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Old 12-30-2011, 03:15 PM   #1
Little Stevie
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Default Keynes? Could he have been right?

Could Keynes Have Been Right?

More importantly, can anybody see the big picture well enough to admit he may have been correct?

“The boom, not the slump, is the right time for austerity at the Treasury.” So declared John Maynard Keynes in 1937, even as F.D.R. was about to prove him right by trying to balance the budget too soon, sending the United States economy — which had been steadily recovering up to that point — into a severe recession. Slashing government spending in a depressed economy depresses the economy further; austerity should wait until a strong recovery is well under way.


Unfortunately, in late 2010 and early 2011, politicians and policy makers in much of the Western world believed that they knew better, that we should focus on deficits, not jobs, even though our economies had barely begun to recover from the slump that followed the financial crisis. And by acting on that anti-Keynesian belief, they ended up proving Keynes right all over again.


In declaring Keynesian economics vindicated I am, of course, at odds with conventional wisdom. In Washington, in particular, the failure of the Obama stimulus package to produce an employment boom is generally seen as having proved that government spending can’t create jobs. But those of us who did the math realized, right from the beginning, that the Recovery and Reinvestment Act of 2009 (more than a third of which, by the way, took the relatively ineffective form of tax cuts) was much too small given the depth of the slump. And we also predicted the resulting political backlash.
So the real test of Keynesian economics hasn’t come from the half-hearted efforts of the U.S. federal government to boost the economy, which were largely offset by cuts at the state and local levels. It has, instead, come from European nations like Greece and Ireland that had to impose savage fiscal austerity as a condition for receiving emergency loans — and have suffered Depression-level economic slumps, with real G.D.P. in both countries down by double digits.



This wasn’t supposed to happen, according to the ideology that dominates much of our political discourse. In March 2011, the Republican staff of Congress’s Joint Economic Committee released a report titled “Spend Less, Owe Less, Grow the Economy.” It ridiculed concerns that cutting spending in a slump would worsen that slump, arguing that spending cuts would improve consumer and business confidence, and that this might well lead to faster, not slower, growth.


They should have known better even at the time: the alleged historical examples of “expansionary austerity” they used to make their case had already been thoroughly debunked. And there was also the embarrassing fact that many on the right had prematurely declared Ireland a success story, demonstrating the virtues of spending cuts, in mid-2010, only to see the Irish slump deepen and whatever confidence investors might have felt evaporate.


Amazingly, by the way, it happened all over again this year. There were widespread proclamations that Ireland had turned the corner, proving that austerity works — and then the numbers came in, and they were as dismal as before.


Yet the insistence on immediate spending cuts continued to dominate the political landscape, with malign effects on the U.S. economy. True, there weren’t major new austerity measures at the federal level, but there was a lot of “passive” austerity as the Obama stimulus faded out and cash-strapped state and local governments continued to cut.


Now, you could argue that Greece and Ireland had no choice about imposing austerity, or, at any rate, no choices other than defaulting on their debts and leaving the euro. But another lesson of 2011 was that America did and does have a choice; Washington may be obsessed with the deficit, but financial markets are, if anything, signaling that we should borrow more.



Again, this wasn’t supposed to happen. We entered 2011 amid dire warnings about a Greek-style debt crisis that would happen as soon as the Federal Reserve stopped buying bonds, or the rating agencies ended our triple-A status, or the superdupercommittee failed to reach a deal, or something. But the Fed ended its bond-purchase program in June; Standard & Poor’s downgraded America in August; the supercommittee deadlocked in November; and U.S. borrowing costs just kept falling. In fact, at this point, inflation-protected U.S. bonds pay negative interest: investors are willing to pay America to hold their money.



The bottom line is that 2011 was a year in which our political elite obsessed over short-term deficits that aren’t actually a problem and, in the process, made the real problem — a depressed economy and mass unemployment — worse.


The good news, such as it is, is that President Obama has finally gone back to fighting against premature austerity — and he seems to be winning the political battle. And one of these years we might actually end up taking Keynes’s advice, which is every bit as valid now as it was 75 years ago.
I have purposely left off the author so that the “shoot the messenger” types will have to show their asses by searching for and then using their typical means of discrediting the concepts by proxy.



Instead of screaming “liberal slut” or “academic”, perhaps some of the more enlightened posters could address the points instead of the author’s credentials, hair color or political leanings. Even an idiot holding up a "2+2=4" sign is correct and that holds true even if you make fun of his hair, political party or IQ. Incidentally, the author lacks no talent in the IQ department or economic understanding department.
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Old 12-30-2011, 03:53 PM   #2
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Your post is interesting, but really quite a deep message to digest easily, Stevie.

. . . Can you provide us with the Cliff Notes version?
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Old 12-30-2011, 04:29 PM   #3
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Your post is interesting, but really quite a deep message to digest easily, Stevie.

. . . Can you provide us with the Cliff Notes version?
It means that Keynes thought you shoud tax more or cut government spending when times were good , just the opposite of wtf G W Bush did..

When times are hard, Keynes is for more government spending.

The righties have been saying that if this and this happens then bad shit is going to happen to us. Well this and that has happened and bad shit has not happened to us............................ .............................y et!

So for people that claim that Kenyes was wrong, they actually do not understand wtf Keynes proposed.
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Old 12-30-2011, 05:01 PM   #4
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Pretty well nails it, WTF. Well done. There is also the realization for some who espouse Keynes, that the government cannot act quickly enough to anticipate cyclical economic trends and prevent or encourage them. Therefore staying out of trying to manipulate "trends" until their directional causes are more clearly understood is best.

A for instance would be Bush's attempt to generate growth in the auto industry with the one-year allowance of up to $100K in depreciation. Some say that measure helped create an artificial market for autos like Hummers when other trends were moving people away from gasoline gulpers. When the $100K one-year write-off ended and gas prices rose, the popularity of Hummers took an irreversible beating.

Another was mortgage rates staying artificially low for so long. Once all the people who truly QUALIFIED for loans were loaned money, the "players" resorted to tricks to make applicants qualify. Most of those players held some hope that the upward trend would always keep the housing market partially solvent.

The guys who used the CDS's (Credit Default Swaps) to replace traditional mortgage default insurance relied on the accompanying smoke and mirrors in the derivative market to allow them to cash in before the bubble burst.
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Old 12-30-2011, 05:21 PM   #5
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That is the Cliff Notes version. In fact, it's the dumbed down Cliff Notes version. The real version, Keyne's General Theory, is over 400 pages. And while it's dense, it's a great read.

For the best Cliff Notes version, read Keynes: The Return of the Master, by Robert Sidelsky.

http://www.amazon.com/Keynes-Return-...sr_1_1?s=books


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Old 12-30-2011, 07:10 PM   #6
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Quote:
Originally Posted by Little Stevie View Post
Pretty well nails it, WTF. Well done. There is also the realization for some who espouse Keynes, that the government cannot act quickly enough to anticipate cyclical economic trends and prevent or encourage them. Therefore staying out of trying to manipulate "trends" until their directional causes are more clearly understood is best.

A for instance would be Bush's attempt to generate growth in the auto industry with the one-year allowance of up to $100K in depreciation. Some say that measure helped create an artificial market for autos like Hummers when other trends were moving people away from gasoline gulpers. When the $100K one-year write-off ended and gas prices rose, the popularity of Hummers took an irreversible beating. And what about "Cash for Clunkers" on Obama's watch? The total costs outweighed all benefits by $1.4 billion.http://www.bepress.com/ev/vol6/iss8/art4/?sending=10731

Another was mortgage rates staying artificially low for so long. Once all the people who truly QUALIFIED for loans were loaned money, the "players" resorted to tricks to make applicants qualify. Most of those players held some hope that the upward trend would always keep the housing market partially solvent.

The guys who used the CDS's (Credit Default Swaps) to replace traditional mortgage default insurance relied on the accompanying smoke and mirrors in the derivative market to allow them to cash in before the bubble burst.
You refuse to address the fact that Angelo Mozilo, Countrywide's Chief Executive Officer was one those who personally benefited from sub-prime lending practices (yeah, he is the one THIS administration - the Anointed One - refused to prosecute:http://hispanic.cc/obama_fails_to_pr...an_economy .htm ). And you refuse to acknowledge how it was great to be an "FOA" — "Friend of Angelo". Ask chairman of the Senate Banking Committee, Christopher Dodd (D-CT); the chairman of the Senate Budget Committee, Kent Conrad (D-ND); and the former CEO of Fannie Mae: Jim Johnson (Democrat associate of McCarthy, McGovern, Carter, "Slick Willie" and the Anointed One). They all received excellent mortgage terms and some sizable campaign donations from Ol' Angelo. Keep guzzling that Kool Aid!


..
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Old 12-30-2011, 07:42 PM   #7
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“Keynes is an entertaining economist whose bright but shallow dissertations on finance and political economy, when not taken seriously, always provide a source of innocent merriment to his readers.” David Lloyd George: British Liberal politician and statesman.


Quote:
Originally Posted by WTF View Post
It means that Keynes thought you shoud tax more or cut government spending when times were good , just the opposite of wtf G W Bush did..

When times are hard, Keynes is for more government spending.

The righties have been saying that if this and this happens then bad shit is going to happen to us. Well this and that has happened and bad shit has not happened to us............................ .............................y et!

So for people that claim that Kenyes was wrong, they actually do not understand wtf Keynes proposed.
Please explain how you reconcile your support Ron Paul's return to the gold standard with Keynes' enthusiasm for rejecting the gold standard.

BTW, Keynes never imagined a country that was already $15 trillion in debt trying to spend its way out of a recession.
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Old 12-30-2011, 10:05 PM   #8
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BTW, Keynes never imagined a country that was already $15 trillion in debt trying to spend its way out of a recession.
while Keynes theory is discredited by most economists, he did say something along those lines where too much over spending is bad. I think we OD-ed or about to on sugar.

the thing is we were over-spending in good times and in bad times. The over-reliance on the Keynes theory is the problem.

With regards to Greece, how is spending some more going to solve their problem? They don't have any money to do that.
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Old 12-30-2011, 10:40 PM   #9
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Keynes would not be proud of how his theory has been bastardized.
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Old 12-31-2011, 05:05 AM   #10
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The problem (one of many) is the way that Obama carried out this theory. Keynes believed in encouraging consumption which is not the same as spending. Instead of paying off his flunkies Obama should have gone on a highway building, military building rampage. All of the secondary industries would have had to risen to support the build up. He would have created millions of jobs instead of protecting his political supporters. We would have a new navy, air force, and armor corps. We would also have some of the best roads in the world but he blew it. I don't agree with what Keynes wrote 70 years ago, times have changed, the economy has changed, and the world is tied together in a way that Keynes never imagined but Obama would created jobs. There won't even have to be an election he would have been so successful. So playing politics instead of leading the country is biting Obama's ass.
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Old 12-31-2011, 06:47 AM   #11
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The one thing he was right about was that the heavy government spending his theory described to simulate the economy, should only be temporary.

The rest is pretty much BS.
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Old 12-31-2011, 08:52 AM   #12
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The problem (one of many) is the way that Obama carried out this theory................ So playing politics instead of leading the country is biting Obama's ass.
Were you the one designated by the TEA Party to fill in for Marshy during his absence?
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Old 12-31-2011, 09:26 AM   #13
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Well FDR went full bore Keynes in 1932 and prolonged the depression by 8 years. The math behind Keynes breaks down very quickly. It has pretty much been proven to be a complete farce and fraud by economists and mathematicians for 40 years. The people who let politics get in the way of sound economic reasoning propose that "only a little Keynesian policy" is good. However, this is the same a little pregnant. It doesn't work in small doses or large. To witness the rise of Monetarism and decline of Keynesianism, look at England post WWII and Hong Kong (a Britsih Colony) post WWII. England remained on a Keynesian path and had no economic growth outside of the Marshall Plan. Hong Kong, left to its own devices since Britain was too poor to help its colonies, grew itself into prosperity on the back of Adam Smith and Monetarists. Not until Margaret Thatcher took Britain out of socialism and into the 21st Century, did Britain recover.
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Old 12-31-2011, 10:33 AM   #14
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Default Sorry , didn't see this

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Originally Posted by I B Hankering View Post


Please explain how you reconcile your support Ron Paul's return to the gold standard with Keynes' enthusiasm for rejecting the gold standard.

.
Paul doesn't advocate the gold standard. He advocates free market currencies and free market banking, while allowing the government to supply silver or gold in the form of notes or otherwise.

But to answer your question...I was only explaining what Keynes said as opposed to what his critics think he said.

Keynes system is not run how he said so to say it does not work is crazy. On the other hand, giving the government to power to print money leads to the problem that Keynes advocated fixing. So I am for exactly wtf Paul is for and I would like to see the truth discussed when talking about Keynes.


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BTW, Keynes never imagined a country that was already $15 trillion in debt trying to spend its way out of a recession.
Had Bush not cut taxes and started two wars we would not be. There would have been no reason for a Stimulis .... He did just the exact opposite of what Keynes advocated.
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Old 12-31-2011, 01:52 PM   #15
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the thing is we were over-spending in good times and in bad times. The over-reliance on the Keynes theory is the problem.

.

That is half right.

The over reliance on it in bad times is the problem.

He advocated cutting government spending in good times.

That is the part you do not understand.

That is the part you righties never get right.

We had a GOP led congress that spent like crazy in good times. That is not what Kenyes wanted.
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