Asks Don Boudreau in the WSJ.
My impression was that Friedman was a public admirer of Keynes. (Here's a brief video of Friedman saying nice things about Keynes.) John Maynard Keynes was, obviously, a genius. Bertrand Russell, who didn't like Keynes, said of him:
Keynes's intellect was the sharpest and clearest that I have ever known. When I argued with him, I felt that I took my own life in my hands, and I seldom emerged without feeling something of a fool. I was sometimes inclined to think that so much cleverness must be incompatible with depth, but I do not think this feeling was justified.
None of this means that Keynes was necessarily right in his macroeconomics or that Keynes' self-proclaimed followers are right about what to do in novel situations two-thirds of a century after his death, just that it's silly to treat Keynes as less than a heavyweight.
Posts
87 comments:
Cleverness not equal intelligence..
Keynes still has the most accurate theoretical explanations for the business cycle and downturns. The empirical evidence is pretty clear so far about this. Austrian and real business cycle theory just don't cut it.
Milton Friedman said almost a century after Henry George’s death: “In my opinion, the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago.”
"just that it's silly to treat Keynes as less than a heavyweight."
How about dead weight? I mean Marx was a genius too.
"Keynes still has the most accurate theoretical explanations for the business cycle and downturns. The empirical evidence is pretty clear so far about this. Austrian and real business cycle theory just don't cut it."
Because the policies have been so Keynesian. Self-fulfilling prophecy.
Anglo Sailer stickin up for Anglo Keynes.
Keynes still has the most accurate theoretical explanations for the business cycle and downturns. The empirical evidence is pretty clear so far about this. Austrian and real business cycle theory just don't cut it.
Every possible "theory" of economics is about to be consumed demographics.
If smart, industrious, law-abiding people don't start making babies again, then civilization is doomed.
There won't be any "business cycle" at that point - there will only be another millenium-long Dark Age.
I have heard of Keynes final article in other contexts, it seemed like he was upset over the lengths that some of his disciples took his ideas, and he never saw the half of it. It went to ridiculous lengths in the 1960-1970's time period and is still exemplified by people like Krugman to this very day. I think Friedman was just saying is that only Keynes could have stopped the madness of the unlimited spending plus unlimited money creation schemes that his acolytes dreamed up after his death. Big difference between that and saying Keynes was right and or that his prescriptions still work.
Friedman was as feared in intellectual debate as Keynes if not more. I remember The Economist remarking that the running joke in the economics profession was that Friedman's opponents always wanted to debate his ideas without him present. He apparently made a lot of distinguished economists look foolish when they did debate him. The handful of opponents that didn't look foolish in debate with him ended up being proven wrong empirically over things like the existence of the Phillips Curve or the effectiveness of the money supply on the rate of inflation. The similarity between Friedman and Keynes goes beyond just economics, both of them were excellent statisticians as well.
Cleverness not equal intelligence
Which is what Bertrand Russell was saying, though he put it more eloquently than you. And didnt hold that it was true either.
First 9 comments from geniuses who can't even handle...well, a handle.
Keynesians have been right that expanding the money supply and running large deficits when the economy is below its potential won't lead to inflation, while a lot of smart people have been completely wrong in warning about bond vigilantes since 2008.
Keynesians were also right that ECB/IMF-imposed austerity would only lead to worse problems for depressed European economies, while heavyweights like Jean-Claude Trichet, George Osborne, Nassim Taleb, Jean-Claude Van Damme, etc. refuse to admit that their policies were wrong.
For those who will undoubtedly soon comment that the failure of the stimulus to return the country to full employment shows Keynesianism has failed, the most prominent Keynesianisms (Krugman, Stiglitz) were arguing at the time that it was too small to come close to filling the trillions in demand lost from the collapse of the housing bubble.
Keynesianism is just putting off the inevitable, while making the ultimate outcome worse. In the short terms Keynesianism works. When inquired as to the long term...he famously replied, " We are all dead in the long term."
"
Well * they * are all dead.....but "we" aren't.....
Think of him as the Khalid Sheik Mohammed of Economics. Sure, it worked spectacularly on 9/11. Try the same plan 10 years later and you would wind up tortured dead and unsuccessful. Modern day Keynsians are the equivalent of jihadis who would attempt to hijack a plane with boxcutters in 2012.
Nobody ever said the same economic theory has to hold in the normal business cycle as in a deep recession like the 30s. This isn't physics--our theories are nothing more than explanations of a small piece of a hugely more complicated reality.
I just reread Slidelsky's biography last year. One of the things that struck me was how in flux Keynes's views were in the years preceding the General Theory. He was always changing his mind.
I agree though that he was a great economist. Friedman shared his macroeconomic orientation but of course argued that monetary policy was a more important tool than fiscal.
For those who will undoubtedly soon comment that the failure of the stimulus to return the country to full employment shows Keynesianism has failed, the most prominent Keynesianisms (Krugman, Stiglitz) were arguing at the time that it was too small to come close to filling the trillions in demand lost from the collapse of the housing bubble.
It wasn't just the size of the stimulus. It was also the kind of stimulus. Massive payroll tax cuts, income tax cuts, etc. would have been Keynesian stimulus as well and would have been much more effective.
In some ways Keynes's General Theory was really a special theory, for the case in which wages are sticky and will not adjust downwards (because of union power). One of Keynes's insights was that, at the time, inflation would reduce real wages, thus permitting an expansion in the volume of employment. Later COLA's (automatic cost of living adjustments) rendered this solution ineffective. We got stagflation instead. But then trade and immigration busted the unions and now inflation once more would solve the problem. We haven't gotten there yet though.
"Keynesianism is just putting off the inevitable, while making the ultimate outcome worse." -TontoBubbleGoldstein
Not necessarily. We're buying time until the demographic transition takes hold everywhere and populations stabilize.
The reality is that Keynesian economics is too effective. It threatens the elite too much since it leads to too low unemployment and upward pressure on wages. The elites want high asset prices relative to wages, and normal folk desire the exact opposite.
Keynesianism is just putting off the inevitable, while making the ultimate outcome worse.
What is the "inevitable" and when will it occur and how does Keynesianism make it worse? If you can't articulate this into a reasonable, falsifiable proposition, you're not really making a scientific argument.
Keynesian stimulus programs do work. They are called military build ups. Building ships in particular, consumes a lot of domestic steel, wiring, munitions, and men to man them. So too for planes. And tanks.
Modern militaries require enormous amounts of input to create and sustain. They produce massive stimuli, as did the space race.
Throwing money at cities to hire diversity coordinators, not so much.
"None of this means that Keynes was necessarily right in his macroeconomics or that Keynes' self-proclaimed followers are right about what to do in novel situations two-thirds of a century after his death, just that it's silly to treat Keynes as less than a heavyweight."
If his theories are not right, it is less harmful to not consider him a heavyweight, or maybe, in a nebulous science like economics, verisimilitude is the best you can hope for and nobody who has considered the subject seriously should be dismissed. Who do you suspect doubts his significance, your readers? If so, you're probably right, libertarians and conservatives seem to favor Hayek, while liberals love Keynes, at least that's how it appears to this humble dilettante.
After several intensive minutes of Wikipedia research: Intellectually, his credentials don't outshine any of the Rockwell favorites like Mises, Hayek and Rothbard.
"For those who will undoubtedly soon comment that the failure of the stimulus to return the country to full employment shows Keynesianism has failed, the most prominent Keynesianisms (Krugman, Stiglitz) were arguing at the time that it was too small to come close to filling the trillions in demand lost from the collapse of the housing bubble."
Kaus says Krugman was OK with the stimulus at the time. In any case, though, there is a glaringly obvious difference between the United States now and the US in the 1930s that makes Keynesian stimulus problematic today: we have a huge trade deficit now.
In the 1930s, an American with a little extra stimulus money in his pocket would have gone to Woolworth's and bought stuff made in a factory in Trenton, NJ or somewhere else in the US. Today, Americans go to Walmart and buy stuff made in China. So Keynesian stimulus still stimulates, just not so much here. I have yet to hear anyone question Krugman about this.
"Anonymous said...
Anglo Sailer stickin up for Anglo Keynes.
8/4/12 5:53 PM"
Sailer isn't an Anglo.
Wogs begin at Calais.
Boudreau: "With the possible exception of Adam Smith, no person in history is more widely recognized as ably championing free markets than Milton Friedman.
Priceless: he's comparing the remarkable founder of economics with a chap who footnoted him. A footnoter who was a magnificent propagandist, of course, but still. At least he didn't drag Ayn bloody Rand into it.
For those who will undoubtedly soon comment that the failure of the stimulus to return the country to full employment shows Keynesianism has failed, the most prominent Keynesianisms (Krugman, Stiglitz) were arguing at the time that it was too small to come close to filling the trillions in demand lost from the collapse of the housing bubble.
The "stimulus" largely consisted of giving states money to pass on to their welfare clients. In that context, smaller is better.
Keynes did not publish his "General Theory" proposing what are now called Keynesian analyses and advocating what are now called Keynesian policies until 1936, three years after the election of Franklin Roosevelt and the implementation of the New Deal's tax-and-spend policies. Some Labour Party leaders wished to implement similar policies in Britain, but were constrained by the contemporary balance of parliamentary politics from going to the lengths that FDR did here.
In other words, Keynesianism was an effort to provide an after-the-fact theoretical justification for steps that politicians already were pursuing or sought to pursue. It smacks of rationalization rather than genuine insight. The New Deal actually retarded rather than promoted economic recovery in the U.S. Unemployment was 18% in 1939, ten years after the great crash of 1929, and down only 7 percentage points from its 1934 peak of
25%.
Britain, without such policies, recovered more quickly than did the United States. Unemployment dropped significantly only after the U.S. began preparing to enter WWII, and this was achieved only at the cost of removing a sizable number of the nation's young men from the available workforce through military conscription. A large number, of course, did not return. Perhaps Sen. Wheeler's comment that FDR was going to "plough every fourth boy under" as the New Deal's last resort was true. Real recovery did not come until after the end of the war, when further New Deal enactments were halted, and some of the more dirigiste policies of FDR's programs were rolled back.
The anemic recovery we have experienced so far, and the remaining high levels of non-employment (understated in official unemployment statistics) suggest that Obama's policies are repeating the mistakes FDR made in 1936-7, when he complained of a "strike of capital." The administration's fiscal policies of huge Keynesian "stimulus" have done little perceptible good,
and the threat of huge tax rate increases in 2013 has brought about an anxious sit-tight attitude amongst the managers of cash-rich businesses. Monetary policies of the sort advocates by Keynes to deprive rentiers of income from capital have not encouraged business investment. It is not so much the case that banks are not lending as it is that qualified borrowers are not interested in borrowing.
It is hard to see the current circumstances as an empirical confirmation of Keynesian policies.
What an irony that the very person who observed that most practical men of affairs are slaves of some dead economist is now the dead economist by whom they are enslaved.
Keynes' general theory seems to be based on the idea that demand and consumption somehow irrationally collapse. Hmmm...let's work this through.
In an economy more or less built on credit, it seems that the business cycle is caused by two exponential growth functions. One exponential growth function is the "natural" growth rate of the economy. The other exponential growth function is the "natural" rate of interest.
Since money in the present is always going to be more valuable than money in the future, it stands to reason that the natural rate of interest is always slightly higher than the natural growth rate of the economy. Over time, the exponential growth rate of debt overtakes the exponential growth rate of the economy. This means wealth has to move away from production and consumption to debt service until the debts are cleared or the entities go out of business.
One of the posters above is right. There is a perfectly rational collapse in demand caused by debt service and Keynesianism tries to get around the problem by sticking it to creditors by preventing any rental income from investing capital. Keynesianism hides this by talking about "sticky" prices and "irrationality" but what it really means to do is wipe out creditors.
Of course, creditors got wind of this and lobby to twist Keynesianism for their own purposes.
Crawfurdmuir said:
"The New Deal actually retarded rather than promoted economic recovery in the U.S. Unemployment was 18% in 1939, ten years after the great crash of 1929, and down only 7 percentage points from its 1934 peak of 25%...The anemic recovery we have experienced so far, and the remaining high levels of non-employment (understated in official unemployment statistics) suggest that Obama's policies are repeating the mistakes FDR made in 1936-7, when he complained of a 'strike of capital.'"
Take a look at an actual plot of the unemployment rate during the Great Depression (http://www.examiner.com/article/current-unemployment-vs-the-great-depression) and there are obvious patterns that opponents of Keynes and the New Deal would rather you not see:
Unemployment initially soared ever higher during the Hoover austerity years from the Great Depression's onset until FDR's election. It then rapidly decreased after the New Deal began in 1932, moving from 25% to 15%, although the New Deal was never large enough to return the country to full employment. Unemployment rose again in 1937 after FDR's "great mistake" of slashing spending due to concerns about budget deficits. WWII spending finally provided stimulus on a sufficient scale to quickly bring back full employment.
And counter to Crawfurdmuir's claim (and claims of many businessmen and non-Keynesian economists in 1945) that this was due to reductions in the labor supply rather than government spending increasing aggregate demand, full employment remained after the nation demobilized and conscripted soldiers returned to the labor force.
http://www.salon.com/2012/07/25/the_value_of_tom_friedman/?utm_source=twitterfeed&utm_medium=facebook
Steve, why do you say that Russell disliked Keynes?
There is a subtle self-praise in Russell's remark. He is saying that he was clever enough to argue with Keynes and yet humble enough to acknowledge a fellow genius. Big of him. I recently read an appraisal of Russell that he failed both as a philosopher and a logician, overtaken by Wittgenstein and Godel respectively.
Keynes and Russell were both in the Bloomsbury Group. Both progressives. Both Cambridge men. Both in The Apostles, as I recall. A likely case for a "mutual admiration society".
Both were pure maths drop-outs in a sense. Keynes had to give up on pure mathematics because he wasn't good enough, and Russell failed to become Senior Wrangler at Cambridge.
Keynesian stimulus programs do work. They are called military build ups. Building ships in particular, consumes a lot of domestic steel, wiring, munitions, and men to man them. So too for planes. And tanks.
Modern militaries require enormous amounts of input to create and sustain. They produce massive stimuli, as did the space race.
That's why the Soviet Union has such a booming economy right now, right?
Middle class tax cuts are a much better Keynesian stimulus than military Keynesian. It decentralizes economic decision making. Military Keynesianism concentrates it in bureaucracies.
there is a glaringly obvious difference between the United States now and the US in the 1930s that makes Keynesian stimulus problematic today: we have a huge trade deficit now.
In the 1930s, an American with a little extra stimulus money in his pocket would have gone to Woolworth's and bought stuff made in a factory in Trenton, NJ or somewhere else in the US. Today, Americans go to Walmart and buy stuff made in China. So Keynesian stimulus still stimulates, just not so much here. I have yet to hear anyone question Krugman about this.
That's understood in Keynesian economics. Taxes, saving, and net imports constitute "demand leakage" in Keynesian economics. They have different ideas and proposals about addressing demand leakages including when it's caused by net imports.
the implementation of the New Deal's tax-and-spend policies.....the threat of huge tax rate increases in 2013
Keynesianism doesn't mean tax rate increases during recessions and depressions.
Monetary policies of the sort advocates by Keynes to deprive rentiers of income from capital have not encouraged business investment.
The massive bank bailouts didn't deprive rentiers but saved their balance sheets.
Anyone who argues that Russell has been 'overtaken' by Wittgenstein in philosophy really has no sense of the field. Wittgenstein went from cult status within philosophy in the 50s, spread through other disciplines in the 60s and 70s, and by the 80s was already put into his not insignificant place in the history of philosophy. Many of arguments (Private Language, for one) and certainly lots of his aphorisms ('the seas of language are riding high', 'if a lion could speak we wouldn't understand him') still have currency, but no one is bringing back Forms of Life or Language Game talk.
On the other hand, Russell's insights into semantics (especially reference) and many other areas are as current as this morning's dawn. His analysis of the semantics of singular references ('The present King of France...') is undisputed. For sure, many of his ideas (the only truly referring expressions being indexicals ['this', etc.]) are politely ignored. But if you took a poll of modern philosophers of language, Russell would have to count as the one from the 20th century (along with Quine) who has held up the best.
So let's have no more disparaging of the good Lord Russell.
Keynesian economic is politically impossible because politicians will not do what is required during the boom times.
How many politiains are going to support higher taxes and spending cuts during the boom times.
As Keynesian economics is practiced in the real world, all that the economy gets is the ratchet effect where government spending keeps going up no matter what.
"is about to be consumed demographics"
= is about to be consumed by demographics
Since no one else has bothered to point it out, I will. Keynes was reckoned extraordinarily clever in a place that had the greatest assembly of physicists ever employed simultaneously in one university.
I heard that Friedman kept a secret stash of Keynes publications tucked away in an old footlocker in the basement for when his wife was away on holiday...
An anonymous said:
"Cleverness not equal intelligence."
In my experience, the British use "clever" almost exactly the way we use "smart" in the US. So when Russell says "clever," he does mean "intelligent," expressed less formally.
"during the Hoover austerity years from the Great Depression's onset until FDR's election"
"It then rapidly decreased after the New Deal began in 1932, moving from 25% to 15%,"
"WWII spending finally provided stimulus on a sufficient scale to quickly bring back full employment. "
"full employment remained after the nation demobilized and conscripted soldiers returned to the labor force"
no,
no,
no
and no
Whisky, military spending is thought by Keynesian economists to be less efficient stimulus than other forms of spending in terms of jobs per dollar because it is so capital-intensive.
Here's stuff I hadn't known about Keynes's siblings.
(i) His brother Geoffrey was knighted for his work on blood transfusion, was in 1944 an acting air vice-marshal, and was particularly distinguished in bibliography.
(ii) His sister Margaret married A V Hill who became one of the founders of biophysics, was awarded CH, OBE, FRS, and shared the 1922 Nobel Prize in Physiology or Medicine.
guest007 nailed it.
It's no good saying "Keynesianism should be practiced in a counter-cyclical manner". Of course it should be. The reason what Keynes did was bad was that it provided verbiage to obscure problems with government-led fiscal and monetary expansion.
In a sense, monetarism seems like it was built into shoulda-Keynesianism. The only reason monetarism had to be relaunched as an antidote was that no one really cared about shoulda-Keynesianism.
I don't know which article by Keynes was referred to by Friedman, but Hayek (who was both a friend and rival of Keynes) claims that near the end of his life Keynes told Hayek not to worry about the Keynesians taking demand stimulus too far because when that happened Keynes himself would bring them back in line. Unfortunately, he was dead by the time we got into an inflationary spiral.
Keynes played with the net down ... brilliant move!
As Keynesian economics is practiced in the real world, all that the economy gets is the ratchet effect where government spending keeps going up no matter what.
Gov't spending hasn't really gone up over the past 30 years.
Keynes may have been a genius, but that doesn't matter since it's obvious that he was also a functional idiot. His theories put into practice have done as much damage to the West as major warfare, hippies, third-world immigration and leftist mental pathology.
Russell just plain quit as a philosopher after reading Wittenstein .. that just a fact.
Wittgenstein had shown Russell's program to be incoherent & unworkable & Russell acknowledged that he couldn't play on Wittgenstein's level.
So he quit. Abandoned his career as a philosopher of language, etc and took up popular writing.
Russel's ideas create endless anomaly hense make work for academic grinds needing something to publish or write a dissertation on.
All of this work is taking us no where .
Read Howard Wettstein on this.
Keynes had just a bunch of half-baked ideas, that sounded rhetorically good but were foundationally weak.
That was until the genius Paul Samuelson came along and gave them a strong mathematical treatment and formally defined what we think of as "Keynesian" economics.
It should really be called Samuelson economics, because if it wasn't for him, Keynes ideas would have faded from popularity a decade or two after his death.
It's silly to treat Immanuel Kant as less than a heavyweight, too.
Even if he, like Lessing, Schiller, Schopenhauer, or Nietzsche, were unacquainted with Tom Wolfe's theories of why West Virginia coeds hook up, which irrefutably explain how all unsuccessful artists never get laid, and why Goethe's bastards are heads of state in sixteen different countries.
With respect to Wittgenstein, I must say he is philosopher whose current exceedingly high reputation mystifies me.
What remains of his program(s), in large or even small part? I don't know anything he argued at any length that hasn't been mostly spurned by the philosophical community.
But in all surveys he comes out as one of the preeminent philosophers of the 20th century.
Why?
re: Keynes was a heavyweight--SS
1) Tried to read his General Theory once and still have the book. It proved to be an impossible task for me. Try it and see just what a mishmash the book is. ( I have an Ivy doctorate and Post Doc in a hard science so I can read. )
2) Before tackling the General Theory I read Keynes' The Economic Consequences of the Peace (1919). This book is readable, in fact the book carries one along much as a good novel does; it is that well written. The book probably was the reason the USA did not join the League of Nations. It was widely circulated in the USA and a poorly written book would never have doe that. Why would a talented prose stylist produce such an arcane book as his General Theory?
3) Rumor has it that Keynes lost most of his wealth in the Great Depression so he was casting around for a new "Shtick." He knew better as evidenced by his previous writing but he also knew that telling governments that DOING NOTHING would be more effective than DOING SOMETHING, e.g. HARM, would not give him any leverage as he would just be ignored. So he did what was necessary to insure comfort during his declining years: he pulled a Ron Hubbard, invented a new religion where he justified Government Directing the Economy--turning stones into bread, now called Keynesianism. Quite a feat and successful as demonstrated by all of his acolytes posting here and that the Dollar is now worth less than 5 cents compared to a pre-depression Dollar and the US debt is on a cash basis is approaching 20 trillion and on an accrual basis probably 9 or 10 times more. The General Theory was the basis of the new FAITH and as such, a founding document, it had to be OBSCURE so as the disciples would have unending careers deciphering its mysteries.
4) Keynes SURE was a heavyweight, sold as a heavy boat anchor to stabilize during an economic storm actually was a loose cannon that most likely will be responsible for the eventual sinking of the American ship of state and its citizens drowning in a sea of debt.
Dan Kurt
Guest007: Clinton and Eisenhower both had high tax low spending policies during booms, and both had surpluses.
During the 90s many state governments set up rainy day funds rather than cut taxes or raise spending in response to surpluses.
In so many ways, both the 50s and 90s were uniquely virtuous decades in America.
Somewhat relatedly, is Michael baily still making the claim that male bisexuals don't exist?
One suspects even many of Keynes's opponents know he was correct in his diagnosis of the problem. However, arguing he was wrong is an easier line of attack than simply opposing the policies indicated by his being right. Global warning deniers use the same technique. It is easier to deny manmade global warning than to simply oppose the policies needed to do something about it.
By the way, it is interesting to note that British fascist leader Oswald Mosley thought Keynes was correct.
Those people arguing that the Keynesian medicine was too feeble, were not reading all the Keynesian people in the MSM during late 2008-early 2009 time period, all of them were assuring everyone that 800 BILLION dollars would do the trick of saving the economy. Krugman going on about how it was insufficient is Monday Morning Quarterbacking, everytime a country implements a Keynesian demand stimulus program and it doesn't work, he claims it was insufficient. All the money Japan spent in the 90's; insufficient, Obama's stimulus; insufficient. Whatever the number, it wasn't enough. Lack of falsifiability anyone? The theory is self evidently wrong on it's face. You can't create wealth with a printing press and paying people to dig holes and then refill them. If it was that easy, someone else would have figured it out a long time ago, like thousands of years past.
"Whiskey said...
Keynesian stimulus programs do work. They are called military build ups. Building ships in particular, consumes a lot of domestic steel, wiring, munitions, and men to man them. So too for planes. And tanks."
This is nothing more than the broken windows fallacy. Building a warship, and sailing it around in circles at great expense in fuel and manpower, is no more productive than replacing a needlessly broken window-pane. Perhaps even less so; if your windows got smashed in a riot, you could at least take the opportunity to upgrade them to double-paned windows.
How about dead weight? I mean Marx was a genius too
No he wasn't, in point of fact Keynes thought that Marx was a hopelessly confused thinker as well as well as terminally angry at the world. Keynes read Marx's Capital at the behest of G.B. Shaw who was one of his Bloomsbury acquaintances. Keynes read it, and told Shaw it was bad and useless. Shaw insisted Keynes needed to reread it, and he did, and then told him it was even worse the second time. At least Keynes was right on that score.
Freud, Keynes and Krugman
"Nobody ever said the same economic theory has to hold in the normal business cycle as in a deep recession like the 30s. This isn't physics--our theories are nothing more than explanations of a small piece of a hugely more complicated reality."
huh, newtonian mechanics are not physics?
and while we are on the subject:
The British government was so determined to stamp out these financial crimes that it put Sir Isaac Newton on the case. Appointed as warden of the Royal Mint in 1696, Newton promptly began uncovering those who violated the financial laws of the nation with the same passion he brought to discovering the physical laws of the universe.
The great scientist was tireless and merciless. Newton went undercover, donning disguises to prowl through prisons, taverns and other dens of iniquity in search of financial fraud. He had suspects brought to the Mint, often by force, and interrogated them himself. In a year and a half, says historian Carl Wennerlind, Newton grilled 200 suspects, “employing means that sometimes bordered on torture.”
When one counterfeiter begged Newton to save him from the gallows – “O dear Sr no body can save me but you O God my God I shall be murderd unless you save me O I hope God will move your heart with mercy and pitty to do this thing for me” – Newton coldly refused.
The counterfeiter was hanged two weeks later.
That was until the genius Paul Samuelson came along and gave them a strong mathematical treatment and formally defined what we think of as "Keynesian" economics.
No. Keynes had formalized a good deal of his economics already.
All Samuelson did was combine neo-liberalism with Keynesianism to form what's referred to as "neo-Keynesianism".
So he did what was necessary to insure comfort during his declining years: he pulled a Ron Hubbard, invented a new religion where he justified Government Directing the Economy--turning stones into bread, now called Keynesianism.
Yes, exactly. The only recourse for a well-connected person like Keynes to ensure a decent retirement was to devise a new religion. This makes sense.
the Dollar is now worth less than 5 cents compared to a pre-depression Dollar
Of course you can't really perfectly compare a dollar today with a dollar from 70+ years ago. Since you can buy things with dollars today (contemporary medicine, computers, jet airline tickets, etc.) that you couldn't with dollars back then.
the US debt is on a cash basis is approaching 20 trillion and on an accrual basis probably 9 or 10 times more.
"Cash basis" by itself is meaningless. You need context, a ratio. Debt as a % of GDP is lower today than it was in the 40s.
Anonymous writes: "And counter to Crawfurdmuir's claim (and claims of many businessmen and non-Keynesian economists in 1945) that this was due to reductions in the labor supply rather than government spending increasing aggregate demand, full employment remained after the nation demobilized and conscripted soldiers returned to the labor force."
WWII permanently reduced the labor supply. FDR did not quite, as Sen. Burton K. Wheeler predicted, "plough every fourth boy under," but enough were ploughed under that it made a difference.
Whether this alone accounts for the postwar recovery is debatable. There were no additional New Deal policies, the OPA was allowed to expire, and capital had more breathing room under Truman than it would have done under Roosevelt or - thank God he didn't succeed -Henry A. Wallace, the true progenitor of today's self-styled "progressives," who took over the Democrat party in 1972 under the banner of George McGovern, a Wallace backer in 1948.
re: "Of course you can't really perfectly compare a dollar today with a dollar from 70+ years ago. Since you can buy things with dollars today (contemporary medicine, computers, jet airline tickets, etc.) that you couldn't with dollars back then." Anonymous Coward @ 8/5/12 3:42 PM
This is a perfect example of a Non sequitur. To attempt to refute that the purchasing power of the US Dollar has evaporated over the course of two thirds of a century by bringing up the truism that there are different things to buy with dollars today than there were back in the 1930s is silly. People still have to eat, be housed and pay for multitudes of items all of the years since then in spite of brilliant inventions and progress so economists have devoted careers in trying to establish a reasonable cost of living index to try and measure the phenomenon. Using the Government’s own data ( which is questionable I believe ) one can track the falling buying power of the dollar from 1913 to the present here: http://www.usinflationcalculator.com. Read a History of Interest Rates by Sidney Homer to see that price stability existed in the USA for about a century despite a Civil War and other travails during which the economy grew at a rate circa 2% year by year.
re: "'Cash basis' by itself is meaningless. You need context, a ratio. Debt as a % of GDP is lower today than it was in the 40s." Anonymous Coward @ 8/5/12 3:42 PM
Yes, I hear you "we owe it to ourselves," a famous line espoused by Keynesians. So far the debt bomb has not detonated but fiscal promises made at all levels of US governments commit to spending in the hundreds of trillions so I suspect that your "low" debt/gdp ratio will change to a point where even a Pollyanna as you will awaken to the threat of economic collapse.
Dan Kurt
"'the Dollar is now worth less than 5 cents compared to a pre-depression Dollar'
Of course you can't really perfectly compare a dollar today with a dollar from 70+ years ago. Since you can buy things with dollars today (contemporary medicine, computers, jet airline tickets, etc.) that you couldn't with dollars back then."
The hell you can't compare- there's a plethora of things that you could by then that you can by now- a gallon of milk, a loaf of bread, etc. By any way you want to measure it, there has been a massive drop in the value of the dollar, ever since the government has been allowed to pick the citizens' pockets by the stealth route.
This is a perfect example of a Non sequitur. To attempt to refute that the purchasing power of the US Dollar has evaporated over the course of two thirds of a century by bringing up the truism that there are different things to buy with dollars today than there were back in the 1930s is silly. People still have to eat, be housed and pay for multitudes of items all of the years since then in spite of brilliant inventions and progress so economists have devoted careers in trying to establish a reasonable cost of living index to try and measure the phenomenon.
Actually it isn't a non sequitur.
If you're going to rationally compare "purchasing power" then it makes perfect sense to consider that a perfect comparison isn't possible, that there are different goods and services, and that incomes are different, so that the fact that hamburgers cost a nickel so many years ago doesn't really tell us anything by itself.
So far the debt bomb has not detonated but fiscal promises made at all levels of US governments commit to spending in the hundreds of trillions so I suspect that your "low" debt/gdp ratio will change to a point where even a Pollyanna as you will awaken to the threat of economic collapse.
Debt is a stock, spending is a flow. GDP is a flow.
Using the Government’s own data ( which is questionable I believe ) one can track the falling buying power of the dollar from 1913 to the present here:
The gov't's own data includes things like "hedonics" to try to account for the fact that different time periods can't be perfectly compared due to new, different goods.
The hell you can't compare- there's a plethora of things that you could by then that you can by now- a gallon of milk, a loaf of bread, etc. By any way you want to measure it, there has been a massive drop in the value of the dollar
You can't make perfect comparisons. Goods are new, different. You can buy things at any time of day, at huge quantities. Nominal incomes are different. Etc.
ever since the government has been allowed to pick the citizens' pockets by the stealth route.
The gain to the government and loss to the holders of currency and government securities is limited to the reduction in the value in real terms of non-interest-bearing currency, (equivalent to the increase in the interest rate saving on the no-interest loan, as compared to what it would have been with no inflation), plus the gain from the increment of inflation over what was anticipated at the time the interest rate on the outstanding debt was established. On the other hand, a reduction in the rate of inflation below that previously anticipated would result in a windfall subsidy to holders of long-term government debt.
In previous monetary regimes, where regulations forbade the crediting of interest on demand deposits, the seigniorage profit on these balances, reflecting the loss to depositors in purchasing power, that would be enhanced by inflation would accrue to banks, with competition inducing some pass-through to customers in terms of uncharged for services. In an economy where most transactions are in terms of credit cards and bank accounts with respect to which interest may be charged or credited, the burden is trivial for most individuals, limited to loss of interest on currency outstanding. Most of the gain to the government is derived from those using large quantities of currency for tax evasion or illicit activity or those who keep cash under the mattress or in cookie jars.
re: "Actually it* isn't a non sequitur."Anonymous Coward @ 8/5/12 3:42 PM
*To attempt to refute that the purchasing power of the US Dollar has evaporated over the course of two thirds of a century by bringing up the truism that there are different things to buy with dollars today.
Non sequitur. "You keep using that word. I do not think it means what you think it means." Inigo Montoya (Character)
from The Princess Bride (1987)
Non sequitur: a non sequitur is a statement in which the final part is totally unrelated to the first part. First part: Items exist today that didn't exist at an earlier time. Second part: The value of the US Dollar has declined since the earlier time. The First part has no logical bearing as to the truth of a supposed negative change in the US Dollar's value.
Dan Kurt
Wittgenstein isn't hurt by being a two-fer, which gives him the edge of seeming a disinterested seeker of truth who could risk unmaking his reputation.
I'm sure he did seek truth. But then, he suffers some Anxiety of Influence issues, in his attempts at aping Nietzschean aphorisms, his bitchy dismissal of Mahler's music (a visitor in the childhood home), and of Schopenhauer. Like Thomas Mann, he may be a figure of decadence, learned to the nines but slipping off the shoulders of giants.
Then again, Russell-- you have to have your head buried pretty deep in Common Language to think he's pushing more weight than Wittgenstein. Plus, when Descarteses become Diderots, they can work a world of mischief: and Russell was one dumb, long-lived Diderot.
G.E.Moore, I would argue, was better than Russell or Wittgenstein.
Keynes is a decent guy, and a genius. Take from him what you can.
--vis-a-vis Whiskey's point: I would add that, by most guestimates I've seen, the money and manhours put into one Bismarck-class battleship would've added 1500 or 1600 Stukas to the Luftwaffe, or a comparable number of Pzkw IVs for the Panzergruppen.
The Bismarck was a work of art, but 1600 extra Stukas/Mark IVs in 1941 (and HMS Hood still afloat, natch) would've put a big extra thumb on the scales of Barbarossa.
Keynes on Marx:
"How can I accept a doctrine which sets up as its bible, above and beyond criticism, an obsolete text-book which I know to be not only scientifically erroneous but without interest or application for the modern world? How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeois and the intelligentsia who, with whatever faults, are the quality in life and surely carry the seeds of all human advancement? Even if we need a religion, how can we find it in the turbid rubbish of the red bookshop? It is hard for an educated, decent, intelligent son of Western Europe to find his ideals here, unless he has first suffered some strange and horrid process of conversion which has changed all his values." -- John Maynard Keynes, "A Short View of Russia" (1925) in Essays in Persuasion
old geezer: Non sequitur: a non sequitur is a statement in which the final part is totally unrelated to the first part. First part: Items exist today that didn't exist at an earlier time. Second part: The value of the US Dollar has declined since the earlier time. The First part has no logical bearing as to the truth of a supposed negative change in the US Dollar's value.
Obviously the two parts are related. The dollar can purchase new and different valuable things that didn't exist in the past. This constitutes its value today. You can't just cherry pick what you want. If a plague wiped out all the cows tomorrow making milk extremely expensive, and some dirt cheap beverage people like was invented, you can't then assert that the dollar has lost value just because you're just looking at milk.
"If you're going to rationally compare "purchasing power" then it makes perfect sense to consider that a perfect comparison isn't possible, that there are different goods and services, and that incomes are different, so that the fact that hamburgers cost a nickel so many years ago doesn't really tell us anything by itself"
I'm not grasping this. If I got to the supermarket on Monday and my daily groceries cost $20.00 and I return on Tuesday and the same groceries cost $180.00, the last thing I should presume is that something funny is going on in the economy?
Dan:
Sure, it does. Comparing prices across very different times and places can be tricky, because different things are on offer. Knowing this means, not that there's no meaning to pointing out that a dollar in 1900 means something very different than a dollar today, but rather that it's tricky interpreting that difference in terms that are meaningful.
It's a lot like trying to interpret different daily wages in different countries--the average daily wage in Haity is like $2 or something. That leads you to the correct understanding that Haiti is a desperately poor place, but it's not as simple as mapping that to what a $2/day wage would buy you in the US. Prices are lower there, the situation is very different, and comparing that figure with $2 here is really hard to do. That's true even though that figure does tell you the direction and smething about the magnitude of the difference between Haiti and the US.
Inflation works like compound interest, so that a low consistent rate of inflation over a century can erode a huge amount of value from your currency. However, it's not too clear to me that a 1-2% continuous rate of inflation has much of an impact on day to day life. It makes for interesting historical reading, when you see where someone is eagerly taking a hard job on the railroad that will pay him $1/day, but it seems way less damaging than unexpected high inflation, which can seriously screw people over who have fixed-income investments or retirement.
"I pledge myself to turn the clock back to 1899 when a silver dollar bought a steak dinner and a good piece of ass."
The economic policy of the Purple-Assed Babboon President, as written by William S. Burroughs
The Nationl Debt is money. People who want less debt by identity want less money. When they also say they want the same level of standard of living, this means they also want deflation. Deflation favors creditors and burdens debtors. In a capitalist economy built on debt finanace, this is a recipe for disaster. Its why the 1800's was not really a time of price stability, but a time of relentless deflation punctuated by inflationary periods of war and massive precious metal finds, with the times of war being the times of prosperity, and the deflation being periods of depression like the Long Depression of 1872 and the panics of 1835, 1857, 1893, etc.
Wealth increases by the government providing the money needed for investment and employment. In the 1800's we attempted to do this by free coinge of any precious metal brought to the Treasury. The results of this are obvious enough to any student of economic history, and were harmful enough to be set aside during the Civil War and other periods. In the modern economy, money is created by deficit spending by the government. When the government runs a surplus, it takes money away from the private sector, forcing it either into private debt or bankruptcy from more taxes being demanded from the economy than are returned as spending. The last three bouts of "surplus spending" resulted in the Great Depression, the economic malaise of the 1953-1960 period that began the economic disloction of the rust belt, and the financial wrecks of 2000-2008. When the debt was paid off in 1835, it resulted in an almost immediate panic and depression. One can track back other periods of surplus with similar economic results. Its amazing people can still getaway with proposing these economics as beneficial to anyone besides creditors.
it should always keep in mind that National Debt can be exchanged for money at any time and in any quantity without causing inflation because the debt is already a form of money. The formal legal means of this presently in the US is for the Fed to purchase debt securities with keystroke entries.
In the 1930s, average salary was $1,368 and milk was 56 cents per gallon:
http://kclibrary.lonestar.edu/decade30.html
You could buy 2,443 gallons of milk with an average year's salary back then.
The average salary today is around $40,000 and milk averages around $4 per gallon.
An average year's salary today buys you about 10,000 gallons of milk.
In the modern economy, money is created by deficit spending by the government. When the government runs a surplus, it takes money away from the private sector, forcing it either into private debt or bankruptcy from more taxes being demanded from the economy than are returned as spending. The last three bouts of "surplus spending" resulted in the Great Depression, the economic malaise of the 1953-1960 period that began the economic disloction of the rust belt, and the financial wrecks of 2000-2008. When the debt was paid off in 1835, it resulted in an almost immediate panic and depression. One can track back other periods of surplus with similar economic results.
Yes. In order for the non-government sector (i.e. everyone else except for the gov't) to save, the gov't has to run a deficit. The deficit equals the net savings of the non-gov sector. It's an accounting identity. Gov surpluses drain savings out of the non-gov i.e. everyone else and the entire economy. The last six periods of surplus in our more than two hundred-year history have been followed by the only six depressions in our history. These depressions only turn around once the deficit gets high enough to add back our lost income and savings and deliver the aggregate demand needed to restore output and employment. Right now, for the current level of gov spending, we're being over-taxed and we don’t have enough after-tax income to buy what’s for sale the
economy. Taxes need to be slashed and we need a bigger deficit to recover.
For those who will undoubtedly soon comment that the failure of the stimulus to return the country to full employment shows Keynesianism has failed, the most prominent Keynesianisms (Krugman, Stiglitz) were arguing at the time that it was too small to come close to filling the trillions in demand lost from the collapse of the housing bubble.
Yes, in the same way a faith healer will argue you aren't healed because your faith wasn't strong enough.
The question Krugman and Stiglitz can't answer is "How could we possibly pay that back?" We can't retire the debt we already have. Is it smart to buy ourselves some temporary relief from the recession if it means in two decades or so people are starving in the streets?
Whenever spending falls short of sustaining our output and employment, when we don’t have enough spending power to buy what’s for sale in the economy, government can act to make sure that our own output is sold by either cutting taxes or increasing government spending.
Taxes function to regulate our spending power and the economy in general. If people want to work and earn money but don’t want to spend it, fine. Government can either keep cutting taxes until we decide to spend and buy our own output, and/or buy the output itself.
"You could buy 2,443 gallons of milk with an average year's salary back then.
The average salary today is around $40,000 and milk averages around $4 per gallon.
An average year's salary today buys you about 10,000 gallons of milk."
The use of milking machines alone could probably account for this, not to mention mechanized processing plants, refrigeration and sophisticated distribution.
Peter Drucker, a conservative admirer of Keynes, viewed him as not merely conservative, but ultraconservative. "He had two basic motivations," Drucker explained in a 1991 interview with Forbes. "One was to destroy the labor unions and the other was to maintain the free market. Keynes despised the American Keynesians. His whole idea was to have an impotent government that would do nothing but, through tax and spending policies, maintain the equilibrium of the free market. Keynes was the real father of neoconservatism, far more than [economist F.A.] Hayek!"
http://www.forbes.com/2009/08/13/john-maynard-keynes-conservative-opinions-columnists-bruce-bartlett.html
His whole idea was to have an impotent government that would do nothing but, through tax and spending policies, maintain the equilibrium of the free market.
Yes, Keynes basically wanted the gov't to be like a plumber that unclogs the backed up economic flows.
"Both were pure maths drop-outs in a sense. Keynes had to give up on pure mathematics because he wasn't good enough, and Russell failed to become Senior Wrangler at Cambridge."
There were students ranked worse than Keynes and Russell who went on to do very impressive mathematics. This claim should be taken with a lot of salt.
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