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Economic Possibilities for Our Grandchildren (1931)
- dforrestwilson 9y ago"If economists could manage to get themselves thought of as humble, competent people, on a level with dentists, that would be splendid!" Sadly this is still not the case. Macroeconomics in particular is still theory > scientific process. And the frustrating thing about Keynes is that he failed to acknowledge the simple fact that Keynesian policy only works when every country in the world is not practicing it. Microeconomics is where I think the real breakthroughs are happening. Edit: Down-voted?
- tome 9y ago> Keynesian policy only works when every country in the world is not practicing it. Huh?
- baybal2 9y ago>> Keynesian policy only works when every country in the world is not practicing it. >Huh? When somebody big prints money, everybody print money.
- tome 9y agoAnd that means Keynsianism fails to work why exactly?
- dforrestwilson 9y agoGovernment creep results in suboptimal outcomes for everyone, raising tensions and exacerbating economic books and busts. I point to Greenspan and the housing crisis. Maybe the U.S. shouldn't be subsidizing housing and student loans? Additionally, currency and trade wars tend to become the violent kind. You could argue that the real problem is that Keynesian backed governments never turn off the spigot, but why should they when the chosen stimulus policy neatly aligns with their own professional goals?
- tome 9y agoThat sounds like "Keysian policy never works". dforrestwilson said "Keynesian policy only works when every country in the world is not practicing it" which sounds like a different claim entirely, so I'm confused.
- dforrestwilson 9y agoIt worked before and during WW2 because it was unprecedented and other countries did not engage in similar policies to remain competitive in international trade.
- dforrestwilson 9y agoIt will not work again.
- dforrestwilson 9y agoThank you. This is what I tried to say above in a much longer way..
- CalChris 9y ago>>> Keynesian policy only works when every country in the world is not practicing it. >>Huh? >When somebody big prints money, everybody print money. This is not what Keynesian policy is.
- dforrestwilson 9y agoKeynes basically advocated for massive government stimulus to make up for national economic slack. The problems with governments doing this is: 1. Governments are less efficient than free markets at spending money. See China. 2. It tends to lead to central bank stimulus (dilution and tight control of currency values). 3. Currency devaluation results in a more competitive international trade for the country in question. This puts more unnatural pressure on other nations' economies. 4. Everybody racing their currencies to the bottom to remain economically competitive. Which is why people got in a tizzy about Japan, China, and now Germany. If a politician can get away with it why wouldn't they tweak monetary policy to juice the economy under their watch? Trump has made comments to this effect and appears poised to continue the cycle. If you can believe anything he says.. These ingredients (high global trade levels compared to historical, tightly interconnected economies, disconnect from the established standard of trade ie: gold in favor of paper IOUs, yet competing and ambitious political interests) can only lead to one thing. An undeclared currency war. Why else are we still witnessing weak to no inflation across the developed world?
- ue_ 9y ago>1. Governments are less efficient than free markets at spending money. See China. It's worth noting that the free market is less efficient than governments in other areas, or at least, it does not optimise for outcomes in certain areas.
- djschnei 9y agocare to provide an example?
- ue_ 9y agoWorker rights.
- bjelkeman-again 9y agoHealthcare is a nice example of this. http://www.commonwealthfund.org/publications/issue-briefs/2015/oct/us-health-care-from-a-global-perspective http://www.commonwealthfund.org/publications/issue-briefs/20...
- deleted 9y ago[deleted]
- CalChris 9y agoDo you have any backing or cites for your categorical statement?
- dforrestwilson 9y agoI replied below.
- crdoconnor 9y ago"Keynesian policy only works when every country in the world is not practicing it." Most economies acted along keynesian principles during WW2. There's nothing stopping any economy from raising aggregate demand to equal productive capacity, no matter what other countries are doing. It required an existential war for elites to stop pretending, though.
- dforrestwilson 9y agoSorry but this was a pretty novel idea and one-time solution for 2 countries in a time of serious crisis. It was not known or practiced by other nations at the time, so there was no counter-Keynesian policy enacted by other trading countries.
- crdoconnor 9y agoI have never heard of, nor do I believe there is any such thing as "counter-keynesian policy". Are you thinking of export-substitution industrialization?
- dforrestwilson 9y agoKeynesian seems to lead to currency manipulation doesn't it?
- dforrestwilson 9y agoI'm thinking of purposefully devaluing your currency to remain competitive against countries with subsidized production.
- CalChris 9y agoYou are talking about Mercantilism and more specifically Protectionism. That is not Keynesianism at all. In fact Keynes was part of the British delegation to Breton Woods favoring negotiated trade balance. https://en.wikipedia.org/wiki/Bretton_Woods_system https://en.wikipedia.org/wiki/Bretton_Woods_system
- tome 9y ago> Down-voted? I didn't downvote you at first, but I always downvote complaints about downvotes. I'd give it more time. Decent comments generally arrive back in the black.
- dforrestwilson 9y agoOK thanks for the clarification.
- ThomPete 9y ago"If economists could manage to get themselves thought of as humble, competent people, on a level with dentists, that would be splendid!" Agreed! The primary problem is politicians use of and reliance on economists as if they are fortune tellers. The fact that there isn't an economic model in use which doesn't treat technology as an externality is to me the best sign of how far of from usefulness economy have become. Of course there are areas where economy is good but it's not a science and it's use as a way to dictate politics is not founded in rationality.
- tonyedgecombe 9y agoPoliticians use economists to justify their own ideology, I can't see anything happening to change that.
- marcosdumay 9y agoThis. Newspaper economics is something completely different from academic economics. It has different rules, and different theories. Academic economics has it share of problems, but it's delusional to use newspaper economics as its metrics.
- acover 9y agoCorrect me if I'm wrong. There are certain areas where economics/human behavior that are well understood. Like how people behave in markets. Macroeconomics isn't as well understood. However given the vast control the central bank has monetary policy seems to be quite effective. Side note: I'd love to know what areas of economics, psychology and other soft sciences have predictive power, according to a consensus of experts. Do we know things? What do we know? Let's find out! Edit 2: HN confuses me. Downvotes for what?
- crawshaw 9y agoOnly in the last 20 years have economists begun to admit their traditional model of people in micro-economic markets, so-called "rational" actors, don't correspond to reality. The amazing resistance of the field to such obvious claims (the more successful part of what's called behavioural economics) gives many of us looking in from the outside pause.
- ykler 9y agoIt seems that he has been generally correct about the economic problem gradually ending, though maybe inequality of distribution has been worse than he expected, so we are still somewhat distant from the real end. But if his picture is right, there should have been steady progress in the ability of the upper middle class to make better use of leisure time. Has there been? I have no clear sense of this.
- freeone3000 9y agoYou can watch a movie at 2am on your home theatre streamed from your personal computer in your couch in your own home. You can get one of a billion computerized entertainment products. You can get one of a billion billion noncomputerized entertainment products, delivered to your home in two days. In a day. In an hour. By truck. By bike. By drone. You can fly in a plane to Jamaica Friday evening and be back by Monday morning, don't even need to take a vacation day. We're in an age of unprecedented personal entertainment, and the upper middle classes are in an ideal position to take advantage.
- Animats 9y agoPlain HTML version without popups.[1] This is a famous paper by John Maynard Keynes. He saw that productivity was going to increase considerably over the next two generations, but really had no clue how that would play out. Now we're there, and it's not working out like anybody back then expected. What Keynes missed was a consequence of a trend that could be seen back then - productivity increases are concentrated in certain areas, broadly, those involving "making stuff" - manufacturing and agriculture. In Keynes's day, that was most of the work force. In the US today, 14% of the work force makes all the stuff. (Yes, imports. If the US made all its own stuff, that number would still be well under 20%). As a result, most of the work force is in low-productivity jobs - leisure and hospitality, retail trade, and health care are the biggest categories. Because each worker in those areas produces little revenue, wages tend to be low there. With most workers in low wage, low productivity areas, wages overall are driven lower. Although manufacturing could afford to pay higher wages, they don't have to be that much higher. A new hire in an auto plant today gets about half, in real dollars, what a new hire got in 1975. That's part of how we got to where we are today. This wasn't forseen by prominent economists. [1] https://www.marxists.org/reference/subject/economics/keynes/1930/our-grandchildren.htm https://www.marxists.org/reference/subject/economics/keynes/... [2] https://www.bls.gov/emp/ep_table_201.htm https://www.bls.gov/emp/ep_table_201.htm
- elmar 9y agoInflation over the years as whipped out all the productivity gains.
- Klockan 9y agoThat is not how inflation works...
- elmar 9y ago"Throughout history, governments have tried to solve financial problems by simply printing more money. This can drive the value of money drastically downward, especially in modern markets where money is not backed by gold." http://money.howstuffworks.com/question737.htm http://money.howstuffworks.com/question737.htm
- dustingetz 9y agoE.F. Schumacher responds directly to this paper in Small is Beautiful (1972), here are some snippets from this chapter of his book. Note that some people hate this book; read the amazon 1-star reviews for some scathing commentary. TLDR: Western economics as Keynes suggests is an unbounded feedback loop; it generates income inequality which generates intolerable circumstances for poor people which leads to war. ---- This proposition can be divided into three parts: First, that universal prosperity is possible; Second, that its attainment is possible on the basis of the materialist philosophy of “enrich yourselves”; Third, that this is the road to peace Is there enough to go around? … What is “enough”? … Not the economist who pursues “economic growth” as the highest of all values, and therefore has no concept of “enough.” There are poor societies which have too little; but where is the rich society which says: “Halt! We have enough”? There is none. Economic growth has no discernable limit, must necessarily run into decisive bottlenecks when viewed from the point of view of the environmental sciences. An attitude to life which seeks fulfillment in the single-minded pursuit of wealth--in short, materialism--does not fit into this world, because it contains within itself no limiting principle, while the environment in which it is placed is strictly limited. … The developments of science and technology over the last hundred years have been such that the dangers have grown even faster than the opportunities. Economic progress, [Keynes] counseled, is obtainable only if we employ those powerful human drives of selfishness, which religion and traditional wisdom universally call upon us to resist. The modern economy is propelled by a frenzy of greed and indulges in an orgy of envy, and these are not accidental features but the very causes of its expansionist success. The question is whether such causes can be effective for long or whether they carry within themselves the seeds of destruction. … It may look true in the short run and turn out to be false in the longer run. I suggest the foundations of peace cannot be laid by universal prosperity, in the modern sense, because such prosperity, if attainable at all, is attainable only by cultivating such drives of human nature as greed and envy, which destroy intelligence, happiness, serenity, and thereby the peacefulness of man. … Their wealth depends on making inordinately large demands on limited world resources and thus puts them on an unavoidable collision course--not primarily with the poor (who are weak and defenseless) but with other rich people. The cultivation and expansion of needs is the antithesis of wisdom. It is also the antithesis of freedom and peace. Every increase of needs tends to increase one’s dependence on outside forces over which one cannot have control, and therefore increases existential fear. Only by a reduction of needs can one promote a genuine reduction in those tensions which are ultimate causes of strife and war. Never think that wars are irrational catastrophes: they happen when wrong ways of thinking and living bring about intolerable situations. It is doubly chimerical to build peace on economic foundations which, in turn, rest on the systematic cultivation of greed and envy, the very forces which drive men into conflict.