5 ms·

The takeaway from six years of economic troubles? Keynes was right

13 points by MaysonL 12y ago

aburan28 12y ago
Real wages for almost all Americans have not risen over the past few decades except for the rich. Quantitative easing should have been distributed to the populace not banks. Point is the economy has not improved for most Americans and Keynesian throry is wrong
plariv 12y ago
Perhaps Mr. Kaletsky's conclusions regarding Keynesian principles might be more compelling if his portrayal of the facts of global economic policies were (a) more consistent, and (b) more accurate: http://mises.ca/posts/articles/capitalism-4-0/ http://mises.ca/posts/articles/capitalism-4-0/
- hga 12y ago
  That article does a great job of demolishing Kaletsky's declamations on the Great Depression and Recession. But this quote of him also caught my eye: But governments and central banks usually panic during the liquidation phase, pushing interest rates below their natural rate again and boosting the money supply This artificial stimulus, especially if sustained for a long period, inevitably sets off another credit boom and the cycle begins anew. Which is what sort of happened in Japan ... except for that "another credit boom" part. As far as I know you don't have to be an Austrian to know about, let alone believe in the "pushing on a string" thesis; if you're not familiar with it, read the mises.ca article about what businessmen are really responding to. Another thing to prop up the thesis is the "inverted yield curve" recession predictor, specifically short term interest rates suddenly rising above long term. The theory is that's because businesses are frantically borrowing in the short term to keep themselves afloat while they work their excess inventories down. If they survive that experience, no low or negative interest rates will interest them, so to speak, in resuming the intensity of the game that almost killed them.
vishakad 12y ago
Zero interest rate policies definitely make it more difficult for central banks to use interest rates as a tool to stimulate aggregate demand. Sure, the massive bond-buying program of the Fed did actively push interest rates close to zero. But, in the process, it decreased long-term interest rates too, in particular, treasuries and T-bills. This decrease allowed the government to borrow more money during auctions. Isn't this a case for QE enhancing the government's ability to borrow? Or is my crude understanding of monetary policy all wrong?
- hga 12y ago
  I'm pretty sure everyone's understanding of monetary policy is "crude". What you say appears to be right, but it's also rare if not unheard of. As I understand it, normally, as the US (and I and my family) experienced in the '70s, these policies would be viewed by borrowers in such a way they'd demand more interest for lending their money to the government, through combinations of perhaps rising inflation and perceived regime risk (which rising inflation is an example of, by eventually liquidating debts for less real value). "This Time It's Different!", which they always say (and is the title of a recommended book on the subject, an 800 or so year study of this game). The theory I hold to as of now is that the world-wide nature of the Great Recession and other factors like the artificiality of the Euro have made the US dollar, and US government debt, the "least worst" place to put your money. Well, in any quantity at least, e.g. I remember tiny Switzerland (GDP ~1/32nd of the US) getting very concerned about "hot money" inflows into their franc and maybe taking some actions WRT to them. The PRC is also something of a wild card: they watched the debacle of Indonesia, where a short term liquidity crisis was treated by the IMO as a typical 3rd World unsustainable government debt crisis, resulting in needless hardship and the ousting of its long term strongman. The CCP decided to make sure that didn't happen to them and have as a result acquired vast foreign wealth/debt holdings, including plenty of US government debt.
  - deleted 12y ago
    [deleted]
  - vishakad 12y ago
    You've got some sound logic there, particularly on why the US is a popular place for investment. That is definitely a factor as to why T-bond yields have stayed low over the last few years. But, is inflation really that big a factor in determining bond yields during auctions? With regards the '70s, you emphasized "normally" in your reply. Why was that? Weren't the '70s a time of unusually high inflation and unemployment in the US? And thank you for the book recommendation! It looks really nifty!
gd1 12y ago
"Countries that took emergency measures to reduce public borrowing have mostly suffered weaker growth, as in the case of Britain from 2010 to 2012" Someone is going to have to point out for me where this supposed 'austerity' happened in the UK, because I'm f*cked if I can see it. Charts are here: http://www.bbc.co.uk/news/business-25944653 http://www.bbc.co.uk/news/business-25944653 Definition of a Keynesian: someone who thinks a 6% of GDP budget deficit is 'austerity'.
jpfr 12y ago
> In a sense, it is odd that the power of fiscal policy has come as a surprise – or that it continues to be categorically denied by the German government and the U.S. Tea Party. Nobody is denying that government spending can induce growth in an economy. What the Germans are saying is that it doesn't generate enough growth to cover the additional spending in the long run. And that because of their already high debt and ongoing overspending, many countries - the US included - are going against a wall.

13 points by MaysonL 12y ago

Real wages for almost all Americans have not risen over the past few decades except for the rich. Quantitative easing should have been distributed to the populace not banks. Point is the economy has not improved for most Americans and Keynesian throry is wrong

plariv 12y ago

Perhaps Mr. Kaletsky's conclusions regarding Keynesian principles might be more compelling if his portrayal of the facts of global economic policies were (a) more consistent, and (b) more accurate: http://mises.ca/posts/articles/capitalism-4-0/ http://mises.ca/posts/articles/capitalism-4-0/

hga 12y ago
That article does a great job of demolishing Kaletsky's declamations on the Great Depression and Recession. But this quote of him also caught my eye: But governments and central banks usually panic during the liquidation phase, pushing interest rates below their natural rate again and boosting the money supply This artificial stimulus, especially if sustained for a long period, inevitably sets off another credit boom and the cycle begins anew. Which is what sort of happened in Japan ... except for that "another credit boom" part. As far as I know you don't have to be an Austrian to know about, let alone believe in the "pushing on a string" thesis; if you're not familiar with it, read the mises.ca article about what businessmen are really responding to. Another thing to prop up the thesis is the "inverted yield curve" recession predictor, specifically short term interest rates suddenly rising above long term. The theory is that's because businesses are frantically borrowing in the short term to keep themselves afloat while they work their excess inventories down. If they survive that experience, no low or negative interest rates will interest them, so to speak, in resuming the intensity of the game that almost killed them.

vishakad 12y ago

Zero interest rate policies definitely make it more difficult for central banks to use interest rates as a tool to stimulate aggregate demand. Sure, the massive bond-buying program of the Fed did actively push interest rates close to zero. But, in the process, it decreased long-term interest rates too, in particular, treasuries and T-bills. This decrease allowed the government to borrow more money during auctions. Isn't this a case for QE enhancing the government's ability to borrow? Or is my crude understanding of monetary policy all wrong?

hga 12y ago
I'm pretty sure everyone's understanding of monetary policy is "crude". What you say appears to be right, but it's also rare if not unheard of. As I understand it, normally, as the US (and I and my family) experienced in the '70s, these policies would be viewed by borrowers in such a way they'd demand more interest for lending their money to the government, through combinations of perhaps rising inflation and perceived regime risk (which rising inflation is an example of, by eventually liquidating debts for less real value). "This Time It's Different!", which they always say (and is the title of a recommended book on the subject, an 800 or so year study of this game). The theory I hold to as of now is that the world-wide nature of the Great Recession and other factors like the artificiality of the Euro have made the US dollar, and US government debt, the "least worst" place to put your money. Well, in any quantity at least, e.g. I remember tiny Switzerland (GDP ~1/32nd of the US) getting very concerned about "hot money" inflows into their franc and maybe taking some actions WRT to them. The PRC is also something of a wild card: they watched the debacle of Indonesia, where a short term liquidity crisis was treated by the IMO as a typical 3rd World unsustainable government debt crisis, resulting in needless hardship and the ousting of its long term strongman. The CCP decided to make sure that didn't happen to them and have as a result acquired vast foreign wealth/debt holdings, including plenty of US government debt.
- deleted 12y ago
  [deleted]
- vishakad 12y ago
  You've got some sound logic there, particularly on why the US is a popular place for investment. That is definitely a factor as to why T-bond yields have stayed low over the last few years. But, is inflation really that big a factor in determining bond yields during auctions? With regards the '70s, you emphasized "normally" in your reply. Why was that? Weren't the '70s a time of unusually high inflation and unemployment in the US? And thank you for the book recommendation! It looks really nifty!

gd1 12y ago

"Countries that took emergency measures to reduce public borrowing have mostly suffered weaker growth, as in the case of Britain from 2010 to 2012" Someone is going to have to point out for me where this supposed 'austerity' happened in the UK, because I'm f*cked if I can see it. Charts are here: http://www.bbc.co.uk/news/business-25944653 http://www.bbc.co.uk/news/business-25944653 Definition of a Keynesian: someone who thinks a 6% of GDP budget deficit is 'austerity'.

jpfr 12y ago

> In a sense, it is odd that the power of fiscal policy has come as a surprise – or that it continues to be categorically denied by the German government and the U.S. Tea Party. Nobody is denying that government spending can induce growth in an economy. What the Germans are saying is that it doesn't generate enough growth to cover the additional spending in the long run. And that because of their already high debt and ongoing overspending, many countries - the US included - are going against a wall.