Keynes Told Ya So

Think Keynesian economics is bunk. Not China. "No country has taken better advantage of free trade than China, with its controlled currency and strong industrial policies, including huge public investments in renewable energy technologies." Read The New York Times, What Would Keynes Say Today?

Another told ya so!

The Myth of Expansionary Austerity

UPDATE XI:  "[W]e’re now living in a world of zombie economic policies — policies that should have been killed by the evidence that all of their premises are wrong, but which keep shambling along nonetheless. And it’s anyone’s guess when this reign of error will end."  Read The New York Times,  Death of a Fairy Tale. 

UPDATE X:  The chart says it all.  From the Washington Post, The consequences of austerity in one chart?:

The article, quoting Joe Weisenthal, notes that the "UK was recovering on a fine trajectory right up until early 2010, at which point UK growth hit a brick wall. What happened in 2010? That’s when conservative David Cameron came to power with an agenda of reigning in the debt."

As I said before, and before,Obama should call the Republi-CON bluff.

UPDATE IX: Just ask the PIIGGS, "austerity policies have been an utter failure." Read The New York Times, Pain Without Gain.


UPDATE VIII: "Despite meeting terms for bailout money [i.e. austerity measures], Portugal is going deeper into debt because its economy is shrinking." Read The New York Times, Portugal’s Debt Efforts May Be Warning for Greece.

So much for expansionary austerity.


UPDATE VII: "Look at Britain [or Italy or Spain] to see the tragic effects of a very bad idea." Read The New York Times, The Austerity Debacle.

UPDATE VI: "Once again, when politicians and policy makers decided to focus on deficits, not jobs, they proved Keynes right about a slump being the wrong time for austerity. " Read The New York Times, Keynes Was Right.


UPDATE V: From The New York Times, The Hijacked Crisis:

[The markets are] "signaling, as clearly as anyone could ask, that unemployment rather than deficits is our biggest problem. Bear in mind that deficit hawks have been warning for years that interest rates on U.S. government debt would soar any day now; the threat from the bond market was supposed to be the reason that we must slash the deficit now now now. But that threat keeps not materializing. And, this week, on the heels of a downgrade that was supposed to scare bond investors, those interest rates actually plunged to record lows.

What the market was saying — almost shouting — was, 'We’re not worried about the deficit! We’re worried about the weak economy!' For a weak economy means both low interest rates and a lack of business opportunities, which, in turn, means that government bonds become an attractive investment even at very low yields. If the downgrade of U.S. debt had any effect at all, it was to reinforce fears of austerity policies that will make the economy even weaker.

So how did Washington discourse come to be dominated by the wrong issue?

Hard-line Republicans have, of course, played a role. Although they don’t seem to truly care about deficits — try suggesting any rise in taxes on the rich — they have found harping on deficits a useful way to attack government programs.

But our discourse wouldn’t have gone so far off-track if other influential people hadn’t been eager to change the subject away from jobs, even in the face of 9 percent unemployment, and to hijack the crisis on behalf of their pre-existing agendas."

UPDATE IV: We are in a 'Great Contraction,' and problem No. 1 is too much debt.

"Until we find ways to restructure and forgive some of these debts from consumers, firms, banks and governments, spending to drive growth is not going to come back at the scale we need.

Our challenge now, therefore, is to deleverage the economy as fast as possible, while, at the same time, getting back to investing as much as possible in our real pillars of growth so our recovery is built on sustainable businesses and real jobs and not just on another round of credit injections"

Read The New York Times, Win Together or Lose Together, which quotes:

"Kenneth Rogoff, a professor of economics at Harvard, who argued in an essay last week for Project Syndicate that we are not in a Great Recession but in a Great (Credit) Contraction: 'Why is everyone still referring to the recent financial crisis as the ‘Great Recession?' ' asked Rogoff. 'The phrase ‘Great Recession’ creates the impression that the economy is following the contours of a typical recession, only more severe — something like a really bad cold. ... But the real problem is that the global economy is badly overleveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation.'

Re-read 'The Great Stagnation' about our broken political system.


UPDATE II: We are not suffering through a normal "business-cycle recession, in which the drop is quick, and the recovery is usually similarly swift. That is not what we’re in. That is not what financial crises are. And mistaking one for the other has, in his opinion, cost us a fortune.

Financial crises are not about the business cycle falling out of whack. They’re about debt. Lots of it. And that’s why they’re so resistant to efforts to speed a recovery. Whereas you normally get out of a recession by lowering interest rates and persuading consumers to spend, the period after a financial crisis is marked by consumers trying to dig out from under a mountain of borrowed money. You can accelerate that process, but it’s hard to do. But first you must correctly diagnose the problem. . .

'Debt de-leveraging takes about seven years. That’s the essence,' [Carmen Reinhart, now of the Peterson Institute for International Economics] says. 'And in the decade following severe financial crises, you tend to grow by 1 to 1.5 percentage points less than in the decade before, because the decade before was fueled by a boom in private borrowing, and not all of that growth was real. The unemployment figures in advanced economies after falls are also very dark. Unemployment remains anchored about five percentage points above what it was in the decade before.'"

Read the Washington Post, Double dip, or just one big economic dive?

But whether it is a Republi-con double-dip recession or not, there is no argument that Republi-cons want Obama to fail, the American economy is just acceptable collateral damage to achieve that goal.


UPDATE: As I first stated in 2008, the economy is deleveraging. From The New York Times, We’re Spent:

"We are feeling the deferred pain from 25 years of excess, as people try to rebuild their depleted savings. This pattern is a classic one. The definitive book about financial crises has become 'This Time Is Different: Eight Centuries of Financial Folly,' published in 2009 with exquisite timing, by Carmen M. Reinhart, now of the Peterson Institute for International Economics, and Kenneth S. Rogoff, of Harvard.

Surveying hundreds of years of crises around the world, Ms. Reinhart and Mr. Rogoff conclude that debt is the primary cause and that the aftermath is 'deep and prolonged,' with 'profound declines in output and employment.' On average, a modern financial crisis has caused the unemployment rate to rise for more than four years and by 7 percentage points. (We’re now at almost four years and 5 percentage points.) The recovery takes many years more."

And the article warns of the risk of austerity measures now:

"The easy thing now might be to proclaim that debt is evil and ask everyone — consumers, the federal government, state governments — to get thrifty. The pithiest version of that strategy comes from Andrew W. Mellon, the Treasury secretary when the Depression began: 'Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate,' Mellon said, according to his boss, President Herbert Hoover. 'It will purge the rottenness out of the system.'

History, however, has a different verdict. If governments stop spending at the same time that consumers do, the economy can enter a vicious cycle, as it did in Hoover’s day."

Of course, Republi-cons don't want an economic recovery just yet, even if unemployment remains high. It doesn't benefit their plans for the 2012 election, just as Bush couldn't admit the Iraq strategy failure until after the 2006 elections, even as soldiers died.

Another warning about the myth of expansionary austerity.

"The Irish, British and, soon, Greeks have bought into a misguided belief in austerity — that they can somehow cut their way to growth. In the United States, we have seen states and municipalities slashing head counts of teachers, cops and firemen. The “paradox of thrift” has morphed into a misguided economics of austerity. Hence, even when the private sector manages to create some jobs, its offset by public-sector job cuts." Read the Washington Post, Wall Street analysts and economists have this recession recovery wrong, which notes the economic downturn was caused by a credit-crisis, not an ordinary run-of-the-mill recession, "far rarer, more protracted and much more painful [and] different from other cycles" and bubbles.

Trump's Big CON: No Balanced Budget

UPDATE II:  "It’s curious to hear Republicans suddenly talking about the urgent need for fiscal stimulus. For the past eight years, including the darkest days of the Great Recession, they tried to convince us that fiscal stimulus doesn’t work, and that the only way to really boost economic growth is to cut the budget deficit. But now that they are about to get their hands on the federal checkbook, Republicans have decided that we are all Keynesians once again.

To anyone serious about economic analysis, it should be obvious that we don’t need Keynesian stimulus at the moment. The unemployment rate is at 4.6 percent, which is about as close to full employment as it gets. The economy is producing more than 175,000 jobs each month, with many industries complaining they could add more if there were trained workers to hire. Wages are rising faster than they have in a decade, and faster than productivity is rising. Corporate profits and share prices are at record levels. And thanks to aggressive bond buying (and bond holding) by the Federal Reserve, monetary policy is still extraordinarily accommodative. Keynes himself would never have suggested that this is an appropriate time to use the government’s taxing and spending powers to boost the economy. In fact, seeing the developing bubble in stock and real estate markets, Keynes probably would be recommending a budget surplus right about now."

Read the Washington Post, Republicans are finally willing to spend on the economy — at the exact wrong time.

UPDATE: "For the last 35 years, Republicans haven't worried about deficits when they've been in power—in fact, former vice president Dick Cheney said that 'Reagan proved' they 'don't matter'—and treated them like the greatest threat to the republic when they've been out of it. So the fact that this would add a lot of red ink wouldn't be a dealbreaker. Republicans are going to resume not caring about the deficit the moment the calendar flips to Jan. 20, 2017."

Read the Washington Post, How Obama’s unaffordable socialism could become Trump’s smart conservatism.  

Read also the Washington Post, How to pay for Donald Trump’s trillion-dollar agenda? Congressional Republicans aren’t saying.

"President-elect Donald Trump on Thursday made his first stamp on Congress as House Republicans bowed to his wishes and announced plans to extend government funding through March . . .

Read the Washington Post, Trump camp calls for short-term spending bill despite Senate concerns.

Balancing the budget is a long-time Republi-CON.

The Bailout is a Bad Idea, Part III

Another idea worth considering:

• Washington Post article
• A Bailout We Don't Need
  

But something needs to be done:

• Washington Post article
• What Keynes Could Tell Paulson
  

Class Today at NoBullU on WEBY

Listen to the voice of wisdom and reason in a wilderness of partisan rhetoric -- No political insanity, no conservative hypocrisy, no liberal foolishness -- Just straight talk, straight at you, and that’s no bull!!

NoBullU will broadcast today from 4:05 to 6:00 p.m. at 1330 AM WEBY and on line.

Topics:

Follow-up: oil spill claim BS, a server at Angus steak house gets $10,000;

Local and regional: Happy 200th Birthday to the Republic of West Florida;

Nation and international: free speech, can you say anything?; does Obama win in 2012 by losing in 2010; watch what you wish for, you might lose your job; the tea party, how it's become just a Billionaires’ coup camouflaged a populist surge; it's not the GOP it's the RPT (Republi-CON Party of Terrorist); welcome to the age of everyman for himself; who wants to go to DC for the rally to expose Republi-CON-ism; Palin told ya so and Keynes told ya so; and sed quis custodiet ipsos cutodes;

Fun stuff: Lingerie Football, is it a sport?; did ya'll take the Yankee or Dixie Quiz; and how big is your pumpkin?

and

Donate to a good cause: this week support Pace FL's Woodbine United Methodist's Ray Of Hope Wheelchair Ramp Ministry, as reported recently at the Pensacola News Journal, Ramping it up: Pace church makes wheelchair ramps for people in need.

I'll discuss anything, but expect no mercy if you are a party hack pandering to fear, anger and hatred, because the truth sure makes it hard out there for the party pimps.

So tune-in, call-in, but only if you can handle some ass kickin' discussion of politics and current events.

And remember: I'm still God's favorite Gulf Coast talk show host, just ask the capped well!

More Articles About How We Got Into, and How We Might Fix, the Economic Mess

Read Time, Nobel Laureate: How to Get Out of the Financial Crisis. Joseph Stiglitz writes that the "troubles we now face were caused largely by the combination of deregulation and low interest rates . . . [ l] oose money and light regulation were a toxic mixture." He suggests that we recapitalize banks, stem the tide of foreclosures, pass a stimulus that works, restore confidence through regulatory reform, and create an effective multilateral agency.

Also read Washington Post, We Forgot Everything Keynes Taught Us.

And if you are interested in more details, see The Baseline Scenario, Financial Crisis for Beginners.

Or play an updated version of the Depression-era board game Monopoly, Econoply, with loose money, instant mortgages, vague and constantly-changing rules, and Bankers that can't go bankrupt.

The Republi-CON 'Balanced Budget, Less Government' Fraud

UPDATE:  "For years, deficit scolds have held Washington in thrall with warnings of an imminent debt crisis, even though investors, who continue to buy U.S. bonds, clearly believe that such a crisis won’t happen; economic analysis says that such a crisis can’t happen; and the historical record shows no examples bearing any resemblance to our current situation in which such a crisis actually did happen."  Read The New York Times, Fighting Fiscal Phantoms.  

"So it turns out that federal spending is important to the economy after all. . .

Republican lawmakers demanded the cuts last year as part of their brinkmanship over the debt ceiling, and business lobbies have generally supported slashing the deficit. But now that the cuts are imminent, corporate executives seem to have realized that the last thing the economy needs is a large budget cut across the board. 

They’re right about that. According to the Congressional Budget Office, the combined impact of the automatic spending cuts plus the scheduled expiration of the Bush-era tax cuts — the so-called fiscal cliff — would cause the economy to contract in the first half of 2013. Some business leaders seem to think the solution is for Congress to act as soon as possible to avert the spending cuts and to extend all of the tax cuts. That would avoid an economic downturn next year, but it would also mean no progress toward long-term deficit reduction"

 Read The New York Times, Business Fears the Fiscal Cliff. 


Proving once again "Keynes’s basic point: slashing spending in a depressed economy depresses that economy further. 

It also proves that the Republi-cons are frauds.

BTW, since the 2010 elections I've been waiting for the promised balanced budget, but don't hold you breath because the Republi-CONs Con the Tea Party, there'll be no $100 billion budget cut, and let's admit the obvious, the Republi-CONs are not serious about deficits.

Republi-CONs Wrong Again

Whatever happened to those Republi-con Bond Vigilantes'

A "funny thing happened on the way to the predicted fiscal crisis: instead of soaring, U.S. borrowing costs have fallen to their lowest level in the nation’s history. . .

The experience of the past few years — above all, the spectacular failure of austerity policies in Europe — has been a dramatic demonstration of Keynes’s basic point: slashing spending in a depressed economy depresses that economy further.

So it’s time to stop paying attention to the alleged wise men who hijacked our policy discussion and made the deficit the center of conversation. They’ve been wrong about everything — and these days even the financial markets are telling us that we should be focused on jobs and growth."

Read The New York Times, Money for Nothing.

Be Very Very Afraid of 'The Invisible [Republi-CON] Bond Vigilantes'

UPDATE XII:  What ever happened to those preditions of hyperinflation?

Read the Washington Post, And now let us remember the worst economic prediction ever.

UPDATE XI: "When it comes to views on economics, Republicans have been consistent, clear and wrong."

Read The New York Times, G.O.P. Monetary Madness, which notes "that hard-money doctrine and paranoia about inflation have taken over the party, even as the predicted inflation keeps failing to materialize. For example, in February, Representative Paul Ryan, who is somewhat inexplicably regarded as the party’s deep thinker on matters economic, harangued Mr. Bernanke on how terrible it is to “debase” a currency and pointed to a rise in commodity prices in late 2010 and early 2011 as evidence that inflation was finally coming. Commodity prices have plunged since then, but there is no sign that Mr. Ryan or anyone else is having second thoughts."


UPDATE X: How about those invisible Republi-CON bond vigilantes. Read the Washington Post, Average rate on 30-year fixed mortgage ties low of 3.94 pct.; 15-year also hits record.


UPDATE IX: For all the anti-Keynesian folks out there, please explain:




UPDATE VIII: A told ya so by the 2008 winner of the Nobel Memorial Prize in Economics, in The New York Times, One Point Seven Seven:

"That’s the current interest rate on 10-year US bonds.

Remember, back in 2009 there was a big debate between people like me, who said that we were in a liquidity trap and that interest rates would stay low as long as the economy was depressed, and people like the WSJ editorial page and Niall Ferguson, who said that government borrowing would bring on the bond vigilantes and send rates soaring.

How’s it going?

And just to be clear: this isn’t just about I-told-you-so. We’re talking about different models, different visions of how the economy works. Their vision led to calls for austerity now now now; mine said that the overwhelming danger was that we wouldn’t provide enough stimulus, and that we would pull back too soon. Sure enough, we didn’t and we did. And now catastrophe looms."

Republi-cons continue to sacrifice workers to appease their imaginary inflation gods.


UPDATE VII: It has been several weeks since the so-called downgrade. So how are those bond vigilantes doing? Read The New York Times, Mortgage Rates Hit 50-Year Low.


UPDATE VI: "Fitch Ratings said Tuesday it will keep its rating on U.S. debt at the highest grade, AAA, and issued a 'stable' outlook, meaning it expects the rating to stay there." Read The New York Times, Fitch Ratings Keeps U.S. at Top Credit Rating.


UPDATE V: "Thirty years ago, it became clear that defeating inflation was crucial, even if the means needed to accomplish that would cause a deep recession. . . . [But i]t is time for a new lesson to be learned. Sometimes we need inflation, and now is such a time. " Read The New York Times, Sometimes, Inflation Is Not Evil.


UPDATE IV: "Behold the power of a stupid narrative, which seems impervious to evidence." Read The New York Times, The Downgrade Doom Loop.


UPDATE III: More from that 'liberal' commentator won the 2008 Nobel Memorial Prize in Economics:

"[T]here is no reason to take Friday's downgrade of America seriously. These are the last people whose judgment we should trust.

And yet America does have big problems.

These problems have very little to do with short-term or even medium-term budget arithmetic. The U.S. government is having no trouble borrowing to cover its current deficit. It's true that we're building up debt, on which we'll eventually have to pay interest. But if you actually do the math, instead of intoning big numbers in your best Dr. Evil voice, you discover that even very large deficits over the next few years will have remarkably little impact on U.S. fiscal sustainability.

No, what makes America look unreliable isn't budget math, it's politics. And please, let's not have the usual declarations that both sides are at fault. Our problems are almost entirely one-sided - specifically, they're caused by the rise of an extremist right that is prepared to create repeated crises rather than give an inch on its demands.

The truth is that as far as the straight economics goes, America’s long-run fiscal problems shouldn’t be all that hard to fix. It’s true that an aging population and rising health care costs will, under current policies, push spending up faster than tax receipts. But the United States has far higher health costs than any other advanced country, and very low taxes by international standards. If we could move even part way toward international norms on both these fronts, our budget problems would be solved.

So why can’t we do that? Because we have a powerful political movement in this country that screamed “death panels” in the face of modest efforts to use Medicare funds more effectively, and preferred to risk financial catastrophe rather than agree to even a penny in additional revenues.

The real question facing America, even in purely fiscal terms, isn’t whether we’ll trim a trillion here or a trillion there from deficits. It is whether the extremists now blocking any kind of responsible policy can be defeated and marginalized. "

Read The New York Times, Credibility, Chutzpah And Debt.


UPDATE II: "Virtually unnoticed last week was that [another ratings agency] kept a Triple A rating on the United States." Read The New York Times, Moody’s: Why the U.S. Is Still AAA.


UPDATE: So much for the inflation fear-mongers.

Today the Bank of New York began charging a fee on large deposits. Read the Wall Street Journal, BNY Mellon Deposit Fee: Life in the Liquidity Trap.

BTW, a liquidity trap, "in Keynesian economics, is a situation where monetary policy is unable to stimulate an economy, either through lowering interest rates or increasing the money supply. Liquidity traps typically occur when expectations of adverse events (e.g., deflation, insufficient aggregate demand, or civil or international war) make persons with liquid assets unwilling to invest."

I guess John Maynard Keynes was right after all.

Of course, one 'liberal' commentator has been scoffing at inflation concerns for years.

From more than two years ago, read The New York Times, The Big Inflation Scare, where he speculates that "inflation fear-mongering [was] partly political, coming largely from economists who had no problem with deficits caused by tax cuts but suddenly became fiscal scolds when the government started spending money to rescue the economy. And their goal [seemed] to be to bully the Obama administration into abandoning those rescue efforts."

I guess that's why that 'liberal' commentator won the 2008 Nobel Memorial Prize in Economics.

I wonder what the Hedgehog News prize winning economist would says now.

(Warning, that is a satirical comment.

Hedgehog News doesn't have any prize winning economist on the payroll.

But Hedgehog News does have many Republi-con candidates on the payroll.)

"S&P has triggered another invisible attack by the invisible bond vigilantes." Read The New York Times, What If They Announced A Downgrade And Nobody Cared?

BTW, a bond vigilante "is a bond market investor who protests monetary or fiscal policies they consider inflationary by selling bonds, thus increasing yields."

If you don't understand this post, you should refrain from debating fiscal policy issues.