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  • Why We Are Keynesians [View article]
    Thanks, well, it's ok for me, I realize opinions differ, although I'm a little surprised at the amount of hostility Keynesianism gets from some quarters when the world is so clearly Keynesian at the moment.
    Jan 25, 2014. 05:43 PM | 1 Like Like |Link to Comment
  • Why We Are Keynesians [View article]
    ["I find it interesting that you asked me to name economists and I gave you about 15 and yet you won't acknowledge you were wrong."]

    I'm not talking economists, I'm talking the ability of economic MODELS able to explain MULTIPLE developments post 2008/9 crisis (and NOT JUST INFLATION). I readily agreed that some of these economist you mentioned did not warn about inflation (some even warned about deflation), or are able to explain other aspects.

    But I'm looking for an economic MODEL without Keynesian properties that can explain ALL these phenomena I mentioned in earlier comments, which for me, all seem to stem from a big rise in savings, which produced a fall in demand, excess capacity, interest rates that equate desired savings and investment to fall below zero, hence monetary policy impotence, hence high fiscal multipliers, sluggish growth in the face of austerity, etc. We're really in a Keynesian world, that's actually what I tried to show in the article.

    All you did was show a few economist who where not worried about inflation, which wasn't a surprise to me at all. I'm well aware of them.

    Re Krugman. Well, lets just agree to disagree here. I don't know all of his writings by heart, and perhaps he has changed his stance on public finances somewhat. But for me, quite familiar with the way he thinks, that stems more from the nature of the crisis that different presidents faced than the nature of the presidents themselves and, the nature of the proposed measures. A temporary stimulus is MUCH less damaging to the long-run health of public finances than a permanent tax cuts which mostly went to people who already save a lot.

    And name me ANY other economist who asked for a new bubble. It's weird we're even having this discussion. This was clearly not meant literally.

    You can call me stubborn, naive, making blunders, or plain wrong, or "not knowing much about models" or whatever, but the truth is that I simply have a different opinion. No need to call names.
    Jan 25, 2014. 05:28 PM | 3 Likes Like |Link to Comment
  • Why We Are Keynesians [View article]
    ["How can you possibly say the past five years have validated the policy response? Even Krugman and DeLong have admitted it has been just as bad as the first Great Depression."]

    The initial reaction was OK, much better than the initial reaction in 1929. But then came the austerians, the following quote is actually in the article itself:
    ["A key driver of this broad-based weakness is austerity in the public sector. Since the recovery began in June 2009, the public sector has lost 728,000 jobs. However, to keep up with population growth over this period, public-sector employment should have increased by around 750,000. That means the total gap in public-sector employment today is around 1.5 million jobs. Nearly 30 percent of that gap has occurred in local government education, which is mostly public K-12 employment. [Shierholtz]

    ["The past five years has shown this to be true as the banks have done the exact same things with the bond bubble as they did with the housing bubble. In other words, you prevented nothing and only set us up for a bigger fall. HOW CAN YOU NOT SEE THIS!?!?"]

    Well, because despite people arguing this for five years in a row, it HASN'T HAPPENED, so how am I supposed to see it? And Keynesians have a very good explanation for that, the world's 25%+ savings rate..
    Jan 25, 2014. 03:54 PM | 2 Likes Like |Link to Comment
  • Why We Are Keynesians [View article]
    No, sunk cost have nothing to do with it. You argued policy decisions have unintended consequences, and I agree that they often do. However, doing nothing is also a policy decision, which also has unintended consequences. Like letting Lehman go bankrupt.
    Jan 25, 2014. 03:48 PM | 3 Likes Like |Link to Comment
  • Why We Are Keynesians [View article]
    Yes, I very much second that.
    Jan 25, 2014. 02:33 PM | 1 Like Like |Link to Comment
  • Why We Are Keynesians [View article]
    Thanks Asbytec. And indeed, I could have condensed the article to that quote alone although getting it passed the SA editors might have been somewhat problematic..
    Jan 25, 2014. 02:33 PM | 1 Like Like |Link to Comment
  • Why We Are Keynesians [View article]
    Well, thanks. I simply set out to provide a simple intro to Keynesianism as I see numerous bastardization versions, and argue that it is able to explain a good many of our economic problems. I'm aware that there is an anti-state tradition in the US, I don't really have any problem with that (I'm from a country with a different tradition, but to each his own), apart from when people start to argue there is an economic need for that. A pure market based economy is a bit of a fantasy, and markets can also fail.
    Jan 25, 2014. 02:31 PM | 1 Like Like |Link to Comment
  • Why We Are Keynesians [View article]
    Yes, thanks. It's not that wealth creation always and everywhere depends on govt. (although the wider issues of institutions is crucial, as the book by Acemoglu has shown), but the Medellin story shows how it can play a positive supporting role, or even an inspiring one.

    Re technology. So far, technological progress hasn't been a net destroyer of jobs although I'm aware of people arguing that this might very well change. Is that a disaster? If we all work a little less, perhaps not.
    Jan 25, 2014. 02:23 PM | Likes Like |Link to Comment
  • Why We Are Keynesians [View article]
    The bad faith accusation was specifically for you gotcha about Krugman supposedly arguing for a housing bubble in 2002.

    I know Krugman is hated, and I know there is a whole little cottage industry on the look for these kind of gotcha's (on first sight, you seem to be part of it), but this one is really ridiculous:
    - It's a single comment, he never repeated it
    - He would have been the ONLY economist ever to argue for a bubble
    - It doesn't flow at all from the kind of models he uses (which, in your criticism of Keynesian IS/LM, you in fact acknowledge)

    Re Krugman the deficit hawk when a Republican in the white house. It's sort of funny as in the comment section of a previous article we have a Krugman hater arguing he always wants to spend. But that apart, naive as I might be, I already answered that, which you cared to ignore. Different circumstances, different policies. Entirely consistent with his model.

    In fact, the opposite is much clearer. Why are really almost all right-wingers against monetary and fiscal stimulus (often with a hostility bordering on hysteria) in the wake of the 2008/9 crisis, while in earlier times many acknowledged the place of countercyclical policies when recessions were actually less serious?

    And yes, I'm aware that there are many economists who didn't predict inflation, but you're moving the goal post here. I specifically argued that only Keynesian models predicted:
    - low inflation despite record "money printing"
    - low bond yields despite record high deficits and debts
    - no currency collapse
    - sluggish growth and big multiplier effects of fiscal policy, while little or no traction of monetary policy.
    To my knowledge, only a Keynesian model can do that.

    And yes, you're right that an IS-LM model isn't the be all of macro or that it doesn't have critics. But I never argued it is, only that the Keynesian version of it with a liquidity trap has been remarkable in predicting most aspects of how the economy behaved post 2008/9 crisis.

    It might surprise you, but I'm aware of it's limitations. It doesn't include anything useful for financial bubble risk (hence I really object to your gotcha about Krugman in that respect), it doesn't contain a budget constraint, etc. etc. But for predicting how the economy would behave post 2008/9 it has been remarkably successful, explaining stuff that remained vexing problems for a host of economist.
    Jan 25, 2014. 01:43 PM | 4 Likes Like |Link to Comment
  • Is The U.S. Bankrupt? [View article]
    ["You, like all others, have failed to provide proof that the esteemed Dr. Paul Krugman, winner of the economics Nobel in an area that has little to do with what he writes about in his NYT column has EVER called for a REDUCTION in year-over year FEDERAL spending."]

    I just gave you that above. To some Krugman critics, he turns into a fiscal hawk when Republicans run the economy, see comment above.

    By the way, I already explained that you don't need to run surpluses to stabilize or even reduce public debt. From simple public sector financial constraint, assuming a normal, nominal 5% GDP growth, one can have a 3% DEFICIT and public debt converges on 60% of GDP.
    Jan 25, 2014. 10:52 AM | 1 Like Like |Link to Comment
  • Why We Are Keynesians [View article]
    ["the idea that anyone would trust the governments calculation of inflation when they continue to alter the formula every few years is insane."]

    You might want to Google "Boskin committee" they argued the CPI was actually overstating inflation. I've dealt with this conspiracy theory nonsense more extensively elsewhere, but the CPI isn't out of line with other measures of inflation (The internet billion price index, the GDP deflator) and if there really were a case to be made that it significantly understated inflation it would have been a much wider issue. Imagine the FOX commentators.. You can compare it to the situation in Argentina, were inflation is twice the official rate, but EVERYBODY knows that, and nobody takes the official rate seriously.

    ["The whole point of Keynesianism is to have an economic explanation to justify the creation of a fiat currency system to loot the masses and flow all the wealth and power to the ruling elite."]


    [" Keynesianism has worked so well that our purchasing power since the creation of the Federal Reserve has diminished to pennies on the dollar"]

    Yet we are still a good deal richer than a century ago..
    Jan 25, 2014. 10:47 AM | 5 Likes Like |Link to Comment
  • Is The U.S. Bankrupt? [View article]
    Not sure this is a fair test. As you say, Krugman has a long career, and hone has to know most of his writing to come up with something, or spend days reading.

    The funny thing is, in a discussion at the end of another article I wrote recently somebody attended me to a website which argued:
    ["When the GOP is responsible, he complains about “fiscal train wrecks” and the “threat to the federal government’s solvency.” When advising the Democrats to add even more debt, he claims that “we’re not facing any type of fiscal crisis.”]

    Now, as I showed in a reaction to that (you can see here:, I think this is a bad faith argument, for several reasons, but we now have two sorts of Krugman critics:
    - Those who argue he never calls for fiscal restraint
    - Those who argue he only calls for fiscal restraint when the Republicans govern

    Personally I don't think it matters who governs, but what type of crisis the country faces:
    - the 2008 crisis created a financial melt-down, huge private sector deleveraging, and because of the savings glut that created monetary policy wasn't effective anymore (liquidity trap) so fiscal policy the only instrument left to address a 5%+ output gap
    - the 1981/2 and 2001/2 crisis, monetary policy still had a lot of traction, so fiscal policy wasn't necessary
    - the 2002 tax cut was semi-permanent, therefore has a MUCH bigger impact on long-term public finances (indeed, a 2012 CBO report still has it as the single biggest cause of the deficit for years to come), while stimulus like the 2009 law peters out after a few years (see the graph in the article above). The tax cuts were also mainly targeted at people with a high savings rate, so not the best bang for the buck in terms of boosting the economy in a recession.
    Jan 25, 2014. 09:53 AM | 1 Like Like |Link to Comment
  • Why We Are Keynesians [View article]
    You actually have a bit of a point, Satan. The world is imperfect, we have imperfect knowledge, and policies are often imperfect and have a tendency to create unintended consequences. All true.

    However, given a financial collapse and massive private sector deleveraging leading to a 5%+ output gap, I still think trying to arrest some of that, however imperfect, beats any alternative. Look what happened after they let Lehman go bankrupt. Doing nothing is also imperfect and has unintended consequences..
    Jan 25, 2014. 09:13 AM | 3 Likes Like |Link to Comment
  • Is The U.S. Bankrupt? [View article]
    You hit the nail there, Lawrence. Kudo's. Circumstance based solutions. Exactly.
    Jan 25, 2014. 09:08 AM | 2 Likes Like |Link to Comment
  • Why We Are Keynesians [View article]
    No, what I'm saying is that only the Keynesians have a model that explains these post 2008 phenomena. Show me another economic model that explains all these phenomena. There isn't one.

    Also, as you should know, the IS/LM model might be a simple classroom tool, but it depends how you draw the curves in what kind of world you are. A flat LM and a fairly steep IS curve is distinctly Keynesian, and guess what, it's the only version that explains the post 2008 world.

    By the way, I read your anti-Krugman article on your website, that really is a bad faith article, if there ever was one:

    1) Krugman "arguing for a housing bubble in 2002"
    This is simply wordsmithing, looking for any quote that can be used against him. Krugman almost invariably argues from models, and bubbles do not play a role in Keynesian models. It was simply a matter of speech, to highlight that the economy was running below capacity. It could even have been styled after that famous Onion headline after the dotcom crash that we demand another bubble to invest in.
    Show me any economist that is actually in favor of creating bubbles! Not even Larry Summers and his recent secular stagnation theory has argued that.

    2) Krugman in favor of stimulus when Democrats are in power, against it when Republicans are.
    - The 2008 crisis is of an entirely different category, causing massive private sector deleveraging in its wake, a huge output gap, and, most importantly, because of the savings glut it created record low interest rates monetary policy has little to no traction, so fiscal policy is basically the only instrument left that has and the fiscal multiplier is much bigger under these circumstances (per IMF, no less)
    - During previous recessions when the Republicans were in power monetary policy still had traction (more especially during the early 1980s recession, but also in the wake of the crash), so there was no need for fiscal policy
    - What the Republicans did in 2002 was big tax cuts, these are much more permanent (for 10 years, but most of these are still in place) while the stimulus, even the $800B one of 2009, peters out in a couple of years. You might not believe me, but believe the CBO. In a 2012 report, it still has those tax cuts as the biggest driver of the deficit for quite some time in the future.
    - He also complained that as a demand management tool, these 2002 tax cuts really gave little bang for the buck as they were mostly targeted at the upper incomes, who save a lot more. The economic effects of these tax cuts, either as supply or as demand measures, are hardly noticeable in the subsequent figures.
    Jan 25, 2014. 09:05 AM | 5 Likes Like |Link to Comment