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Geithner on TV – “Keynesian economics has failed”
Some refreshing words from the Treasury Secretary, Tim Geithner this morning on Meet the Press. He had this to say: (15:20 into this clip) Note: An 8 second clip of Tim's words: Link
We don’t have the ability (because of the overhang in housing and the problems in the financial sector) to artificially engineer a stronger recovery.
Imagine that! Geithner acknowledges what I (and many others) have felt all along. The structural issues in the economy trump the government’s ability to engineer a recovery.
The Fed has taken extraordinary measures on the monetary front. Since
2009 we have had $1.2 trillion of fiscal stimulus measures as well. We
have had TARP and the bailouts of Fannie and Freddie. But the evidence
is clear that it has not worked. Unemployment is today near a record and
the more important measure, U6, is at 16.2% (about where it was a year
ago) Nothing that has been done has moved the needle.
Geithner might have put it differently. He could have really put it on the line. I would have preferred that he had said:
"Keynesian
economics has not worked. At best, it has given us a small reprieve
from the restructuring that must happen. Our government can’t fight the
forces of economics any better than we can fight the forces of nature.
Large stimulus measures will not bring the desired results. We have to
suck it up and take some pain. We can’t go on spending money that we
don’t have to fix a problem that can’t be fixed. If we tried, it would
be just be a waste of time and precious financial resources. We can no longer afford to throw good money after bad."
Of course Tim was not as blunt as that. But read his words. It means the same thing. Sorry Keynesians, I know the truth hurts.
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The sad and more complicated truth is that Keynesian economics might not have failed had Geithner and his predecessors practiced any semblance of responsible policy, Regulation was non-existent. Policy was designed to maximize the profits of the banking sector. Rates were never raised during boom years to provide a margin for rate cutting during the bust years. Failed corporations and industries with political leverage were repeatedly bailed out, and the failed leaders of those entities were not only left in place, they were rewarded.
It would be very hard for even a devout Austrian to make the claim that the travesty of leadership we have lived through was in any way "Keynesian". What we witnessed was fascist oligarchism with a healthy dose of corruption. When Geithner blames "Keynesianism" he is attempting to deflect blame for his criminal negligence on a dead economist of the previous generation.
That dog won't hunt.
What we lived through wasn't a philosophical failure.
It was crime. And Geithner is one of the criminals.
Exactly. First the trials, then the philosophy. Abolishing the Fed might be a good next step.
Perhaps the last full decade or so were not textbook "pure" theoretical Keynesianism, but I think it is still a bankrupt philosophy.
I see it as somewhat analogous to the Communists' lament that Russia (or Cuba, or China) etc. never really followed the "true" communist dogma and that if they only did things correctly...
Or the US with their true capitalism...
Not a good analogy.
The further the U.S. veered from capitalism the worse things got, until it finally fell off a cliff.
This headline, from the Wall Street Journal, gives an inkling of how far our country has strayed from capitalism:
More Americans work for the government than in manufacturing, farming, fishing, forestry, mining and utilities combined.http://online.wsj.com/article/SB1000142405274870405020457621907386718210...
The Keynesians were all rooting for Bernanke's policies or wanting him to go even further, à la Krugman. Capitalists weren't rooting for the government funding or takeovers of Chryseler, GM, Fannie Mae, Freddie Mac etc.
Be careful with jamming square pegs into round holes and vice versa. Real Keynesian Capitalists were screaming for a Swedish solution to the banking crisis...
http://en.wikipedia.org/wiki/Swedish_banking_rescue
Krugman and DeLong were both criticizing the Fed for being too tight with the money and keeping the economy from recovering IN THE MIDDLE OF QEII.
Krugman was also calling for CREATING A HOUSING BUBBLE just before Greenspan/Bernanke followed through with his advice.
There would have been no need for bailouts, Swedish or otherwise, had we been on a sound money systerm rather than a central bank controlled fiat money system.
And if my Aunt had balls she would be my Uncle....
Read up on your history from two differing sources, then interpolate and get back to me.
Here's one source, Thomas E. Woods, Jr., discussing why the two depressions that not so incidentally struck our country shortly after the new Federal Reserve was spawned had such dramatically different outcomes:
http://www.youtube.com/watch?v=czcUmnsprQI&feature=related
Summary: The government actually cut back on spending in the depression of 1920, and let the market take its hit and then rebound on its own in short order. In the Great Depression the government intervened dramatically and seriously exacerbated the problem, deepening and extending the depression far more than if they had just let it work off the excesses induced by the Fed.
Another source would be Prof. Roger W. Garrison, giving a nice power point presentation to a class on Capital Based Macroeconomics and showing how things should be in a well run economy and how things can go awry.
http://www.youtube.com/watch?v=zhoFOyy7rbo
I think Krugman was at least honest in admitting that the Keynesians were way off base in their predictions of how their theories would play out in real life in his article in the NY Times:
How Did Economists Get It So Wrong?
By PAUL KRUGMAN
Published: September 2, 2009
http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html
Though I would go a step further and say that their entire paradigm is fatally flawed as shown in Prof. Garrison's presentation above.
I think Ron Paul hits the nail on the head in his book "End the Fed" which gives the breeding grounds for the financial oligarchs to accomplish their regulatory capture and control of essential government agencies and departments.
http://www.amazon.com/End-Fed-Ron-Paul/dp/0446549193
A government control Simon Johnson, former chief economist for the IMF warns has become a fait acompli in his Atlantic Article, "The Quiet Coup" http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/7364/
Indeed. The author seems to be equating the pumping of 100's of billions into "too big to fail" banks (that then hoard the money) with Keynesian economics. ????
One could say that Keynesianism has failed in the way it failed to provide a credible and wished substitute for the traditional recipe: expansionism.
The US has played the expansionist playbook by the line (adding on their own, it is true)
Yet they had another option on the table: Keynesianism. But this option never appealed enough to get favoured over the traditional recipe of expansionism.
So it is a failure. Keynesianism was another option that never grew convincing enough to be opted for.
Amen. Too bad Timmy doesn't have the honor of a samurai. He and his "special friend" should commit joint seppuku.
Well, there never has been and never will be a country practicing true "Keynesian" economics. It's like true communism. It never happens so advocating it is really just advocating some degree of a bastard version of it. To practice true Keynesian economics a country would have to run a SURPLUS in good and so-so economic times so that they can run a deficit in bad times. No one ever does that. No one. Ever. Not ever. Never. It doesn't happen.
No politicians ever, anywhere, had the discipline to eat their broccoli over and over and never touch that chocolate cake on the counter until there was a recession. The broccoli gets immediately thrown in the trash and fat ass corrupt politicians start licking at the frosting right away.
No regulations? What was Sarbanes Oxley? Why are there 2 million federal employees? FDIC? OCC? OTS? Federal Reserve? SEC? FBI? IRS? There are over 200,000 pages of federal government laws and regulations. The problem is the corrupt politicians and bureaucrats
As an aftermath of the Savings and Loan fiasco about 1000 bankers did hard time at Club Fed according to Bill Black who put a lot of them away. Not one major banker has done time and this is 20 times as big in constant dollars. The banksters have accomplished a semi-silent coup d'etat. Barry is their water carrier. So was Dubya and Clinton. The Age of the Vampire Squid as the Sec Treas.
Absolutely. Regulation is the kleptocrat's friend.
It seems to me that Keynesianism cannot work in a nation running huge trade deficits... the money doesn't recirculate enough, and if you increase its velocity it just leaves the nation faster.
It also can't work if half the politicians wanna keep on piling up debt through the good times as well as the bad... and the other half treat the countercyclical government expansion like a one-way ratchet -- only going up.
Half of a century of bad politics and hyper-partisan never-let-a-crisis-go-to-waste dirty pool killed any chance for Keynesian stimulus success... all the way back to the one-two suckerpunch to the American solar plexus of LBJ & Nixon.
Well, it can work if the deficits are used to fund infrastructure to subsidize production making your nation more competitive vis-a-vis foreign nations. However it is very difficult and the more likely solution is a currency devaluation. See this article by Michael Pettis for details:
http://mpettis.com/2011/06/how-to-become-virtuous-and-save-more/
or you can find it on my tumblr with a few other things: Thisson.tumblr.com
Trade deficit... not fiscal deficit (which happens pretty much by definition* in Keynesian stimulus).
* unless you have a huge surplus to spend, instead of borrowing.
>Popo
#1441905
Thank you....
Very well said Popo. I am grateful you said it, because I was thinking exactly what you wrote. I would add that Keynsianism could possibly have worked and succeeded if the money was delivered to the place where it was most necessary, at the small businesses / families who needed funding. Instead, it was taken from these entities and delivered to financiers who did not need it. I'm sorry but Geithner is just deflecting the glare... he's one of the criminals.
Bravo Popo
Geithner is just a scumbag with no sense of honour.
+1542
Indeed. Blaming Keynes is idiotic, or better yet clever.
They're against the true Keynesian policies that would push the economy from the demand side for whatever reason, so they blame him for the current crisis to circumvent having to heed him.
I don't know what db decided to junk you, but what you wrote is precisely correct.
you see popo, like everything.....great laws, systems etc., are truly great than man gets involved.....not enough character in the species...
Keynesian economics is a really great idea until you involve people. It's no different that socialism.
Austrian economists acknowledge that the problem sith Keynesian solutions is the ability for politicians to make promises because they can, for potential conspiracies because of the amount of money which can be stolen from the masses, for the ability of a government to abuse the flexible money supply.
I agree with you that we lived through a crime, and that crime was enabled by Keynesianism.
Your ideological slant is showing...
After nailing it with "is great until you involve people", you then come to the erroneous conclusion that the Austrian school is immune from the behavior of the kleptocracy....
No matter how long or deep you pontificate, ultimately any political economic system requires that the sociopaths be kept in check...
Believe it or not, if you allow huge multinational companies to exist then you had better have a strong set of regulators, otherwise you will get a kleptocracy...
Lot of junks... but no one with the balls to take me on... I'll check back later
Keynesianism is as inherently flawed as any design for a perpetual motion machine.
Just because the people who tried to build it were themselves flawed when the latest iteration blew up in their faces does not alter that quite obvious fact.
Exactly
+1.3 Trillion
I see your + 1.3 Trillion and raise you +1.3 Trillion. All in? ;)
Agreed wholeheartedly Flakmeister.
wait...is the pot right?
That's why I call it "Kleptokeynesianism".
Very well said....
Well philosohical entreaties aside, this is the admission that he's bailing. Ain't gonna find a decent private sector job while spouting the imaginary pablum.
"Don't as I do not as I say."
-T. Geithner
His only solution is to keep doubling down on it until it works (which, of course, it won't)...
Popo;
Exactly. Which is why Beaker needs to be thrown in a jail cell.
What neither Turdball Timmay nor Brucie Babe in his re-write of Timmays confession to the public has mentioned duirng this Keynsian tragedy is the $4 Trillion debt hole dug ...it's not changed unemployment nor has it changed any productive capacity in the country ...it's just been pissed away with no return to show for it, or plan to repay for it
How does Timmay suggest this staggering bill (fuk-up) gets paid back given there's no extra wealth capacity generated to fund the repayments?
We're up shit creek once again where politicians make grand promises and someone has to repay the bill for yet another fuking political failure. Can the public sector now arrange a $4 Trillion pay-cut in their sector rather than the usual crime of unproductive parasites dumping their constant failures on the productive bled-dry private sector
We know you're listening Timmay, you who submits (consciously?) unsustainable budgets.. it's not like you're just another financial moron off the same political production line now is it?