"The beatings will continue until morale improves"

Discussion in 'Politics, Religion, Social Issues' started by Sydde, Jan 8, 2013.

  1. Sydde macrumors 68020

    Sydde

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    #1
    Article in Business Insider seems to support J. M. Keynes

    In an important new study, Olivier Blanchard, the Chief Economist at the International Monetary Fund (IMF), has just admitted that having respected and accepted the advice of conservative economists has turned out to be a blunder.

    This has cost the world’s advanced economies dearly, and must be reversed if the world is to avoid an economic tailspin.
    ...

    In other words, the policy recommended by the Republican Party’s economists, and which has actually been tried especially in Europe, has failed miserably.

    The article focuses on the "multiplier", which describes how much growth can be expected from the infusion of public money into a foundering economy. From Europe, we have gleaned real world empirical data that show that austerity has a non-salutary effect on economic growth in hard times, which leads one to infer that stimulus should yield growth in excess of what is pumped in.

    Of course, raw numbers in a vacuum paint but a corner of the canvas, other factors probably do need to be considered before blindly embarking on one course or the other. Otherwise, we could just have computers running the show. Come to think of it ...
     
  2. AhmedFaisal, Jan 9, 2013
    Last edited by a moderator: Nov 16, 2013
  3. jnpy!$4g3cwk macrumors 65816

    jnpy!$4g3cwk

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    #3
    Actually, it has happened, it does work, and it did work prior to Reagan. Unfortunately, since Reagan, Republican voters have been constantly bombarded by lobbyists and demagogic politicos with the message that they won't have to pay taxes. You can't have stability if you are not willing to tax.

    "Austerity" means multiple things to multiple politicians. I agree it doesn't work if Greece, say, decides to pay benefits assuming a certain level of taxation, and then never gets around to taxing at that level, and so borrows Euros to pay for it. The Eurozone never really figured out how it wanted to handle this. I mean, low taxes on wealthy Greeks allowed them to buy Mercedes from Germany, so, in a certain way, it could make sense for Germany to subsidize Greece indefinitely to a certain level to keep German unemployment low. Sure, it makes sense to keep taxes and benefits in line, but, it also makes sense to keep people employed.

    "Austerity" can also mean cutting Social Security (with Trillions in the trust fund) to help keep taxes low while keeping bank &etc bondholders happy, making rich people happy two ways (in the short run), with resulting higher unemployment all around (speaking of Keynes and multipliers).
     
  4. NT1440 macrumors G4

    NT1440

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    #4
    That's not a problem with Keynesianism, that's a problem with actually sticking to its application.
     
  5. Dmunjal macrumors 65816

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    #5
    Of course you are correct. But so what?

    If theory can't be applied to the real world because of a weakness in human (actually politician's) nature, what good is it?

    The fact of the matter is that politicians will always take the easy path to get re-elected instead of doing the right thing (paying back the debt during good times as Keynes called for).

    I think that is a major fault of the theory and is one reason why the founders wanted a gold/silver standard. These rare metals "forced" politicians to do the right thing.
     
  6. Sydde thread starter macrumors 68020

    Sydde

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    #6
    Personally, I think a recipe is a recipe for disaster. If we have a problem, we should try to discern what its various causes are and what strategy is best suited to dealing with those causes, instead of just slapping a predetermined bandage on it. For crashes, austerity is usually not the best approach, as shown here, but then, circumstances vary, there could, conceivably be an occasion when it is the way to go. How we would go about establishing an economic strategic planning council is a whole nother kettle of worms.

    The other thing that gets overlooked is "booms are good". History seems to shows that economic booms are transitory and typically followed by balancing "corrections". So why should we only concentrate on crashes when crashes are almost always preceded by periods of stupendous growth? It is kind of like driving the car up to 140mph until it slams into something, repairing the damage, then embarking on the same kind of escapade, repeatedly.
     
  7. citizenzen macrumors 65816

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    #7
    Well for one thing you acknowledge that the problem is in human weakness and not the theory. Right now we have a political party that doesn't want to admit that fact. A major aspect of human progress is being able to separate fact from fiction and rooting one's beliefs, values and actions in what is true, not false.
     
  8. Dmunjal macrumors 65816

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    #8
    Both parties are Keynesians so this isn't just one party. The Republicans used to be fiscal conservatives (Goldwater) but are no longer because of the power of the banking lobby.

    If you think this is Republican party issue, you're just falling for the media propaganda. I'd say the same thing to the right wing Obama haters, too.

    The two parties are playing us against each other to avoid the real issue of how we are being fleeced by the .01% and the bankers.

    Watch where Geithner (who worked for Bush and Obama) ends up in a month and how much he'll be compensated for his willing support over the past 8 years as a "public" servant.
     
  9. citizenzen macrumors 65816

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    #9
    I will admit I'm no economist (or even much of a fan).

    But if Republicans were Keynesians, wouldn't they have supported Obama's stimulus plan?
     
  10. Sydde thread starter macrumors 68020

    Sydde

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    #10
    8 years? Prior to Treasury, Geithner ran the Federal Reserve Bank of NY '03-'09, but he was never actually part of the Bush administration.
     
  11. Dmunjal macrumors 65816

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    #11
    He was a willing partner to Bush's Secretary of Treasury, Paulsen, during the bank bailouts.

    Even Obama kepts Bush's Secretary of Defense, Gates.

    There is ONE party. The banking party, the war party, the corporate party. We fight over the petty differences but ignore the parts that they have in common that are destroying this country.

    ----------

    They want a different form of Keynesianism. They don't want stimulus to go to Obama's causes (state and local governments, infrastructure, unions, etc.) They DO want stimulus to go their causes (corporations, defense, tax cuts for the wealthy).

    What do the last two boom/bust cycles (dotcom and housing) have in common though they had presidents and Congress from different parties? The Federal Reserve's control over monetary policy created both booms and the following busts that we are suffering through. Bankers benefited either way.
     
  12. Sydde thread starter macrumors 68020

    Sydde

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    #12
    It is 1995. Alan Greenspan has a massive coronary. You are now in charge of the Fed. What do you do, with sterling foresight, to mitigate the extremes of the oncoming cycles?
     
  13. Dmunjal macrumors 65816

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    Easy. I let the free market sort it out. It might cause an immediate and deep recession but it would clear out every institution that depends on free and cheap money from the Fed, especially the TBTF banks and the corporate lobbies.

    If we had done that, we would have eventually recovered and have an economy that is built to last based on real fundamentals. We have a house of cards now.
     
  14. jnpy!$4g3cwk macrumors 65816

    jnpy!$4g3cwk

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    #14
    You can be both a fiscal conservative and a Keynesian. Between 1946 and 1972, the debt to GDP ratio steadily decreased most of the time. It also pretty much held steady despite a couple of large "oil shock" increases in the real price of oil.
     
  15. elistan macrumors 6502a

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    #15
    Wait. What? What happened in 1995 that the market needed to sort out? My recollection of economic history from back then is a little hazy...
     
  16. Dmunjal macrumors 65816

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    I was pretty young back then. But I remember an Asian or Russian financial crisis. Don't forget Y2K which Greenspan used QE to battle to maintain market momentum.

    That money went into dot com stocks. When that bubble popped, Greenspan used QE again and we got the housing bubble.

    God knows what bubble will come out of Bernanke's QE.

    ----------

    We were still on the gold standard and were obligated to pay back our debts the proper Keynesian way.
     
  17. jnpy!$4g3cwk macrumors 65816

    jnpy!$4g3cwk

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    #17
    My point stands, regardless: Keynes and fiscal conservative are not mutually exclusive.

    The biggest difference between then and now was that the tax structure taxed the heck out of consumption by the rich. So, they were strongly encouraged to invest instead. The same policy would work again.
     
  18. Sydde thread starter macrumors 68020

    Sydde

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    #18
    I put him in charge of the Fed well before the dot-com bubble to see what approach he would take before it became an issue. His approach appears to be to act as a spectator.

    I see a couple problems with lasseiz faire. First, bubbles seem to be the result of slosh, or fad-ism, where capital flows to the hot new thing and a market sector becomes over-capitalized. "Corrections" do ensue, but I would think some kind of choke or disincentive on fad-cap would help reduce this broader effects of this kind of problem.

    Second, TBTF is unavoidable. When a bank fails, another bank will buy up its assets, sending that bank down the same path and providing no real benefits to anyone except some VC like Bain. Unless the M&A bigger-is-better ethos is throttled with disincentives or regulation, the problem persists.

    Yes, I realize what I speak of is outside the purview of the Fed, but that is kind of my point. You blame the Fed for the problems, yet I cannot clearly discern upon what you might base that, because the Fed has little control over what causes these economic waves.
     
  19. Dmunjal macrumors 65816

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    #19
    With laissez-fare in 1995, we wouldn't have seen either bubble.

    Most of the bubbles come from easy money beyond what is typically available from capital markets. That (almost unlimited) easy money comes from the Fed via QE and super low interest rates.

    TBTF banks are a recent phenomenon after Clinton repealed Glass-Steagall in 1999.

    ----------

    Regardless of tax rates, income tax as a percentage of GDP stayed around 18-20%.

    I think a consumption tax would make a lot of sense however.

    The other difference is the gold standard which limited how much debt the government could get into in the first place.
     
  20. NT1440 macrumors G4

    NT1440

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    #20
    Well then, good luck with continuing the supply side ******** we've been on for 30 years. Apparently that theory is fine, even though proven to false, simply because it continues due to the fact that is based on human moral failings and the lack of will to change anything about it.
     
  21. jnpy!$4g3cwk macrumors 65816

    jnpy!$4g3cwk

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    #21
    So, we agree that Glass-Steagall should be reinstated ASAP, right?

    I'm not sure, but, I think you are missing the point that income tax done right works mostly like a consumption tax on the wealthy. At the time, I recall some wealthy relatives and acquaintances complaining about this aspect specifically -- the tax structure strongly discouraged them from conspicuously spending their money on, for example, an expensive boat. If they insisted on conspicuous consumption, they helped pay down the debt. If they left their investments alone, they helped the economy grow out of debt. The net result was a lot less conspicuous consumption, and, an economy that grew out of debt. The only way anyone could morally object to this arrangement is if they believe that the rich should consume conspicuously.
     
  22. Dmunjal macrumors 65816

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    #22
    I don't think that was the issue entirely. Also, the wealthy could write off quite a bit, including consumer interest.

    http://online.wsj.com/article/SB10001424127887324705104578151601554982808.html
     
  23. Sydde thread starter macrumors 68020

    Sydde

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    #23
    Possibly, but there is no credible evidence to support that position. The repeal of Glass-Steagal was an example of re-institution of lasseiz-faire (deregulation), and yet you seem to think it contributed to the most recent collapse.

    As I think on it, and read some stuff, it looks like markets may be naturally, implacably predisposed to boom/bust cycles of varying severity, so if the best way to handle the cycles is hands-off, then the sensible approach to dealing with the effects and impacts of these cycles would be to cellularize the entire marketplace so that the overall effects would be contained and minimized and could be absorbed by the otherwise unaffected sectors. Such a strategy would also necessarily restrain the formation of TBTF institutions.

    How such a plan would be implemented and maintained would be an interesting concept to explore.
     
  24. jnpy!$4g3cwk macrumors 65816

    jnpy!$4g3cwk

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    #24
    Unfortunately this article gets a few important points wrong. For example, the article implies that growth was high under Reagan. In fact, overall, it was mediocre, 2.77%, below the 1970-2008 average of 3.1%, and barely above the Nixon-Ford-Carter years (2.5% overall) despite the two large oil shocks, under Nixon-Ford, and then under Carter. For some reason, a lot of people want to believe that the economy did much better under Reagan than it actually did.

    The article completely misses the point regarding consumption. Growth of average consumption masks much higher consumption by the rich and stagnant consumption by the poor. Something else missed completely about growth is the total lack of growth of working-class wages.


    The article is correct about one thing -- tax shelters. You know, the vacation home at the lake that doubles as a rental investment, the boat that doubles as a rental investment, the place in the country that doubles as a farm investment, all with the income banked appropriately each year so that a profit can be shown in 2-3 years out of five, with convenient offsetting losses the other years. Certain nouveau riche folks back then loved to brag about their tax shelters. Despite all that, conspicuous consumption was much lower overall, and unemployment of below-average people was much lower.

    I grant you, some people really do seem to believe -- that is, are true believers -- in conspicuous consumption by the rich. Philosophically, I find it is conflict with my utilitarian leanings:

    http://en.wikipedia.org/wiki/Utilitarianism

    That is to say, I'm not totally a Utilitarian, but, Economics belongs to Utilitarianism.
     

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