Steven Kates is a Canadian-born economist who came to Australia and copied von Mises by working for 24 years with the Chamber of Commerce. He is now employed at the RMIT. This year he delivered the von Mises lecture at the annual conference of the Austrian Scholars.
The entire Austrian Scholars Conference, now on line, was a dream come true. Everyone agreed that it was the best yet, owing to what conference director Joseph T. Salerno called the “Second Austrian Revival.” He dates it from September 2008, when the banking system began to break down as the bust became evident to all.
Kates has made a deep study of the history of theories about the cause of economic instability (the boom and bust cycle).
The main theme of the lecture is to challenge the validity of Keynes of the General Principles, also the originality of his claims and the quality of his scholarship. In other words, he was wrong, he was old hat and he misinterpreted the classical economists. And we are up to our armpits in Keynesian policy right now!
Leading points in the lecture:
The triumph of Keynes represented a rare (but not entirely unknown) event in intellectual history, that is, of knowledge being lost and the field going backwards. Two other examples are the case of Lysenko in the USSR and the rise of logical positivism in the theory of knowledge.
A story about his time at the annual hearings of the National Wage Case at the Industrial Relations Commission. Every year the unions would argue that wages should be increased to stimulate demand.
Mill on the “general glut debate”. In 1844 he wrote that nobody would make the case for stimulation of demand either by government spending or by taking money from employers on the understanding that they will get it back when workers spend it. This was the orthodox view up to Keynes.
The significance of Says Law before and after Keynes.
The alleged refutation of Says Law was central to the argument of the General Theory.
Contrary to ideas about the originality of Keynes, the central idea came directly from Malthus.
In 1820 Malthus, who was possibly the most influential economist in the world made the case that the recession after the Napoleonic Wars was inadequate demand, too much saving rather than spending.
Ricardo in correspondence with Malthus wrote that the problem of reccession is not a problem of lack of demand, it is a problem of bad decisions by entrepreneurs, they are not matching production to demand.
For Keynes the great mistake was to follow Ricardo rather than Malthus.
Keynes re-introduced Says Law long after it had ceased to be an active topic in the literature and he found his favorite statement of the law in the work of a US economist, McCracken, who sent him his book in 1931 where Keynes picked up the definition “Supply creaes its own demand”.
Previously it was called the Law of Markets and it was extensively debated after Malthus of 1820, until, as noted, the Malthus/Keynes take on spending and demand were buried by 1844.
Keynes claimed that previous generations of benighted classical economists had never been able to explain (a) the phenomenon of unemployment (failure of markets to clear) and (b) the importance of money. Kates demonstrates that both of these claims are absurd.
Kates referred to Henry Clay’s highly popular textbook , the most used text of the time from about 1920 to 1943, which explained thke classical doctrine and the importance of balanced budgets, free trade etc.
But it is now practically impossible to find a textbook that does not use the (defective) Keynesian aggregate demand model as the centrepiece of macro.
On the failure of Keynesian ideas in practice, Kates claimed that there is no peacetime example of success.
The recession of Japan is the second great failure of Kenyesian management (the first was the US of the New Deal).
So what Steve Kates is saying is that Keynes was wrong because business somehow business spontaneously invests and expectations have nothing to do with it?
That household consumption is not a major driver of growth?
Keynes said that investment was the driver of business cycles. That when expectations become unrealistic toward the end of the boom the market a sudden moment of realisation, a Minsky moment in today’s vernacular the market can collapse, can enter into a slump. Is he also saying that this does not have an impact on consumption snd the decline in consumption does not make the business recession worse?
I would someone schooled in the classical school have pickedthis crisis better than someone who had rady Keynes?
As for classical economics I would love to know of a text or paper from the classical school which incorporated a theory of financial markets.
Financial markets’ central place in the economy was never discussed during my time at uni, either in a classical sense or a Keynesian sense.
As for Japan, they had a massive financial bust stagnant population growth and their financial system is still impaired. Changes in government fiscal policy had an impact whenever it was tried. The trouble is you can’t keep running huge deficits forever so expenditure was inevitably cut back. They should have just nationalised any large bank that couldn’t stand on its own two feet.
sdfc
20 Mar 10 at 9:43 pm
Sorry for the lack of editing. The fourth paragraph from the bottom is really bad
How does classical economics describe this crisis any better than Keynes?
sdfc
20 Mar 10 at 9:46 pm
As for classical economics I would love to know of a text or paper from the classical school which incorporated a theory of financial markets.
You don’t get it from Keynes as he even stuffed up how the price of credit is derived.
Mises and the other guys described a credit expansion and monetary expansion.
They of course explained how this makes the banking system vulnerable due to its leverage and sudden changes in asset values.
What else do you need to know.
JC
20 Mar 10 at 10:35 pm
Keynes described booms and busts in terms of specifically happens in financial markets all the rest appears to be hand waving. You need to know deflation is a killer in economies with large private sector debt.
Having just listened to the lecture it appears to be just a cartoon version of Keynes he is oblecting to. He provided no real discussion of financial markets, expctations or interest rates and no real discussion on slumps. Australia’s emergence from the depression was in no small part to the rebound in the terms of trade. Australia did not experience a financial collapse in the 1930s.
Unimpressed.
sdfc
20 Mar 10 at 10:45 pm
SDFC:
You don’t know Keynes and you don’t understand classical economics. Finally you’ve got idea on Austrian economics.
Anyone who says the 30′s was an example of the failure of free markets (Austrian economics) is basically ignorant. You are now veering into homer territory and it’s not a good look.
You need to apologize to the readership.
JC
20 Mar 10 at 10:53 pm
What are you talking about JC? Be specific. There was little monetary of fiscal support for the economy at the height of the depression. The deficits were no bigger than what Reagan ran. There were certainly no big structural deficits which after all is what characterises a Keynesian expansion. Considering is description of the bust is only what he observed I don’t see how you can say he was wrong there either.
You’re at a disadvantage here, I have read the GT you obviously haven’t.
sdfc
20 Mar 10 at 11:15 pm
I did read it, but around a 15 years ago.
Are you insane, SFDC? The 30′s was marked by heavy government interventionism.
Wages were kept high, tariffs were imposed and the US suspended convertibility to gold.
JC
20 Mar 10 at 11:23 pm
They raised the price of gold JC and then took steps to stop hoarding.
Industrial relations and import tax policy is not fiscal policy.
If you read it you sure as hell didn’t understand it. Sorry to be so rude but you show no knowledge of what Keynes wrote outside of Hicks’ bastardisation.
sdfc
20 Mar 10 at 11:29 pm
There were support programs for numerous commodities such as steel and agricultural products.
Support for big labor contracts set at every high prices.
The idea that the 30′s exemplified failure of market based economics is insane, SDFC. It shows your degree was wasted.
JC
20 Mar 10 at 11:29 pm
Gotta go JC, the missus is calling.
sdfc
20 Mar 10 at 11:30 pm
They raised the price of gold JC and then took steps to stop hoarding.
Roosevelt made it illegal for Americans to own gold bullion in 1933 and subsequently raised the price of gold to $35. This was a de-facto devaluation of the Dollar, you moron. The destructive bastard forced American to sell their gold bullion at $20 before raising the price obviously in an attempt to capture the price differential and make a profit off the backs of Citizens.
Let me pin you down here: do you understand that by raising the price of gold he essentially depreciated the dollar thereby attempting to create monetary inflation? Do you?
Industrial relations and import tax policy is not fiscal policy.
I never said it was dumphy. I brought up those two examples of severe government interventionism at the time to counter you preposterous suggestion that the 30’s was an example of the failure of market-based economics. It was actually an example of the failure on interventionism, you dill.
If you read it you sure as hell didn’t understand it. Sorry to be so rude but you show no knowledge of what Keynes wrote outside of Hicks’ bastardisation.
Please don’t ever dare to insult anyone here when you suggest raising the gold price against the Dollar was a tightening.
Go away.
JC
20 Mar 10 at 11:48 pm
The Fed made a couple of mistakes such as raising rates in 1931. However that action was reversed once they realized the economy was not coming back.
The Fed was actually quite loose after 1932/33 and the action raising the price of gold/ devaluing the dollar was one of those signals.
Come the fuck on. You actually think that raising the price of gold against the dollar was deflationary? Have you taken a stupid pill?
JC
21 Mar 10 at 12:02 am
With JC in residence people are doing so, in droves.
rog
21 Mar 10 at 9:01 am
JC rehearsing for his next major role; In Space, No One Can Hear You Scream
rog
21 Mar 10 at 9:04 am
Just reading the General Principles is not enough to claim that you understand Keynes, the academics argued for decades about what Keynes really meant.
If you think that he made a new and helpful contribution to economic theory and policy that might have been time well spent, but if you take on board the more plausible case argued by Kates, following people like Hazlitt, Hutt, Mises and others that it was old stuff in a strange new bottle then it was not.
Of course the myth of Keynes has been embedded in some generations of people, along with other myths like the twenties and thirties were periods of unfettered markets, zero government intervention etc.
A lot of misleading stuff was being taught in the HSC texts of Australia as surveyed round about 1990, I wonder if they have improved since then? What is planned for the new National Curriculum?
Rafe
21 Mar 10 at 9:53 am
Rog:
stop it with the obsession, you poisonous little shit. Don’t obsesses about me, just worry about your creditors and paying back the money you owe them.
Now fuck off, Loser.
JC
21 Mar 10 at 10:24 am
I brought up those two examples of severe government interventionism at the time to counter you preposterous suggestion that the 30’s was an example of the failure of market-based economics. It was actually an example of the failure on interventionism, you dill.
.
Could it be the failure of both? An inevitable crash built into the system. (C’arn guys crashes are inevitable, admit it.) This was followed by government intervention. Governments have traditionally needed to intervene in economic fubaria there’s a psychological need for leaders to take control. It’s an ape thing.
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This intervention had various effects. Not all bad. But some quite disasterous?
.
Just a brain fart.
Adrien
21 Mar 10 at 10:55 am
It could be the failure of both if both were practiced, Adrien. But they weren’t. As far as most people are concerned the Hoover and Roosevelt administrations were essentially a seamless straight line of intervention.
Here’s Hoover talking about how he had attempted to keep wages high during the economic collapse totally oblivious to the fact that this very policy caused the unemployment rate to cascade to 25%.
….we might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action. . . . No government in Washington has hitherto considered that it held so broad a responsibility for leadership in such times. . . . For the first time in the history of depression, dividends, profits, and the cost of living, have been reduced before wages have suffered. . . . They were maintained until the cost of living had decreased and the profits had practically vanished. They are now the highest real wages in the world.
Creating new jobs and giving to the whole system a new breath of life; nothing has ever been devised in our history which has done more for . . . “the common run of men and women.” Some of the reactionary economists urged that we should allow the liquidation to take its course until we had found bottom. . . . We determined that we would not follow the advice of the bitter-end liquidationists and see the whole body of debtors of the United States brought to bankruptcy and the savings of our people brought to destruction.
If you really want to see free market economics at work, you would have to look at the previous US 1920/21 depression where there was a material drop in industrial production but things got back to normal after 18 months. It was the last US down turn that was left alone.
The 30′s was a disaster in interventionism and Obama seems intent on following those similar policies.
JC
21 Mar 10 at 11:08 am
I listened to Kates lecture a week ago, from memory he discussed the concept of “structural maladjustments” of entrepeneurs/businesses providing goods & services (suppliers)…
Can anyone elaborate how this fits in with Say’s Law?
AndrewR
21 Mar 10 at 12:14 pm
the gold standard meant interest rates rose whilst the Depression was upon everybody in the US. This didn’t change until they got off the gold standard under Roosevelt.
hoover made real wage increases a quid pro quo for very ‘flexible’ labour measures.
20/21 was not a depression only a loony would think that. also consumers were loaded up to spend after saving through the war.
Obama’s fiscal policy is very modest afterall more than half of the deficit is due to the economy.
Butterfield, Bloomfield & Bishop
21 Mar 10 at 12:31 pm
Say’s Law in Context (Peter Anderson) from mises.org
AndrewR
21 Mar 10 at 12:34 pm
Obama has in fact tripled the deficit and his February monthly deficit was a record $220 billion. He is the worst fiscal deadbeat in US history.
Mmm, this reminds me of a certain commentator on these pages:
Krugman: Bush’s Deficit Bad, Obama’s Deficit Good.
C.L.
21 Mar 10 at 12:46 pm
the gold standard meant interest rates rose whilst the Depression was upon everybody in the US. This didn’t change until they got off the gold standard under Roosevelt.
You incredibly self-satisfied ignoramus. There was no gold standard in operation at the time as the world, with the exception of France (I think), had delinked at the 1919 Genoa convention where the powers decided they were going on a make believe system called the gold exchange standard, which really meant people couldn’t redeem their currency for gold.
hoover made real wage increases a quid pro quo for very ‘flexible’ labour measures.
Christ you’re a moron. How the fuck do you hold up real wages to the point that they’re the highest in the world and firms seeing vanishing profits and dividends in order to maintain a high wage while at the same time suggest there was flexibility. You really are a moron, Homer. You ought not ever talk about economics, as you’re a complete incompetent.
20/21 was not a depression only a loony would think that. also consumers were loaded up to spend after saving through the war.
Oh it wasn’t a depression? Really?
If the Keynesians are right about the Great Depression, then the depression of 1920–1921 should have been far worse. The same holds for the monetarists; things should have been awful in the 1920s if their theory of the 1930s is correct.
To be sure, the 1920–1921 depression was painful. The unemployment rate peaked at 11.7 percent in 1921. But it had dropped to 6.7 percent by the following year, and was down to 2.4 percent by 1923. After the depression the United States proceeded to enjoy the “Roaring Twenties,” arguably the most prosperous decade in the country’s history. Some of this prosperity was illusory—itself the result of subsequent Fed inflation—but nonetheless the 1920–1921 depression “purged the rottenness out of the system” and provided a solid framework for sustainable growth.
http://www.thefreemanonline.org/featured/the-depression-youve-never-heard-of-1920-1921/
Obama’s fiscal policy is very modest afterall more than half of the deficit is due to the economy.
The deficit is a record 11% of GDP you freaking ignorant, lying clown.
Anyway, as someone who refers to themselves as a Christian shouldn’t be staying away from the keyboard in deference to the big dude up there, or at the very least stop the lying on the Sabbath?
JC
21 Mar 10 at 12:46 pm
Just to show how stupid our resident idiot is maybe read Working paper 6060 from the NBER with the title
‘The gold Standard and the Great Depression’ by Barry Eichengreen and Peter Temin.
Once an idiot always an idiot!
flexibility stupid you know hire and fire.
1920/1 a Depression. Is it officially defined as a depression. well no. funny about that.
This bring us to the last stupid comment.HE is completely ignorant of how much of the deficit is due to the economy.
Truly a breath-taking display of stupidity and ignorance.
Worthy of the Annual golden Credit Crunch Forrest award
Butterfield, Bloomfield & Bishop
21 Mar 10 at 12:59 pm
“…the deficit is due to the economy.”
This again reminds of me the immortal phrase used by Theodore Dalrymple in his celebrated essay on the avoidance of personal moral responsibility: The Knife Went In.
C.L.
21 Mar 10 at 1:02 pm
CL shows he can’t read CBO documents as well as getting years mixed up.
gosh who was in charge when the recession came to the US
Butterfield, Bloomfield & Bishop
21 Mar 10 at 1:08 pm
Just to show how stupid our resident idiot is maybe read Working paper 6060 from the NBER with the title
‘The gold Standard and the Great Depression’ by Barry Eichengreen and Peter Temin.
I bet if I looked you’re either lying or don’t understand what they’re saying. I’d lean to the view that you don’t understand and you’re also lying. There was no gold standard from 1919 onwards you clown. There was a gold exchange standard. If you wish to insist I’d be happy to place decent bet. Are you , you cowardly clown?
flexibility stupid you know hire and fire.
You clown. You can’t have flexibility if the government has locked in higher wages that don’t unjust.
1920/1 a Depression. Is it officially defined as a depression. well no. funny about that.
You seriously are a dishonest dope.
You twit, you actually think the deficit is okay?
JC
21 Mar 10 at 1:08 pm
No kidding, Homer, you’re like a freaking virus at this site.
JC
21 Mar 10 at 1:09 pm
Let’s revisit two Homer bungles (and lies) to illustrate that he is to economics what Sir Les Patterson is to ballet.
First, the McFarlane affair.
——————————————
Rafe:
Homer:
I found the transcript of McFarlane’s Boyer lecture. He did not say economic growth dropped with population growth but, rather, that the only reason it was as high as it was is attributable to our unusually high rate of population growth.
Rafe argued that Australia was wealthier in real terms circa 1900 than it was after the dirigiste Settlement got fully underway. This was Rafe’s point. He was correct. Homer claimed McFarlane scotched that idea by saying population was the only factor swinging prosperity our way circa 1900. McFarlane made no such claim in the Boyer lecture. He said the EXACT OPPOSITE about the role of population vis-a-vis prosperity – using the two periods comparatively.
Homer bungled the whole subject from start to finish and verballed McFarlane.
C.L.
21 Mar 10 at 1:14 pm
2. Re Homer Cheney’s hilarious fiscal denialism.
Let’s look at the history.
Obama’s Statement on the Senate’s Passage of the FY 2009 Budget:
Right direction. Obama’s deficit: $1.6 trillion.
C.L.
21 Mar 10 at 1:17 pm
Let’s revisit two Homer bungles (and lies) to illustrate that he is to economics what Sir Les Patterson is to ballet.
Homer Patterson? LOL
JC
21 Mar 10 at 1:19 pm
1920/21 was a bust which could have been made into a depression but in the absence of intervention it was all over in 12-18 months.
Rafe
21 Mar 10 at 1:20 pm
We won’t even talk about Homer’s latest claim.
To wit: Rudd’s insulation scheme has made Australian homes safer than they were before.
C.L.
21 Mar 10 at 1:28 pm
That’s right, Homer and his mate possum figured out that the Lurch incineration plan actually saved homes. hahahahahahahhahahaha
Is he posting comments from a padded cell?
JC
21 Mar 10 at 1:35 pm
Here’s Hoover talking about how he had attempted to keep wages high during the economic collapse totally oblivious to the fact that this very policy caused the unemployment rate to cascade to 25%.
.
This is, of course, absolutely true. The good thing about downturns is it makes everything cheaper. Govt intervention has a way taking the one good thing about them away.
.
Perhaps if people were solidly grounded in the fact of recession from an early age they wouldn’t expect the govt to intervene as much as they seem to now.
.
The GFC was a pimple, I think, at least partly because the govt took control. It was psychological, a placebo that did a trick. Now I’m seeing prices haven’t come down and I’m thinking it might’ve been better if the recession actually happened properly.
.
But it must be said that govt intervention was the only solution to what could have been very serious. If they’re thirsty enough, people will drink. Even if it’s bad water.
Adrien
21 Mar 10 at 2:43 pm
There was no psychology, no placebo and no “solution” offered by government intervention. The so-called GFC was never forecast to impact significantly on Australia and China just kept on buying shitloads of our gear like nothing had happened. The stimulus was a waste of money – a technical recession avoidance plan (TRAP), as Saul Eslake accurately described it.
C.L.
21 Mar 10 at 2:48 pm
The so-called GFC was never forecast to impact significantly on Australia
.
Yes I remember the media chorus singing this regularly in the weeks that followed the Lehmann Bros Kaput Event. Such ubiquity of rhetoric reminds me of propoganda. But it was in aid of a sound principle. Fundamentally this was an American problem. We have yet to face the consequences of the credit card lifestyle.
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There was no psychology, no placebo and no “solution” offered by government intervention.
.
The CRM-114 is on the case today. Of course there’s bloody psychology – we are not all robots! There’s an element of every crash that’s psychological. Like bank runs. When you reason you know it’s not a good idea to rush to the bank and get your money out, that that’ll just make things worse. But everyone else is not reasonable like you are, you say (as almost everyone does) and so…
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You RUSH to the bank which fails because everyone thinks it’s gonna.
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The news was gloomy, people might’ve been inclined to save their money, buy gold and hard-candy for Christmas, blah blah blah. That would’ve caused recession which creates a feedback loop which causes more recesssion. Thing is, if you know what a recession is then you know that you start buying when it hits bottom – that a recession is an opportunity.
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You create that understanding, that perception of economic cycles within the culture and you get skepticism of govt intervention which is a good thing especially as it might just be required sometimes, some ways. Large numbers of citizens starving ain’t good.
Adrien
21 Mar 10 at 3:11 pm
A commenter with the name “Pierre The Great Suckeer” is trying to comment on this thread. Graeme Bird is banned at Catallaxy no matter what his pseudonym is.
Sinclair Davidson
21 Mar 10 at 4:47 pm
I see CIRCA l is still showing his marvelous understanding of the English language.
yes Saul did accurately describe it but it obviously went over your head.
Err no-one votes for the effect it has on the budget!
no-one in the US thought the recession in 1920-1 would last long. There was a lagged effect from the ending of WW1 and fully cashed up consumers.
Why did 1920-1 need intervention Rafe. no liquidity trap occurred at all.
oh and to the Catallaxian idiot, yes you needed little reasons to either hire or fire workers.
That bis called flexibility. Employers agreed with this whilst giving out increased real wages.
Butterfield, Bloomfield & Bishop
21 Mar 10 at 5:59 pm
sfdc,
Why are tax cuts inflationary if some is invariably saved?
Are you calling saving inflationary?
“The idea that the 30’s exemplified failure of market based economics is insane, SDFC. It shows your degree was wasted.”
Absolutely.
Semi Regular Libertarian
21 Mar 10 at 8:56 pm
If tax cuts are inflationary, then all we need do is to cut taxes and then under the assumptions of Keynesian “economics”, any liquidity trap driven recession is gone and we are in a golden age of Government directed economic equilibrium.
This is sheer fucking idiocy.
Semi Regular Libertarian
21 Mar 10 at 9:01 pm
Sorry if I’m cherry picking comments to respond to here but I haven’t had time to respond until now and there has been a hell of a lot of activity.
Firstly JC the policy of devaluation was intentionally inflationary. The US had just experienced heavy deflation. Sorry if this is a shock to you, I know you are largely ignorant as to the causes of the 1930′s crisis.
I wasn’t suggesting a raising of the gold price was a tightening. Where did you get that from? Just made it up I suppose, as usual. I’m glad you finally accept there was no fiscal stimulus of any note. Some of your brothers in arms are still arguing that there was.
The Fed failed in not engaging in QE. Have you not read Friedman?
Rafe
Actually reading the GT, puts me way ahead of most of Keynes critics. What more plausible case has been put forward by those who you cite. The GT gave a very accurate description of what happened in the GFC. If you have a better theory of financial markets than Keynes let me know a paper to read which embodies your beliefs. Otherwise you are just a blowhard like the rest. You critics are full of hand-waving but short on specifics.
JC
As far as most people are concerned Hoover and Roosevelt are a simple straight line? Once again lots of rhetoric but no substance. Roosevelt ran bigger deficits than Hoover right up until 1937, when, you guessed it, the US fell back into recession. Full marks for running an argument that gets shot down in flames by the data every time.
What was the level of private debt as opposed to government debt in 1920/21?
CL
Were Bush or Reagan fiscal deadbeats for running deficits in times of growth?
JC
There was no gold standard in the early 30s? You have just disgraced yourself beyond repair.
SRL
You once again show you are not up to scratch in even basic economics. Have you any evidence the tax cuts were saved. After all the RBA was quite clear in that it was raising interest rates to quell runaway domestic demand.
Regurgatating JC’s pathetic rhetoric is no substitute for argument. Try telling me where Keynes was wrong about financial markets. See if you can do it.
sdfc
21 Mar 10 at 9:49 pm
Sorry SRL didn’t see your last comment. Apart for the superfluous bullshit it appears you might be finally starting to get it.
sdfc
21 Mar 10 at 10:06 pm
The idea that we can inflate ourselves out of a liquidity trap, force inflexible labour markets to clear and balance externally merely by increasing inflation vis a vis holding the level of spending the same and cutting taxes is not only bizzare but it belies your “understanding” of the MPC and expectations.
“After all the RBA was quite clear in that it was raising interest rates to quell runaway domestic demand.”
In an insulation industry that now has no demand and 18 months of stock at last month’s demand.
What a way to restore macroeconomic equilibrium.
Semi Regular Libertarian
21 Mar 10 at 10:13 pm
OMG
SFDC actually fucking believes this shit:
“If tax cuts are inflationary, then all we need do is to cut taxes and then under the assumptions of Keynesian “economics”, any liquidity trap driven recession is gone and we are in a golden age of Government directed economic equilibrium.”
‘Apart for the superfluous bullshit it appears you might be finally starting to get it.’
which was:
“This is sheer fucking idiocy.”
Yep, I don’t understand basic economics. This from the economic *genius* that thought burying legal tender down mineshafts ala Keynes/Strangelovenomics was “an interesting idea”.
It’s not fucking “interesting”. It’s monster raving loony tune certifiably insane.
You’re not worth debating and you’re only worth ridiculing for the novelty value.
Semi Regular Libertarian
21 Mar 10 at 10:17 pm
Sorry if I’m cherry picking comments to respond to here but I haven’t had time to respond until now and there has been a hell of a lot of activity.
No, no, no. Don’t apologize for cherry picking apologize for all the other bullshit. All our comments stand in good stead unless of course you’ll now resort to truncating.
Firstly JC the policy of devaluation was intentionally inflationary. The US had just experienced heavy deflation. Sorry if this is a shock to you, I know you are largely ignorant as to the causes of the 1930’s crisis.
Yes, I know that SDFC. I made the very same comment earlier when I explained to you that the rise in the gold price was an inflationary policy. Take a look above. So repeating in different words what I explained to you doesn’t get you off the hook for fucking up and suggesting that it had the opposite effect.
I wasn’t suggesting a raising of the gold price was a tightening. Where did you get that from? Just made it up I suppose, as usual.
I’m not making it up at all. This is what you said:
They raised the price of gold JC and then took steps to stop hoarding.
That preceded by this comment you made:
“What are you talking about JC? Be specific. There was little monetary of fiscal support for the economy at the height of the depression”.
You thought that the hike in the gold price was deflationary. That’s okay every amateur makes mistakes although I must say this was a whopper.
I’m glad you finally accept there was no fiscal stimulus of any note. Some of your brothers in arms are still arguing that there was.
I think you’ll find “my brothers in arms” are really arguing that the US Great Depression was marked by policy mistake over policy mistake causing all these rolling recessions during this period.
The Fed failed in not engaging in QE. Have you not read Friedman?
Long time ago. However I thought James Grants Book, “Money of the mind” was also pretty good.
As far as most people are concerned Hoover and Roosevelt are a simple straight line? Once again lots of rhetoric but no substance. Roosevelt ran bigger deficits than Hoover right up until 1937, when, you guessed it, the US fell back into recession.
There was very little space between them. The only difference was that Roosevelt made the situation worse.
JC
There was no gold standard in the early 30s? You have just disgraced yourself beyond repair.
How am I disgracing myself, as you really don’t seem to even understand basic terms? There is a difference between a gold standard and a gold exchange standard, Dumphy. There was no gold standard in the 30’s which means you couldn’t redeem dollars for an expression of gold which was I think $20 per ounce before it was devalued to $35 by the Roosevelt Administration.
JC
21 Mar 10 at 10:22 pm
Sorry SRL didn’t see your last comment. Apart for the superfluous bullshit it appears you might be finally starting to get it.
Get it? SRL get it? Dude you thought raising the gold price was a deflationary action and you’re telling people they’re starting “to get it”.
How whimsical.
JC
21 Mar 10 at 10:25 pm
“Dude you thought raising the gold price was a deflationary action and you’re telling people they’re starting “to get it”.”
No really SFDC if you’re going to be a bombastic jerk about the *glories* of un-bastardised Keynesianism, please fuck off until you actually understand what inflation actually is.
This is as bad as Homer telling people that they are innumerate when he’s functionally illiterate.
Semi Regular Libertarian
21 Mar 10 at 10:32 pm
SRL
I have explained to you how expansionary fiscal policy is inflationary. Your task is to provide an explanation as to why it is not. Simply going OMG. Blah, blah might pass with your undergraduate mates but not here. Provide an argument or stop wasting my time.
I said the concept of burying banknotes is an interesting. If you don’t believe it is, let me know why pumping up bank reserves is a more efficient means of promoting money supply growth.
Instead of just me giving you my thoughts on financial market theory and you’re response being no your wrong, why don’t you posit a theory and we can start our discussion there? The concepts I am bringing to the table are obviously too much for you.
JC
Let me keep it simple for you after all you’re out of your depth here. Once again, where did I say raising the gold price was deflationary? This is getting really dull. I come here for some debate but you are quite frankly embarrassing yourself. Aren’t you the dickhead who thought a devaluation was destructive?
The depression was caused by a financial collapse and a do little approach in the aftermath. Friedman understood this, you obviously don’t. Explain to me how policy in 1932/33 was loose again.
How did Keynes stuff up the price of credit? If you must reply, reply to this. And be specific.
How did Roosevelt make the situation worse? Growth was quite strong between 1933 and 1937.
Gold exchange standard. Fuck me hair splitting again. Have you ever wondered why devaluation was such a boost to the US economy? You really are second rate.
sdfc
21 Mar 10 at 11:28 pm
Let me keep it simple for you after all you’re out of your depth here.
Dude, I’m playing in your baby pool, the water is only up to my ankles and I’m worried you might drown.
Once again, where did I say raising the gold price was deflationary?
You did more or less. You strongly intimated that and when you realized you were wrong you backtracked at 100 mph.
Aren’t you the dickhead who thought a devaluation was destructive?
You mean like devaluation in a fixed currency regime? It’s not destructive and I never said it was, however devaluation is not something to be celebrated, SFDC as it usually is signal that things are not going to well. Devaluation also causes falls in relative living standards as you can buy less from overseas while domestic assets become relatively cheaper as well. I never suggested devaluation is bad policy, inspector Clouseau, however don’t be under any illusions that it’s a godsend to a nation’s people as it isn’t.
The depression was caused by a financial collapse and a do little approach in the aftermath.
Do little approach? Dude, did you read what Hoover said? Do you honestly believe FDR just sat around? He tried to stack the Supreme court in an attempt to foster fascistic economics. The man was a fucking menace.
Explain to me how policy in 1932/33 was loose again.
You’re like a drunk now throwing punches at shadows. I never said policy was loose up to 1933. In fact the Fed raised rates at one stage (1931 I think). You’re just making shit up as you go along.
How did Keynes stuff up the price of credit? If you must reply, reply to this.
Are you thick? I have explained this several times now. Keynes was wrong because he said liquidity preference etc. and a few other things determine interest rates. I’m not repeating what I said, so just go to the top of the page and read the fucking thing again.
And be specific.
I was Inspector.
How did Roosevelt make the situation worse?
There was a fleeting period when the unemployment rate went down to 14% and then it sky rocketed back to 25% in the latter part of the decade. FDR was a fucking disaster on crutches.
Gold exchange standard. Fuck me hair splitting again. Have you ever wondered why devaluation was such a boost to the US economy?
You call that splitting hairs. I’m not going to abuse you, as that would be like abusing a baby. It’s not splitting hairs, you numbnut. The gold standard and a gold exchange standard are really materially different things. In the gold exchange standard gold simply no longer moves around the world to make the necessary adjustments. The difference is more important than you would care to think, Dumphs.
If you think it’s splitting hairs, you will need to explain why.
JC
21 Mar 10 at 11:52 pm
JC
So you can’t answer when I said devaluation was deflationary? I take it this is an admission of error. Why do you think the Fed raised rates in 1931 (could be 1932). Because it was protecting a fixed exchange rate.
The trough in the depression was in 1932 and early 1933. Before Hoover got in.
You need to explain why you think the theory of liquidity preference is wrong. I understand this might be tough given the GFC proved Keynes right, but give it a go anyway. If you believe it is wrong perhaps you can explain the jump in credit spreads during the GFC. Being specific about your objections to Keynes theory of liquidity preference actually entails you putting forward an opposing argument. Can you manage that?
As for the gold standard, lets stop fiddling about the edges. What makes you think the fixed exchange rate system of the 1920s and early 30s wasn’t deflationary?
As for the renewed slump of the late 30′s, I’m glad you finally acknowledge that tightening fiscal and monetary policy policy was a mistake.
sdfc
22 Mar 10 at 12:43 am
So you can’t answer when I said devaluation was deflationary?
I did answer. There you go lying again.
I take it this is an admission of error.
Yes you should admit your error, but I won’t be holding my breath.
Why do you think the Fed raised rates in 1931 (could be 1932). Because it was protecting a fixed exchange rate.
They were protecting which fixed exchange rate? Sterling? Gold? That’s the trouble with a gold exchange but are unable to understand. They raised rates because it was somehow supposed to emulate a regular gold standard, which had worked very well off and on for 100 years or so, and it was basically done away with at a meeting in Genoa in 1919. If there was a real gold standard where the currency was freely convertible into gold at will they would never have raised rates. The gold exchange standard put them in hell, as they didn’t know what the blazes they were doing. Raising rates at the time was poison.
The trough in the depression was in 1932 and early 1933. Before Hoover got in.
Hoover got in, in 28, dumphs.
You need to explain why you think the theory of liquidity preference is wrong. I understand this might be tough given the GFC proved Keynes right, but give it a go anyway. If you believe it is wrong perhaps you can explain the jump in credit spreads during the GFC. Being specific about your objections to Keynes theory of liquidity preference actually entails you putting forward an opposing argument. Can you manage that?
I did earlier and I’m not going to repeat it again because you’re either incapable of using a mouse to rewind the thread or too lazy to. I’m not going to enable stupidity or laziness.
As for the gold standard, lets stop fiddling about the edges. What makes you think the fixed exchange rate system of the 1920s and early 30s wasn’t deflationary?
It was actually inflationary all through the 20’s as the FED and the Old lady were fucking around with the exchange rate throughout that period before 29, causing the US to inflate. They didn’t realize it but they were really ignoring gold and simply moving the exchange rates when they pleased. If there were a gold standard they would never have been able to do that. What made the whole thing unpardonable is that they were pretending they were subservient to gold but were in fact really fixing exchange rates, except for the French. It became deflationary after the crash as they weren’t responding to the crash faster enough and at one stage raised rates. It was a disastrous policy. Add in the Hoover policy carried forward by FDR of not allowing labour rates and important prices to adjust downward and you really had a toxic situation on your hands.
As for the renewed slump of the late 30’s, I’m glad you finally acknowledge that tightening fiscal and monetary policy policy was a mistake.
I don’t acknowledge that tightening fiscal policy was a mistake at all as the swing wasn’t that significant. What was significant was what the two administrations were doing in terms of keeping up wage rates and preventing prices from adjusting downward in addition to not acting fast enough to devalue the dollar. I always think that explicit devaluation s etc. are wrong policies. The market should be allowed to adjust the exchange rate through the signal from looser monetary policy. Perversely I have seen situations where a currency strengthens when monetary policy is loosed in anticipation of an economic rebound. They were paying little or no attention to gold in the 30’s SDFC. It was a make believe exchange standard as the nations weren’t even willing to move gold around in exchange for currency. The Pound to the Dollar was basically a fixed exchange rate unable to adjust quickly enough to events and the domestic price level was made artificially high.
JC
22 Mar 10 at 1:11 am
This is where you Keynesians end up in the intellectual sewer.
If there actually was a fully fledged gold standard in the 20′s the US would have most avoided the crash as the operation of the gold standard would have caused gold to leave the US and averted the boom and subsequent crash and not have allowed things to get so out of hand in the earlier years.
You can’t look at the crash in isolation and avoiding looking at the earlier years to caused the credit boom in he first place.
JC
22 Mar 10 at 1:18 am
OOps
You can’t look at the crash in isolation and avoid looking at the earlier years as you won’t see what caused the credit boom in the first place.
JC
22 Mar 10 at 1:21 am
“So you can’t answer when I said devaluation was deflationary? ”
A devaluation is never deflationary. TPretty simple. A devaluation tends to be inflationary. Not necessarily. But in the case of devaluing your currency against gold when you are on the gold standard, obviously this is not a deflationary move.
So supposing you are on the gold standard, and you are willing to swap your paper currency both ways for ten dollars per gram of gold. So if you then devalue your paper money, so that not it takes ten thousand dollars to buy a gram of gold, thats inflationary.
So it goes like this on that sort of gold standard:
devaluation …….. inflationary.
revaluation ……… contractionary.
Have you got that sorted now sdfc? Other then wasting time you have only proved that Keynesians don’t understand a thing.
Harry May
22 Mar 10 at 4:49 am
“You need to explain why you think the theory of liquidity preference is wrong…”
There is no theory of liquidity preference. “Liquidity preference” is just Keynes’ clumsy argot for “the demand for cash balances.”
That would be like me saying: SDFC. You have to explain why the theory of the demand for cash balances is wrong?
You’ve already shown you don’t know a thing. Why not just attempt to learn the reality of it. Its not as if Kates is wrong. He’s position is entirely unassailable.
Harry May
22 Mar 10 at 4:52 am
“Financial markets’ central place in the economy was never discussed during my time at uni, either in a classical sense or a Keynesian sense.”
You were taught be Keynesians. And they don’t know anything about either the Classical school, or financial markets. So why would you have learnt anything about it? You haven’t learnt a thing about economics.
Harry May
22 Mar 10 at 4:55 am
sfdc,
“I have explained to you how expansionary fiscal policy is inflationary.”
Wrong. You’ve now inferred that savings are inflationary. Or that you’ve “read Keynes” but don’t actually know what the MPC is. You’ve disputed Rubinomics without any proof, rewritten the macroeconomic literature of the last 50 years with regards to expectations and household activity wiothout lifting a finger but also messed up the basics of implementing Keynesian policy.
Do you actually think you know what you’re talking about? You didn’t even realise that devaluing a currency was inflationary. You’ve got the gall to whip out a dishonest insult about my credentials? It is doubtful you’d even pass HSC economics if you don’t understand the basics of a devaluation.
“I said the concept of burying banknotes is an interesting”
Go out and bury some then, Dr Strangelove. The idea that a liquidity trap is also a banking crisis is lost on you.
“The concepts I am bringing to the table are obviously too much for you.”
You twit, you think animal spirits and parameter instability cease to exist with Government intervention.
Your assertion that I’ve simply insulted you is fatuous. We were having a good clean debate once and you had a bout of MPD and decided I knew nothing about economics after dodging questions about the stability of IS LM parameters.
I’ve insulted your intelligence by pointing out the increase in GDP was mostly in a sector which was made unsustainable and is now ruined by the same policy that gave it a boom. The same industry now has a Keynesian output gap of immense proportions.
Any contempt you get since you have disgraced yourself withdishonest, hypocritical slurs is totally deserving.
Semi Regular Libertarian
22 Mar 10 at 9:53 am
Mark, I am sorry you are appear too thick to understand that if an economy is a full capacity then all expenditure that people do with tax cuts goes into inflation not output.
very easy actually.
Butterfield, Bloomfield & Bishop
22 Mar 10 at 11:26 am
A commenter with the name “Pierre The Great Suckeer” is trying to comment on this thread. Graeme Bird is banned at Catallaxy no matter what his pseudonym is
.
Well tht’s progress. Greme’s new name indicates that he’s finally coming to terms with his homosexuality. Graeme is, as we all know, a cauldron of seething, volatile Greek love fixing to burst from sheer pressure. No wonder he’s so flatulent.
.
But with name like that we can forsee new problems. Once he’s out of the closet he’ll find nothing but disppointment until he finally gets invited on The Jerry Springer Show when they air the episode: ‘I’m a twink in a bear’s body’.
.
I miss Grame. Of course if he was let back in it’d take 20 seconds for a post about media regulation to convert to a three week stoush on whether or no the Martians who built the pyramids had fractional reserve banking or not.
Adrien
22 Mar 10 at 12:41 pm
“I am sorry you are appear too thick to understand that if an economy is a full capacity then all expenditure that people do with tax cuts goes into inflation not output.
very easy actually.”
You dullard. I was being harsh on sfdc but you’ve blazed in and displayed egregious stupidity once more.
I haven’t necessarily said that an unfunded tax cut isn’t inflationary. What I’ve done is coaxed an admission from a Keynesian like SFDC as much as he doesn’t believe the MPC 1? This infers that stimulus is simply a wealth transfer. An unfunded tax cut will cause inflation but a funded tax cut will create savings. The fiscal theory of prices tells us that the lower level of spending, the lower the inflation rate will be.
Keynesians typically ignore these facts in light of continuing and problematic inflation during the good times.
You guys don’t think you’re supporting Keynes by putting these dumb ideas forward, do you?
It is always amusing see your support of the fiscal theory of prices oscillate as it is convenient. Here’s a question Homer: At any level of capacity and acknowledging that MPC < 1, why are tax cuts inflationary if they necessarily cause savings, as opposed to spending on "projects" or Government transfers?
You've simply interjected where you weren't needed – the argument between sfdc and myself wasn't about full capacity. It was about a liquidity trap driven downturn.
You have neither the authority nor the credibility to adjudge someone as thick as long as you believe in the witless circular reasoning and incogency of Keynes. Or should we say the incogency of sfdc's and your Keynes?
So we agree that running unfunded spending is inflationary. Big deal. It isn't going to end a liquidity trap led recession by making credit, investment and labour markets adjust. sfdc contines to dishonestly slur my credentials whilst spruiking inflation as "the answer" whilst not actually know what inflation does. The gap between Team Obama's forecasts and actuals re: unemployment continues to increase. The industry at the core of the Australian "recovery" (which we didn't have such a downturn or liquidity trap, and so didn't "need" the stimulus in the first place) is now ruined by becoming unsustainable, it now has an output gap equal to 18 months worth of stock, which it won't be able to clear after that point in time. It is in the dreaded output disequilibrium which Keynesian "solves".
Semi Regular Libertarian
22 Mar 10 at 4:12 pm
…um…
“he doesn’t believe the MPC 1?”
should be:
–> “the MPC < 1"
Really all of the insults and jibes are superfluous. A lot of the inconsistency of the Keynesians is rubbery logic they use to support the failures of socialism.
Keynes simply wanted to do something to avert public pressure away from supporting full blown communism.
Really this is what it comes down to: Do you believe deficit caused inflation can turn around an economy in a liquidity trap led recession?
The experience worldwide suggests no, particularly in the US. So does Japan, but Homer would have to explain to SFDC that wasn't actually Keynesian. Maybe Homer can explain what inflation is to him and what does as well. Then maybe Homer can read what the fiscal theory of prices is. This also totally ignores why such a situation may have occurred in the first place.
Let's look at how well the stimulus is working out:
http://michaelscomments.files.wordpress.com/2010/03/unemployment-projection-march-2010.gif
On that evidence you'd have to answer no. Come on Homer and sfdc. Join the reality based community.
Semi Regular Libertarian
22 Mar 10 at 4:24 pm
More from John Taylor on the ineffectiveness of fiscal stimulus:
http://johnbtaylorsblog.blogspot.com/2010/02/one-year-later-and-more-evidence-that.html
Semi Regular Libertarian
22 Mar 10 at 4:29 pm
JC
They tightened fiscal and monetary policy in the late 30s and the economy fell back into recession. This is not theory but history.
The same goes with the fixed exchange rate regime. History shows it was deflationary. The Fed raised the discount rate in 1932 to defend the gold standard.
You defend the exchange rate regime as not being deflationary yet say they were too slow to devalue. Don’t you see the contradiction in these two positions you simultaneously hold.
The trough in the depression was in 1932 and early 1933. Before Hoover got in.
Hoover got in, in 28, dumphs.
Fair enough, however that was pretty obviously a typo considering I was responding to your criticism of Roosevelt.
Harry May
A new name but the same old non-argument. I never said devaluation was deflationary. JC said I did and I asked him to provide evidence that I had. This kind of makes the rest of your comment superfluous. If you’re going to join in a conversation at least try to keep up.
SRL
When did I say savings was inflationary? No pissing about. Point to a comment.
Let me clear it up for you. You won’t find one. Below is my comment from 21 March 9:49pm. Hope it clears up your gross error.
“Firstly JC the policy of devaluation was intentionally inflationary. The US had just experienced heavy deflation. Sorry if this is a shock to you, I know you are largely ignorant as to the causes of the 1930’s crisis.”
Back to you Harry
What do cash balances give you Harry? Liquidity. Perhaps you might want to explain what point you were trying to make. I’m betting it was nothing of any consequence. I’ve got an idea for you how about making an argument where Keynes was wrong.
I know Steve Kates is a bit of a hero of yours but his position can’t be unassailable because he hasn’t actually made an argument why Keynes was wrong. The theory of spontaneous business investment just doesn’t cut it. Let me spell it out for you again, business only invests if they expect returns. You know economic profit. This means business investment rests on expectations of future demand.
Financial markets are central to the GT. Anyone who had actually read the book would understand this. If you know of a classical text that deals with financial markets to the extent that Keynes does and not just some airy fairy reference to money, point it out to me. I have made this request to the resident anti-Keynesians here but never seem to get a reply.
SRL
once again you betray a complete lack of understanding of Keynes. The MPC is stable. Business cycles rest on changes in business investment. I know you struggle with these concepts but that’s not really my concern.
That a that a liquidity trap is part and parcel of a financial collapse is something I have been arguing with JC. Thanks for the support.
What admission SRL? Once again point to a comment. The tax cuts were unfunded. Are you even aware of the discussion you are involved in? Let me simplify it for you. Loosening fiscal policy in an environment when the economy is approaching full employment is inflationary. Why do you think the RBA was busy raising rates?
The reason tax cuts during the terms of trade boom were inflationary and government spending during a downturn isn’t is because during the downturn there is spare capacity. For about the tenth time. By the way the MPC is not much less than one so even assuming some of the tax cut is saved the vast majority of it feeds into demand.
If you’re going to use the Obama administrations incorrect forecast of unemployment as “evidence” that the US stimulus didn’t work, then by the same logic the Australian stimulus was a wild success.
That the Whitehouse underestimated the unemployment rate proves nothing other than that they got there forecasts wrong. If you believe economists have perfect foresight you are naive. Any one you says they never got a forecast wrong as either never made a forecast or they are lying.
That a stimulus is just a wealth transfer betrays the poverty of your position. It is a use of idle capital to stimulate demand using idle resources.
The history of the depression suggests the do little approach was an abject failure.
The Japanese economy showed some form of life every time the government loosened fiscal policy and every time stimulus was withdrawn the economy slipped back. Their major problems were a crippled banking system and stagnant population growth.
You’re all over the place SRL, I’m not sure what comments you are talking about. What is it about the stability of Hicks IS/LM model that you wanted me to discuss. What industry has been stuffed up? Do you mean Australia and the insulation fiasco? the housing market? I would agree some of the policy has been appalling. But for about the hundredth time I’m no fan of the Rudd stimulus, however to suggest it has not supported growth and therefore employment is entirely refuted by the economic data.
sdfc
23 Mar 10 at 12:31 am
They tightened fiscal and monetary policy in the late 30s and the economy fell back into recession. This is not theory but history.
Yes and?
The same goes with the fixed exchange rate regime. History shows it was deflationary. The Fed raised the discount rate in 1932 to defend the gold standard.
They were all over the place over the previous 10 odd years., which is why I said the gold exchange standard is a truly fucked up system that you refer to as splitting hairs when I pointed out the difference between a gold standard and the Gold exhange standard.
You defend the exchange rate regime as not being deflationary yet say they were too slow to devalue.
I defended no such thing, Dumphy. It’s all in your sordid imagination.
Don’t you see the contradiction in these two positions you simultaneously hold.
I would, but I don’t hold that position and you know I don’t whereas it was you that didn’t understand that a rise in the gold price was inflationary.
Fair enough, however that was pretty obviously a typo considering I was responding to your criticism of Roosevelt.
Whatever.
JC
23 Mar 10 at 12:57 am
JC
If you’ve got a bona fide argument why do you choose to lie? I pointed out to you devaluation was an intentionally inflationary policy. I provided a reference to my original comment above. Just for the record however it was 21 March 9:49pm.
As for the gold standard, I stated the currency regime was deflationary you basically appear to agree but then crapped on about how well a gold standard works when run properly. I on the other hand think currency fixing is poor monetary policy. Any policy that works to maintain a misaligned exchange rate is to my mind destabilising.
sdfc
23 Mar 10 at 1:25 am
A cold standard isn’t a fixed exchange rate, you dodohead.The currency is just an expression of a quantity of gold.
A gold exchange standard is a polluted hybrid crap system which is what they had.
You don’t really seem to fucking understand this shit and then all homer like giving us fucking lectures on what you think we know.
Try and learn somehting for a change.
JC
23 Mar 10 at 1:30 am
If you’ve got a bona fide argument why do you choose to lie? I pointed out to you devaluation was an intentionally inflationary policy. I provided a reference to my original comment above. Just for the record however it was 21 March 9:49pm.
I don’t lie, doofus. You’re now attempting to cover up your silly error with some entirely inappropriate reference.
You suggested the a rise in the gold price was deflationary. It’s not.
JC
23 Mar 10 at 1:33 am
JC
Wow a gold standard doesn’t involve fixing the exchange rate. Once again you disgrace yourself. It involved fixing the currency to gold which is then exchangeable for other currencies fixed to gold. Stupid is as stupid does I suppose.
I provided a reference which proved you were wrong about what I said. That you choose to continue to lie betrays your poor character. Once again for the record I said the devaluation was intentionally inflationary. Or don’t you know raising the price of gold is a devaluation? You’ve been exposed as a bullshit artist again JC.
sdfc
23 Mar 10 at 2:00 am
SDFC:
Wow a gold standard doesn’t involve fixing the exchange rate. Once again you disgrace yourself. It involved fixing the currency to gold which is then exchangeable for other currencies fixed to gold. Stupid is as stupid does I suppose.
You really are a arsehole, SDFC.
I’m correct , a gold standard is NOT fixed you dope. It’s pegged. Fixing means something else entirely, you self-confident idiot.
Once again for the record I said the devaluation was intentionally inflationary.
Stop the lie sdfc as the cover-up is usually worse than the bullshit itself. You didn’t mention anything about a devaluation. You said they raised the price of gold suggesting this was a deflationary action. IT wasn’t and you were wrong.
You’ve been exposed as a bullshit artist again JC.
Go to bed, dude. It’s late for you.
JC
23 Mar 10 at 2:26 am
to quote Eichengreen and Temin from p 7 ‘ the policy of buying and selling gold at a fixed price– adhering to the Gold Standard.
Japan only had ONE year of stimulatory expenditure, 1995 from memory, there were no other years because the structural deficit never increased it fell.
Yes the devaluation was intentionally inflationary as authorities had finally caught up to reality that inflation was by far preferable to deflation.
from 1932-36 the US experienced double digit growth which IF real wages had have been cut would have seen a Germanic recover.
As it was Unemployment halved until Roosevelt foolishly allowed Classical economics to dominate and thus a recession enveloped the country.
Butterfield, Bloomfield & Bishop
23 Mar 10 at 9:06 am
The RBA points out what a gin show Keynesian economics is. When you correct a standard model with real world data and more realistic assumptions (thanks to the Austrian school), “sticky prices” (the *excuse* for an egregious level of Government debt) are actually much less prevalent lovers of useless Government debt would like to ever acknowledge:
http://www.rba.gov.au/publications/rdp/2010/2010-01.html
“Reconciling Microeconomic and Macroeconomic Estimates of Price Stickiness”
Adam Cagliarini, Tim Robinson, Allen Tran
RDP2010-01
Abstract:
‘This paper attempts to reconcile the high estimates of price stickiness from macroeconomic estimates of a New-Keynesian Phillips Curve (NKPC) with the lower values obtained from surveys of firms’ pricing behaviour. This microeconomic evidence also suggests that the frequency with which firms adjust their prices varies across sectors. The paper shows that in the presence of this heterogeneity, estimates of aggregate price stickiness from microeconomic and macroeconomic data should differ. Heterogeneity in firms’ pricing decisions, as well as a more realistic production structure, is introduced into an otherwise standard New-Keynesian model. Using a model calibrated with microeconomic pricing survey data for Australia, the paper shows that estimates of the NKPC considerably overstate the true degree of price stickiness and may falsely suggest that some prices are indexed to past inflation. These problems arise because of a type of misspecification and a lack of suitable instruments.’
Semi Regular Libertarian
23 Mar 10 at 3:30 pm
Let the fisking commence, my chumpy, unequally matched, undergraduate adversery.
“once again you betray a complete lack of understanding of Keynes.”
No. Just as you didn’t realise what inflation does to a currency but feel qualified to comment on the credentials of others, you inferred that MPC = 1. You also missed an error of mine which actually meant that k = 0, or that it k = 1, but for only one “round”. The fact that you advise that we indebt ourselves to get out of a a demand shock rather than wait over the cycle sits you on the same level as the extreme polemical and economically illiterate supply siders.
“The MPC is stable.”
If you have stability in its determinants. A lot of the stimulus handout was saved due to the financial circumstances of most. This was unusual – households, not just banks faced loss aversion and cashflow problems. But it also means anything that was spent led to an artificial and unsustainable boost to consumption over investment.
“Business cycles rest on changes in business investment. I know you struggle with these concepts but that’s not really my concern.”
Then why would you encourage a reduction in business spending if you’re such a genius?
“That a that a liquidity trap is part and parcel of a financial collapse is something I have been arguing with JC. Thanks for the support.”
We didn’t have a liquidity trap but you support the stimulus. You cannot explain a liquidity trap or aggregate modelling without the IS/LM framework which you reject. It is also completely lost on you that liquidity traps are the end result not only of financial bubbles but of bank failures and recapitalisations. How is crowding out private sector debt going to engender the necessary bank recpaitalisations?
Don’t start with this “crowding out only occurs in booms” because it is balderdash you were too scared to take on with a debate. You just called it silly. Anyone who knows the foundations of Keynes and the IS LM knows that the parameters can change and that this absurd conclusion is bunk.
“What admission SRL? Once again point to a comment.”
You dishonest twit, I referenced the fact that it was lost on a “Keynesian expert” the very difference between a tax cut and stimulatory spending. If you don’t know this, you have no idea how the benefits of Keynes are meant to work. In fact, if there is no difference, then it cannot work, vis a vis the multiplier. It is simply a redistribution.
“The tax cuts were unfunded. Are you even aware of the discussion you are involved in? Let me simplify it for you. Loosening fiscal policy in an environment when the economy is approaching full employment is inflationary. Why do you think the RBA was busy raising rates?”
No, Australia did not have unfunded tax cuts before Kevin Rudd unleashed his wasteful *stimulus* package. Unless you believe that 11-12 years of surpluses is a “structural deficit”.
“The reason tax cuts during the terms of trade boom were inflationary and government spending during a downturn isn’t is because during the downturn there is spare capacity.”
No you’ve changed you’re reasoning. Previously, you’ve inferred that inflation was due to unfunded tax cuts that needed to be financed otherwise. Now you’ve turned to the excess capacity argument.
Since you’ve made a strange claim that MPC = 1, your argument is not internally consistent – any fiscal policy merely is redistributive and unfunded fiscal policy is inflationary. As if you would understand, though.
The spare capacity argument is absurd. You’re inferring a tax cut would not be as productive as keeping the money in Government hands, regardless if it is simply transfers or spent on projects. Nevertheless, you’re now changing your mind that MPC < 1. However this is largely irrelevant given the private sector has a higher productivity rate than the public sector, and both use common infrastructure. Therefore the tax cut supports more output with the same cost constraints and an increase in real income, and thus cannot be inflationary.
It is also a delight that you completely reject the fiscal theory of prices, which would be inferred by the lower productivity rate of the public sector.
"For about the tenth time. By the way the MPC is not much less than one so even assuming some of the tax cut is saved the vast majority of it feeds into demand."
Yes, but tax cuts are not inflationary for the reasons stated above and the fact that a small but significant proportion of permanent (and sometimes temporary) tax cuts are saved. Now, which MPC are you sticking to?
"If you’re going to use the Obama administrations incorrect forecast of unemployment as “evidence” that the US stimulus didn’t work, then by the same logic the Australian stimulus was a wild success."
Your funeral.
Obama's team has new projections now that unemployment is now a margin of error over 220% of what they forecast. This is hardly reliable economics.
Australia's stimulus package provided at a maximum, 2.7% GDP growth for the cost of about 4.3% of GDP, borrowed from future growth.
You've just inferred the multiplier is about -1.59.
A wild success!
The stimulus "created" 120 000 jobs at the cost of 358k AUD per job. This is an indefensible failure.
On top of that, we didn't even have a liquidity crisis. The reason why we have an apparent success is that it not only was a wasteful failure, like noted above, it happened during a very successful monetary policy action. It was a fluke simply that there has been underinvestment in infrastructure. Accident, not design. Furthermore, a lot of this "infrastructure" spending are unquestionable failures. Rudd ruined the insulation industry and now it faces extreme output gap disequilibrium – which is what Keynesian pump priming is meant to avoid.
"That the Whitehouse underestimated the unemployment rate proves nothing other than that they got there forecasts wrong."
Very competent people got their forecasts wrong. Barro said it wouldn't work. Taylor has taken this to pieces. The difference is they are not weighed down by magic pudding macroeconomics.
Here are some of the pre and post stimulus critiques.
http://online.wsj.com/article/SB123258618204604599.html
http://johnbtaylorsblog.blogspot.com/2010/02/one-year-later-and-more-evidence-that.html
"If you believe economists have perfect foresight you are naive. Any one you says they never got a forecast wrong as either never made a forecast or they are lying."
Keynesianism fails virtually all of the time. Australia has had an overly expensive stimulus which had mild success – on paper, by fluke which has ruined a large component of the building sector which is a main driver in economic growth.
"That a stimulus is just a wealth transfer betrays the poverty of your position. It is a use of idle capital to stimulate demand using idle resources."
This is unadulterated crap, noted by the various arguments above. The private sector productivity rate is higher. Some of the capital wasted is not recoverable.
The stimulus is just a wealth transfer, plus inflationary costs. How do we know? By looking at the IS LM model's implications on labour demand.
Labour is not just needed to operate existing machinery, but to install new capital (which you've expounded as a virtue, but it is really a constraint). Any demand instrument that affects the interest rate shifts both the aggregate demand and supply curves. Demand management is simply not possible.
"The history of the depression suggests the do little approach was an abject failure."
Except for this:
http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx
Don't try to pretend that Keynesians held onto wages and prices policies for a very long time.
"The Japanese economy showed some form of life every time the government loosened fiscal policy and every time stimulus was withdrawn the economy slipped back. Their major problems were a crippled banking system and stagnant population growth."
They have 230% debt to GDP ratio. You told me previously all we need do to bounce back from a demand shock was to go into debt.
Keynesian policy has failed Japan.
"You’re all over the place SRL, I’m not sure what comments you are talking about."
No, you're all over the place, usually. Can't you keep up with yourself you dullard? You don't understand what inflation does to a currency. You swap between different specifications of the MPC. You interchange between the US crisis and our situation.
"What is it about the stability of Hicks IS/LM model that you wanted me to discuss."
You've avoided it previously but I've mentioned it above and it also goes back to your bizarre idea that crowding out can only occur in good times. We've witnessed US bond rates not behaving as the US Government would like since this is a fatuous assumption. Modern macroeconomics recognises that the IS parameters can shift so much that it alters the way AD and AS operate in so far as the conclusions become that of the rational expectations or new classical school.
Here is a paper which attacks the very raison d'etre of Keynesian policy as Keynesians overstate price adjustment parameters:
http://www.rba.gov.au/publications/rdp/2010/2010-01.html
Also note the conclusion which mirrors Austrian school economics and the same theme of the interest rate policy shifting both AS and AD, breaking down any attempt at demand management (due to "roundabout" production).
"What industry has been stuffed up? Do you mean Australia and the insulation fiasco?"
Yes quite. They have an output gap of well over 18 months which will not be able to clear after such a time.
"the housing market? I would agree some of the policy has been appalling. But for about the hundredth time I’m no fan of the Rudd stimulus, however to suggest it has not supported growth and therefore employment is entirely refuted by the economic data."
It hasn't supported growth. Do you know what a multiplier of -1.59 means?
Once you can add up and know what inflation is, I may not take such exception to a smarmy and dishonest slurring of my credentials.
Semi Regular Libertarian
23 Mar 10 at 5:59 pm
JC
Again you fail to provide evidence that I said devaluation was deflationary. Raising the price of gold is a devaluation. The workings of a gold standard where the major economies are fixed means that the cross rates are also fixed. Any deviation opens up arbitrage opportunities. This is getting dull and repetitive.
SRL
I’m downloading a copy of Adobe 9 to read the RBA paper. Unfortunately it seems to be taking forever and a day.
sdfc
23 Mar 10 at 6:19 pm
Let it be known that Homer and SFDC have been well and truly towelled up and schooled right here by yours truly.
Never will either of these bombastic, overblown, pompous gits dishonestly slur my credentials with their slavishly cultish devotion to Lord Keynes.
sfdc says: “I need to download Adobe reader v 9.0 [it worked for me with version 7.0]“, or, in plain English:
*The dog ate my homework and what I learned in HSC Economics today*
Semi Regular Libertarian
24 Mar 10 at 10:18 am
I like the way you use the JC method of argument, that stating that I said something and then refuting it. How about a reference to where I said MPC = 1. What I said is it is relatively stable you silly boy. That is why Keynes asserts the business cycle and employment is driven by investment. I take even you do not refute this. Or maybe you do seeing you have no idea of the drivers of the economy.
As for your error, I must admit when you start talking undergraduate I kind of switch off. But now you mention it k is neither 0 nor 1. Of course some of the stimulus was saved. However unless you believe the MPC dropped to zero then of course part of it also manifested itself in increased demand. You’ve got all these variables you learnt at uni but aren’t really sure what they mean outside of a general equilibrium model.
Your comment about the stimulus promoting consumption over investment once again betrays your almost complete lack of knowledge of the workings of an economy under conditions of financial crisis. Once more just for the record, when firms only invest when there is a prospect of terms in other words when they think it will be profitable. Try and get your head around the concept of economic profit and you might have some hope of understanding the drivers of business investment Propping up demand during a financial crisis not only provides business with the prospect of making profitable investment but also supports company profits. Internal funds are the first port of call for investment funds. The prospect of profits validates investment decisions.
I am a genius compared to you consumption does promote business spending. If you had any idea about actual real world economics you would know that US business investment grew in Q3 and Q4 after six quarters of declines.
No I don’t support the Australian stimulus, I have argued that it has promoted growth. I think pure recession avoidance just increases inflationary pressure. My one qualifier has been that if it prevented unemployment from rising to 8% or beyond then it may have just saved our financial system from crisis. This is a simple concept but is obviously beyond your simplistic GE, no financial markets analysis.
I actually have never rejected the IS/LM model. What I have said is that it is an incomplete descriptor of Keynes model because it does not include expectations or financial markets. The model ignores the fact that money supply is a function of firms financing activities. Hicks assumes the money supply is a function of central bank action. We know from what we have observed in the 1930’s and in the GFC that this does not strictly hold true in times of severe financial stress. In short the liquidity trap is a function of uncertainty in financial markets during times of severe stress. I know you like the IS/LM because it is a general equilibrium model of sorts, but in terms of a description of the GT it falls well short.
Both tax cuts and government spending are a change in the balance of payments between the public and private sectors. The multipliers might be different but without savings elsewhere they are both fiscal stimulus. Your understanding of basic economics is poor.
Tax cuts without savings elsewhere is by definition stimulatory, where the budget is in surplus is neither here nor there. You are a plodder.
Where did I say MPC is not less than one bonehead? If you favour tax cuts as method of fiscal stimulus during a downturn I have no problem with that, however they are difficult to reverse when the economy returns to full employment. Tax cuts during a terms of trade boom are largely spent unless you believe the MPC will change, however history tells us this is unlikely.
That you don’t understand that economists get forecasts wrong all the time suggests your glasses are indeed very rosy when it comes to the profession.
Why do you believe the maximum GDP growth from the stimulus was 2.7%? Hate to break it to you but there is no lower bound to GDP growth. Your 358K per job assumes there is no output associated with those jobs.
How many times do I have to tell you, I agree that the stimulus was largely wasteful. See my comment above.
Private sector productivity is higher. I agree. The problem is when the private sector reins in spending this argument is basically redundant, unless of course you think mass unemployment is productive.
Hoover’s deficits in the 30s were less than what Reagan ran in the 80s, and this with GDP falling 50%. In short there was no massive fiscal stimulus. That is history.
Read up on Japan before you comment on it.
Someone pulled the multiplier figure out of their arse I’m afraid SRL. Go to the ABS, get the contributors to Q4 growth and tell me what you see. Building work still to be done suggests the stimulus will continue to support growth into the second half of the year.
I wasn’t aware you had any credentials.
I didn’t get back to you about the RBA paper because as I told you I was having trouble downloading Acrobat 9. The copy on my computer was 5. That you chose to interpret e this as some sort of victory for yourself, suggests I’ve overestimated you. Some of us are all growed up and have families and work to attend to. I suggest you remember this before embarrassing yourself next time.
By the way the paper says nothing about Keynesian economics. Unless of course you have some bizarre simplified version of Keynes in your head. Oh yeah you do.
sdfc
24 Mar 10 at 9:58 pm
SRL
This is getting a little unwieldy. Let’s keep it simple. Pick a topic, any topic and we can discuss it.
If you want to go long you might have to wait until Friday for a reply.
sdfc
24 Mar 10 at 10:29 pm
You are beneath me. Fuck off.
Semi Regular Libertarian
24 Mar 10 at 10:30 pm
Charming.
sdfc
24 Mar 10 at 10:47 pm
Speaking of stimulus and success thereof, mild or otherwise, we would be well and truly up the proverbial if China hadnt stepped in and stimulated their economy.
rog
24 Mar 10 at 10:55 pm
This is why I don’t think you’re worth engaging in discussion with: you know a lot less about this topic than you actually do but think you know more than everyone else. From here, you proceed to insult them and assert superiority not only by self aggrandisement but by slurring credentials. It wouldn’t be so bad but your transgression is so blatant and duplicitous.
Your firstly pushing Keynes but denying that Keynesian economics is based on price stickiness, and secondly asserting that the RBA analysis is too “simplistic” compared to Keynes’ original “work” which was no more than an overly long op-ed piece.
e.g
“By the way the paper says nothing about Keynesian economics. Unless of course you have some bizarre simplified version of Keynes in your head. Oh yeah you do.”
The paper’s abstract:
*This paper attempts to reconcile the high estimates of price stickiness from macroeconomic estimates of a New-Keynesian Phillips Curve (NKPC) with the lower values obtained from surveys of firms’ pricing behaviour. This microeconomic evidence also suggests that the frequency with which firms adjust their prices varies across sectors. The paper shows that in the presence of this heterogeneity, estimates of aggregate price stickiness from microeconomic and macroeconomic data should differ. Heterogeneity in firms’ pricing decisions, as well as a more realistic production structure, is introduced into an otherwise standard New-Keynesian model. Using a model calibrated with microeconomic pricing survey data for Australia, the paper shows that estimates of the NKPC considerably overstate the true degree of price stickiness and may falsely suggest that some prices are indexed to past inflation. These problems arise because of a type of misspecification and a lack of suitable instruments.*
I refuse to be insulted via diminution by a diminutive.
Anyone with a whiff of an education in this example can either adjudge that you are being wilfully dishonest or unfortunately ignorant beyond your stated level of profession.
Semi Regular Libertarian
24 Mar 10 at 11:26 pm
“you’re”. Yes well.
Semi Regular Libertarian
24 Mar 10 at 11:27 pm
rog – so what do the Chinese think about subsidising our industry? If the shoe was on the other foot, what would you think?
Semi Regular Libertarian
24 Mar 10 at 11:33 pm
SRL
One minute you’re telling me to fuck off and now you’re back. You are all over the place.
At the real risk of upsetting you again, the term New-Keynesian should provide a hint as to why this model says little about the GT. Price stickiness is a central tenant of new-Keynesian theory which after all is just an attempt to reconcile Keynes with classical economics. New-Keynesian economics, like this paper, does not address decision-making under uncertainly, nor does it address financial market instability. For the umpteenth time Keynes is not Keynes without these variables. The model attempts to reconcile the New-Keynesian Phillips curve with estimates of price stickiness from survey data. Did you read the paper?
Modelling non-financial sector related shocks to a system in equilibrium tells us nothing about Keynes’ theory. Got it? Probably not.
sdfc
25 Mar 10 at 12:18 am
SDC:
You dishonest dude. I never said you suggested devaluation is deflationary. As incompetent as you are I would expect you to know that. What you said was (in reference to the 30′s) they raised the gold price from 20 bucks an ounce to 35 bucks, which you strongly suggested was deflationary when it’s the opposite.
JC1
25 Mar 10 at 1:21 am
Yes well sfdc you have managed to rubbish macroeconomic research since 1936 and glorify Keynes’ rambling essay with only one self aggrandising and slurring statement. You’ve dropped the idea that reconciling Keynes’ ideas with real world data in a recent RBA study is “undergraduate”.
It’s good to see you’re trying to play the ball and not the man. It’s also good to see you’ve reconnected your home computer after 5 or so years.
This ancestor worship is really muddying your thinking. Keynes didn’t address any of the flaws of his critics in any meaningful way. Keynes also made egregious errorss.
An example of the overly generous pass you give Keynes is that 120 000 temporary jobs were “created” at the cost of $358 000 per job, with borrowed money, unamortised. Have a look at the figures. 180 k plus added to labour market. A couple of thousand permament jobs, net. An increase in part time work largely due to labour market flexibility. The labour market flexibility belies Keynes’ argument about sticky downwards wages. The effectiveness of inflation to otherwise clear these markets also belies Keynes’ point about the ineffectiveness of monetary policy. He said this generally, and not just with regards to liquidity traps (which of course assumed no supply side interaction and a necessary demand management strategy).
“New-Keynesian economics, like this paper, does not address decision-making under uncertainly, nor does it address financial market instability. ”
Neither does Keynes! He just mentions it is a problem.
“Modelling non-financial sector related shocks to a system in equilibrium tells us nothing about Keynes’ theory. Got it? Probably not.”
Keynes, like Minsky is just descriptive. Estimates of how price rigidities should impact fiscal or monetary policy to alter inflation and interest rates, or expectations of prices and inflation don’t say anything about financial markets? What did Keynes say was the motivation to hold cash?
Keynesian policy as in demand management is virtually impossible to conduct. Any attempt to manipulate interest rates has demand AND supply side effects. Keynes thought there would be no supply side effect. This was found through empirical research through the 1970s to 1990s.
With this level of uncertainty, you want to lecture the rest of us about “addressing uncertainty”?
The US financial crisis was precipiated by a longer fall in labour productivity, and was a correction among other things. This pattern was repeated elsewhere. The crdit crunch etc were knock on effects. Hardly “instability”.
The global financial markets were extremely stable say in the Clinton years when mostly good policy was followed. The Asian financial crisis happened because of bad policy. The dot com bubble was self correcting but precipitated at the end of several years of low interest rates.
Markets can collapse in a heap but they are not consistently teetering on collapse. They are simply too unpredictable or uncontrollable to say so. They’re not a Zen like perfection of character nor are they easily manipulated with predictable or desirable results.
Semi Regular Libertarian
25 Mar 10 at 10:58 am