Keynes? Could he have been right?

[WTF]

Originally Posted by CaptainMidnight

I have long maintained that buying into this sort of nonsense is not significantly different from falling for Bastiat's "broken window fallacy."

Let us not forget his, THE DISBANDING OF TROOPS.


http://bastiat.org/en/twisatwins.html

[anaximander]

Right now given the conditions in world
politics- china's navy being told get
ready for combat. Against who?
The looming real possibilty of
the re-establishment of the caliphate.
Iran getting a verifiable nuke and
delivery system will lead to a regional
nuke up of the arab states.
Chavez is pushing for nuclear cooperation
with Iran. Already Chavez has offered
a port for Iran to use as a sub base.

The backburner rumor that hezboallah
and hamas have numerous combat cells
in mexico haven't gone away. Subsequent
evidence found by ice and dhs isn't
comforting.

To cut back mil funding now will eventually
cost us more than we could have ever saved.

[WTF]

Originally Posted by anaximander

.

To cut back mil funding now will eventually
cost us more than we could have ever saved.

That is the exact same thing liberals say about education, welfare and other Sundry pet projects...

[Texas Contrarian]

Some of you probably remember this:

http://www.youtube.com/watch?v=zFEmlgfEGYo

That's just one of the reasons Paul Krugman is widely considered such a laughingstock. Look at the reaction of an incredulous Ken Rogoff (Harvard economist) when Krugman actually muses about how great it would be if an alien invasion forced us to forget about deficits and spend gargantuan amounts of money on defense, thus stimulating the economy out of its doldrums. But Krugman can't get over the absurd notion that the spending associated with World War II was necessary to get us out of the Great Depression, since he somehow has come to the conclusion that the depression lasted so long only because we failed to spend enough money in the 1930s. Of course, that's just nonsense on steroids. But that's what we've been taught in school by a couple of generations of history teachers and economics professors, who ought to know better.

At the end of the short video clip, Rogoff gently tries to take his more famous colleague to school, but Krugman's having none of it. After all, he won a Nobel Memorial Prize in economics. How could he possibly ever be wrong about anything?

I might point out that it's been suggested that Krugman is likely to tread lightly when engaging in debate with Rogoff, since the latter is not shy about skewering famous economists when they say or do boneheaded things:

http://www.theatlantic.com/business/...rugman/250847/

Read how he took left-wing economist Joe Stiglitz, another Nobel winner, to task in this open letter:

http://www.imf.org/external/np/vc/2002/070202.HTM

If you ever wondered how the economics profession could have failed us so miserably, you just caught a glimpse of one of the main reasons. This sort of economic malpractice has cost us trillions of dollars, and undoubtedly will cost us trillions more.

[WTF]

Exactly what people fail to realize is that we were the glazier's of WWII. We benefited from all the broken windows, some of which we broke at the end of the war to benefit us even more.

What I think is the true problem in American politics is that people mistake business cycles with politicians. They then look for politicians to fix what is essentially the Sunrise and Sunset.

People on the right think that wars are this great economic engine and forget the human devastation that it causes. Further more it we keep breaking windows and getting paid back less than what it cost us to fix them...we need to get out of the window fixing business.

[anaximander]

Originally Posted by WTF

That is the exact same thing liberals say about education, welfare and other Sundry pet projects...

Unfortunately for those socialist liberal weasels
the govt is only obligated to secure defense.
The other non defense items are extra-constititional.
Welfare and education were never intended
to be the responsibility of the US govt.

That's completely overlooking the fact that
our welfare programs are corrupt and failing.
No nations are spying on dhhs.
Education? ha ha ha you just say this crap
without thinking about it.
Our education system has been going downhill
SINCE the govt got involved.
Other than our colleges where hard disciplines
are taught- it's all junk. Global comparisons
have our kids towards the bottom of
academic rankings of developed nations.
Oddly the more govt money a school gets
the worse overall student grades get.
Our schools aren't being copied by the
north koreans, iranians or venezuelans.

IF the liberals pet projects had any teeth
it would be another story.

Over the last 50 ys the military has come
to be the apex force on this planet.
In that same 50 ys what was a high school
grade education in 1960 is the academic
equivalent of a two year associates degree now.

Our soldiers are the most battle hardened
modern army in the world.

Our students are not the best in the world.

The distinction is obvious.

To disarm now when our enemies are gathering
their numbers and resources is courting disaster.

Claim what you wish
facts are stubborn things.

[Fast Gunn]

Thanks for your usual thought-provoking posts, Captain.

You do realize that your posts require more than one reading to digest!

I will read Skidelsy's book with a gimlet eye, but now I also have to educate myself on the Broken Window Fallacy you alluded to.

I am a voracious reader, but I am surprised that I had never even heard of that parable. Damn!

It makes me wonder what else don't I know?

. . . But it is always humbling to know that the more we know, the more we discover how little we really know!

Originally Posted by CaptainMidnight

@Fast Gunn:

The Skidelsky book (that's how his name is spelled; it was misspelled in an earlier post by the person who recommended it) is an interesting read, but you should be aware that the author, a fawning admirer of Keynes, exhibits rather clear bias. In particular, he gives short shrift to Keynes's intellectual opponents, and is dismissive of anyone who has produced mathematical models that in any way do not support his narrative. That's a big problem, since Keynes's followers have failed to provide the analytical rigor needed to support some of his theories, and dissenters have refuted some of the macro models they produced a few decades ago.

By his own admission, Skidelsky has something of an aversion to mathematics. He wrote a readable and interesting biography of the man, but it's important to note that he has little understanding of Keynes's legacy and how it should be viewed.

In my opinion, the biggest problem today with misconceptions of his legacy is that they are used to justify all sorts of interventions and government spending initiatives. Bastardization of the theory is used to provide the intellectual underpinnings for arguments in favor of buying votes with other people's money, which is what politicians always want to do!

One of the leading offenders is economist-for-hire Mark Zandi, who practically twisted himself into a pretzel in a forlorn effort to defend the ineffective $800 billion "stimulus package" of 2009. In fact, he actually claimed a fiscal "multiplier" of 1.73 for food stamp dispensation. There's absolutely no credible evidence whatsoever that the "multiplier" for that sort of social spending is anywhere near 1.0, let alone 1.73.

I have long maintained that buying into this sort of nonsense is not significantly different from falling for Bastiat's "broken window fallacy."

[I B Hankering]

@ CaptainMidnight: Have you read The Great Crash, 1929 by John Kenneth Galbraith? If so, what is your opinion of his thesis?

[Texas Contrarian]

An excellent book; a classic.

It's long been considered a must read for market professionals. Readers come away with a better understanding of the frailties and human failings that contribute to speculative excesses. Galbraith emphasized a few key factors contributing to the bubble. Among them were corporate malfeasance, poor structure and oversight of the banking system, worsening problems with balance-of-payments status and foreign creditworthiness, and increasing income inequality.

One factor he did not quite emphasize so much was the role of the Federal Reserve. In his day, we had not seen so many Fed-engineered boom-and-bust cycles, so the Fed was not so prominent in most people's consciousness.

A couple of brief observations on the Fed's contribution to the 1929 crash:

In World War I, the British effectively severed the pound's link to gold in order to finance the war. After the war, around 1925 or so, Britain wanted to return to the gold standard at prewar parity. But since the dollar was still fixed at just over $20/oz. (the U.S. inflated less!), the pound/dollar pair's relative revaluation drained gold reserves form the Bank of England to the U.S. So the Brits pressured U.S. monetary authorities to similarly inflate so as to sort of "match up" the currency pair once again, and offered several incentives to sweeten the deal. Since it now seemed like a win-win situation for the Fed to inflate, it did just that, pushing down interest rates (including margin rates on stock purchases) and loading up its balance sheet with purchases of bank acceptances. (If you think this sounds a little bit like quantitative easing, it's because that's exactly what it was!)

Right before I read the book (probably around 1975) I read Extraordinary Popular Delusions and the Madness of Crowds, the great 1841(!) classic by Charles Mackay. After reading both books, I remember thinking that it seems like no one ever learns anything, and people just keep making the same mistakes over and over again.

Given what I've seen since the mid-'70s, regarding speculative asset bubbles, as well as the obvious failure of pseudo-Keynesian "stimulus packages" to ever work as well as their proponents suggest, imagine how I feel now!

[Fast Gunn]

I will have to pick up the first classic you mention, CM.

However, the second book you mention is really a tough slog to read through.

The author covers a lot of territory in his book and his writing is choppy.

It is really tough to absorb the details, but I think essentially, what he is saying is that human beings are a pretty insane lot who get into stampedes the way cattle do when they are frightened.

What I got from it was NOT to follow the frighten cattle when they stampede!

[Texas Contrarian]

...or at least make sure you get the hell away from the stampeding herd when you see that it's about to go over a cliff!

[I B Hankering]

Originally Posted by CaptainMidnight

An excellent book; a classic. . .

Thank you for your reply. I bought it in 1988, but didn't read it until 2008. There are interesting parallels between 1929 collapse and this more recent collapse - the housing market collapses in particular.

[The_Waco_Kid]

Originally Posted by CaptainMidnight

I remember thinking that it seems like no one ever learns anything, and people just keep making the same mistakes over and over again.

"Those who cannot remember the past are condemned to repeat it."

George Santayana