Hayek or Keynes....Note Keynes had a really bad hangover...
Started by Riversider
almost 16 years ago
Posts: 13572
Member since: Apr 2009
Discussion about
http://www.youtube.com/watch?v=d0nERTFo-Sk&feature=player_embedded# Most of Hayek%u2019s work from the 1920s through the 1930s was in the Austrian theory of business cycles, capital theory, and monetary theory. Hayek saw a connection among all three. The major problem for any economy, he argued, is how people%u2019s actions are coordinated. He noticed, as Adam Smith had, that the price... [more]
http://www.youtube.com/watch?v=d0nERTFo-Sk&feature=player_embedded#
Most of Hayek%u2019s work from the 1920s through the 1930s was in the Austrian theory of business cycles, capital theory, and monetary theory. Hayek saw a connection among all three. The major problem for any economy, he argued, is how people%u2019s actions are coordinated. He noticed, as Adam Smith had, that the price system%u2014free markets%u2014did a remarkable job of coordinating people%u2019s actions, even though that coordination was not part of anyone%u2019s intent. The market, said Hayek, was a spontaneous order. By spontaneous Hayek meant unplanned%u2014the market was not designed by anyone but evolved slowly as the result of human actions. But the market does not work perfectly. What causes the market, asked Hayek, to fail to coordinate people%u2019s plans, so that at times large numbers of people are unemployed?
One cause, he said, was increases in the money supply by the central bank. Such increases, he argued in Prices and Production, would drive down interest rates, making credit artificially cheap. Businessmen would then make capital investments that they would not have made had they understood that they were getting a distorted price signal from the credit market. But capital investments are not homogeneous. Long-term investments are more sensitive to interest rates than short-term ones, just as long-term bonds are more interest-sensitive than treasury bills. Therefore, he concluded, artificially low interest rates not only cause investment to be artificially high, but also cause %u201Cmalinvestment%u201D%u2014too much investment in long-term projects relative to short-term ones, and the boom turns into a bust. Hayek saw the bust as a healthy and necessary readjustment. The way to avoid the busts, he argued, is to avoid the booms that cause them.
[less]
You need to take a course, Riversider. Supply side, neoclassical, monetarist economic theory only works at the extremes. You can have all the money in the world but if no one spends it it doesn't matter, prices will fall. Contrariwise, you can have absolutely no money but spend it without end, and you wind up with million percent inflation.
On January 3rd, US Federal Reserve Chairman Ben S. Bernanke delivered a major speech at the annual meeting of the American Economic Association. In his formal paper, "Monetary Policy and the Housing Bubble," Chairman Bernanke argues that the Fed's monetary policy was not responsible for the U.S. housing bubble. He claims that faulty regulation was the primary culprit.
Chairman Bernanke's claim is a great canard. The Fed is a serial bubble blower. Let's first consider the Fed-generated demand bubbles. The easiest way to do this is to measure the trend rate of growth in nominal final sales to U.S. purchasers and then examine the deviations from that trend. As the accompanying chart shows, nominal final sales grew at a 5.4% annual rate from the first quarter of 1987 through the third quarter of 2009. This reflects a combination of real sales growth of 3% and inflation of 2.4%.
Ignored comment.
Unhide
Response by LICComment
almost 16 years ago
Posts: 3610
Member since: Dec 2007
steve, you need to take an economics course that has been developed after 1980. Keynesianism is a flawed dinosaur of economic theory. Its supposed resurgence last year fell flat on its face.
Ignored comment.
Unhide
Response by stevejhx
almost 16 years ago
Posts: 12656
Member since: Feb 2008
LICC, please expound. Which part of it is wrong?
Ignored comment.
Unhide
Response by LICComment
almost 16 years ago
Posts: 3610
Member since: Dec 2007
Keynes' basic premise that government can increase economic growth through deficit spending. One of Keynes' theories was that savings is a drag on economic growth. Reliance on government planning and deficit spending is problematic because 1) government is inefficient, as shown again by last year's stimulus spending, and 2) deficit spending merely shifts capital from the private sector, it doesn't increase overall growth, and it shifts the capital inefficiently.
Ignored comment.
Unhide
Response by stevejhx
almost 16 years ago
Posts: 12656
Member since: Feb 2008
"Keynes' basic premise that government can increase economic growth through deficit spending."
Wrong. What Keynes said was that when there is no private spending the government can replace that spending because of its power to borrow and spend. It is not subject to the same profit and loss rules of the private sector.
Keynes did NOT recommend deficit spending. He said that if the private sector is not spending in a Depression, the government must step in to fill the void.
"One of Keynes' theories was that savings is a drag on economic growth."
What? What Keynes said was that it is good to save, but if everyone saves during a depression it limits growth. What they need to do is spend, to increase the velocity of money. The money supply doesn't matter if no one is spending it.
"Reliance on government planning and deficit spending is problematic because 1) government is inefficient, as shown again by last year's stimulus spending"
Not necessarily so. The government runs the military, the roads, the airports, the most efficient healthcare system in the country (the VA), Social Security, Medicare, Medicaid, all extremely well. If the government is "inefficient," then what was Merrill Lynch?
Incompetent.
"and 2) deficit spending merely shifts capital from the private sector"
Not always. Not when there is no spending in the private sector. That was his whole point.
Sheesh. You read one book, it seems, and claim to know it all. The basis of your claim is a moral one - government spending is bad, private spending is good. Unfortunately, when there is no private spending, it leads to disaster.
"it doesn't increase overall growth"
Wrong.
"and it shifts the capital inefficiently."
Wrong.
Next!
Ignored comment.
Unhide
Response by LICComment
almost 16 years ago
Posts: 3610
Member since: Dec 2007
steve, as usual, you are full of inaccuracies and mistakes. You have such tunnel vision it is amazing.
Keynes advocated government spending during recessions to stimulate aggregate demand. Unless the government had a surplus, this spending has to be done through deficit spending. He understood and advocated this. He did so believing that such deficit spending would increase economic growth or decrease economic decline during recessions. This is one of the easiest Keynesian concepts to grasp, which you obviously cannot.
For your second point, you basically agreed with me.
Your third point is ridiculous. Social Security, Medicare and Medicaid are going bankrupt. The costs of Medicare fraud alone is outrageous. The airports? Do you think the TSA is efficient? The government "runs" the roads?
Private sector spending has declined because of a credit bubble bursting. Keynesians seek to reinflate the bubble through more government spending, effectively on credit. This is flawed and just prolongs the problems. What should be done is to implement measures to induce private sector production to help cushion the bubble bursting, and to avoid the bubbles in the first place.
Please take a modern lesson on economic theory before you make more foolish comments again.
"Keynes advocated government spending during recessions to stimulate aggregate demand."
That's what I said.
"you basically agreed with me"
I agree on what he said, not on the conclusion you draw from it, which is absurd.
"Your third point is ridiculous"
Really?
"Do you think the TSA is efficient?"
Do you think AIG was?
"What should be done is to implement measures to induce private sector production"
They do - through government spending.
"before you make more foolish comments again."
Ignored comment.
Unhide
Response by Riversider
almost 16 years ago
Posts: 13572
Member since: Apr 2009
Keynes advocated getting drunk to avoid the hang-over.
Ignored comment.
Unhide
Response by LICComment
almost 16 years ago
Posts: 3610
Member since: Dec 2007
AIG made bad business decisions, and in theory, companies like that fail and other companies in the private sector obtain their good assets and reallocate capital efficiently to productive means. There is no similar productive efficiency mechanism with government. Your comparison is flawed.
Ignored comment.
Unhide
Response by Riversider
almost 16 years ago
Posts: 13572
Member since: Apr 2009
If we had let AIG fail, the debt holders would most likley have become the new equity owners, ILFC spun off and good insurance divisions untangled and sold off as well. AIG is a good insurance company ruined by a management and division that saddled it with irresponsible CDS contracts.
Ignored comment.
Unhide
Response by stevejhx
almost 16 years ago
Posts: 12656
Member since: Feb 2008
"There is no similar productive efficiency mechanism with government."
Really? You say that the TSA is inefficient, and that there is no productive efficiency mechanism with government. If there is no productive efficiency mechanism with government, then the TSA CANNOT be inefficient. Simple Logic 101.
You're showing your [insert word] again, LICC!
"If we had let AIG fail" the entire banking system would have failed throughout the world as it would have defaulted on all of its contracts.
Ignored comment.
Unhide
Response by LICComment
almost 16 years ago
Posts: 3610
Member since: Dec 2007
steve, you need to learn how to read. I said there is no SIMILAR productive efficiency mechanism with government. There is a mechanism, but it is slow and subject to political delays. Also, your logic only works in your bizarro world. You basically said: A is inefficient. A is part of government. Government has no mechanism to produce efficiency. Therefore A is efficient. I'm glad you post these things so everyone can see how illogical you are.
I'm not saying we should have let AIG fail. However, Geithner allowing those CDS contracts to pay out 100 cents on the dollar is outrageous.
Ignored comment.
Unhide
Response by stevejhx
almost 16 years ago
Posts: 12656
Member since: Feb 2008
Backtrack, backtrack, backtrack!
Now - there's a mechanism, but apparently it's "slow and subject to political delays."
Sort of like GM over the past 30 years, right?
You really need to learn how to admit that you're wrong every once in a while, LICC. It would make you happier, and probably get you to move across the East River to Manhattan, now that you'll be able to afford Stuyvesantown since it's re-regulated.
Ignored comment.
Unhide
Response by LICComment
almost 16 years ago
Posts: 3610
Member since: Dec 2007
Now steve thinks GM had been unprofitable for 30 years. More distortion by steve to try to hide how foolishly wrong he is. Just like always.
From the Hayekian perspective, the second downturn was the inevitable product of the first stages of the New Deal. The early New Deal stymied an economic recovery by creating a false dawn recovery. Employment returned and the economy grew but this was just another bubble. The misallocation of resources that occurred during the boom of the 1920s was just locked in or deepened.
The Hayekian Insight: Misallocation of Capital
A key insight of the Hayekians is that economic resources are malinvested during booms. Low interest rates encourage the allocation of capital toward investments that turn out not to be as profitable was expected in a higher interest rate environment. Hidden inflation in the form of asset bubbles creates the impression that there is more wealth than is actually available, again creating false expectations of profits. Capital—financial and human capital—is misdirected to the extent that it doesn’t match the actual availability of investments or consumption preferences. Basically, at the height of a bubble we invest too much in stuff people don’t really want or need.
When resources allocation becomes too far out of whack with reality, the economy begins to contract. This can come suddenly due to a change in tax or fiscal policies, a financial market crash that causes a panic, or a sudden shift in monetary policy. It can also come about without any such shifts, simply because capitalists begin to realize the mistake they’ve made and refuse to continue to making such mistakes.
Ignored comment.
Unhide
Response by stevejhx
almost 16 years ago
Posts: 12656
Member since: Feb 2008
"Now steve thinks GM had been unprofitable for 30 years."
I do? Did I say that? Exactly where?
Poor LICC: BACKPEDAL BACKPEDAL BACKPEDAL!
"How is that rental on 52nd and 8th?????"
It's in Manhattan, LICC. How's that new DUANE READE you got in Long Island City?
Ignored comment.
Unhide
Response by stevejhx
almost 16 years ago
Posts: 12656
Member since: Feb 2008
"From the Hayekian perspective"
That's the first time I ever heard that phrase: the "Hayekian perspective."
Ignored comment.
Unhide
Response by Riversider
almost 16 years ago
Posts: 13572
Member since: Apr 2009
"Now steve thinks GM had been unprofitable for 30 years.
maybe it has been...
In the end, however, I think that the underlying reason for the sustained interest in Hayek's book is that it taps into a profound dissatisfaction in the public mind with the machinations of its government. Both Presidents Bush and Obama have presided over huge growth in the size of the federal government and in the size of the federal deficit, with little obvious effect on unemployment. Things seem out of control.
'/%3e%3c/g%3e%3c/svg%3e)
http://economix.blogs.nytimes.com/2009/12/17/keynes-vs-hayek-the-rap-battle/
You need to take a course, Riversider. Supply side, neoclassical, monetarist economic theory only works at the extremes. You can have all the money in the world but if no one spends it it doesn't matter, prices will fall. Contrariwise, you can have absolutely no money but spend it without end, and you wind up with million percent inflation.
http://www.cato.org/pub_display.php?pub_id=11163
On January 3rd, US Federal Reserve Chairman Ben S. Bernanke delivered a major speech at the annual meeting of the American Economic Association. In his formal paper, "Monetary Policy and the Housing Bubble," Chairman Bernanke argues that the Fed's monetary policy was not responsible for the U.S. housing bubble. He claims that faulty regulation was the primary culprit.
Chairman Bernanke's claim is a great canard. The Fed is a serial bubble blower. Let's first consider the Fed-generated demand bubbles. The easiest way to do this is to measure the trend rate of growth in nominal final sales to U.S. purchasers and then examine the deviations from that trend. As the accompanying chart shows, nominal final sales grew at a 5.4% annual rate from the first quarter of 1987 through the third quarter of 2009. This reflects a combination of real sales growth of 3% and inflation of 2.4%.
steve, you need to take an economics course that has been developed after 1980. Keynesianism is a flawed dinosaur of economic theory. Its supposed resurgence last year fell flat on its face.
LICC, please expound. Which part of it is wrong?
Keynes' basic premise that government can increase economic growth through deficit spending. One of Keynes' theories was that savings is a drag on economic growth. Reliance on government planning and deficit spending is problematic because 1) government is inefficient, as shown again by last year's stimulus spending, and 2) deficit spending merely shifts capital from the private sector, it doesn't increase overall growth, and it shifts the capital inefficiently.
"Keynes' basic premise that government can increase economic growth through deficit spending."
Wrong. What Keynes said was that when there is no private spending the government can replace that spending because of its power to borrow and spend. It is not subject to the same profit and loss rules of the private sector.
Keynes did NOT recommend deficit spending. He said that if the private sector is not spending in a Depression, the government must step in to fill the void.
"One of Keynes' theories was that savings is a drag on economic growth."
What? What Keynes said was that it is good to save, but if everyone saves during a depression it limits growth. What they need to do is spend, to increase the velocity of money. The money supply doesn't matter if no one is spending it.
"Reliance on government planning and deficit spending is problematic because 1) government is inefficient, as shown again by last year's stimulus spending"
Not necessarily so. The government runs the military, the roads, the airports, the most efficient healthcare system in the country (the VA), Social Security, Medicare, Medicaid, all extremely well. If the government is "inefficient," then what was Merrill Lynch?
Incompetent.
"and 2) deficit spending merely shifts capital from the private sector"
Not always. Not when there is no spending in the private sector. That was his whole point.
Sheesh. You read one book, it seems, and claim to know it all. The basis of your claim is a moral one - government spending is bad, private spending is good. Unfortunately, when there is no private spending, it leads to disaster.
"it doesn't increase overall growth"
Wrong.
"and it shifts the capital inefficiently."
Wrong.
Next!
steve, as usual, you are full of inaccuracies and mistakes. You have such tunnel vision it is amazing.
Keynes advocated government spending during recessions to stimulate aggregate demand. Unless the government had a surplus, this spending has to be done through deficit spending. He understood and advocated this. He did so believing that such deficit spending would increase economic growth or decrease economic decline during recessions. This is one of the easiest Keynesian concepts to grasp, which you obviously cannot.
For your second point, you basically agreed with me.
Your third point is ridiculous. Social Security, Medicare and Medicaid are going bankrupt. The costs of Medicare fraud alone is outrageous. The airports? Do you think the TSA is efficient? The government "runs" the roads?
Private sector spending has declined because of a credit bubble bursting. Keynesians seek to reinflate the bubble through more government spending, effectively on credit. This is flawed and just prolongs the problems. What should be done is to implement measures to induce private sector production to help cushion the bubble bursting, and to avoid the bubbles in the first place.
Please take a modern lesson on economic theory before you make more foolish comments again.
http://media.photobucket.com/image/john%20maynard%20keynes%20cartoon/JekyllnHyde_photos/September%2014th/September%2021st/September%2027th/090922_cartoon_600.jpg
"Keynes advocated government spending during recessions to stimulate aggregate demand."
That's what I said.
"you basically agreed with me"
I agree on what he said, not on the conclusion you draw from it, which is absurd.
"Your third point is ridiculous"
Really?
"Do you think the TSA is efficient?"
Do you think AIG was?
"What should be done is to implement measures to induce private sector production"
They do - through government spending.
"before you make more foolish comments again."
Keynes advocated getting drunk to avoid the hang-over.
AIG made bad business decisions, and in theory, companies like that fail and other companies in the private sector obtain their good assets and reallocate capital efficiently to productive means. There is no similar productive efficiency mechanism with government. Your comparison is flawed.
If we had let AIG fail, the debt holders would most likley have become the new equity owners, ILFC spun off and good insurance divisions untangled and sold off as well. AIG is a good insurance company ruined by a management and division that saddled it with irresponsible CDS contracts.
"There is no similar productive efficiency mechanism with government."
Really? You say that the TSA is inefficient, and that there is no productive efficiency mechanism with government. If there is no productive efficiency mechanism with government, then the TSA CANNOT be inefficient. Simple Logic 101.
You're showing your [insert word] again, LICC!
"If we had let AIG fail" the entire banking system would have failed throughout the world as it would have defaulted on all of its contracts.
steve, you need to learn how to read. I said there is no SIMILAR productive efficiency mechanism with government. There is a mechanism, but it is slow and subject to political delays. Also, your logic only works in your bizarro world. You basically said: A is inefficient. A is part of government. Government has no mechanism to produce efficiency. Therefore A is efficient. I'm glad you post these things so everyone can see how illogical you are.
I'm not saying we should have let AIG fail. However, Geithner allowing those CDS contracts to pay out 100 cents on the dollar is outrageous.
Backtrack, backtrack, backtrack!
Now - there's a mechanism, but apparently it's "slow and subject to political delays."
Sort of like GM over the past 30 years, right?
You really need to learn how to admit that you're wrong every once in a while, LICC. It would make you happier, and probably get you to move across the East River to Manhattan, now that you'll be able to afford Stuyvesantown since it's re-regulated.
Now steve thinks GM had been unprofitable for 30 years. More distortion by steve to try to hide how foolishly wrong he is. Just like always.
How is that rental on 52nd and 8th?????
http://www.businessinsider.com/obama-blazes-the-path-to-economic-suicide-2010-1
From the Hayekian perspective, the second downturn was the inevitable product of the first stages of the New Deal. The early New Deal stymied an economic recovery by creating a false dawn recovery. Employment returned and the economy grew but this was just another bubble. The misallocation of resources that occurred during the boom of the 1920s was just locked in or deepened.
The Hayekian Insight: Misallocation of Capital
A key insight of the Hayekians is that economic resources are malinvested during booms. Low interest rates encourage the allocation of capital toward investments that turn out not to be as profitable was expected in a higher interest rate environment. Hidden inflation in the form of asset bubbles creates the impression that there is more wealth than is actually available, again creating false expectations of profits. Capital—financial and human capital—is misdirected to the extent that it doesn’t match the actual availability of investments or consumption preferences. Basically, at the height of a bubble we invest too much in stuff people don’t really want or need.
When resources allocation becomes too far out of whack with reality, the economy begins to contract. This can come suddenly due to a change in tax or fiscal policies, a financial market crash that causes a panic, or a sudden shift in monetary policy. It can also come about without any such shifts, simply because capitalists begin to realize the mistake they’ve made and refuse to continue to making such mistakes.
"Now steve thinks GM had been unprofitable for 30 years."
I do? Did I say that? Exactly where?
Poor LICC: BACKPEDAL BACKPEDAL BACKPEDAL!
"How is that rental on 52nd and 8th?????"
It's in Manhattan, LICC. How's that new DUANE READE you got in Long Island City?
"From the Hayekian perspective"
That's the first time I ever heard that phrase: the "Hayekian perspective."
"Now steve thinks GM had been unprofitable for 30 years.
maybe it has been...
http://financeprofessorblog.blogspot.com/2009/12/keynes-and-hayek-rap-from-pbs.html
Hayek sales booming. Reaction to Obama?
http://voices.washingtonpost.com/shortstack/2010/02/the_secret_behind_the_hot_sale.html
In the end, however, I think that the underlying reason for the sustained interest in Hayek's book is that it taps into a profound dissatisfaction in the public mind with the machinations of its government. Both Presidents Bush and Obama have presided over huge growth in the size of the federal government and in the size of the federal deficit, with little obvious effect on unemployment. Things seem out of control.