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> business cycles are natural and periodic like a pendulum swing. But how long the downturns last is a policy choice: > I would summarize the Keynesian view i

> business cycles are natural and periodic like a pendulum swing. But how long the downturns last is a policy choice: > I would summarize the Keynesian view in terms of four points: > 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond. > 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain. > 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down. > 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses. * https://archive.nytimes.com/krugman.blogs.nytimes.com/2015/09/15/keynesianism-explained/ https://archive.nytimes.com/krugman.blogs.nytimes.com/2015/0...

its_ethan 2y ago
> But how long the downturns last is a policy choice Maybe I'm projecting, but you say this like it's just a fact and that there are no tradeoffs. Keynes was a smart guy, but his word isn't gospel. It's not as simple as printing money to reduce interest rates and then magically depressions end. Printing money and lowering rates can easily lead to inflation (which would make everyone even worse off than they already are) if other underlying issues aren't addressed. We're literally seeing that in real time with economic policies form 2020-today. So yea policy can influence how long they last, but that goes for both directions (shortening or lengthening/making worse). Striking the right balance to like "optimally" shorten/ease a depression is incredibly hard, and (shocker) tends sows the seeds of future economic downturns. There is very likely no policy that eliminates the cyclic nature of markets/economies; it's inherent to (essentially required for) how they function.
- arbitrary_name 2y ago
  >inflation (which would make everyone even worse off than they already are) Is this true though? Doesn't inflation just redistribute wealth rather than destroy it? We measure inflation through change in prices which are just a measure of supply and demand (dis)equilibrium, I thought.
  - jandrewrogers 2y ago
    Inflation concentrates wealth in those with the power to inflate. This is usually strictly worse for the economy because the power to inflate is rarely vested in people capable of effectively deploying that captured wealth as capital. If this destruction of capital exceeds the rate of capital formation then the necessary decline in investment will reliably erode the economy for everyone, except perhaps for those proximal to those with the power to inflate (see also: the Cantillon effect).
    - imtringued 2y ago
      The cantillon effect is mostly a meme. If it was such a powerful explanatory device then how come nobody is talking about the inverse cantillon effect which is much stronger and caused the great depression? You know, the idea that price falls propagate through the economy. It would appear to be much more dangerous, since it can be conducted by anyone who is holding onto money and every successful attempt spurs on more imitators. Since the imitators are betting on the productivity of doing absolutely nothing, capital formation will cease until there is a shortage of capital and ... surprise, a forward cantillon effect occurs through "unhoarding". We somehow end up with a business cycle theory that actually makes sense compared to the Austrian economist one. A lot of them seem to think that the business cycle is some nefarious plot by central banks instead of a disruption in economic communication induced by market participants following their own interests.
  - corimaith 2y ago
    Inflation benefits debtors, and hurts creditors. But if inflation is controlled and predictable, those contracts will price that in or renegotiate. On the long term, inflation has no real impact on the economy. Uncontrolled, unpredictable inflation (40%)(Zimbabwe, Turkey) is the problem as it incurs more costs on updating prices and renegotiating contracts, which introduces severe distortions on the economy. But we're not anywhere near that.
7thaccount 2y ago
Keynesian economics can certainly work to help end something like a recession or depression (and we can see that when FDR tried to pull back on those ideas unemployment jumped back up again). My beef with it is that it doesn't seem to be a sustainable system in the long term just like the previous system also had issues. We didn't have a great depression in 2008 (a very nasty recession instead), but the quantitative easing then and during Covid is driving inflation wild. The official numbers are generally fine, but they don't include all sorts of items that have gone up an incredible amount and are thus misleading. I'm sure some of it is corporate greed or standard supply/demand (e.g. a wood manufacturing plant going offline making construction material costs soar), but a lot seems to be because of the insanely high printing of money that has to be carried out in order to inflate away the massive runaway national debt. So the Keynesian toolbox that can be used to get us out of something like a depression also is ultimately our downfall in the long run as our leaders can't or won't use it responsibly.
- tim333 2y ago
  If you look at the inflation rate graph for the US there wasn't any pick up after 2008 https://ichef.bbci.co.uk/news/976/cpsprodpb/B8B2/production/_124128274_optimised-us_inflation-nc.png.webp https://ichef.bbci.co.uk/news/976/cpsprodpb/B8B2/production/... There's a blip now because of the pandemic policies - hand people a bunch of cash to sit at home which means less goods made, let them out again where they can spend it - prices go up. I'm not sure that's Keynes fault - he never had a covid policy.
creer 2y ago
Truly great concept except this "sometimes" of point (1) gets sacrificed to political expediency, and Keynesian stimulus ends up being the normal and expected rather than an emergency measure. It's hard to resist and not to always print money, not just occasionally, and not to (just about) always run a large deficit, not just occasionally, and not fund petty hobbies - not just productive infrastructure - with borrowing.
- throw0101d 2y ago
  > It's hard to resist and not to always print money, not just occasionally, and not to (just about) always run a large deficit, not just occasionally, and not fund petty hobbies - not just productive infrastructure - with borrowing. At that point it stops being Keynes (stimulus) spending and just becomes spending. The point of Keynes, especially in light of when he originally wrote (the 1930s), is to boost demand to help an economy get back on its feet. Once it's running fine then the "extra" spending can be dialled back. Of course there could be other reasons why government wants to continue (deficit) spending, but those are separate from Keynesian stimulus.

its_ethan 2y ago

> But how long the downturns last is a policy choice Maybe I'm projecting, but you say this like it's just a fact and that there are no tradeoffs. Keynes was a smart guy, but his word isn't gospel. It's not as simple as printing money to reduce interest rates and then magically depressions end. Printing money and lowering rates can easily lead to inflation (which would make everyone even worse off than they already are) if other underlying issues aren't addressed. We're literally seeing that in real time with economic policies form 2020-today. So yea policy can influence how long they last, but that goes for both directions (shortening or lengthening/making worse). Striking the right balance to like "optimally" shorten/ease a depression is incredibly hard, and (shocker) tends sows the seeds of future economic downturns. There is very likely no policy that eliminates the cyclic nature of markets/economies; it's inherent to (essentially required for) how they function.

arbitrary_name 2y ago
>inflation (which would make everyone even worse off than they already are) Is this true though? Doesn't inflation just redistribute wealth rather than destroy it? We measure inflation through change in prices which are just a measure of supply and demand (dis)equilibrium, I thought.
- jandrewrogers 2y ago
  Inflation concentrates wealth in those with the power to inflate. This is usually strictly worse for the economy because the power to inflate is rarely vested in people capable of effectively deploying that captured wealth as capital. If this destruction of capital exceeds the rate of capital formation then the necessary decline in investment will reliably erode the economy for everyone, except perhaps for those proximal to those with the power to inflate (see also: the Cantillon effect).
  - imtringued 2y ago
    The cantillon effect is mostly a meme. If it was such a powerful explanatory device then how come nobody is talking about the inverse cantillon effect which is much stronger and caused the great depression? You know, the idea that price falls propagate through the economy. It would appear to be much more dangerous, since it can be conducted by anyone who is holding onto money and every successful attempt spurs on more imitators. Since the imitators are betting on the productivity of doing absolutely nothing, capital formation will cease until there is a shortage of capital and ... surprise, a forward cantillon effect occurs through "unhoarding". We somehow end up with a business cycle theory that actually makes sense compared to the Austrian economist one. A lot of them seem to think that the business cycle is some nefarious plot by central banks instead of a disruption in economic communication induced by market participants following their own interests.
- corimaith 2y ago
  Inflation benefits debtors, and hurts creditors. But if inflation is controlled and predictable, those contracts will price that in or renegotiate. On the long term, inflation has no real impact on the economy. Uncontrolled, unpredictable inflation (40%)(Zimbabwe, Turkey) is the problem as it incurs more costs on updating prices and renegotiating contracts, which introduces severe distortions on the economy. But we're not anywhere near that.

7thaccount 2y ago

Keynesian economics can certainly work to help end something like a recession or depression (and we can see that when FDR tried to pull back on those ideas unemployment jumped back up again). My beef with it is that it doesn't seem to be a sustainable system in the long term just like the previous system also had issues. We didn't have a great depression in 2008 (a very nasty recession instead), but the quantitative easing then and during Covid is driving inflation wild. The official numbers are generally fine, but they don't include all sorts of items that have gone up an incredible amount and are thus misleading. I'm sure some of it is corporate greed or standard supply/demand (e.g. a wood manufacturing plant going offline making construction material costs soar), but a lot seems to be because of the insanely high printing of money that has to be carried out in order to inflate away the massive runaway national debt. So the Keynesian toolbox that can be used to get us out of something like a depression also is ultimately our downfall in the long run as our leaders can't or won't use it responsibly.

tim333 2y ago
If you look at the inflation rate graph for the US there wasn't any pick up after 2008 https://ichef.bbci.co.uk/news/976/cpsprodpb/B8B2/production/_124128274_optimised-us_inflation-nc.png.webp https://ichef.bbci.co.uk/news/976/cpsprodpb/B8B2/production/... There's a blip now because of the pandemic policies - hand people a bunch of cash to sit at home which means less goods made, let them out again where they can spend it - prices go up. I'm not sure that's Keynes fault - he never had a covid policy.

creer 2y ago

Truly great concept except this "sometimes" of point (1) gets sacrificed to political expediency, and Keynesian stimulus ends up being the normal and expected rather than an emergency measure. It's hard to resist and not to always print money, not just occasionally, and not to (just about) always run a large deficit, not just occasionally, and not fund petty hobbies - not just productive infrastructure - with borrowing.

throw0101d 2y ago
> It's hard to resist and not to always print money, not just occasionally, and not to (just about) always run a large deficit, not just occasionally, and not fund petty hobbies - not just productive infrastructure - with borrowing. At that point it stops being Keynes (stimulus) spending and just becomes spending. The point of Keynes, especially in light of when he originally wrote (the 1930s), is to boost demand to help an economy get back on its feet. Once it's running fine then the "extra" spending can be dialled back. Of course there could be other reasons why government wants to continue (deficit) spending, but those are separate from Keynesian stimulus.