Obama is Bush part 3

The G-20 Sings a Song of Sixpence

I have studied Bretton Woods conference. The United States was in a position to pretty much impose its will on the rest of the world; every other major economy was literally in ruins. Keynes made quite a few suggestions that international authorities (IMF and World Bank) should be much more powerful - but the US authorities stated clearly that they had no interest in giving up sovereignty. They said so in as many words. Anecdotally, many other countries "expressed reservations" about losing sovereignty, which is diplomatic speak for "that's a dumb idea".

Keynes did not bring down the UK by himself, but his bone-headed theories on central economic planning certainly contributed.

Keynesian economics stays in economic textbooks mostly because college professors have a well documented socialist leaning. The country usually votes somewhere close to 50/50 Democrat/Republican -- even after Bush's bumblings, the country voted about 55/45 Obama/McCain. The country is somewhat centrist, as one would expect. College professors have done research on their peers and found that professors vote closer to 98/2 Dem/Rep. You are entitled to your opinion -- but the thinking of you and your colleagues is rather incestuous and not representative of the country as a whole.

The problems with Keynesian economic theories led to the rise of monetarists, neo-classical macro theorists, and a reincarnation of Austrian theories-- just to name a few. Prominent market theorists like George Soros completely reject the whole idea of markets finding any equilibrium. If Keynes' theories were as widely accepted as you claim, there would not have been a need for all these other schools of thought. You might emphasize Keynesian theories in your classroom, but that doesn't make the theories mainstream. Outside your classroom, you cannot threaten people with a bad grade if we don't agree with you.

Any analysis of the experience of Japan (and the US in the last couple years) thoroughly refutes the argument of a "liquidity trap". The Bank of Japan threw so much money at their "liquidity trap" that their govt debt is now over 300% of GDP -- and they have nothing to show for it. Bernanke has slashed interest rates and doubled the Fed's balance sheet -- and after all that Lehman failed while Merrill and Wachovia were days away from collapse.

A liquidity issue happens when banks won't lend to solvent borrowers. When people won't lend to insolvent borrowers, that is called common sense. Everyone -- from consumers to hedge funds to corporations to the government -- have more debt than they are able to service. Everyone needs to de-lever. No amount of extraordinary lending on the part of the Fed is going to change that.

Home prices got way too high as a multiple of income-- several standard deviations higher than the "norm" that existed before Keynes and several decades after Keynes. People do not have the income level to support home prices; making a loan (providing liquidity) to someone who cannot service the debt makes no sense.

An economy with too much debt already cannot be stimulated with more debt. There is no liquidity trap -- the whole idea is simply a shameless way for socialists to justify shifting more power to central economic planners like the Fed and Treasury. While Bernanke has issued some limited mea culpas, he hasn't had the courage to just come out and admit that Greenspan's policies were a major contributing factor to the bubbles and collapses of the last couple decades-- including housing.

The G-20 Sings a Song of Sixpence

BTW -- it should also be mentioned that, under John Maynard Keynes "influence", the British empire went from being the world power before World War II to being an IMF bailout candidate in the 1970s.

Keynes economics were simply a means to an end -- he believed in central economic planning by all-knowing government bureaucrats and elitist academics like himself, which melded well with socialist ideas of the time. That makes him in the right place at the right time -- but hardly worthy of being called "brilliant"

The G-20 Sings a Song of Sixpence

??? Keynes was not the principal architect of Bretton Woods -- he was merely the British negotiator, and his opinions were largely ignored. Incidentally, he was also the British negotiator at the end of World War One, where his solution was less than "brilliant".

Most academics and political scholars would say Harry Dexter White was the architect of Bretton Woods.

You also discredit yourself by blaming Bush for stuffing the IMF with washed up hacks. You are a college professor, so I suppose an extremist bias is to be expected. The facts are that the IMF hasn't been relevant since 1972 -- no President has paid much attention to it or the World Bank.

Bush has done plenty of bad things -- but you attributing super-human evil powers to him is ridiculous and makes you sound foolish.

Finally, you are pretty much alone in expecting great things this weekend. The biggest economy in the world is represented by a lame duck president -- with the president elect not even present. The French delegation thinks it can impose some sort of Francophile system on the rest of the world -- a strategy that has failed miserably within the EU never mind globally.

The IMF isn't relevant because its mission WAS to maintain a currency system that ceased to be more than 30 years ago. It has been floundering in search of a purpose ever since.

Its unlikely to become relevant this weekend. Just as an example, France thinks it should retain its influence (and voting power), but its economy is now much smaller than that of Brazil, which has less voting rights. China's economy is also substantially bigger than its voting share.

The only way the IMF can become relevant is if the "insiders" (basically the western powers) give up a lot of power and influence to emerging economies. The long standing tradition of having the president of the world bank and IMF come from western Europe and the US respectively can't continue if either organization is to be considered relevant.

Finally, the emerging economies generally have a very poor opinion of the IMF and its policies; so they are unlikely to support any regime that resembles the IMF of the past.