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  • monetary - not fiscal - keynesianism

    [i had posted comments in 2 different threads that i thought were worth combining to initiate a separate discussion.]

    the problem with keynesianism is that it's never been tried, and it never will be. that's because keynes said that during good times the gov't should run surpluses to pay back the debts run up when applying stimulus during slowdowns. but the political system neither wants to cut spending nor raise taxes, so they're happy to run deficits pretty much all the time, under all conditions. the lack of discipline in the political system thus precludes keynesianism.

    Originally posted by karim0028
    … the concept of saving for a rainy day and then spending it when it rains works for individuals, but when it comes to pandering politicians and ever expanding govts, it will never work, bc the temptation to give out goodies that you don't personally pay for before elections or to curry favors is as old as time itself....
    in a similar fashion, the lack of moral restraint among private capitalists prevents a free market system from ever being tried. those with money will use it to gain power and manipulate the marketplace. so no free market system can exist in the real world.

    so, in real life, during times of economic contraction or weakness, the fed prints money under the name of "quantitative easing," pushes it out to the banks. meanwhile, in fed research papers addressing hypothetical times of high inflation [coming soon to an economy near you], the fed will restrict or even reverse its money printing under the name of reducing seignorage.

    it seems to me that the we have a kind of monetary keynesianism.

    to reiterate, keynes wanted the government to help regulate the economy through its FISCAL actions over a FULL CYCLE: to engage in deficit spending when the economy slowed or shrank, and to generate offsetting fiscal surpluses when the economy had healthy growth. but politicians being politicians, they don't want to cut spending or increase taxes, so they never generate the surpluses [FISCAL drag] to pay back the deficit spending. and now, because of political paralysis and in reaction to the frightening growth of the deficit, neither can we increase deficit spending [FISCAL stimulus] if the economy remains weak or weakens further.

    since our political process is broken and incapable of sensible economic action, we defer the regulation of the economy to the unelected monetary authorities. they are insulated from the electoral process and less engaged in political posturing, and thus more able to focus on the stability of the financial system.

    in a setting of debt deflation, "quantitative easing" [i.e. money printing] replaces fiscal stimulus since the very possibility of fiscal stimulus is severely restricted by the political system. in similar fashion, the restriction or reversal of seignorage [i.e. the restriction or reversal of money printing] replaces the generation of fiscal surpluses during periods of excessive price rises.

    we have a system of monetary [as opposed to fiscal] keynesianism.
    Last edited by jk; 12-28-10, 10:48 AM.

  • #2
    Re: monetary - not fiscal - keynesianism

    I see nothing to debate in what you've written, but I there is more beyond the specific subject material.

    That is, whether Dr. Michael Hudson's assertion that this 'monetary Keynesianism' is deliberate or merely reflection of human political frailty.

    As an example I point out his recent diatribe against the payroll tax cut: ostensibly this is to stimulate the economy, but much as the Bush tax cuts were to stimulate the economy ultimately the political process to reinstitute a tax is no different than the political suicide of advocating tax increases.

    A deeply cynical and/or realpolitik individual might then easily view that 'monetary Keynesianism' is simply a junk economics pretext to accrue wealth and power into the FIRE economy.

    Comment


    • #3
      Re: monetary - not fiscal - keynesianism

      i think there's a political process over time which parallels minsky's description of the evolution of the financial system. he talks of apparent stability leading financiers to move from conservative finance to leveraged finance to, ultimately, ponzi finance. similarly, the political system seems to "evolve" [maybe "devolve" would fit better] from responsible governmental actions to aggressive actions to hyper-ideological and corrupt actions. one thing leads to another.

      Comment


      • #4
        Re: monetary - not fiscal - keynesianism

        Originally posted by jk
        i think there's a political process over time which parallels minsky's description of the evolution of the financial system. he talks of apparent stability leading financiers to move from conservative finance to leveraged finance to, ultimately, ponzi finance. similarly, the political system seems to "evolve" [maybe "devolve" would fit better] from responsible governmental actions to aggressive actions to hyper-ideological and corrupt actions. one thing leads to another.
        This is plausible.

        As you know, I am not one of the NWO types, but at the same time it is difficult for me to say that this is all a natural process - especially given such shenanigans as the Citicorp takeover of Travellers...before it was even made legal again.

        But perhaps the most disturbing aside from the progression you note - i.e. responsible, to over leveraged, to Ponzi - is the means of breaking the cycle.

        In the '30s, it was FDR with his WPA, revaluation of gold, Social Security.

        In the '70s, it was Nixon with his going off the gold standard, toning down the Cold War/Vietnam/Great Society.

        Prior to that there was Andrew Jackson - victorious general and popular figure, along with Theodore Roosevelt - populist and larger than life character.

        In every case these 4 individuals had something extraordinary - the most recent 2 in particular being extremely astute politicians and power brokers.

        One reason I have such a negative view on events - and have since the beginning of my tenure in iTulip (and before, hence my joining) is that there simply are no such characters today.

        There is no larger than life figure - the papier mache one called Obama having been revealed for what it is.

        There are no astute power brokers - Pelosi, McConnell, Newt, and the like are simply sad and pathetic figureheads in comparison.

        Even should the theoretical best parts of democracy bring forth the best in the system to fix the problem - the sad fact is that there is no standout individual in any of the senses of the above who could even theoretically do the job of marshalling the nation, much less marshalling the political establishment by hook or by crook.

        And so the stage is set for 'something else'.

        Comment


        • #5
          Re: monetary - not fiscal - keynesianism

          The concept of QE certainly does seem to be founded in Keynesianism.

          There is at least one difference that might be significant. When the government deficit spends, it can actually provide demand by spending the money on materials or spreading it out among people who will spend it, (real stimulus) and actually create demand that will spread through the economy.

          The FED has far fewer choices. If it buys MBS from banks, it hopes the banks will actually lend the money out in an efficient manor, but that doesn't seem to have happened. If it buys Treasuries, it again hopes the government will spend the money in an efficient manor, but giving income tax breaks, at these levels, has been shown not to work.

          So monetary stimulus can be considered a form of keynesianism, but I think it may be far less versatile than fiscal stimulus. It seems we are in the middle of this experiment and we've yet to see what the conclusion will be.

          Comment


          • #6
            Re: monetary - not fiscal - keynesianism

            Originally posted by jk View Post
            [i had posted comments in 2 different threads that i thought were worth combining to initiate a separate discussion.]

            the problem with keynesianism is that it's never been tried, and it never will be. that's because keynes said that during good times the gov't should run surpluses to pay back the debts run up when applying stimulus during slowdowns. but the political system neither wants to cut spending nor raise taxes, so they're happy to run deficits pretty much all the time, under all conditions. the lack of discipline in the political system thus precludes keynesianism.



            in a similar fashion, the lack of moral restraint among private capitalists prevents a free market system from ever being tried. those with money will use it to gain power and manipulate the marketplace. so no free market system can exist in the real world.

            so, in real life, during times of economic contraction or weakness, the fed prints money under the name of "quantitative easing," pushes it out to the banks. meanwhile, in fed research papers addressing hypothetical times of high inflation [coming soon to an economy near you], the fed will restrict or even reverse its money printing under the name of reducing seignorage.

            it seems to me that the we have a kind of monetary keynesianism.

            to reiterate, keynes wanted the government to help regulate the economy through its FISCAL actions over a FULL CYCLE: to engage in deficit spending when the economy slowed or shrank, and to generate offsetting fiscal surpluses when the economy had healthy growth. but politicians being politicians, they don't want to cut spending or increase taxes, so they never generate the surpluses [FISCAL drag] to pay back the deficit spending. and now, because of political paralysis and in reaction to the frightening growth of the deficit, neither can we increase deficit spending [FISCAL stimulus] if the economy remains weak or weakens further.

            since our political process is broken and incapable of sensible economic action, we defer the regulation of the economy to the unelected monetary authorities. they are insulated from the electoral process and less engaged in political posturing, and thus more able to focus on the stability of the financial system.

            in a setting of debt deflation, "quantitative easing" [i.e. money printing] replaces fiscal stimulus since the very possibility of fiscal stimulus is severely restricted by the political system. in similar fashion, the restriction or reversal of seignorage [i.e. the restriction or reversal of money printing] replaces the generation of fiscal surpluses during periods of excessive price rises.

            we have a system of monetary [as opposed to fiscal] keynesianism.

            ej explains it in his answer to your question...


            where's the guest column?

            Comment


            • #7
              Re: monetary - not fiscal - keynesianism

              Originally posted by metalman View Post

              where's the guest column?
              well, it ain't news, metalman. i declared myself a guest. which area would you suggest as more appropriate in the future? and should i assume that your reply is official policy?
              Last edited by jk; 12-28-10, 10:46 PM.

              Comment


              • #8
                Re: monetary - not fiscal - keynesianism

                Originally posted by jk View Post
                well, it ain't news, metalman. i declared myself a guest. which area would you suggest as more appropriate in the future? and should i assume that your reply is official policy?
                you're not a guest... you're jk!

                big hug to ya...

                Comment


                • #9
                  Re: monetary - not fiscal - keynesianism

                  Great post, JK. Come to think of it, even the monetary keynesianism hasn't gone so well ... in the same way that fiscal keynesianism lost its symmetry, so had monetary policy under the Greenspan Fed. The tightening was weak while the easing was strong. That's why the Fed ultimately found itself bumping up against the zero bound; rates kept coming down more than they went up.

                  Unfortunately, at this point we're fast running out of kinds of keynesianism to try...
                  Finster
                  ...

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