
Richard Posner on "How I Became a Keynesian" - sethg
http://www.tnr.com/article/how-i-became-keynesian
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darjen
"But for a confidence-building public-works program to be effective in
arresting an economic collapse, the government must be able to finance its
increased spending by means that do not reduce private spending
commensurately. If it finances the program by taxation, it will be draining
cash from the economy at the same time that it is injecting cash into it. But
if it borrows to finance the program (deficit spending), or finances it with
new money created by the Federal Reserve, the costs may be deferred until the
economy is well on the way to recovery and can afford to pay them without
endangering economic stability."

Doesn't new money creation have the same effect as directly taking cash from
the economy? After all, it does cheapen all available money. How, then, can he
say that these costs are deferred?

~~~
frig
_Doesn't new money creation have the same effect as directly taking cash from
the economy? After all, it does cheapen all available money. How, then, can he
say that these costs are deferred?_

Time-delay effect. In theory if everyone knows how much new money is being
pumped into the economy (and exactly when it arrives, etc.) then the
adjustment to reduced value of money happens instantly and you haven't
accomplished much.

If instead the new money is injected stealthily into the economy (or at least:
knowledge about it doesn't spread everywhere instantaneously) then the cost
(in inflation) will be _deferred_ (until "everyone figures it out" / prices
re-adjust).

Thus in the short-term private sector spending would be mostly unaffected (b/c
people have about the same nominal amounts of money as before and prices are
still at about their previous nominal amounts) and over the longer term the
inflationary effect kicks in and you pay for it.

In Keynes's time it would be pretty likely you could stealthily inject money
and also it would be pretty likely that readjustment to the increased money
supply would happen slowly; no internet, for one, and generally nowhere near
as tightly integrated an economy as we have today.

That's not as clear today (information moves faster), but on the other hand
information still takes time to work its way through the economy.

~~~
padmanabhan01
That is what makes it even worse. Those benefiting from that would be those
who get to spend the extra money first and those affected are those that save.
That would defeat the whole point of money as a store of value, since it would
be losing its value.

~~~
sethg
That's a feature, not a bug. Keynes's whole point is that recessions are
caused when too many people want to save and too few people want to consume.
Putting more money into circulation puts weight on the other side of that
scale.

~~~
zargon
The numbers tell a different story.

[http://research.stlouisfed.org/fred2/graph/?chart_type=line&...](http://research.stlouisfed.org/fred2/graph/?chart_type=line&s\[1\]\[id\]=PSAVERT&s\[1\]\[range\]=5yrs)

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biohacker42
Anyone else here remember how politics articles became ever more popular on
reddit a while back?

~~~
viggity
I think there is a difference between politics and economics. Not to say that
they can't be mixed, but I think economic theory is of interest to a lot of
hackers.

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cojadate
"There is almost no mention of inflation in The General Theory"

Combined with the apparent lack of explanation for bubbles, doesn't that meant
there is a gigantic gaping hole in the entire theory?

I don't quite see why The General Theory was enough to convert Posner to
Keynesianism.

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nazgulnarsil
the General theory rests on a faulty premise: that the failure of the markets
are to provide full employment and income inequality.

both of these are features NOT bugs.

income inequality is covered by the Graham essay mind the Gap, the lack of
full employment has to do with the marginal utility of labor, suffice to say
full employment would represent a labor market in disequilibrium (even by
Keynes' definitions).

The General Theory is crap.

~~~
roundsquare
I haven't read the original book, but from what I can tell from this article,
at least _part_ of the general theory is about _explaining_ why there is less
than full employment and income inequality. As far as I can tell, you are
calling the entire theory crap based the author's desire to create full
employment and income equality. I'm not sure Keynes wanted governments to try
for this or not, but at there seems to be at least two separate parts of the
theory to evaluate.

~~~
nazgulnarsil
creating full employment or income equality would be INCREDIBLY stupid. any
country that attempts to do so will be throwing money into a giant hole until
they stop or go bankrupt.

<http://www.paulgraham.com/gap.html>
<http://en.wikipedia.org/wiki/Marginal_utility>

