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It blows my mind that Keynesians can't identify busts that were caused by bubbles. When the US real estate market started tanking, how was the boom supposed to

It blows my mind that Keynesians can't identify busts that were caused by bubbles. When the US real estate market started tanking, how was the boom supposed to continue? More construction in an over-supplied housing market? Re-train workers overnight and give them jobs in other industries? Transmute wood, concrete, shingles, tractors, bulldozers, and excavators into other materials and tools for other industries?

jstalin 11y ago
They seem to deny that there is anything called malinvestment. All that matters is aggregate demand.
- JamesBarney 11y ago
  Keynesians believe that there is malinvestment. They just believe that malinvestment has a direct impact on per capita efficiency but doesn't have an impact on labor utilization except through aggregate demand. Basically there is a difference between 1. 10 people growing bananas when the economy would be better off with 7 people growing bananas and 3 people growing apples. 2. 9 people growing bananas and 1 person sitting on his butt doing nothing because he can't find a banana growing job. Even though the economy would be better off with 10 banana growers then none. The problem with recessions is that per person productivity usually goes up but less people are employed. This phenomenon is hard to explain without referencing aggregate demand.
- marcosdumay 11y ago
  If you read Keynes, you'll see that capital ROI is the inverse (1/x) of the share of their income that the population invests. Yep, that simple. That's called investment multiplier, and economists were discussing at the late 00's how it could vary from one company to the other given the Keynes' identities.
james1071 11y ago
You are talking as if construction were a large part of the economy.
- mason240 11y ago
  Keynesians seem to think it is, given the way they think that government funded make-work construction projects will have positive effect on an economy.
  - james1071 11y ago
    That is a complete non sequitor, but never mind.
Mikeb85 11y ago
> More construction in an over-supplied housing market? You do realize that Keynes' departure from 'classical' economics was a model that depended more on aggregate demand than supply, right? Classical economics (ie. pre-Keynesian economics) would say "just build more". Keynesian economics states that you should stimulate demand (lower interest rates, increase government spending, increase money supply, etc...). Which is exactly what got us out of the recession. > It blows my mind that Keynesians can't identify busts that were caused by bubbles. It's not about whether they can or can't. Some obviously did see the bubble coming (some Goldman Sachs traders famously bet against the housing market). The problem is that too many people profit from the 'bubble', and momentum takes people over the edge (because, like it or not, consumers are NOT rational).
- skylan_q 11y ago
  >Which is exactly what got us out of the recession. It's what caused it in the first place. i.e. 2% interest ninja loans, CRA, "home ownership society", gov't-sponsored entities, etc...
  - Mikeb85 11y ago
    Yes and no. It was caused by too much exposure to debt, so when asset prices dropped banks and consumers became insolvent. Low interest rates by themselves wouldn't have caused the recession, although rates probably should have been higher during that time period anyway. Also keep in mind it's only recently that Keynesian and left-wing economics has become fashionable once again...
- irishcoffee 11y ago
  > Which is exactly what got us out of the recession. wat. We're not out of it, people are just adapting to it.
  - Mikeb85 11y ago
    Yes because a recession looks like 3% growth...
JamesBarney 11y ago
If you're theory is that when individuals move from one industry to another it causes unemployment as they retrain? If that's true then we should have seen unemployment as people shifted from other industries into construction.

jstalin 11y ago

They seem to deny that there is anything called malinvestment. All that matters is aggregate demand.

JamesBarney 11y ago
Keynesians believe that there is malinvestment. They just believe that malinvestment has a direct impact on per capita efficiency but doesn't have an impact on labor utilization except through aggregate demand. Basically there is a difference between 1. 10 people growing bananas when the economy would be better off with 7 people growing bananas and 3 people growing apples. 2. 9 people growing bananas and 1 person sitting on his butt doing nothing because he can't find a banana growing job. Even though the economy would be better off with 10 banana growers then none. The problem with recessions is that per person productivity usually goes up but less people are employed. This phenomenon is hard to explain without referencing aggregate demand.
marcosdumay 11y ago
If you read Keynes, you'll see that capital ROI is the inverse (1/x) of the share of their income that the population invests. Yep, that simple. That's called investment multiplier, and economists were discussing at the late 00's how it could vary from one company to the other given the Keynes' identities.

james1071 11y ago

You are talking as if construction were a large part of the economy.

mason240 11y ago
Keynesians seem to think it is, given the way they think that government funded make-work construction projects will have positive effect on an economy.
- james1071 11y ago
  That is a complete non sequitor, but never mind.

Mikeb85 11y ago

> More construction in an over-supplied housing market? You do realize that Keynes' departure from 'classical' economics was a model that depended more on aggregate demand than supply, right? Classical economics (ie. pre-Keynesian economics) would say "just build more". Keynesian economics states that you should stimulate demand (lower interest rates, increase government spending, increase money supply, etc...). Which is exactly what got us out of the recession. > It blows my mind that Keynesians can't identify busts that were caused by bubbles. It's not about whether they can or can't. Some obviously did see the bubble coming (some Goldman Sachs traders famously bet against the housing market). The problem is that too many people profit from the 'bubble', and momentum takes people over the edge (because, like it or not, consumers are NOT rational).

skylan_q 11y ago
>Which is exactly what got us out of the recession. It's what caused it in the first place. i.e. 2% interest ninja loans, CRA, "home ownership society", gov't-sponsored entities, etc...
- Mikeb85 11y ago
  Yes and no. It was caused by too much exposure to debt, so when asset prices dropped banks and consumers became insolvent. Low interest rates by themselves wouldn't have caused the recession, although rates probably should have been higher during that time period anyway. Also keep in mind it's only recently that Keynesian and left-wing economics has become fashionable once again...
irishcoffee 11y ago
> Which is exactly what got us out of the recession. wat. We're not out of it, people are just adapting to it.
- Mikeb85 11y ago
  Yes because a recession looks like 3% growth...

JamesBarney 11y ago

If you're theory is that when individuals move from one industry to another it causes unemployment as they retrain? If that's true then we should have seen unemployment as people shifted from other industries into construction.