009 - 10:10
#58724
Absolutely agree.
on Fri, 09/04/2009 - 11:29
#58880
Agree. Seems that the article is confusing Keynesian and Monetarism economic theory.
on Fri, 09/04/2009 - 08:56
#58604
Arco / rigger,
In the late 70's Volcker was forced to raise U.S. interest rates in order to save the USD. High rates encourage savings over consumption; IMO a pool of capital was created. We've been using it, and increasingly we've been eating it, ever since.
In 1987 Greenspan was presented with this: http://4.bp.blogspot.com/_B7bSes0OqMM/SY9139e7NGI/AAAAAAAABG0/Ajx_MwJtcP... and we can see what he did with it: steadily lowering rates and continually boosting the economy. That trend is now at an end; 10-year rates are at historic lows, and QE is an effort to effectively take rates negative as a means of continuing the stimulative effect of lowering rates. Te pool of capital is depleted, so we are trying to print more. Of course you can't print capital, so it's not working.
Lowering rates pulls forward demand for goods and services, at the cost of debt. Debt burdens have continually risen, increasingly to fill overpriced McMansions with consumerist crap. There is no more demand to pull forward, and it is time to pay the debt. The credit cycle has turned due to simple mathematical reality.
IMO this is reflected in Wall Street's obsession with trading over investment. At some point the markets stopped being a place to raise capital and produce a product and instead became a casino. It's almost tempting to suggest that this is a symptom rather than a cause; it accompanied the end of the credit cycle. Capital formation ceased, there were no new net savings to invest; a need arose to find alternative means of making money in the markets.
It is time to shed debt by either paying it off or defaulting it, and resume the process of refilling the depleted pool of capital by saving and actual investing in productivity / wealth creation activities. This thing we know as capitalism.
on Fri, 09/04/2009 - 09:04
#58623
As an afterthought, I encourage you to examine the cultural changes that have occurred in the U.S. over this time of too-easy-money. Self-indulgence had become the norm. National short-sightedness reflected our confidence that Greenspan had repealed the business cycle. Conspicious consumption was the order of the day, the more conspicuous the better. Personal irresponsibility on a grand scale was exalted by the MSM. IMO all of this self-destructive self indulgence is a product of too easy money for too long. It was an unnatural condition and humans by and large responded to it badly. Greenspan is no maestro, he should be gibbeted.
on Fri, 09/04/2009 - 10:03
#58712
Excellent commentary.
on Fri, 09/04/2009 - 11:06
#58755
I just wasn't impressed because the CPI or unemployment chart of his I saw just showed a straight linear adjustment.
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
on Fri, 09/04/2009 - 09:19
#58652
There is pent up demand out there...for access to China's capital markets:
"China will raise the amount foreign funds can invest in stocks by 25 percent to $1 billion, encouraging inflows after the benchmark index slumped into a bear market last month."
http://www.bloomberg.com/apps/news?pid=20601087&sid=agcv363GXIPQ
on Fri, 09/04/2009 - 09:51
#58690
Oh, c'mon..!
Did Saxo actually submit this?! If so, holy SH*T. XD
on Fri, 09/04/2009 - 09:57
#58701
"The Keynesians never get tired of telling us that 70% of GDP is consumption.... as if we can consume ourselves rich."
Quote of the year.
on Fri, 09/04/2009 - 09:57
#58702
John Menard Keynes was a homosexual, I seen it in his bio.
on Fri, 09/04/2009 - 10:33
#58772
Actually he was bi-sexual, and its Maynard.
But that has no relevance here, other than to perhaps illustrate that depsite his harrowingly flawed economic theories, he actually did support a progressive and socially benefical cause - tolerance for diversity.
on Fri, 09/04/2009 - 10:18
#58737
Keynes is all about fiscal policy, either through cutting taxes or deficit government spending.
Friedman was the monetarist who talked about lowering interest rates to stimulate economic growth.
While what he says makes sense, why is this guy talking about lowering rates and Keynes in the same breath?
on Fri, 09/04/2009 - 10:30
#58766
Perhaps because the guy is not very good? He's really the FX strategist at Saxo Bank, which is not a bank, but an on-line trading shop in Denmark.
on Fri, 09/04/2009 - 10:58
#58803
Yes, one of the core tenents of Keynes' economic theory is advocating permanently (i.e stable) low long term interest rates. This is what the author is I think refering to when he talks about Keynsian bankers and their enternal demand stimulation.
Keynes was worried about short-term, counter cyclical monetary policy causing an expectation that interest rates would be raised in the future, leading to a liquidity trap where investors hoard cash during periods of lowered short term rates because they expect rates to rise in the future.
Discretionary countercyclical monetary policy can be ineffective, not because it is monetary policy, but because it generates uncertainty as to long term rates, causing a liquidity trap.
“A low enough long-term rate of interest cannot be achieved if we allow it to be believed that better terms will be obtainable from time to time by those who keep their resources liquid. The long-term rate of interest must be kept continuously as near as possible to what we believe to be the long-term optimum. It is not suitable to be used as a short-period weapon.” (“How to Avoid a Slump,” The Times, Jan. 13, 1937, p.13).
on Fri, 09/04/2009 - 11:06
#58752
I cannot help wondering whether bank analysts views are causing a bias in the media, whether intentionally
or not.
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
on Fri, 09/04/2009 - 10:56
#58813
OT: "This is my town hall meeting, I set the rules"
http://www.youtube.com/watch?v=HtmgQ2W3lhM&eurl
This government can be counted on to act stupidly.
on Fri, 09/04/2009 - 11:02
#58842
The demand restoration project is not working yet.
on Fri, 09/04/2009 - 11:10
#58853
That C&I chart is nasty, people don't appreciate how stifling, especially to tech, that is.
on Fri, 09/04/2009 - 11:13
#58858
Knocking Walmart is tired drivel and those engaging in it are drooling drivilees. Does anyone remember discount stores before Walmart- how bout Two Guys for instance, Cheeky Chipmunk. But you're not from the US, must make you a dialectic philostofper of American shopping habits. Gimme a break its just a store and a damn good one. You go there, buy something & go home. It has nothing to do w/Amerika the home of whatever stupid fantasy you want to pin on it. It's just human nature- want a decent product at a good price, real deep, aye Emanuel Kant. Oh yeah and they'll always take it back if you're not satisfied
on Fri, 09/04/2009 - 12:28
#58968
Demand is always unlimited, the only thing that causes it to become "pent up" is the current price. To me that suggests a rather obvious solution to sagging consumer demand. Unless Veblen is doing the shopping, when you give shit away it tends to move pretty briskly.
on Fri, 09/04/2009 - 14:52
#59198
Can't the Fed just print some money and give it to consumers?
on Fri, 09/04/2009 - 20:17
#59485
You SocialistCommunistNazi bastard!! Don't you realize that "Consumers" is just Leftist codeword for Workers!! Don't you even know that workers want higher pay, health insurance, and sometimes even support unions to try to get them, thereby fucking up the CapitalistEntrepreneurSavior's dream of 100% pure Profit!! Don't you understand that all human well-being since the beginning of time has been the personal creation of the CapitalistEntrepreneurSaviors, and its the evil WorkerConsumer that refuses to cooperate by demanding a living wage and other SocialistCommunistNazi destructive agenda things!! Thank God (the CapitalistEntrepreneurFather) there are still true American nations like China and India, where WorkerConsumers are kept in their place and the sacredness of Profit still means something!! Thank God Right-thinking people run the Fed and Treasury so that money can be printed and borrowed in wonderous quantities and given to the CaptialistEntrepreneurSaviors, because otherwise some of it might get into the hands of the evil ConsumerWorkers and interfere with really good stuff like Productivity and Capital Accumulation!! If nothing else, try to remember this very simple fact of life: Money from the government to the people is Socialism; Money from the government to business is Capitalism. Everything else is a lie.
on Fri, 09/04/2009 - 14:58
#59210
By no means is this a refutation of Keynesianism. It is Milton Freedman who declared monetary policy as the cure for a liquidity crisis. Keynes defined a "liquidity trap" in which monetary policy would not cure a leftward shift in aggregate demand. In order to produce demand, government must STIMULATE the economy--i.e. the government must increase spending in order to counterbalance the decline in private sector spending.
http://southpawpolitic.blogspot.com/
on Fri, 09/04/2009 - 15:19
#59231
Credit expansion in the midst of income contraction can only support aggregate demand for so long. This is the fundamental problem with Greenspan-style monetarism.
The only way to revive the debt-ridden, over-consumed American -- and by extension Western -- economies is to promote higher wages in China in particular, and Asia in general. This is key, especially since the Chinese gov't is not keen on appreciating its currency. Only income growth can lead to robust recovery.
on Fri, 09/04/2009 - 20:17
#59240
[my comment posted twice -- how do you delete posts?]
on Fri, 09/04/2009 - 20:36
#59510
Unless Marla has mercy, you can't. You can edit the inside of your message and change it to another comment, BEFORE someone answers...
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