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Thread: Why Keynesian Stimulus Fails

  1. #51
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    Quote Originally Posted by septimine View Post
    They still haven't paid back the loan.
    So you agree that your previous statement was wrong. Moving on...



    Quote Originally Posted by septimine View Post
    We're still pumping cash into the banks.
    Which is why you listen to Keynesians, because they'd have said not to do it, or don't do it until you had big strings attached.

    Quote Originally Posted by septimine View Post
    And we've pre-emptively guarenteed that if they get themselves in the same situation again, we intend to bail them out again. It's called "too big to fail", and it's teaching the exact wrong lessons. Namely, screw around all you want, when the shit blows up in your face, you'll get another bailout. Which is exactly why TBTF is going to be a permanent part of American banking.
    Well, I could say "I told all of you so", especially after the 2010 elections, but I likely was posting elsewhere. The blowback from Dodd-Frank has seen the GOP shed all pretenses of giving a shit about the country and only worry about blocking the President.



    Quote Originally Posted by septimine View Post
    So we're agreed -- the government intends to print money for the banks until we get jobs.
    Probably. That's the down side of conservative economics.

    Quote Originally Posted by septimine View Post
    The Jobs act is the government trying to spend even more money on top of the QE(infinity) to create jobs when there's no demand in the economy.
    The fiscal policy would create demand. ECON!)!

    Quote Originally Posted by septimine View Post
    In other words, we're printing money until the republicans agree to hand out money to create jobs that aren't demanded. That makes sense. I mean really, most businesses love to take on extra workers to do work that doesn't need to get done for customers who aren't buying anything.
    Wow. You have it very backwards on this point. It's a matter of demand in the consumer base. Companies won't hire without demand. Again, ECON101 stuff.

    Quote Originally Posted by septimine View Post
    But even more than that, it also means that the underlying problems in the economy aren't being dealt with. The problem with the banks was that they were making stupid decisions. Which we've now protected them from the consequences of.
    No shit. The GOP shit their knickers over mild legislation like Dodd-Frank. They've promised to block any new regulation. You think maybe conservatives aren;t playing with a full deck? I know they aren't.

    Quote Originally Posted by septimine View Post
    The problem with the consumer end was that people were spending far beyond their means, buying houses that they literally could not afford, and at the same time carrying lots of consumer debt. We were running our entire economy on debt, and none of that has been dealt with. In fact, the next bubble is probably going to be student loans when all of the kids who went into English Lit cannot pay back their student loans with their paychecks from Starbucks.
    Gee... now you're bitching that there aren;t enough good paying jobs? Do you think that rehiring the teachers laid off in the past 4 years might be a good way for people to repay those loans? Increasing demand so that the private sector hires them for jobs that pay more than Starbucks?


    Quote Originally Posted by septimine View Post
    We also aren't dealing with the issues brought on by globalization. We keep crying about the loss of American manufacturing while ignoring the fact that most manufacturing is done either by Chinese workers for pennies or robots for free. Our entire system is screwed up, in lots of ways ...
    Monetary policy can easily slow or reverse much of this problem. But conservatives bitch about lessening the strength of the dollar, when it could easily help.

    Quote Originally Posted by septimine View Post
    and Keynesian economics has papered over all of it.
    I think you mean to say the hodge podge of supply-side and Neo-Classical bullshit from Austrian School and such. None of them has been able to predict the reactions to policy prescripotions, while Keynesians have. The austerity they have both called for has failed every other time contractionary policies have caused contractionary economies.

    Quote Originally Posted by septimine View Post
    Which means that it's going to keep happening until the strain takes the entire system completely down.
    Yet here you argue against doing anything.


    Quote Originally Posted by septimine View Post
    Well, I think part of the issue of WW2 and why it helped had less to do with us spending money and more to do with the enforced fiscal discipline. People remember that the government was making lots of planes and tanks and other things, but there was another side. Since so many things were rationed, the people of that time were forced to save. If you were planning a wedding, you had to save ration cards so you could get ingredients for your cake and other foods. All kinds of things were rationed, and of course people were collecting scrap metal for tanks and planes and jeeps. So people were saving money because it was impossible to spend it, which means that the government created demand for goods after the war. If it weren't for the rationing and the pent up demand for consumer goods after the war, the end of WW2 would likely be a recession.
    Not really. WWII saw deficits in today's money of $7 ttrillion a year. The national debt was far higher than we have. And it was paid down through infrastructure spending (and the jobs it created) and much higher tax rates.




    Quote Originally Posted by septimine View Post
    Social Security made it possible to do away with pensions, by making such a thing palatable to workers.
    Social Security was never meant to replace pensions. Neither were 401(k) plans. It wasn't palatable at all to workers. It's been an all out assault on the rights by conservatives on people to look for the freedom to bargain for benefits and fair wages.

    Quote Originally Posted by septimine View Post
    The other part is that people are no longer likely to work for a single company for life as it used to be. There's no reason for people to join the welder's union if they're not going to be a welder in 5 years. That's not "breaking the union" it's a loss of loyalty as people more and more often behave like independent contractors bidding for a job for a few years.
    That's not usually by choice. That's only because companies are able to skirt laws and desert the people who made those companies successful by leaving with a kick of dirt to their employees' faces.

    Quote Originally Posted by septimine View Post
    But even that has been facilitated by the existence of a system that garentees the worker loses nothing by jumping from job to job.
    we don't have any such system in the US.



    Quote Originally Posted by septimine View Post
    Upkeep on Interstate highways is still going on.
    not enough. The US used to be the best in the world with paved roads; clean, safe water and and wastewater treatment, plentiful supply of power because of the public works for hydro electric dams, transmission lines, etc. And now, after years of neglect and the conservatives blocking improvements and maintenance, it's all largely crumbling.

    Quote Originally Posted by septimine View Post
    and if you're pointing to the end of a war as a "spending program that ended" pretty much proves that you're reaching.
    actually, you're proving you are reaching by bringing up the interstate program, then trying to paint my arguments at ending when WWII ended.

    Quote Originally Posted by septimine View Post
    besides which, we've pretty much been at war for the entire 20th century, as compared to the 19th in which we had only a few real wars (war of 1812, Mexican War, civil war, and Spanish American war) in the 20th, we were at war pretty much the entire time (ww1, ww2, korea, vietnam, the noreaga thing, iraq). So even if ww2 ended, it's not like we haven't had other wars since ww2.
    And...? Do you have a point?

  2. #52
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    I'm no Keynes academic, but I can tell you that I find the bubbles to be the alcoholism, the busts to be the hangovers, and Keynesian strategies to be the hair of the dog.

    Really, why have a central bank if it won't gut check stock/asset bubbles? As a Seeking Alpha article (just today) puts it, "The Federal Reserve is instrumental in starting the bubble while Wall Street provides the endless supply of air." And here we are blaming President X vs. President Y. Why? When everyone from Ronald Reagan to Bill Clinton to G.W. Bush will bow to Greenspan, and Greenspan will say all the right things while doing all the wrong ones?

    Keynesian economics are like FEMA. We look to it in the wake of disaster when what we should really do is look to the cause and decide we're not going to build our houses in hurricane alley.

  3. #53
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    Quote Originally Posted by Neomalthusian View Post
    I'm no Keynes academic, but I can tell you that I find the bubbles to be the alcoholism, the busts to be the hangovers, and Keynesian strategies to be the hair of the dog.
    You're not only not an academic on this, you aren't even moderately informed. Deregulation of the lending industry, from commercial banks, to investment banks, to mortgage lenders outside of the scope of banking regs, etc. was what collapsed. Keynesians haven't argued for deregulation. Supply-siders and Neo-Classical economists, and policy makers who follow along with their arguments did. And maybe many of the policy makers didn't do it out of a belief in any school of thought in Economics, but got sucked into fallacy ideas that led to their votes for bubble economies. So the idea that Keynesians are the hair of the dog is pretty silly.

    Quote Originally Posted by Neomalthusian View Post
    Really, why have a central bank if it won't gut check stock/asset bubbles?
    That's what the Fed is supposed to do. What happened, was that Ronald Reagan threw the way the Fed operates askew when he started making overt political appointments to the Fed Chair and other seats on the FOMC and Board of Governors. And yes, Bush, Clinton and Bush continued it as the two parties became more divisive as the GOP moved further into batshit crazy and away from reality.

    Quote Originally Posted by Neomalthusian View Post
    As a Seeking Alpha article (just today) puts it, "The Federal Reserve is instrumental in starting the bubble while Wall Street provides the endless supply of air." And here we are blaming President X vs. President Y. Why? When everyone from Ronald Reagan to Bill Clinton to G.W. Bush will bow to Greenspan, and Greenspan will say all the right things while doing all the wrong ones?
    There's some validity to this, but, it does not excuse the legislature or Executives who sit on their hands and do nothing while a bubble grows or an economic clamity happens. And this argument has little to do with the freshwater/saltwater divide in economics.

    Quote Originally Posted by Neomalthusian View Post
    Keynesian economics are like FEMA. We look to it in the wake of disaster when what we should really do is look to the cause and decide we're not going to build our houses in hurricane alley.
    Funny thing is, had policy makers been listening to Keynesians (particularly to New Keynesians), the wwhole mess may have been avoided by learning the lessons from the Great Depression, Japan's real estate bubble and the East Asian financial crisis of the late 1990s. Don't say they didn't warn you. Krugman's Return of Depression Economics came out in 2000. Robert Shiller, Dean Baker and others did the heavy lifting in their work on asset bubbles. But Austrians School cultists and supply-siders know better, in spite of being wrong.

  4. #54
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    Quote Originally Posted by Shanty View Post
    Deregulation of the lending industry, from commercial banks, to investment banks, to mortgage lenders outside of the scope of banking regs, etc. was what collapsed.
    I don't quite understand that statement. Deregulation collapsed? It helped fuel the bubble.

    Keynesians haven't argued for deregulation.
    Ok. I didn't claim they did.

    That's what the Fed is supposed to do. What happened, was that Ronald Reagan threw the way the Fed operates askew when he started making overt political appointments to the Fed Chair and other seats on the FOMC and Board of Governors. And yes, Bush, Clinton and Bush continued it as the two parties became more divisive as the GOP moved further into batshit crazy and away from reality.
    I'm not sure how the GOP going batshit crazy is very connected to FR chairman appointments or Ronald Reagan. What about our monetary policies has changed in thirty years?

    There's some validity to this, but, it does not excuse the legislature or Executives...
    I've not excused anyone.

    Funny thing is, had policy makers been listening to Keynesians (particularly to New Keynesians), the wwhole mess may have been avoided by learning the lessons from the Great Depression, Japan's real estate bubble and the East Asian financial crisis of the late 1990s. Don't say they didn't warn you. Krugman's Return of Depression Economics came out in 2000. Robert Shiller, Dean Baker and others did the heavy lifting in their work on asset bubbles. But Austrians School cultists and supply-siders know better, in spite of being wrong.
    I'm not here championing the Austrian school or deregulation of financial markets. Nonetheless we are putting ourselves in positions to need Keynesian rescue policies just to avert recessions or financial disasters, ultimately (I think) because we chase growth like an addict chases his next fix.

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    Quote Originally Posted by Neomalthusian View Post
    I'm not sure how the GOP going batshit crazy is very connected to FR chairman appointments or Ronald Reagan. What about our monetary policies has changed in thirty years?
    For one thing, Reagan politicizing the Fed means that the ideologues (or at least the guys who follow the right wing ideology script) get rewarded for being good soldiers for the GOP, and punished if they don't.
    Greenspan should have put a halt to the super low interest rates after deregulation. He didn't. He talked up market superiority. And then, with the deregulation of lenders, he contributed to a large scale housing bubble and financial crisis.

    Quote Originally Posted by Neomalthusian View Post
    I'm not here championing the Austrian school or deregulation of financial markets. Nonetheless we are putting ourselves in positions to need Keynesian rescue policies just to avert recessions or financial disasters, ultimately (I think) because we chase growth like an addict chases his next fix.
    growth is bad? Balanced budgets are bad? Near full employment isn't something we should be striving for? Working to limit or stop large scale market failures should be a top priority of the US government.

  6. #56
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    Quote Originally Posted by Shanty View Post
    I think you mean to say the hodge podge of supply-side and Neo-Classical bullshit from Austrian School and such. None of them has been able to predict the reactions to policy prescripotions, while Keynesians have. The austerity they have both called for has failed every other time contractionary policies have caused contractionary economies.
    Reactions to any policy are hard to predict. Honestly, every policy put into place has unforeseen consequences. That's why you don't go messing around in complex systems like the economy. You can't predict it. That's why Austrians don't mess with strange economic policies -- it only creates distortions.

    Not really. WWII saw deficits in today's money of $7 ttrillion a year. The national debt was far higher than we have. And it was paid down through infrastructure spending (and the jobs it created) and much higher tax rates.




    Social Security was never meant to replace pensions. Neither were 401(k) plans. It wasn't palatable at all to workers. It's been an all out assault on the rights by conservatives on people to look for the freedom to bargain for benefits and fair wages.
    That's not what I said. SS had the side effect of making it possible to get rid of pensions. If companies had tried that back in 1930 before SSI existed, no worker in his mind would have agreed to give up a pension to pay for his retirement UNLESS THE GOVERNMENT WAS PROVIDING IT. In other words the existence of SSI reduced a benefit the private sector was providing to it's workers. It's the same thing with welfare -- since the government is providing a minimum standard of living, businesses are much more likely to try to lowball wages, because they know that the food stamps and section 8 housing and so on are out there. I expect the same thing to happen with health care -- having the government provide health insurance means that businesses will no longer provide it. It's already happening, as retail outlets lower work hours to less than full time, thus not having to provide health insurance. Would workers be as likely to stand for that if Obamacare wasn't a law? I doubt it. That's what happens -- when the government provides something the private sector stops providing it.

    That's not usually by choice. That's only because companies are able to skirt laws and desert the people who made those companies successful by leaving with a kick of dirt to their employees' faces.
    Again, made possible because the government is taking up the slack. You don't get it. Had there been no government SSI, it would have been hard to sell a worker on the idea of a job that didn't offer a pension. Before Obamacare, a job that doesn't offer health insurance is a non-starter, however once people get used to the idea that the government will provide health insurance, that same work arrangement may become the norm.

    we don't have any such system in the US.
    We do, it's just not a formal system. Our system facilitates job hopping by making it easy to be between jobs and by providing those benefits that used to be given by businesses as an inducement to stay long term. Pensions used to be a reward for loyalty, but since the SSI program allowed businesses to get rid of them, which of course means that there is one less inducement for a person to stay long term. So it makes more economic sense for a person to move anytime that there's better pay elsewhere, because he doesn't lose a benefit by switching.

    not enough. The US used to be the best in the world with paved roads; clean, safe water and and wastewater treatment, plentiful supply of power because of the public works for hydro electric dams, transmission lines, etc. And now, after years of neglect and the conservatives blocking improvements and maintenance, it's all largely crumbling.
    It's not crumbling. The roads are pretty good.

    And...? Do you have a point?
    If you're saying that the "stimulous" caused by war ended, there's a major problem with that. We've been at war the entire time, which means that we're doing exactly what you say we aren't doing -- stimulating the economy by wars. There is no peace dividend, because peace now means no stimulous of the economy. Which means of course that from now on, we're going to have to kill people all over the world because it's good for the economy.

  7. #57
    Junior Member Claudius the God's Avatar
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    I am amazed when folks have positions like yours that ignores basic tenets of economics. There is nothing ideological about aggregate demand. It is a known principle in macro that has nothing to do with one school or another, it simply is aggregate demand. How you manipulate it becomes a bone of contention. Watch this simple clip by a professor on the topic. This is basic econ buddy.

    Keynesian Vs Monetarist on the LRAS curve - YouTube

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    Quote Originally Posted by septimine View Post
    Reactions to any policy are hard to predict. Honestly, every policy put into place has unforeseen consequences. That's why you don't go messing around in complex systems like the economy. You can't predict it. That's why Austrians don't mess with strange economic policies -- it only creates distortions.
    Of course you can, in a general way. That's why Keynesian economists have had an outstanding record of prediction, using IS/LM and DSGE models. Austrians can't do it because they can't adapt their predictions to changing situations.


    Quote Originally Posted by septimine View Post
    That's not what I said. SS had the side effect of making it possible to get rid of pensions. If companies had tried that back in 1930 before SSI existed, no worker in his mind would have agreed to give up a pension to pay for his retirement UNLESS THE GOVERNMENT WAS PROVIDING IT. In other words the existence of SSI reduced a benefit the private sector was providing to it's workers. It's the same thing with welfare -- since the government is providing a minimum standard of living, businesses are much more likely to try to lowball wages, because they know that the food stamps and section 8 housing and so on are out there. I expect the same thing to happen with health care -- having the government provide health insurance means that businesses will no longer provide it. It's already happening, as retail outlets lower work hours to less than full time, thus not having to provide health insurance. Would workers be as likely to stand for that if Obamacare wasn't a law? I doubt it. That's what happens -- when the government provides something the private sector stops providing it.
    Back in 1930, pensions were almost unheard of, except for the wealthy. Pension growth that started to include wage earners started in the 1930s, and continued through the 1970s, so your comment doesn't wash with reality. It wasn't until the 1980s, where the US started to see the three legged stool of pensions, private savings and Social Security being the basis of retirement security falling apart. Lax labor laws in the US , the assault on workers' rights and the rise of the 401(k) (which was designed as a personal savings account, meant to supplement a pension, not be the pension) did the damage.



    Quote Originally Posted by septimine View Post
    Again, made possible because the government is taking up the slack. You don't get it. Had there been no government SSI, it would have been hard to sell a worker on the idea of a job that didn't offer a pension. Before Obamacare, a job that doesn't offer health insurance is a non-starter, however once people get used to the idea that the government will provide health insurance, that same work arrangement may become the norm.
    You're saying this with no basis in fact.



    Quote Originally Posted by septimine View Post
    We do, it's just not a formal system. Our system facilitates job hopping by making it easy to be between jobs and by providing those benefits that used to be given by businesses as an inducement to stay long term. Pensions used to be a reward for loyalty, but since the SSI program allowed businesses to get rid of them, which of course means that there is one less inducement for a person to stay long term. So it makes more economic sense for a person to move anytime that there's better pay elsewhere, because he doesn't lose a benefit by switching.
    So why wasn't this done in the 1950s and 1960s and 1970s? Again, you're assigning to SS something it did not do, when other factors played a larger part.



    Quote Originally Posted by septimine View Post
    It's not crumbling. The roads are pretty good.
    I've been around the world. Our roads are second rate. The US used to be the leader in infrastructure being modern and efficient, and it's definitely been passed up by European and asian nations in many parts of the world. There's a lack of reinvestment in roads, bridges, water and waste water lines and treatment centers, natural gas lines, electric transmission and more. I work in and around many of the industries that are associated or directly rely on infrastructure. The US is in bad shape and losing economic power because of it.

    America's infrastructure crumbling, says American Society of Civil Engineers



    Quote Originally Posted by septimine View Post
    If you're saying that the "stimulous" caused by war ended, there's a major problem with that. We've been at war the entire time, which means that we're doing exactly what you say we aren't doing -- stimulating the economy by wars. There is no peace dividend, because peace now means no stimulous of the economy. Which means of course that from now on, we're going to have to kill people all over the world because it's good for the economy.
    Do you want to clean the questions and statements in that up, so I can respond?

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    If the argument is now over models instead of Keynes, then someone in this group better have a PHD in Economics or Math because that is what it is going to take to understand the complexities of current modeling theory. Since I doubt any of us is truly qualified to either create a model or improve upon one, I suggest we instead look to real experts in the matter for their guidance. In this regard, we can list a few economists who are world renown and discuss their opinions of modeling. We can start with Rogoff, Stiglitz, Keen, Krugman and perhaps a European. What you will see quite quickly is that in the world of high economics, there are virtually no Austrians in the discussion except at the extremes. In issues as complex as economics or climate science, I tend to focus more upon the experts and their track records of success or fame within their own circles. Laymen can voice opinions but unless you are truly an expert, it is like asking a first year physics major to correct a NASA flight plan for a mission to Mars.

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    Quote Originally Posted by Claudius the God View Post
    If the argument is now over models instead of Keynes, then someone in this group better have a PHD in Economics or Math because that is what it is going to take to understand the complexities of current modeling theory. Since I doubt any of us is truly qualified to either create a model or improve upon one, I suggest we instead look to real experts in the matter for their guidance. In this regard, we can list a few economists who are world renown and discuss their opinions of modeling. We can start with Rogoff, Stiglitz, Keen, Krugman and perhaps a European. What you will see quite quickly is that in the world of high economics, there are virtually no Austrians in the discussion except at the extremes. In issues as complex as economics or climate science, I tend to focus more upon the experts and their track records of success or fame within their own circles. Laymen can voice opinions but unless you are truly an expert, it is like asking a first year physics major to correct a NASA flight plan for a mission to Mars.
    One quick way to check if their models are correct is to see how their predictions have fared.

    ronpaul, Peter Schiff, Lew Rockwell (who actually provides ronpaul with his marching orders), John Taylor, John Plosser, etc. have made predictions, and none has come true, for the most part, since before the financial crisis.

    Keynesians were the first to identify the housing bubble, identify the problems it was going to create in the financial, housing, job and market sectors before the recession. And their predictions since the recession have proven true.
    Thanks from Claudius the God

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