Matthew Lynn on Keynesian solutions in the UK.
The U.K. has produced notable economists over the years, but John Maynard Keynes, the guru of government intervention, was one of truly global significance.
So it may be fitting that the U.K. will also become the deathbed of Keynesian economics.
Britain has been following the mainstream prescriptions of his followers more than any developed nation. It has cut interest rates, pumped up government spending, printed money like crazy, and nationalized almost half the banking industry.
Short of digging Karl Marx out of his London grave, and putting him in charge, it is hard to see how the state could get more involved in the economy.
The results will be dire. The economy is flat on its back, unemployment is rising, the pound is sinking, and the bond markets are bracketing the country with Greece and Portugal in the category marked “bankruptcy imminent.” At some point soon, even the most loyal disciples of Keynes will have to admit defeat, and accept that a radical change of direction is needed.
The public debate about the state of the British economy was enlivened last week by a brawl between economists.
A series of letters have been published in the UK press. This is the first. The second and third letters were published in the Financial Times.
Worth reading this http://www.iea.org.uk/record.jsp?type=book&ID=310
Samuel J
27 Feb 10 at 10:56 am
Worth listening to again:
http://www.youtube.com/watch?v=94lW6Y4tBXs
C.L.
27 Feb 10 at 12:32 pm
Surely one cannot say that deficit spending “can’t” work to help end a rescession. Equally surely, it can’t be denied that deficit spending is a medicine that is itself a poison when resort to it continues for too long.
pedro
28 Feb 10 at 8:04 am
This is what you can say. At best, stimulus sacrifices future growth for present consumption. At worst, it also deteriorates current economic performance, further dragging down future growth rates.
Semi Regular Libertarian
28 Feb 10 at 11:01 am
not surprisingly the Catallaxian crackpots are appalling in their knowledge of ‘Keynesian’ economics and think deficits equal ‘Keynesian’ policy.
Err no. the institute of fiscal studies has shown that the present Government is very much the like the previous one in increasing structural deficits over the length of their rule.
If a country is in good time the structural deficit should be zero not in deficit to a reasonable degree according to Keynes.
moreover if a country has a reasonably large structural deficit already and enters a bad recession, in this case alah the GFC. it has to incur an even larger deficit merely to stimulate the economy.
It is no surprise that countries with rather large structural deficits before the GFC combined with large cyclical deficits incurred because of the GFC had rather modest stimuli.
this like Japan actually confirms Keynes’s analysis but then you would have to read him to understand that.
Butterfield, Bloomfield & Bishop
28 Feb 10 at 12:32 pm
Homer:
Which coutnry other than Nazi Germany has in your opinion used Keynesian economics.
You’ve been asked this question before but either go hiding behind the garage or say you’ve answered it.
(Any attempt at dissembling will immediately cause homer’s razor to be invoked).
JC
28 Feb 10 at 12:37 pm
Or to put it another way, it’s not Labour or the Democrats’ fault that their Keynesian plans have failed.
Homer fiscal rule No.1:
Labor/Labour/Democrat deficits good.
Coalition/Tory/Republican deficits bad.
C.L.
28 Feb 10 at 12:41 pm
Don’t let me invoke Lambert’s razor combined with Homer’s razor or you’re in serious trouble Homer. That would be an immediate red card and sent off the site.
JC
28 Feb 10 at 12:41 pm
“not surprisingly the Catallaxian crackpots are appalling in their knowledge of ‘Keynesian’ economics and think deficits equal ‘Keynesian’ policy.”
As so would be Wayne Swan and Tim Geithner.
“institute of fiscal studies”
Reference please.
“If a country is in good time the structural deficit should be zero not in deficit to a reasonable degree according to Keynes.”
So what if you get 15 years of growth? Then what should you do?
“moreover if a country has a reasonably large structural deficit already and enters a bad recession, in this case alah the GFC. it has to incur an even larger deficit merely to stimulate the economy.”
We know this is not the case:
http://michaelscomments.files.wordpress.com/2010/02/stimulus-vs-unemployment-january-dots.gif
“this like Japan actually confirms Keynes’s analysis but then you would have to read him to understand that.”
You’d have to be literate, which is a jump considering how you’ve made egregious errors re: “contractionary stimulus”.
Semi Regular Libertarian
28 Feb 10 at 1:07 pm
Re the Institute of Fiscal Studies, yes, could we have a reference, Homer? We saw what you did with the Boyer Lectures.
C.L.
28 Feb 10 at 1:19 pm
this like Japan actually confirms Keynes’s analysis but then you would have to read him to understand that.
Yea, with debt to GDP ratio of 250% and a falling birthrate it sure does confirm fiscal spending, you intellectual baboon.
JC
28 Feb 10 at 1:24 pm
CL ,
if you actually followed the information from supermac you would have realised it was an earlier speech he gave as Deputy governor (around 1993) I believe.
That was obvious except to you but then economics isn’t your strongest suit.
sorry Forrest when a person makes an idiotic statement that a credit crunch happened in the early 90s he deserves to be taken as an complete imbecile.
you are herebey named credit crunch Forrest
you have duly won the Imbecile of 2010 for that. It doesn’t matter what ever else happens.
Marky you merely confirm you missed the macro-economics lecture in their year which dealt with with this.
Yes you do have contactionary stimulus. See chapter of Posen on Japan. It explains why Japan had a deficit but no increase in output except for 1995
Oh yeah every major institution uses this method.
The IFS is a fine institute. i will help though .It is called The UK public finances: ready for
recession? go to page 7 for the graphs as you won’t understand the writing
Butterfield, Bloomfield & Bishop
28 Feb 10 at 1:56 pm
if you actually followed the information from supermac you would have realised it was an earlier speech he gave as Deputy governor (around 1993) I believe.
I followed your information, Homer.
Which was…
Ian McFarlane said the EXACT OPPOSITE of this in the Boyer lectures. I doubt he said anything different in 1993 and will just assume you’re being untruthful again.
…economics isn’t your strongest suit.
No, it isn’t. What does that say about you, Homer, given the walloping I gave you on McFarlane?
C.L.
28 Feb 10 at 2:05 pm
No CL he didn’t actually address this point all.
in his 1994 speech he said
The long-run decline argument
A feeling that we have declined relative to
other countries has pervaded a lot of our
thinking. The most common form of this
argument is based on long-run comparisons
of income per head among developed
countries, which showed Australia at number
one at the turn of the century, but now back
in the middle of the field. There is a feeling of
disappointment that ‘we used to be number
one, but look how far we have slipped’.
The immediate response to this line of
argument is to ask whether we were really that
good, or was there a large element of luck. It
does not take a great deal of historical
knowledge to realise that there is more
substance in the latter explanation than the
former. In a sense, we were the Kuwait of the
1890s in that we had a lot of land and a small
number of people, and we were able to
produce commodities that were relatively
highly valued.
I used Saudi Arabia as an example rather than Kuwait but the argument is the same.
oh dear CL wrong AGAIN as usual. It bis interesting that both CL and credit Crunch Forrest believe they have ‘walloped’ when they have been KOed.
punch drunk
Butterfield, Bloomfield & Bishop
28 Feb 10 at 2:17 pm
“In a sense, we were the Kuwait of the
1890s in that we had a lot of land and a small
number of people, and we were able to
produce commodities that were relatively
highly valued.’
You left out the “and” Homer.
How about
“In a sense, we were highly valued.’
Is that what you meant?
ken n
28 Feb 10 at 2:23 pm
Let’s revisit Homer bungling McFarlane last week.
Rafe:
Homer:
Here’s the transcript of McFarlane’s Boyer lecture. He said the exact opposite of what Homer attributed to him. He did not say economic growth dropped with population growth but, rather, that it was as only high as it was because of our unusually high rate of population growth.
Caught quote-doctoring and verballing Ian McFarlane.
Now Homer says he was actually referring to a 1994 speech in which – as I predicted – McFarlane said NOTHING that contradicts his Boyer lecture.
C.L.
28 Feb 10 at 2:51 pm
Homer:
That’s it. I’m invoking both Homer and Lambert’s razor over this swill. You’re out for the count, you doofus.
You just can’t help yourself, can you? You’re given a chance and you drop the freaking ball each time. It’s like you have the equivalent of a death wish. Every time you go near the intellectual abyss you deliberately fall in.
JC
28 Feb 10 at 3:25 pm
The odd thing about Britain is that despite Labour’s stinking record on almost every front, they are now closing the gap with the hapless left-wing Cameron. If Brown can actually pull this off, and I hope he does, the wet Tories will be totally discredited after saying for 5 years that the only way to win is to become a bunch of Guardian-reading Marxists. The added bonus is that Brown and Labor will be thoroughly hated, despised and loathed in record amounts, and facing a more hardline Tory party down the track.
Michael Fisk
28 Feb 10 at 3:34 pm
I’m actually going for Brown. Cameron is a dick. The best thing to happen is that labor gets back in for another 5 years destroys everything in it’s path that it hasn’t already and the Conservatives get into the shower with steel scrubbing brushes.
Another 5 years of Labor ought to see the UK go door knocking at the IMF, getting in line with all the other 3rd world countries and labor ends up holding 5 seats in the election after.
JC
28 Feb 10 at 3:40 pm
CL,
It is quite obvious I am talking about SupermAc’s 1994 speech where I am perfectly correct the major reason why we had a very high income per capita was a low population hence the Kuwait of the 1890s quip.
Err the early 1950 and 1960s isn’t the 1890s.Cl caught out AGAIN not even understanding the topic.
you are hereby awarded a honorary Credit Crunch Forrest award
Butterfield, Bloomfield & Bishop
28 Feb 10 at 3:50 pm
Homer,
You are such a moron. The banking system here was on its knees with two of the major banks on RBA support and the entire state banking system having gone bust.
But no, there was no credit crunch. You have no freaking right to ever call yourself an economist, you imposter.
You went to the same economics school and Jacques Clouseau. Go away.
JC
28 Feb 10 at 3:55 pm
no Credit Crunch Forrest,
The RBA never lent support to any major Bank.
no bank ever found it hard to get capital from the markets either.
find out what a credit crunch was.Do not invent things that never happened.
Butterfield, Bloomfield & Bishop
28 Feb 10 at 3:59 pm
no bank ever found it hard to get capital from the markets either.
Umm okay Homes, you may be right with this one. I’d like to see how confident you are and suggest you propose a bet that Wetptach and ANZ weren’t recapped in the early 90′s.
JC
28 Feb 10 at 4:07 pm
You idiot Homer, recapitalization essentially means that their previous equity level after losses were incurred wouldn’t support healthy lending operations.
It confirms a credit crunch you dope.
You really are too freaking dense to be on this site.
Go away.
JC
28 Feb 10 at 4:10 pm
From Mark Steyn’s latest article:
We hard-hearted small-government guys are often damned as selfish types who care nothing for the general welfare. But, as the Greek protests make plain, nothing makes an individual more selfish than the socially equitable communitarianism of big government: Once a chap’s enjoying the fruits of government health care, government-paid vacation, government-funded early retirement, and all the rest, he couldn’t give a hoot about the general societal interest; he’s got his, and to hell with everyone else. People’s sense of entitlement endures long after the entitlement has ceased to make sense.
Tony Abbott should come out for a minimum 10% cut in all public sector salaries. It’s the just and Christian thing to do.
Michael Fisk
28 Feb 10 at 4:48 pm
Credit Crunch Forrest find out what a credit crunch is before betraying your idiocy yet again.
Northern rock is a good example. They thought they would always get funding from the wholesale markets.
They found out in THE credit crunch they couldn’t get any funding.
Butterfield, Bloomfield & Bishop
28 Feb 10 at 6:06 pm
“no bank ever found it hard to get capital from the markets either”
What? Then how come there was a resistance by major banks to lend in late 2008 even though a massive releveraging of banks and fall in the cost of capital of their main funding source (RBA money creation)?
“Credit Crunch Forrest find out what a credit crunch is before betraying your idiocy yet again.”
You even fuck up these smart alecky insults.
Semi Regular Libertarian
28 Feb 10 at 8:32 pm