'Consumers' Are Not Following Orders ?

[gwynedd1]

Re: 'Consumers' Are Not Following Orders ?

This response appears to depend on a misreading of my statement. I had already previously recognized that I had been vague, and clarified it, using a subsequent post:

Noted.

Keynes made popular the idea that it is a government's job to provide stimulus to a weak economy (and yes, as you pointed out, he did refer specifically to fiscal stimulus to reduce unemployment). The monetarists accepted the first part (providing stimulus reduces unemployment) but changed the nature of the stimulus to a monetary form (make money more available). The second part of their argument wasn't Keynes, but the first part (provide stimulus to reduce unemployment) was his.

Firstly I rarely give any opinions because I typically find that most conversations fall apart before even establishing the facts or the actual premise. I tend not to get into beliefs before then. So what I think of Keynesian ideas has not even been introduced. My very basic statement that I can more or less support factually is what a Keynesian stimulus is and if one actually occurred.

As to the Keynesian approach you could make that argument, but you say that as if its a fundamental fact that government intervention is wrong. If you call the police , that's a government intervention. So unless you can show this as evil in itself and differentiate it from other economic systems at that level then its not going to win the point.

And that's how they failed to question the more fundamental point: is stimulus (of any kind) even the best form of intervention? When people are too fearful to spend because they are worried about not having a job, there are different ways to change their mind. One was Keynes': Give them all jobs. Another was Friedman's: Play with the money supply. Another, however, was Erhardt's: Give them a safety net so joblessness has no economic sting, but also regulate the markets so that labor could achieve fair wages.

Erhardt was told that this would mean that people would not work! His reply was that as long as the currency was strong, it would be desired by the people, and they would choose to work. Greed will not simply go away, it is a part of human nature. And this approach did indeed bear fruit, in the German Wirtshaftswunder, and later in reunification. In other words, create a social state that permits the marketplace to function properly, but tweak it until it focuses on building things, rather than destroying lives. The second is not required for the first to happen. "Creative destruction" should apply to businesses, but not people's economic survival.

In other words, broad "stimulus" is never really required at all, as long as government can guarantee a level playing field. The existence of economic problems (such as high unemployment) mean it isn't level. The solution is to find out in what way, and fix that cause.

If you damaged your car by running it into a tree and asked someone else to pay for it, I think you yourself would agree that is inherently flawed. However if that same person side swiped you then their intervention is quite natural . Just about every financial crisis begins with government meddling. Much of the time the public does not even know its happening. The bubble and the bank bailout were both interventions. So to suggest that an intervention to undue these wrongs should not on principle happen does not suit my sensibilities. I do not wish to ban cattle rusting after the bandits secure the flock.

If we could ever get to the point where our government does not meddle I would all for it. However we still have the interest deduction , Fannie and Freddie, loan guarantees et all. That creates huge business cycles which is basically like fighting tanks with bows and arrows. I am a pragmatist , not an idealist. Purchasing power has been stripped from labor and capital and I am not fussy about how to re-balance it.

I have read Keynes, though I'll admit that it's been a while, and the only Conservative blog I read is this one. As I pointed out above, the misunderstanding most likely arose from my vague wording.

I thought it started with the anthem in the original OP that uses "Keynes" as a spice in any leftist stew.

THAT ISN'T THE GOAL. Please don't put words in my mouth. I never said anything about Keynesianism failing to reduce unemployment!

That is the immediate goal of a Keynsian stimulus. I am not putting words in your mouth. I am stating a principle of the theory. I am also repeating the rhetoric of our government that this was their goal. Their goal was clear by their actions and results, consolidating the wealth of the big players in the FIRE sector.

As you point out, it is perfectly obvious that it can. I spoke exclusively about it failing to create private-sector growth.

It absolutely will cause private sector growth in financial terms. I am stilled stunned to this day every time I speak with a Reagan supporter that waxes on about his great economy. They proceed to show me the financial numbers . Of course nominal GDP growth in all sectors will rise with massive deficits. Again Keynesian , Modern Money Theory etc cannot fail to achieve its financial goals of full employment and shift of the economic surplus. The only way to judge it is by the actual prosperity being created. Keynesian economics is relevant to the Reagan era and oil embargo. I have not seen it since. That is the absurdity now . The Keynsian stimulus has been said to fail because - wait for it - it did not create full employment. If that is the case then it never occured because that cannot be where is fails. It is defined by tightening the labor market. That is where Monetarism can fail or barter can fail etc.

Those ideas are simply not the same thing. And Keynes' failure was precisely in selecting the wrong goal. To be correct, he needed to step back, look at the bigger picture, and realize that unemployment wasn't the source of the problem, but an effect. He failed to identify where in the economic chain intervention would have the maximum impact.

I think perhaps you might use some perspective as well. During the Depression it was pretty easy to see his point. We do have Hoover damn and Las Vegas all lit up. We also would be a client of the Nazi empire had we remained on the gold standard while Germany directly financed its war industry with industrial credit.

Basically, while it is obvious that Keynesianism works in the trivial sense of guaranteeing low unemployment, my point is that if unemployment is a problem in the first place, the government has previously failed in its regulation of the marketplace in some other way. Finding and fixing that original problem is a far more effective use of time and funds than simply handing a job to every person who would like one. Keynes failed not in explaining a valid chanism, but in identifying the correct goal. Zero unemployment is not equal to universal, or even general, well-being. While safeguarding the general well-being is usually thought of as a valid goal of government, directly controlling employment is less obviously so.

It might be less obvious what can happen when tightening the labor market. It does not just create employment and a mere product. It shifts negotiating power for all employment. So that can shift around the share of the producer surplus. It is often the case that new capital is created by former cash strapped people earning a pay check. If they cannot accumulate wealth, then one source of new capital never occurs. So I don't think persistent monopoly power for employers is much better than perpetual boom time.

I should point out (before it becomes contentiously nit-picked) that I'm using the term "regulation" of a marketplace rather loosely above, since it isn't always specifically "rules" that are needed, but sometimes other forms of intervention, such as a high-quality educational system, which shift the parameters or boundaries of markets, to help level the playing-field.
For example, a good and free educational system allows workers to train, or re-train, for emerging industries. This clearly will affect the boundaries of the market for private education, as well as the labor market, and government should not be afraid to do so. That is a valid and beneficial intervention for a government to make in a market. Even Adam Smith agreed with that! Similarly, a social safety net permits workers to not obsess about saving for lean times, so they are free to spend the money they earn, which increases the velocity of money, and this intervention clearly will also affect the market for retail banking and investment services. Sufficiently strong retirement programs similarly take away the need for workers to obsess about investing for the distant future, and permits the natural and unforced constriction of speculation to a more heavily-regulated financial sector. (Since the average worker doesn't invest as much, they are less also likely to vote for extremely low tax rates or regulations for rentier income sources.) This serves to restrict the FIRE sector's growth, and political influence, without direct intervention.

The velocity of money isn't going to last forever. We don't have gold mines anymore for the legal tender. There is only one mine in the entire world, Federal budget deficits. So unless the population, available product stays the same along with a zero saving rate we are going to need to think about a particular Keynesian principle. the Federal budget's impact on the money supply.

THESE are the sorts of marketplace intervention that form the most natural scope of government. When the government FAILS to fulfill its legitimate mandate to intervene, increasing unemployment is one possible EFFECT. Another is declining per-capita-GDP. Trying to alter such effects directly, without addressing the underlying causes, is a losing game. It assumes a reversal of the real causality. And it makes this mistake because of the most fundamental and common error in economics: that these numbers can be thought of as greatly meaningful in their own right, independent of the people and lives involved. They aren't. The reality is more complicated, and it was Keynes who over-simplified it, and thereby led us into a debate about a false dichotomy.

Uh, how did he oversimplify it? It was a long book I read and it went into great detail. I think certain people with an axe to grind prop up a very simple strawman as if Keynes suggested flipping a switch. That is like saying Adam Smith just wanted a free market and thus his entire work was a 500 word essay. And while we are at it Marx just wanted to make sure everyone got the same slice of pizza. The false dichotomies come from those that really never bothered to read the material. I encounter "Austrians" that never read Carl Menger, Rothbard or Hayek all the time.

I hope it is now clear that I am not just recycling talking points from a conservative, anti-Keynesian blog. I reject all of those arguments as well, and just as strongly as I reject those of Keynes. My position is that both these sides are simply having the wrong debate entirenever ely. There is a third way, which rejects the fundamental validity of the framework the other two are disagreeing within. It takes the position that their entire economic framework needs to be re-thought, with the damage Keynes* did with his incorrect framing (which was accepted by Hayek, Friedman, and the like) being thrown out entirely.

It seems to me that you did because you simplified his whole theory to a simple dichotomy.

Keynes' most pernicious residue is that even those who disagree violently with him (eg. the US's far right today) still accept his implicit (in my opinion, incorrect) framing of the terms of the debate. Perhaps most commonly accepted without critical thought are the use of metrics like GDP and unemployment as proxies for measuring the success or failure of government intervention. Neither of these is a reasonable assessment of the well-being of the populace, and many of the problems we see today stem directly from their use in that context. The size of the number just isn't what matters most.

What you prefer, Ricardian theory of finance? That was a hundred years of silly from a banker apologist. However since I am a pragmatist Ricardo is one of my goto guys when going after the landlord problem. His rent theory and trade theory is sound indeed.

These errors are everywhere. People see growth in a parasitic financial sector, and say, "It's helping GDP go up! That's good!" when it fact it is the opposite of good.

How in hell is that Keynsian? Again this is my problem. He is a universal curse word blamed for zinc filled pennies and and cluster bombs alike. Never was nominal GDP ever his goal and never was he trying to be the lord of such idiots.

The same financial sector later gets slammed, and people are panicked into a giveaway because this huge sector will decline, and therefore GDP will, which means we will by definition be in a "recession". Yes, we will. But only because the wrong metric is being employed, which doesn't take into account the nature of the economic activity that is declining. The decline of a parasitic sector should be the sort of thing that is cheered by the nation as a whole! Even though it increases unemployment. We want those people to retrain into the production/consumption portion of the economy, where they don't serve as an economic drag. That kind of "recession" is a good thing, particularly when a social infrastructure exists that allows affected people to retool for a new industry, rather than having their lives destroyed.

That isn't Keynsian economics and like I said it completely leaves out what happens to the producer surplus with tightening labor conditions. A loose labor market consolidates capital. A tight market often creates competitive capital.

But by accepting the metrics popularized by Keynes as valid measures of success, we have instead become hostage to those who are able and willing to cravenly utilize them to gain wealth for themselves, at the expense of the commonweal. We have handed to them the ability to dictate to the country what is "good for us" and "bad for us".

Again this is a bomb. The goal of a Keynesian stimulus has nothing to do measuring success as an end in itself. Full employment is not "success". It is specifically used to consume labor to create infrastructure with idle labor and to hedge against monopoly capital's negotiating power to drive wages to subsistence.

We have to stop playing that game. It's rigged. And it's just as badly rigged by those who wave Keynes' flag as those who wave Friedman's. In truth, the same people provide the money to make both rags.



* Before I get jumped on for "not reading", I'll just point out that I'm fully aware that while Keynes did not invent GDP (that was Kuznetz), but I do claim that he and his work did popularize it, which resulted in it being the principal metric for assessing an economy today.

I think we need to be pragmatic, not idealistic in the positive or negative sense. I have few heros and villains in my stable of economists. They were not only a product of their time , but they were also often specifically insightful even when on the whole their entire system is not my cup of tea. Keynes helped fix the major flaw in classical economics. Another economist of that era Irving Fisher also did much in the way of private finance after his humiliation. Instead of being demonized he is forgotten on the same level as Henry George on both the scope of their insights and their disappearance.

[charliebrown]

Re: 'Consumers' Are Not Following Orders ?

does it make a difference that the goods purchased by mom and pop worker will be sent to buy a bunch of foreign manufactured goods,
and even the service economy is being out sourced?

[gwynedd1]

Re: 'Consumers' Are Not Following Orders ?

does it make a difference that the goods purchased by mom and pop worker will be sent to buy a bunch of foreign manufactured goods,
and even the service economy is being out sourced?

One of the arguments of Keynes more or less about those demand leakages. The rate of import was said to weaken the multiplier. However with trade I don't really see that point too much unless that is that nation is rolling it over into treasuries. Anyone ever ask the question of why say Japan or China needs to tax its citizens while accumulating foreign securities? Why no because that makes too much sense.

So anyway that was the idea of government spending which would not necessary start out buying olive oil. However again this is using his descriptive model which I see as more or less true in the context that was occurring. Since I have yet to see a Keynesian prescription for a few decades. During the oil embargo it was rather a joke in it implementation at that while Reaganomics concealed it. It is also true that his prescriptions were when there was a gold standard, a producer surplus, and with little private debt. So why does he keep coming up? He did not have to worry about the fact the the US is essentially a debtor nation , nor did he have to concern himself with fuelling a FIRE sector . We also have far fewer that can drop out of the economy , and homestead without mortgages to pay as we did when we were more rural. So I would not assume we even have his opinion in this context.