Jeffrey Sachs Sees The Light? Columbia Professor Bashes Keynesian Policies

Tyler Durden's picture

A few weeks ago Zero Hedge offered a modest critique of Jeffrey Sachs after his disastrous performance in a round table debate with Hugh Hendry and Gillian Tett, in which the Columbia professor came out sounding as clueless as a first year economics major. It now appears that Mr. Sachs may be attempting to atone for his myopia memorialized by the BBC, in the following FT Op-Ed in which he unabashedly lashes out at Keynesianism. In it we read: "Mainstream Keynesian economics is facing its last hurrah. The global fiscal stimulus championed last year by the Obama administration is coming undone, repudiated by the same Group of 20 that endorsed it last year. Now, against a backdrop of a widening sovereign debt crisis, we need to abandon short-term thinking in favour of the long-term investments needed for sustained recovery." Such words of caution from a man who as recently as two weeks ago was encouraging precisely the very steps he is now purporting to be against. Nonetheless, we greet with open arms this most recent act of contrition by yet another economist who leaves the warm innards of the corpse of the economic false religion, and finally sees the light. Welcome Jeffrey.

Some other notable points in his op-ed:

Keynesian stimulus was premised on four dubious propositions: that it was needed to prevent a global depression; that a short-run fiscal boost would jump-start the economy; that “shovel-ready projects” could combine short-term cyclical and long-term structural agendas; and, last, that the rapid rise of public debt occasioned by stimulus need not be a concern. That these ideas were so widely accepted was a testament to the perennial political attractiveness of tax cuts and spending increases.

We hope that other high cardinal of Keynes, Paul Krugman is reading this.

In fact, the ubiquitous references last year to the Great Depression were glib; the policymakers had panicked. Adroit central banking could and would prevent depression. The hastily assembled stimulus packages were a throwback to naive Keynesianism. The relevant fact was that the US, UK, Ireland, Spain, Greece and others had over-borrowed for a decade, so a decline in consumption after 2007 was not an anomaly to be fought but an adjustment to be accepted.

Certain counter-cyclical spending is vital on social grounds. But stimulus measures such as temporary tax cuts for households or car scrappage schemes were dispiriting wastes of scarce time and money. They reflected a hope that a temporary fiscal bridge would carry us back to consumption and housing-led growth – a dubious proposition since the old “normal” had been financially unsustainable.

Sachs concludes with the following tirade which could have come from the pen of any Austrian:

Now we face a world economy with weak aggregate demand in the US and Europe, bulging budget deficits, sovereign debt downgrading and consumers unwilling to borrow. Governments are fighting for market credibility via draconian cuts in spending. This too is the wrong approach. We should avoid a simplistic austerity to follow the simplistic stimulus of last year. Here are some suggested guidelines.

First, governments should work within a medium-term budget framework of five years, and within a decade-long strategy on economic transformation. Deficit cutting should start now, not later, to achieve manageable debt-to-GDP ratios before 2015.

Second, governments should explain, and the public should learn, that there is little that economic policy can do to create high-quality jobs in the short term. Good jobs result from good education, cutting-edge technology, reliable infrastructure and adequate outlays of private capital, and thus are the outcome of years of sustained public and private investments. Governments need actively to promote post-secondary education.

Third, governments must of course also ensure social safety nets: income support for the poor, universal access to basic healthcare and education, a scaling up of job training programmes and promotion of higher education.

Fourth, governments should steer their economies towards needed long-term structural transformation. External-deficit countries such as the US and UK will need to promote exports over the next few years, while all countries must promote clean energy and new transport infrastructure.

Fifth, governments and the public should insist that the rich pay more in income and wealth taxes – indeed, a lot more. The upward re-distribution of the past 25 years has made our economies into extravagant playgrounds for the super-wealthy. Politicians of both the mainstream left and right in the US and UK have fawned over those who pay their campaign bills in return for low taxation. Even playgrounds should collect tolls – when it is billionaires in the sandpit.

We need, in sum, to reset our macroeconomic timetables. There are no short-term miracles, only the threat of more bubbles if we pursue economic illusions. To rebuild our economies, the watchword must be investment rather than stimulus.

It is now time for a Hendry-Sachs rematch. Somehow we think it would be far more interesting this time around.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
FLETCH's picture

They started putting windows in ivory towers?

Ragnar D's picture

Foggy ones.

I don't see those Austrian pens writing about how ramping up payments to the nonworking and trying to have the shrinking tax base pay for everyone else's health insurance and 6 year ethnic studies degrees/vacations is the way out.

Ditto for government distorting the market and crowding out legitimate investment with "green" energy schemes, and jacking up the tax burden even higher so we lose more than half our earnings.

Duuude's picture

 

Yeah...

 

But tha Dark Lord BB sayeth this morn...

 

Behold My power !!!

 

This Thursday, the beginning of the end of Wall Street as we know it will kick off. Congressional Democrats and Republican leaders will begin the “conference” process on combining the House and Senate finance reform bills. In the history of the US financial markets, we've had many boom and bust periods, panics and scandals, and typically there's a public backlash to a severe financial crisis. The more severe, the further back the pendulum arcs. After the Crash of 1929 we had the Securities Act of 1933 and 1934 as well as the Investment Company Act of 1940. Eleven years of reform. These pieces of legislation dramatically changed the face of public finance

, the capital markets, and the future of Wall Street.

 

http://www.minyanville.com/businessmarkets/articles/larry-mcdonald-finan...

ghostpirate's picture

I guess that douchebag decided to take time off from skiing and start working.  

Duke of Doubt's picture

Boy, heads must be exploding in NY and DC.  Richard Koo of Nomura is also being pulled, kicking and screaming, to a religious conversion.  Oh, the pain, the pain.  Pity party in Cambridge (both of them).

BlackBeard's picture

Embarrassment on public television can do wonders.

The Merchant of Venice's picture

"But interest rates are so low!" - Joseph Stiglitz

Sachs' medicine is nonsense as well.  Government needs to get the hell out of the way.  The last thing it should do is double down on a higher education bubble by engaging in an active promotion of post-secondary education.

Hugh is right.  Sachs is still stuck on keeping himself relevant and employed.  Sachs can't even muscle out a belch about labor reform in the public sector.

Ragnar D's picture

Bingo!

"Cut the ridiculous spending on stuff I don't like, but ramp it up even higher on my pet projects."

litoralkey's picture

In the post 9/11 recession, Pres Bush promoted jobs retraining programs on an absolutely massive scale.

I got in on that scam, both as a student (almost free IT certs !!), and as an instructor, (yay almost free money to teach people how to use Microsoft Office Suite and other silly things).  Out of the hundreds of students who went through those programs while I was in this industry, barely a third would end up with either promotions or new jobs based on their new skills.

Sachs is in fact arguing for a return to this course of subsidies.

Sachs is in fact arguing for a increase in the subisides to "green" industries, even after the leaked report from Spain's failed green industries subsidy program exposed the utter and total devastation those subsidies have on the economy.

Sachs is in fact arguing for the continued expansion of statist and fascist policies headed by the same posse of pinheads running the show today, Sachs wants to be hired as one of the change agents, apparently he wants a loftier pension scheme than the Columbia U pension, which is in itself goldplated, especially the health plan until he turns 66.5 years old.

 

imaginalis's picture

When academics talk like politicians it's time to revoke tenure

Popo's picture

What make him an expert exactly?   Are we applauding the fact that this man joined the rest of reality a decade late?   The eventual failure of Keynesianism was obvious to anyone outside the reach of academic economic idiocy as soon as we began to stimulate our way out of the dot-com / 9/11 slump.   Where the hell was Sachs?

He's still a douche.  Enjoy the tenure Jeffrey.  ...And try not to think too much about the fact that the religion you've been preaching for 20 years had little basis in mathematics, and deep roots in faith. 

 

 

The Merchant of Venice's picture

Sachs has been busy writing and promoting "The End of Poverty" while leading "The Earth Institute" at Columbia.

Sachs recommends nine brands of oil to use to put out the fires Keynesians have started around the world.

Dr. Acula's picture

"The eventual failure of Keynesianism was obvious ... as soon as we began to stimulate our way out of the dot-com / 9/11 slump"

Actually it's been a failure for much longer. Hazlitt logically ripped Keynes theories a new one decades ago http://mises.org/books/failureofneweconomics.pdf

 

 

Remington IV's picture

Keynesian , liberal zombies

damage's picture

Eh, I'd hardly call it "Austrian" with how 80% of what he is sayng is STILL talking about stuff the government should do... to "fix" things.

speculator's picture

I don't get how this is at all Austrian. Tax hikes? Drastic cuts in spending are the wrong approach? Government promotion (presumably subsidization) of clean energy and college? 

Don't dilute the term -- Sachs certainly doesn't understand the Austrian point of view, and is just spouting fashionable BS to try to stay relevant. 

anarchitect's picture

+2, one for each of the above two posts.

Maybe an Austrian could have said those things, but an Austrian school economist would never have said some of them.

I'm still staring at the screen, rubbing my eyes in disbelief.

bugs_'s picture

The last hurrah is exposing the marxists in the keynesian closet.

kosherenchiladas's picture

Fuck that. This guy would get waxed again by the Brit. And anybody that thinks belt-tightening is necessary is a dolt - most likely a dolt with a political agenda. What was (and is still) needed was an even bigger stimulous. Just ask the states. They're fucked.

Dr. Acula's picture

"What was (and is still) needed was an even bigger stimulous. Just ask the states"

Are you saying I can cure my anemia by withdrawing blood from one butt cheek and injecting it in the other one?

 

Temporalist's picture

I believe it would actually be drawing blood from everyon'es butt including your own to fill the banksters and politicians blood banks so they can continue to feed off the debt slaves.

AnAnonymous's picture

New horse to be ridden by economists so they can laugh their way to the bank.

Abandon short-term thinking? How?

Is short-term thinking the hall mark of Keynesianism? If yes,  they have this right at least.

Wasnt Keynesianism about saving during sunny days to help during rainy days? How could this have led to overborrowing? Shouldnt an adequate consequence expected to be oversaving?

This guy is once again off. This is a consumption game. Debt is good when plenty is brought to the table. Allows you to get much more than you could without using debt.

When less is brought to the table, the best is still debt based. Push on debt when sunny days,  force diet on rainy days. If you are at the correct position in the circuit, this allows optimal gain.  

snakeboat's picture

Question is - did he panic?  Hugh did tell him to...

everyone is bias's picture

I'd like to coin a new economic term for our current time, let's call it poly-anthroeconomic modulation. Simply put, economic theory derived from state sponsored employees will manifest the inherent propensity of power to corrupt man. The controlling nature of this corruption within the economists position is second only to the need to retain this power and influence. This need will drive the economist to set reactive policies (regulations) and peddle bankrupt ideals (socialism, statism, corporate facism). The second (right now for Sachs) they see the momentum of their failed policies come screaching to a halt, like a chameleon they will change their attitude and policies to reflect the trending pattern.

Bottom line they're all whores who will say anything for a paycheck. Get ready for the "freemarket" revolution...

chumbawamba's picture

Poly-Anthroeconomic Modulation.  I like it.

I am Chumbawamba.

SRV - ES339's picture

How do we set up a debate between Hugh, Ben, and Tim?

Maybe we go closed circuit... with proceeds to the debt!

Sands8oo's picture

Price of gold now telling Keynesian economists to go fuck themselves and shove their gone-full-retard economic theories straight up their assholes.

chumbawamba's picture

And it's using the Queen's English to do so.

I am Chumbawamba.

M.B. Drapier's picture

We hope that other high cardinal of Keynes, Paul Krugman is reading this.

Of course he read it. He's spitting bile about it.

ElvisDog's picture

I disagree with the "government needs to actively promote post-secondary education". How more actively could they promote it beyond the endless grants and financial aid programs that are now available. We're already graduating millions of young people with degrees in things like Religion and Women's Studies, like the woman from the NYT article, that have no real-world application. Those people have not only wasted 4-5 years of their lives, but are now debt-slaves to the student loans. If he would have said "actively promote post-secondary education in fields in which there will be job demands", I would agree.

suteibu's picture

Agreed.  But high school education needs reform as well.  Not every kid needs a pre-college high school curriculum.  Where are the trade schools? 

Dr. Acula's picture

"actively promote post-secondary education in fields in which there will be job demands"

So you're saying that money should be taken from elderly people to invest in educating students in fields for which the government predicts there will be market demand 10-20 years from now? How good do you think the government's speculating will be, using other people's money?

Why is this even necessary? A company anticipating a need for future employees can find already smart youths and then subsidize their education in exchange for a contractual promise for future labor. The company will of course base its decision on the profit motive. Do you really think government involvement, using other people's money, is needed to help companies pursue profit? Governments typically are guided by bureaucratic methods and not the profit motive.

What other socialist interventions do you recommend? If you think there will be a demand for hamburgers 10 years from now, should the government also subsidize construction of McDonalds restaurants? Should they take money from vegetarians to pay for this?

centerline's picture

Good to see some of these guys coming to at least a semi-conscience state. Now if we could find someone who is reasonably coherent regarding what we actually CAN do - versus this feel-good dribble. Oh, and get the hell out of the education system... it's doing about as good as the intervention with the housing market years ago. Can't even learn from current events, let alone history. What a dipshit.

Dr. Acula's picture

"Now, against a backdrop of a widening sovereign debt crisis, we need to abandon short-term thinking in favour of the long-term investments needed for sustained recovery."

The guy sounds like an economic crackpot. "we need" is a warning sign of an interventionist speaking. "Now" suggests that he is adjusting his interventionist plans on the fly. But the laws of economic science are unchanging. He denounces Keyenesianism, but his attacks carry little force as they are based on a set of historical data and not on timeless logic.

His suggestion that we need "long-term" investments is worrisome. When the interest rate is fixed by the central bank at a lower value than what market participants would choose, "long-term investments" often turn out to be malinvestments. What intervention will this guy recommend to increase investment above what market participants are choosing?

 

PeterSchump's picture

That five step plan is about as Austrian as Crocodile Dundee.

Apostate's picture

He's floundering. When they lose the Fed, the entire intellectual framework of the ruling class will melt away. They won't be able to handle the shock.

As of now, Sachs is accustomed to a world in which his essays have the power to change the lives of hundreds of millions of people. With the stroke of a pen, the shake of a hand, he's had the power to make and break dictators, cause road networks to spring out of nothing, and other feats of godlike power.

"No! You can't do this to me! I'm a deity! They'll put tolls on your playgrounds... tax the riiiich... Noooooooo!"

trav7777's picture

Fuck this Jeffrey Suchs.

The government needs to GET OUT OF THE WAY.  Labor pricing power created the middle class, NOT SOCIALISM.

Socialism and gov't sponsored "free trade" is what destroyed labor pricing power and aggrandized the executive class to pay the entirety of the profits to themselves.

Cathartes Aura's picture

Jeffrey D. Sachs is Professor of Economics and Director of the Earth Institute at Columbia University. He is also a Special Adviser to United Nations Secretary-General on the Millennium Development Goals.

jeffrey sachs is first and foremost a globalist, working for a global world order. . . he regularly pens little manifestos for the guardian commentary blogs  about how best to equalise the global economies by funneling monies from "first world" to "emerging" nationstates, after the top is skimmed off by the various global agencies and "non-governmental organisations". . . the impoverishment of the US would appear to be a step towards "equality" in a global context. . . discrediting the US "establishment" so as to fan the flames of disillusionment with the government seems to be a predictable course for jeffrey. . .

from his "project syndicate" bio:

Jeffrey D. Sachs has worked in the eye of many of the world’s economic hurricanes. One of the youngest economics professors in the history of Harvard University, he tamed inflation in Bolivia and was the key adviser to Poland as it launched its “shock therapy” break from communism. He advised President Yeltsin during the early stages of Russia’s reforms but resigned in protest against the ineptness and corruption of the Kremlin administration. Jeffrey D. Sachs's name remains synonymous with the idea of post communist transition.

(the above "bold" is from the page, not added by me)

http://www.project-syndicate.org/series/economics_and_justice/description

shill.

bi-metallism 1873's picture

 Jeffrey Sachs, as Austrian Economist Von Hayek's protege, is a disinformation specialist. The de-industrialization of the private sector combined with the hyper-inflation induced massive printing of fiat currency is a tragic way of re-visiting 1923  Weimar Germany..Sachs is just a messenger for what the Central bankers have always envisioned.

G-R-U-N-T's picture

When I saw this interview, I said to myself this Sach guy is an arrogant chap, and may have the inability to see the obvious. I pondered the relevance of my thought and then shelved it under the file name "Ball Sach". However, after reading this post I did considered re-naming the file "Boner", but I quickly realized that academics like him often default to their core ideology when pressured.

 

proLiberty's picture

Liberals live in a Plastic Reality of their own private making.  Keynes' theory gave them the a way that was superficially plausible to do what they yearned to do: have government that never had limits.  And liberals set about to expand every spending program they could dream up.

So, where are we?  Getting towards our credit limit, and coming within eyesight of the maximum about of debt that a country can carry without financial collapse.  When the future income stream is netted against the future spending stream,  if it is a net negative cash flow, we are at our limits of borrowing.  Either the voters will rise up and reverse this train-wreck or not.  If they do, then there is light at the end of this tunnel.  If they will not restrain government, it will finish the job it started doing: become a parasite that eats away at our wealth, income and assets until it has consumed us entirely in its service.

 

 

malek's picture

Sachs found religion? In a chameleon's way, maybe.

In Germany they call these people "Wendehals" (hard to translate: flip-flopper, turncoat, wryneck [Ornithology])

No More Bubbles's picture

I don't believe for a moment Mr. Sachs (or is it SACKS) was capable of that type of cogent and rather accurate thought process.  He was likely away skiing and someone broke into his office to ghost-write and then use Mr. Sachs computer fax to submit the piece.

Then again, the idiocy of his comment regarding edcuation says it probably was his writing.  Education is a waste of time & money for MOST people in the future these fuckwits have assured we'll have.  People need SKILLS, not booksmarts.......