John Maynard Keynes To The Rescue!

AnyOldIron

AnyOldIron

Atheist Missionary
We have a lot to thank John Maynard Keynes for at this moment in time.

[ame="http://en.wikipedia.org/wiki/John_Maynard_Keynes"]John Maynard Keynes - Wikipedia, the free encyclopedia@@AMEPARAM@@/wiki/File:John_Maynard_Keynes.jpg" class="image"><img alt="John Maynard Keynes.jpg" src="http://upload.wikimedia.org/wikipedia/commons/thumb/6/66/John_Maynard_Keynes.jpg/200px-John_Maynard_Keynes.jpg"@@AMEPARAM@@commons/thumb/6/66/John_Maynard_Keynes.jpg/200px-John_Maynard_Keynes.jpg[/ame]

Most of the world is emerging from a terrible market crash and a following recession. We should take stock and it is useful to compare this to the previous crash and fall in the 1920/30s.

When the Wall Street Crash occurred in October 1929, Herbert Hoover was in the White House. Hoover was an avowed follower of laissez faire neo-classical economics. He believed in government being 'hands off' and that markets would always self-right. When the crash occurred, Hoover, through economic dogmatism, failed to take any measures to defend the American economy and the crash hit hard. The loss of so much wealth in the American economy ruptured investment, which in turn caused unemployment. This in turn meant less consumption of American products. This resulted in further unemployment. And the cycle continued. And spread across the world.

Hence Hooverville.

[ame="http://en.wikipedia.org/wiki/Hooverville"]Hooverville - Wikipedia, the free encyclopedia@@AMEPARAM@@/wiki/File:Hoooverville_williamette.jpg" class="image"><img alt="" src="http://upload.wikimedia.org/wikipedia/commons/thumb/6/69/Hoooverville_williamette.jpg/270px-Hoooverville_williamette.jpg"@@AMEPARAM@@commons/thumb/6/69/Hoooverville_williamette.jpg/270px-Hoooverville_williamette.jpg[/ame]

At the time, the economist John Maynard Keynes suggested an alternative approach. He recognised that Adam Smith's 'Invisible Hand' was deeply fallible. It was failing. The markets hadn't settled of their own accord. They needed a hand.

Keynes suggested that rather than cut public spending, the government should increase, even if it means running a deficit. By securing banks and thus capital, and by investing in public spending, these actions would create jobs, give people income to buy products, which in turn increases employment.

Granted, when the economy was doing well, public investment should ease off, the markets allowed to develop and additional surplus income spent on reducing the deficit. Keynes suggested using public spending to settle the rocking ship of the economy.

During the current recession, world leaders didn't make the same neoclassical mistakes of Hoover and followed the sage advice of Keynes. On both sides of the Atlantic, when the crash happened thanks to laissez faire attitude of the finance markets (but that is another debate), governments acted to protect the economy and settle the ship. They guaranteed banks to protect capital, to the stage where here in Britain some banks were part nationalised.

The government then invested in public spending. In the UK, the government contributed to the funding of fixed term contract jobs, designed to tide people over until the economy picked up, amongst other investments. Investments like these have kept many lower paid people in an income, in the work frame of mind and consuming - vital to rebooting the economy.

And it has worked. The economies of both our countries aren't doing half as bad as was expected. In the UK, the economy is regrowing at a faster rate than expected, and unemployment has plateaued and is now falling.

http://news.bbc.co.uk/1/hi/business/8586761.stm
http://news.bbc.co.uk/1/hi/business/8594409.stm
http://news.bbc.co.uk/1/hi/business/8598689.stm

Whilst we are not back in the days of honey and sweetcakes, we are over the bridge.

One thing I have noticed about this crash and recession, thanks to John Maynard Keynes.

We don't have Hoovervilles.

:good4u:
 
The depression was a money supply issue, it dropped by 1/3 from 29-33. That is what caused a bad recession to become the Depression. Keynesian public spending didn't work, if it had it would not have lasted 15 years.

The current recession did not become a Depression because they did not let the money supply fall, if you want to thank an economist for that thank Milton Friedman {essentially part of what he won his Nobel for}. Keynesian public spending has not helped a bit in this recession and will hurt dearly when we pay back the borrowed money {with interest}.

The Government/Fed can take some credit for not letting things get as bad as they could have by pumping up M2, FDIC limit increases and opening the Discount Window to Investment banks.

So lets thank who needs to be thanked:

[youtube]O7pnjzCuSv8[/youtube]
 
Obfuscate said:
The depression was a money supply issue, it dropped by 1/3 from 29-33. That is what caused a bad recession to become the Depression. Keynesian public spending didn't work, if it had it would not have lasted 15 years.

The current recession did not become a Depression because they did not let the money supply fall, if you want to thank an economist for that thank Milton Friedman {essentially part of what he won his Nobel for}. Keynesian public spending has not helped a bit in this recession and will hurt dearly when we pay back the borrowed money {with interest}.

The Government/Fed can take some credit for not letting things get as bad as they could have by pumping up M2, FDIC limit increases and opening the Discount Window to Investment banks.

So lets thank who needs to be thanked:

[youtube]O7pnjzCuSv8[/youtube]
Click to expand...

Expanding the money supply works... until you reach the lower bound. Then you need straight Keynesian stimulus.
 
Obfuscate said:
The depression was a money supply issue, it dropped by 1/3 from 29-33.
Click to expand...

It wasn't so much a supply issue as a money flow issue. After the Crash in '29 American faith in their banking and finance sector dropped. What contributed to this was largely the scattered nature of the American banking system, lots of small banks with weak foundations. When people stopped investing after the crash, and saving with banks after the crash brought some banks down, banks had no capital to invest in loans to small businesses. Businesses started going to the wall due to cash flow and unemployment started to rise. The unemployed didn't have money to spend and so consumption fell. Which meant businesses weren't producing the turnover. Which led to higher unemployment. Capital simply wasn't flowing. This is the great flaw in Adam Smith's invisible hand, capitalism's Achilles' heel. If capital stops flowing, the markets dry up.

What was needed wasn't simply to print more money. That would lead to inflation and devaluation. What was needed was to start the pump going again. By firstly creating a sounder, regulated banking system that people could trust. Secondly by allowing people to earn, and to consume.

That is what caused a bad recession to become the Depression. Keynesian public spending didn't work, if it had it would not have lasted 15 years.
Click to expand...

The first time anything like Keynesian economics came to play in the US was the election of Roosevelt in 1933. He didn't finish passing his required legislation until 1937. The American economy received a massive boost in 1939 with the outbreak of WWII and its sales of equipment to us. During the two years it was fully in play, the economy picked up, from the dip of 1937 and was heading in the right direction.

We should remember that in the time of Hoover, and his neo-classical economics, unemployment in the US had jumped from 4% to 25%. Keynesian economics not only restarted the pump of capital, it made the depression a lot better for many Americans.

The current recession did not become a Depression because they did not let the money supply fall, if you want to thank an economist for that thank Milton Friedman {essentially part of what he won his Nobel for}. Keynesian public spending has not helped a bit in this recession and will hurt dearly when we pay back the borrowed money {with interest}.
Click to expand...

The deficit should always be reduced as much as possible in fruitful times, but paying that back then is far less painful than suffering an unchecked spiral of low investment, unemployment, lower purchasing power, lower profits, lower investment. Increasing the money supply simply increases inflation, as happened to the Tory government of Thatcher, under the chancellorship of Howe. Monetarism simply doesn't work in a recession.

The Government/Fed can take some credit for not letting things get as bad as they could have by pumping up M2, FDIC limit increases and opening the Discount Window to Investment banks.

So lets thank who needs to be thanked:

[youtube]O7pnjzCuSv8[/youtube]
Click to expand...


Again Monetarism doesn't work. It encourages a 'natural level of unemployment'. Unemployment causes lack of consumer power, which spins into lack of investment.

As happened under Howe. He introduced Monetarism and the country slipped almost immediately into recession.
 
AnyOldIron said:
I admire the work of Descartes, yet I am not Cartesian.

You got anything on the Keynesian / Neo-Classical debate or are we going to play twenty questions over my political outlook?
Click to expand...
Keynes was an economic failure; a lib-tard. Do you admire his theories or not?
 
AnyOldIron:

Get back to me when you understand what you are talking about. Hoover couldn't possibly be a Monetarist since the theory had yet to be invented, he also could hardly be one if he let the money supply drop by 33% in 4 years. He could also hardly be called a strict Classical economist when he passed Smoot Hawley.

Also, the natural rate of employment is also something you obviously don't understand and FYI the Keynesians have their own version called the Nairu which is basically the same thing. One thing to understand about the Nairu or Natural Rate is they could be near zero depending on conditions which makes your point moot.

Keynesian spending didn't work in the depression, didn't work in Japan and isn't working now. The shortest Recessions on record are the ones with the least Government involvemnt less Money policy.

The Govenment has the right and should make sure the money supply dos not decrease, which is the main reason we didn't have a depression now. If Keynesianism Fiscal spending worked why not burn down houses and pay people to rebuild them? That would stimulate the economy right?
 
Obfuscate said:
AnyOldIron:

Get back to me when you understand what you are talking about. Hoover couldn't possibly be a Monetarist since the theory had yet to be invented, he also could hardly be one if he let the money supply drop by 33% in 4 years. He could also hardly be called a strict Classical economist when he passed Smoot Hawley.

Also, the natural rate of employment is also something you obviously don't understand and FYI the Keynesians have their own version called the Nairu which is basically the same thing. One thing to understand about the Nairu or Natural Rate is they could be near zero depending on conditions which makes your point moot.

Keynesian spending didn't work in the depression, didn't work in Japan and isn't working now. The shortest Recessions on record are the ones with the least Government involvemnt less Money policy.

The Govenment has the right and should make sure the money supply dos not decrease, which is the main reason we didn't have a depression now. If Keynesianism Fiscal spending worked why not burn down houses and pay people to rebuild them? That would stimulate the economy right?
Click to expand...

I admire that you at least recongnize that the money supply needs to be expanded. There's so many economically illiterate gold bugs out there right now who think that expanding the money supply is a crime worse than murder.

But I disagree that the fiscal stimulus did nothing. It was an important part of the equation along with expanding the money supply. In fact, it was mostly what mopped up the money the fed had been creating; if not for the stimulus, the money just would've sat in the banks.
 
AnyOldIron said:
It wasn't so much a supply issue as a money flow issue. After the Crash in '29 American faith in their banking and finance sector dropped. What contributed to this was largely the scattered nature of the American banking system, lots of small banks with weak foundations. When people stopped investing after the crash, and saving with banks after the crash brought some banks down, banks had no capital to invest in loans to small businesses. Businesses started going to the wall due to cash flow and unemployment started to rise. The unemployed didn't have money to spend and so consumption fell. Which meant businesses weren't producing the turnover. Which led to higher unemployment. Capital simply wasn't flowing. This is the great flaw in Adam Smith's invisible hand, capitalism's Achilles' heel. If capital stops flowing, the markets dry up.

What was needed wasn't simply to print more money. That would lead to inflation and devaluation. What was needed was to start the pump going again. By firstly creating a sounder, regulated banking system that people could trust. Secondly by allowing people to earn, and to consume.



The first time anything like Keynesian economics came to play in the US was the election of Roosevelt in 1933. He didn't finish passing his required legislation until 1937. The American economy received a massive boost in 1939 with the outbreak of WWII and its sales of equipment to us. During the two years it was fully in play, the economy picked up, from the dip of 1937 and was heading in the right direction.

We should remember that in the time of Hoover, and his neo-classical economics, unemployment in the US had jumped from 4% to 25%. Keynesian economics not only restarted the pump of capital, it made the depression a lot better for many Americans.



The deficit should always be reduced as much as possible in fruitful times, but paying that back then is far less painful than suffering an unchecked spiral of low investment, unemployment, lower purchasing power, lower profits, lower investment. Increasing the money supply simply increases inflation, as happened to the Tory government of Thatcher, under the chancellorship of Howe. Monetarism simply doesn't work in a recession.




Again Monetarism doesn't work. It encourages a 'natural level of unemployment'. Unemployment causes lack of consumer power, which spins into lack of investment.

As happened under Howe. He introduced Monetarism and the country slipped almost immediately into recession.
Click to expand...

Modern keyneisianism takes a lot of ideas from the monetarists, Any.
 
BTW, FDR's new deal wasn't exactly Keynesian in nature. Keynes didn't really have a high opinion of FDR's economic credentials.

And probably the biggest difference between the American and Japanese situation is that we immediately went for a bailout. Japan did lower the interest rate a lot (just barely slower than America did in the same period), and they did apply stimulus. They did not have the results that we have had.
 
AnyOldIron said:
We have a lot to thank John Maynard Keynes for at this moment in time.


One thing I have noticed about this crash and recession, thanks to John Maynard Keynes.

We don't have Hoovervilles.

:good4u:
Click to expand...


I wonder why every single developed country on the entire planet employed some variation of Keynsian economics when the economic meltdown happened in 2008....rather than employing Sarah Palin's and the rightwing libertarian economist's theory of contracting public spending and slashing government outlays.


Is it possible that every single Finance ministry and government economic council on the entire planet is simply to stupid to see the awesomeness of the Austrian school of rightwing economics?
 
Cypress said:
I wonder why every single developed country on the entire planet employed some variation of Keynsian economics when the economic meltdown happened in 2008....
Click to expand...
My Mum used to have a saying: "If everyone's jumping off a bridge, does that mean that you should too?" Its been good advice.
 
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