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Keynes basically advocated for massive government stimulus to make up for national economic slack. The problems with governments doing this is: 1. Governments
by dforrestwilson 9y ago
Keynes 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...
- djschnei 9y agoThe US healthcare system is FAR from a free market.
- bjelkeman-again 9y agoThe others are even less so, but works better.
- CalChris 9y ago> * Keynes basically advocated for massive government stimulus to make up for national economic slack* This is an inaccurate summation of Keynesian policy. Keynes recommended counter-cyclical policies much like a feedback loop. Growing too fast? Cut spending. Growing too slow? Spend more. Keynesian is different from pure free market theory which is like an open loop. My EE120 Linear Systems prof at Berkeley also taught in the Economics Department. So the idea that you'd want a feedback loop rather than an open loop makes a lot of sense to this gearhead. > * 1. Governments are less efficient than free markets at spending money. See China.* See GPS. > * 2. It tends to lead to central bank stimulus (dilution and tight control of currency values).* Yes. That is the mechanism. > Everybody racing their currencies to the bottom No. Europe is not racing the euro to the bottom. Japan is not racing the yen to bottom. The US is not racing the dollar to the bottom. Et cetera.
- dforrestwilson 9y agoA feedback loop makes sense, but the problem still seems to be that the counter-cyclical stimulus ends up being immortal. OK so if we aren't all devaluing our currencies lower and lower what explains the deflation we have been witnessing across the globe?
- CalChris 9y agoYes, feedback loops loop. That's what they do. The trouble with open loops is that they crash and crashes are really bad. Keynesianism came to the forefront after the Great Depression which was horribly mismanaged by conservatives free market zealots. Crashes are really really bad. Roosevelt came into office with 25% unemployment. Let me say that again. Crashes are really fucking bad and are to be avoided. In the US we currently have low inflation (1-2%) but not deflation. Same with Europe.
- dforrestwilson 9y agoIt sounds like you are ignoring Libor, and excluding food and fuel from your CPI.....