
The takeaway from six years of economic troubles? Keynes was right - MaysonL
http://blogs.reuters.com/anatole-kaletsky/2014/10/31/the-takeaway-from-six-years-of-economic-troubles-keynes-was-right/
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aburan28
Real wages for almost all Americans have not risen over the past few decades
except for the rich. Quantitative easing should have been distributed to the
populace not banks. Point is the economy has not improved for most Americans
and Keynesian throry is wrong

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gd1
"Countries that took emergency measures to reduce public borrowing have mostly
suffered weaker growth, as in the case of Britain from 2010 to 2012"

Someone is going to have to point out for me where this supposed 'austerity'
happened in the UK, because I'm f*cked if I can see it.

Charts are here:
[http://www.bbc.co.uk/news/business-25944653](http://www.bbc.co.uk/news/business-25944653)

Definition of a Keynesian: someone who thinks a 6% of GDP budget deficit is
'austerity'.

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vishakad
Zero interest rate policies definitely make it more difficult for central
banks to use interest rates as a tool to stimulate aggregate demand.

Sure, the massive bond-buying program of the Fed did actively push interest
rates close to zero. But, in the process, it decreased long-term interest
rates too, in particular, treasuries and T-bills. This decrease allowed the
government to borrow more money during auctions.

Isn't this a case for QE enhancing the government's ability to borrow? Or is
my crude understanding of monetary policy all wrong?

~~~
hga
I'm pretty sure everyone's understanding of monetary policy is "crude".

What you say appears to be right, but it's also rare if not unheard of. As I
understand it, _normally_ , as the US (and I and my family) experienced in the
'70s, these policies would be viewed by borrowers in such a way they'd demand
more interest for lending their money to the government, through combinations
of perhaps rising inflation and perceived regime risk (which rising inflation
is an example of, by eventually liquidating debts for less real value).

"This Time It's Different!", which they always say (and is the title of a
recommended book on the subject, an 800 or so year study of this game). The
theory I hold to as of now is that the world-wide nature of the Great
Recession and other factors like the artificiality of the Euro have made the
US dollar, and US government debt, the "least worst" place to put your money.
Well, in any quantity at least, e.g. I remember tiny Switzerland (GDP ~1/32nd
of the US) getting very concerned about "hot money" inflows into their franc
and maybe taking some actions WRT to them.

The PRC is also something of a wild card: they watched the debacle of
Indonesia, where a short term liquidity crisis was treated by the IMO as a
typical 3rd World unsustainable government debt crisis, resulting in needless
hardship and the ousting of its long term strongman. The CCP decided to make
sure that didn't happen to them and have as a result acquired vast foreign
wealth/debt holdings, including plenty of US government debt.

~~~
vishakad
You've got some sound logic there, particularly on why the US is a popular
place for investment. That is definitely a factor as to why T-bond yields have
stayed low over the last few years. But, is inflation really that big a factor
in determining bond yields during auctions?

With regards the '70s, you emphasized "normally" in your reply. Why was that?
Weren't the '70s a time of unusually high inflation and unemployment in the
US?

And thank you for the book recommendation! It looks really nifty!

~~~
hga
It's my understanding that _perception_ of future inflation is _very_
important in determining bond yields. At the extreme, you want to get paid
back in real terms, not "NuDollars" (hmmm, Heinlein assumed inflation of at
least 3 orders of magnitude in the time _Citizen of the Galaxy_ was set). Or
why we talk about "real" interest rates, subtracting inflation. Of course,
let's not get into how the government is scoring inflation nowadays, or how
everyone admits that the cost of education and medicine don't track official
inflation at all....

As I understand it, the '70s were "normal" in that that sort of response is
what you really should expect from such policies. Check out the book, which I
bought but have only glanced at.

The smashing of the Phillips Curve, the official, written into law as I
recall, relationship between inflation and unemployment, wasn't considered
normal at the time, e.g. the word "stagflation" was coined to describe it. But
skimming the Wikipedia article on it suggests that it was never true, or at
least not for more than the short term.

And the "'70s" economic agony was rather long term. E.g. you won't read it in
Wikipedia, but LBJ closed the gold window to all but central banks in 1968,
i.e. moving it much more to the political arena by cutting out "speculators"
like George Soros. That was a near catastrophe of the "black swan" type ... at
least to them, who thought we could afford both "guns and butter".

With a slow end in the early '80s, delayed in part by the phasing-in of
Reagan's tax rate cuts required by the Democratic House, conveniently
providing an "It's Morning in America" 1984 campaign theme as "Reaganomics"
vanished from the vocabulary ^_^.

~~~
vishakad
Your inflationary expectations point makes sense. Considering the US economy
is in a period of low to zero inflation at this point, it is fair for bond
yields to be low for 3-year terms and so. I completely forgot about NuDollars,
hehe.

The bit I know about the '70s is also the US going off the gold standard, with
Nixon putting the then Fed Governor, Burns, under immense pressure to keep
interest rates low in the face of high inflation. Not to mention going off the
gold standard altogether.

Much of my reading on economic growth has been rather lopsided on the side of
monetary economics. I'm looking to pick up more on the influence of government
policy such as tax cuts, etc.

~~~
hga
Just a few mostly "I Was There" notes, you're headed in the right directions:

"Energy" was a prime issue in the '70s: the '68-71 ending of the gold window
(BTW, prior to that it was illegal for US citizens to own gold) plus the Yom-
Kipper War resulted mess up crude oil prices and supplies, and Nixon oversaw a
fundamental change in regulatory policy that made everything in this and many
other areas a lot more expensive (I highly recommend this book
ttp://www.amazon.com/gp/product/0307453693/ which is where I learned about
LBJ's closing of the gold window, and which actually doesn't feature much of
Reagan until I presume the end, I'm still in the Nixon period).

And rather critically Nixon's wage and price controls were never lifted for
oil and gas, and by the Carter Administration bureaucrats were determining
where every gallon of refined oil went. My father actually set up a tank farm
of 55 gallon drums, but that turned out to be needless because among other
things the bureaucrats made damned sure farming regions were not lacking.

The "Energy Crisis" ended practically overnight when Reagan deregulated oil
(gas might have come later). This was mightily helped by the Soviet invasion
of Afghanistan, the Saudis at least signed on to the campaign to bankrupt the
Soviet Union by keeping oil prices down.

By the end of the "'70s" inflation was as I recall flirting with 15% per year,
and Volker's necessary high interest rate solution brought the prime rate
above 20%, and the government had to borrow at ~20% when Reagan came into
office, which explains some of what was going on then.

On the other hand, Reagan, the Senate Republicans, and Tip O'Neal, sort of a
transitional figure between the older more responsible liberals and the
current type, pretty much never seriously cut budgets, instead all the
screaming was about decreases from an automatically increasing baseline. Some
of those were of course cuts after inflation, but not by much, as usual,
"domestic spending" was the price the Democrats/Left demanded for the Right
(which at least here used to include a lot of Democrats) to be able to fight
the Cold War.

Which of course Reagan won, not that very many people at all believed he
would, or could fix our economy. The mood really was grim back then (there was
also all that Malthusian "Limits to Grow" (apparently rified by the energy
situation), Soylent Green, we're killing the environment and bringing on a new
Ice Age, nonsense back then), the first iteration of today's "preppers" were
the survivalists back then, I was one (starting from 2nd grade in 1968 when my
mother became a Civil Defense Block Mother, back before it was decided "Crisis
Relocation" was cheaper on paper and CD -> FEMA).

The government influence of tax rate cuts was _profound_. I went to college
far away from my family in 1979, and at a distance watched my parents
substantially shift their economic activity. One extreme of the "'70s" was
their taking out a $50K note to computerize a bunch of doctor's offices, and
only being able to keep it current, not paying it down, while interest rates
were so high.

And _everything_ was done with taxation as a primary issue. As/after the
Reagan tax rate cuts were phased in, that became a much smaller issue, and
their ventures became much more economically productive.

That today we have one of the highest corporate tax rates in the world is
significant.

Anyway, have fun, and after this thread winds down feel free to email me (it's
in my Hacker News contact info) if you have any more questions, desire for
book recommendations, etc.

~~~
vishakad
Wow. The '70s were a tumultuous time indeed! I guess Volcker's policies had to
really fight for the headlines with that much going on at the time.

I do have many more questions with the issues you brought up, yes :) It was a
fun discussion. Thank you! I'll contact you by email.

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jpfr
> In a sense, it is odd that the power of fiscal policy has come as a surprise
> – or that it continues to be categorically denied by the German government
> and the U.S. Tea Party.

Nobody is denying that government spending can induce growth in an economy.
What the Germans are saying is that it doesn't generate enough growth to cover
the additional spending in the long run.

And that because of their already high debt and ongoing overspending, many
countries - the US included - are going against a wall.

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plariv
Perhaps Mr. Kaletsky's conclusions regarding Keynesian principles might be
more compelling if his portrayal of the facts of global economic policies were
(a) more consistent, and (b) more accurate:
[http://mises.ca/posts/articles/capitalism-4-0/](http://mises.ca/posts/articles/capitalism-4-0/)

~~~
hga
That article does a great job of demolishing Kaletsky's declamations on the
Great Depression and Recession. But this quote of him also caught my eye:

 _But governments and central banks usually panic during the liquidation
phase, pushing interest rates below their natural rate again and boosting the
money supply This artificial stimulus, especially if sustained for a long
period, inevitably sets off another credit boom and the cycle begins anew._

Which is what sort of happened in Japan ... except for that "another credit
boom" part.

As far as I know you don't have to be an Austrian to know about, let alone
believe in the "pushing on a string" thesis; if you're not familiar with it,
read the mises.ca article about what businessmen are really responding to.

Another thing to prop up the thesis is the "inverted yield curve" recession
predictor, specifically short term interest rates suddenly rising above long
term. The theory is that's because businesses are frantically borrowing in the
short term to keep themselves afloat while they work their excess inventories
down. If they survive that experience, no low or negative interest rates will
interest them, so to speak, in resuming the intensity of the game that almost
killed them.

