What would Keynes say now?

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    Oct 05, 2011 12:18 AM GMT

    http://www.newyorker.com/online/blogs/johncassidy/2011/10/what-would-keynes-say-now.htmlKeynes wrote a lot, and over the years his views changed quite substantially. If you search his writings, you can find a quote here or there to back up all sorts of things, including even supply-side economics. (Thanks to Dr. Arthur Laffer for pointing out that one.) But the real essence of Keynes, I eventually decided, can be expressed in these terms:

    1. In the short-run, demand is what drives economies, not prices.

    2. In a demand-driven economy, many types of unfavorable and self-sustaining outcomes are possible, including lengthy slumps.

    3. The role of the government is to sustain demand and help the economy avoid such disastrous outcomes.
    ...
    There’s much more about this is in the piece, together with some speculations about what Keynes would be recommending now. Obviously (at least I think it’s obvious) he would be defending the Obama stimulus and arguing for more of the same. But I think he would also be consumed by the international situation, particularly the European debt crisis. After his experience at the Paris peace talks after the First World War, where he saw the victors impose onerous debts on the Germans and Austrians with disastrous consequences, he would surely be pushing for a restructuring of Greek debt, and probably something similar for Ireland and Portugal, too.

    Finally, and I didn’t put this in the piece, I think Keynes would be sympathetic towards the anti-Wall Street protestors who are camping out in downtown Manhattan. Somewhat like George Soros, Keynes was an ardent and skilled speculator in the markets who, nonetheless, had few illusions about the social utility of various fashionable forms of finance. “Speculators may do no harms as bubbles on a steady stream of enterprise,” he wrote. “But the position is serious when enterprise becomes a bubble on the whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, it is likely to be ill-done.”


    The piece he's referring to is a "longish essay" on Keynes:
    http://www.newyorker.com/reporting/2011/10/10/111010fa_fact_cassidy

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    Oct 05, 2011 12:28 AM GMT
    q1w2e3 said
    http://www.newyorker.com/online/blogs/johncassidy/2011/10/what-would-keynes-say-now.htmlKeynes wrote a lot, and over the years his views changed quite substantially. If you search his writings, you can find a quote here or there to back up all sorts of things, including even supply-side economics. (Thanks to Dr. Arthur Laffer for pointing out that one.) But the real essence of Keynes, I eventually decided, can be expressed in these terms:

    1. In the short-run, demand is what drives economies, not prices.

    2. In a demand-driven economy, many types of unfavorable and self-sustaining outcomes are possible, including lengthy slumps.

    3. The role of the government is to sustain demand and help the economy avoid such disastrous outcomes.
    ...
    There’s much more about this is in the piece, together with some speculations about what Keynes would be recommending now. Obviously (at least I think it’s obvious) he would be defending the Obama stimulus and arguing for more of the same. But I think he would also be consumed by the international situation, particularly the European debt crisis. After his experience at the Paris peace talks after the First World War, where he saw the victors impose onerous debts on the Germans and Austrians with disastrous consequences, he would surely be pushing for a restructuring of Greek debt, and probably something similar for Ireland and Portugal, too.

    Finally, and I didn’t put this in the piece, I think Keynes would be sympathetic towards the anti-Wall Street protestors who are camping out in downtown Manhattan. Somewhat like George Soros, Keynes was an ardent and skilled speculator in the markets who, nonetheless, had few illusions about the social utility of various fashionable forms of finance. “Speculators may do no harms as bubbles on a steady stream of enterprise,” he wrote. “But the position is serious when enterprise becomes a bubble on the whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, it is likely to be ill-done.”


    The piece he's referring to is a "longish essay" on Keynes:
    http://www.newyorker.com/reporting/2011/10/10/111010fa_fact_cassidy

    I have said this in so many ways for years.......... I cringe every time I hear the word "speculators"....
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    Oct 05, 2011 10:09 PM GMT
    http://www.thenation.com/article/163673/what-would-keynes-do?page=0,2So what’s Keynes’s answer? It’s simple. While he believed in public works, to say the least—he practically invented the concept—he never presented the public sector as the real key to the economic problem. Rather, as he writes in The General Theory, “The weakness of the inducement to invest has been at all times the key to the economic problem.”

    We have to get the rich to invest. Specifically, we have to get the rich to invest “by employing labor on the construction of durable assets.” We don’t have to get the rich to consume. They will gag. And we don’t really have to get the rich to work. Who cares if they work? They can stay at home in bed in silken sheets.

    The real point is to get them to invest—not save, not speculate in financial instruments, but invest in widgets we can wrap and ship and sell abroad. And Keynes would put that question to the left, to us: How can we get the rich to invest?
    ...
    Everything in the United States is set up to encourage the rich to put money into financial instruments rather than long-term investments. What would Keynes do? Get the rich to think outside the Wall Street banking box. Get them to put money into the part of Main Street that used to trade abroad. How do we do that? For starters, put in usury laws—limits on interest rates. In a general way, cut down the appeal of being a creditor and not an investor.

    Keynes quotes Locke on this point: “High Interest decays Trade. The advantage from Interest is greater than the profit from Trade.” And by trade, Locke does not mean day trading.

    Now, as Richard Posner recently wrote, part of the problem with understanding Keynes is the vocabulary. So, for example, it is puzzling to us to hear that the rich don’t make enough “investments.” Don’t they invest like crazy? They invest in stocks, bonds, financial instruments, all sorts of things we would never call loans. But to Keynes these “investments” are loans. They’re liquid. They often have a fixed rate of interest. Corporate takeovers on Wall Street may look like “investments,” but if you get up close, many are just loans—i.e., transactions in corporate debt. Keynes could pick up the Wall Street Journal and give the real name for one “investment” after another: loan, loan, loan.

    Strip away the pretense of investment, and too many a financial instrument is either a loan or just the inflated price of a paper asset. When Keynes talks about the importance of usury laws, he means laws limiting interest rates but also laws and regulations that hold down profits on financial instruments.

    Keynes would point out that the rise in the US trade deficit—which became serious in the 1980s—coincided exactly with the astonishing deregulation of the financial sector. We knocked down usury laws. We allowed the first end runs around the Glass-Steagall laws.
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    Oct 06, 2011 5:15 PM GMT
    Keynes would have said: If you want to have a war, you are not allowed to pay for it on your credit card.
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    Oct 06, 2011 11:17 PM GMT
    TigerTim saidKeynes would have said: If you want to have a war, you are not allowed to pay for it on your credit card.


    Unless you have aliens invading. icon_lol.gif