Debating Keynes, the story so far

I am in the midst of a debate on the Elgar blogsite with the editor of the Review of Keynesian Economics over the question: How to Promote a Global Economic Recovery. The issue is the validity of Keynesian theory and policy. Such debates are strangely rare, and what is more astonishing is that there really is very little of it at the present time, even with our economies having been subjected to a Keynesian stimulus with no apparent positive results. Even Paul Krugman has insisted that the stimulus has been disastrous, but in his view because there was too little and not too much.

I, of course, represent the anti-Keynesian side of the story which, as surprising as this may seem, is not all that common. There are some who are non-Keynesian, but who do not make much if any effort to draw distinctions between their own theoretical arguments and the arguments of modern Keynesians. Whatever it is they might believe, they do not spell out chapter and verse what they believe is wrong with Keynesian theory. They argue on behalf of their own views and leave it at that. They therefore provide little assistance in policy debates to those who are trying to explain what is wrong with the single most common treatment found in macroeconomics texts across the world, and in particular, what is wrong with public spending as a means to bring recessions to an end.

There are also some who rest whatever disagreements they have with Keynes on the results of empirical investigations. They also do not specify any particular disagreement with Keynes but rely on the specifications of their own empirical results to show that the results of Keynesian policies do not lead to the outcomes that were expected. The theoretical side is either played down or ignored.

Thus far there have been four posts, two from each of us.

Here are the four in order of publication.

First I weighed in on The Free Market approach which is as much a critique of Keynesian theory as can be fitted into 1700 words.

Louis-Philippe Rochon replied with “The worst infliction we can impose on our economies is to leave them to the tyranny of the markets”.

To this, I replied with “Markets… have been the single most liberating institution in possibly the entire history of the human race” which, in spite of its title, is almost entirely devoted to criticising Keynesian theory.

LPR then replied with this: “It is pure fantasy to believe that anything but demand is the driving force of economic activity” which puts the issue squarely before us. This is his opening para:

I read with much interest your most recent letter and I will confess I agree with you … we are indeed far apart! But surely this is not surprising as we both defend not only a very different vision of economic theory, but also a different vision of markets and society. At the core of our disagreement lies an understanding of markets, which you see as self-regulating, whereas I claim they are not. I view markets as chaotic and prone to instability and, quite honesty, capable of exploding (or rather deteriorating) into crises, with unimaginable consequences. Perhaps you are OK with that, but I am not. So when I said that the ‘worst infliction’ is to leave us exposed to the ‘tyranny of markets’, I meant precisely that: because of periodic crises, but also because of oft-occurring recessions, we cannot place our complete faith in free-markets. I see unregulated markets and unfettered capitalism as a scourge that must be tamed. To deny or ignore this would be a grave mistake, which would condemn us all to misery, and worse. How else would you characterize the massive inequality of income and wealth around the world and in particular in the United States, which is one of the most unequal developed economies? Is the fact that 40% of the wealth in the US rests within 1% of the population not a tyranny? Does this not shock you? It shocks me, and I will say it again: unless we address this calamity, we are bound to relive a crisis – and soon. Mark my words: another crisis is coming.

Although Keynesian theory comes in many different disguises – there is a different Keynes for every Keynesian – this is pretty close to the real thing. Any thoughts would be welcome.

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51 Responses to Debating Keynes, the story so far

  1. struth

    LPR is a socialist dickhead.
    There, I hope that helps.
    I wonder if the thousands fleeing countries practicing his theories and risking life and limb to get to the states agree with him.
    If one percent have most of the wealth in the United states really was true, then it’s also true that there is enough money left over for the rest to have a high standard of living.
    That’s what growing the pie is all about.
    One piece of the capitalist pie is better than spreading the crumbs of socialism amongst the masses.

  2. Biota

    Its the first time I have thought about that equation Y = C + I + G and in trying to unpack it, it seems total nonsense. So to release savings C must go up but for that to happen demand must increase, but that demand is part of Y so it seems a bit circular to me. Assuming the equation is valid, why is the emphasis always on raising G? Why not raise I and put the government money to better use, whatever that might be?

  3. Tel

    You will never be able to checkmate the pigeon.

  4. trax

    It’s fun how they incorrectly link together all these different things to make their arguments. It’s also this fear of what they don’t understand and how their attempts to control it actually cause more problems, which of course they don’t take any responsibility for.

    Wealth inequality is a problem but not in the way they say. The issue is around consumption and waste. Just like with big government, having lots of wealth in the hands of a few results in waste as they are not able to and don’t even care to use the money wisely. On top of that the policies of “money printing” and stimulus give a big advantage to the already wealthy while effectively stealing from savers.

  5. Tel

    Assuming the equation is valid, why is the emphasis always on raising G?

    Out of the three variables: C, I & G which one encompasses the wages of the economist?

  6. ar

    Paul Krugman has insisted that the stimulus has been disastrous, but in his view because there was too little and not too much

    The only fault a leftist will ever admit… they didn’t go hard enough the first time.

  7. Percy

    Is the fact that 40% of the wealth in the US rests within 1% of the population not a tyranny?

    This line here goes to the whole thinking of the redistributionists. They have an unfailing belief that this 1% have obtained their wealth at the expense of the other 99%. Trying to explain that the wealth of that 1% is merely a tiny sliver of the wealth that they have created for the rest of society can be like banging your head on the corner of an anvil. Have fun, and be sure to use the term Catallactics in your argument somewhere Steve. It is good for highlighting that trade in a free market is mutually beneficial. Envious clowns like LPR always forget that.

  8. Alex Davidson

    Louis-Philippe Rochon is so thoroughly indoctrinated with Marxist ideology I doubt whether he will ever be capable of understanding how wealth is created. He seems unable to appreciate that markets expose human wants and needs, and if that turns out to be ‘chaotic’, then who is he to demand control of the levers, or determine what is ‘optimum’ or ‘efficient’?

    The scourge that must be tamed is unfettered democracy – where anything goes and might is right; where politicians believe they have the right to set aside the foundations of freedom and prosperity – to print money and employ force to achieve ends – so long as they have ‘the numbers’.

  9. Alex

    Wealth inequality is a strawman and not a crisis. Whether or not free markets increase or decrease wealth inequality is irrelevant.

    Markets are self regulating, not chaotic. Removal of government interference in economic activity does not remove regulation. He says markets are not self regulating, but does not demonstrate this. To provide an example of self-regulation, there is the concept of the lingua franca, ie a trade language, a language used in trade because it is commonly understood. These have emerged frequently over human history, not because of government fiat but because people wanted to communicate with each other. The premise the markets are not self regulating would mean that people would choose to speak in a manner incomprehensible to those they wanted to communicate with unless they were forced to by government. I do not think such self-defeating behaviour has been demonstrated on a wide scale.

    Where is it shown that markets themselves (ie free action by people a general sense) caused a crisis? Markets cause reversion to a mean… causing imbalances created by interference to be corrected.

    If it is held that markets are the cause of crises, then the solution would be to restrict individual freedom to the highest degree possible, ideally eliminating it altogether. But this would eliminate ‘crisis’ for the few people who were pulling the strings, and make life barely worth living for everyone else. But in the long run, the string pullers’ quality of life would spiral downwards, just as in regimes like North Korea where those at the top are impoverished by international standards.

    Further to that, even if markets were ‘wrong’, does that justify coercively taking away people’s individual freedom? Is violence justified because people are doing something you don’t want them to do? Violence underpins all government regulation.

  10. Biota

    If you take LPR to his logical conclusion you have the state controlling everything, so I drops out of the ‘equation’ and demand disappears (goes underground actually). The state makes everyone even, thus blissfully happy, all the while creating a bureaucratic elite richer than the despised 1% capitalists of before, as has happened anywhere where this wretched system has been tried.

  11. Percy

    LPR says –

    Now regarding that ‘piece of arithmetic’, which you call the Y = C + I + G + (X – M), I am afraid that is simple national accounting, no more no less. But more than that, for me it is a point of pure logic: when consumers, private firms or governments spend, that increases the demand for goods, which firms must produce. Please, tell me where the flaw in that logic is?

    Where do you start on the flaws?
    -LPR believes a good will only be produced once consumers start to purchase it. The cart pulls the horse in his world.
    -He assumes that a central bureaucracy can decide for an entire nation which goods they need and can buy them effectively for the people, because residents of Jindabyne require/desire the exact same things as those in Tennant Creek.
    -Public debt is fine, because it doesn’t require a Government to take money out of the economy to repay the borrowed cash.
    -Government spending is the equal to private spending ie, government spending making up 40% of an economy is no more harmful than when at 20%. Keynesians don’t think 60% paying for 40% is any more destructive than 80% only having to pay for 20%. If that were true then a 100% government run economy would be just as prosperous as any other. Even LPR would admit that is a load of shite.

  12. entropy

    I would say LPR is either a total idiot, or he raised the issue of the inequality of asset holding as a diversion as he wasn’t doing well. Instead of discussing the merits or otherwise of Y = C + I + G, raising asset inequality is the equivalent ono more than the tactic of yelling hey ” look over there!” when you are about to get your arse kicked. If anything it helps the anti-keynsian position.

    How would government stimulus or quantitative easing through massive printing of money do other than increase the value in those dollars of the wealthiests’ assets, and most evilly, reduce the buying power of the poor for every day essentials?

  13. Tel

    But in the long run, the string pullers’ quality of life would spiral downwards, just as in regimes like North Korea where those at the top are impoverished by international standards.

    North Korea really solved the wealth inequality problem. Their leader is too fat to walk, and their soldiers walk around like stick figures.

  14. Roger

    LPR is clearly not prepared to debate the rights and wrongs of Keynesianism as such, so this debate will be as pointless as all the other debates Steve has mentioned. He clearly believes in Socialism and has no interest in the realities of our world. The straw man of inequality seems to be the favourite line taken by the left today. It’s fundamental flaw was highlighted by Margaret Thatcher in what I think was (ironically) her final Question Time in the House of Commons, when she succinctly outlined the desire of the left to have everyone worse off but less unequal, rather than even the poorest immeasurably better off despite a greater gap between the richest and poorest. I am by no means amongst the 1%, but I live a life of unsurpassed luxury and (at least medical) safety compared with the wealthiest person of, say 150 years ago, and it is all thanks to capitalism as it developed under Classical Theory. I assume FDR is one of the great heroes of LPR, yet he is the one major leader of the 1930’s who held his country back from economic recovery by following the sort of logic LPR espouses.

  15. Tel

    Markets… have been the single most liberating institution in possibly the entire history of the human race

    I would argue that markets are a consequence of liberty, not the other way around.

    People can be free without markets, just like they can be free without forks, or without shoes. However, because markets are useful, most (not all) free people will tend choose to partake in market activity, most (not all) free people will also choose to wear shoes, even without any particular compulsion to do so. Wearing shoes does not automatically make you free.

  16. DB

    So-called progressives are constantly bleating about income inequality. However, in a country like the United States, this is a relativist argument rather than an absolutist one.

    Even if it is true that 1% of the population has 40% of the wealth, in absolute terms the U.S. is still ranked 5th amongst all countries in the United Nations’ Human Development Index and remains a country of preference for immigrants and refugees alike.

  17. Yohan

    The Keynesian Argument

    1 – To spur economy increase government spending via debt and credit creation
    2 – If economy recovers, claim credit for the recovery
    3 – If economy does not recover, claim that spending was not large enough

    Either way, the Keynesian theory wins and is always correct. It really is this simple.

  18. Hasbeen

    I spent my 20s racing cars when it was an expensive hobby, not a profitable business. I did not try to make money, just enough to pay for my racing.

    Ultimately I sold the car for about 40% of the value of a house in an outer suburb, but I did not buy a house, I bought an old yacht. I spent 8 years cruising around the Pacific islands, not a great way to become rich.

    Back in Oz at 38, I sold the yacht for enough to buy a couple of acres out in the bush, & move in a removal house from town. I then settled down, raised 3 kids their dogs, ponies & cars, again not a recipe for wealth generation.

    I am now worth the best part of a million, & retired quite comfortably.

    If I can do that, from the crumbs of the rich mans table, with virtually no serious effort, how the hell do people become disadvantaged?

  19. Yohan

    Steve you have wasted your time having that debate. Part of being a leftist, Marxist or progressive is being ignorant of the basic principles of economics.

    That is why they are so attracted to Keynes. He throws away all sound principles, replacing them with a new paradigm of pseudoscience and incomprehensible jargon. He promises a painless and mystical method of increasing wealth and economic wellbeing. Just print and spend.

  20. Jeremy

    Inequality is the basic driver of the capitalist system. It is the competitive drive to have more than others that leads to innovation and improved productivity. Socialists such as LPR want to take that away pretending that inequality of outcome (wealth) is unfair. Fairness in a capitalist system is rigorously dispensed by the market. Those whose activities are valued by the rest of society are rewarded. Those whose activities don’t are not. The resulting “massive inequality of wealth” is automatically fair. The postulate that demand causes supply is transparent nonsense. There was no demand for mobile phones until they were invented . They had to be produced and offered to the market before demand could develop.

  21. outsider

    Saw a crawler creeping across the bottom of the TV: ‘UK economy improves despite austerity’. Don’t these folks have any knowledge of history?

  22. Rob MW

    “Is the fact that 40% of the wealth in the US rests within 1% of the population not a tyranny?”

    What a crock of shit – Quantifying ‘Tangible vs Intangible’ would be a good start.

  23. 40% of the wealth sitting with the 1% most evidentially able to create with it would seem to be a validation of a capitalist system, not a criticism of it.

    That is kind of the point of a capitalist system – to produce capital, first and foremost.

    Of course, the civilisation that supports that capital needs to be maintained and built upon, which capitalism neglects, but that is a completely separate argument.

  24. Nato

    Some thoughts:

    I view markets as chaotic and prone to instability and, quite honestly, capable of exploding into prosperity, with unimaginable consequences. Perhaps you’re not OK with that, but I am.

    “Income inequality” is nothing compared to social mobility. Keeping up with the Joneses is what brought about the Golden Years of capitalism.

    In my early days lurking at the Cat, we were treated to a link to the Myth of the Rational Voter essay. Your interlocutor seems to have fallen for the Make Work Bias. As an aside, just because someone is employed doesn’t mean that they are working.

    He seems to use the phrase “tyranny of the markets” to mean a horrible societal condition where stupid people have the right to own stuff and do what they want with that stuff. One where companies listen to uneducated customers’ priorities and ignore what’s so important to economists and bureaucrats.

    “when consumers, private firms or governments spend, that increases the demand for goods, which firms must produce. Please, tell me where the flaw in that logic is?” … *are producing. Apparently the public who won’t pay in the first place must not choose a substitute, invest in a new idea, or save to buy someone else’s innovation.

    It was hard to read Mr Rochon’s prescription of limited horizons, stunted imagination and willingness to repress individual activity for the safety of collective stagnation presented as if he’s saving the world.

  25. pete m

    At the core of our disagreement lies an understanding of markets, which you see as self-regulating, whereas I claim they are not. I view markets as chaotic and prone to instability and, quite honesty, capable of exploding (or rather deteriorating) into crises, with unimaginable consequences.

    This is abusive. He impugnes you for a consequence he imagines. And of course the “consequences” are unimaginable, so he gets away with trying to figure them out. Deceitful!

    Regulated markets brought us the Great Depression, the Dot Com bubble, the GFC etc.

    Someone noted above – why bother?

  26. Fess

    LPR has never run a business, I’m sure. “Tyranny of free markets” – what a load of rubbish. Slogans like that and platitudes about equality aren’t an economic argument. I’m an engineer, not an economist, but if LPR represents the study of economics then it’s no more than a pseudo-science where people take a position and argue on the basis of ego and prejudice. Good luck arguing with closed, arrogant minds.

  27. Fess

    Another comment from a humble engineer. An entire economy’s GDP can be expressed in an equation of just 3 variables, and it is LINEAR!!! Pardon me while I collapse laughing. I’ve always assumed that Y = C + I + G is a wild simplification just to illustrate a point. Where is sentiment, quality of government, market freedom, creation of new value, and entrepreneurship in the equation? So why don’t these Keynesians have a healthy distrust of their own proposition about increasing G? I follow this blog because I enjoy a hard edge of common sense and practicality in the writings of Davidson, Kates, Sloan and co. It seems to be underpinned by significant real-world experience with business. Are most other economists in academic fairyland?

  28. Zippy The Younger

    Everything you need to understand about Wealth Inequality is contained in this paper:

    Market Efficiency, the Pareto Wealth Distribution, and the LÈvy Distribution of Stock Returns
    The Pareto (power-law) wealth distribution, which is empirically observed in
    many countries, implies rather extreme wealth inequality. For instance, in the U.S. the
    top 1% of the population holds about 40% of the total wealth. What is the source of
    this inequality? The answer to this question has profound political, social, and
    philosophical implications. We show that the Pareto wealth distribution is a robust
    consequence of a fundamental property of the capital investment process: it is a
    stochastic multiplicative process. Moreover, the Pareto distribution implies that
    inequality is driven primarily by chance, rather than by differential investment ability.
    This result is closely related to the concept of market efficiency, and may have direct
    implications regarding the economic role and social desirability of wealth inequality.
    We also show that the Pareto wealth distribution may explain the Lévy distribution of
    stock returns, which has puzzled researchers for many years. Thus, the Pareto wealth
    distribution, market efficiency, and the Lévy distribution of stock returns are all
    closely linked.
    —–

    Everything the left says about wealth inequality is fundamentally wrong and extremely dangerous to the health of society. Socialists and other fascists and do-gooders are completely blind to the basic reality of wealth distribution, They are the umltimate Cretinistas.

  29. Zippy The Younger

    more from above link
    ——
    In this paper we argue that the multiplicative nature of the capital investment
    process is the reason for the empirically observed Pareto wealth distribution. Indeed,
    starting with an arbitrary non-degenerate initial wealth distribution, any process which is stochastically multiplicative and homogeneous leads to the Pareto law.
    The homogeneity of the process in essence means that individuals do not posses differential investment abilities and cannot “beat the market”. This idea is closely
    related to the concept of market efficiency: in an efficient market one would not
    expect to find investors who consistently outperform their peers. We show that
    non-homogeneous multiplicative processes lead to a wealth distribution which is
    different from the Pareto distribution. Thus, the Pareto distribution implies market
    efficiency. Our analysis leads us to conclude that the extreme inequality in modern
    western society is a very fundamental and robust outcome of the nature of the capital
    investment process. Furthermore, this inequality is driven primarily by chance, rather
    than by differential ability.
    The structure of this paper is as follows. In section 2 we present the framework
    of stochastically multiplicative investment processes. We prove that homogeneous
    processes lead to the Pareto wealth distribution, and to the extreme inequality which it
    implies. In section 3 we discuss non-homogeneous processes and show that they lead to
    wealth distributions different than the Pareto distribution. This section reveals that the
    Pareto distribution is closely related to market efficiency, and puts an upper bound on the
    degree of market inefficiency. In section 4 we show that the Lévy distribution of stock
    returns can be explained by the Pareto wealth distribution. The theoretical prediction
    resulting from this analysis is empirically tested in section5. Section 6 concludes.

  30. Toiling Mass

    The third world is rotten with demand.

    Shouldn’t they be booming then?

  31. Zippy The Younger

    The second paper important to understand Wealth inequality is

    Emergence of Scaling in Random Networks by Barabasi

    Systems as diverse as genetic networks or the World Wide Web are best described as networks with complex topology. A common property of many
    large networks is that the vertex connectivities follow a scale-free power-law
    distribution. This feature was found to be a consequence of two generic mechanisms:
    (i) networks expand continuously by the addition of new vertices, and
    (ii) new vertices attach preferentially to sites that are already well connected.
    A model based on these two ingredients reproduces the observed stationary
    scale-free distributions, which indicates that the development of large networks
    is governed by robust self-organizing phenomena that go beyond the particulars
    of the individual systems.
    —–

    The previous paper by Moshe Levy dealt with capital investment and showed an efficient market yields a scale free power law distribution. Barabasi’s paper implies that a free consumer market also yields a scale free power law distribution of firm sizes.

    Again we find that the left’s obsession with preventing wealth inequality is doomed to failure, a Pareto distributions is a natural phenomena that does requires nothing more than freedom of choice and property rights.

    Wealth inequality in the form of Pareto distributions is a clear and necessary outcome of an efficient market, both in capital investment markets and consumer goods and services markets.

    The leftist desire to interfer with wealth inequality must necessarily results in varying degrees of totalitarianism to over ride the efficiency of markets.

    The entire left is the equivalent of a Cargo Cult thoroughly based in delusion regarding the nature of reality.

  32. Zippy The Younger

    Shouldn’t they be booming then?

    You fail to understand the papers. Markets that don’t yield Pareto outcomes imply lack of efficiency.
    Chances are 3rd markets still yield Pareto distributions, just much smaller ones.

    Pareto outcomes say nothing about the total size and performance of a market, just that they follow a particular shape when plotted over time. That shape is perceived as wealth inequality wether it is a small market or a very large market. Being scale free it has similar shape in both markets.

    Progressive taxes for instance in no way prevent a Pareto outcome, they just make the total pie smaller.

    The shape of wealth inequality under heavy regulation and progressive taxes persists and is quite a robust phenomena.

    The rough rules for Pareto outcomes is 80% of value is contained by only 20% of things. 40% of value is contained by 1% of things.

    It’s a stochastic statistical outcome.

  33. Toiling Mass

    Zippy,

    I was just having a dig at LPR’s “It is pure fantasy to believe that anything but demand is the driving force of economic activity

  34. Driftforge

    An entire economy’s GDP can be expressed in an equation of just 3 variables, and it is LINEAR!

    Fess, have a look at Steve Keen’s formulation of the market – basically a systems engineering / stocks and flows approach. Everything is formulated as d/dt, which makes a lot more sense (at least from an engineers perspective).

    As it is, Y = C + I + G is perfect expression of leftism — higher order effects don’t exist. There are no consequences.

  35. stevem

    I’ve never understood why Y = C + I + G represents a problem. It seems reasonable and common sense.

    The problem comes with the theory that increasing “G” will, perforce, raise “Y” and even “C”. The variables are independent. Increasing “G” may cause consumer anxiety that will drop “C” by more than the increase in “G”, actually causing “Y” to drop.

    If you accept that the formula represents nothing more than accounting number and not a cause/effect relationship then there is no problem. The problem comes when believing, despite evidence to the contrary, that “Y” and even “C” can be simplistically be manipulated by increasing “G”.

  36. Fess

    Stevem and Driftforge – thank you. I will look at the Keens text. I might bite the bullet and buy/read Kates’ book too. Time I understood more about economics, even if only to more effectively poke fun at it 🙂

  37. I made a comment that I thought had some relevance.

  38. Belfry

    At the core of our disagreement lies an understanding of markets, which you see as self-regulating, whereas I claim they are not. I view markets as chaotic and prone to instability and, quite honesty, capable of exploding (or rather deteriorating) into crises, with unimaginable consequences. Perhaps you are OK with that, but I am not.

    LPR crystallises the practical point of contention quite well here. Keynesians see markets and economies as tools to provide the optimal level of harmonious, efficient, and useful development for human society. Austrians see human society as a bunch of cogs to fit around some abstract ideal of ‘the most free market possible’. Well… great. But if this ideologically-driven end doesn’t happen to deliver good practical outcomes as a by-product, what’s the point?

  39. rich

    I made a comment that I thought had some relevance.

    Thanks for the great comment. I had never thought of it as, “governments use Keynes as a justification to spend taxpayer dollars on their pet projects”

  40. Baa Humbug

    MHO
    LPR made the following comment..

    Twice now you mention Keynes’s assertion that we should bury bottles full of banknotes as representative of Keynesian policy. My dear Steven, Keynesian economics is much more than that, and to isolate that sentence as representative of Keynes is both misleading and, well, dishonest.

    And a little further down…

    In fact, Keynes was clear, a bit later in the same often-quoted passage, that “It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing” (GT, p. 129). Did you not read that part of the General Theory?

    Steves comment that LPR is responding to above, vis

    Here was Keynes’s advice on the kind of response that was therefore needed:

    If the Treasury were to fill old bottles with banknotes, bury them . . . and leave it to private enterprise . . . to dig the notes up again . . . there need be no more unemployment. . . . It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing. (Keynes 1936: 128-129 and quoted with approval exactly as shown above in Temin and Vines 2014: 50)

    This has been the essence of Keynesian theory from that day to this.

    Obviously Steve didn’t leave out the “little later in the often-quoted passage…”

    LPR further states…

    Keynes’s point about the bottles is that even something as silly as that would be better than doing nothing.

    There we have it, burying bottles full of money is BETTER THAN DOING NOTHING apparently.
    IMHO it is LPR being misleading and dishonest in this instance.

    LPR states…

    Is the fact that 40% of the wealth in the US rests within 1% of the population not a tyranny? Does this not shock you? It shocks me, and I will say it again: unless we address this calamity, we are bound to relive a crisis – and soon. Mark my words: another crisis is coming.

    No point arguing this naivete’ except to ask some questions vis..
    How much of the wealth should the 1% of the population hold? It must be above 1% surely.
    How does one arrive at a figure, arbitrarily or by some consensus or government edict?
    If the 40% was reduced somehow, at what point does it become a disincentive to take risk?

    LPR begs..

    Now regarding that ‘piece of arithmetic’, which you call the Y = C + I + G + (X – M), I am afraid that is simple national accounting, no more no less. But more than that, for me it is a point of pure logic: when consumers, private firms or governments spend, that increases the demand for goods, which firms must produce. Please, tell me where the flaw in that logic is?

    Unless one has been involved in running a business, it would be difficult to comprehend the flaw in that logic.
    As the maker of widgets, an artificial boost in demand will never ever E.V.E.R. cause me to invest and expand my widget making facilities UNLESS THIS ARTIFICIAL DEMAND IS ENDLESS.
    And guess what Keynesians keep trumpeting?

    This post is getting too long. Sorry

  41. Tel

    Austrians see human society as a bunch of cogs to fit around some abstract ideal of ‘the most free market possible’.

    Where do people get this stuff from?

  42. wreckage

    Is the fact that 40% of the wealth in the US rests within 1% of the population not a tyranny?

    Of course it’s fucking not, you bloody idiot.

  43. wreckage

    How can you argue with a clown who thinks that a statistical blip is a tyranny?

  44. wreckage

    The free market ideal is the only one that DOESN’T see people as a series of cogs.

    This is beyond belief: allowing people total freedom makes them cogs, but ordering them according to the edicts of the Proper Authorities sets them freeeeeeeeeee.

    This guy has a serious philosophical / logical problem, possibly an emotional or mental one, too.

  45. Yohan

    Keynesians see markets and economies as tools to provide the optimal level of harmonious, efficient, and useful development for human society. Austrians see human society as a bunch of cogs to fit around some abstract ideal of ‘the most free market possible’.

    What a nonsensical analogy.

    Define what is a ‘market’ or ‘economy’. They are words used to abstractly describe a collection of human beings buying, selling, exchanging and interacting with one another to satisfy their most urgent felt wants.

    Its the conceit of the social engineer and central planner that such a thing could even be called a ‘tool’.

  46. Tel

    Define what is a ‘market’ or ‘economy’. They are words used to abstractly describe a collection of human beings buying, selling, exchanging and interacting with one another to satisfy their most urgent felt wants.

    Not to a Keynesian.

    The market is what the Keynesian says it is; achieving optimal efficiency by criteria that the Keynesian gets to decide; delivering exactly the human society that the Keynesians have envisaged.

    You would be a lot more useful and harmonious if you just learned obedience.

  47. rtp

    I didn’t read your posts Steve but this is what I say to Keynesians.

    1) Demand is by definition how much of something we are prepared to give up for something *else* (the something else can be more than one thing but it cannot include the first something).

    Ergo, you cannot aggregate it because you would then be effectively dividing by zero – asking how much of nothing you would be prepared to give up to get something. The answer is trivial and hence the absurd conclusions Keynesians draw (natural disasters are good etc).

    2) *Every* bust (and its preceding boom) in history has been focused on the capital good markets as opposed to the consumer good markets (ie capital goods such as stocks fall by vastly more than consumer goods prices). Even in the Great Depression where consumer prices fell by 50 per cent capital goods prices fell by 90 per cent (ie effectively five times more). So Keynesianism isn’t even attempting to answer the right question. How on earth anybody could have been around in the Great Depression and thought that stimulating consumer demand (even if that were to make any sense) would assist an economy whereby the problem was clearly in the capital goods sectors is beyond me.

    3) Savings may be represented by money in a bank but they are not constituted by it. Savings is loaves of bread (or steel or whatever) saved today to allow an individual to consume them while they are building a capital good tomorrow. The addition of money into the economy has no impact on the level of real savings as this is determined purely by how many real resources have been produced today (but not consumed) so they are available to build capital goods tomorrow. The notion that you can increase investment therefore by lowering the interest rate or having fractional reserve banking is ridiculous then as it cannot change the amount of real savings.

  48. Youngster

    Surely this Louis-Philippe Rochon character is some sort of satirical creation? No learned human being could seriously put forward these arguments with a straight face! Steve, I think you’re being trolled by the IPA or Tim Blair 🙂

  49. Yohan

    Not to a Keynesian.

    The market is what the Keynesian says it is; achieving optimal efficiency by criteria that the Keynesian gets to decide; delivering exactly the human society that the Keynesians have envisaged.

    lol yes. And notice how they psychologically project onto ‘Austrians/classical economists’ the very thing they themselves do, which is fit humans as cogs onto a wheel in some grand social engineering project to remake society.

  50. wreckage

    Keynesians see markets and economies as tools to provide the optimal level of harmonious, efficient, and useful development for human society.

    Markets are tools for the powerful to use in order to impose their vision on society. They aren’t people trading freely, they aren’t anything to do with you dirty peasants they are, rather, the birthright of your correct and proper rulers.

  51. Gaetano

    A great article in Quadrant a few months back called, “The Flawed Moral Crusade Against Inequality”. It more or less addresses each of the concerns raised in that paragraph, with particular focus on the “1%” and its reason for being: that the 1% exists only because the 99% have the financial capabilities to buy the products and services the 1% provide. If the 1% doesn’t exists, then it would be safe to assume that neither does individual wealth.

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