Total Posts:48|Showing Posts:1-30|Last Page
Jump to topic:

Why Keynes Was Wrong

bballcrook21
Posts: 4,468
Add as Friend
Challenge to a Debate
Send a Message
7/25/2016 5:54:03 PM
Posted: 4 months ago
The Congressional Budget Office estimated that the U.S. budget deficit will reach $1.85 trillion in 2009 and $1.38 trillion in 2010, 13.1% and 9.6% of gross domestic product respectively. Much more worrying is that they project deficits averaging over $1 trillion a year for the next 10 years, which will raise the U.S. public debt-to-GDP ratio to over 80% by 2019.

The Obama administration and Congress have justified the vast new government borrowing and spending by asserting that it constitutes "fiscal stimulus." Not only would each dollar the government borrowed and spent produce a dollar of GDP that would never have been created had the dollar been left in private hands (a fiscal "multiplier" of 1.0), but it would stimulate a wave of new private sector spending, investment and employment that would generate 30, 40, 50 cents or more of additional new wealth per dollar (a multiplier above 1.0).

It is no wonder then that when President Obama told the public last month that stimulus projects were under budget, Nobel economist Paul Krugman cried "boo," pointing out that this meant "less stimulus." He backed his point with a quote from the 1936 General Theory of Employment, Interest and Money, in which John Maynard Keynes suggested that the government could raise employment, real income and capital wealth merely by burying money under rubbish heaps and inviting private enterprise to dig it up.

One of the many attractions of Keynes is that, like a good magician, he makes you think twice about what you think you see and know. And the General Theory is full of great tricks. Most people vaguely familiar with Keynes" economics associate his counter-laissez-faire views with the observation that nominal wages are "sticky" downward (that is, workers resist wage cuts), and that, in consequence, the free play of the price mechanism fails to steer the economy toward full employment.

But he goes well beyond this in the General Theory, arguing, contrary to classical economics, that even without assuming any fixing of prices there can be a stable, persistent equilibrium with chronic, large-scale unemployment.

How is this possible? Keynes said that the answer lies in the community"s propensity to under-consume: "The psychology of the community is such that when aggregate real income is increased, aggregate consumption is increased, but not by so much as income. Hence employers would make a loss if the whole of increased employment were to be devoted to satisfying the increased demand for immediate consumption."

That is, employers will only hire if the increased demand (which would be brought about by the hiring) would be directed at either consumption or investment. What economists before Keynes had missed, explains Krugman, is the significance of the fact that "individuals have the option of accumulating money rather than purchasing real goods and services." Or, as Keynes biographer Robert Skidelsky observes, "Money is the root of all evil." This, he writes, is "almost a sub-text of the General Theory."

A demand for money, in Keynes" thinking, is the equivalent of a demand for nothingness"in the sense that, when people want to hold money, the extra production arising from hiring a new worker would fail to find any market. Keynesians call it "ineffective demand."

So unless the government steps in to stimulate investment spending equivalent to the income aspiring workers would hoard, their aspirations would go unfulfilled and they would remain unemployed. Keynes" theory is therefore preternaturally consistent with good, humanist sentiments, as it implies that labor is manifestly not a commodity: Lowering its price will not increase demand.

But is this true? Does holding money really mean that part of the income required for the absorption of the production associated with it is permanently lost, which is what is required to create a permanent state of under-employment?

No. This is most easily seen using the model of a commodity money system, such as one based on gold. When people demand more money, rather than consumer or investment goods, it increases the demand for labor to mine, move and monetize gold. Unemployment rises, of course, when demand shifts from any product to another, as it takes time for labor to shift from one sector to another. But the demand for money is not "ineffective demand": It is no different from the demand for anything else.

The argument for the case of money that isn"t convertible into gold, such as our own, is analogous. The public sells securities, instead of gold, to the central bank in order to increase their cash holdings. Securities are the counterpart to valuable goods stored or sold on credit.

Again, there is no "ineffective demand": To demand money is to demand real wealth capable of being monetized within the framework of the existing monetary system. So just as increased demand for gold does not itself diminish the purchasing power of the market, an increased demand for money does not itself do so.

The skeptical reader will rightly conclude that the Keynesians must have a riposte to this argument. Indeed, they have many. But all of them are founded on ad hoc "sticky wages" type assumptions. Nobel economist James Tobin, for example, in a spirited 1948 defense of the General Theory, offered observations such as "the supply of money is assumed constant." Explain that to Ben Bernanke.

What does all this matter? That is, what should we do or not do today to get ourselves onto a sustainable path out of recession?

Well, there are two brands of remedy. The first are government measures intended to eliminate obstacles to the adaptation of supply to changing demand. This is the now much-maligned classical brand of remedy. The second are fiscal and other government measures designed to force demand to adapt to supply. This is the Keynesian brand of remedy, now beloved in Washington, based on the belief that under-employment is a congenital defect of the economic system.

Each huge dose of this second remedy serves to further obliterate the functioning of the price mechanism, thus necessitating another huge dose. In the long run, this almost certainly means crippling debt, inflation or both. But Keynes, of course, advised against thinking too much about the long run.
If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand. - Friedman

Underlying most arguments against the free market is a lack of belief in freedom itself. -Friedman

Nothing is so permanent as a temporary government program. - Friedman

Society will never be free until the last Democrat is strangled with the entrails of the last Communist.
bballcrook21
Posts: 4,468
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 12:56:50 AM
Posted: 4 months ago
Bump
If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand. - Friedman

Underlying most arguments against the free market is a lack of belief in freedom itself. -Friedman

Nothing is so permanent as a temporary government program. - Friedman

Society will never be free until the last Democrat is strangled with the entrails of the last Communist.
bballcrook21
Posts: 4,468
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 2:09:43 AM
Posted: 4 months ago
At 7/28/2016 2:08:32 AM, Greyparrot wrote:
At 7/28/2016 12:56:50 AM, bballcrook21 wrote:
Bump

One word.
Ponzi.

lol
If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand. - Friedman

Underlying most arguments against the free market is a lack of belief in freedom itself. -Friedman

Nothing is so permanent as a temporary government program. - Friedman

Society will never be free until the last Democrat is strangled with the entrails of the last Communist.
Greyparrot
Posts: 14,320
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 2:13:18 AM
Posted: 4 months ago
At 7/28/2016 2:09:43 AM, bballcrook21 wrote:
At 7/28/2016 2:08:32 AM, Greyparrot wrote:
At 7/28/2016 12:56:50 AM, bballcrook21 wrote:
Bump

One word.
Ponzi.

lol

You know it's true.
bballcrook21
Posts: 4,468
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 2:13:43 AM
Posted: 4 months ago
At 7/28/2016 2:13:18 AM, Greyparrot wrote:
At 7/28/2016 2:09:43 AM, bballcrook21 wrote:
At 7/28/2016 2:08:32 AM, Greyparrot wrote:
At 7/28/2016 12:56:50 AM, bballcrook21 wrote:
Bump

One word.
Ponzi.

lol

You know it's true.

Oh yeah, it is
If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand. - Friedman

Underlying most arguments against the free market is a lack of belief in freedom itself. -Friedman

Nothing is so permanent as a temporary government program. - Friedman

Society will never be free until the last Democrat is strangled with the entrails of the last Communist.
slo1
Posts: 4,359
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 12:11:46 PM
Posted: 4 months ago
At 7/25/2016 5:54:03 PM, bballcrook21 wrote:
The Congressional Budget Office estimated that the U.S. budget deficit will reach $1.85 trillion in 2009 and $1.38 trillion in 2010, 13.1% and 9.6% of gross domestic product respectively. Much more worrying is that they project deficits averaging over $1 trillion a year for the next 10 years, which will raise the U.S. public debt-to-GDP ratio to over 80% by 2019.

The Obama administration and Congress have justified the vast new government borrowing and spending by asserting that it constitutes "fiscal stimulus." Not only would each dollar the government borrowed and spent produce a dollar of GDP that would never have been created had the dollar been left in private hands (a fiscal "multiplier" of 1.0), but it would stimulate a wave of new private sector spending, investment and employment that would generate 30, 40, 50 cents or more of additional new wealth per dollar (a multiplier above 1.0).

It is no wonder then that when President Obama told the public last month that stimulus projects were under budget, Nobel economist Paul Krugman cried "boo," pointing out that this meant "less stimulus." He backed his point with a quote from the 1936 General Theory of Employment, Interest and Money, in which John Maynard Keynes suggested that the government could raise employment, real income and capital wealth merely by burying money under rubbish heaps and inviting private enterprise to dig it up.

One of the many attractions of Keynes is that, like a good magician, he makes you think twice about what you think you see and know. And the General Theory is full of great tricks. Most people vaguely familiar with Keynes" economics associate his counter-laissez-faire views with the observation that nominal wages are "sticky" downward (that is, workers resist wage cuts), and that, in consequence, the free play of the price mechanism fails to steer the economy toward full employment.

But he goes well beyond this in the General Theory, arguing, contrary to classical economics, that even without assuming any fixing of prices there can be a stable, persistent equilibrium with chronic, large-scale unemployment.

How is this possible? Keynes said that the answer lies in the community"s propensity to under-consume: "The psychology of the community is such that when aggregate real income is increased, aggregate consumption is increased, but not by so much as income. Hence employers would make a loss if the whole of increased employment were to be devoted to satisfying the increased demand for immediate consumption."

That is, employers will only hire if the increased demand (which would be brought about by the hiring) would be directed at either consumption or investment. What economists before Keynes had missed, explains Krugman, is the significance of the fact that "individuals have the option of accumulating money rather than purchasing real goods and services." Or, as Keynes biographer Robert Skidelsky observes, "Money is the root of all evil." This, he writes, is "almost a sub-text of the General Theory."

A demand for money, in Keynes" thinking, is the equivalent of a demand for nothingness"in the sense that, when people want to hold money, the extra production arising from hiring a new worker would fail to find any market. Keynesians call it "ineffective demand."

So unless the government steps in to stimulate investment spending equivalent to the income aspiring workers would hoard, their aspirations would go unfulfilled and they would remain unemployed. Keynes" theory is therefore preternaturally consistent with good, humanist sentiments, as it implies that labor is manifestly not a commodity: Lowering its price will not increase demand.

But is this true? Does holding money really mean that part of the income required for the absorption of the production associated with it is permanently lost, which is what is required to create a permanent state of under-employment?

No. This is most easily seen using the model of a commodity money system, such as one based on gold. When people demand more money, rather than consumer or investment goods, it increases the demand for labor to mine, move and monetize gold. Unemployment rises, of course, when demand shifts from any product to another, as it takes time for labor to shift from one sector to another. But the demand for money is not "ineffective demand": It is no different from the demand for anything else.

The argument for the case of money that isn"t convertible into gold, such as our own, is analogous. The public sells securities, instead of gold, to the central bank in order to increase their cash holdings. Securities are the counterpart to valuable goods stored or sold on credit.

Again, there is no "ineffective demand": To demand money is to demand real wealth capable of being monetized within the framework of the existing monetary system. So just as increased demand for gold does not itself diminish the purchasing power of the market, an increased demand for money does not itself do so.

The skeptical reader will rightly conclude that the Keynesians must have a riposte to this argument. Indeed, they have many. But all of them are founded on ad hoc "sticky wages" type assumptions. Nobel economist James Tobin, for example, in a spirited 1948 defense of the General Theory, offered observations such as "the supply of money is assumed constant." Explain that to Ben Bernanke.

What does all this matter? That is, what should we do or not do today to get ourselves onto a sustainable path out of recession?

Well, there are two brands of remedy. The first are government measures intended to eliminate obstacles to the adaptation of supply to changing demand. This is the now much-maligned classical brand of remedy. The second are fiscal and other government measures designed to force demand to adapt to supply. This is the Keynesian brand of remedy, now beloved in Washington, based on the belief that under-employment is a congenital defect of the economic system.

Each huge dose of this second remedy serves to further obliterate the functioning of the price mechanism, thus necessitating another huge dose. In the long run, this almost certainly means crippling debt, inflation or both. But Keynes, of course, advised against thinking too much about the long run.

http://www.forbes.com...
bballcrook21
Posts: 4,468
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 4:51:00 PM
Posted: 4 months ago
At 7/28/2016 12:11:46 PM, slo1 wrote:
At 7/25/2016 5:54:03 PM, bballcrook21 wrote:
The Congressional Budget Office estimated that the U.S. budget deficit will reach $1.85 trillion in 2009 and $1.38 trillion in 2010, 13.1% and 9.6% of gross domestic product respectively. Much more worrying is that they project deficits averaging over $1 trillion a year for the next 10 years, which will raise the U.S. public debt-to-GDP ratio to over 80% by 2019.

The Obama administration and Congress have justified the vast new government borrowing and spending by asserting that it constitutes "fiscal stimulus." Not only would each dollar the government borrowed and spent produce a dollar of GDP that would never have been created had the dollar been left in private hands (a fiscal "multiplier" of 1.0), but it would stimulate a wave of new private sector spending, investment and employment that would generate 30, 40, 50 cents or more of additional new wealth per dollar (a multiplier above 1.0).

It is no wonder then that when President Obama told the public last month that stimulus projects were under budget, Nobel economist Paul Krugman cried "boo," pointing out that this meant "less stimulus." He backed his point with a quote from the 1936 General Theory of Employment, Interest and Money, in which John Maynard Keynes suggested that the government could raise employment, real income and capital wealth merely by burying money under rubbish heaps and inviting private enterprise to dig it up.

One of the many attractions of Keynes is that, like a good magician, he makes you think twice about what you think you see and know. And the General Theory is full of great tricks. Most people vaguely familiar with Keynes" economics associate his counter-laissez-faire views with the observation that nominal wages are "sticky" downward (that is, workers resist wage cuts), and that, in consequence, the free play of the price mechanism fails to steer the economy toward full employment.

But he goes well beyond this in the General Theory, arguing, contrary to classical economics, that even without assuming any fixing of prices there can be a stable, persistent equilibrium with chronic, large-scale unemployment.

How is this possible? Keynes said that the answer lies in the community"s propensity to under-consume: "The psychology of the community is such that when aggregate real income is increased, aggregate consumption is increased, but not by so much as income. Hence employers would make a loss if the whole of increased employment were to be devoted to satisfying the increased demand for immediate consumption."

That is, employers will only hire if the increased demand (which would be brought about by the hiring) would be directed at either consumption or investment. What economists before Keynes had missed, explains Krugman, is the significance of the fact that "individuals have the option of accumulating money rather than purchasing real goods and services." Or, as Keynes biographer Robert Skidelsky observes, "Money is the root of all evil." This, he writes, is "almost a sub-text of the General Theory."

A demand for money, in Keynes" thinking, is the equivalent of a demand for nothingness"in the sense that, when people want to hold money, the extra production arising from hiring a new worker would fail to find any market. Keynesians call it "ineffective demand."

So unless the government steps in to stimulate investment spending equivalent to the income aspiring workers would hoard, their aspirations would go unfulfilled and they would remain unemployed. Keynes" theory is therefore preternaturally consistent with good, humanist sentiments, as it implies that labor is manifestly not a commodity: Lowering its price will not increase demand.

But is this true? Does holding money really mean that part of the income required for the absorption of the production associated with it is permanently lost, which is what is required to create a permanent state of under-employment?

No. This is most easily seen using the model of a commodity money system, such as one based on gold. When people demand more money, rather than consumer or investment goods, it increases the demand for labor to mine, move and monetize gold. Unemployment rises, of course, when demand shifts from any product to another, as it takes time for labor to shift from one sector to another. But the demand for money is not "ineffective demand": It is no different from the demand for anything else.

The argument for the case of money that isn"t convertible into gold, such as our own, is analogous. The public sells securities, instead of gold, to the central bank in order to increase their cash holdings. Securities are the counterpart to valuable goods stored or sold on credit.

Again, there is no "ineffective demand": To demand money is to demand real wealth capable of being monetized within the framework of the existing monetary system. So just as increased demand for gold does not itself diminish the purchasing power of the market, an increased demand for money does not itself do so.

The skeptical reader will rightly conclude that the Keynesians must have a riposte to this argument. Indeed, they have many. But all of them are founded on ad hoc "sticky wages" type assumptions. Nobel economist James Tobin, for example, in a spirited 1948 defense of the General Theory, offered observations such as "the supply of money is assumed constant." Explain that to Ben Bernanke.

What does all this matter? That is, what should we do or not do today to get ourselves onto a sustainable path out of recession?

Well, there are two brands of remedy. The first are government measures intended to eliminate obstacles to the adaptation of supply to changing demand. This is the now much-maligned classical brand of remedy. The second are fiscal and other government measures designed to force demand to adapt to supply. This is the Keynesian brand of remedy, now beloved in Washington, based on the belief that under-employment is a congenital defect of the economic system.

Each huge dose of this second remedy serves to further obliterate the functioning of the price mechanism, thus necessitating another huge dose. In the long run, this almost certainly means crippling debt, inflation or both. But Keynes, of course, advised against thinking too much about the long run.

http://www.forbes.com...

Yeah, I know. I copied and pasted it over here to start a discussion on Keynes.
If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand. - Friedman

Underlying most arguments against the free market is a lack of belief in freedom itself. -Friedman

Nothing is so permanent as a temporary government program. - Friedman

Society will never be free until the last Democrat is strangled with the entrails of the last Communist.
triangle.128k
Posts: 3,673
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 5:04:47 PM
Posted: 4 months ago
At 7/28/2016 4:51:00 PM, bballcrook21 wrote:
At 7/28/2016 12:11:46 PM, slo1 wrote:
At 7/25/2016 5:54:03 PM, bballcrook21 wrote:
The Congressional Budget Office estimated that the U.S. budget deficit will reach $1.85 trillion in 2009 and $1.38 trillion in 2010, 13.1% and 9.6% of gross domestic product respectively. Much more worrying is that they project deficits averaging over $1 trillion a year for the next 10 years, which will raise the U.S. public debt-to-GDP ratio to over 80% by 2019.

The Obama administration and Congress have justified the vast new government borrowing and spending by asserting that it constitutes "fiscal stimulus." Not only would each dollar the government borrowed and spent produce a dollar of GDP that would never have been created had the dollar been left in private hands (a fiscal "multiplier" of 1.0), but it would stimulate a wave of new private sector spending, investment and employment that would generate 30, 40, 50 cents or more of additional new wealth per dollar (a multiplier above 1.0).

It is no wonder then that when President Obama told the public last month that stimulus projects were under budget, Nobel economist Paul Krugman cried "boo," pointing out that this meant "less stimulus." He backed his point with a quote from the 1936 General Theory of Employment, Interest and Money, in which John Maynard Keynes suggested that the government could raise employment, real income and capital wealth merely by burying money under rubbish heaps and inviting private enterprise to dig it up.

One of the many attractions of Keynes is that, like a good magician, he makes you think twice about what you think you see and know. And the General Theory is full of great tricks. Most people vaguely familiar with Keynes" economics associate his counter-laissez-faire views with the observation that nominal wages are "sticky" downward (that is, workers resist wage cuts), and that, in consequence, the free play of the price mechanism fails to steer the economy toward full employment.

But he goes well beyond this in the General Theory, arguing, contrary to classical economics, that even without assuming any fixing of prices there can be a stable, persistent equilibrium with chronic, large-scale unemployment.

How is this possible? Keynes said that the answer lies in the community"s propensity to under-consume: "The psychology of the community is such that when aggregate real income is increased, aggregate consumption is increased, but not by so much as income. Hence employers would make a loss if the whole of increased employment were to be devoted to satisfying the increased demand for immediate consumption."

That is, employers will only hire if the increased demand (which would be brought about by the hiring) would be directed at either consumption or investment. What economists before Keynes had missed, explains Krugman, is the significance of the fact that "individuals have the option of accumulating money rather than purchasing real goods and services." Or, as Keynes biographer Robert Skidelsky observes, "Money is the root of all evil." This, he writes, is "almost a sub-text of the General Theory."

A demand for money, in Keynes" thinking, is the equivalent of a demand for nothingness"in the sense that, when people want to hold money, the extra production arising from hiring a new worker would fail to find any market. Keynesians call it "ineffective demand."

So unless the government steps in to stimulate investment spending equivalent to the income aspiring workers would hoard, their aspirations would go unfulfilled and they would remain unemployed. Keynes" theory is therefore preternaturally consistent with good, humanist sentiments, as it implies that labor is manifestly not a commodity: Lowering its price will not increase demand.

But is this true? Does holding money really mean that part of the income required for the absorption of the production associated with it is permanently lost, which is what is required to create a permanent state of under-employment?

No. This is most easily seen using the model of a commodity money system, such as one based on gold. When people demand more money, rather than consumer or investment goods, it increases the demand for labor to mine, move and monetize gold. Unemployment rises, of course, when demand shifts from any product to another, as it takes time for labor to shift from one sector to another. But the demand for money is not "ineffective demand": It is no different from the demand for anything else.

The argument for the case of money that isn"t convertible into gold, such as our own, is analogous. The public sells securities, instead of gold, to the central bank in order to increase their cash holdings. Securities are the counterpart to valuable goods stored or sold on credit.

Again, there is no "ineffective demand": To demand money is to demand real wealth capable of being monetized within the framework of the existing monetary system. So just as increased demand for gold does not itself diminish the purchasing power of the market, an increased demand for money does not itself do so.

The skeptical reader will rightly conclude that the Keynesians must have a riposte to this argument. Indeed, they have many. But all of them are founded on ad hoc "sticky wages" type assumptions. Nobel economist James Tobin, for example, in a spirited 1948 defense of the General Theory, offered observations such as "the supply of money is assumed constant." Explain that to Ben Bernanke.

What does all this matter? That is, what should we do or not do today to get ourselves onto a sustainable path out of recession?

Well, there are two brands of remedy. The first are government measures intended to eliminate obstacles to the adaptation of supply to changing demand. This is the now much-maligned classical brand of remedy. The second are fiscal and other government measures designed to force demand to adapt to supply. This is the Keynesian brand of remedy, now beloved in Washington, based on the belief that under-employment is a congenital defect of the economic system.

Each huge dose of this second remedy serves to further obliterate the functioning of the price mechanism, thus necessitating another huge dose. In the long run, this almost certainly means crippling debt, inflation or both. But Keynes, of course, advised against thinking too much about the long run.

http://www.forbes.com...

Yeah, I know. I copied and pasted it over here to start a discussion on Keynes.

Ya could have linked the source you know...
slo1
Posts: 4,359
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 5:06:56 PM
Posted: 4 months ago
At 7/28/2016 4:51:00 PM, bballcrook21 wrote:
At 7/28/2016 12:11:46 PM, slo1 wrote:
At 7/25/2016 5:54:03 PM, bballcrook21 wrote:
The Congressional Budget Office estimated that the U.S. budget deficit will reach $1.85 trillion in 2009 and $1.38 trillion in 2010, 13.1% and 9.6% of gross domestic product respectively. Much more worrying is that they project deficits averaging over $1 trillion a year for the next 10 years, which will raise the U.S. public debt-to-GDP ratio to over 80% by 2019.

The Obama administration and Congress have justified the vast new government borrowing and spending by asserting that it constitutes "fiscal stimulus." Not only would each dollar the government borrowed and spent produce a dollar of GDP that would never have been created had the dollar been left in private hands (a fiscal "multiplier" of 1.0), but it would stimulate a wave of new private sector spending, investment and employment that would generate 30, 40, 50 cents or more of additional new wealth per dollar (a multiplier above 1.0).

It is no wonder then that when President Obama told the public last month that stimulus projects were under budget, Nobel economist Paul Krugman cried "boo," pointing out that this meant "less stimulus." He backed his point with a quote from the 1936 General Theory of Employment, Interest and Money, in which John Maynard Keynes suggested that the government could raise employment, real income and capital wealth merely by burying money under rubbish heaps and inviting private enterprise to dig it up.

One of the many attractions of Keynes is that, like a good magician, he makes you think twice about what you think you see and know. And the General Theory is full of great tricks. Most people vaguely familiar with Keynes" economics associate his counter-laissez-faire views with the observation that nominal wages are "sticky" downward (that is, workers resist wage cuts), and that, in consequence, the free play of the price mechanism fails to steer the economy toward full employment.

But he goes well beyond this in the General Theory, arguing, contrary to classical economics, that even without assuming any fixing of prices there can be a stable, persistent equilibrium with chronic, large-scale unemployment.

How is this possible? Keynes said that the answer lies in the community"s propensity to under-consume: "The psychology of the community is such that when aggregate real income is increased, aggregate consumption is increased, but not by so much as income. Hence employers would make a loss if the whole of increased employment were to be devoted to satisfying the increased demand for immediate consumption."

That is, employers will only hire if the increased demand (which would be brought about by the hiring) would be directed at either consumption or investment. What economists before Keynes had missed, explains Krugman, is the significance of the fact that "individuals have the option of accumulating money rather than purchasing real goods and services." Or, as Keynes biographer Robert Skidelsky observes, "Money is the root of all evil." This, he writes, is "almost a sub-text of the General Theory."

A demand for money, in Keynes" thinking, is the equivalent of a demand for nothingness"in the sense that, when people want to hold money, the extra production arising from hiring a new worker would fail to find any market. Keynesians call it "ineffective demand."

So unless the government steps in to stimulate investment spending equivalent to the income aspiring workers would hoard, their aspirations would go unfulfilled and they would remain unemployed. Keynes" theory is therefore preternaturally consistent with good, humanist sentiments, as it implies that labor is manifestly not a commodity: Lowering its price will not increase demand.

But is this true? Does holding money really mean that part of the income required for the absorption of the production associated with it is permanently lost, which is what is required to create a permanent state of under-employment?

No. This is most easily seen using the model of a commodity money system, such as one based on gold. When people demand more money, rather than consumer or investment goods, it increases the demand for labor to mine, move and monetize gold. Unemployment rises, of course, when demand shifts from any product to another, as it takes time for labor to shift from one sector to another. But the demand for money is not "ineffective demand": It is no different from the demand for anything else.

The argument for the case of money that isn"t convertible into gold, such as our own, is analogous. The public sells securities, instead of gold, to the central bank in order to increase their cash holdings. Securities are the counterpart to valuable goods stored or sold on credit.

Again, there is no "ineffective demand": To demand money is to demand real wealth capable of being monetized within the framework of the existing monetary system. So just as increased demand for gold does not itself diminish the purchasing power of the market, an increased demand for money does not itself do so.

The skeptical reader will rightly conclude that the Keynesians must have a riposte to this argument. Indeed, they have many. But all of them are founded on ad hoc "sticky wages" type assumptions. Nobel economist James Tobin, for example, in a spirited 1948 defense of the General Theory, offered observations such as "the supply of money is assumed constant." Explain that to Ben Bernanke.

What does all this matter? That is, what should we do or not do today to get ourselves onto a sustainable path out of recession?

Well, there are two brands of remedy. The first are government measures intended to eliminate obstacles to the adaptation of supply to changing demand. This is the now much-maligned classical brand of remedy. The second are fiscal and other government measures designed to force demand to adapt to supply. This is the Keynesian brand of remedy, now beloved in Washington, based on the belief that under-employment is a congenital defect of the economic system.

Each huge dose of this second remedy serves to further obliterate the functioning of the price mechanism, thus necessitating another huge dose. In the long run, this almost certainly means crippling debt, inflation or both. But Keynes, of course, advised against thinking too much about the long run.

http://www.forbes.com...

Yeah, I know. I copied and pasted it over here to start a discussion on Keynes.

I understand. I just added it to cite the source since you forgot it.
bballcrook21
Posts: 4,468
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 5:09:29 PM
Posted: 4 months ago
At 7/28/2016 5:06:56 PM, slo1 wrote:
At 7/28/2016 4:51:00 PM, bballcrook21 wrote:
At 7/28/2016 12:11:46 PM, slo1 wrote:
At 7/25/2016 5:54:03 PM, bballcrook21 wrote:
The Congressional Budget Office estimated that the U.S. budget deficit will reach $1.85 trillion in 2009 and $1.38 trillion in 2010, 13.1% and 9.6% of gross domestic product respectively. Much more worrying is that they project deficits averaging over $1 trillion a year for the next 10 years, which will raise the U.S. public debt-to-GDP ratio to over 80% by 2019.

The Obama administration and Congress have justified the vast new government borrowing and spending by asserting that it constitutes "fiscal stimulus." Not only would each dollar the government borrowed and spent produce a dollar of GDP that would never have been created had the dollar been left in private hands (a fiscal "multiplier" of 1.0), but it would stimulate a wave of new private sector spending, investment and employment that would generate 30, 40, 50 cents or more of additional new wealth per dollar (a multiplier above 1.0).

It is no wonder then that when President Obama told the public last month that stimulus projects were under budget, Nobel economist Paul Krugman cried "boo," pointing out that this meant "less stimulus." He backed his point with a quote from the 1936 General Theory of Employment, Interest and Money, in which John Maynard Keynes suggested that the government could raise employment, real income and capital wealth merely by burying money under rubbish heaps and inviting private enterprise to dig it up.

One of the many attractions of Keynes is that, like a good magician, he makes you think twice about what you think you see and know. And the General Theory is full of great tricks. Most people vaguely familiar with Keynes" economics associate his counter-laissez-faire views with the observation that nominal wages are "sticky" downward (that is, workers resist wage cuts), and that, in consequence, the free play of the price mechanism fails to steer the economy toward full employment.

But he goes well beyond this in the General Theory, arguing, contrary to classical economics, that even without assuming any fixing of prices there can be a stable, persistent equilibrium with chronic, large-scale unemployment.

How is this possible? Keynes said that the answer lies in the community"s propensity to under-consume: "The psychology of the community is such that when aggregate real income is increased, aggregate consumption is increased, but not by so much as income. Hence employers would make a loss if the whole of increased employment were to be devoted to satisfying the increased demand for immediate consumption."

That is, employers will only hire if the increased demand (which would be brought about by the hiring) would be directed at either consumption or investment. What economists before Keynes had missed, explains Krugman, is the significance of the fact that "individuals have the option of accumulating money rather than purchasing real goods and services." Or, as Keynes biographer Robert Skidelsky observes, "Money is the root of all evil." This, he writes, is "almost a sub-text of the General Theory."

A demand for money, in Keynes" thinking, is the equivalent of a demand for nothingness"in the sense that, when people want to hold money, the extra production arising from hiring a new worker would fail to find any market. Keynesians call it "ineffective demand."

So unless the government steps in to stimulate investment spending equivalent to the income aspiring workers would hoard, their aspirations would go unfulfilled and they would remain unemployed. Keynes" theory is therefore preternaturally consistent with good, humanist sentiments, as it implies that labor is manifestly not a commodity: Lowering its price will not increase demand.

But is this true? Does holding money really mean that part of the income required for the absorption of the production associated with it is permanently lost, which is what is required to create a permanent state of under-employment?

No. This is most easily seen using the model of a commodity money system, such as one based on gold. When people demand more money, rather than consumer or investment goods, it increases the demand for labor to mine, move and monetize gold. Unemployment rises, of course, when demand shifts from any product to another, as it takes time for labor to shift from one sector to another. But the demand for money is not "ineffective demand": It is no different from the demand for anything else.

The argument for the case of money that isn"t convertible into gold, such as our own, is analogous. The public sells securities, instead of gold, to the central bank in order to increase their cash holdings. Securities are the counterpart to valuable goods stored or sold on credit.

Again, there is no "ineffective demand": To demand money is to demand real wealth capable of being monetized within the framework of the existing monetary system. So just as increased demand for gold does not itself diminish the purchasing power of the market, an increased demand for money does not itself do so.

The skeptical reader will rightly conclude that the Keynesians must have a riposte to this argument. Indeed, they have many. But all of them are founded on ad hoc "sticky wages" type assumptions. Nobel economist James Tobin, for example, in a spirited 1948 defense of the General Theory, offered observations such as "the supply of money is assumed constant." Explain that to Ben Bernanke.

What does all this matter? That is, what should we do or not do today to get ourselves onto a sustainable path out of recession?

Well, there are two brands of remedy. The first are government measures intended to eliminate obstacles to the adaptation of supply to changing demand. This is the now much-maligned classical brand of remedy. The second are fiscal and other government measures designed to force demand to adapt to supply. This is the Keynesian brand of remedy, now beloved in Washington, based on the belief that under-employment is a congenital defect of the economic system.

Each huge dose of this second remedy serves to further obliterate the functioning of the price mechanism, thus necessitating another huge dose. In the long run, this almost certainly means crippling debt, inflation or both. But Keynes, of course, advised against thinking too much about the long run.

http://www.forbes.com...

Yeah, I know. I copied and pasted it over here to start a discussion on Keynes.

I understand. I just added it to cite the source since you forgot it.

Thank you. So far, no one wants to talk about it though :(
If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand. - Friedman

Underlying most arguments against the free market is a lack of belief in freedom itself. -Friedman

Nothing is so permanent as a temporary government program. - Friedman

Society will never be free until the last Democrat is strangled with the entrails of the last Communist.
Danielle
Posts: 21,330
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 5:35:29 PM
Posted: 4 months ago
At 7/28/2016 12:56:50 AM, bballcrook21 wrote:
Bump

Curious - which school of economic thought do you prefer?
President of DDO
slo1
Posts: 4,359
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 5:35:42 PM
Posted: 4 months ago
At 7/28/2016 5:09:29 PM, bballcrook21 wrote:

Thank you. So far, no one wants to talk about it though :(

I will later. On another note it is interesting both candidates are for public expenditures on infrastructure, which would have to come from deficit spending.

Since the article is pertaining to a recession or depression and the right gov response to a down turn. I think most people understand that labor is not a commodity. I'm not certain that wages are not sticky if just for the reason layoffs are the largest response to a down turn, but rarely are those who remain cut wages.

To compare to a commodity if you had a warehouse of aluminum and down turn drives prices down you can reduce your inventory (layoffs). but your new purchases of aluminum (reoccurring wages of labor) are going to be at the reduced market price rather than the same price you bought the aluminum X months ago.

It just logically feels that wages are sticky.
bballcrook21
Posts: 4,468
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 5:38:11 PM
Posted: 4 months ago
At 7/28/2016 5:35:29 PM, Danielle wrote:
At 7/28/2016 12:56:50 AM, bballcrook21 wrote:
Bump

Curious - which school of economic thought do you prefer?

Austrian/Chicago. I'm a mix between the two. Chicago's monetary policy paired with Austrian fiscal policy on everything else.
If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand. - Friedman

Underlying most arguments against the free market is a lack of belief in freedom itself. -Friedman

Nothing is so permanent as a temporary government program. - Friedman

Society will never be free until the last Democrat is strangled with the entrails of the last Communist.
Danielle
Posts: 21,330
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 5:39:18 PM
Posted: 4 months ago
At 7/28/2016 5:38:11 PM, bballcrook21 wrote:
Austrian/Chicago. I'm a mix between the two. Chicago's monetary policy paired with Austrian fiscal policy on everything else.

That's what I thought. But then I thought I saw you support Trump. So I got confused.
President of DDO
bballcrook21
Posts: 4,468
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 5:40:22 PM
Posted: 4 months ago
At 7/28/2016 5:39:18 PM, Danielle wrote:
At 7/28/2016 5:38:11 PM, bballcrook21 wrote:
Austrian/Chicago. I'm a mix between the two. Chicago's monetary policy paired with Austrian fiscal policy on everything else.

That's what I thought. But then I thought I saw you support Trump. So I got confused.

Oh yeah, I support Trump because of his policies not pertaining to economics.
If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand. - Friedman

Underlying most arguments against the free market is a lack of belief in freedom itself. -Friedman

Nothing is so permanent as a temporary government program. - Friedman

Society will never be free until the last Democrat is strangled with the entrails of the last Communist.
Danielle
Posts: 21,330
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 5:41:28 PM
Posted: 4 months ago
At 7/28/2016 5:40:22 PM, bballcrook21 wrote:
Oh yeah, I support Trump because of his policies not pertaining to economics.

Oh so you're not a fan of the Constitution? Then why do you pretend to like Ron Paul?
President of DDO
bballcrook21
Posts: 4,468
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 5:55:33 PM
Posted: 4 months ago
At 7/28/2016 5:41:28 PM, Danielle wrote:
At 7/28/2016 5:40:22 PM, bballcrook21 wrote:
Oh yeah, I support Trump because of his policies not pertaining to economics.

Oh so you're not a fan of the Constitution? Then why do you pretend to like Ron Paul?

lol
If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand. - Friedman

Underlying most arguments against the free market is a lack of belief in freedom itself. -Friedman

Nothing is so permanent as a temporary government program. - Friedman

Society will never be free until the last Democrat is strangled with the entrails of the last Communist.
bballcrook21
Posts: 4,468
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 6:21:43 PM
Posted: 4 months ago
At 7/28/2016 6:18:41 PM, Danielle wrote:
At 7/28/2016 5:55:33 PM, bballcrook21 wrote:
lol

lol yeah the Constitution is friggin hilarious

http://stream1.gifsoup.com...

wew you really got me there dani
If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand. - Friedman

Underlying most arguments against the free market is a lack of belief in freedom itself. -Friedman

Nothing is so permanent as a temporary government program. - Friedman

Society will never be free until the last Democrat is strangled with the entrails of the last Communist.
dylancatlow
Posts: 12,252
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 6:43:32 PM
Posted: 4 months ago
So Keynes' argument is that if workers spent the same proportion of their income no matter how high it got, then an increase in wages/employment would be self-sustaining because the additional expense for the employers would be met with proportionally higher demand (from the richer workers) and everything would be fine. But since savings rates go up as wages go up, this isn't so. And the point the author is trying to make is that an increased demand for money (in the form of savings) props up demand equally well because... people want to have lots of nice things to sell when people finally decide to spend their money?
Greyparrot
Posts: 14,320
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 7:07:24 PM
Posted: 4 months ago
At 7/28/2016 6:29:22 PM, Danielle wrote:
At 7/28/2016 6:21:43 PM, bballcrook21 wrote:
wew you really got me there dani

I know.

nice :D
Greyparrot
Posts: 14,320
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 7:10:12 PM
Posted: 4 months ago
At 7/28/2016 6:43:32 PM, dylancatlow wrote:
So Keynes' argument is that if workers spent the same proportion of their income no matter how high it got, then an increase in wages/employment would be self-sustaining because the additional expense for the employers would be met with proportionally higher demand (from the richer workers) and everything would be fine. But since savings rates go up as wages go up, this isn't so. And the point the author is trying to make is that an increased demand for money (in the form of savings) props up demand equally well because... people want to have lots of nice things to sell when people finally decide to spend their money?

If you got a window, I got a Keynes hammer to fix it for ya.
dylancatlow
Posts: 12,252
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 7:15:35 PM
Posted: 4 months ago
At 7/28/2016 7:10:12 PM, Greyparrot wrote:
At 7/28/2016 6:43:32 PM, dylancatlow wrote:
So Keynes' argument is that if workers spent the same proportion of their income no matter how high it got, then an increase in wages/employment would be self-sustaining because the additional expense for the employers would be met with proportionally higher demand (from the richer workers) and everything would be fine. But since savings rates go up as wages go up, this isn't so. And the point the author is trying to make is that an increased demand for money (in the form of savings) props up demand equally well because... people want to have lots of nice things to sell when people finally decide to spend their money?

If you got a window, I got a Keynes hammer to fix it for ya.

Swiper no swiping, please.
Greyparrot
Posts: 14,320
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 7:17:58 PM
Posted: 4 months ago
At 7/28/2016 7:15:35 PM, dylancatlow wrote:
At 7/28/2016 7:10:12 PM, Greyparrot wrote:
At 7/28/2016 6:43:32 PM, dylancatlow wrote:
So Keynes' argument is that if workers spent the same proportion of their income no matter how high it got, then an increase in wages/employment would be self-sustaining because the additional expense for the employers would be met with proportionally higher demand (from the richer workers) and everything would be fine. But since savings rates go up as wages go up, this isn't so. And the point the author is trying to make is that an increased demand for money (in the form of savings) props up demand equally well because... people want to have lots of nice things to sell when people finally decide to spend their money?

If you got a window, I got a Keynes hammer to fix it for ya.

Swiper no swiping, please.

Oh Man....
dylancatlow
Posts: 12,252
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 7:19:06 PM
Posted: 4 months ago
At 7/28/2016 7:17:58 PM, Greyparrot wrote:
At 7/28/2016 7:15:35 PM, dylancatlow wrote:
At 7/28/2016 7:10:12 PM, Greyparrot wrote:
At 7/28/2016 6:43:32 PM, dylancatlow wrote:
So Keynes' argument is that if workers spent the same proportion of their income no matter how high it got, then an increase in wages/employment would be self-sustaining because the additional expense for the employers would be met with proportionally higher demand (from the richer workers) and everything would be fine. But since savings rates go up as wages go up, this isn't so. And the point the author is trying to make is that an increased demand for money (in the form of savings) props up demand equally well because... people want to have lots of nice things to sell when people finally decide to spend their money?

If you got a window, I got a Keynes hammer to fix it for ya.

Swiper no swiping, please.



Oh Man....

Fvck that cloud...fox lives matter.
slo1
Posts: 4,359
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 9:08:46 PM
Posted: 4 months ago
At 7/28/2016 7:10:12 PM, Greyparrot wrote:
At 7/28/2016 6:43:32 PM, dylancatlow wrote:
So Keynes' argument is that if workers spent the same proportion of their income no matter how high it got, then an increase in wages/employment would be self-sustaining because the additional expense for the employers would be met with proportionally higher demand (from the richer workers) and everything would be fine. But since savings rates go up as wages go up, this isn't so. And the point the author is trying to make is that an increased demand for money (in the form of savings) props up demand equally well because... people want to have lots of nice things to sell when people finally decide to spend their money?

If you got a window, I got a Keynes hammer to fix it for ya.

The window fallacy is a fallacy. Savings only results in economic growth if it is loaned to someone else for something else. In other terms, if the money is under the mattress then by all means break the windows for economic growth.

You know when all the money was under the mattress? Great Recession. The LIBOR went so high banks were not even lending to other banks. All the savings and assets sat under mattresses and the Fed had to go break some windows.
Greyparrot
Posts: 14,320
Add as Friend
Challenge to a Debate
Send a Message
7/28/2016 9:32:25 PM
Posted: 4 months ago
At 7/28/2016 9:08:46 PM, slo1 wrote:
At 7/28/2016 7:10:12 PM, Greyparrot wrote:
At 7/28/2016 6:43:32 PM, dylancatlow wrote:
So Keynes' argument is that if workers spent the same proportion of their income no matter how high it got, then an increase in wages/employment would be self-sustaining because the additional expense for the employers would be met with proportionally higher demand (from the richer workers) and everything would be fine. But since savings rates go up as wages go up, this isn't so. And the point the author is trying to make is that an increased demand for money (in the form of savings) props up demand equally well because... people want to have lots of nice things to sell when people finally decide to spend their money?

If you got a window, I got a Keynes hammer to fix it for ya.

The window fallacy is a fallacy. Savings only results in economic growth if it is loaned to someone else for something else. In other terms, if the money is under the mattress then by all means break the windows for economic growth.

You know when all the money was under the mattress? Great Recession. The LIBOR went so high banks were not even lending to other banks. All the savings and assets sat under mattresses and the Fed had to go break some windows.

So that's how robbing peter to pay paul all started... thanks!
capob
Posts: 73
Add as Friend
Challenge to a Debate
Send a Message
7/29/2016 12:05:52 AM
Posted: 4 months ago
First, I'd like to mention, the article is horribly written, and the quotes are likewise horrible. It's like Hegel describing some simple arrangement of wooden play blocks.

At 7/28/2016 6:43:32 PM, dylancatlow wrote:
So Keynes' argument is that if workers spent the same proportion of their income no matter how high it got, then an increase in wages/employment would be self-sustaining because the additional expense for the employers would be met with proportionally higher demand (from the richer workers) and everything would be fine. But since savings rates go up as wages go up, this isn't so. And the point the author is trying to make is that an increased demand for money (in the form of savings) props up demand equally well because... people want to have lots of nice things to sell when people finally decide to spend their money?

You are right about Keyne's point, but you are wrong about the author's point. The author's point is, when people want more gold, miners dig more, and in the same way, when people want more paper money, they sell securities. However, the author was either being obtuse or intentionally simplifying the case, as most people don't hold securities, and the analogy between gold and paper money would require that the central bank observe and react to the market demand for paper (which, in a fashion, it does).

I would, perhaps, lean towards the insanity of the author from his attempt to bind this topic with "The second are fiscal and other government measures designed to force demand to adapt to supply. ". As I understand it, the idea of stimulating the economy through government programs is not related to the notion of the savers' desire to save money. Perhaps he thinks that the government thinks the economy isn't moving because savers are demanding money, and in response, the fed is doing quantitative easing to meet the saver's demand. But, to me, this is insanity. I've never heard the fed explain the reasons for QE as being this (I don't regularly listen to the fed, so I might have missed it), and there are other reasons for QE and lowering interest rates that are entirely apart from this savers' desire point.