# Keynesian Economics... does anyone really still believe this rubbish?



## white_goodman (13 April 2011)

seems like everyday Im at work and gloss over economic and political articles on SMH im enraged by the journalists severe stupidity and the moronic left that support it...

and this is whats grinding my gears this morning..

http://www.smh.com.au/opinion/polit...an-he-avoid-keyness-curse-20110412-1dcis.html


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## explod (13 April 2011)

Agree, 

should be a very wothwhile thread


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## Knobby22 (13 April 2011)

OK, tell me why its rubbish and what is the correct philosphy and I might be persuaded to argue. Just making blanket statements without argument is pretty poor.


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## white_goodman (13 April 2011)

Knobby22 said:


> OK, tell me why its rubbish and what is the correct philosphy and I might be persuaded to argue. Just making blanket statements without argument is pretty poor.




what would a Keynesian recommend during periods of stagflation?

i prefer a monetarist approach personally rather than the politicians economic theory, whereby high inflation is encouraged and higher unemployment results in the future.

It was a great theory for the time of the Great Depression where it was used to explain the current predicament and provided a means to get out of it and it was a politicians favourite


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## tothemax6 (13 April 2011)

Lol, yes White, that is a particularly infuriating article - which I why I normally read the headline and then decide whether I will consider the article 'in existence' . 
The sad reality is, yes, people do believe in Keynesianism. Most people in the economics profession are complete quacks. Listen to Stiglitz, Bernanke, and Krugman - I doubt they've ever said anything correct in their lives. If the nature of physics and economics were the same, we'd have 'reputable physicists' claiming everything is made from 'magic dirt', and their opponents would be claiming its made from 'special sludge'. 


Knobby22 said:


> OK, tell me why its rubbish and what is the correct philosphy and I might be persuaded to argue. Just making blanket statements without argument is pretty poor.



The economic school which most closely models reality is the Austrian School.


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## explod (13 April 2011)

tothemax6 said:


> The economic school which most closely models reality is the Austrian School.




http://mises.org/

This site may lead to some insights as suggersted on alternatives to so called contemporary thinking.


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## Julia (13 April 2011)

Knobby22 said:


> OK, tell me why its rubbish and what is the correct philosphy and I might be persuaded to argue. Just making blanket statements without argument is pretty poor.



May I very politely ask, Knobby, if you could offer the basis on which you believe Keynesian beliefs work, if indeed that is what you do believe?


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## Knobby22 (14 April 2011)

Julia said:


> May I very politely ask, Knobby, if you could offer the basis on which you believe Keynesian beliefs work, if indeed that is what you do believe?




I haven't got time now but will come back on this but yes I am a post Keynisian and pump priming with debt which is occurring right now is NOT Keynsian. It is the neo classical economists panicking as their theories don't work.

One thing I will say is that most economists (over 90%) are trained as classical economists and I think it is difficult to argue otherwise that their theories have completely failed. Under their theories, the GFC should not have happened and government activity has no effect on the economy. 

Unlike neo classical economists, Keynsians believe that debt and government activity do have an effect. They believe that markets are not inherently stable and will have non linear shocks. They believe that governments should be running surpluses and should only run a deficit during a shock. They *do not believe* in propping up companies and banks but should act on the economy as a whole.  If a bank goes broke due to mismanagement then bad luck.

The classical economists are trying to deflect blame. They are pathetic in my view. Nearly all the economists in power are neo-classical and it is they who are doing all this stupid behaviour. Europe and the USA have destroyed their economies listening to these witch doctors.

Another alternative, the Austrian School is at least is based in reality though from my view they have a fetish with gold.

Anyway I will come back to this later.


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## Julia (14 April 2011)

Thanks, Knobby.


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## white_goodman (14 April 2011)

Knobby22 said:


> Another alternative, the Austrian School is at least is based in reality though from my view they have a fetish with gold.
> 
> Anyway I will come back to this later.




I highly agree with you here


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## wayneL (14 April 2011)

Knobby22 said:


> I haven't got time now but will come back on this but yes I am a post Keynisian and pump priming with debt which is occurring right now is NOT Keynsian. It is the neo classical economists panicking as their theories don't work.
> 
> One thing I will say is that most economists (over 90%) are trained as classical economists and I think it is difficult to argue otherwise that their theories have completely failed. Under their theories, the GFC should not have happened and government activity has no effect on the economy.
> 
> ...




I disagree that the predominant thought is neoclassical, Keynesian or whatever.

The predominant economic school of economics is the School of Short Term Political Expediency. This school borrows from all other schools as the expediency arises.


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## Pancakes (14 April 2011)

white_goodman said:


> seems like everyday Im at work and gloss over economic and political articles on SMH im enraged by the journalists severe stupidity and the moronic left that support it...
> 
> and this is whats grinding my gears this morning..
> 
> http://www.smh.com.au/opinion/polit...an-he-avoid-keyness-curse-20110412-1dcis.html




If you're talking about libertarianism or austrian economics as an alternative I don't think you can just label the left as moronic. The right have just as many moronic policies. Libertarianism isn’t really left or right is it? For example the right wing leans towards banning abortion and the abortion pill, supports wars on drugs, they are anti immigration and refugees, they support the war on terror etc..those are all policies Austrian economists/libertarians are against aren't they?

Even though I describe myself as libertarian I actually vote Labor…I just can’t bring myself to vote Liberal because I see them as being pretty racist, homophobic and sexist. It would be good if Australia had a real libertarian option in politics. TBH to me there doesn't even seem to be much difference between the left and the right in Australia at the moment.


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## tothemax6 (14 April 2011)

Knobby22 said:


> I haven't got time now but will come back on this but yes I am a post Keynisian and pump priming with debt which is occurring right now is NOT Keynsian. It is the neo classical economists panicking as their theories don't work.
> 
> One thing I will say is that most economists (over 90%) are trained as classical economists and I think it is difficult to argue otherwise that their theories have completely failed. Under their theories, the GFC should not have happened and government activity has no effect on the economy.
> 
> ...



I think everyone in this thread should buy a copy of General Theory. My personal copy has been a great laugh, although mostly due to the nature of the writing style. Keynes was determined to make every sentence as long, obfuscated, and clever as he could. Guy had issues. When you compare this to say, Ludwig von Mises' 'Socialism', and the clarity and 'build up from first principles' style it was written in, on e can't help but wonder many things - especially 'why no one knows about Mises, but everyone knows about Keynes'.

Knobby, it is rather peculiar, and it has been a very popular illusion for that matter, that you imply the GFC was caused by a free market. This assertion is completely unfounded, and most likely based on the faulty premise that places like the US were free markets leading up to 2008.
There is nothing free market about a central bank - which created the bubble by putting interest rates to -2% in 2003 (and this monetary action _was_ Keynesian, the same as Bernanke's monetary actions are Keynesian). There is nothing free market about fannie mae and freddie mac, which had a government mandate to support a supply of housing loans to those who couldn't afford them, and who were leveraged around 1000 to 1 prior to the crash. You should be able to see how such a market distortion created the credit expansion and housing speculation that led up to the 2008 crash. The banking system in America is about as free market as a chain gang.

The Austrians, it could be said, have a 'fetish' with gold. However, that is only an indication of the current culture. In the days of the gold standard, one could argue that monetarists and keynesians had a fetish with bits of paper with meaningless dollar symbols.
It is highly illogical to think that a steady monetary base is in any way inferior to a system in which bureaucrats keep yanking the monetary base around according to their judgments as to what the short-term interest rate should be. If anything, it is highly superior.


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## tothemax6 (14 April 2011)

Pancakes said:


> If you're talking about libertarianism or austrian economics as an alternative I don't think you can just label the left as moronic. The right have just as many moronic policies. Libertarianism isn’t really left or right is it? For example the right wing leans towards banning abortion and the abortion pill, supports wars on drugs, they are anti immigration and refugees, they support the war on terror etc..those are all policies Austrian economists/libertarians are against aren't they?
> 
> Even though I describe myself as libertarian I actually vote Labor…I just can’t bring myself to vote Liberal because I see them as being pretty racist, homophobic and sexist. It would be good if Australia had a real libertarian option in politics. TBH to me there doesn't even seem to be much difference between the left and the right in Australia at the moment.



I believe he is referring to the 'economic left', if you will. Yes, the 'social right' are against abortion, pro 'war on drugs', anti-immigration. The policies of the Austrian economists are, however, economic (hence the name). Persons subscribing to Austrian economics just tend to be libertarians however.


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## orr (15 April 2011)

It's easy to be mistrustful of Keynes, to think that he spawned thinkers like John Ken Galbraith, With quotes like
"The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness."
I can't help relating this conception to attitudes to our responsibilities in the world scheme of things with regards our per capita CO2 emissions and remarks in associated threads in this forum


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## Knobby22 (15 April 2011)

tothemax6 said:


> I think everyone in this thread should buy a copy of General Theory. My personal copy has been a great laugh, although mostly due to the nature of the writing style. Keynes was determined to make every sentence as long, obfuscated, and clever as he could. Guy had issues. When you compare this to say, Ludwig von Mises' 'Socialism', and the clarity and 'build up from first principles' style it was written in, on e can't help but wonder many things - especially 'why no one knows about Mises, but everyone knows about Keynes'.
> 
> Knobby, it is rather peculiar, and it has been a very popular illusion for that matter, that you imply the GFC was caused by a free market. This assertion is completely unfounded, and most likely based on the faulty premise that places like the US were free markets leading up to 2008.
> There is nothing free market about a central bank - which created the bubble by putting interest rates to -2% in 2003 (and this monetary action _was_ Keynesian, the same as Bernanke's monetary actions are Keynesian). There is nothing free market about fannie mae and freddie mac, which had a government mandate to support a supply of housing loans to those who couldn't afford them, and who were leveraged around 1000 to 1 prior to the crash. You should be able to see how such a market distortion created the credit expansion and housing speculation that led up to the 2008 crash. The banking system in America is about as free market as a chain gang.
> ...




Do you think neo Keynsians support fannie mae and freddie mac? They do not.
Pure market distortion. The reason they exist is to allow the private banks to pass on their risk. They are truly wrong and I don't know why Republicans and Democrats support such institutions. Talk about socialising loans. 

What Wayne said is so true:- "_The predominant economic school of economics is the School of Short Term Political Expediency. This school borrows from all other schools as the expediency arises."_

There are obviously differences though in the banking policy between the schools.
Neo keynsians believe that banks should be subject to regulations to limit "animal spirits". Their should be a central bank to oversee this and control interest rates to limit bubbles. We have a fiat system so this has to be carefully controlled.

Neo classical economists believe that banks are self governing and will always through self interest make decisions that are good for the bank long term. This effectively means that capitalism with fiat money is inherently stable and regulations are not required. (complete tosh).

My view is that the neo classical economists were running the Reserve bank and let it create a bubble. We all remember Greenspan the leading neoclassical:-(From Associated Press) _Badgered by lawmakers, former Federal Reserve Chairman Alan Greenspan denied the nation’s economic crisis was his fault on Thursday but conceded the meltdown had revealed a flaw in a lifetime of economic thinking and left him in a “state of shocked disbelief.” _
_The financial crisis even prompted the Republican Greenspan, a staunch believer in free markets, to propose that government consider tougher regulations, including requiring financial firms that package mortgages into securities to keep a portion as a check on quality._

The Austrian School would stop the bubble by limiting the money supply by linking it to the gold standard (effectively removing the fiat system) also pretty much removing the need for many of the functions of the central bank. This would work in my view but would be very constricting to growth, though I am sure someone from the Austrian school might have an argument about how they could get around this.

Tothemax- there are vested political interests trying to take advantage of the system and using name calling as a way to get their way. Be very wary of them. If they really wanted those socialist entitys Fannymay and Freddie Mac destroyed they would do so but they have made much money passing on the risks to the US taxpayers and so you will see that the US senate are very much behind their continued existance. An Australian presented a case of free market and variable interest rates to a committee of the US senate recently and tried to convince them that they should unsocialise their housing system. They couldn't even believe that people would accept variable loans!!!
Look for the money flow. Distrust the media commentators particuarly those who have links to politicians. I am particuarly talking about the Murdoch press.

Bernanke is not a Keynsian and rejects many of thier principles but is willnilly taking up one or two of them. I don't think he really knows what he is doing, he is just pulling different levers and hoping for the best.


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## white_goodman (15 April 2011)

Pancakes said:


> Even though I describe myself as libertarian I actually vote Labor…I just can’t bring myself to vote Liberal because I see them as being pretty racist, homophobic and sexist. It would be good if Australia had a real libertarian option in politics. TBH to me there doesn't even seem to be much difference between the left and the right in Australia at the moment.




id be with you in the same boat, though I vote liberal, looking at the personnel of both sides its not hard to see why...


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## tothemax6 (16 April 2011)

Knobby22 said:


> Do you think neo Keynsians support fannie mae and freddie mac? They do not.
> Pure market distortion. The reason they exist is to allow the private banks to pass on their risk. They are truly wrong and I don't know why Republicans and Democrats support such institutions. Talk about socialising loans.



Yes, I was pointing out that your claim that the crash was caused by market forces was flawed. 


Knobby22 said:


> There are obviously differences though in the banking policy between the schools.
> Neo keynsians believe that banks should be subject to regulations to limit "animal spirits". Their should be a central bank to oversee this and control interest rates to limit bubbles. We have a fiat system so this has to be carefully controlled.
> Neo classical economists believe that banks are self governing and will always through self interest make decisions that are good for the bank long term. This effectively means that capitalism with fiat money is inherently stable and regulations are not required. (complete tosh).



Sure, if neoclassical economists believe that fiat money, which is created by a central bank, is stable - that's tosh. However, the position of neo-keynesians is not much better - it is the central-planning of the interest rate that helps _create_ bubbles. No one in no politburo or central bank ever made a correct economic decision - command economy only ever does damage.


Knobby22 said:


> _The financial crisis even prompted the Republican Greenspan, a staunch believer in free markets, to propose that government consider tougher regulations, including requiring financial firms that package mortgages into securities to keep a portion as a check on quality._



Yeah Greenspan is an interesting one. There is nothing free market about a central bank. The guy even said on TV 'I believe we did very well under a gold standard'. I have a theory, that being an objectivist, Greenspan sees himself as a kind of Francesco D'Anconia from Rands 'Atlas Shrugged'. Doing whats wrong for his own amusement. 


Knobby22 said:


> The Austrian School would stop the bubble by limiting the money supply by linking it to the gold standard (effectively removing the fiat system) also pretty much removing the need for many of the functions of the central bank. This would work in my view but would be very constricting to growth, though I am sure someone from the Austrian school might have an argument about how they could get around this.



Well its not really economic growth when you take 5 steps forward, but crash 4 steps. The Austrian school tends to rely on the scottish free-banking era as its main evidence of what an economy looks like under free-market money.


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## Bill M (17 April 2011)

white_goodman said:


> seems like everyday Im at work and gloss over economic and political articles on SMH im enraged by the journalists severe stupidity and the moronic left that support it...
> 
> and this is whats grinding my gears this morning..
> 
> http://www.smh.com.au/opinion/polit...an-he-avoid-keyness-curse-20110412-1dcis.html




I am going to be totally honest with you, I don't know what it is, never studied it and it has never had any effect on what I do with my life. My comment may be a bit ignorant but it is true and with my investing Keynesian Economics plays no part of it, cheers.


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