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> That we had the tools to fight poverty and create better living conditions all along but deliberately didn’t chose to do so? Yes, that's it in a nutshell. Ev

> That we had the tools to fight poverty and create better living conditions all along but deliberately didn’t chose to do so? Yes, that's it in a nutshell. Even the standard 1940s mainstream Keynes doctrine is quite clear on the no hyper-inflation scenario - additional money supply will not result in excess inflation unless the economy is at full employment. And by full employment, it doesn't mean the headline unemployment rate of ~5% quoted in media. It means high labor force participation rates (currently at historical lows), low underemployment (currently at historical highs) and low unemployment rate. The fact we see persistently low inflation rates throughout the developed world for decades is intimately tied to these stats. By finally having time to read Keynes directly from his own works, it's amazing how prescient the man was. Sans the dandy early 20th century English, these quotes are just as applicable today as they were in 1930s: > ...the richer the community, the wider will tend to be the gap between its actual and its potential production; and therefore the more obvious and outrageous the defects of the economic system. > [on classical economics] That it reached conclusions quite different from what the ordinary uninstructed person would expect, added to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue. [...] That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress [...] commended it to authority. > professional economists, after Malthus, were apparently unmoved by the lack of correspondence between the results of their theory and the facts of observation;— a discrepancy which the ordinary man has not failed to observe

pbronez 6y ago
This is fascinating. Can you recommend any specific works by Keynes to dig into?
- deleted 6y ago
  [deleted]
raverbashing 6y ago
Keynes worked until stagflation happened. That's the issue that made other models come forward And of course, the hyperinflation episodes of those countries (and others) did really happen But maybe the issue is giving the money directly to people instead of using it to pay government debt
- notahacker 6y ago
  Also, whilst Keynes had a number of policy preferences which are unfashionable now ('euthanasia of the rentier' through sustained low interest rates being one), the General Theory explicitly was about how governments could soften economic contractions like the one we're experiencing now, and explicitly wasn't about governments running structural deficits. At various times he argued that higher taxes were necessary and desirable if the government wanted to use more resources, and that government funded services were more desirable than widespread redistribution payments.
  - Der_Einzige 6y ago
    We are in a period of sustained low interest rates. It would be interesting to see if the percentage of people who own their home is going up as a result. I can anecdotally tell you that the interest rates being so low are motivating me to try to get a home loan ASAP despite the prospect of mortgage insurance because I personally do not believe that the interest rates will stay low forever...
- throw0101a 6y ago
  > Keynes worked until stagflation happened. That's the issue that made other models come forward Keynes worked after stagflation as well: > I just do not think that is right. Stagflation is very easily explained: you just need an ‘accelerationist’ Phillips curve (i.e. where the coefficient on expected inflation is one), plus a period in which monetary policymakers systematically underestimate the natural rate of unemployment. You do not need rational expectations, or any of the other innovations introduced by New Classical economists. […] > Stagflation did not kill IS-LM. In fact, because empirical validity was so central to the methodology of macroeconomics at the time, it adapted to stagflation very quickly. This gave a boost to the policy of monetarism, but this used the same IS-LM framework. If you want to find the decisive event that led to New Classical economists winning their counterrevolution, it was the theoretical realisation that if expectations were rational, but inflation was described by an accelerationist Phillips curve with expectations about current inflation on the right hand side, then deviations from the natural rate had to be random. The fatal flaw in the Keynesian/Monetarist theory of the 1970s was theoretical rather than empirical. * https://mainlymacro.blogspot.com/2014/06/understanding-new-classical-revolution.html https://mainlymacro.blogspot.com/2014/06/understanding-new-c... > But my small quarrel with Simon involves how we got into this state. He dismisses the stagflation of the 1970s, on the grounds that IS-LM macroeconomics quickly adapted to the new information. Indeed, this happened very fast: by 1978 both the leading undergraduate macro textbooks, Dornbusch-Fischer and Gordon, had accelerationist Phillips curves and extensive discussions of stagflation. (Compare this with new classical macro, which failed decisively in the 1980s, but never adjusted at all.) > Nonetheless, I remember the 70s quite well, and stagflation did indeed play a role in the rise of new classical macro, albeit in a subtler way than the caricature that it proved Keynes wrong, or something like that. > What mattered instead was the fact that stagflation had in effect been predicted by Friedman and Phelps; and the way they made that prediction was by taking a step in the direction of microfoundations. Specifically, they asked what a more or less rational price-setter would do in the face of persistent inflation; their answer was, raise prices preemptively, and if everyone did this it would shift the Phillips curve up by the amount of expected inflation. Sure enough, the Phillips curve did seem to shift as predicted. * https://krugman.blogs.nytimes.com/2014/06/28/stagflation-and-the-fall-of-macroeconomics/?smid=tw-NytimesKrugman&seid=auto https://krugman.blogs.nytimes.com/2014/06/28/stagflation-and... What "other models" are you referring to?

pbronez 6y ago

This is fascinating. Can you recommend any specific works by Keynes to dig into?

deleted 6y ago
[deleted]

raverbashing 6y ago

Keynes worked until stagflation happened. That's the issue that made other models come forward And of course, the hyperinflation episodes of those countries (and others) did really happen But maybe the issue is giving the money directly to people instead of using it to pay government debt

notahacker 6y ago
Also, whilst Keynes had a number of policy preferences which are unfashionable now ('euthanasia of the rentier' through sustained low interest rates being one), the General Theory explicitly was about how governments could soften economic contractions like the one we're experiencing now, and explicitly wasn't about governments running structural deficits. At various times he argued that higher taxes were necessary and desirable if the government wanted to use more resources, and that government funded services were more desirable than widespread redistribution payments.
- Der_Einzige 6y ago
  We are in a period of sustained low interest rates. It would be interesting to see if the percentage of people who own their home is going up as a result. I can anecdotally tell you that the interest rates being so low are motivating me to try to get a home loan ASAP despite the prospect of mortgage insurance because I personally do not believe that the interest rates will stay low forever...
throw0101a 6y ago
> Keynes worked until stagflation happened. That's the issue that made other models come forward Keynes worked after stagflation as well: > I just do not think that is right. Stagflation is very easily explained: you just need an ‘accelerationist’ Phillips curve (i.e. where the coefficient on expected inflation is one), plus a period in which monetary policymakers systematically underestimate the natural rate of unemployment. You do not need rational expectations, or any of the other innovations introduced by New Classical economists. […] > Stagflation did not kill IS-LM. In fact, because empirical validity was so central to the methodology of macroeconomics at the time, it adapted to stagflation very quickly. This gave a boost to the policy of monetarism, but this used the same IS-LM framework. If you want to find the decisive event that led to New Classical economists winning their counterrevolution, it was the theoretical realisation that if expectations were rational, but inflation was described by an accelerationist Phillips curve with expectations about current inflation on the right hand side, then deviations from the natural rate had to be random. The fatal flaw in the Keynesian/Monetarist theory of the 1970s was theoretical rather than empirical. * https://mainlymacro.blogspot.com/2014/06/understanding-new-classical-revolution.html https://mainlymacro.blogspot.com/2014/06/understanding-new-c... > But my small quarrel with Simon involves how we got into this state. He dismisses the stagflation of the 1970s, on the grounds that IS-LM macroeconomics quickly adapted to the new information. Indeed, this happened very fast: by 1978 both the leading undergraduate macro textbooks, Dornbusch-Fischer and Gordon, had accelerationist Phillips curves and extensive discussions of stagflation. (Compare this with new classical macro, which failed decisively in the 1980s, but never adjusted at all.) > Nonetheless, I remember the 70s quite well, and stagflation did indeed play a role in the rise of new classical macro, albeit in a subtler way than the caricature that it proved Keynes wrong, or something like that. > What mattered instead was the fact that stagflation had in effect been predicted by Friedman and Phelps; and the way they made that prediction was by taking a step in the direction of microfoundations. Specifically, they asked what a more or less rational price-setter would do in the face of persistent inflation; their answer was, raise prices preemptively, and if everyone did this it would shift the Phillips curve up by the amount of expected inflation. Sure enough, the Phillips curve did seem to shift as predicted. * https://krugman.blogs.nytimes.com/2014/06/28/stagflation-and-the-fall-of-macroeconomics/?smid=tw-NytimesKrugman&seid=auto https://krugman.blogs.nytimes.com/2014/06/28/stagflation-and... What "other models" are you referring to?