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Guest Post: Uniting Keynesian And Austrian Theory Through The AS-AD Paradigm
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Uniting Keynesian Theory and Austrian Theory Through the AS-AD Paradigm (pdf)
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Economics is bullshit...bitchez
Trav, I hear ya. Fuck the junkers. The only 'profession' I know where you can be absolutely-fucking-wrong and still draw a paycheck.
Fuck that.
Tried CEO?
Yeah, that's hilarious. Remember when they justified CEO's getting hundreds of millions because of the stock price? Now they've come up with some other reason like "we need that pay to find the talent". Yeah, talent like Thain, Blankfein and Dimon. How much does gold's CEO make?
I AM gold's CEO! LOL!
Weather forecaster....
Lawyer? Weatherman? Politician?
you're forgetting about the preachers, lawyers, politicians and other various flim-flam men. they still get paid.
This is a well built description, in Keynsian terms, of the ramification of monetarism. While it may be over your head, this does not make it "bullshit".
The trouble people have with economics is simply this: it is NOT a predictive science, but people, including economists, attempt to use it in that manner. You cannot predict human action. You can guess at behavior using modeling, but it will never conform with reality.
Economics is most often used to persuade the masses with the use of a "scientific explanation". We all have a tendency to believe what we are told if it is presented by an "expert" or accompanied by complex mathematics.
The consequences of monetarism have been evident to all economists, especially austrians, for decades. However, these opinions are seldom placed in the MSM. While it does besmirch the reputation of economics, it is only because most people never take the time to understand the theory of money, credit, markets and human action. Oh yeah, and because it can put a meth addict to sleep...
If a model cannot make reliable predictions for future it is a flawed model.
The problem is that most of these theories rarely get beyond the theory phase and if they do their modeling is imperfect given the fact that their inputs are flawed.
I am not expecting a economic theory to come close to Newtonian universe but it does not even come close.
Unfortunately econimics continues to use the epicycles theory to explain the motion of money as the prevailing dogma fails to recognize that energy is the driver of all human activity and not money creation which merely is the agent of energy consumption.
"it is NOT a predictive science"
If it can't make predictions, it's not science; this is the definition of science.
Perhaps I should clarify, it is not a perfect predictability. It makes the same quality of prediction as all sciences and suffers the same degree of negative results. Just as all sciences refine definitions and practices, economics continues to resolve problems. Evolution as Darwin explained it or gravity as Newton described it have undergone changes. Our understanding has matured.
You cannot be freaking serious with this.
You are comparing the predictive value of economics to something like thermodynamics??
JFC, let's compare it to newtonian mechanics, shall we? Newton's Laws hold for 99.999% of all interactions in this universe, and only begin to break down at the Planck Length or at relativistic velocities approaching c.
WTF does economics have that could even hold a fucking candle to this?
This garbage paper above makes no mention of the true NATURE of our money and how "accommodative" monetary policy simply replaces one debt with another! Economists cannot TALK money when they MEAN debt! If they PRETEND that what we have is just fiat money then they are goddamned idiots.
EACH dollar of LENT money contains a built-in parasitic drag of compounding interest which is mathematically un-accommodative.
Perhaps you mean "observable events". For every observable event there are countless events at the quantum level, not to mention those events that never take place but for that they do ;-).
Although the content of the post stands.
I liked your comparison with meteorology/the weather man. You do qaulify it well as a primitive science, but that's just asking for trouble.
Still an excellent analysis, showing Keynesian money printing causes inequality and economic destruction.
Whether one is capable or not in predicting anything, the first principle of empirical science is that the results be REPRODUCEABLE.
Well, fact is that new keynesian models and their IS-LM equivalents:
http://wikimedia.org/wikipedia/en/wiki/IS/LM_model
... behaved pretty robustly during the crisis and correctly predicted all the main (and counter-intuitive) ZIRP effects. (Sometimes they did so even quantitatively: such as the point of stagnation after the half-stimulus that was enacted in early 2009.)
Austrian/monetarist models weren't any good in a ZIRP environment: they blew up and predicted the exact opposite of what happened: "hyperinflation in the US" (ouch), "austerity now is good for the Irish and the Greek" (double ouch), "bond yields and gold prices to the moooooon during the expansion of the Fed balance sheet" (triple ouch).
Those points of model disagreements offered plenty of good opportunities to make money when the "conventional wisdom" of the markets (often monetarist) was the opposite of the more subtle (and, in hindsight, correct) IS-LM predictions. They are offering good opportunities for the times to come as well.
But yes, all these models are heavily probabilistic - and they wouldn't really be usable to play the markets if a sufficiently large number of monetarists weren't suffering from a reality distortion field. (Which causes them to mix up economics with ideology.)
Huh? Austrians don't make predictions like, "Four months after the Fed announces ZIRP, core CPI inflation will be a hyperinflationary 200%." Any *real* Austrian economist (meaning actual PhD economists, not the Internet commentariat armed with a few articles from mises.org) is aware that prices in Weimar Germany were stable for two years while deficits and printing really took off, for example. And even then, an Austrian prediction is carefully hedged. The prediction is "hyperinflation in the US if deficits don't get under control and the deficits are financed by QE at the Fed." It is still entirely possible for either of the last two conditions to be negated.
Austrian predictions are always on the long term. Back in 2005, people like you were calling the Austrian prediction of the end of the housing bubble bunk, since it didn't burst thirty minutes after the Austrians called it.
Then, obviously, all models are flawed.
Weather cycles, sunspot activity, bridge engineering, structural strength models, etc. So, do we dismiss them all and refuse to use approximation? Even mathematics can be fluid in a chaos model. Do we dismiss mathematics?
No, we work with models because they give us an approximation that can then be used to form policy in a world we CANNOT predict. The failure here is with Keynsian models that are abused for the purposes of central bankers.
Any economist will tell you the dangers of monetarism. An economist can explain why policy makers use it to transfer wealth. It is not their job to "protect you" from your ignorance.
Just as we all educate ourselves and compile expertise in areas that are important to us, economics is essential to any person in finance. Austrian economics explains the fallibility of fractional reserve banking and its' impact on business cycles. However, no theory can be held responsible for the level of hijinks currently practiced by the FRBNY. Central bankers are gaming the system. The amount of manipulation is off the charts. Blame economics? Blame humans and their greed and avarice.
FYI, most central bankers today are monetarists and are very slow to accept the reality that the monetary base doesn't work in a ZIRP environment like it does with a more healthy economy.
A physics analogy: the monetary base is normally a fluid - with very firm and direct laws of pressure. But in ZIRP a "phase change" occurs that turns the monetary base into a gas - which allows it to expand/contract without impacting pressure nearly as directly (inflation).
(Note, this is not a new model at all - it has been created well before the crisis.)
This paradox is one of the main drivers of the current deflationary crisis. Central bankers think everything is fine, according to their monetarist models - while it certainly isn't.
It takes time and human suffering for this disconnect to become more apparent.
Wrong...the monetarists failed to understand that the money they were speaking about was in fact DEBT and had to be paid back with interest, requiring exponential growth in credit demand.
It's really that simple. The system is untenable.
Also, the economists were misled into believing that their credit bullshit drove economies, when it was really always surplus energy that did.
Real Bills Doctrine is all you really need to know about the "nature of money," or a simple dictionary definition will suffice. The rest of it is pinhead angels crap foisted on us by people who weren't smart enough to be real scientists.
I'm sure central bankers are not aware of the exponential (compounding) nature of interest rates and cannot tell debt from credit ;-)
Seriously, 'inflation' and 'growth' are the two phenomena you appear to be missing, both of which work against the undeniably compounding interest of debt.
So even a deficit economy can be sustained if debt is inflated away or if future pay-back power is increased via growth. (preferably the latter)
It can certainly also be unsustainable - but your insistence that it must be unsustainable defies plain logic. Sorry!
To the extent that inflation is expected by creditors, it will be reflected in the nominal interest rate.
To the extent that inflation is unexpected by creditors (i.e., surprise de facto default), it will be reflected in future nominal interest rates due to increased uncertainty.
Of course, it is sometimes in a nation's best interests to default (whether it be to foreign creditors or to its own banks and savers) in the interest of the public good (i.e., the entire American middle class being at stake). Such a default (characterized by monetary pumping) should be as fair, temporary and quick as possible. Fiscal or monetary policy, as it stands, cannot accomplish this in a fair, fast or efficient manner. The only fair, fast and efficient manner to reset the system is to print a lot of money and hand it out to all people more or less equitably. Not to the bureaucratic and wasteful government. Not to financiers, corporations and the heavily indebted through lower interest rates. But to all people.
Whether or not such a money-printing operation should be progressive or 100% equitable in nature is a matter for politics and not economics.
Equitably, i.e. proportional to their net wealth?
That will hand 90% of the stimulus (can we call it a stimulus?) to 10% of the people, who will be hoarding it just like banks/corporations are hoarding it right now (due to lack of demand / lack of growth prospect).
I.e. this form of stimulus might not really break out of the game theory paradox of thrift.
What would be more efficient stimulus is to print a lot of money and hand it out in proportion of willingness to spend - as counter-intuitive as it may sound.
Giving it to the unemployed is good stimulus not just because it offsets some of the hardship that is not really the 'fault' of many of the unemployed (they got hit by a global crisis they had no chance to foresee and they were not employed in bubble sectors to begin with) - but also because most of those funds will be spent.
A similar mechanism for corporations would be investment subsidies or employment subsidies. (tax breaks don't really work as US corporations pay little taxes to begin with)
(Sidenote, despite the austerity PR from the ruling conservatives, Germany is doing quite a bit of this kind of stimulus: the KA programme is corporate employment subsidies combined with unemployment benefits.)
There is ONLY ONE way to inflate away in a debtmoney system and that is MORE fucking credit!
Second, GROWTH cannot continue forever.
ERGO, "must."
Get it? THIS is plain logic. Do not contradict me again.
Think outside the "debtmoney system" box. The Fed and government complex has the power to create money that is not attached to debt, it just generally chooses not to.
Creating non-debt money to 'reset' the system could be a favourable alternative so long as it is fast, efficient and credible that it will not happen again for a long time.
Furthermore, and more importantly, inflation can also present itself as a decline in the global value of the currency. In that case inflation is not coupled to debt - even inside the reserve banking box.
This is what fueled the oil shock related inflation crisis in '79 in the US.
And this is what China does in essence to keep its currency devalued at a constant peg. (It in essence sells yuan for dollars/euros, then keeps the dollars/euros tucked away and out of the chinese economy.)
( And this is partly what the Fed was doing via the 'FX swap lines' in 2008/2009: it allowed the orderly devaluing of the dollar after the financial shock, by satisfying dollar demand directly and outside the regular FX mechanisms. (although the Fed will certainly not admit to that, they will claim it was done for financial stability reasons.) )
This happens all the time in the developing world, on a smaller scale: currency falls in value, investors are dismayed, few years down the road the country is back up and running, with a healthy debt proportion, good growth and good investment opportunities. There was no explicit default at any point in time, no breakage of the reserve banking system - just the magic effects of assymetric foreign exchange rates pumping money in/out.
The 'reserve banking box' is certainly not there on a global basis. It is true in the eurozone - and the problems in the eurozone are certainly related to that immutable nature of euro debt.
It also explains why eurozone countries were distinctly happy about the fall of the euro in 2009: it created some inflation and some growth - against the prevalent deflationary and depressionary forces.
doublepostaccident
It does not have to continue "forever" - it just has to be statistically above the level of interest rate on the debt, to offset the "infinite" compounding effect you pointed out.
And then we have not even considered the effects of inflation ...
Do you not understand how what you just said means "forever"?
Nope - periods of negative growth fit into it as well - as long as the total compounding sum of growth and inflation outweighs the compounding sum of interest paid on debt.
Also, 'debt' can have many forms of interest - if it's denominated in some other currency then the actual interest paid can be negative. (economic actor loses money on the FX rate) It happens all the time and with most developed countries being export nations this matters quite a bit.
Sorry, your arguments do not pass the muster of elementary logic. Your simplistic 'paper money is debt and debt has interest and hence it always expands and cannot really work' approach is just that - overly simplistic. Of course the monetary base keeps expanding - it's just numbers in computers and practice has shown us that an expanding monetary base is easier to manage than one that is kept constant. Even the rather monetarist ECB keeps a nonzero inflation target.
What matters in an economy is not the absolute stability of those numbers - it does not matter that milk was 10 cents 100 years ago and is 1 dollar today (nobody really remembers that anyway) - but how economic actors interact and what real action they take as a result of that and how they help each other achieve things in life. I for one wouldn't migrate to the US a hundred years ago - even if milk was "only" 10 cents or less. Sanitation was virtually non-existent, child mortality rate was very high and health care was ... spotty. (For example washing hands in hospitals was still a very newfangled policy not shared by many old-timer doctors and nurses) Not to talk about heavy air pollution in cities, poisoned water bases, etc. etc.We need to print some 'new money out of thin air' because that is how the expanding utility of the economy and the expanding number of economic actors (both of biological and of virtual nature) is expressed naturally. Deflation of numbers starts a bad kind of psychology that gave the US some bad experience in ~1930-1940.
And the other thing is, money was a promissory note of debt from the beginning of times - even when money was coins made out of gold or silver. It carried all sorts of promises and expectations and the coin did not represent anything 'physical'. I.e. it was paper money just as much - just a different (and in hindsight, inferior) type of money. So your somewhat derogatory 'debt money' characterisation actually covers all things money back to 100,000 BC. During history the utility value of gold and silver ebbed and flowed heavily, according to random metal production and transportation supply/demand forces. It was not a particularly healthy thing to couple economies to - and indeed it took them hundreds of years to produce the first light bulb ...
What you fail to provide is any logical counter argument against these points - except for the somewhat dogmatic 'exponential interest converges to infinity' argument. (Which is not even true mathematically - try to sum an interest rate of 1/(x*x) to infinity and be surprised at the finite result)
The thing is, even assuming an unbound time series for the monetary base, it's not a problem in any way as zeroes from numbers can be stripped off every few hundred years. [ By the time we get there it is probably all computerized already and can be done instantaneously ;-) ] It's far easier to manage than a protracted period of deflation and depression every few dozen years.
So what is your point? Why are you looking for stability in numbers in a world that is fundamentally dynamic, where the relative value of resources and services changes all the time (and rightfully so) - where in fact the pretense of 'stability' is causing problems because it makes incorrect prices stick longer than they should?
You on somethin, chief?
It did not go over my head...there's precious little that does.
I read into the first page and saw no discussion of energy inputs or any real economics.
Again, economics is BULLSHIT. It is a monetary fetish pseudoscience practiced by charlatans who have no understanding of what money real is or was. At least Marx's theories of value had some cogent basis to them and attempted to express money as a denominator, not a driver.
But I cannot be expected to take theories seriously that do not account for system headroom or other realworld constraints, nevermind systemic energy supply maxima.
To put it in mathematical terms, they are attempting to curve-fit in across discontinuous portion of the data
To believe that money cannot drive or suppress real production is to have too much faith in efficient markets.
In a universe with rational actors with access to perfect information, money creation/reduction can not drive anything. This is akin to the Modigliani & Miller (disproven) capital structure hypothesis.
However, in the real world, economic agents do not instantaneously calibrate decision-making upon changes in the quantity of money.
If the total supply of money in the economy doubled overnight through a massive QE program dedicated to holders of MBS, Treasurys, money market funds and bankrupt corporations, for example, workers would not demand an immediate doubling of their pay. This is due to asymmetric information and ignorance of the modern monetary system.
And asymetrical market power.
This 'stickiness of prices' is in the focus of research.
Workers not demanding double the pay may not just be due to assymetric information, it may simply also be because if they did so now individually, they would be fired. There is no shortage of capable workforce and there's lots of unemployed.
(One could make the argument that they could do so collectively - but that is really not a political reality in the US.)
Another factor that causes stickiness of prices are long-running contracts. Long-running utility contracts set the price of energy products. Long-running employment/benefits contracts cause sticky wages, etc.
I studied economics for a decade and all the while I learned stock market analysis on my own. The more I learned, the more I realized that not only is reigning theory inconsistent with market realities, reigning theory has come to contradict market realities. Economics is a form of an "extraordinary popular delusion and the madness of crowds", plain and simple. Robert Prechter and Socionomics at least pays attention to empirical realities to formulate a descriptive theory. Economics is a function of the peak of Western Civilization and is part of the delusional insanity that fed into the top. It is also a source of catastrophic error and upset that is feeding the 'turn in the tidal wave'. My thesis paper is at http://www.spiritoftruth.org/Thesis/Intro
Great another moron expounding on what he thinks he knows about science. Grouping Galileo, Einstein and Darwin .. Terrible
Capital is not homogeneous.
I agree with the conclusion, and if I understood correctly this is a keynesian type explanation of what Hayek use to say: under a inflationary system, the people that receive the money first are the ones that benefit because they use it when prices are still low, while the people that receive the money later are the ones that get screw because they get the rising prices before they get the new money. In our system the people that receive the money first are politicians, bankers and politically connected businessman, while the people receiving the money last are usually wage earners. Therefore is not extrange that the maximum wetlh inequality is always at the peak of the inflationary process, just before the bubble pops.
But the problem is that this is missing a big part of the problem, one that in my opinion is more important. Working with aggregates is a big problem because you are missing a lot of information. The important thing is not only how much you are producing, but also what you are producing.
Working with aggregates assumes that any kind of production is ok, and this is completely false, since production must adjust to consumer demand that changes over time, or it assumes that capital is homogeneous, meaning that it can produce anything that consumers demand. This is false again, since, f.e. a machine that cuts wood or a machine that makes bricks can not be used again once the demand for wood or bricks goes down and other type of goods are demanded, like it has happened when the housing boom has ended. In the present scenario a bunch of this machines are not useful anymore and become malinvestments. Once the bubble pops, this machines wont be put to use again, no matter how much inflation is created. The new money will concentrate on the still demanded goods, and the adjustment will be a strong price increase. We are seeing this now as the new money is concentrating in food, energy and commodities, bidding the price up.
This misconception is very important since central planners around the world are inflating away justifying it in the production gap (taking for granted that the bubbled production pattern was ok) and is creating a food crisis that is going to hit everyone, but specially the poorer ones.
The aggregate analysis misses that capital is not homogeneous.
Any of these sound theories will be gamed and trampled on by those that take power by force and deceit.
Little known facts:
Galileo also said the oceanic tides were caused by the Earth spinning on it's axis
Darwin rejected the notion of periodic Ice Ages
Einstein initially rejected the notion of the Big Bang, telling George LaMatrie' that his physics were "all wrong"
Stephen Hawkings was wrong about the information inherent in matter being destroyed when consumed by a black hole
Paul Krugman and Robert Reich were twins, conjoined at the head at birth, and a lot of tissue was left on the table upon separation. This, straight from the nurse who had to bag it up.
That might explain why Krugman contradicts his own textbook regularly. He can be found at the NYT teaching classes these days at the esteemed Joe Biden Happy School of Economics, that insists, "The more we spend, the richer we are"
Krugman is a politician, not an economist.
Taking seriously anything he says in the NYT is the receipt for neurosis and economic ignorance.
exactly
Krugman certainly has progressive political/policy views but in topics of economics I've yet to see a blatantly (or even largely) incorrect article from him.
I found Krugman's ZIRP analysis particularly accurate in practice - and that during a difficult and largely unprecedented (in recent history) macro-economic trajectory of the US economy. Most other economists messed up with ZIRP predictions - and some of them big time.
So can you please cite an example that discredits Krugman? You might turn out to be right, but I tend to give people the benefit of doubt. (Innocent until proven guilty and silly anacronisms like that.)
This ought to give you a start. I could provide much more, but my guess is that you will either take this as enough or reject what I offer on ideological grounds? Hope not.
http://www.americanthinker.com/2010/08/paul_krugman_gives_up_1.html
I have no "ideological grounds" on which to reject anything. (Unless you count the scientific method and critical thinking an ideology.)
The article at the link above is hard to analyze, because of the clearly displayed anger and bias of the poster. (Is it really necessary to launch ad hominems when making rational arguments?)
But I'll try to evaluate it nevertheless. These bits seem to be a list of items where Krugman messed up:
I'm not sure what to make of these arguments - they suggest that Krugman was wrong, while (and I just double checked them) he was right with each and every of those claims:- The stimulus was indeed too small by 4% of GDP and he warned about that when the first concrete rumors of the stimulus surfaced, in early 2009.
- Even if it sounds counter-intuitive to you, debt is indeed good under certain circumstances: such as when the alternative is protracted deflation and japanese-style lost decade. Economics (and game theory) is sometimes counter-intuitive.
- Similarly, austerity is indeed bad if applied in a deflationary environment - such as the 1930s or today's environment.
- Deflation was indeed coming (and not hyperinflation): inflation got lower and lower.
- Ken Rogoff, Greg Mankiw, Alberto Alesina were indeed wrong on those points that Krugman cited. (We can argue them one by one if you so wish)
- Indeed there were (and are) various forms of 'mass delusion' in policy circles, especially in the context he mentioned it. Should he be more polite to 'serious people' when they are wrong?
- He was right about that specific point of japanese interest payments.
None of the points cited are actually proof for any incorrect/wrong article by Krugman. (And we can go over any of these items in more detail if you think I missed something.) Or, assuming you agree with me on the 7 points above, can you please cite a single documented example of Krugman messing up when it comes to economics? I mean, Krugman writes about so many topics, for me to distrust him there must be a documented incident where he made a major blunder (of factual or analytical nature) and didn't concede it.I checked some of the other arguments in that "American Thinker" article, and the general quality of criticism is pretty low. This was the first random argument I checked:
It's clearly not based on a single point - it's an asymptotic expansion of pre-crisis GDP growth based on a 2% annual GDP growth. (Which is a pretty conservative pre-crisis eurozone growth number. I should know, I'm from Europe.)
Krugman's point in that article is also still valid: that Europe was (and is) facing a huge output gap - with all its consequences.
Also, the "American Thinker" criticism of Krugman says:
To me they dont give any impression of defensiveness - they give me the impression of a professor trying to explain his lecture from multiple angles - to an audience he thinks did not understand his point. (which isn't all that far-fetched, considering that he is a professor.)
Furthermore, the 'refutation' is all but a refutation. It says:
That comment misses an important distinction: bubbles of course drive capacity - in the sector(s) directly affected by the bubble itself. (For example the tech sector during the dot-com bubble sure increased capacity above sane levels.)
But individual sectors are all but noise when it comes to real GDP growth/contraction - bubbles have a much more muted effect there.
What we are observing in this crisis is lack of demand in all sectors of the economy - which is a sign of a demand shock which is causing deflationary pressures - unrelated to the bubble itself.
Missing that detail is no big deal - most miss it - but citing it as 'refutation' against Krugman is confused at best, disingenious at worst.
I respect your enthusiasm. People like you help make the comment thread what it is. I'm just going to throw in the towel okay? I don't want a death match and you presented a challenge that I don't feel is benefit worthy. The cost of mounting a challenge exceeds the possible benefit. Less wordy; know when to fold 'em.
Even futher, maybe ( I doubt it, but in an honest attempt to abide the same rules that I've long hoped others would) you are right and I am wrong?
I'll trust this thread to sort it out.
I'm certainly interested in discussing this topic.
Sure you are Paul. (sorry, but the snarkismness of this site is adorable to we passive/aggressive folks). You'Ve got it going on with an ability to put up a fight and I respect that. At the end of the day though I see you fighting a battle after the war was lost. Kinda Japanese maybe?
Ha-Ha
Now that was cute whether you understand it or not.
The thing is, people tend to be embarrassed at suffering from passive/aggressive symptoms. Being proud of it is rare, and might be the result of some misunderstanding. The thing is, it is a serious condition that can cause a lot of grief amongst family members. Please make sure that I'm the only target of your style of discussion. YMMV. Thanks.
I'm a Zh addict. One reason is that the comment thread is the best on the web..............In fact the comments are the content as so long as we don't stray to far from economics.
Here, even the weather reports are linked to economics :)
But I follow you! The articles are cool but the comments mostly rock.
At the beginning, I thought "This might be interesting". But once I got into it, I realized the author is a fool. The idea that any increase in AD is necessarily inflationary is just so stupid, I couldn't believe it. Long term cap.utilization rate in the US is 81% (1967-2007 average). This year, it inched up from last year's reading to 74% - a full 10% below the long term rate. Does the author really think every factory is running flat out, that no store has inventory it wants to get rid of, or that there are no people who do want to buy new cars, but won't because they're worried about their personal balance sheets.
I still think most people here don't truly understand Keynes' thinking, which has been bastardized and misquoted by a bunch of freeloaders (government, business, labour, and consumers all participate to some degree). But this clown hasn't "reconciled" anything.
>The idea that any increase in AD is necessarily inflationary is just so stupid,
The reality is that an increase in AD because of inflation does push prices up. You can see the CPI of the last decades.
>I still think most people here don't truly understand Keynes' thinking, which has been bastardized and misquoted by a bunch of freeloaders (government, business, labour, and consumers all participate to some degree).
And Keynes being so intelligent as his followers claim, what was Keynes idea for avoiding this kind of "bastardization" of his theories by freeloaders? I am sure Keynes took this possibility into account and wrote extensively on how to avoid it. Please, enlighten us on the system Keynes devised to avoid the abuse of the power his theories gave to politicians.
Er, why exactly is Keynes responsible for telling people how not to misinterpret his very clear advice (deficits during slumps, surpluses during booms, to put it into simple terms you might understand).
Here's an analogy you might comprehend: Keynes said if you want to eat more, but not get fat, you have to exercise more. Fraudulent Keynesians misinterpret this as you can eat more and not get fat, completely ignoring the second part of the prescription. And you suggest it's Keynes' fault that they leave this out?
And he did warn of the possibilities. In fact, as my reply to another poster below shows, he went so far as to warn FDR in a letter of the potential problems.
I don't recall Einstein, Bohr, or Fermi warning anyone "Hey, if you fool around this nuclear stuff, you'll get a Chernyobl".
Ok. So if politicians have abused always the power to intervene the economy and print money and Keynes argues that politicians should have the power to intervene the economy and print money it was something completely surprising that politicians did abuse those powers, right?
And the fact that Keynes theories gave the politicians the perfect intellectual cover is just random too, right? Who would have guessed that politicians have motivations and would not react as Keynes said they needed to react?
What good is Keynes theory if it is impossible to apply? (unless it was just meant as a intellectual cover up from the beginning in which case, it was a success).
Let me ask the question again: Where does Keynes writes and explains how his theories can be applied in a politically realistic scenario?
What good is Keynes theory if it is impossible to apply?
Why do you figure it's impossible? Canada, after years of huge deficits under Trudeau and Mulroney, completely turned around under Chretien, Martin, and until lately, Harper. Until the Lehman collapse, Canada was on pace to pay off all its federal debt by 2020. There are other countries - Germany comes to mind - that also pay attention to fiscal probity. Just because it's been impossible in recent years in the sclerotic American political system doesn't mean it's impossible everywhere.
Germany and the BCE have criticized keynesianism as a false theory during all this crisis. From my memory, I remember a BCE economist criticizing the USA keynesian mesures saying they dont work at a meeting with the Federal Reserve. And now you are telling me that Germany is an example of Keynesianism? Please.
Canada has a housing bubble that is dangerously threatening to pop, as have demostrated several articles here at zerohedge. Even Clinton claimed to reduce the deficit thanks to the dotcom bubble, but bubbles are just an illusion.
Will you answer to my two initial question instead of throwing new arguments to get away? You have not even tried to answer the first one, when you called the op idiotic for it.
Question was answered - the countries mentioned have applied at least a hybrid Keynesian theory - and for the most part, have been doing fine.
Throw in an almost global recession in the way and ya, you tend to run into shit for a little while.
>Question was answered - the countries mentioned have applied at least a hybrid Keynesian theory - and for the most part, have been doing fine.
He claims that the problem is that Keynes theories are not completely followed, and the example of a country that strictly follows Keynes theories is Germany, that now you claim does not follow Keynes theory exactly because its a hybrid keynesian theory... mmm
He did not answer to the first question, where he misses the point and calls the op idiotic.
You wrote:
And here is what he wrote when Germany was first mentioned:
How you can equate that remark as an "example of a country that strictly follows Keynes theories" is beyond the rules of logic. He did not claim it.
I believe Canada had it working also. Martin was consistently running surpluses and using them to pay down the debt. I loved his approach. I would argue with anyone who said we should reduce taxes that yes we should once we had the debt paid off. When Harper and Flaherty got hold of the reins they shaved the surplus down to a razor thin margin by lowering the gst (a VAT) and other tax cut measures. Martin wrote a book wherin he criticized them for not adequately preparing for a downturn -the book came out about two months before the Lehman collapse. With this austrian - Keynes debate it is always cast as if the liberals (or democrats ) are the irresponsible ones because they want to tax and spend. I find to my puzzlement that the "conservative" factions are the ones that cause the most trouble by spending without taxing.
I don't know all that much about economic theory but I do think that government does have a role to play in levelling the income disparities that exist in society. In this day and age I think the biggest problem we have is an overcapacity to produce. The biggest beggar thy neighbour game is when all levels of government fall at the feet of corporations to build a factory in their jurisdiction to create jobs. With the level of ability we have and with the interconnectedness we have we must start thinking big picture about how we are going to build a world where at the very least everyone has enough to survive and at best most people don't have to work as hard and leisure can be constructive. The whole growth must happen thing is destuctive when we are at the end of our leash. Our leash being the limit of the natural world to accomadate us.
only possible because of increasing debt elsewhere.
Listen, debts can only be repaid in debtmoney systems by MORE debts elsewhere.
Actually Fermi did stop to ask whether or not the Manhattan Project would ignite the atmosphere in a world-ending chain reaction.
It didn't.
They made a model, calculated the effect, and double and triple checked it with Teller.
The model and their calculations were correct enough. They were personally very nervous about it and were well aware of the gravity of it.
(Oppenheimer even correctly predicted that the only way to avoid a nuclear World War III was to leak the design of the bomb to the russians - and did so and paid for the treachery with his life.)
Just because they are rocket/nuclear scientists doesn't mean they aren't clever and brave blokes when it comes to politics/responsibility ;-)
True, and why I count them (and others, like Turing) among my heroes as much as the soldiers on Omaha Beach.
Oppenheimer paid for the treachury with his life?? A surprise to me: http://www.nndb.com/people/808/000047667/
Something I don't know? Just curious.
Ugh, sorry, I confused him with the Rosenbergs. My apologies ...
Oppenheimer was marginalized (and access to his main professional interest revoked) but not actually charged.
>And Keynes being so intelligent as his followers claim, what was Keynes idea for avoiding this kind of "bastardization" of his theories by freeloaders?
Jesus Christ/Muhhamad/Gandi/Shiba/Sidhartha/Charle Darwin could not solve that one either and to my knowledge neither has anyone else. If OP wrote a truely Masterful peice of work, you probably be one the people "basterdizing" it. With in 200 years of Confucius teachings, there where animal sacrifices in his name.
sheeply have a strange way or imterpretting what leaders words mean to suit there own mindset. and even the enlightened ones get it mixed up.
"His name is Robert Paulson" "His name is Robert Paulson" "His name is Robert Paulson" "His name is Robert Paulson" "His name is Robert Paulson" "His name is Robert Paulson" "His name is Robert Paulson" "His name is Robert Paulson" "His name is Robert Paulson" "His name is Robert Paulson"
Novelist Tom Robbins: "Ideas are made by masters, dogmas by disciples, and the Buddha is always killed on the road.”
You're probably right.
From what I understand of Keynes he believed in "priming the pump" to create demand to jump start a stalling economy. But, he never thought deficit spending should be used to the extremes we are seeing as a substitute for a real economy. Is that your take?
It's not just a "take" - he wrote a letter to Roosevelt in the 30's saying he thought the deficit spending in the US was excessive. Then some small conflict intervened.
Keynes was known for changing his views on the economy, even in contradictory terms.
When Hayek revised his first book, the one about credit, Keynes and him had some mail back and forth which ended up in Keynes saying that he had abandoned his views and that he was writting a new book with different ideas. That book would be The General Theory, that contradicts some of his previous theories.
Depending on which version of Keynes you take you can justify a lot of things, even contradicting views.
In fact, Hayek explain how in the 40's in a dinner with Keynes and other people, Hayek warned Keynes about the possibilities of abuse of monetary policy that Keynes had allowed with his theories, and Keynes conceded it but said that he would take care of it if it happened. Such a frivolous take on things that could cause suffering to so many people. Then Keynes died shortly after.
Another "Keynes "would of been right poster IF.
I guess you think that supporting centralized control of large economies works no matter how corrupt the ones in power are?
If not, how did Keynes allow for that in his recommendations to governments??..
I know. he had Angels running the system, that would de facto eliminate abuse of power
and corruption.
There were a lot of brilliant economists in Keyenes day.
I suspect his theories were picked to be celebrated and famous the same way a man picks out a hooker, other things being equal. You go with the one that says she'll do what you want.
Which is to say, Keyenes was made to order for making the bankers and politicians the most happy by validating control of the economy and stealth confiscation through deficit spending.
By comparison, the Austrian School was a prude.
Economics is not a Science. Human greed will never let it predict things in a meaningfull way.
On the micro event level Brooksley Borne didn't want to be the slave/whore to Larry Sumner. In retrospect, Sumner was definitely wrong in his economic analysis of derivatives and capitalism, Borne was right.
Sumner with his esteemed intelligence is now teaching at Harvard. Our system of crony capitalism defies logic.
Great insight! They saw that he was vulnerable to a roofie and lying unconscious for the serious down and dirty.
Reminds me of Christianity. During Jesus' time, there was no such religion. There were subsequently multitudes of testimonial writings, but which got collected and ordered as they are into the Word of God that "Christians" embrace today as their Bible? It would clearly would have been the ones that offered the greatest utility to their marketers.
I thought that's what Robo was doing with String (bikini) Theory.
LOL
as usual, the economic theory is bass ackwards. the supply of money has nothing to do with the real economy and never has. money supply is not causal. it creates nothing but money.
miller/modigliani holds at the economy level. bluntly return on assets in the economy is not dependant on the way it is financed from debt or equity. just because the economy has the current level of revenue producing assets, does not mean it is scalable.
the management of money supply is supposed to marry up the monetary value of money that circulates in the economy with the value of assets. not an arbitrary level of unleveraged or leveraged assets.
similarly banks are supposed to facilitate the value of money in the economy so that it matches the level of return generating assets in the economy. banks have no real economy productive expertise whatsoever. to pretend so leads to Central Bank and MSM type mentality of today.
Corp fin 101 - the MM theory only holds in a PERFECT controlled situation. No taxes, bankruptcies, and of course the best one, the idea of a truly 'efficient' market.
Come on man, don't be so naive with regards to whether or not perfect theories work or not.
ah ha, you spotted the central tenet that the system is permanently screwed so why bother with economic theory at all (Hayeks or anyones) and why even talk about it, just join the thieves rather than be the victim.
Theories and theorems are only perfect on paper. Lets assume the system isn't screwed, that the markets ARE efficient, and, for the sake of argument, taxes are 0. What are we missing? Oh right, the bankruptcy issue. Well, in the US, this actually might have been present with the TBTFs. Yet we still aren't pleased, right?
I'm not arguing to pick a bone here, i just hate seeing how people assume theories should work even if theyre bastardized every which way and followed only x% of the time.
Hmmm...I think my point was that no economic or political theory would work since these are based on a preferred level of money in the system and corrupt government controlled by those who have no proven ability to set any level of money in the system or that any government expenditure ever results in an "evergreen" solution. There will never be efficient markets for this reason, since effecient markets are rational. Monetary economics is not rational, neither is politics where the end game is proven welfare dependency, voted in by welfare beneficiaries.
What we have now is a dislocation in the ability to hand down and own wealth, which has to migrate to the next economic theory of correcting the flaws in past theories, given the "bastardisation" of outcomes.
I think we are on the same page, kinda/sorta anyway.
Tyler,
Posting more dangerous thoughts my friend(s). Say three Paul Krugmans and two Ben Bernankes and your sins (debts) will be forgiven ...
Full House!
Someone hasn't read all the information at the Mises Institute blogroll link on the left side of this page.
If you are going to delve into AS-AD theory... use Roger W. Garrison!! He has written one of the most comprehensive examinations of AS-AD... it's free to read and only 5 clicks away from the zerohedge.com homepage...
p.s. I can't believe that paper is 15 years old... it was all so new the first time I read it in 97 or 98.
... an old blog comment:
1) The AS/AD model is inconsistent with respect to supply. The AD curve comes out of the IS/LM model and therefore some assumptions about demand are already included (like the multiplicator). Hence the AS curve, which also has rules on supply, should be consistent with the rules from the IS/LM model. It is not.
2) There are various problems with the dynamics. To name just one: a contraction of demand (left shift of the AD curve) triggers a fall of the price level. This does not happen in the real economy, and if it happens, it's probably another Great Depression (oh no!). So Economists do not believe in that kind of dynamics.
i hope you cleared your intelligent analysis with the Fed first and that you have a PhD, I understand they are picky!
Very much enjoyed the Colander paper...nice to see someone able to express intelligent opinions about macro modeling without froth on their lips.
Great post. Facts and links to other publications help.
You cannot expect Economists who lie deep and world-remote in the bowels and mists of Academia to fully comprhend the scope and dimension of the power of the animal spirits when Intellectual potential is unleashed from BigCap patent suppression litigation and unfettered by Wars for Fossil fuel and the Military-Industrial Capital pipeline.
It seems as if everything IS working the way it should work. The only problem is that people are trying to apply the dynamics of a closed economic system to an open economic system with an assumed infinte supply of labor and an assumed finite supply of raw materials. It becomes somewhat easier to understand when the economic system is the world and not the US (which my guess is where this is all headed because Bernanke and the globalists will show us a solution IF ONLY the world had one currency, one central bank and government... to close the system again).
In the meantime the Fed goes merrily along its way intentionally creating a larger gap between the haves and the have nots ... as shown by the article. The Fed, central bankers and globalists seem to have worked out long ago that with such great iniquality of inputs the system is unstable (predictable, but unstable) and for the system to be stable the inequality must be removed. So, what have we done instead? We have systematized the inequality through gunboat economics and corruption.
Princeton Ben's Central Bank forces Central Government to do it its way. TARP I 2008 proved for all Time that the Congress caves to the Federal Reserve when the the People who they represent voted 300 to 1 AGAINST the 700 Billion Paulson put. They saved the Banks, the right Broker-Dealers, Insurance Buffetts, but I got an anti-Stimulus when my catastrophic health insurance cost rose 22% for my reward never using the sysytem and like Rick Santelli and the pit guys, I don't want to pay my neighbor's mortgage. Fire the ones that asked me to do that. On November 2nd, vote against any Incumbent who turned that famous trick. Where's that list?!!
Very good points. The refusal to make a fiscal adjustment after the credit bubble is indeed merely boosting corporate profits while hurting the middle class.
By the way, this is Samuelson's AS/AD model and his interpretation of how it works, not Keynes's. It's almost true but too oversimplified. Deficit spending is boosting corporate profits, but not through CPI. One of the factors ignored by the diagram is productivity, which is suppressed by credit bubble conditions. The bubble encouraged producers to over-staff relative to output. So post-bubble, producers have been able to cut labor costs per unit by shedding employees much faster than they've reduced output. So real labor costs are down relative to corporate income, while nominal and real wages are practically flat. Instead, the reduction in real incomes is being felt by the unemployed, and it's a nominal and real reduction. The stickiness of wages has been bypassed through shedding employees and making the rest work harder. Therefore no CPI.
http://keynesianfailure.wordpress.com/2010/08/05/dont-always-blame-keynes/
I too am annoyed by the Keynes-bashing that is a staple of the comments and articles on this site. Has anyone actually read Keynes? If so you would know that, for instance, he did not advocate fiscal stimulus as a long-term policy. Keynes was brilliant, breathtakingly so. At least that's the impression I get when I read the General Theory. The assumption that he and all Keynesians "just don't get" some elementary assertion of Austrian economics short-circuits the possibility of real dialog or the expansion of one's world view.
Keynes is breathtaking because nobody understands his writtings. In fact, keynesianism did not become mainstream until the 50's with Samuelson and his book "Economics" which was the first one to present the keynesian vodoo in a sistematic way.
But if you are up for a real debate (most keynesians are not, and prefer to use their arrogance) just start, and hopefully we can remain civil.
I wouldn't call Keynes "breathtaking", but he was a highly observant person and a great writer, which is a very rare combination among economists. His macroeconomic theories were mostly horse-hockey (he did advocate long-term public works, funded by taxes, to make up for what he thought would be permanent and growing underemployment as society grew more affluent). But he was right that most economists before him had focused too much of their attention on supply and not enough on demand, and that's really his most important contribution to economics. He also inspired Samuelson's AS/AD model, which is still popular and can be of limited value if you keep in mind its limitations.
Keynes was a brilliant and very intelligent man, but he was not a good or clear writter. The real problem with Keynes is that he did not value honesty or truth. In his own words:
"A preference for truth or for sincerity as a method may be prejudice based on some aesthetic or personal standard, inconsistent, in politics, with practical good"
When you understand this you understand where his theories come from and why he kept changing his ideas, even in contradictory terms or why he wrote in a very obscure way. He believed he could manage the economy and that lying was justified for political purposes.
I'm gonna sum this fkin shit up in one sentence, for the "trav" Macro theory:
if you want growth in production, grow your energy inputs.
energy does doing. Money merely denominates it.
George Akerlof, Nobel Prize Winner - Economics, 2001
Asymmetric information.
Good, bad or Keynesian or Austrian, a grim fact is regardless of the intent, the current state of economics in the country (World) is driven by a group of non-transparent market makers. Whether its HFT, an un-audited Fed, a closed Fort Knox, consistently wrong BLS numbers, the games played with U6, or bogus W&R Flash Crash martyrs; the macro "market" is divided between those with information and those without it. Because so much power has accreted to so few, the huddled masses with their pensions at stake are pigs to the slaughter and those TBTF are rescued by TARP, ZIRP and more "moral hazard." You can implement so many "rescue policies," but in time the perception of those suffering the most will become more untrustworthy. "Crying Wolf" that the recession ended 15 months ago, is well .... Nobody that eats believes it.
Everything flows through a filter, but when it comes to the current state of "economics" the system is down and nobody is fixing it.
If you need a visualization of the future of American economic policy, stop looking at the charts and start looking at some photos of Detroit. It will be outside your door.
PS Thanks to all you scumbag lobbyists, politicians, corporate media and fake "bankers."
KEYNES ATTACK:
http://williambanzai7.blogspot.com/2010/10/keynes-attack.html
This is absolutely brilliant: http://williambanzai7.blogspot.com/2010/10/fractional-reserve-astrology.html
Tnx. There is a link on my Blog to an interesting horoscope written for the FRB by Bill Meridian. I would have put the link here but am working out a technical glitch with TD.
Wow I could expand on this.
M0 is earth signs. Taurus, Virgo, Capricorn,
M1 is water signs. Cancer, Scorpio, Pisces
M2 is fire signs. Aries, Leo, Sagitarius
M3 is air signs. Gemini, Libra, Aquairus because M3 is just ideologies.
I liked it so much that I re-posted in my blog: http://www.errorespuntuales.es/content/como-toma-decisiones-la-reserva-f...
A very nice piece, thank you
Updated GOLD monthly chart:
http://stockmarket618.wordpress.com