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I disagree. Its the collapse of the Keynesian housing bubble that's causing the current unemployment. Keynesians ignore where the money for their spending com

I disagree. Its the collapse of the Keynesian housing bubble that's causing the current unemployment. Keynesians ignore where the money for their spending comes from. It can only come from taxes or borrowing, both of which make less capital available for the private sector. Instead of allowing the phony economy die, they seek to keep it going. As if building more houses than we can afford somehow creates wealth, instead of putting hundreds of billions of our debt to sit and rot. And replacing the judgement of millions of people actually spending their own money with the judgements of short-term oriented politicians that haven't worked for the money they spend and who are actively trying to fool us most of the time is not going to result in smarter investments. The government loves to make waves on the pond, call attention to the highs and distract you from the lows. But no new water is created. And when the instability they create knocks boats over, they claim no one could have seen it coming. All the splashing around is just magnifying the distortions.

trevelyan 16y ago
Keynes doesn't say what you think he does. But I can see where you are going wrong. Look at the way you use water as a metaphor, but use it to mean simultaneously (1) the money supply (increasing/decreasing), and (2) the wave-like boom-bust flow of economic activity. Conflating these things leads you to paradoxical statements like "no new water is created" when you are taking about governments increasing the money supply. Or the way you say "all the splashing is magnifying the distortions" when this is theoretically impossible: preventing deflation by printing money cannot cause worse deflation by definition. What I think you want to argue is that MAN-MADE changes to the money supply are bad. But not only is this empirically wrong (read about "The Great Moderation"), it brings us back to the point that Keynes made above, when he asserted through a very simple analogy that there is no such thing as a natural economy as long as your idea of one is based around a currency (like gold) the supply of which can only be increased by digging it out of the ground. In this situation you CANNOT be worse off by having your government increase the money supply, because market forces will slowly encourage people to "print more money" themselves by just digging it out of the ground. Which means we're all better off to skip the shoveling and spend the labor on building an airport or something with at least the potential for social return. My contact information is in my profile -- I'd be happy to carry this on over email if you'd like to continue. And I'd encourage you to read Keynes. And also Kindleberger and Eichengreen if you genuinely believe that the worst of what we are seeing these days is anything like what the world has gone through in the past.
- stretchwithme 16y ago
  when more money is printed, the value of existing money goes down. all that's happening is that value is being taken from the general population and being given to the banks. deflation is not a problem. you had huge asset inflation and this is merely the correction of that distortion. The Fed's easy money and loose lending of Fannie and Freddie caused a doubling in price of the most expensive thing most people will ever buy. It was completely unsustainable and its deflation a necessary occurrence if normal economic growth is ever to be restored. Throwing money at every expansion of government ever conceived of will not restore it.
  - fbailey 16y ago
    Well, deflation can be the worst problem any economy can have. If my money is worth more if I don't invest it and just hold onto it, I'm not going to invest anything. This is actually a situation that killed several medieval economies, there was just not enough currency to go round. Our modern western economy is worth a lot more than the combined gold supply of the world, so if we want to have a working currency we have to print it. Now the remaining question is how much to print, you can never print exactly the amount you would need to get 0% inflation, so you have either inflation or deflation. Since deflation makes investment worthless and kills your economy, inflation is the way to go. If no money is printed you have deflation there is no way to have a growing economy and not increase the monetary supply.
    - stretchwithme 16y ago
      Can you give me an example where this deflation worked as you described, where there was too much wealth and gold didn't provide enough money? I think it would be interesting to examine the policies that lead up to investments being worthless. And also an example where Keynesian has been followed and 0% inflation was achieved by just going with a big enough stimulus. From what I can see, out in the real world, the biggest practitioners of this theory are wracked with big growing systemic risks. At least those with large economic resources that allows them to gamble. China is doing this right now and when it pops, the Keynesians will be telling us how no one could have it seen it coming. The poor countries that believe in wealth through currency manipulation end up defaulting on the loans required to play these games. Meanwhile, there are plenty of examples where government focussed on a stable legal system and property rights. Switzerland, Singapore, Hong Kong. And plenty that used to have these conditions but got wealthy enough for its politicians to being playing the artificial growth games, like Japan and the US, who are actively pissing away all of their advantages. And your examples?

trevelyan 16y ago

Keynes doesn't say what you think he does. But I can see where you are going wrong. Look at the way you use water as a metaphor, but use it to mean simultaneously (1) the money supply (increasing/decreasing), and (2) the wave-like boom-bust flow of economic activity. Conflating these things leads you to paradoxical statements like "no new water is created" when you are taking about governments increasing the money supply. Or the way you say "all the splashing is magnifying the distortions" when this is theoretically impossible: preventing deflation by printing money cannot cause worse deflation by definition. What I think you want to argue is that MAN-MADE changes to the money supply are bad. But not only is this empirically wrong (read about "The Great Moderation"), it brings us back to the point that Keynes made above, when he asserted through a very simple analogy that there is no such thing as a natural economy as long as your idea of one is based around a currency (like gold) the supply of which can only be increased by digging it out of the ground. In this situation you CANNOT be worse off by having your government increase the money supply, because market forces will slowly encourage people to "print more money" themselves by just digging it out of the ground. Which means we're all better off to skip the shoveling and spend the labor on building an airport or something with at least the potential for social return. My contact information is in my profile -- I'd be happy to carry this on over email if you'd like to continue. And I'd encourage you to read Keynes. And also Kindleberger and Eichengreen if you genuinely believe that the worst of what we are seeing these days is anything like what the world has gone through in the past.

stretchwithme 16y ago
when more money is printed, the value of existing money goes down. all that's happening is that value is being taken from the general population and being given to the banks. deflation is not a problem. you had huge asset inflation and this is merely the correction of that distortion. The Fed's easy money and loose lending of Fannie and Freddie caused a doubling in price of the most expensive thing most people will ever buy. It was completely unsustainable and its deflation a necessary occurrence if normal economic growth is ever to be restored. Throwing money at every expansion of government ever conceived of will not restore it.
- fbailey 16y ago
  Well, deflation can be the worst problem any economy can have. If my money is worth more if I don't invest it and just hold onto it, I'm not going to invest anything. This is actually a situation that killed several medieval economies, there was just not enough currency to go round. Our modern western economy is worth a lot more than the combined gold supply of the world, so if we want to have a working currency we have to print it. Now the remaining question is how much to print, you can never print exactly the amount you would need to get 0% inflation, so you have either inflation or deflation. Since deflation makes investment worthless and kills your economy, inflation is the way to go. If no money is printed you have deflation there is no way to have a growing economy and not increase the monetary supply.
  - stretchwithme 16y ago
    Can you give me an example where this deflation worked as you described, where there was too much wealth and gold didn't provide enough money? I think it would be interesting to examine the policies that lead up to investments being worthless. And also an example where Keynesian has been followed and 0% inflation was achieved by just going with a big enough stimulus. From what I can see, out in the real world, the biggest practitioners of this theory are wracked with big growing systemic risks. At least those with large economic resources that allows them to gamble. China is doing this right now and when it pops, the Keynesians will be telling us how no one could have it seen it coming. The poor countries that believe in wealth through currency manipulation end up defaulting on the loans required to play these games. Meanwhile, there are plenty of examples where government focussed on a stable legal system and property rights. Switzerland, Singapore, Hong Kong. And plenty that used to have these conditions but got wealthy enough for its politicians to being playing the artificial growth games, like Japan and the US, who are actively pissing away all of their advantages. And your examples?