RobInKuwait
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Mulletsoldier...any thoughts on this?
Mulletsoldier...any thoughts on this?
Keynesian Economics, a Critique
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Mulletsoldier
Binging on Pure ****ing Rage
I feel [and I believe Stategic would agree] that the first portion of the video is a [deliberate] misrepresentation of Keynesian Economics; particularly, the NeoKeynesian synthesis.
Capital is not injected in the form of Moneys in Keynesian Systems. As I have discussed with you previously, Moneys/Income are nothing more than an end-point function of Capital-exchange, and not primary accumulations of Wealth themselves. The latter is represented by the primary determinations of Capital in western global-fiscal Capital models: Private Property. I.e., - Wealth, as a primary accumulation of Capital, is most concretely represented in the form of physical private property in Western Systems [I say physical to represent actual land and the structures created therefrom as labor, intellectual property and so forth are private property as well]. Essentially, Keynes felt that investment [not injection] of borrowed Capital will increase the Wealth of a nation vis-a-vis infrastructure repair - key to this is an increase in aggregate demand as a result. In reality, it is similar to 'trickle-down', with the infrastructure doing the 'trickling'.
I feel this was a deliberate misrepresentation [fallacy of Argument from Accident]: "All Capital is Moneys; borrowing Moneys to redistribute is bad for the economy; Keynesian believe in injecting Capitalism; Keynesian is bad" This individual is clearing ignore distinctions of Capital - much like many free-market Capitalists do.
Capital is not injected in the form of Moneys in Keynesian Systems. As I have discussed with you previously, Moneys/Income are nothing more than an end-point function of Capital-exchange, and not primary accumulations of Wealth themselves. The latter is represented by the primary determinations of Capital in western global-fiscal Capital models: Private Property. I.e., - Wealth, as a primary accumulation of Capital, is most concretely represented in the form of physical private property in Western Systems [I say physical to represent actual land and the structures created therefrom as labor, intellectual property and so forth are private property as well]. Essentially, Keynes felt that investment [not injection] of borrowed Capital will increase the Wealth of a nation vis-a-vis infrastructure repair - key to this is an increase in aggregate demand as a result. In reality, it is similar to 'trickle-down', with the infrastructure doing the 'trickling'.
I feel this was a deliberate misrepresentation [fallacy of Argument from Accident]: "All Capital is Moneys; borrowing Moneys to redistribute is bad for the economy; Keynesian believe in injecting Capitalism; Keynesian is bad" This individual is clearing ignore distinctions of Capital - much like many free-market Capitalists do.
RobInKuwait
Registered User
OK. I understand your critique.
Do some individuals believe that the current political-economic situation of bailouts and "economic stimulus packages" to be Keynesian in nature? If that was the case, that may explain their reasoning.
Mulletsoldier
Binging on Pure ****ing Rage
I believe they do, but they are much more directly Socialist than Keynesian in nature.
As I said, critiques of Political-Economy necessitate a proper understanding of the relational nature of Capital itself. Capital is often directly conflated with Moneys and/or Income. Also, the relation between Value and Capital must be understood as well. For example, you and I [or more specifically, our capacity for labor]; the tools we use [intellectual or physical] to complete our tasks; the roads on which we drive to get there; and Moneys are all Capital, but all they generate Value differently.
For example, while Moneys have the capacity to generate Value as the liquidity of markets differ [i.e., dumping a less liquid asset {Canadian Dollar} for a more liquid asset {American Dollar} in the hopes of capitalizing on devaluation], intra-economy Moneys do not generate Value - they merely represent it [as a determinant medium of exchange]. However, all the other forms of Capital mentioned above do generate Value: Labor by imparting Value to the objects of labor; the tools [Constant Capital] by increasing the potential for the valuation of labor, or by increasing net-worth of the company itself; and roads and infrastructure by a vast complex of mechanisms.
In essence, redistribution of Moneys does nothing to increase Value in any way - it merely redistributes it. In Keynesian Economics, Capital is redistributed as an investment in socially necessary goods - i.e., a purchase which increases Value and aggregate demand.
That video's mischaracterization was honestly a bit frustrating.
As I said, critiques of Political-Economy necessitate a proper understanding of the relational nature of Capital itself. Capital is often directly conflated with Moneys and/or Income. Also, the relation between Value and Capital must be understood as well. For example, you and I [or more specifically, our capacity for labor]; the tools we use [intellectual or physical] to complete our tasks; the roads on which we drive to get there; and Moneys are all Capital, but all they generate Value differently.
For example, while Moneys have the capacity to generate Value as the liquidity of markets differ [i.e., dumping a less liquid asset {Canadian Dollar} for a more liquid asset {American Dollar} in the hopes of capitalizing on devaluation], intra-economy Moneys do not generate Value - they merely represent it [as a determinant medium of exchange]. However, all the other forms of Capital mentioned above do generate Value: Labor by imparting Value to the objects of labor; the tools [Constant Capital] by increasing the potential for the valuation of labor, or by increasing net-worth of the company itself; and roads and infrastructure by a vast complex of mechanisms.
In essence, redistribution of Moneys does nothing to increase Value in any way - it merely redistributes it. In Keynesian Economics, Capital is redistributed as an investment in socially necessary goods - i.e., a purchase which increases Value and aggregate demand.
That video's mischaracterization was honestly a bit frustrating.
RobInKuwait
Registered User
I understand that frustration, but its possible the video stems out of treasury department economists or their proponents mislabeling their recent programs as Keynesian in nature.
Question: are there any examples of successful large scale deployments Keynesian or Neo-Keynesian economic principles. The only example I can think of off the top of my head is the New Deal, and the 'success' of those is definitely a controversial question.
Mulletsoldier
Binging on Pure ****ing Rage
RobInKuwait
Registered User
The Western Economy from 1955 to ~1979.
You're referring to the interstate system, bridges, ect? Or also military components? Can you clarify a little? Would you consider incentives for the transcontinental railroad in the 19th century to be Keynesian in nature? I guess the question I'm asking is: at what point does a public project become Keynesian?
Mulletsoldier
Binging on Pure ****ing Rage
Apologies. Allow me to clarify: My suggestion was to imply that Keynesian thought [in its original application] dominated the immediate Post-War period, with its combination with Neoclassical Economics, in the IS-LM and Phillips modalities, dominating the period thereafter [up until the Reganomic period]. I believe you are searching for a single exemplar of Neo-Keynesianism/Neoclassical Synthesis, whereas I am trying to suggest its influence was so widespread that it predominated Political Economic policy and thought. Essentially, Neo-Keynesianism was economics during that period [acts of infrastructure reform need not be isolated events, but may comprise federal governmental policy].
That is a convoluted question, though I would suggest the answer lies in the scope and magnitude of the works in question. A Neoliberal Government fixing a rode in Albuquerque is an isolate public work; a Socially Democratic Government instituting sweeping infrastructure reform is an expression of Keynesian thought.
RobInKuwait
Registered User
OK, sweeping infrastructure reform is Keynesian thought. Fair enough.
Also, won't the sweeping infrastructure reform eventually run out of things to build? What do you do with the workers at that point? Is it assumed that the new infrastructure will provide new opportunities for them?
Mulletsoldier
Binging on Pure ****ing Rage
This comment references the concept of Value-creation and aggregate demand I mentioned above:
This Capital investment is a means of stimulation, Rob! Not the 'whole shibang', so to speak! The concept is to increase aggregate demand [microeconomically] by implementing certain macroeconomic techniques, based on predictive mechanisms [IS-LM and Phillips curve]. The Neoclassical synthesis payed special attention to integrating Keynesian Philosophy into sound microeconomic policy.
RobInKuwait
Registered User
Ok, I see. Basically use the infrastructure growth to increase GDP and increase opportunities for everyone.
OK. So is the capital investment is used to increase production prior to predicted slowdowns in the economy, almost like fixing a problem before it becomes a problem? I guess the real trick to successful Keynesian economic policies becomes reading the economic ebb and flow as accurately as possible.
Mulletsoldier
Binging on Pure ****ing Rage
Bingo! That is what the Phillips Curve is: A predictive economic mechanism used as a first precipitative factor in economic decisions.
RobInKuwait
Registered User
Mullet,
Do you think that "green infrastructure improvements" fall in line with Keynesian economic principles? How about economic stimulus packages such as direct consumer dollar injections and tax cuts paid for off of deficit spending?
Basically, would Keynes approve of Obama's package?
My thought is that "green infrastructure improvements" do not create value for private enterprises due to the fact that its not creating new capital opportunities, its just changing the way the existing capital provides energy.
Your thoughts?
Do you think that "green infrastructure improvements" fall in line with Keynesian economic principles? How about economic stimulus packages such as direct consumer dollar injections and tax cuts paid for off of deficit spending?
Basically, would Keynes approve of Obama's package?
My thought is that "green infrastructure improvements" do not create value for private enterprises due to the fact that its not creating new capital opportunities, its just changing the way the existing capital provides energy.
Your thoughts?
Mulletsoldier
Binging on Pure ****ing Rage
Define: 'Green infrastructure improvements'. That is a broad term; hard to make a qualification based on such a generalizations. I.e., could you define some specific initiatives?
RobInKuwait
Registered User
Here's some of them:
PRESIDENT-ELECT BARACK OBAMA: We can create millions of jobs starting with a 21st century economic recovery plan that puts Americans to work building wind farms, solar panels and fuel efficient cars. We can spark the dynamism of our economy through a long- term investment in renewable energy that will give life to new business and industries with good jobs that pay well and can't be outsourced.
On top of that, obviously building a new bridge brings new public economic capital that all businesses can use. Would you include say refurbishing an old bridge in that model? Obviously that would not increase economic capital short term, though it would prevent the loss of capital long term. Would Keynes be for that?
Mulletsoldier
Binging on Pure ****ing Rage
It depends on one's perspective, in regards to gaining v., avoiding the loss of capital. Depending on the support structure of a certain area, massive refurbishing contracts require large investment; associated with that investment is contractors and sub-contractors necessary to refurbish; goods manufacturers to supply materials, and so forth. Capital has the potential to be generated there. Further, avoiding the loss of capital can always eventually lead to the creation of new capital.
At any rate, I am more in favor [as is Keynes] of new construction as opposed to refurbishing. In respects to the energy issue, that is tricky! If these new energy-yielding technologies are used merely to subsidize the petroleum industry, or provide more efficient means to power the same energy-grid, than you are right; however, if the investment is made to modify the infrastructure to support them as primary resources, than that is new capital!
At any rate, I am more in favor [as is Keynes] of new construction as opposed to refurbishing. In respects to the energy issue, that is tricky! If these new energy-yielding technologies are used merely to subsidize the petroleum industry, or provide more efficient means to power the same energy-grid, than you are right; however, if the investment is made to modify the infrastructure to support them as primary resources, than that is new capital!
RobInKuwait
Registered User
I read a critique that any loan government takes out to fund these projects takes away available capital from private firms and therefore hinders economic recovery. I'm not certain how true that is, though I think the idea has merit. I do think the government excessively borrowing money to fund deficit spending hurts the currency and therefore capital development long term. I believe Peter Schiff calls it selling a cow to buy some milk.
I've read that Keynes initially did not agree with deficit spending to get out of an economic downturn, but later changed his view. Any truth to that claim, and if so what prompted his change of view?
Mulletsoldier
Binging on Pure ****ing Rage
If it is Public Capital than how does its deferment to infrastructure reform necessarily make it inaccessible to a private firm? Implicit within that suggestion is that this public capital would be direct deferments to a private firm [ala bailout] which are unequivocally more damaging.
In terms of reducing the liquidity of the USD, I disagree. Direct money injections necessarily reduce the liquidity of the American Dollar by proxy: Increasing the proportionate quantity of moneys will devalue the quality of existing moneys. As we have seen, this cannot be called an investment as, ostensibly, it will do nothing to create new value. On the other hand, it can be successfully argued that capital investments in infrastructure, even in a deficit, do create new value.
I've read that Keynes initially did not agree with deficit spending to get out of an economic downturn, but later changed his view. Any truth to that claim, and if so what prompted his change of view?[/QUOTE]
I think that was the case; I am unsure what prompted his change of heart, though.
RobInKuwait
Registered User
You misunderstood what I meant. I meant that every dollar invested in US government bills could be in a corporate bond, investing in private capital to produce private job.
I didn't mean damaging in terms of reducing liquidity but increasing it to the point of significantly devaluing its value. Obviously when you already have a significant federal deficit, "increasing liquidity"/inflating your own currency is exponentially advantageous in order to pay off debt at a reduced cost.
The problem I see with this is significantly devaluing currency during a downturn in the economy harms private capital due to the fact that during downturns, the natural tendency is to preserve capital and decrease expenses, not take out additional loans.
So while increasing liquidity helps finance the government debt, it can also decrease the capital reserves in private companies.
Mulletsoldier
Binging on Pure ****ing Rage
That is a tired argument from the global-fiscal corporate capitalism camp that has little economic merit; essentially, it amounts to a type of pseudo-socialism, though one which benefits the smallest of contingencies.
Stagflation is always a risk with Keynesian-based systems. This is why the NeoClassical Synthesis exists, though: To act as a predictive mechanism to avoid such unfavorable dichotomies [direct capital injections or forced infrastructure investments].
Appropriate investments will not devalue currency, though. Inappropriately applied macroeconomic policies - such as these most recent bailouts - will. The Neoclassical Synthesis proposes that to avoid stagflation in the event of infrastructure reform, necessary steps to deregulate key industries must be taken. You are immediately jumping to conclusions, whereas the process is a tad more convoluted. Investing in infrastructure while simultaneously deregulating key markets [particularly primary input good supply and labor markets] will avoid stagflation, revalue currency and create a more stable market. Excessive regulation + capital investments = stagflation. If Obama's economic advisory board is intelligent, they will deregulate the supply chain of the industries most heavily involved in their proposed infrastructure reform.
Also, this:
Is a microeconomic tendency being applied to macro-level fluctuations in capital flows which does not necessarily apply.
I completely disagree. Market liquidity is a necessary condition for market strength; particularly in global-fiscal capital where traders [whose firms stimulate the economy] are trading assets against the American dollar. Increasing liquidity + productivity revalues the dollar to the point where trading is encouraged, not decreased.
RobInKuwait
Registered User
What's socialistic about it?
Would the Fed's rate level also be a part of this?
Aren't you essentially picking and choosing industries to prop up by doing this? What happens to those industries after the government steps out?
How can private companies plan their future operations when there is sporadic intervention by the government?
Companies cut employees and preserve capital during downturns. Yes, its micro, but doesn't it have a macro-level effect?
I wouldn't deny that market liquidity is a necessary condition for market strength. The Great Depression demonstrates that well.
The point I was making, is that when the economy is in a downturn, in Keynesian economics, private equity is tightening while public equity is loosening. The end result will be that due to inflation there will be a devaluation of the capital that private industry is essentially saving. To see this, watch CNBC or FoxBusiness when they interview CEOs. The strongest companies consistently say that due to the economic downturn, they are keeping large cash reserves and decreasing borrowing. This means that when government prints all their money for these projects and creates inflation, they're lowering the capital available to the country. Obviously, if there's 3% inflation it won't cripple the company, but 10-12% could significantly hinder their capital.
Mulletsoldier
Binging on Pure ****ing Rage
A more apt question: What is not? You are insinuating that private firms should be directly privy to Public Capital.
Yes, calculating rate-level risk would be a component of an ISLM model. Though, equally involved is predictions based on other aspects of market fluctuation.
The goal of Noekeynesian thought is not this NeoLiberal concept of temporary "prop ups". The idea is not to temporarily stabilize a fledgling industry via direct capital injections - necessarily altering the market structure - but to invest appropriately in existing industries which are conducive to infrastructure growth - i.e., to create new value.
Unless we are dealing with a complete laissez faire-style system, government intervention will always exist; whether it be in the form of environmental sanctions, trade tariffs, labor regulation, or trade embargos. You make it sound like your mighty corporate-market is so feable! The hallmark of a strong firm is adaptability. As well, the government has always favored certain industries; where have you been?
At any rate, the investment and subsequent deregulation need be deliberate and focused as to avoid unwanted situations.
Yes, but allow me to elaborate. Individual agents spend when they have capital available to do so, and save when they do not, as we are creatures of immediate habit. Most of us do not save a $5 bill with a sense of foresight that we may need it for a toll three years down the road. Corporate entities are different, though; they can be spurred or nudged to spend even in downturns if the situation appears to be an opportunistically appealing one. Much in the same way [say] that a less than afluent family may save a certain amount of moneys for item 'X' until it is sold at a lesser price.
In this same way, infrastructure investment will increase the liquidity of the American dollar, necessarily revaluing it; in this way, foreign assets go on sale! [essentially].
Where and how did you arrive at this? Particularly reference the aspects of the NeoClassical Synthesis/ISLM model which led you to this conclusion.
RobInKuwait
Registered User
I didn't insinuate that, you misunderstood my point. Chinese, Japanese, and American investors all buy T-bills. If they weren't buying those T-bills, they may very well be being corporate bonds.
Do you think the fed screwed up by putting the interest rates so low for so long?
By prop up, I meant for example that Obama will spend a lot of borrowed capital on "Green companies", that may not normally get that large of injection of capital in the free market. The companies will necessarily become dependent on the government similar to how defense contractors are now.
Corporate-markets are feeble when compared to the brute force exerted by government intervention. Yes, strong companies adapt to market conditions, but if a country's government is the major force that forces adaptation, competing firms in countries with less interventionist economic policies have a distinct competitive advantage.
Actually, I've been reading up on the great depression, and one of the problems that caused firms to fail was that Hoover initially encouraged companies who tightened their balance sheet and were planning layoffs to continue spending as if there was no tomorrow. The result was many firms failing.
Yes, some companies with strong capital reserves will acquire other companies in downturns, but it makes smart business sense to have larger cash reserves when credit tightens and future profits are projected to have a downward trend.
Increasing liquidity devalues, not revalues.....making more money makes the existing money less valueable. US assets will essentially go on sale elsewhere (which would encourage economic growth).
When the government goes into spending mode, as prescribed by Keynes during economic downturns, and finances it by increasing liquidity, the value of money goes down. Therefore, if private entities are saving money, the value of that money, and their liquid assets in general are decreased.
Mulletsoldier
Binging on Pure ****ing Rage
If you say so.
I do. I also think the massive drops in 2007 contributed significantly to the immediacy of the subprime crisis. That precipitous drop in IR - meant to spur spending - in combination with the block-packaging of illiquid mortgages essentially made the entire mortgage market one massive illiquid asset.
Ah yes, I see the intention of your point. In such cases, refer to my prior comment about the permanence or lack thereof of the targeted industries!
Or the same firms migrate to the same countries for the same competitive advantage; happens universally on an ad hoc basis depending on the industry.
Rob, I am pretty sure you will selectively receive any information which places the blame for an economic meltdown on the government! Possibly after the Great Depression III you will be convinced that Free Market-based systems are probably not the most efficacious approach!
You may have misunderstood me.
It may, but this depends on how liquidity is increased. Direct liquidity increases via Central Bank injection of moneys necessarily reduces liquidity; an increase in liquidity based on the trading strength of the currency [via increases perception of strength of production] does not.
I.e.,) There is more than one way to increase liquidity.
Again: You seem to be 'stuck' on Keynes, and I seem to continue preaching the NeoKeynesian perspective! Telling me the shortcomings of Keynes when applied to 21st century economics is like telling me how Karl Marx did not predict the computer!
You are correct, but only in the transient sense. You make it appear like recession lending is the ends, when it is merely the means. When I say revaluation occurs, I am not speaking in the immediate sense [as you are].
RobInKuwait
Registered User
What book would you recommend that would do justice to neo-classical synthesis?
I read that Keynes, though many find him to be an outstanding economist, he is a horrible writer, is there any truth to that?
I read that Keynes, though many find him to be an outstanding economist, he is a horrible writer, is there any truth to that?
Mulletsoldier
Binging on Pure ****ing Rage
Oh Christ Rob he is god awful. I have also read he was a horrible orator.
John Hicks' IS/LM Explanation [title of the paper] would be a great place to start!
RobInKuwait
Registered User
Sounds good. Thanks Mullet. I'll read him then come back with some educated criticism
.Sergiu
New member
I agree. And some of his interpretations and ideas are flawed.
Mulletsoldier
Binging on Pure ****ing Rage
Of course they are! Anytime you attempt to apply late-nineteenth early-twentieth century macroeconomics to the contemporary context they will seem flawed. This is why I have a personal preference to the IS/LM and NeoClassical Synthesis models.
RobInKuwait
Registered User
Mullet,
In the current economic situation, do you think that governments are fundamentally misinterpreting Keynes and using him as a justification to spend money to build a larger government infrastructure vs a larger national economic infrastructure?
In the current economic situation, do you think that governments are fundamentally misinterpreting Keynes and using him as a justification to spend money to build a larger government infrastructure vs a larger national economic infrastructure?
Mulletsoldier
Binging on Pure ****ing Rage
It would appear that way. I think that you cannot apply classic Keynesian models to contemporary economics, due to the precipitous shifts in the perception of the interplay between micro- and macroeconomics. I sound like a broken record but that is why I prefer the IS/LM Model.
RobInKuwait
Registered User
The problem is that most political representatives have minimal if any economic training. It may be a bridge too far to expect them to undertake anything resembling contemporary economic theory. Do you think its more detrimental to the economy to have government spend tax dollars on the economy in a reckless and haphazard manner, or have government not spend tax dollars on the economy at all? IE is it better for them to do it wrong or do nothing at all?
Mulletsoldier
Binging on Pure ****ing Rage
This is where our operative definitions of work become problematic. One could quite easily characterize a policy of noninvolvement as a specific form of work, rather than a lack thereof. I tend to avoid being fatalistic, and so, in an ideal world, I would hope that proposition is merely a false dichotomy. In essence, I think an ideal political economy is one such that deregulation and capital expenditures work in concert with one another as a type of dual-predictive mechanism.
RobInKuwait
Registered User
Obviously there are degrees of intervention and government will always have some involvement in economic matters, even if its merely to protect the economic transaction. I was not taking issue with that question.
My specific question was: "Do you think its more detrimental to the economy to have government spend tax dollars on the economy in a reckless and haphazard manner, or have government not spend tax dollars on the economy at all?" I should have qualified the statement with:"during an economic downturn."
I don't think its a false dichotomy in this context because government spending during an economic downturn, though favored today, is by no means the only possible course of action. Governments still make the conscious decision to borrow and spend that money. Do you think its the right decision for governments to spend money in a downturn, if they they are spending it appropriately.
In that context, something about the US's economy is not ideal or someone fell asleep at the switch....
Mulletsoldier
Binging on Pure ****ing Rage
By false dichotomy I meant two negative extremes, whereby a third option is the most obviously beneficial. I.e., I would propagate neither reckless spending nor a lack of intervention, but a deliberate and focused approach.
In that context, something about the US's economy is not ideal or someone fell asleep at the switch....
I am pretty sure the latter caused the for former.
RobInKuwait
Registered User
Oh, I thought it meant a fake division. You and your fancy terms.
Does Keynes or any of his neo-classical synthesis friends ever propose a mechanism to properly moderate the spending?
Mulletsoldier
Binging on Pure ****ing Rage
lol, I was going to use a smiley but these new ones suck.
Yes: The IS/LM Model.
Literally, that is what the IS/LM is: a predictive mechanism meant to increase or curtail government spending to avoid economic crises.
RobInKuwait
Registered User
Yes: The IS/LM Model.
Literally, that is what the IS/LM is: a predictive mechanism meant to increase or curtail government spending to avoid economic crises.
You've seen how congress spends money. President Elect Obama's stimulus has items in it like $194,000 going to a town of 143 people for "green projects", millions headed to various cities for Museum projects, and hundreds of billions set aside to get states out of the red. Does IS/LM assume all government spending is good, or does it have checks and balances built in to focus spending on infrastructure projects.
Mulletsoldier
Binging on Pure ****ing Rage
Bingo.