9 reasons Keynesians (and Hamish) aren't winning the argument

Graham_Devon

Keynes is out of favour. In his place are the austerians who mistakenly liken the finances of nation states to domestic budgets. Unfortunately the Keynesians have fallen into the trap of thinking that the case they make is incontrovertible. It would hardly matter, except that their failure to address legitimate concerns – not those of rightwing commentators or the super-rich, but of voters on middle and low incomes – has blunted their sound argument for a stimulus package and allowed austerians to make most of the running.

Good little (well, quite large actually!) article is this one. Explores how to trip a Keynesian up.

For example...

They pretend that "if only the other person was intelligent enough to understand" or that the other person is some kind of super right wing monster and therefore lose the power of argument.

They think that everyone is thinking the same as them. For example, believeing that "everyone now thinks austerity is wrong" and it has somehow been proven.

They make out a spending boost is risk free, yet ignore the plain fact that Japan has borrowed 240% of GDP and not boosted growth.

They think that central banks can carry on printing QE (and in some cases MORE) without risk. But ignore where this money goes. How it's going to be wound down, etc.

They argue no one should fear inflation and that inflation is not high. Though they ignore that inflation does not have to be a certain number to be high, it's wage growth that counts, and certainly, inflation running 300% higher than wage growth can certainly considered high.

They argue to "spend now" and deal with the problem later. This encourages debt fuelled spending to deal with a debt fuelled spending crisis.

They assume that the rest of the population trust politicians to do the right thing for them when spending huge amounts of borrowed cash.

http://www.guardian.co.uk/commentisfree/2013/jun/07/9-reasons-keynesians-not-winning-argument

CLAPTON

9 straw men

Graham_Devon

CLAPTON wrote: »

9 straw men

If this was a trap, you'd have fallen straight in!

The end of the article states: It's important, then, that Keynesians win the argument. But if they want to do so, they've got to face their critics head on, and deal with legitimate concerns about the approach.

You've done exactly the opposite and exactly what was described!

Thrugelmir

Followers of Keynes also omit one key element of his works.

Save in the good times to pay for the bad times.

Keynes did not promote a spend spend spend policy.

CLAPTON

ok

numbers 1 & 2 aren't economic arguments so are impossible to debate

3. I know of no economists that think the spending boost is 'risk free' ; worth the risk maybe but not risk free.

Japan is a very special case; huges debts but most tof the debt is with the Japanese people who are content to hold the debt; they had an absolutely massive stock market bubble, they have an aging population etc.
And of course they are still one of the richest countries in the world.

4. most keynesian are concerned about what will happen when QE unfolds; however they feel the circumstances were exceptional and called for exceptional solutions.

5. keynesian do indeed generally hold that some steady inflation is useful as they generally believe it is easier to 'freeze' wages rather than actually cut them when circumstances require cuts in 'real ' wages.

6 by and large true; they do generally hold that debt is less important than growth

7. is simply absurd

HAMISH_MCTAVISH

Conclusion

Keynesian economics is a valid response to the UK's protracted economic depression. There are always risks, but there were always risks with austerity and it has pushed up borrowing by as much if not more than a Keynesian stimulus would have done.

Far from re-establishing confidence and generating growth, the UK has grown by 1.1% in three years. And it has a worsening trade balance and higher debt levels. Unemployment failed to rise by as much as expected, but it could be even lower by now. Economic green shoots are appearing, but can vanish with an early frost, which is possible with banks still strapped for cash and reluctant to lend.

Correct.

It's important, then, that Keynesians win the argument.

Also correct.

The problem is, the austerians argue from a place of political ideology rather than fact.

Which makes the next bit, well, a bit pointless.

But if they want to do so, they've got to face their critics head on, and deal with legitimate concerns about the approach

See this is the problem.

Concerns about the approach used to be legitimate.

Now that we're dealing with the omnishambles that austerity has wrought on the UK, and watching with envy the roaring success that the US economy has become through the application of keynesian economics, those concerns are no longer legitimate.

Just ignorant.

And a pandering article in the Grauniad won't change the ignorance of the Austerian mentality one little bit.

Graham_Devon

HAMISH_MCTAVISH wrote: »

Now that we're dealing with the omnishambles that austerity has wrought on the UK, and watching with envy the roaring success that the US economy has become through the application of keynesian economics, those concerns are no longer legitimate.

Just ignorant.

And a pandering article in the Grauniad won't change the ignorance of the Austerian mentality one little bit.

As the article states..

Liberal academics believe in the power of argument. If only the other person were intelligent enough to understand, they would realise that Keynesian economics is the only way to view the world.

They think that everyone agrees austerity is wrongheaded

Thrugelmir

The U.S. economy is not yet in recovery mode, according to the second quarterly report of 2013 of the UCLA Anderson Forecast's outlook for the United States.
A release on the forecast issued on Thursday notes that despite "improvement in both GDP and key economic sectors, the overall growth falls short of the rates required for the national economy to truly recover from the most recent recession."
In its June issue, UCLA Anderson Forecast Director Ed Leamer notes that the U.S. economy is not in recovery because economic growth levels currently fall far short of the levels needed to bring the economy back to trend.

Roaring? Doesn't appear to be.

Generali

The Keynsian argument is pretty simple.

GDP = Consumption + Investment + Government Spending + Net Exports
GDP = C + I + G + X

The idea is if companies feel that there isn't going to be so much demand for their goods, the Government should borrow money to spend thus propping up the G part of the equation. That will lead to increased C and thus increased I to satisfy that C. G can then be cut back as the problem has been resolved.

There is, however, a problem with this. There is a finite amount of money available to be borrowed. If Governments borrow beyond a certain amount, there is little or nothing left for companies and individuals to borrow. That means that no matter how much or little demand there is, I remains low. This is exactly what we have seen in the housing market. Have people wanted to stop buying houses? I believe not. So why aren't they buying? IMHO it's because the Government is borrowing all that is available to be borrowed, especially as they've coupled this with demands for banks to lend less by requiring them to rebuild their reserves.

vivatifosi

Thrugelmir wrote: »

Keynes did not promote a spend spend spend policy.

I'd thank this post 100 times if I could. I think Keynes gets a bad rap. The last government should not have gone into a recession following years of upturn with the cupboards bare. That's what happens when though when the Chancellor thinks he is King Canute and can control the economic tides.

Generali wrote: »

The Keynsian argument is pretty simple.

GDP = Consumption + Investment + Government Spending + Net Exports
GDP = C + I + G + X

The idea is if companies feel that there isn't going to be so much demand for their goods, the Government should borrow money to spend thus propping up the G part of the equation. That will lead to increased C and thus increased I to satisfy that C. G can then be cut back as the problem has been resolved.

There is, however, a problem with this. There is a finite amount of money available to be borrowed. If Governments borrow beyond a certain amount, there is little or nothing left for companies and individuals to borrow. That means that no matter how much or little demand there is, I remains low. This is exactly what we have seen in the housing market. Have people wanted to stop buying houses? I believe not. So why aren't they buying? IMHO it's because the Government is borrowing all that is available to be borrowed, especially as they've coupled this with demands for banks to lend less by requiring them to rebuild their reserves.

Agree and it is one of the most elegant, if not the most elegant equations in economics. It is simple to grasp and therefore should be obvious to everyone, including the last Labour government (I refer again to the point above).

I would describe myself as pro-Keynesian. However that means running a surplus in the good times, not burdening the population with IOUs and leaving notes for the incoming government saying the cupboard is bare. Further that surplus in the bad times should be used for demand stimulus such as infrastructure building, not for balooning the welfare state even further.

Generali

vivatifosi wrote: »

Agree and it is one of the most elegant, if not the most elegant equations in economics. It is simple to grasp and therefore should be obvious to everyone, including the last Labour government (I refer again to the point above).

I would describe myself as pro-Keynesian. However that means running a surplus in the good times, not burdening the population with IOUs and leaving notes for the incoming government saying the cupboard is bare. Further that surplus in the bad times should be used for demand stimulus such as infrastructure building, not for balooning the welfare state even further.

The thing is, Keynes wasn't even a Keynesian necessarily. If you actually read what he wrote rather than others' interpretations you can find huge amounts of stuff that is self contradictory. It would be just as easy to claim that most of the economic policies the Tories followed under Thatcher/Major were Keynesian (supply-side reform, especially in labour markets, plus small Government) as it would be to claim that the Labour Governments before and after were.