Gary North on Keynsian insanity

[bart]

Re: Gary North on Keynsian insanity

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I bother to split hairs for two reasons. First, I'm very tired of crooks and charlatans cloaking their snake oil with borrowed prestige. We should demonize the swindlers rather than the thinkers whose work and name they appropriate, and we should remember men for their own ideas. Second, to understand economics, we need to grasp both the mechanical and the human. I think it is useful to know that the major problem with Keynesian economics lies in the human sphere, because if the underlying mechanics is valid, it can still advance our understanding of economic relationships. We still need to understand how things work, even if a particular policy based upon that understanding is (or should be) barred to us by human nature.

Lastly, the volume of my posts notwithstanding, I am not widely or deeply read in economics. I mean no disrespect to anyone here by arguing my opinions, and I feel no disrespect to anyone, either. (Now, cross me on a matter of the physical sciences, and then I'll be a total a**hole!)

Very much agreed on the splitting of hairs, which is why I noted what I did about both Keynesian problems and an Austrian view which in my opinion is correct.

We're tracking just fine in the areas. The actual facts and real understanding have no substitute, and that includes being aware of spin as well as slimy human & manipulative factors that can apparently make it seem like the basics are wrong.

I'm probably less widely read than many might think, and part of it is intentional. After a certain point in almost any field of study (but especially the social sciences), going further tends to dilute and remove attention from the real basics... and I try to avoid getting too fascinated with the whichnesses of the whys.

[Raz]

Re: Gary North on Keynsian insanity

No. The prices of goods are too high. If demand isn't there that means prices need to come down until demand is seen.

The real problem is that many folks don't want prices to fall. Especially of labor.

If you study the Great D, you quickly see how heroic efforts were to raise prices of everything.

That is government's role.

That made the Great D much worse because the economy was not allowed the organic and natural adjustments it was in the process of making.

Same as today. Government supports "stimulus" to raise the prices of everything possible. Instead, prices should be allowed to fall.




The money that is created out of thin air removes purchasing power from the existing stock of money. Savers find their purchasing power has fallen by an equivalent amount as the amount of money created out of thin air.

This is rather simple if you think it through, no?

The problem is a matter of government trying socialist and populist approaches to bring prices higher than the market suggests prices should be. Government will fail, except to the extent of prolonging a crisis and making it much, much worse, and increasing the totalitarian scope of government in general so that we have fewer liberties.

Thank you for this post of rational, sensible thought. It used to be called "common sense". I studied Economics in college back in the early 1970s when most of the professors were Keynesian Nitwits. They thought that Lyndon Johnson was the greatest American President and that Everett Dirkson ("A Billion here and a Billion there, and pretty soon you're talking about REAL money!") just didn't understand the "modern economy". If spending money that we didn't have made for greatness then LBJ was the greatest. (Althought George W. Dumbass is certainly in the running for that prize.)These fools actually thought that the bill would never come due. It has.
And as soon as the vendor financing from China, Japan and Saudi Arabia comes to an end - so will the US Dollar.

[Starving Steve]

Re: Gary North on Keynsian insanity

food costs are quite elastic. If workers' wages fall, food costs will fall too. And workers can substitute cheaper food for more expensive food.

It is quite obvious when you come right down to it, and study what is going on: all efforts towards stimulus are frankly focused on raising prices that want to fall. Preventing the market price from happening, and instead putting in an artificial gubmint-mandated higher price.

FDR in the Great D was very frank about it. All efforts as soon as he got into office were made to raise food prices, raise wages, raise all prices. He succeeded, but of course this did not end the Great D, it only made it last far longer.

The depressed economy continued through World War 2, but the war pulled millions of young men out of the labor force. And after the war, of course, the US was the last country standing and benefited hugely from its status as the wealthiest country with the reserve currency.

Dear GrapeJelly:

While I agree that Keynsian economics can inflate the economy and compound the problems in an economy going thru a corrective deflationary recession like that of the Great Depression, the attitude of conservatives ( neo-cons included ) is to let people go without work until they starve. The result is that prices are not allowed to fall, and people are denied opportunities to work and produce.

While Keynsian economics may be mis-applied to govn't boondoggles, some of the best use of govn't funds was, indeed, during the Great Depression. The unemployed were put to work building the Hoover Dam, Bonneville Dam, the Tennessee Valley Authority projects, the SF-Oakland Bay Bridge, the Golden Gate Bridge, among other projects.

While a bail-out of the car companies in Detroit in our own time may be a profound mis-use of public funds, perhaps a use of public funds to build atomic power plants or tidal power plants or sea-water desalinization plants or to develop heavy oil projects, wind power on the Great Plains, or even a scheme to deepen and widen the St. Lawrence Seaway would be the best possible use of funds.

[LargoWinch]

Re: Gary North on Keynsian insanity

While I agree that Keynsian economics can inflate the economy and compound the problems in an economy going thru a corrective deflationary recession like that of the Great Depression, the attitude of conservatives ( neo-cons included ) is to let people go without work until they starve. The result is that prices are not allowed to fall, and people are denied opportunities to work and produce.

Starving Steve; what are neo-cons, Austrians and conservatives have in common as you suggest? Lumping all these three broad groups together is a recipe for disaster.

What tell you that people will "starve"? Our standard of living should be much greater than in the past, but somehow it is not due to the over-taxation from CBs via inflation which favors the wealthy owners/bankers. Be sure of one thing, people will not "starve", they should simply live within their economic output, which is much greater than subsistence in the developed world.

[The result is that prices are not allowed to fall]...
What side are you on? GJ is - I believe - advocating for price to reach "free market" levels without government disruptions; in other worlds overpriced assets to fall.

[grapejelly]

Re: Gary North on Keynsian insanity

While Keynsian economics may be mis-applied to govn't boondoggles, some of the best use of govn't funds was, indeed, during the Great Depression. The unemployed were put to work building the Hoover Dam, Bonneville Dam, the Tennessee Valley Authority projects, the SF-Oakland Bay Bridge, the Golden Gate Bridge, among other projects.

you are quite mistaken about this one, Starving. These are visible indications of employment, granted. But the invisible is far greater, and it consisted of years of huge economic hardship for millions of Americans, needless suffering due to government's misguided and dangerous attempts to mastermind the entire economy on a communist/socialist/fascist scale that was simply breathtaking.

And we are headed to exactly the same course today. Not a thing has changed. The outcome will be years of depression. All due to fighting the market for political reasons.

[mickeyc21]

Re: Gary North on Keynsian insanity

The idea that consumption is the driver of economic activity is the largest economic misconception that is popularly believed.
You MUST engage in a productive capacity before you consume in an economic system that will survive. It is extraordinary that people will argue a point like this after an economic collapse brought about by spending money that did not exist.
Ash your back ground in the physical sciences is making you look at economics from a mechanistic view point (you are smart enough to recognize this too which is very rare). Economics can never be divorced from the actions of people in groups which is why mechanical economic actions cannot work - even if they may make sense with a physical science frame work.
If governments are incapable of saving in times of plenty the entire idea of deficit spending is bankrupt.

[grapejelly]

Re: Gary North on Keynsian insanity

The idea that consumption is the driver of economic activity is the largest economic misconception that is popularly believed.
You MUST engage in a productive capacity before you consume in an economic system that will survive. It is extraordinary that people will argue a point like this after an economic collapse brought about by spending money that did not exist.
Ash your back ground in the physical sciences is making you look at economics from a mechanistic view point (you are smart enough to recognize this too which is very rare). Economics can never be divorced from the actions of people in groups which is why mechanical economic actions cannot work - even if they may make sense with a physical science frame work.
If governments are incapable of saving in times of plenty the entire idea of deficit spending is bankrupt.

just look at it in terms of costs dropping. Costs dropping quickly. What happens if costs keep dropping?

Answer: demand starts to kick in at some point.

Then once demand gets going, what happens to costs (prices)? They start to rise.

What is wrong with this picture?

Employees don't want their labor prices (wages) to fall.

Entrepreneurs don't want their prices to fall.

Farmers don't want their crops to fetch lower prices.

But so what?

The REAL reason that this is not allowed to happen (prices are not allowed to fall until demand re-asserts itself) is government using this "crisis" as a power grab to get yet more control over the economy.

Robert Higgs' Crisis and Leviathan spells this out...how gubmint uses these "crises" to ratchet up its hold over you and me.

AND, the other reason is that the borrowing costs for existing debts RISE and who is the biggest debtor of them all?

Hmmm?

Get the picture?

It isn't complicated.

Keynsian doctrine plays into the hands of the power grabbers perfectly. Just as communism and socialism plays into their hands. Same reasons. To ASH who says "Keynes was right but his doctrine has been abused by being selectively followed but also selectively ignored," I say: Marx was partially right too. Communism should work, but the people who run the system are corrupt. If they were better people, and if they paid strict attention and obedience to communist doctrine, there would be a worker's paradise."

When you get to this point "the doctrine works but the people aren't working it right," you have a flaw in your logic. I freely admit the same issue with Libertarianism. Nobody is willing to follow it, therefore it doesn't work.

[Munger]

Re: Gary North on Keynsian insanity

The idea that consumption is the driver of economic activity is the largest economic misconception that is popularly believed.
You MUST engage in a productive capacity before you consume in an economic system that will survive.

But one can borrow to pay people to produce. When they consume what they've produced, you can pay off the debt.

The thing you and GJ and the like miss is this: why does it makes sense to have 25% of the population sitting idle?

There is no reason to continue this conversation further until you can provide an answer this question without simply reiterating your conclusion that debt = bad, production and saving = good, consumption = bad.

[grapejelly]

Re: Gary North on Keynsian insanity

But one can borrow to pay people to produce. When they consume what they've produced, you can pay off the debt.

The thing you and GJ and the like miss is this: why does it makes sense to have 25% of the population sitting idle?

There is no such thing.

The ONLY reason for 25% of the population to sit idle is that wages are too high.

If wages are allowed to fall, there will be NO idleness. It is impossible.

Now, can borrowed-into-existence "money" somehow employ people at a higher wage than the market, without penalty to those who are saving, working and investing?

All printing money can do is further dilute existing stores of savings, and further diminish the real wages of everyone who is working or producing.

So you are penalizing those who are working and producing, and paying those whose services are not worth the too-high wages that are being offered.

Therein lies the problem and the reason for this nonsense to prolong and deepen what would be an ordinary garden variety business cycle and turn it into a lengthy depression.

Because penalizing those who are working/producing, and paying those who are not worth the wages they are being paid, simply produces even MORE unemployment and idleness...this time with those who would otherwise be working, but who are now earning LESS (in real terms) than those who would have been idle but who are on the gubmint payroll.

So you have PRODUCTIVE people who are suddenly idle, and UNPRODUCTIVE people who are working for a wage they are not worth.

To address this, the gubmint applies more "stimulus" and makes it even worse.

[mattley]

Re: Gary North on Keynsian insanity

It seems to me that with fractional reserve lending, the money associated with credit creation doesn't come from somebody giving up consumption... or, at least, only the tiniest fraction comes from somebody giving up consumption and the rest is generated out of thin air. The consumption that is being given up is the consumption tomorrow, when the debt that was created must be paid, and the marginal drop in consumption associated with the reduced purchasing power of existing money which was diluted by adding the newly-created credit to the money supply. (And, if you manage to create even more credit tomorrow, you can put off cutting consumption until the day after tomorrow... etc. etc. etc.) Not saying this is the best way to do things -- just that this is what actually happens. The bank isn't directly lending money that other people deposited as savings. The bank is creating credit from a much smaller base of reserves (which did partly come from savings). Right now, we're living through what happens when this game of perpetual credit expansion is interrupted.

I agree that a lot of credit comes out of thin air, and that supply can be increased at will by the central bank. My bad argument.

I don't agree that we're putting off the drop in consumption until tomorrow. If you want a tractor today, John Deere had to build it yesterday, and build the factory years ago. We can't say exactly what was not produced because John Deere made the tractor, but we know that *something* was given up. We cannot really borrow tractors from the future.

Part of my annoyance with quasi-Keynesians is that they talk (and maybe think) as though running a government deficit actually takes resources from the future and brings them to the present. It doesn't. It just rearranges the use of existing resources, allocating to new purposes different than they had, or would have found, in the market.

Nit-picking aside, I can accept your perspective about the use of language, with respect to whether a Keynsian is somebody who does what Keynes suggested, or somebody who claims to be doing what Keynes suggested. I suppose I would still call the crusaders of the middle ages "Christians", even if they weren't overly scrupulous in the application of his ideas.

However, since this is a website devoted to the study of economics, I suggest to you that we take a somewhat more precise approach to our use of language, where economic theory is concerned. Since I fall into the camp that thinks Keynsian counter-cyclical fiscal policies are a good idea in general, but that the bozos who only indulge in the first half of the policy have created this mess and are leading us to ruin, some distinction is required in order to carry on a conversation. I'm open to a counter-proposal.

To seriously discuss Keynes-as-Keynes I would need to read _General Theory_ and that ain't happening, at least not any time soon. Come up with a clever name for the bozos and I'll use it for now.

[vinoveri]

Re: Gary North on Keynsian insanity

I agree that a lot of credit comes out of thin air, and that supply can be increased at will by the central bank. My bad argument.

...
...

Part of my annoyance with quasi-Keynesians is that they talk (and maybe think) as though running a government deficit actually takes resources from the future and brings them to the present. It doesn't. It just rearranges the use of existing resources, allocating to new purposes different than they had, or would have found, in the market.

Running a government deficit is laying claims to the future laborers and wealth creators (assuming that the intent is to pay back the borrowed money). How anyone can view this as anything but heinously immoral is beyond me. Is it just for the children to be responsible for the debts of the parents ? Well maybe, if the parents had borrowed to send their kids to med school, but not if they borrowed to build mcmansions, and support their own standard of living.

If the intent is really never to pay of the debt incurred from deficit spending (and I think this has been shown to be the case over the last 25 years), but merely to service it and roll it over with depreciating $, then this is "inflation tax" on savers, investors, and their progeny (i.e., the future).

If person A borrows money, invests, builds a business, and pays back the debt with earnings from A' business, then all is well.

I gov X borrows/prints money to support the present status quo, and continues to run up the debt, then all is not well. Perhaps if the spending was targeted to infrastructure that we know would benefit future generations, it would be a bit more palatable.

[Starving Steve]

Re: Gary North on Keynsian insanity

Dear Grapejelly:

I totally disagree with you. Although I support the free market in principle, there are times when the free market would let people starve and deny them the opportunity to work and produce. These times when the free market just abandons people are unacceptable to me, and that is when government intervention is needed to promote jobs, to promote DE-flation, and to promote a reconstruction of the stagnent economy.

If it were left to the free market, we would still be taking private ferry boats to leave San Francisco. You need to read the story of how the Golden Gate Bridge got built, and it certainly was NOT by the private sector. The building of the G.G. Br. came about when people rebelled against the banks, against the ferries, and PUT UP THEIR OWN HOUSES IN S.F. AS SECURITY FOR THE FUNDS TO BUILD THE BRIDGE.

I am for whatever works best for people, and sometimes that is the free market, but sometimes that is government intervention. If we choose to go the govn't route, then we had better be smart about the intervention.

[Munger]

Re: Gary North on Keynsian insanity

There is no such thing.

The ONLY reason for 25% of the population to sit idle is that wages are too high.

/typical bald assertion sans evidence

If wages are allowed to fall, there will be NO idleness. It is impossible.

If you had taken the time to think this through or read some economic thought that was not from the Von Mises institute you would know better.

If all wages fall by a certain percentage, let's say 20%, then prices will have to fall at the same percentage, 20%. Canceling out any supposed employment gains.

Now, can borrowed-into-existence "money" somehow employ people at a higher wage than the market, without penalty to those who are saving, working and investing?

Fractional reserve banking.

All printing money can do is further dilute existing stores of savings, and further diminish the real wages of everyone who is working or producing.

So you are penalizing those who are working and producing, and paying those whose services are not worth the too-high wages that are being offered.

Therein lies the problem and the reason for this nonsense to prolong and deepen what would be an ordinary garden variety business cycle and turn it into a lengthy depression.

Because penalizing those who are working/producing, and paying those who are not worth the wages they are being paid, simply produces even MORE unemployment and idleness...this time with those who would otherwise be working, but who are now earning LESS (in real terms) than those who would have been idle but who are on the gubmint payroll.

So you have PRODUCTIVE people who are suddenly idle, and UNPRODUCTIVE people who are working for a wage they are not worth.

To address this, the gubmint applies more "stimulus" and makes it even worse.

Bah blah blah, productive vs. unproductive vs. consumptive etc etc ad nauseum strawman rinse repeat.

[grapejelly]

Re: Gary North on Keynsian insanity

bald assertion sans evidence, as is your wont.

The evidence is right in front of you.

There is infinite amount of work that can be done.

If people are idle, they either do not want to work, or are not worth the pay that someone would be able to give them for their work.

If someone is truly idle, that means they are not able to earn as much as the market is able to pay. With artificially high price controls on what labor can be paid, many people are not worth what employers are allowed to pay. So they are idle.

If all wages fall by a certain percentage, let's say 20%, then prices will have to fall at the same percentage, 20%. Canceling out any supposed employment gains.

That is ridiculous. Nothing falls all together like clockwork. Even if we grant your 25% idle, that means 75% are working.

If wages fall, prices do not all fall in tandem. Some wages will rise. Most will fall. Most prices will fall but some will rise. Not at the same rate by any means.

For awhile, some producers will find it quite profitable to employ cheaper labor and sell their products. If the price they can get for their wares declines, their outsized profits will decline to the mean.

If employers are permitted to hire these "25% idle", those who do employ them (at much lower wages) will enjoy outsized profits for awhile, in a similar fashion.

These profits will be reinvested and businesses will grow more prosperous. The "recovery" will begin.

Those who believe that government somehow creates something out of nothing are idiotic. Everything that government spends comes from productive actors who now have less to spend on productivity. Every dime the government spends takes money away from good voluntary uses, and applies it to coercion and compulsion, with winners and many losers.

Unfortunately, you penalize everyone with your schemes. Government spending imposes on me like a thief mugging me in the parking lot. There is nothing I can do about it but I don't have to like it.

[Starving Steve]

Re: Gary North on Keynsian insanity

If your thinking were correct, the private sector would have built the Golden Gate Bridge and the banks would have been competing with each other to fund the project. BUT THEY DID NOT. The people of San Francisco had to take it upon themselves (by mortgaging their own homes as collateral) to build the G.G. Bridge.

If your thinking were correct, George Bush and his Republican policies would have been a success story in the U.S. :rolleyes::rolleyes::confused:;)