Keynesian and Private Sector.

Discussion in 'Economy' started by pier34, Apr 13, 2011.

  1. pier34
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    pier34 Rookie

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    Can someone tell me if keynesian policies actually interfere with the private sector? EG: the recovery of the US economy post-1929, at how much keynesian policies undermined private-sector confidence and how the similar short-sighted policies are crashing or collapsing today.
     
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  2. PoliticalChic
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    PoliticalChic Diamond Member

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    Welcome to the board.

    John Maynard Keynes, in a letter published in the NYTimes, December 31, 1933, warned “ even wise and necessary Reform may, in some respects, impede and complicate Recovery. For it will upset the confidence of the business world and weaken their existing motives to action.” Even Keynes say the danger in treating the nation’s capitalists as an enemy, as “the unscrupulous money changers,” as FDR called them in his first Inaugural.

    Now, if you believe in the efficacy of said policies, consider this:
    In 1935, the Brookings Institution (left-leaning) delivered a 900-page report on the New Deal and the National Recovery Administration, concluding that “ on the whole it retarded recovery.” Articles & Commentary
     
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  3. MikeK
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    MikeK Gold Member

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    Rather than embark on an academic debate on the respective theoretical virtues of John Keynes vs Milton Friedman, which would necessarily expand beyond the purposes of this forum, suffice it to say that neither socialism nor capitalism as exclusive socio-economic entities will accommodate the best interests of the majority of Americans. Instead, as the period between the 1940s and 1980s, the most prosperous and productive decades in our history (owing to FDR's New Deal), has clearly shown, the best possible system is capitalism with its more aggressive propensities held in check by appropriate socialist regulations.

    Further evidence of the effectiveness of that arrangement is the decline in America's economic supremacy which began when Ronald Reagan commenced de-regulation of the finance and banking industries and reduction of the progressive income tax rate. This tampering with an effective system was continued by Bush-1, Clinton and, most eminently, Bush-2 and the virtual ruin of our economy occurred in almost perfect proportion with these ill-advised, destructive administrative actions.
     
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  4. william the wie
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    william the wie Gold Member

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    The strongest periods of economic growth in America's history were:

    1789-1809

    1842-59

    1873-93

    The New Deal with its stabilizers (technically a Fisher rather than a Keynesian solution) was designed to limit volatility and therefore growth. It is working and that is the problem.
     
  5. code1211
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    code1211 Senior Member

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    Your premise is wrong and all of the conclusions based on that premise are also wrong.

    The combined military might of Nazi Germany, Imperialist Japan, Soviet Russia and the USA bombed most of the world into the stone age. It took the rest of the world 40 years to re-build. That is what caused the Golden Age you refer to.

    Completely eliminating the competition allowed the growth of the ridiculous Union arrangements and the illusion that Americans are somehow "better" than other nations or races.

    It is only by seeing reality that you might be able to use it to forecast the future.
     
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    Last edited: Apr 13, 2011
  6. PoliticalChic
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    PoliticalChic Diamond Member

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    Excellent point!

    Let me support that, from H.W. Brands, "American Colossus:"

    An interesting historical anomaly is the period 1945 through 1965, a golden age in many ways. This was the period after the war, when any of our potential competitors were rebuilding from the devastation, making it impossible for the United States economy not to thrive. Beneficiaries included the unions and blue collar high school graduates…who were assured of high paying jobs. That is no longer true, and probably won’t be again, short of a third World War.

    Rep on the way!
     
  7. pier34
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    pier34 Rookie

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    but, still, yet, there is no evidence without government interference to boost aggregate demand during recession, than the private or free market would fix itself. Unless, someone can point out in history, where, privates able to sustain and recovers by itself from a business cycle. Regardless of the time of prosperity, what would people do during recession? what is the role of the government? what do the privates do during that time besides cutting jobs and halt investment? I, clearly, see recession is like a wound, you can wait till it heals itself ( which takes a long time ) or you can let it get infected, get worse. Is it appropriate to put a bandage (government interference) during the time of healing? Later, take it out ( cut spending and raise tax )?
     
  8. code1211
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    code1211 Senior Member

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    This is a very complex economy. Not only our national economy, but the world wide economy. It is woven together and fragile as the recent credit crisis demonstrated.

    That said, the impact of governments on the economies should be one of stabalization. The TARP was needed to stabalize the credit problems that were created by the inteferance of the US Government on the credit business.

    If the government had not interfered with the credit in the first place, TARP would not have been needed in the second place.

    Our current problems are the direct and undeniable result of the interference of government into the normal and reasonable accounting measures that would have protected the economic system from this disaster if it had been allowed to function as it should.

    It is Government interference that created the problem. After TARP came the Failed Stimulus and the actual and threatened further interference into the private sector by government in the forms of regulation and moratoriums.

    Government caused the problem and now prolongs it.
     
  9. william the wie
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    william the wie Gold Member

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    Generally true but not always true. Network economies and software distribution in particular create increasing contribution margins. When that happens some sort of crash is inevitable because making more units resulting in higher profits per unit cannot be modeled for an optimal strategy. Therefore the shakeouts involved get catastrophic compared to normal free market shakeouts.

    Since money is a form of communication the computer and telecommunications revolutions have been causing banking problems worldwide since at least the early 70s. Brick and mortar banks are quickly becoming buggy whip manufacturers. The meltdown was caused in large part because the Fed and other central bankers were clueless as to how far along this process was. It was the breaking of the buck at money markets due to deliberate but incompetent Fed action that caused the launching of TARP and EU equivalents. It seems central bankers did not realize how much of demand deposits had migrated to interest paying money markets.

    But some sort of banking panic, probably a whole lot smaller, would have happened any way without any non-criminal governmental financial regulation in the banking industry. Too much money was flowing out of high cost traditional banks too fast and ways of moving risk off the balance sheets were being developed too quickly with computer models. Traditional banks are industrial age dinosaurs.
     
  10. MikeK
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    MikeK Gold Member

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    It's certainly true that the absence of industrial competition contributed somewhat to America's phenomenal economic growth during that period. But what you've said here tacitly implies that America, the land of unlimited resources, which gave the world electricity, the automobile, flight, telephony, railroads, radio, television, computer technology and penicillin, would not have prevailed in spite of whatever competition it faced from the rest of the world.

    It was not the rewards of exceptional success in commerce alone that enabled our amazing growth during the 40 year period prior to Reaganomics. It was the equitable distribution of those rewards facilitated by the "ridiculous union arrangements" and regulations imposed by the New Deal that put wealth in the hands of the working class which actually created it. Their spending of that money is what set the wheels of cyclical economic growth in motion.

    In the very simplest, uncomplicated, non-academic terms, redirecting the flow of wealth, which is what Reaganomics and the Conservative influence has done, is the cause of the economic downturn we've been watching for the past three decades.
     
    Last edited: Apr 14, 2011

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