The Problem With keynesian economics

[ilia25]

They pressured Fed to keep inflation low

inflation will end this depression?? How?

By lowering real interest rates and encouraging investment.

dear, interest rates are already as low as the can go. THis is caled a liquidity trap. Sorry

And so you should be. I was talking real interest rates, which can go in the negative territory, unlike the nominal rates. And that is how inflation can help -- it pushes down the real rates even while the nominal rates are stuck at 0. And I did explained that difference to you in my previous post, but did you get it? Obviously not.

Likewise, explaining why the rest of your statements are wrong too would be a waste of my time.

 

[EdwardBaiamonte]

inflation will end this depression?? How?

By lowering real interest rates and encouraging investment.

dear, interest rates are already as low as the can go. THis is caled a liquidity trap. Sorry

And so you should be. I was talking real interest rates, which can go in the negative territory, unlike the nominal rates. And that is how inflation can help -- it pushes down the real rates even while the nominal rates are stuck at 0. And I did explained that difference to you in my previous post, but did you get it? Obviously not.

.

So are you saying the Fed should expand its balance sheet to say $4 trillion, hope for inflation, and not worry about the devastation to savings or the other huge distortions associated with infaltion that will recess the economy ???

Quote: Originally Posted by ilia25
Those are fairy tales Republicans use regularly to trick their dumb supporters. The crisis of 2008 did not cause the depression. The lack of response to the crisis did.


dear, BO had a super majority; he responded with a bailout and Tarp and cash for clunkers for good measure. sorry




Quote: Originally Posted by ilia25
And by threatening to force a default, they made clear that they will not allow any steps that could possibly help the economy to recover.


dear,putting a stop to rising debt does prevent a default. No debt no default.



Quote: Originally Posted by ilia25
Putting a stop to rising debt does not eliminate the existing debt. But it makes impossible to pay it off, hence the default.



dear, the less debt rises the less chance of default. Get it?? THe more debt you have the harder it is to pay off?? Still over your head??



Quote: Originally Posted by ilia25
Of course Republicans were never intended to make good on their threats. They are many things, but suicidal are not among them. They just wanted to bully Obama and blame the deficits on him -- and to that end they were very successful.


dear,of course deficits belong to liberals since Republicans have proposed many times that they be made illegal and Democrats have objected. Is that over your head too??

See why we are positive a liberal will be slow, very very slow??

 

[Rshermr]

Yeah, Ed. Those damned hard spending liberal dems. When was the last time there was a balanced budget. Surely a republican administration. Oh, sorry, it was in the CLINTON administration. Wasn't he a dem, Ed?

Then there was PayGo. The process in congress that did not allow spending if funds were not available. Set up in 1990 by a democratic congress. Went on through the Clinton admin, until the repubs took over congress in 2001. Dems re-instituted it in 2006, but it has no teeth now, thanks to republican push-back.

Deficit belongs to Liberals? Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha. I have not calculated it lately, but at the point Obama took office, 90% plus of the national debt was accrued during republican admins. In times of relatively good economies.

Really, ed, you should get out more often. Your head is getting stale. You must smell like a dead mouse.

and ed, this sentence is particularly pathetic:
dear, the less debt rises the less chance of default. Get it?? THe more debt you have the harder it is to pay off?? Still over your head??
First, most of the debt is to the US gov itself. So, do you thing the gov is going to sue itself?
Second, Ed, did you ever buy a car in the '70s? Notice it cost a lot less than a similar car today? So it is with the natl debt. What matters is what percentage it is of GNP, not its absolute size. And we are far from record ground there.
Third, what is the bigger problem, the national debt or unemployment. If you believe the latter, congratulations, you are in the same camp as over 95% of the us population.
Fourth, recessions typically don't go away until unemployment is under control. And that requires deficit spending, as even your hero, Reagan, understood.
We could go on, but I suspect I have already hurt your head. Can't wait for your profound response.

 

[Procrustes Stretched]

Yeah, Ed. Those damned hard spending liberal dems. When was the last time there was a balanced budget. Surely a republican administration. Oh, sorry, it was in the CLINTON administration. Wasn't he a dem, Ed?

Then there was PayGo. The process in congress that did not allow spending if funds were not available. Set up in 1990 by a democratic congress. Went on through the Clinton admin, until the repubs took over congress in 2001. Dems re-instituted it in 2006, but it has no teeth now, thanks to republican push-back.

Deficit belongs to Liberals? Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha. I have not calculated it lately, but at the point Obama took office, 90% plus of the national debt was accrued during republican admins. In times of relatively good economies.

Really, ed, you should get out more often. Your head is getting stale. You must smell like a dead mouse.

and ed, this sentence is particularly pathetic:
dear, the less debt rises the less chance of default. Get it?? THe more debt you have the harder it is to pay off?? Still over your head??
First, most of the debt is to the US gov itself. So, do you thing the gov is going to sue itself?
Second, Ed, did you ever buy a car in the '70s? Notice it cost a lot less than a similar car today? So it is with the natl debt. What matters is what percentage it is of GNP, not its absolute size. And we are far from record ground there.
Third, what is the bigger problem, the national debt or unemployment. If you believe the latter, congratulations, you are in the same camp as over 95% of the us population.
Fourth, recessions typically don't go away until unemployment is under control. And that requires deficit spending, as even your hero, Reagan, understood.
We could go on, but I suspect I have already hurt your head. Can't wait for your profound response.

thank you

 

[DSGE]

Right, so now you are against printing money?

dear, a little econ 101 for you, calls one day one. Conservatives are against printing enough to inflate the currency.

Edward, if you've ever actually passed econ 101, I'll eat my degree.

 

[CrusaderFrank]

Progressives cannot admit the failure of the Stimulus.

After WWII Paul Samuelson predicted the country would fall into another Depression because of the lack of government spending. He was as wrong as Krugman but being a Progressive economist means never having to say, "I was wrong in the trillion column --again"

 

[DSGE]

Progressives cannot admit the failure of the Stimulus.

After WWII Paul Samuelson predicted the country would fall into another Depression because of the lack of government spending. He was as wrong as Krugman but being a Progressive economist means never having to say, "I was wrong in the trillion column --again"

Yep, everybody was surprised the US didn't plunge back into Depression after WWII. And, not that I want to sound like I agree with Krugman, he did say from the very beginning that the stimulus was nowhere near large enough (if you read his blog he constantly links back to it). And if you read John Taylor's paper you'll see that the "stimulus" didn't actually stimulate anything. It wasn't used for government purchases (as is the Keynesian prescription). It was offset by states balancing their budgets and saving more.

So, to be clear, I am not a Keynesian. I just don't agree with your analysis.

 

[Polk]

Progressives cannot admit the failure of the Stimulus.

After WWII Paul Samuelson predicted the country would fall into another Depression because of the lack of government spending. He was as wrong as Krugman but being a Progressive economist means never having to say, "I was wrong in the trillion column --again"

Yep, everybody was surprised the US didn't plunge back into Depression after WWII. And, not that I want to sound like I agree with Krugman, he did say from the very beginning that the stimulus was nowhere near large enough (if you read his blog he constantly links back to it). And if you read John Taylor's paper you'll see that the "stimulus" didn't actually stimulate anything. It wasn't used for government purchases (as is the Keynesian prescription). It was offset by states balancing their budgets and saving more.

So, to be clear, I am not a Keynesian. I just don't agree with your analysis.

People were shocked when the nation didn't jump back in to a depression after the war because they put too much stock in the structural theories that were in vogue pre-war (and are coming back in to vogue today). That's they were wrong is a pretty positive sign. It means we engage in counter-cyclical spending to smooth demand without the need for an ever-rising debt.

And Taylor is a partisan hack. His own theory suggests interest rates should be negative right now, but he spends his days moaning that current rates are going to set off a wave of hyperinflation.

 

[DSGE]

And Taylor is a partisan hack. His own theory suggests interest rates should be negative right now, but he spends his days moaning that current rates are going to set off a wave of hyperinflation.

Oh I'm well aware that Taylor thinks some crazy shit, but this paper is sound. Here's the link if you want to check it out for yourself.

http://www.stanford.edu/~johntayl/Cogan Taylor multiplicand Jan 2011 rev.pdf

 

[Polk]

And Taylor is a partisan hack. His own theory suggests interest rates should be negative right now, but he spends his days moaning that current rates are going to set off a wave of hyperinflation.

Oh I'm well aware that Taylor thinks some crazy shit, but this paper is sound. Here's the link if you want to check it out for yourself.

http://www.stanford.edu/~johntayl/Cogan Taylor multiplicand Jan 2011 rev.pdf

The problem with that paper is that his argument doesn't really show what he thinks it shows. His argument is that it didn't have much impact because it just shifted what state and local governments did. Fair enough, but it misses the point they would have massively cut services in absence of stimulus. That creates a very different multiplier than his assumption that state and local government would have remained the same in the absence of stimulus.

 

[DSGE]

And Taylor is a partisan hack. His own theory suggests interest rates should be negative right now, but he spends his days moaning that current rates are going to set off a wave of hyperinflation.

Oh I'm well aware that Taylor thinks some crazy shit, but this paper is sound. Here's the link if you want to check it out for yourself.

http://www.stanford.edu/~johntayl/Cogan Taylor multiplicand Jan 2011 rev.pdf

The problem with that paper is that his argument doesn't really show what he thinks it shows. His argument is that it didn't have much impact because it just shifted what state and local governments did. Fair enough, but it misses the point they would have massively cut services in absence of stimulus. That creates a very different multiplier than his assumption that state and local government would have remained the same in the absence of stimulus.

Well no, his assertion is that in the absence of stimulus they would have expanded their budget deficits as usual. The same amount of spending would have occurred and services would have been retained, but state government budgets would have been deteriorated instead of federal. Federal stimulus money went to improving state budget positions rather than actually creating any new spending that wouldn't have happened otherwise.

A Keynesian response to that should be: "obviously, don't give aid to states. actually have the federal government purchase things (such as infrastructure)".

 

[Polk]

Except that state and local governments largely don't have the ability to find their budgets via borrowing. Hence why even more liberal states have been slashing budgets all over the place.

 

[DSGE]

Except that state and local governments largely don't have the ability to fund their budgets via borrowing.

What are you talking about?

 

[Polk]

Except that state and local governments largely don't have the ability to fund their budgets via borrowing.

What are you talking about?

Every state except Vermont has a balanced budget requirement in their state constitution. That heavily limits their ability to borrow.

 

[DSGE]

Except that state and local governments largely don't have the ability to fund their budgets via borrowing.

What are you talking about?

Every state except Vermont has a balanced budget requirement in their state constitution. That heavily limits their ability to borrow.

How many states actually have balanced budgets?

 

[Polk]

What are you talking about?

Every state except Vermont has a balanced budget requirement in their state constitution. That heavily limits their ability to borrow.

How many states actually have balanced budgets?

Most states are close to balanced. And most of the borrowing is from raiding pension funds, not going out on the market.

 

[DSGE]

Every state except Vermont has a balanced budget requirement in their state constitution. That heavily limits their ability to borrow.

How many states actually have balanced budgets?

Most states are close to balanced. And most of the borrowing is from raiding pension funds, not going out on the market.

Fair enough. I'll give the paper another read later on with that in mind.

 

[ilia25]

Oh I'm well aware that Taylor thinks some crazy shit, but this paper is sound. Here's the link if you want to check it out for yourself.

http://www.stanford.edu/~johntayl/Cogan Taylor multiplicand Jan 2011 rev.pdf

The problem with that paper is that his argument doesn't really show what he thinks it shows. His argument is that it didn't have much impact because it just shifted what state and local governments did. Fair enough, but it misses the point they would have massively cut services in absence of stimulus. That creates a very different multiplier than his assumption that state and local government would have remained the same in the absence of stimulus.

Well no, his assertion is that in the absence of stimulus they would have expanded their budget deficits as usual. The same amount of spending would have occurred and services would have been retained.

Except there were in fact big cuts in state purchases. Taylor paper does not make sense because it essentially claims that states were hell-bent on cutting their services no matter what -- independent of ARRA, their fiscal position and/or general state of economy. But that is a ridiculous suggestion, why would they do that?

 

[EdwardBaiamonte]

. When was the last time there was a balanced budget. .

Republicans since Jefferson, the first Republican, have proposed 30 Balanced Budget Amendment but all were killed by liberals. Newt got 32 states to sign up for his. If not for liberals debt today would be $0, not $16 trillion heading for $30 trillion.

If you're plain stupid and still doubt that 100% of the energy for limited spending resides in the Republican Party ask yourself why Jefferson, Newt, Ron Paul, THe Tea Party, and Grover Norquist are all Republicans.

See why we are positive a liberal will be very very slow?

 

[Widdekind]

During the GD, increasing Government expenditures were only weakly correlated with decreases in unemployment...

Here's what Henry Morgenthau, FDR's Secretary of the Treasury (the man who desperately needed the New Deal to succeed as much as Roosevelt) said about the New Deal stimulus:

"We have tried spending money.We are spending more than we ever have spent before and it does not work... We have never made good on our promises...I say after eight years of this administration we have just as much unemployment as when we started... And an enormous debt to boot!"​

"The New Republic"( at the time a FDR greatest supporter") noted.

In June 1939, the federal public works programs still supported almost 19 million people, nearly 15% of the population" [page 313]​

In fact in 1939, unemployment was at 17%, and there were 11 million additional in stimulus make work welfare jobs. Today when the population is 2.5 times greater we have only 8 million unemployed. Conclusion: legislation to make Democrats illegal
is urgently needed

During the GD,

Government statisticians decided that everyone working in these Federally sponsored "make-work" programs would have been unemployed otherwise. Consequently, they decided to count these millions of Americans as unemployed... After adjusting for people who were actually working but were counted as unemployed, he found a maximum unemployment rate of 17% [not 25%] (Miller & Benjamin. Economics of Macro Issues, p.49-52)​

Thus, as early as 1933, New Deal programs were paying ~4 million people, reducing total unemployment by ~8%. The official statistics only report "private sector unemployment", and thereby mask the effectiveness of the Fiscal stimulus. If official "private sector unemployment" was 17% in 1939; and if "public employment" was 10-20 million, or about 5-10% of the workforce, then "total unemployment" was actually only 7-12%.

Today, statistics still seem misleading -- millions of Americans are on public doles, but off official unemployment:

Since 1990, the number of people receiving disability payments from the Social Security Administration has more than tripled to over 8 million [because] the real value of monthly benefits a person can collect has risen more than 50% in the past thirty years... Indeed, those receiving disability payments make up the largest group of the 2 million or so who left the labor force during the latest [1990] recession​

To compare current unemployment stats, to those during the GD, would require either subtracting "public employment" from the latter, or adding "public dole" to the former. Either way, the current economy looks allot less healthy, than the "doubly misleading" official statistics suggest.

You're right, but employment is a pretty strong indicator of overall economic health. Recessions are defined by falling GDP. So what happened to GDP during the Depression? On the upswing from March of 1933 to May of 1937. Spending restraint kicks the economy back in to recession from May of 1937 to June of 1938. From there, the economy grows every month until February of 1945.

How much did spending go down to when they did these horrible restraints?

...

FY 1936 (July 1935 - June 1936) - 9.2 billion
FY 1937 (July 1936 - June 1937) - 8.8 billion
FY 1938 (July 1937 - June 1938) - 8.4 billion
FY 1939 (July 1938 - June 1939) - 9.3 billion

That doesn't seem like a huge difference, except that total GDP at the time was around 70 billion...

Fiscal stimulus requires a budget deficit (G-T). Your numbers show that Government expenditures (G) fell. i recall that Taxes (T) also rose, in attempt to balance the budget, called "Fiscal consolidation". In 1938, a then-high minimum wage (25 cents / hour) also went into effect, forcing firms to pay higher wages, on 20-25% of the work-force.