The enduring legacy of Keynes

us unemployment jan 2014

After a while the dismal state of the world’s economies becomes merely background. We forget the better times and accustom ourselves to how things now are.

I am, however, in the process of putting together the second edition of my Free Market Economics and have just been through the Keynes versus the classics section. And let me tell you, there has been a lot to add based on our experiences over the past five years but there is nothing that needs to be revised. And the most interesting part that needs no revision is the way that macro continues to be taught which is Keynesian from end to end. How anyone can still think that a public stimulus has anything to offer in bringing recessions to an end after what we have gone through is beyond me. But they do, and Y=C+I+G remains in every text and is taught as the best explanation economists have for how economies work and what needs to be done when an economy is in recession.

Anyway, the data are from the US which is the epicentre of economic policy death. From an article on the last six years of the American Labour Market and picked up at Powerline. It’s a measure I often used to do myself since the labour market data only include as unemployment people who are actively looking for work. After a while you just give up so the unemployment rate falls even while the labour market remains stagnant. That’s what the picture all too clearly shows about the US.

There is more to it than just the deadly effects of the stimulus but most of it starts from there. It’s almost as if the US had never heard about free enterprise and the private sector the way they are going about things.

Meanwhile, at Drudge the main headline highlights a new record of sorts:

92 MILLION AMERICANS NOT IN LABOR FORCE

And those subheadings beneath add to the picture:

Record Number of Women Not In Labor Force…

Growth slumps…

Slowest in three years…

1,500 people camp out for chance to apply for job…

‘For Every One Job Added, Nearly 5 People Left the Workforce’

MSNBC: ‘Awful,’ ‘Very bad,’ ‘Ugly’…

If you are interested in finding out about Say’s Law and the classical theory of the cycle, or what a classical economist would do when an economy is in recession, so far as I know there’s only one place where you could find any of that out. I may, of course, be wrong, but what I write is in accord with the way economists looked at things from 1776-1936 and that includes a very large number of very clued in people. If there really is such a thing as evidence-based policy as opposed to ideologically-based policy, you could do worse than to see what the book has to say.

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112 Responses to The enduring legacy of Keynes

  1. Louis Hissink

    Steve

    I do hope you will be publishing a Kindle version!

  2. C.L.

    92 MILLION AMERICANS NOT IN LABOR FORCE

    Record Number of Women Not In Labor Force…

    Growth slumps…

    Slowest in three years…

    1,500 people camp out for chance to apply for job…

    ‘For Every One Job Added, Nearly 5 People Left the Workforce’

    MSNBC: ‘Awful,’ ‘Very bad,’ ‘Ugly’…

    Great work, Obama!

  3. steiner

    On the contrary, you should be popping the champagne corks Steve. Obama has been cutting spending dramatically. So, when should we expect the miraculous recovery from all this cutting you keep telling us about?

  4. .

    That graph is so convincing as to the failure of Keynes – as well as other forms of pump priming and reckless fiscal management.

    I really don’t know how people can convince themselves that Keynes works. In the heat of the debate, Homer Paxton used to say …”Keynes is about GDP, unemployment is a lagging indicator!”

    Quite clearly it has lagged into a horrible situation.

  5. Gab

    http://www.usgovernmentspending.com/

    You’ve already been thwacked over your graph, “steiner” once before and yet you persist.

  6. what a classical economist would do when an economy is in recession

    I believe the answer to that is: “join the rich in cracking open the bubbly and laughing at the poor unemployed”.

  7. Jim Rose

    Disability rolls increased at twice the rate as employment growth since 2009. 2.5 millionn more went on disability as found a job

  8. Stateless, free and happy

    Gab, if you go Federal Reserve Bank of St. Louis, you can directly recreate Steiner’s graph:

    FRED (http://research.stlouisfed.org/fred2/)

    US government spending in real terms has been falling since 2009.

  9. Andrew

    Obama has been cutting spending dramatically.

    What’s that? The fucking KENYAN has been cutting?? That’s funny – when the filthy leftist grubs like Schiesser said that would lead to a Depression, they said the TEA Party was cutting spending. Gab, it’s only happened once before, but I actually agree with a tiny fraction of what the trolls are saying. 2013 was not quite the spendathon of 2010, thanks to some progress on budget repair forced on the Kenyan by the GOP (and over the wails from Kruglitz and Stigman). The US deficit is now lower than our PSBR – we are among the worst in the developed world now. Not surprisingly:
    - the first discernible drop in (adjusted) unemployment occurred in the past 18 months when these baby steps started
    - Q3 GDP has only been exceeded in ONE quarter since the GFC
    - the stockmarket is up over 3000 pts this year and making new records when ours is 1500 points from a highwater

    Considering how many years have been spent crapping on about the “lessons of the 1930s,” noone seems to have figured out what they are. Running 5 years of stimulus on a bankruptcy trajectory didn’t help. Winding it back modestly DID help.

    We could and should have stopped stimulus at the end of Q3 2009 – at worst, mid 2010. That is now admitted (“with hindsight”) by every reputable economist in the country, which of course excludes the Kook.

  10. Louis Hissink

    Heh, it’s not a failure of Keynesian economics but the failure of central planning by the Fed.

  11. The Pugilist

    Feeding the trolls is a stupid thing to do, I know, I know, but I can’t resist, so here goes…
    m0nty, you clown, would you care to be specific and outline your logic for the statement below:

    I believe the answer to that is: “join the rich in cracking open the bubbly and laughing at the poor unemployed”

    In particular, at what level of income and/or wealth does someone switch from being a compassionate human being and become a cruel, heartless bastard, incapable of empathy? If you cannot provide a coherent answer to this question, I would suggest you shut down your computer and tuck into your tray of iced donuts as you have nothing useful to contribute here…

  12. Tell me what classical economists do in a recession, Pug. As far as I can tell, they sit back and let it happen, because they believe that recessions are healthy to clear out bad investment. That was my point.

  13. Andrew

    Gab, if you go Federal Reserve Bank of St. Louis, you can directly recreate Steiner’s graph

    And of course this one

    Real GDP
    +4.1 %, Comp. Annual Rate of Chg. on 2013:Q3

    Schwiner also fails to comprehend that this spending was SO poor quality that not only was much of it flushed down the toilet (Solyndra was blatantly enough a scam that even Flannery would likely not have invested) but is actually dragged PRIVATE sector money along to be flushed down the toilet as well. Sort of like paying for pink batts to burn private homes down – it had a similar effect on the economy. Not surprisingly, when they ease up a little bit, less value destruction occurs and the economy starts to improve slowly.

    I’m starting to understand the leftoid mindset. They are SO shortsighted and economically illiterate that it genuinely never occurred to them that stimulus spending has TWO flipsides:
    1) The uplift in spending must be followed by cutscutscuts just to get us back to where we started – by definition, inflicting the same or greater economic shock on the subsequent period as you were trying to avoid in the current one, AND
    2) There must then be further cutscutscuts into surplus for an extended period as well as taxtaxtax in order to repay the debt created during the debt binge.

    To “fill” a 1% GDP contraction requires (assuming no leaking, equivalent multiples from govt activity as from what I could do with the money, and no fraud / union handouts) an uplift of 1% in deficit p.a. Since the filthies don’t think 5.5 years post-Lehman is the time to cutcutcut, presumably they wanted this to continue for a minimum 6 years, adding 6% to govt debt and requiring 6 years of 1% below trend spending to repay it. Each job loss avoided would be replaced by 6 years of non-employment of these or equivalent people.

    Of course, it’s also possible that they know this, but also know that they will be voted out leaving a deficit of 5% of GDP for the other side to fix. One day, the rest of the country will work it out and their vote will fall to 19%.

  14. Andrew

    As far as I can tell, they sit back and let it happen, because they believe that recessions are healthy to clear out bad investment. That was my point.

    You don’t HAVE a point. You grubs responded to “bad investment” how? By adding 5 more years of bad investments! Pink batts, windmills, unviable solar panel manufacturers, ripping up FTTH in every city to replace it with…FTTH owned by the Feds, ad nauseum. It’s like these morons read the book on Japan 1990-present and thought it was a textbook (like they did with Animal Farm). And 100% of the Rudd crapathon was spent AFTER the GFC was over. The economy was growing, employment growing, the central bank raising rates far beyond any developed economy on the planet, stock market up 70% and what did they do? START digging holes and filling them in (BER). We will not have a balanced budget in my lifetime thanks to that atrocity.

  15. The Pugilist

    Tell me what classical economists do in a recession, Pug. As far as I can tell, they sit back and let it happen, because they believe that recessions are healthy to clear out bad investment. That was my point.

    Firstly, ‘classical economists’ are few and far between and are nowhere near the levers of power in almost all countries.
    But if you’re interested in what a classically trained economist would do, here’s a quick list for you: cut business taxes, remove (regulatory) supply side impediments to investment, ensure there is institutional price flexibility in labour, capital and product markets, facilitate a smooth process of liquidation and reallocation of assets, stabilise the banking system, ensure that the supply of money matches the demand (offset any drops in velocity of circulation)…
    Now you’ve really backtracked from your initial claim that the rich celebrate recessions. Perhaps you might engage your brain before putting your fingers into motion on the keyboard. Your ‘sense of humour’ is not appreciated here.

  16. Andrew

    If you look at the US Government spending over a 10 year period, it is still very high and to argue that Obama has not continued an expansionary fiscal policy over the past 4 years is incorrect.

  17. HK_Brother

    Keynesian economics has never worked.

    I even tried it out on SimCity 3000 (city building simulation, computer game). It utterly wrecks a city…Even a virtual one! I had to keep borrowing until I could borrow no more. Roads started disintegrate. Infrastructure (water and electricity) started to collapse. Police, Fire, Teachers, etc went on rolling strikes because I couldn’t keep paying them at high rates. I ended up having a Detroit-like result! All the Sims (name of the virtual people/population) left for neighbouring cities! LOL! They gave me the finger!

    I replayed the level with Friedman’s ideas in mind. The hard part of balancing things as the city grew quickly. I initially borrowed money (as I set to the hardest level where you start with $0), but it was all paid back and I never needed to borrow again over the long run. My 2nd city was thriving to the point that other city’s population were shrinking!

    After a couple of hours, I can only conclude one thing:
    => If a politician doesn’t last for about 500 virtual years in SimCity 3000 with a well run city on the hardest difficulty setting; they shouldn’t be running for anything.

  18. JC

    Stateless, free and happy
    #1146237, posted on January 11, 2014 at 5:00 pm
    Gab, if you go Federal Reserve Bank of St. Louis, you can directly recreate Steiner’s graph:

    FRED (http://research.stlouisfed.org/fred2/)

    Really? You’re stupider and than Schteiner the halfwit who just turned up from the asylum.

    Fucking morons.

    US government spending in real terms has been falling since 2009.

    http://research.stlouisfed.org/fred2/series/B546RA3A086NBEA

  19. H B Bear

    The Magic Negro and the Fed are really kicking some goals over there. At least he is getting to play some golf during the winter.

  20. Toiling Mass

    It is axiomatic for (and you will often hear it said by) lefties that “everything is politics”.

    This includes economics, and they settle upon a vision of economics that maximises political opportunities. They disparage their opponents (everyone not sharing their political (including economic) vision is an opponent) as theoretical bad guys. The corpulent, top-hatted capitalists swilling champagne in their hoard rooms is an image unchanged since the 19th century – like their politics.

  21. But if you’re interested in what a classically trained economist would do, here’s a quick list for you: cut business taxes, remove (regulatory) supply side impediments to investment, ensure there is institutional price flexibility in labour, capital and product markets, facilitate a smooth process of liquidation and reallocation of assets, stabilise the banking system, ensure that the supply of money matches the demand (offset any drops in velocity of circulation)…

    Ah but Pug, that is also what classical economists would prescribe for economies that are not in recession. This is my point. They have a laundry list of reforms, but they don’t vary according to the economic conditions. Their ideology is unchanging. Classical economics has no answer to those who want protection from recessions and depressions. That is the whole reason classical is called classical, because Keynesianism was developed to provide the answers that classical economists didn’t have.

    The world moved on past classical analysis to something that actually worked in reality to solve the problem of mass unemployment during recessions. It is only in backwaters like this where the zombies brainlessly shamble to the beat of necromancers like Prof Kates.

  22. Rabz

    Is this some sort of joke?

    mUttley commenting on teh enduring legacy of keynes

    FFS, spare me.

  23. Rabz
    The corpulent, top-hatted capitalists swilling champagne in their board rooms is an image unchanged since the 19th century – like their (teh left’s) politics.

    Except that the latter has morphed into the former.

    You know, some animals being more equal than other animals and such.

  24. .

    You are wrong. On so many levels monty.

    Classical economics is pre marginalism – e.g Smith, Hume, Ricardo.

    Wicksell, von Menger, Jevons and Walras may be the first neoclassical economists.

    Keynes paid homage to Marx in his unedited work. He took them out because they would discredit him. marx turned out to be wrong on everything. Keynes could not even model consumtpion properly. Freidman won his nobel in part for doing a better job than Keynes. Keynes’ model relies on consumption so it is redundant, given that consumption cannot be modelled correctly.

    The protection from a recession is to have flexible prices. Before the great depression, tariffs and ill designed monetary policies made prices inflexible. The West depreciated their currency systematically to pay for WWI then decided to quickly and arbitrarily rebase the currency.

    Your last paragraph is an insult to anyone who can read and write. Keynes has been systematically discredited by the Austrian school since 1936 and by neoclassical orthodoxy since 1955 or thereabouts. By 1982, it was totally discredited by Kydland and Prescott. At least the last 40 years or serious/non trivial macroeconomics is not Keynesian. An exception may be the contribution of Clinton’s adviser, Robert Rubin (fiscal theory of prices).

  25. BRAAAAAAINS
    BRAAAAAAAAAAAIIIIIINNNNSSSS

    Thanks, Rabz.

  26. JC

    Oh fuck me. Someone, anyone get the clown suit and put it on him. Monster is now talking about da classical economist vs Keynes at the philosophical level.

  27. Keynes has been systematically discredited by the Austrian school since 1936 and by neoclassical orthodoxy since 1955 or thereabouts. By 1982, it was totally discredited by Kydland and Prescott. At least the last 40 years or serious/non trivial macroeconomics is not Keynesian.

    A string of lies, Dot. Keynesianism is dominant in economics, including through neo-Keynesianism. IS/LM and thus AD/AS are the basis of macro as it is taught. Sticky prices and wages have been proven in empirical studies time and time again, and we see them around us all the time.

  28. .

    I have not lied, monty.

    The presence of sticky prices doesn’t justify making prices more rigid. Some rigidities are beneficial (contract rigidities give people known future cashflows). The presence of sticky prices doesn’t justify discretionary fiscal policy either.

    I was referring to research. On the other hand, even 1st year macroeconomics may be still influenced by Keynes, but students also learn about rational expectations and monetarism.

    You are simply incorrect, monty.

  29. The Pugilist

    Ah but Pug, that is also what classical economists would prescribe for economies that are not in recession. This is my point. They have a laundry list of reforms, but they don’t vary according to the economic conditions. Their ideology is unchanging. Classical economics has no answer to those who want protection from recessions and depressions.

    Wrong m0nty. The answer is to get the institutional framework right and yes this should be done at any time, as early as possible. The other part of the response is to maintain and improve confidence.
    But if you have a sound institutional frameworks (that is, flexible prices, a smooth procedure for liquidation and reallocation of assets and a resilient, flexible and responsive banking system) that remove discretion as far as possible should ensure that disturbances are not propagated throughout the system.

  30. People like sticky wages, Dot, particularly their own. Classical economics relies on a theory that corporations can somehow force lower wages on workers in a recession. This is little better than feudalism. Society has evolved away from that sort of thing.

    Sticky prices mean that the same effect is more usually done through currency devaluation these days. Without that option, you get a quagmire like in Europe at the moment.

    You follow a dead religion, Dot.

  31. Oh come on

    People like sticky wages, Dot, particularly their own.

    They do. Just ask a worker on the Holden or Ford assembly lines. Sticky wages worked out great for them, didn’t it.

  32. JC

    Classical economics relies on a theory that corporations can somehow force lower wages on workers in a recession. This is little better than feudalism. Society has evolved away from that sort of thing.

    Exmaple:
    Seriously. A firm like Qantas, suffocating under a wage structure multiples higher than it’s peers. Employees earning Australian Dollars which significantly appreciated against other currencies, meaning purchasing power has risen. In order to survive the firm wants to negotiate wages down and you call it a form of feudalism?

    Monster, we know you’re dumb, but are you also fucking insane?

  33. Wrong m0nty. The answer is to get the institutional framework right and yes this should be done at any time, as early as possible. The other part of the response is to maintain and improve confidence.
    But if you have a sound institutional frameworks (that is, flexible prices, a smooth procedure for liquidation and reallocation of assets and a resilient, flexible and responsive banking system) that remove discretion as far as possible should ensure that disturbances are not propagated throughout the system.

    Alright Pugwash, let’s break this down. You are admitting that your prescription for recession is the same as your prescription for booms. You then blather some faff about the confidence fairy. Finally, you claim that pure classical economics prevents recessions, exactly like how communists claim that if only we implemented pure communism it would finally work.

    Your answer to my question is to agree with me. No, classical economics has no answer to recessions when they inevitably happen. Thanks for that.

  34. .

    monty you are telling me that supply and demand are the forces of feudalism.

    You are not informed enough to have this debate. Keynes’ idea was to resolve sticky wages by creating inflation to MAKE markets clear – i.e give the workers a real wage cut they are not aware of.

    If laissez faire is “feudalism” (an utter nonsense since feudalism relies on economic exploitation vis a vis the manorial system), then how do you characterise the snow job that Keynes wanted to pull?

    You are testing my gentle spirit monty. I had a chuckle at your comment about exchange rates.

    Keynes created the Bretton Woods system, which was a fixed system.

    It may be characterised as “fixed exchange”, but without the backing of the gold standard, it required official devaluations – nations other than the US no longer had the internal price mechanism which operated under the gold standard. This system created sticky prices and made tariff abolition more difficult.

    Freidman, not Keynes advocated floating exchange rates after the classical gold standard was destroyed in the years from 1914 to 1945.

  35. JC

    They do. Just ask a worker on the Holden or Ford assembly lines. Sticky wages worked out great for them, didn’t it.

    OCO, it is a problem at the macro level. All prices are sticky. Firms also are reluctant to sell at a much lower margins or a loss and hold out. You see it in trading and have to have a constitution made of granite when taking a loss.

  36. .

    You then blather some faff about the confidence fairy.

    Keynes came up with that gem too, monty – viz. “animal spirits”.

  37. sdfc

    The protection from a recession is to have flexible prices.

    Deflation is disastrous for high debt economies.

    On the other hand, even 1st year macroeconomics may be still influenced by Keynes,

    Keynes is not taught in undergraduate courses, neo and new Keynesianism are what are taught.

  38. JC

    You are testing my gentle spirit monty. I had a chuckle at your comment about exchange rates.

    Keynes created the Bretton Woods system, which was a fixed system.

    He’s talking about exchange rates now? Where? Is there anyone out there that could injection him with enough insulin and stick him in a long term coma? Please.

  39. A firm like Qantas

    Yes JC, this is a fine example of sticky wages. The union would rather go out of business than lower wages or cut working conditions. Classical economics largely assumes this behaviour just doesn’t happen. If a recession happens due to this behaviour on a large scale, it has no answer.

  40. JC

    Deflation is disastrous for high debt economies.

    No shit, sherlock. Tell us something we don’t know.

    Keynes is not taught in undergraduate courses, neo and new Keynesianism are what are taught.

    Just a variation of the same old blather.

  41. Fisky

    OCO, it is a problem at the macro level. All prices are sticky. Firms also are reluctant to sell at a much lower margins or a loss and hold out. You see it in trading and have to have a constitution made of granite when taking a loss.

    That’s why deflation is in practice horrible. No one is going to walk back and renegotiate every contract with their employees and suppliers to make things balance again. At least Keynesianism recognises that reality even if the prescription is wrong.

  42. Rabz

    BRAAAAAAINS
    BRAAAAAAAAAAAIIIIIINNNNSSSS

    OK, OK, mUttley – you don’t have any.

    I’d hazard a guess and say that some bizarre, neverending search isn’t likely to yield any for you either – but maybe that’s just me being a cynical ol’ b’stard.

    :)

    Perhaps you could ask JC to help to you out?

  43. JC

    At least Keynesianism recognises that reality even if the prescription is wrong.

    But as you know the solution is crap. Keynes advocates a short, temporary bout of inflation. It’s similar characteristics to “fiscalation” spending. As if markets/people can’t work out that it’s temporary and there won’t be any long term change in direction which is where the rubber meets the road. Doesn’t work.

    This is why markets fell when the Kenyan administration announced the fiscalation spending.

  44. Oh come on

    Sure, JC. But if your choice is between accepting a lower price and staying in business or refusing and going to the wall…

    I understand that it’s not always so cut and dried. However, when organised labour’s concerned, it frequently is.

  45. Rabz

    Anything Keynes ever advocated about anything is crap, FFS.

    Can’t we move on from this interminable idiocy, please?

  46. JC

    Yes JC, this is a fine example of sticky wages. The union would rather go out of business than lower wages or cut working conditions. Classical economics largely assumes this behaviour just doesn’t happen. If a recession happens due to this behaviour on a large scale, it has no answer.

    You nincompoop, it was an example of your characterization as feudalism. There is good evidence of sticky prices and wages, fatboy. There is no evidence that it’s feudalism when lower wages rates are required.

    Shut up and go to bed.

  47. sdfc

    The you agree Dot is wrong JC.

    No the Keynes taught at uni is neoclassical economics with a bit of Keynes tacked on.

    OCO

    Almost no debt is indexed to the price level. Lower income raises the real value of debt outstanding.

  48. .

    Flexible prices are still the best policy. If you are vulnerable to short term and non persistent inflation or deflation, then you are vulnerable to everything else – to which flexible prices are the best response.

    You are right about Keynes but monty didn’t know the difference between New classicals and neo classicals.

  49. JC

    Sure, JC. But if your choice is between accepting a lower price and staying in business or refusing and going to the wall…

    I understand that it’s not always so cut and dried. However, when organised labour’s concerned, it frequently is.

    There’s an alternative which is what Sumner advocates. Market monetarism. Stick to a nominal GDP of say 5% and work from there. A five year old kid could run monetary policy. Homer and Fatboy could for instance.

  50. lem

    (I can’t believe I am sitting here on a Saturday night reading a blog where economists or whatever (Monty) are arguing AND I am enjoying it…they were always the really boring guys at Uni, at least that’s what the OTHER guys said…..)

  51. Keynes’ idea was to resolve sticky wages by creating inflation to MAKE markets clear – i.e give the workers a real wage cut they are not aware of.

    And it works in every country that has its own currency. In Europe, the euro is preventing this clearing, which has severely prolonged the GFC. Are you doubting this straightforward Keynesian theory?

    Keynes came up with that gem too, monty – viz. “animal spirits”.

    The right invokes the confidence fairy when it wants to threaten government to implement the right’s agenda to dismantle the social safety net, lest the financial markets punish them for their hubris. This is a perversion of Keynes’ words.

  52. JC

    Flexible prices are still the best policy.

    True, but we don’t live in that world and monetary policy can only work effectively in the system it operates.

  53. sdfc

    Keynes advocates a short, temporary bout of inflation.

    Says the guy in favour of huge monetary stimulus.

  54. lem

    (Keynes versus Friedmann….no one in the medical faculty ever knew anything about these dudes..look at the biff it stirs up!!!)

  55. Oh come on

    Yes JC, this is a fine example of sticky wages. The union would rather go out of business than lower wages or cut working conditions.

    Well, union membership’s been cratering since the 80s, m0nty. Ever wonder why? Every time a union shop closes as a result of union pigheadedness, they become a bit less relevant. There aren’t too many more Qantases to bleed white.

  56. You are not informed enough to have this debate.

    Dot, you want the Fed to target inflation at zero per cent. This is madness. You may have an education but you learned the wrong things.

  57. Rabz

    the confidence fairy

    Invoked by a very poor, would be confidence trickster.

  58. lem

    (I wonder if Monty is really Wayne Swan?)

  59. JC

    And it works in every country that has its own currency.

    And it worked in the classical gold standard world too, you ignorant fatty. That’s because the markets made the automatic adjustment.

    In Europe, the euro is preventing this clearing, which has severely prolonged the GFC.

    The Euro isn’t preventing a thing, you moron. The ECB is because of internal Euroweenie politics. And even that is to some degree. France is fucked because it’s taxes are far too high and far too inflexible in the goods and labor markets. In other words it’s a socialist hellhole. The entire region is crying out for supply side reforms.

    You big idiot, Monster.

  60. Oh come on

    Almost no debt is indexed to the price level. Lower income raises the real value of debt outstanding.

    So? People have to tighten their belts in tough times. This isn’t a revolutionary concept, but it’s a necessary one.

  61. Rabz

    lem,

    mUttley’s too articulate and the goose is more sveldt (such as that is).

    Neither is the other, something we should all probably be grateful for.

  62. lem

    (Monty is not going to like that, he believes in spending his way out of trouble)

  63. lem

    What have you been drinking Rabz? Absinthe?

  64. JC

    Says the guy in favour of huge monetary stimulus.

    No, no no. A fucking 1000 times over. There’s no advocacy for huge monetary stimulus except when it’s needed. In fact if nominal GDP targeting was implemented you’d find the markets making the adjustments themselves and the CB action wouldn’t need to be too heavy.

  65. .

    There is so much liberty taken in the comments with some are saying.

    QE isn’t necessarily inflationary, as the supply of money isn’t necessarily inflationary. It creates inflaitonary pressure – but not necessarily inflation itself.

    Keynes’ idea doesn’t work monty and floating rates are not his – putting the US on a peg and everyone else on a fixed rate was his idea. Fiscal policy counteracts any income or, price or interest rate arbitrage that helps exchange rates balance to a level to accomodate the requisite change in relative prices bewteen foreign and domestic tradeables.

    I do not push any barrow about “confidence”. It is a quantitative measure and there is no guarantee x in period y is equal to x in period z.

  66. lem

    Oh, I get you now. Maybe I’ve been drinking absinthe. Never can tell. Just how obese is Monty? I can’t help with macro economic theory, but I can do his BMI.

  67. .

    m0nty
    #1146619, posted on January 11, 2014 at 10:22 pm

    You are not informed enough to have this debate.

    Dot, you want the Fed to target inflation at zero per cent. This is madness. You may have an education but you learned the wrong things.

    Eminent economist and failed politician, Dr John Hewson Ph D, agrees with me about a lower target and a more flexible short term band.

    Maybe you’d like to inform him his education was misguided, and what authority you base this decision on.

  68. JC

    Keynes’ idea doesn’t work monty and floating rates are not his – putting the US on a peg and everyone else on a fixed rate was his idea.

    And shutting down capital flows and international trade, because he at least knew it meant his system was dysfunctional. That arsehole actually retarded world growth after the war.

  69. The Pugilist

    Flexible prices are still the best policy.

    That, and a robust, responsive financial system with a minimal role for discretion from politicians and bureaucrats.

  70. JC

    Monster:

    Fuck off. You’re too ignorant and stupid to be in this debate. Just another beating.

  71. You’re using Hewson as backup, Dot?

    The only thing eminent about Hewson is his position in the list of grandest losers in Australian history.

  72. lem

    (Righto, that’s Keynes done, what’s next I wonder?)

  73. .

    Almost no debt is indexed to the price level. Lower income raises the real value of debt outstanding.

    The suggestion is we inflate.

    This pumps up balance sheets and lowers debt repayments. It is paid for by people who do not borrow – savers and those without title to land.

    This does not consider the allocative effects of creating a price signal blindly to make whatever people are indebted in as an investment with an above normal rate of return.

    This is not efficient. This is not fair. The outcomes are not desireable.

    There is a flaw in sdfc’s idea.

    Lower incomes will result in a lower interest rate as the time preference will decrease and productivity already has.

  74. lem

    (OMG its like a zombie movie but worse..with economists!!)

  75. sdfc

    It’s pretty simple OCO, rising real debt levels mean that more current income is required to service pre-existing debt. The more income that is used to service debt the less that is spent in the economy, leading to further reductions in income, raising real debt levels even further. And so it goes on.

    The point of monetary stimulus is that it is inflationary. That the Fed has not been able to reflate the economy is testament to the impaired transmission mechanism.

  76. .

    Hewson is a world class macroeconomist.

    John B Taylor, Scott Sumner and Emil Maria Classen also agree with me to a large extent.

    Yet you are using this as an ad hominem attack to discredit other stuff you are not sufficiently well informed enough to have a discussion about.

    I suggest you retire to a good brandy.

  77. lem

    (I don’t think an insulin induced coma is going to work on Monty, it wasn’t a bad idea from JC who otherwise appears very good on GDP etc, but has bugger all idea how to kill Keynesian economic zombies..think, THINK LEM!!!)

  78. Hewson is a world class macroeconomist.

    Are you his disciple? Do you get that cool double-ended lightsaber?

  79. .

    The point of monetary stimulus is that it is inflationary. That the Fed has not been able to reflate the economy is testament to the impaired transmission mechanism.

    I suggest, as does the graph above, as does mid 2009 data for the US, that this is because stimulus (both monetary and fiscal) spending depresses productive, consumer demanded production into low value, low rate of return goods or items with perhaps a good intent but a investment horizon of two decades or so.

    The stimulus depressed the economy to the point where real and nominal prices fell.

  80. Rabz

    Hewson is a world class macroeconomist.

    Just as mUttley is a world class wrongologist.

    Playing to your strengths, peoples.

  81. lem

    (OMG it’s worse than I thought….he REALLY HAS gone to the dark side…)

  82. lem

    (OKAY GUYS…it seems like Monty has gone…he might be tricking us though and meeting up with Steiner…anyway I have researched zombie killing…all we need is an Egyptian Obelisk, if someone has one handy..)

  83. lem

    Righto, that’s the last we’ve heard of Monty for a bit, he was rabbiting on about light sabres, not sure if that was some sort of auto erotic thing that reminded him of tasks undone, anyway, I won’t have to bring in my other zombie killing options.

    And Steve Kates, I am definitely going to read your book IF it comes out on kindle…seems it’s likely to be a real bodice ripper!

  84. steiner

    What year is austerity meant to work in the US? We are now at year 6 after 2008. Year 7, year 8, year 9, year 10? Please tell us when classical economics is going to work. Let’s face it, Obama has had Republican budgets imposed on him since 2011 – even Republicans gleefully acknowledge that they ‘won’ the budget debate on spending cuts, even though they lost the debate on Obamacare and the tiny tax increases in 2012. It’s hilarious that a bunch of Australians think they know better than the entire conservative US commentariat and deny the budget realities in the US.
    The other point has to be made – what are classical economists’ priorities? Employment, or equilibrium? The answer is, lamentably, the latter. Classical economists are indifferent to human misery – equilibrium is the objective in a race to the bottom of laissez faire economists. There’s nothing about full employment or trying to increase aggregate demand (which of course increases employment) in the classicists playbook. So, please explain Mr Kates – to use an infamous quote. Connect the dots for us. Exactly how do your ideas end up translating into jobs and growth?

  85. sdfc

    The stimulus depressed the economy to the point where real and nominal prices fell.

    No fiscal and monetary stimulus are both inflationary.

  86. JC

    Hey Schteiner

    What sort of Centrelink support are you on?

  87. Procrustes

    Can’t read this thread

    Too much Monty

    Can never internalise that externality

  88. squawkbox

    Oh God, the lunatic Steiner is still hanging around. Yes, US government spending has been cut dramatically,

    if you take the panic-stricken 2009 peak stimulus as a baseline
    and if you exclude social security
    and if you exclude medicaid
    and a whole bunch of other government welfare expenditures which together make up over 50% of total government expenditure

  89. squawkbox

    And when I mean dramatically, I mean by about 1%per year.

  90. steiner

    Hey Schteiner

    What sort of Centrelink support are you on?

    My boyfriend recently showed me a hilarious Australian movie, Dogs in Space. There’s quite an opening line, or nearabouts opening line. Only, in the case of Sr. JoCkitch, there’s a little bit of a twist since (from my limited reading of this blog) it seems his snatch has been hanging out for all to see for far too much.

  91. sdfc

    Well 1.3 million Americans (and more to come) have just had their unemployment benefits cut. We’ll see how that goes.

  92. Percy

    What year is austerity meant to work in the US? We are now at year 6 after 2008

    Are we being punk’d?

  93. Infidel Tiger

    What year is austerity meant to work in the US?

    Austerity hasn’t been practised in the US since 1492.

    The level of stupid you are exhibiting is impressive but history suggests your type burn out rather quickly. For stamina tips you should speak to Monty and Steve de Brisbane. You need to pace yourself and if possible spend a month or two pretending you’re not a lunatic.

  94. steiner

    Austerity hasn’t been practised in the US since 1492.

    The level of stupid you are exhibiting is impressive but history suggests your type burn out rather quickly. For stamina tips you should speak to Monty and Steve de Brisbane. You need to pace yourself and if possible spend a month or two pretending you’re not a lunatic.

    Since 1492? Stupidity? You really must tell DHS next time you are on your way in how it has all gone dreadfully wrong from the beginning, and how you know better.

  95. Bruce of Newcastle

    Reality is satire and satire is reality. Don’t believe me?

    UK Town Deploys Electric Buses

    Residents of a northwestern suburb of London will be riding electric buses about town for the next few years—vehicles that will use the same technology used in electronic toothbrushes to recharge wirelessly. As the FT reports, the experiment in Milton Keynes is expected to help prove the viability—or folly—of electric buses as a form of public transportation

    Milton Keynes, eh? The town which has epitomised cardigan wearing and artificiality ever since it was invented out of thin air in 1967? Figures.

    Another perfect example of Blair’s Law: “the ongoing process by which the world’s multiple idiocies are becoming one giant, useless force.”

  96. Tel

    You really must tell DHS next time you are on your way in how it has all gone dreadfully wrong from the beginning, and how you know better.

    If the DHS really believed everything was going well, they wouldn’t need a billion hollow-points in the cupboard. I’m sure they already know there’s a problem, just don’t know how big it is yet.

  97. Interesting fairly recent research on the effectiveness of anti-Poverty programs in the United States.

    An extract –

    The benefit system in the U.S. has a major impact on poverty rates, reducing the percent poor in 2004 from 29 percent to 13.5 percent, estimates which are robust to different measures of the poverty line. We find that, while there are significant behavioral side effects of many programs, their aggregate impact is very small and does not affect the magnitude of the aggregate poverty impact of the system. The system reduces poverty the most for the disabled and the elderly and least for several groups among the non-elderly and non-disabled.

  98. Tel

    In fact if nominal GDP targeting was implemented you’d find the markets making the adjustments themselves and the CB action wouldn’t need to be too heavy.

    JC has started following Scott Sumner around the place… what’s the world coming to?

    NGDP targets are nothing more than yet another excuse to tip newly printed money into the hands of the politically connected, ultimately at the expense of everyone else. Real GDP will end up adjusting for inflation anyway so the upshot of the exercise is just to cut wages across the board, but cut by stealth rather than being honest about it.

    I do understand that was Keynes’ whole thesis, that you can’t be honest with a working man because he is too stupid to talk with directly and ripping him off with inflation is a lot easier than ripping him off in other ways. The problem is that people get it, everyone knows the trick now, they actually pay attention to their electricity prices, their fuel prices, etc.

  99. Combine_Dave

    Deflation is disastrous for high debt economies.

    No shit, sherlock. Tell us something we don’t know.

    Japan has high debt and is deflating vigorously under PM Abe, does this mean they are/or will be in trouble?

  100. Actually, Abe has brought Japan out of deflation. That is part of the point of Abenomics.

  101. .

    sdfc
    #1146749, posted on January 11, 2014 at 11:49 pm

    The stimulus depressed the economy to the point where real and nominal prices fell.

    No fiscal and monetary stimulus are both inflationary.

    I noted what was. You remarked and what was ought to be. The stimulus didn’t help. That is evident in the unemployment forecasts and actuals versus the projected baseline. Claiming it wasn’t enough is hand waving. It depressed prices at the peak. The more that was spent, the more output and prices were depressed.

  102. Combine_Dave

    Actually, Abe has brought Japan out of deflation. That is part of the point of Abenomics.

    Effectively bringing down wages without openly doing so?

    Smart.

  103. Eyrie

    Folks, Steiner is just here because Bolt is on hols. He/she/it is a regular troll there.

  104. alexnoaholdmate

    So, when should we expect the miraculous recovery from all this cutting you keep telling us about?

    First – as has been demonstrated above – spending is still out of control. The US would have to cut and cut and cut to return to anything like the level of spending they were at before Obama became President (and even that was waaaaay too much).

    Second – Obama doesn’t cut spending. He is the President. It is Congress – currently dominated by Republicans – that decide what gets spent and where. All Obama has been doing is refraining from using his rubber-stamp veto every time a Republican coughs.

    Does he deserve credit for that? Perhaps some, but it hardly makes up for the last six years.

  105. sdfc

    Dot

    US output has been depressed due to the financial crisis. The Fed has the fed funds at near zero and as of January is buying $75b in financial assets a month. US households have been deleveraging since 2009. Fiscal and monetary stimulus helped prevent inflation from falling even further.

    It’s interesting that some here think that nominal wages should fall. Reducing real wages via inflation is far less costly.

  106. .

    You are being glib sdfc and ignoring monthly data.

    Five years of deleveraging under continuing growing deficits and monetary expansion, yet you want to tell me the policies stopped firther damage?

    You’d have more credibility if the boosters such as yourself and Zandi not only produced positive outcomes, but actually predicted the calamity you now after the fact, predict.

    The exact opposite happened – simply look at the base case predictions and the actual result.

  107. sdfc

    Dot
    Considering I’ve been overtly bearish on this blog for years now that comment about me talking up the economy is pretty strange.

    Money supply expansion is inflationary, there is no two ways about it. Government deficit spending ends up in private sector bank accounts.

  108. .

    To ‘firther’ this conversation – I really don’t see how your last comment was relevant.

  109. sdfc

    Well then you are completely lost.

  110. .

    Not at all.

    So what if you bring up your reasoning about fiscal policy? I’ve showed many times previously that it didn’t work. You were previously arguing ought, not what is/was. This gives us more reasons to reject active fiscal policy.

    You never quantified by how much more you believe the stimulus should have been.

    Which is secondary to the point – prices depressed during the peak of the stimulus. Deflation occurred pretty much through 2009 during the fiscal stimulus package. Not even in late 2008 or early 2009.

    You want us to believe that:

    1. That most of the layoffs, cutbacks and falls in production happened just as the stimulus peaked – not because of the stimulus but the economy structurally deteriorated at that point, just as Obama’s advisers knew, and timed to prevent never seen before deflation – but they got the baseline vs forecasts/actual unemployment completely wrong.
    2. This is justified because people whom had already foreclosed needed to be protected from deflation.

    The banks were largely saved by acquisitions by early 2009. An increasing deposit base (as you say) and an attempt to massage higher effective demand lowered prices during the period.

    The logical conseuqence of this given the money identity is that the fiscal stimulus decreased the velocity of money in the private sector. 8-9 months of a year is an awful long time for the relationship to break down due to sticky prices – especially which act entirely contrary to the nature of the criticisms of monetarism.

  111. Pedro

    I just saw this which has more detailed employment figures, including in respect of the drop out rate
    http://www.themoneyillusion.com/?p=25839

  112. Pedro

    “It’s interesting that some here think that nominal wages should fall. Reducing real wages via inflation is far less costly.”
    Yep.

    “NGDP targets are nothing more than yet another excuse to tip newly printed money into the hands of the politically connected, ultimately at the expense of everyone else. Real GDP will end up adjusting for inflation anyway so the upshot of the exercise is just to cut wages across the board, but cut by stealth rather than being honest about it.”

    Nah, the object is to avoid demand shocks resulting from contractions in NGDP. You’ll notice that the MMists have been predicting low inflation despite the QE, and they’ve been correct. They also predicted that Fiscal policy is subject to monetary offset, and they were correct about that.

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