Why Keynes was wrong; and why it matters.

[Gan]

The Congressional Budget Office estimates that the U.S. budget deficit will reach $1.85 trillion this year 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.

Benn Steil is director of international economics at the Council on Foreign Relations, author of Lessons of the Financial Crisis (http://www.cfr.org/publication/18753) (CFR) and co-author of Money, Markets, and Sovereignty (http://www.amazon.com/Markets-Sovereignty-Council-Foreign-Relations/dp/0300149247) (Yale University Press, 2009).

http://www.forbes.com/2009/05/15/unemployment-income-consumption-opinions-contributors-keynes_print.html

as cross posted on RCP
__________________________________________________ _________

A very interesting article about some fundamentals behind the theories that drive the differing economic philosophies of our current administration and our previous administration.

I cant say that I dont have my concerns. I cant say that at all. :(

[Daniel]

So wait,

This guy takes a model based upon the gold standard where "When people demand more money, rather than consumer or investment goods, it increases the demand for labor to mine, move and monetize gold" and then figures that the same thing applies today where reserves and value can be nothing more than zero's in a computer terminal?

lol.

Okay.

[Clove]

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.At least acknowledge the entire point made.

[Clove]

I'm not sure that the labor involved in the demand for money is equivalent to the labor involved in the production of other goods and services; it may be the most inefficient conversion, but it's an important point (demand for money does require labor) and I've never heard it satisfactorily addressed by Keynesian economists.

[Daniel]

At least acknowledge the entire point made.

Why? The entire point is predicated on an assumption that is absurdly false.

Any further effort to debate the point is a complete waste.

[Khariz]

Why? The entire point is predicated on an assumption that is absurdly false.

Any further effort to debate the point is a complete waste.

ROFL. I'm not talking about this thread when I say this, but:

Your little quote here is what is wrong with 75%+ of all the political threads on this board. Usually one side just isn't willing to acknowledge the truth of the statement though, as they are so hung up on the idea that their position might actually have value that they can't see the absurdity of it.
:rofl:

[Daniel]

ROFL. I'm not talking about this thread when I say this, but:

Your little quote here is what is wrong with 75%+ of all the political threads on this board. Usually one side just isn't willing to acknowledge the truth of the statement though, as they are so hung up on the idea that their position might actually have value that they can't see the absurdity of it.
:rofl:

If you want to provide empirical evidence that holding money in banks today creates demand on services, feel free.

However, the argument as presented rests on a model that presupposes a standard which has not been used in the US for some time. I'm sure Switzerland will find this article interesting.


As is, why would I waste my time trying to refute an argument that is nothing more than political wishful thinking?

[Khariz]

If you want to provide empirical evidence that holding money in banks today creates demand on services, feel free.

However, the argument as presented rests on a model that presupposes a standard which has not been used in the US for some time. I'm sure Switzerland will find this article interesting.


As is, why would I waste my time trying to refute an argument that is nothing more than political wishful thinking?

Like I said...I wasn't talking about this thread. Just making a general statement. I'm just pointing out the general irony that pretty much everything is equally as absurd to discuss in the grand scheme of things (especially on this board). Conversations here almost always start with a false premise (or a purposely oversimplified one that causes the argument to border on started on a false premise). The problem is, one side usually thinks the premise is sound (I'm guilty of this as well).

[Bhuryn]

Austrians School, Hoooooooooooo!

[Clove]

Why? The entire point is predicated on an assumption that is absurdly false.

Any further effort to debate the point is a complete waste.If people were stuffing cash in matresses or throwing it all into savings accounts (and nothing more was involved) it would be absurdly false. That isn't what the writer of the article was insinuating (and it's not what happens in our economy). If you can't recognize that, I'm not going to waste my time spelling it out for you.

[Daniel]

If people were stuffing cash in matresses or throwing it all into savings accounts (and nothing more was involved) it would be absurdly false. That isn't what the writer of the article was insinuating (and it's not what happens in our economy). If you can't recognize that, I'm not going to waste my time spelling it out for you.

Feel free to explain to me how my stimulus check going electronically from the government to my bank account and sitting there creates a job.

[Clove]

Feel free to explain to me how my stimulus check going electronically from the government to my bank account and sitting there creates a job.What's in it for me? If you don't grasp the points the author of the article was making, that's fine by me.

[Gan]

Woooosh!

What Dannyboy wants to gloss over is the mention of Krugman's critique and point of similarity of our current fiscal policy and previous Keynesian attempts to stimulate the economy with egregious spending. What Krugman doesn't mention is that this spending is independant and in addition to the Iraq and Afghanastan war expenditures.

Bottom line is that the massive borrowing and spending do not constitute fiscal stimulous.

The authors use of a commodity system model (gold) merely demonstrates how the Keynesian philosophy is out of touch with our type of economy today.

Danny's DQ of the rest of the article based on the use of that model is just another sad attempt to troll a thread.

The authors credentials (and Krugmans) are slightly more credible than Danny's.

;)

[Daniel]

What's in it for me? If you don't grasp the points the author of the article was making, that's fine by me.

You seem to be missing the point of this whole "political minority" thing. If you want people to believe your points then you need to make them coherent and relevant, to say nothing of "backed by empirical evidence". The onus is not on the people doing something else to make your points for you.

[Daniel]

Woooosh!

What Dannyboy wants to gloss over is the mention of Krugman's critique and point of similarity of our current fiscal policy and previous Keynesian attempts to stimulate the economy with egregious spending. What Krugman doesn't mention is that this spending is independant and in addition to the Iraq and Afghanastan war expenditures.

Bottom line is that the massive borrowing and spending do not constitute fiscal stimulous.

The authors use of a commodity system model (gold) merely demonstrates how the Keynesian philosophy is out of touch with our type of economy today.

Danny's DQ of the rest of the article based on the use of that model is just another sad attempt to troll a thread.

The authors credentials (and Krugmans) are slightly more credible than Danny's.

;)


What?

The author is the one using the gold standard argument as a part of his central thesis.

Krugman is doing anything but arguing against fiscal stimulus.

Military spending is not the same as a fiscal stimulus as outlined by Krugman and Keynes.

If you are going to use "woosh" at least have a basic understanding of the arguments being made.

[Gan]

What?

The author is the one using the gold standard argument as a part of his central thesis.

Krugman is doing anything but arguing against fiscal stimulus.

Military spending is not the same as a fiscal stimulus as outlined by Krugman and Keynes.

If you are going to use "woosh" at least have a basic understanding of the arguments being made.

Reading comprehension FTL.

[radamanthys]

Reading comprehension FTL.

http://images.icanhascheezburger.com/completestore/2008/9/26/128669369425327629.jpg

[Clove]

You seem to be missing the point of this whole "political minority" thing. If you want people to believe your points then you need to make them coherent and relevant, to say nothing of "backed by empirical evidence". The onus is not on the people doing something else to make your points for you.The point made was coherent and relevant. Your criticism so far is "that doesn't make sense to me". I'm sorry if you don't understand it. I'm comfortable with that.

There is no onus on me. It wasn't my point and I'm not trying to convince you or tutor you about the subject matter the author was discussing. I only demanded that you describe the complete point when you criticize it (not half of it). For your reference the point was:

Demand for currency (whether backed by a material standard or not) creates a labor demand.

While we're on the subject, do you really think criticizing Keynesian economic theories is a minority position?

[Daniel]

The point made was coherent and relevant. Your criticism so far is "that doesn't make sense to me". I'm sorry if you don't understand it. I'm comfortable with that.

There is no onus on me. It wasn't my point and I'm not trying to convince you or tutor you about the subject matter the author was discussing. I only demanded that you describe the complete point when you criticize it (not half of it). For your reference the point was:

Demand for currency (whether backed by a material standard or not) creates a labor demand.

While we're on the subject, do you really think criticizing Keynesian economic theories is a minority position?

I can't believe you used all those words to say "I'm a jackass with nothing better to do with my time than hold internet grudges".

[Daniel]

Reading comprehension FTL.

No shit.

[Gan]

No shit.

Yea...

But not in the way you think. :(

[Bobmuhthol]

Krugman sucks and Mankiw is the bomb. And if anyone has heard of Scott Sumner (Krugman and Mankiw have both written about him), that guy is totally going to be my professor at some point!

But anyway, Keynes kind of invented macroeconomics, so yeah I'd say that criticizing his theories is a minority.

[Keller]

Don't most economists say that macroeconomics is a clusterfuck and no one actually knows anything?

It's a fun labratory science, but in reality it's impossible to have any level of certainty?

I certainly am not an economist (I took an economics class for a semester in high school; but I did do well on my micro AP exam). I do, however, listen to a weekly podcast (EconTalk) with a very conservative/Austrian-school host. He always says that macro is fun to talk about, but is of no practical use because of lack of certainty. I've never heard anyone disagree with him.

[Gan]

I disagree with the minority part regarding Keynesian theory.

If anything, supporting Keynesian theory in today's economic school of thought is a minority position, IMO. Was a minority position in my department, and dont even think about supporting Keynes at the University of Chicago... (see Monetarism)

Although, there are some opinions that post-financial crisis of this past year has led to a resurgence in JMK's theories. I'm not a fan, as if that has not been obvious enough in this thread. That being said, I'm far from saying that my ideals represent the majority.

[Bobmuhthol]

Monetary economics seems fucking insane to me. All of the arguments come down to "yeah, but the Fed fucked up, because if something went wrong it's a result of an imbalance of money." What happened to that monetarist theory that inflation and changes in the money supply grew at the same rate? Right, it was totally inaccurate.

Granted, the macroeconomics I learned was mostly indicators, identities, etc., with Keynesian theory thrown in and a little bit of LOLing at supply-side economics, and monetary economics is a required class for econ majors.

<<It's a fun labratory science, but in reality it's impossible to have any level of certainty?>>

Any level? No. There are definitely levels of certainty. The GDP falling, a macroeconomic issue, is pretty certain. How to fix it is not as clear because of the clashing schools of thought.

[Daniel]

and dont even think about supporting Keynes at the University of Chicago... (see Monetarism)


Lol.

Oh really?

[Gan]

Lol.

Oh really?

Yea, ask your mom...

[Daniel]

Yea, ask your mom...

Yea. I do need to call her.

In any event, you do realize that the dedication of a center to Milton Freedman caused such a stir among the faculty at the U of C that they convened an emergency session of the senate (or something like that) for the first time since debating to divest from South Africa?

No. Of course you didn't.

In any event, just because the U of C and your alma mater (U of Bumfuck Texas?) teach or don't teach certain things doesn't mean jack all about shit.

[Gan]

Yea. I do need to call her.

In any event, you do realize that the dedication of a center to Milton Freedman caused such a stir among the faculty at the U of C that they convened an emergency session of the senate (or something like that) for the first time since debating to divest from South Africa?

No. Of course you didn't.
Actually I did. What you failed to point out is that by 'faculty' you mean faculty other than that of the School of Economics.
Here's a list of the faculty that signed the petition. And the reson why the other faculty opposed such an investment into the Friedman institute (Not because it was a conflict against Keynesian economics).

You might want to check your facts a little better next time, dipshit.
http://www.stat.uchicago.edu/~amit/MFI/faculty_letter_on_MFI.html





In any event, just because the U of C and your alma mater (U of Bumfuck Texas?) teach or don't teach certain things doesn't mean jack all about shit.

oooooh burnnnnnn (am I supposed to be academically insulted here?)

:lol:

And food for thought...



The Chicago school of economics describes a neoclassical (http://en.wikipedia.org/wiki/Neoclassical_economics) school of thought (http://en.wikipedia.org/wiki/School_of_thought) within the academic community of economists (http://en.wikipedia.org/wiki/Economist), with a strong focus around the faculty of University of Chicago (http://en.wikipedia.org/wiki/University_of_Chicago), some of whom have constructed and popularized its principles. It is at times referred to as freshwater school of economics, in contrast to the saltwater school (http://en.wikipedia.org/wiki/Saltwater_school_(economics)) based in coastal universities (notably Harvard, MIT, and Berkeley). The Chicago school is associated with neoclassical price theory (http://en.wikipedia.org/wiki/Neoclassical_economics) and libertarianism (http://en.wikipedia.org/wiki/Libertarianism) in its support of radically lower taxation and private sector regulation, but differs from pure free-market economics (http://en.wikipedia.org/wiki/Free-market_economics) in its support of government-regulated monetary policy.
The school rejected Keynesianism (http://en.wikipedia.org/wiki/Keynesianism) in favor of monetarism (http://en.wikipedia.org/wiki/Monetarism) until the 1980s, when it turned to rational expectations (http://en.wikipedia.org/wiki/Rational_expectations). It has affected the field of finance (http://en.wikipedia.org/wiki/Finance) by the development of the efficient market hypothesis (http://en.wikipedia.org/wiki/Efficient_market_hypothesis). In terms of methodology the stress is on "positive economics" – that is, empirically based studies using statistics to prove theory.
Approximately 70% of the professors in the economics department have been considered part of the school of thought. The University of Chicago department, widely considered one of the world’s foremost economics departments, has fielded more Nobel Prize (http://en.wikipedia.org/wiki/Nobel_Prize) winners and John Bates Clark medalists (http://en.wikipedia.org/wiki/John_Bates_Clark_Medal) in economics than any other university.

70% of the population of the dept. of Econ at UC hardly represents a huge population of Keynesians...

Think about that. 70%, (seventy percent), (100% - 30%), (50% + 20%)

WOW!

.........

[Daniel]

Actually I did. What you failed to point out is that by 'faculty' you mean faculty other than that of the School of Economics.
Here's a list of the faculty that signed the petition. And the reson why the other faculty opposed such an investment into the Friedman institute (Not because it was a conflict against Keynesian economics).


You might want to check your facts a little better next time, dipshit.
http://www.stat.uchicago.edu/~amit/MFI/faculty_letter_on_MFI.html


Actually, no. I meant what I said. You found the letter that *started* the entire controversy. BTW, good job on the googling.

Now have fun catching up on the next 6 months of discussion.






oooooh burnnnnnn (am I supposed to be academically insulted here?)

:lol:

And food for thought...



70% of the population of the dept. of Econ at UC hardly represents a huge population of Keynesians...

Think about that. 70%, (seventy percent), (100% - 30%), (50% + 20%)

WOW!

.........

So, in other words it is entirely possible to walk on the campus as a Keynesian?

Thought as much.

[Keller]

So, in other words it is entirely possible to walk on the campus as a Keynesian?

Thought as much.

Keysanian's can walk on UoC's campus, but they can't THINK about supporting Keynes. That can only be done at Fredrico's Fair Trade Espresso Shop, off campus.

[Daniel]

Keysanian's can walk on UoC's campus, but they can't THINK about supporting Keynes. That can only be done at Fredrico's Fair Trade Espresso Shop, off campus.

Which is of course irrelevant. The same thing could be said for people and the Chicago School at any number of institutions.

The point of course is that there is a significant shift towards government intervention in economic cycles due to the failings of businesses to regulate themselves and provide fanancial stability.

[Gan]

Actually, no. I meant what I said. You found the letter that *started* the entire controversy. BTW, good job on the googling.

Now have fun catching up on the next 6 months of discussion.

So, in other words it is entirely possible to walk on the campus as a Keynesian?

Thought as much.

Actually the letter disproves your post quite nicely.


And tell me how Keynesians don't represent a minority at UC and specifically UC School of Econ?

...

[Keller]

Which is of course irrelevant. The same thing could be said for people and the Chicago School at any number of institutions.

The point of course is that there is a significant shift towards government intervention in economic cycles due to the failings of businesses to regulate themselves and provide fanancial stability.

No. Seriously.

There is a giant metnetic field around Hyde Park that prevents anyone from thinking about Keynesian economic theory at the UofC. That's actually how monetarism was established. There were a lot of thoughtless economists who had to dream up a macroeconomic theory from scratch because everything else they had previously learned wasn't accessable from their offices on campus.

[Clove]

Out of curiosity which leading economic schools place an emphasis on Keynesian theory?

[Bhuryn]

Maybe I missed someone saying it earlier, but what are they teaching these days?

[Daniel]

Actually the letter disproves your post quite nicely.


And tell me how Keynesians don't represent a minority at UC and specifically UC School of Econ?

...

The letter disproves what exactly?

[Gan]

Once again you've lost focus. Go back and reread the thread and try to pay attention this time.

Look for your post LOLing at my mention of UC and the lack of Keynesian supporters (meaning a minority). That would be a great starting point. Then you should figure out why the argument has led you to your last question of cluelessness.

And you can always call your mom to help explain it if necessary... I don't mind if you have help.

[Keller]

So now "don't think about supporting Keynes at UofC" means "UofC has a lack of Keynesian supports"?

Also, the letter you posted suggests that the faculty were trying to prevent such overblown, out-of-touch statements as "don't even think about supporting Keynes at UofC."

I'm not clear what it disproved, either.

[Gan]

So now "don't think about supporting Keynes at UofC" means "UofC has a lack of Keynesian supports"?
Within the framwork of the related discussion - look at more than just one sentence in the quote...

If anything, supporting Keynesian theory in today's economic school of thought is a minority position, IMO. Was a minority position in my department, and dont even think about supporting Keynes at the University of Chicago... (see Monetarism)



Also, the letter you posted suggests that the faculty were trying to prevent such overblown, out-of-touch statements as "don't even think about supporting Keynes at UofC."
Interesting interpretation, not one I agree with however. And more importantly, the letter more than demonstrates that the 'faculty' that was stirred up by the proposition of the institute was made up of faculty 'other than' that of the School of Economics - for which is the central point behind this whole stupid side argument about Keynesian being a majority theory or a minority theory in today's mainstream econ teaching. Which in turn goes back to the basic premise behind Danny's critique of the OP.

In any event, you do realize that the dedication of a center to Milton Freedman caused such a stir among the faculty at the U of C that they convened an emergency session of the senate (or something like that) for the first time since debating to divest from South Africa?.

[Daniel]

Interesting interpretation, not one I agree with however. And more importantly, the letter more than demonstrates that the 'faculty' that was stirred up by the proposition of the institute was made up of faculty 'other than' that of the School of Economics - for which is the central point behind this whole stupid side argument about Keynesian being a majority theory or a minority theory in today's mainstream econ teaching. Which in turn goes back to the basic premise behind Danny's critique of the OP.

Once again, Genius. You posted the initial letter that set off a 6 month + debate on campus. That is hardly sufficient proof that "no economics professor" was against the institute, which would be untrue. I won't even get into the fact that that's not specifically what I said nor is it even close to my critique of the OP.

[Keller]

Not to echo Daniel's point, but Alex is who you should be arguing with.

Daniel just pointed out it was silly to say that you shouldn't even think about supporting Keynes at U of C. (Maybe had you said something like, "it was a minority position at my school, and it is certainly a minority position at U of C.") If I told my wife, "We're on a budget; don't even THINK about going out to lunch this week," it doesn't mean she gets to go to one lunch as long as she eats 6 at home.

Daniel had the same response I did. Why be overly dramatic and try to claim (intentionally or imprecisely) that professors at U of C (I presume you meant in the econ department, but I'm not sure) should not even think about providing intellectual diversity within their department.

Which brings me to my last point: Maybe you should reread that letter and pay attention this time. (Why do we need to be raging dickholes?) The letter argues that by dedicating a building to Milton Friedman it gives the perception to the outside world that the UofC lacks intellectual diversity and is wholly committed to one school of economics.

[Clove]

None of which suggests that:

1) Daniel understands that savings and investment are indissolubably linked which is how you can have a demand for cash (where the average savings is negative) and an increase in labor (in the finance sector) despite a currency that isn't material based.

2) Keynesian economic theory is a majority position at E-Schools across the country.

Criticisizing Keynesian economics (which has flaws inadequately addressed by Keynesian supporters) is not a minority position; just as "lolz I don't get it, that's absurd" isn't a criticism. Observing that Chicago School economics isn't necessarily the majority view at all schools also doesn't imply that Keynesian economics is held in high regard in the academic community. While there may be some very smart people that support Keynesian theories; there are many more smart people out there that criticize them.

What Daniel is upset about is by criticizing them we criticize Obama's policies since his plan for economic recovery involves massive government spending combined with low taxes (a classic Keynes recovery strategy).

Keynes' "hoarding effect" doesn't address a recession that seems to have been generated by a post-boom commodities spike combined with a credit crisis. In addition I'm not sure what Keynes would have thought about dumping billions of dollars of cash into failed businesses. Buying cars, houses, swimming pools and educations; perhaps, but buying failed businesses isn't exactly "consumption".

[Gan]

Not to echo Daniel's point, but Alex is who you should be arguing with.

Daniel just pointed out it was silly to say that you shouldn't even think about supporting Keynes at U of C. (Maybe had you said something like, "it was a minority position at my school, and it is certainly a minority position at U of C.") If I told my wife, "We're on a budget; don't even THINK about going out to lunch this week," it doesn't mean she gets to go to one lunch as long as she eats 6 at home.

Daniel had the same response I did. Why be overly dramatic and try to claim (intentionally or imprecisely) that professors at U of C (I presume you meant in the econ department, but I'm not sure) should not even think about providing intellectual diversity within their department.

Which brings me to my last point: Maybe you should reread that letter and pay attention this time. (Why do we need to be raging dickholes?) The letter argues that by dedicating a building to Milton Friedman it gives the perception to the outside world that the UofC lacks intellectual diversity and is wholly committed to one school of economics.

Is this the point where I ask you why you're not over it yet?

[Gan]

None of which suggests that:

1) Daniel understands that savings and investment are indissolubably linked which is how you can have a demand for cash (where the average savings is negative) and an increase in labor (in the finance sector) despite a currency that isn't material based.

2) Keynesian economic theory is a majority position at E-Schools across the country.

Criticisizing Keynesian economics (which has flaws inadequately addressed by Keynesian supporters) is not a minority position; just as "lolz I don't get it, that's absurd" isn't a criticism. Observing that Chicago School economics isn't necessarily the majority view at all schools also doesn't imply that Keynesian economics is held in high regard in the academic community. While there may be some very smart people that support Keynesian theories; there are many more smart people out there that criticize them.

What Daniel is upset about is by criticizing them we criticize Obama's policies since his plan for economic recovery involves massive government spending combined with low taxes (a classic Keynes recovery strategy).

Keynes' "hoarding effect" doesn't address a recession that seems to have been generated by a post-boom commodities spike combined with a credit crisis. In addition I'm not sure what Keynes would have thought about dumping billions of dollars of cash into failed businesses. Buying cars, houses, swimming pools and educations; perhaps, but buying failed businesses isn't exactly "consumption".

At the risk of sounding like a cheerleader or labeling you one; you have hit the nail on the head sir.

:clap:

[Parkbandit]

What Daniel is upset about is by criticizing them we criticize Obama's policies since his plan for economic recovery involves massive government spending combined with low taxes (a classic Keynes recovery strategy).


It's unlikely that Obama's policy is to push for low taxes. It's quite the opposite, with the "wealthy" paying more and more of the lion's share and by allowing the Bush tax cuts to expire.

Cap and Trade, Card check and Universal Healthcare will also add to the current economic problems. Thankfully, my companies all deal with energy conservation.. so when Cap and Trade hits, people and companies will be BEGGING for my services.

[Keller]

Is this the point where I ask you why you're not over it yet?

If you want to, sure.

But I don't think I was ever upset that you misspoke. I just want you to admit that it was a silly thing to write, and that it was wrong.

[Clove]

It's unlikely that Obama's policy is to push for low taxes. It's quite the opposite, with the "wealthy" paying more and more of the lion's share and by allowing the Bush tax cuts to expire.We've already received a tax credit for 2009 and while that may not mean a net tax cut, Keynes also believed that poor (lower tax brackets) were more likely to consume income than the wealthy. Redistribution via taxing is also a pretty solid Keynes strategy.

[Daniel]

None of which suggests that:

1) Daniel understands that savings and investment are indissolubably linked which is how you can have a demand for cash (where the average savings is negative) and an increase in labor (in the finance sector) despite a currency that isn't material based.

2) Keynesian economic theory is a majority position (though its theories are taught) at E-Schools across the country. Criticisizing Keynesian economics (which has flaws inadequately addressed by Keynesian supporters) is not a minority position; just as "lolz I don't get it, that's absurd" isn't a criticism. Observing that Chicago School economics isn't necessarily the majority view at all schools also doesn't imply that Keynesian economics is held in high regard in the academic community.

While there may be some very smart people out there that support Keynesian theories; there are many more smart people out there that criticize them.

What Daniel is upset about is by criticizing them we criticize Obama's policies since his plan for economic recovery involves massive government spending combined with low taxes (a classic Keynes recovery strategy).

Keynes' "hoarding effect" doesn't address a recession that seems to have been generated by a post-boom commodities spike combined with a credit crisis. In addition I'm not sure what Keynes would have thought about dumping billions of dollars of cash into failed businesses. Buying cars, houses, swimming pools and educations; perhaps, but buying failed businesses isn't exactly "consumption".


Lol. You're post is pure comedy gold. Your comprehension of my argument and understanding of the issues at hand couldn't be more wrong. Then add in your misplaced interpretation of my motives for my argument and you have a whole lot of fail. Let's go through your major points.

1. Your assertation that I do not understand finance is laughable at best. For starters, you fail to understand even the basic premise being presented. Let me rehash the OP in terms you may find more accessible as you seemingly can not comprehend basic Public Policy papers.

The article itself is trying to support cash transfers (stimulus payments) by pointing out that opponents of the measure do not adequately take into account the demand derived from people saving money. The point of this is to suggest that there is no such thing as ineffective demand, a central assumption to the Keynesian model that advocates government intervention in the economy.

The rationale for this arguments stem from an old Keynesian critique that says that demand is derived through savings through an indirect method, namely through the neccesity of accumlating gold in order to maintain currency reserves via the gold standard.

Utilizing this argument in today's financial world is highly problematic primarily due to the fact that we do not utilize a gold standard and the situations being discussed are not exactly comparable. In order for it to be valid you would have to demonstrate a process through which people are required to do something (with compensation) in order to handle increased savings at financial institutions. To say nothing of the fact that the rationale for the current bailouts are not entirely Keynesian in nature. He is simply trying to distill down a nuanced argument and strategy to a very basic issue: should the government be involved in the economy.

I, obviously, think the basic premise of his argument is preposterous. Our financial system is so automated and there is such an economicy of scale in the production of money that the increased demand from zero dollars to X dollars is negligable. You, obviously, feel otherwise. That said, there is absolutely zero empirical evidence to support this argument. You can't even provide a logical explanation for it, let alone provide evidence to support it.

2. The issue has never been about Keynesian economics or not. The basic premise is whether or not government should or should not be an actor in the economy. If you really think this isn't being discussed and that there aren't significant amounts of people arguing for this, like say...China..or Europe, then you're delusional, ignorant or just plain stupid.

3. As cash transfers (stimulus payments) are a part of Obama's economic plan and I am obviously not enamored with them it doesn't really logically follow that I am defensively protecting "my guy".

4. Keynesian's views on investing in failed businesses or not is not relevant tot his discussion at all. You are conflating fiscal stimulus, cash transfers and the bailing out of industries. These are all distinct and seperate arguments and you make yourself look silly when you try and combine them into one.

[Daniel]

We've already received a tax credit for 2009 and while that may not mean a net tax cut, Keynes also believed that poor (lower tax brackets) were more likely to consume income than the wealthy. Redistribution via taxing is also a pretty solid Keynes strategy.

You really need to make up your mind about what you are arguing.

[Gan]

If you want to, sure.

But I don't think I was ever upset that you misspoke. I just want you to admit that it was a silly thing to write, and that it was wrong.

Why wouild I admit to such a fallacy?

[Clove]

So wait,

This guy takes a model based upon the gold standard where "When people demand more money, rather than consumer or investment goods, it increases the demand for labor to mine, move and monetize gold" and then figures that the same thing applies today where reserves and value can be nothing more than zero's in a computer terminal?

lol.

Okay.


You really need to make up your mind about what you are arguing.I think you need to read the article and learn about the financial system. I also think you meant "economy of scale".

The author was criticizing Keynes' concept of ineffective demand (hint: when he stated "there is no such thing as ineffective demand"). The idea that consumers could save cash instead of spend it or invest it. This was the hoarding Keynes spoke about. Unfortunately savings and investments are inexoriably linked and investments are linked to finance labor, much like gold is linked to mining labor. Really there's enough empirical evidence to support this. You don't get investments without investment bankers. This isn't an argument for stimulus payments or "priming the pump" (sound familiar).

It is impossible to discourage savings and encourage investments. Investments necessarily draw from savings, aside from utilizing bank credit (and we know how that ends up). When an individual saves he's merely balancing his utility of money with his time preferences (future consumption vs consumption today).

By the way the government is involved in the economy, but not necessarily in a manner that a Keynes supporter would advocate. The Fed.

[Bobmuhthol]

The Fed operates outside of the government, dude.

[Clove]

The Fed operates outside of the government, dude.The Fed is mandated by Congress. It's considered a quasi-governmental agency.

[Keller]

Why wouild I admit to such a fallacy?

Where is the fallacy?

[Gan]

Where is the fallacy?

In your post asking me to admit being silly and incorrect. Seriously, try to keep up.

[Daniel]

I think you need to read the article and learn about the financial system. I also think you meant "economy of scale".

The author was criticizing Keynes' concept of ineffective demand (hint: when he stated "there is no such thing as ineffective demand"). The idea that consumers could save cash instead of spend it or invest it. This was the hoarding Keynes spoke about. Unfortunately savings and investments are inexoriably linked and investments are linked to finance labor, much like gold is linked to mining labor. Really there's enough empirical evidence to support this. You don't get investments without investment bankers. This isn't an argument for stimulus payments or "priming the pump" (sound familiar).


If there is anything that this economic debacle has taught us, is that this is not true. The leverage and investments of people were not grounded in savings and if anything it shows that there is not a fundamental link between the amount of money you have saved and the amount you invest in todays economy.


If I was wrong you wouldn't have seen banks leveraged to the hilt trying more and more to make money.

That is the problem with this analysis.

[Clove]

One more time.

Leverage/=Investments
Savings=Investments

What do you think the result would be of simultaneously trying to discourage savings and encourage investments? Investing by leveraging bank credit?

:thinking:

[Daniel]

One more time.

Leverage/=Investments
Savings=Investments



...
wow.

[Clove]

...
wow.That's what I said when you took the following statement:

"You can't save without investing"

And turned into:

"You can invest without saving"

[Keller]

In your post asking me to admit being silly and incorrect. Seriously, try to keep up.

Now I think two apologies are in order.

I would ask you to explain why it was a fallacy, but you and I both know you couldn't do that.

Maybe I should just reread the thread slowly so I understand and then I can keep up.

[Cido]

I can't believe you used all those words to say "I'm a jackass with nothing better to do with my time than hold internet grudges".

Not saying I support the point, but this was hilarious. I might just add this to my toolkit of rebuttals.

[Xaerve]

Daniel I have a question: Are you ever going to run for office? I think you'd be a great fit.

[Bobmuhthol]

I don't really know what the hell is going on, but I will just throw in my support of Clove's point that savings = investment.

[Daniel]

That's what I said when you took the following statement:

"You can't save without investing"

And turned into:

"You can invest without saving"

It's not my fault you can't grasp the identity property.

[Keller]

I don't really know what the hell is going on

http://i2.photobucket.com/albums/y12/Dymefab/towlie.jpg

[Daniel]

Daniel I have a question: Are you ever going to run for office? I think you'd be a great fit.

I can't tell if this is underhanded or not. So, I'll answer honestly: No. I keep a rather ridiculous facebook page and have no illusions of ever being able to run for office, nor would I ever want to.

[Clove]

It's not my fault you can't grasp the identity property.Oh I grasp it, I don't think you do though. The Identity Property is x=1x. It looks like you were going to for Transitive (a=b and b=c then a=c).

[Clove]

Daniel I have a question: Are you ever going to run for office? I think you'd be a great fit.He's everything we've come to expect from years of government training.

[Gan]

Now I think two apologies are in order.

I would ask you to explain why it was a fallacy, but you and I both know you couldn't do that.

Maybe I should just reread the thread slowly so I understand and then I can keep up.
Asked and answered...

Following that advice would indeed be good medicine for you. And you really don't have to apologize to me. I don't take the comments made here personal.

[Keller]

Asked and answered...

Following that advice would indeed be good medicine for you. And you really don't have to apologize to me. I don't take the comments made here personal.

Not asked, and no where near answered. It would be impossible for you to answer because (1) it's clear you don't know what a fallacy is and (2) it was not a fallacy.

And I'm happy to admit when I'm wrong. I'm not.

[Daniel]

Oh I grasp it, I don't think you do though. The Identity Property is x=1x. It looks like you were going to for Transitive (a=b and b=c then a=c).

Or

Savings=Investment
Investment = Savings

[Clove]

Or

Savings=Investment
Investment = SavingsYou must not have heard of a set before. I'm done here, a facility of math is required prior to a discussion of a economics and finance.

By the way that's the Symmetric Property genius. The property you're looking for is the Reflexive Property.

[Tea & Strumpets]

Not asked, and no where near answered. It would be impossible for you to answer because (1) it's clear you don't know what a fallacy is and (2) it was not a fallacy.

And I'm happy to admit when I'm wrong. I'm not.

A fallacy is when someone says something and they are talking about their penis.

[Back]

A fallacy is when someone says something and they are talking about their penis.

I think you mean phallacy...

[Gan]

Not asked, and no where near answered. It would be impossible for you to answer because (1) it's clear you don't know what a fallacy is and (2) it was not a fallacy.

And I'm happy to admit when I'm wrong. I'm not.

Yes asked and answered. (1)A fallacy is an argument that is not logically sound - which describes your argument that I'm wrong and (2) it most assuredly was and still is a fallacy.

I'm sure you are happy to admit you're wrong - when you are open minded enough to recognize that you are wrong, which is not the case here.

PS. At this point I'm happy to keep goading you in to making more responses - because it relives some boredom.

[Keller]

Yes asked and answered. (1)A fallacy is an argument that is not logically sound - which describes your argument that I'm wrong and (2) it most assuredly was and still is a fallacy.

I'm sure you are happy to admit you're wrong - when you are open minded enough to recognize that you are wrong, which is not the case here.

PS. At this point I'm happy to keep goading you in to making more responses - because it relives some boredom.

The question was, had I asked it, "why is it a fallacy?" It was not asked. Further, it was not answered.

In addition, you've yet to address how saying "don't think about supporting Keynes at UofC" was not a mistaken attempt to say, "people who support Keynes are a minority in the economics department at the UofC." It was a lazy mistake on your part. And you're still trying to defend it, which humors me.

[Gan]

The question was, had I asked it, "why is it a fallacy?" It was not asked. Further, it was not answered.
I seem to have failed in getting you to actually go back and read for yourself. So lets just continue to yell "NO YOU!" at each other until one of us gets tired...



In addition, you've yet to address how saying "don't think about supporting Keynes at UofC" was not a mistaken attempt to say, "people who support Keynes are a minority in the economics department at the UofC." It was a lazy mistake on your part. And you're still trying to defend it, which humors me.
So you think that I meant that there were NO Keynesian's on the UofC campus when I said that - in the same context of arguing that Keynesian theory was not a majority school of thought amongst Schools of Econ that I chose to mention? LOL
Thats a pretty funny assumption on your part.

If I meant to say there were NO Keynesian supporters at UC then I would have stated so.

It must be really cool to live in the confines of your limited perception of conversation and social interaction.

Your turn.

[Keller]

I seem to have failed in getting you to actually go back and read for yourself. So lets just continue to yell "NO YOU!" at each other until one of us gets tired...


So you think that I meant . . .

No, I think you SAID that. I have a good idea what you meant, but you misspoke in a moment of imprecision.

Sort of like your inability to distinguish between questions beginning with "where" and "why". Words have meaning. If I mean to say something, I try to draft a sentence that makes sense and communicates precisely what I want to communicate. I assume others do the same when I read what others write. I guess we don't share that level of carefulness when it comes to writing and reading.

[Xaerve]

Keller, did you honestly pass the bar exam? Because if you did that honestly blows my fucking mind.

[Keller]

Keller, did you honestly pass the bar exam? Because if you did that honestly blows my fucking mind.

I think my attention to detail and my ability to clearly articulate my thoughts were helpful.

Consider your mind blown.

[Gan]

To quote Daniel...

"Wow"


:(