Economic REALITY thread

[The Rabbi]

there's some realities keynes hadn't accounted for in his time, however, i couldnt write off his resolutions to sick economies. compared to modern hayekian/chicago school, moneterist, austrian, or whatever proposals, keynesianism has a track-record for bringing jobs back online sooner, placing rebounds on firmer ground. i just dont think it held up to the stagflationary factors in the 70s, which stripped it from its acclaim.

In what universe has Keynesianism ever done those things?

 

[Paulie]

there's some realities keynes hadn't accounted for in his time, however, i couldnt write off his resolutions to sick economies. compared to modern hayekian/chicago school, moneterist, austrian, or whatever proposals, keynesianism has a track-record for bringing jobs back online sooner, placing rebounds on firmer ground. i just dont think it held up to the stagflationary factors in the 70s, which stripped it from its acclaim.

Can you please point us to any such instance where Austrian economics has been comprehensively applied?

 

[The Rabbi]

there's some realities keynes hadn't accounted for in his time, however, i couldnt write off his resolutions to sick economies. compared to modern hayekian/chicago school, moneterist, austrian, or whatever proposals, keynesianism has a track-record for bringing jobs back online sooner, placing rebounds on firmer ground. i just dont think it held up to the stagflationary factors in the 70s, which stripped it from its acclaim.

Can you please point us to any such instance where Austrian economics has been comprehensively applied?

Something similar occurred under Pinochet in Chile. As far as I recall the economy did quite well.

 

[Toro]

Whne you say "backstop the banking system" do you mean to include the bailouts of AIG, Goldman, GM, adn Chrysler (i'm forgetting some I know)? Because those were not helpful in stemming the Great Depression.
I was fine with "backstopping" the banks, meaning guaranteeing they would lend to each otehr, which had ceased. I was not fine with everyone piling on to get theirs.
That is where Obama comes in. Most of the increased spending has been on transfer payments. That isn't helpful.
Reagan's cuts were different in that they added to economic growth. If it had not been for the Democratic congress, the deficit would have all but disappeared, especially interms of GDP. But Congress pushed more and more money as revenues increased.

I think bailing out GM was completely unnecessary. But as much as I hate to say it, investing in AIG was probably the most critical part along with backstopping the money markets. The Lehman collapse almost took down everything. AIG was much, much more important.

I hate, hate, hate bailouts because they create enormous moral hazard. Ideally, all institutions should be allowed to fail. But I'm pragmatic, and from where I sit, the results would have been catastrophic had we not. The government should have gotten much better terms, though.

 

[Paulie]

there's some realities keynes hadn't accounted for in his time, however, i couldnt write off his resolutions to sick economies. compared to modern hayekian/chicago school, moneterist, austrian, or whatever proposals, keynesianism has a track-record for bringing jobs back online sooner, placing rebounds on firmer ground. i just dont think it held up to the stagflationary factors in the 70s, which stripped it from its acclaim.

Can you please point us to any such instance where Austrian economics has been comprehensively applied?

Something similar occurred under Pinochet in Chile. As far as I recall the economy did quite well.

Sort of. Pinochet adhered more to the Chicago school, which definitely has its differences with the Austrian school.

 

[antagon]

there's some realities keynes hadn't accounted for in his time, however, i couldnt write off his resolutions to sick economies. compared to modern hayekian/chicago school, moneterist, austrian, or whatever proposals, keynesianism has a track-record for bringing jobs back online sooner, placing rebounds on firmer ground. i just dont think it held up to the stagflationary factors in the 70s, which stripped it from its acclaim.

Can you please point us to any such instance where Austrian economics has been comprehensively applied?

no such. i did take care to say 'proposals'. comprehensive application of any theory may be asking too much. there are many untested theories out there, but keynes' has a track-record. a track record with some negative side-effects, too, i'd add, but one which precluded post-keynesian jobless recoveries and debt-dependency.

this is why i advocate a smorgasbord approach when shit hits the fan, picking medicines indicated for the differing symptoms in the economy. in a healthy expansion, the antagon school of economics dictates that all these inputs are gently withdrawn, leaving the top to spin on its own.

i've got some ideas as to what austrian solutions to our current situation or to the recession itself might be, but they're a bit pejorative.

how would you summarize the austrian school recovery plan, paulie?

 

[Toro]

this is why i advocate a smorgasbord approach when shit hits the fan, picking medicines indicated for the differing symptoms in the economy. in a healthy expansion, the antagon school of economics dictates that all these inputs are gently withdrawn, leaving the top to spin on its own.

I agree.

Generally, the less the government is involved in the economy, the better. But there are times when the government should be active, and this has been one of those times.

 

[antagon]

there's some realities keynes hadn't accounted for in his time, however, i couldnt write off his resolutions to sick economies. compared to modern hayekian/chicago school, moneterist, austrian, or whatever proposals, keynesianism has a track-record for bringing jobs back online sooner, placing rebounds on firmer ground. i just dont think it held up to the stagflationary factors in the 70s, which stripped it from its acclaim.

In what universe has Keynesianism ever done those things?

THE universe about 1950 to 1980. shifting away from the demand model fundamental to keynesianism, and you get the jobless recovery instead of jobs and no/slow recovery.

like the 70s, other factors are at play, particularly technology, but it is a track-record with plausible causality to the policy's focus on bolstering demand.

go figure: we are in a demand-stricken state scratching our heads about where the jobs are at.

 

[Paulie]

there's some realities keynes hadn't accounted for in his time, however, i couldnt write off his resolutions to sick economies. compared to modern hayekian/chicago school, moneterist, austrian, or whatever proposals, keynesianism has a track-record for bringing jobs back online sooner, placing rebounds on firmer ground. i just dont think it held up to the stagflationary factors in the 70s, which stripped it from its acclaim.

Can you please point us to any such instance where Austrian economics has been comprehensively applied?

no such. i did take care to say 'proposals'. comprehensive application of any theory may be asking too much. there are many untested theories out there, but keynes' has a track-record. a track record with some negative side-effects, too, i'd add, but one which precluded post-keynesian jobless recoveries and debt-dependency.

this is why i advocate a smorgasbord approach when shit hits the fan, picking medicines indicated for the differing symptoms in the economy. in a healthy expansion, the antagon school of economics dictates that all these inputs are gently withdrawn, leaving the top to spin on its own.

i've got some ideas as to what austrian solutions to our current situation or to the recession itself might be, but they're a bit pejorative.

how would you summarize the austrian school recovery plan, paulie?

But then you spoke of 'track records'. How can a mere proposal have a track record if it's never been applied?

The Austrians are pretty well recognized as having the best grasp of the effect of money supply. They're the ones who define inflation properly, as increases in the money supply being the CAUSE of inflation. Any economist worth his or her salt recognizes that.

So that begs the question. Why does no one in the mainstream, with the ability to affect real policy, attempt Austrian solutions to economic problems?

The answer always seems to be "because they're nutty and don't relate to the real world".

I simply don't understand how a proposal that's never even been utilized can be written off AT ALL. There's empirical evidence that Keynesianism has failed us in certain ways. Yet, it is still considered viable.

This is why I say to you that I believe that you go with with those ideas because they're what you know, and they're what help you sleep at night.

I think you're afraid to try something as bold and fresh as Austrian solutions.

 

[pinqy]

[The Austrians are pretty well recognized as having the best grasp of the effect of money supply.

No, they are not. Their ideas are interesting and considered, but not the "best grasp."

They're the ones who define inflation properly, as increases in the money supply being the CAUSE of inflation. Any economist worth his or her salt recognizes that.

Pretty much all economists agree that money supply is the root of inflation, but the Austrians go waaay beyond that and consider increases in the money supply to be the ONLY definition of inflation. And pretty much all other economists consider that nonsense.

So that begs the question. Why does no one in the mainstream, with the ability to affect real policy, attempt Austrian solutions to economic problems?

The answer always seems to be "because they're nutty and don't relate to the real world".

Or to restate: Because Austrian theory is rarely if ever quantifiable.

 

[william the wie]

[The Austrians are pretty well recognized as having the best grasp of the effect of money supply.

No, they are not. Their ideas are interesting and considered, but not the "best grasp."

Then why did Hayek win the Nobel Memorial for demonstrating that the inflation of the early 1920s caused the deflation of the early 1930s?

They're the ones who define inflation properly, as increases in the money supply being the CAUSE of inflation. Any economist worth his or her salt recognizes that.

Pretty much all economists agree that money supply is the root of inflation, but the Austrians go waaay beyond that and consider increases in the money supply to be the ONLY definition of inflation. And pretty much all other economists consider that nonsense.

doesn't that depend on the definition of the money supply being used in the market to contract business? And does not the operative money supply shift with the length of the cycle to ever more derived and leveraged forms of money as the expansion continues?

So that begs the question. Why does no one in the mainstream, with the ability to affect real policy, attempt Austrian solutions to economic problems?

The answer always seems to be "because they're nutty and don't relate to the real world".

Or to restate: Because Austrian theory is rarely if ever quantifiable.

Please define quantifiable as you are using it.

 

[antagon]

Can you please point us to any such instance where Austrian economics has been comprehensively applied?

no such. i did take care to say 'proposals'. comprehensive application of any theory may be asking too much. there are many untested theories out there, but keynes' has a track-record. a track record with some negative side-effects, too, i'd add, but one which precluded post-keynesian jobless recoveries and debt-dependency.

this is why i advocate a smorgasbord approach when shit hits the fan, picking medicines indicated for the differing symptoms in the economy. in a healthy expansion, the antagon school of economics dictates that all these inputs are gently withdrawn, leaving the top to spin on its own.

i've got some ideas as to what austrian solutions to our current situation or to the recession itself might be, but they're a bit pejorative.

how would you summarize the austrian school recovery plan, paulie?

But then you spoke of 'track records'. How can a mere proposal have a track record if it's never been applied?

The Austrians are pretty well recognized as having the best grasp of the effect of money supply. They're the ones who define inflation properly, as increases in the money supply being the CAUSE of inflation. Any economist worth his or her salt recognizes that.

So that begs the question. Why does no one in the mainstream, with the ability to affect real policy, attempt Austrian solutions to economic problems?

The answer always seems to be "because they're nutty and don't relate to the real world".

I simply don't understand how a proposal that's never even been utilized can be written off AT ALL. There's empirical evidence that Keynesianism has failed us in certain ways. Yet, it is still considered viable.

This is why I say to you that I believe that you go with with those ideas because they're what you know, and they're what help you sleep at night.

I think you're afraid to try something as bold and fresh as Austrian solutions.

it is simply not the case that austrian school proposals on the money supply are regarded as the 'best grasp'. not in the US; where are you talking about. the world is more endeared to m. friedman and hayek than any austrian scholar with regard to monetary policy.

the relationship between increased money supply and inflation was understood long before the austrian school ever existed, long before fractional reserve. sometimes austrian arguments are made ala armchair quarterback and in a way which lends to their agenda. the austrian analysis of the great depression is a key example of this.

exploring the austrians and their assessment of the great depression sheds light on why their methods have been cast aside, save for consideration of moderate application of its components. austrian criticisms make attributions which fail to consider other understood factors in economics, rather focusing on those which support their platform. this platform, rather than incorporating contemporary observations from the econ community, juxtaposes its position to it. in essence, it is juxtaposed to modern economics altogether.

it isn't a fear of trying anything new, rather, a distaste for abandoning what works for a compilation of proposals which have been shown not to enable an economy to work in the benefit of a society.

what about austrian school economics makes you feel that there is much to offer from a comprehensive adaptation of their proposals? have you considered that the mystery which you recognize regarding government's lack of affection for austrian school econ might have something to do with negative assessments of the implications of their policies?

 

[Paulie]

no such. i did take care to say 'proposals'. comprehensive application of any theory may be asking too much. there are many untested theories out there, but keynes' has a track-record. a track record with some negative side-effects, too, i'd add, but one which precluded post-keynesian jobless recoveries and debt-dependency.

this is why i advocate a smorgasbord approach when shit hits the fan, picking medicines indicated for the differing symptoms in the economy. in a healthy expansion, the antagon school of economics dictates that all these inputs are gently withdrawn, leaving the top to spin on its own.

i've got some ideas as to what austrian solutions to our current situation or to the recession itself might be, but they're a bit pejorative.

how would you summarize the austrian school recovery plan, paulie?

But then you spoke of 'track records'. How can a mere proposal have a track record if it's never been applied?

The Austrians are pretty well recognized as having the best grasp of the effect of money supply. They're the ones who define inflation properly, as increases in the money supply being the CAUSE of inflation. Any economist worth his or her salt recognizes that.

So that begs the question. Why does no one in the mainstream, with the ability to affect real policy, attempt Austrian solutions to economic problems?

The answer always seems to be "because they're nutty and don't relate to the real world".

I simply don't understand how a proposal that's never even been utilized can be written off AT ALL. There's empirical evidence that Keynesianism has failed us in certain ways. Yet, it is still considered viable.

This is why I say to you that I believe that you go with with those ideas because they're what you know, and they're what help you sleep at night.

I think you're afraid to try something as bold and fresh as Austrian solutions.

the world is more endeared to m. friedman and hayek than any austrian scholar with regard to monetary policy.

Huh?

Hayek was a student of Mises...his protege if you will. He was an Austrian economist, not a Chicago economist.

Are you sure you understand this material enough to be challenging me on it?

it isn't a fear of trying anything new, rather, a distaste for abandoning what works for a compilation of proposals which have been shown not to enable an economy to work in the benefit of a society.

what about austrian school economics makes you feel that there is much to offer from a comprehensive adaptation of their proposals? have you considered that the mystery which you recognize regarding government's lack of affection for austrian school econ might have something to do with negative assessments of the implications of their policies?

Here you go again, making the assertion that Austrian solutions will or won't do something, when it hasn't been utilized.

This is the crap that bothers me in these kinds of discussions. You and others like you have a pre-conceived notion about a particular school of economic thought, and make absolute claims about it without it having ever been battle tested.

I have a post-conceived notion about keynesianism because it HAS been utilized, and has been less than adequate, to say the least.

What it all comes down to is whether or not you or I are willing to budge on our positions. You have chosen to support Keynesianism, and will seek out its positives to justify your position, ignoring its negatives.

I'd be more than willing to consider the potential negatives of Austrian econ, were it ever to be utilized comprehensively.

I'd like to see the empirical results of it beyond just the theories, and further form my opinion.

 

[antagon]

But then you spoke of 'track records'. How can a mere proposal have a track record if it's never been applied?

The Austrians are pretty well recognized as having the best grasp of the effect of money supply. They're the ones who define inflation properly, as increases in the money supply being the CAUSE of inflation. Any economist worth his or her salt recognizes that.

So that begs the question. Why does no one in the mainstream, with the ability to affect real policy, attempt Austrian solutions to economic problems?

The answer always seems to be "because they're nutty and don't relate to the real world".

I simply don't understand how a proposal that's never even been utilized can be written off AT ALL. There's empirical evidence that Keynesianism has failed us in certain ways. Yet, it is still considered viable.

This is why I say to you that I believe that you go with with those ideas because they're what you know, and they're what help you sleep at night.

I think you're afraid to try something as bold and fresh as Austrian solutions.

the world is more endeared to m. friedman and hayek than any austrian scholar with regard to monetary policy.

Huh?

Hayek was a student of Mises...his protege if you will. He was an Austrian economist, not a Chicago economist.

Are you sure you understand this material enough to be challenging me on it?

it isn't a fear of trying anything new, rather, a distaste for abandoning what works for a compilation of proposals which have been shown not to enable an economy to work in the benefit of a society.

what about austrian school economics makes you feel that there is much to offer from a comprehensive adaptation of their proposals? have you considered that the mystery which you recognize regarding government's lack of affection for austrian school econ might have something to do with negative assessments of the implications of their policies?

Here you go again, making the assertion that Austrian solutions will or won't do something, when it hasn't been utilized.

This is the crap that bothers me in these kinds of discussions. You and others like you have a pre-conceived notion about a particular school of economic thought, and make absolute claims about it without it having ever been battle tested.

I have a post-conceived notion about keynesianism because it HAS been utilized, and has been less than adequate, to say the least.

What it all comes down to is whether or not you or I are willing to budge on our positions. You have chosen to support Keynesianism, and will seek out its positives to justify your position, ignoring its negatives.

I'd be more than willing to consider the potential negatives of Austrian econ, were it ever to be utilized comprehensively.

I'd like to see the empirical results of it beyond just the theories, and further form my opinion.

you maintain that we cant consider the implications of action without trying it. i dont think that's true. instead we could assess arguments for their validity and their merits. i'm not alone in believing that that's true or that the merits of austrian school theory implemented in policy may have negative effects which other systems take care to avoid.

 

[The Rabbi]

Whne you say "backstop the banking system" do you mean to include the bailouts of AIG, Goldman, GM, adn Chrysler (i'm forgetting some I know)? Because those were not helpful in stemming the Great Depression.
I was fine with "backstopping" the banks, meaning guaranteeing they would lend to each otehr, which had ceased. I was not fine with everyone piling on to get theirs.
That is where Obama comes in. Most of the increased spending has been on transfer payments. That isn't helpful.
Reagan's cuts were different in that they added to economic growth. If it had not been for the Democratic congress, the deficit would have all but disappeared, especially interms of GDP. But Congress pushed more and more money as revenues increased.

I think bailing out GM was completely unnecessary. But as much as I hate to say it, investing in AIG was probably the most critical part along with backstopping the money markets. The Lehman collapse almost took down everything. AIG was much, much more important.

I hate, hate, hate bailouts because they create enormous moral hazard. Ideally, all institutions should be allowed to fail. But I'm pragmatic, and from where I sit, the results would have been catastrophic had we not. The government should have gotten much better terms, though.

Well, people were saying the same thing about CIT Group. And they filed for bankruptcy and everything was orderly.
The bailouts created a huge moral hazard. We will see the ill effects of them for years. If AIG had really gone down we would have seen ill effects for 6 months.
This government has pumped all the money they can and engineered all the programs they can and the result is a lingering recession.
It was entirely predictable as Japan embarked on exactly the same course with exactly the same results.

 

[Toro]

Well, people were saying the same thing about CIT Group. And they filed for bankruptcy and everything was orderly.
The bailouts created a huge moral hazard. We will see the ill effects of them for years. If AIG had really gone down we would have seen ill effects for 6 months.
This government has pumped all the money they can and engineered all the programs they can and the result is a lingering recession.
It was entirely predictable as Japan embarked on exactly the same course with exactly the same results.

I completely disagree. AIG should never existed as is in the first place, but had AIG not been nationalized, then it would have been Lehman many times over.

During the Lehman crisis, companies could not access cash. Companies that said they had cash on the balance sheet were not sure if they had it anymore. Real companies, not just financial ones. Many thought their cash balances may have gone up in smoke. Goldman was days from falling. Morgan Stanley was effectively insolvent and was telling hedge funds they couldn't access their cash, even though the funds had every right to withdraw their money. AIG failing would have meant a massive withdrawal of liquidity from the capital markets and the real economy unlike anything we have ever seen before. AIG sold credit insurance to financial institutions, companies and those underwriting structured products. Because AIG used its AAA balance sheet to guarantee those products, literally trillions of dollars of derivatives needed little collateral to back up the structures. Had AIG not been able to honor those contracts, then massive capital calls for collateral would have occurred, withdrawing staggering amounts of liquidity from the financial system, making the American banking system effectively insolvent.

The Fed also had an alphabet soup of programs to take assets off the balance sheets of banks. Some worked, some didn't. The unintended consequences have yet to be seen in a big way, but by transferring assets to the balance sheets of the US government, they effectively reliquified the financial system, though almost certainly damaging the value of the US dollar in the process. There were no good options.

 

[william the wie]

Well, people were saying the same thing about CIT Group. And they filed for bankruptcy and everything was orderly.
The bailouts created a huge moral hazard. We will see the ill effects of them for years. If AIG had really gone down we would have seen ill effects for 6 months.
This government has pumped all the money they can and engineered all the programs they can and the result is a lingering recession.
It was entirely predictable as Japan embarked on exactly the same course with exactly the same results.

I completely disagree. AIG should never existed as is in the first place, but had AIG not been nationalized, then it would have been Lehman many times over.

During the Lehman crisis, companies could not access cash. Companies that said they had cash on the balance sheet were not sure if they had it anymore. Real companies, not just financial ones. Many thought their cash balances may have gone up in smoke. Goldman was days from falling. Morgan Stanley was effectively insolvent and was telling hedge funds they couldn't access their cash, even though the funds had every right to withdraw their money. AIG failing would have meant a massive withdrawal of liquidity from the capital markets and the real economy unlike anything we have ever seen before. AIG sold credit insurance to financial institutions, companies and those underwriting structured products. Because AIG used its AAA balance sheet to guarantee those products, literally trillions of dollars of derivatives needed little collateral to back up the structures. Had AIG not been able to honor those contracts, then massive capital calls for collateral would have occurred, withdrawing staggering amounts of liquidity from the financial system, making the American banking system effectively insolvent.

The Fed also had an alphabet soup of programs to take assets off the balance sheets of banks. Some worked, some didn't. The unintended consequences have yet to be seen in a big way, but by transferring assets to the balance sheets of the US government, they effectively reliquified the financial system, though almost certainly damaging the value of the US dollar in the process. There were no good options.

What I find strange is that AIG got out of the mortgage CDS business in 2005 because of excessive risk yet so far as I can tell they spent almost none of their premium incomes on hedging their risk. This I do not understand. Gee a train is coming right at me but I won't get out of the way I'm no coward, who was running this company a bunch of 12 year olds?

 

[Paulie]

you maintain that we cant consider the implications of action without trying it. i dont think that's true. instead we could assess arguments for their validity and their merits. i'm not alone in believing that that's true or that the merits of austrian school theory implemented in policy may have negative effects which other systems take care to avoid.

Can you just explain to me why I'm supposed to take you seriously here after this:

the world is more endeared to m. friedman and hayek than any austrian scholar with regard to monetary policy.

You say the world is more endeared to Hayek, who's an Austrian economist, and then finish the statement with the inference that the world is not endeared to an Austrian economist.

Either you have no idea what you're talking about with regards to economics, or you actually do like Austrian thought and either don't know it yet or don't want to clearly admit it.

 

[Neubarth]

People talking about which of the schools of insane Economic theory is more popular seems a total waste of time to me. But that is just me.

 

[Zander]

More Economic Reality. U.S.’s $13 Trillion Debt Poised to Overtake GDP:

By Garfield Reynolds and Wes Goodman

June 4 (Bloomberg) -- President Barack Obama is poised to increase the U.S. debt to a level that exceeds the value of the nation’s annual economic output, a step toward what Bill Gross called a “debt super cycle.”

The CHART OF THE DAY tracks U.S. gross domestic product and the government’s total debt, which rose past $13 trillion for the first time this month. The amount owed will surpass GDP in 2012, based on forecasts by the International Monetary Fund. The lower panel shows U.S. annual GDP growth as tracked by the IMF, which projects the world’s largest economy to expand at a slower pace than the 3.2 percent average during the past five decades.

“Over the long term, interest rates on government debt will likely have to rise to attract investors,” said Hiroki Shimazu, a market economist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third-largest publicly traded bank. “That will be a big burden on the government and the people.”

Gross, who runs the world’s largest mutual fund at Pacific Investment Management Co. in Newport Beach, California, said in his June outlook report that “the debt super cycle trend” suggests U.S. economic growth won’t be enough to support the borrowings “if real interest rates were ever to go up instead of down.”