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The fundamental unacknowledged problem with Keynes is it relies on natural rate of inflation, which only happens with population growth. See Japan's continual s

by snomad 9y ago

The fundamental unacknowledged problem with Keynes is it relies on natural rate of inflation, which only happens with population growth. See Japan's continual stagnation despite endless amounts of inflationary policies. The 4 main econ drivers for the US over the next 20 years - China's ascension to number 1 world economy, pension and social security debt and lack of funding, the toll of automation and the gig economy, population growth (or lack thereof) in the US and other major allied nations. We will embrace keynes as solutions to those problems, because that is what those in power know and are comfortable with. The fact the 2008 crises didn't end in 1930s like depression will all but assure them they are right. The question is whether or not that was a one-off lucky "save" largely successful because of the global coordination that went along with American policies (China, Japan, and Europe), and if so, will that global coordination be done for future economic crises, which seems unlikely to me based on the totality of global history.

pwaai 9y ago
> China's ascension to number 1 world economy My gripe with this is that people seem to take this as a fact that hasn't even occurred with almost 100% certainty that it will happen. A lot can go wrong in 20 years. So far, all economies that challenged US in the past mysteriously gets IMF'd, pulling the rug out of a credit bubble that they help create by twisting the arms of the central banks that are supposed to be free from this kind of interference: This documentary about Japanese central bank is eye opening to just how much grip the US hegemony has, one which I fail to see China being able to emulate anytime soon because of the hostage situation that US allies are finding themselves in. https://www.youtube.com/watch?v=p5Ac7ap_MAY https://www.youtube.com/watch?v=p5Ac7ap_MAY The theory that states Sadam was whacked because he started to accept euro instead of the petrodollar standard makes an awful lot of sense.
- cryptonector 9y ago
  Japan did not get IMF'ed, as you put it. They simply did not liquidate, liquidate, liquidate. Instead they just extended-and-pretended. Surprise! It didn't work. IMFing is real, but also only really applicable to smaller economies. All it really is is a bailout of bad-creditors disguised as credit to bad-debtors, leaving the latter in worse shape in the end and without having helped them with immediate problems at all. This only works when the amounts in question can be ponied up by taxpayers in the IMF member countries without causing too much political trouble. When the amounts involved are large enough (e.g., in the case of Japan in '89) this just doesn't even get proposed, not least because there was very little external bad-credit to bailout! We saw some of this game played intra-Eurozone, but in the European case the taxpayer was going to have to bailout the banks no matter what, whereas in the Japan case the problems were entirely domestic. The idea that Bush went after Hussein because Hussein's reserve currency preferences is utter hogwash. Iraq's economy back then simply wasn't remotely big enough to move that needle and lacked the potential to for decades longer. Moreover, if Iraq preferred the euro then, why not now, and where's the damage to the dollar?? The answer is that it does not matter what choice of reserve currency Iraq, Iran, or Saudi Arabia (say) prefer -- it would have made zero difference in 2003, as it almost certainly didn't. Bush had no shortage of reasons to go after Hussein -- no need to reach for conspiracy theories about that!
- snomad 9y ago
  Well, one, China is already number 1 in PPP. Two, they are already setting up parallel institutions just to prevent being IMFd that (see AIIB). Third, they already have numerous renminbi trading deals with several countries where goods are exchanged without ever being converted into dollars.
cryptonector 9y ago
The Great Depression was made so much the worse by the terrible policies that followed (Hoover's first, then Roosevelt's). In particular: the failure to "liquidate, liquidate, liquidate" (as Andrew Mellon wanted in '29), the subsequent insufficient devaluation (Hoover didn't devalue; Roosevelt did but not enough) and the banning of gold (while notionally retaining a gold standard for trade) -- this killed international trade, perhaps more so than Smoot-Hawley. Insufficient devaluation kills imports, but when international trade is settled in a currency not your own (e.g., gold) it also kills exports! You can't neither liquidate nor devalue. Add to all this labor market rigidity (e.g., brow-beating companies into not lowering wages led to inability to hire) and other terrible policies, and the 30s were a mess. The 2008 crisis too was followed by bad policies everywhere (e.g., competitive currency debasing and reflation attempts, QE, ...), but nowhere near as bad. In particular there was no gold standard, currencies were mostly floating, and no attempt was made to shut down international trade. Not that a gold/whatever settlement system is necessarily bad, but that floating currencies made it impossible to insufficiently devalue, as Roosevelt did. We seem to have learned some bad lessons from the Great Depression (Keynesian economics good), but also some good lessons as well (trade good). We have also seen Rooseveltian policies applied elsewhere since then, always with terrible results. E.g., insufficient devaluation / trade killing policies have been applied a number of times in Latin America, only there the U.S. dollar plays the role of gold. Perhaps the best way to think about credit crises is to think that the aftermath lasts as long as it takes to clear bad debts, including the processes of repossession, plus the amount of time it takes new owners to return their acquisitions to profitability. Get debtors' mothballed assets back into production by liquidating them. Deflation, by the way, is good and unavoidable in a credit crisis. It speeds up the process of identifying and working out marginal and bad debt. It helps the poor. It helps prospective and actual new owners. The worst thing that can happen in a crisis is for assets to become non-productive and under-maintained for so long that they effectively rot/rust away and become unsalvageable, and this is what happens when governments and banks extend-and-pretend.
tim333 9y ago
>problem with Keynes is it relies on natural rate of inflation Keynes wrote a lot of stuff but if you consider what I think is his main idea, as mentioned in the article, "the idea that aggregate demand shortages exist and can be corrected by the government stimulus" then inflation is kind of irrelevant to that. Also it's not the answer to the problems you mention. The policy as Keynes intended it was just to boost government borrowing and spending during recessions and then stop when the recession is over. Keynes name does sometimes get invoked by politicians to push policies that Keynes himself wouldn't have been into.

by snomad 9y ago

pwaai 9y ago

> China's ascension to number 1 world economy My gripe with this is that people seem to take this as a fact that hasn't even occurred with almost 100% certainty that it will happen. A lot can go wrong in 20 years. So far, all economies that challenged US in the past mysteriously gets IMF'd, pulling the rug out of a credit bubble that they help create by twisting the arms of the central banks that are supposed to be free from this kind of interference: This documentary about Japanese central bank is eye opening to just how much grip the US hegemony has, one which I fail to see China being able to emulate anytime soon because of the hostage situation that US allies are finding themselves in. https://www.youtube.com/watch?v=p5Ac7ap_MAY https://www.youtube.com/watch?v=p5Ac7ap_MAY The theory that states Sadam was whacked because he started to accept euro instead of the petrodollar standard makes an awful lot of sense.

cryptonector 9y ago
Japan did not get IMF'ed, as you put it. They simply did not liquidate, liquidate, liquidate. Instead they just extended-and-pretended. Surprise! It didn't work. IMFing is real, but also only really applicable to smaller economies. All it really is is a bailout of bad-creditors disguised as credit to bad-debtors, leaving the latter in worse shape in the end and without having helped them with immediate problems at all. This only works when the amounts in question can be ponied up by taxpayers in the IMF member countries without causing too much political trouble. When the amounts involved are large enough (e.g., in the case of Japan in '89) this just doesn't even get proposed, not least because there was very little external bad-credit to bailout! We saw some of this game played intra-Eurozone, but in the European case the taxpayer was going to have to bailout the banks no matter what, whereas in the Japan case the problems were entirely domestic. The idea that Bush went after Hussein because Hussein's reserve currency preferences is utter hogwash. Iraq's economy back then simply wasn't remotely big enough to move that needle and lacked the potential to for decades longer. Moreover, if Iraq preferred the euro then, why not now, and where's the damage to the dollar?? The answer is that it does not matter what choice of reserve currency Iraq, Iran, or Saudi Arabia (say) prefer -- it would have made zero difference in 2003, as it almost certainly didn't. Bush had no shortage of reasons to go after Hussein -- no need to reach for conspiracy theories about that!
snomad 9y ago
Well, one, China is already number 1 in PPP. Two, they are already setting up parallel institutions just to prevent being IMFd that (see AIIB). Third, they already have numerous renminbi trading deals with several countries where goods are exchanged without ever being converted into dollars.

cryptonector 9y ago

The Great Depression was made so much the worse by the terrible policies that followed (Hoover's first, then Roosevelt's). In particular: the failure to "liquidate, liquidate, liquidate" (as Andrew Mellon wanted in '29), the subsequent insufficient devaluation (Hoover didn't devalue; Roosevelt did but not enough) and the banning of gold (while notionally retaining a gold standard for trade) -- this killed international trade, perhaps more so than Smoot-Hawley. Insufficient devaluation kills imports, but when international trade is settled in a currency not your own (e.g., gold) it also kills exports! You can't neither liquidate nor devalue. Add to all this labor market rigidity (e.g., brow-beating companies into not lowering wages led to inability to hire) and other terrible policies, and the 30s were a mess. The 2008 crisis too was followed by bad policies everywhere (e.g., competitive currency debasing and reflation attempts, QE, ...), but nowhere near as bad. In particular there was no gold standard, currencies were mostly floating, and no attempt was made to shut down international trade. Not that a gold/whatever settlement system is necessarily bad, but that floating currencies made it impossible to insufficiently devalue, as Roosevelt did. We seem to have learned some bad lessons from the Great Depression (Keynesian economics good), but also some good lessons as well (trade good). We have also seen Rooseveltian policies applied elsewhere since then, always with terrible results. E.g., insufficient devaluation / trade killing policies have been applied a number of times in Latin America, only there the U.S. dollar plays the role of gold. Perhaps the best way to think about credit crises is to think that the aftermath lasts as long as it takes to clear bad debts, including the processes of repossession, plus the amount of time it takes new owners to return their acquisitions to profitability. Get debtors' mothballed assets back into production by liquidating them. Deflation, by the way, is good and unavoidable in a credit crisis. It speeds up the process of identifying and working out marginal and bad debt. It helps the poor. It helps prospective and actual new owners. The worst thing that can happen in a crisis is for assets to become non-productive and under-maintained for so long that they effectively rot/rust away and become unsalvageable, and this is what happens when governments and banks extend-and-pretend.

tim333 9y ago

>problem with Keynes is it relies on natural rate of inflation Keynes wrote a lot of stuff but if you consider what I think is his main idea, as mentioned in the article, "the idea that aggregate demand shortages exist and can be corrected by the government stimulus" then inflation is kind of irrelevant to that. Also it's not the answer to the problems you mention. The policy as Keynes intended it was just to boost government borrowing and spending during recessions and then stop when the recession is over. Keynes name does sometimes get invoked by politicians to push policies that Keynes himself wouldn't have been into.