Market Shennanigans and Thoughts

Say what you like - Keynesian is the ONLY economic paradigm that works every time it's tried. Only partisan politics, the verboten subject here, ever derails Keynesian prescriptions, by preventing their use.

 

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(lol) We've had "Keynesian" medicine flooding the world's economies for nearly a decade and it hasn't worked. The future is calling, it wants its demand back...

 

Noooo, we STOPPED doing Keynesianism about a decade and a half ago and this is what we reap. The entire boom from post-WW2 to 2000 was Keynesianism at work. We abandoned it and this is the crappy economy that ensues. Where on EARTH did you get the idea THIS was Keynesian?!?! It's not! Europe is being devastated by going all "austerity", which NEVER works and is counter-Keynesian.

 

I think that's actually a result of selective history. Keynesian economics tend to fail in non-reserve currency nations.

By its very nature, Keynesian economics is designed for short-term application. It's supposed to be applied during times of short-term demand compression. Credit card companies used a form of Keynesian economics in marketing its product during the 90s: 0% interest rates followed by 18%+ interest rates on unpaid debts. Stimulate the economy through private debt, then have that debt repaid. Of course, the fact that the US, until 2003 or so, allowed people to regularly declare bankruptcy with essentially no ramifications, meant that debt often (say 8% of the time) went unpaid. People "invested" in their present without fear of irreparable harm to their future.

Once bankruptcy overhaul came to fruition, people were forced to reconcile the possibility of a grim future with their current excess. As is normal for most people in a limited resource economy, they cut current consumption to preserve their future.

This action left the finance, auto and middle class luxury industries holding the proverbial bag. The finance industry claimed that if they weren't bailed out, the economy would collapse. The government decided to "save" the banks (and kill the credit unions, instead). The auto industry claimed that if they weren't bailed out, "millions" would lose jobs due to supply chain issues. The government decided to "save" the archaic automakers (and kill innovation). The middle class luxury groups ended up benefiting indirectly from the other two groups being saved, as consumers eventually returned to consuming their goods.

Keynesian theorists would argue that the government *had* to step in to prevent an economic failure. This is where the selective history comes into play. Market economics dictate that supply and demand struggle to find an agreeable price point at which supply will satisfy demand. Yes, application of Keynesian models prevented the failure of auto-part manufacturers, but it also stymied innovation/evolution of those industries, as well. The application prevented the failure of banks caught up in CDOs, but cost taxpayers trillions for the privilege of keeping their banks open.

If the US hadn't stepped in to prevent the closure of GM & Chrysler, the reality is that the part manufacturers would have refitted their factories to produce parts for Toyota, Honda, BMW, etc, instead. Ford may have ended up with higher costs on parts, but eventually, they'd just learn to retrofit their production to match up to the available parts. With or without Keynesian fiscal policy, the economy would have survived, just in different forms.

If the US hadn't stepped in to prevent the collapse of key FDIC/NCUA insured institutions, we wouldn't have seen a run on banks, as the economy isn't on the gold-standard anymore. The ensuing panic, if any, would have been driven by the media, rather than actual economic concerns. Transferring the debt from the private sector to the public sector didn't save the economy, it just kicked the bucket down the road.

Now, back to the original point, the US has a tendency to apply Keynesian economics with short-run explanations, but once a sector becomes a part of the government fat, it rarely improves/evolves or gets off the subsidies.

The agricultural subsidies have been on the US books since before WW2, with some tracing their roots to the Roaring Twenties. Yes, I can understand that *some* level of food production is a matter of national security, but with the innovation and technological advancements in productivity, maybe farming should be government run. It seems socialist, but if you're going to claim it's an issue of national security to pay farmers to grow food stocks to surplus, simply so they don't go out of business, we might as well call a pig a pig and have the government directly run the farms. Farmers would be government employees, rather than recipients of subsidies. Instead of paying farms to not produce crops and kill off excess livestock, we'd be paying farmers to produce varying types of foodstock. Ironically, these same farmers were getting paid hand over fist for their lands due to the natural gas boom from 2009-2013, but no one hears about those farmers saying "Hey, we should pay back the US taxpayer for all those years we were paid to not work."

The fact that laws meant to prevent market manipulation on grain futures resulted in market manipulation of current market prices is simply ironic, but often gets ignored.

The welfare programmes in the US were designed with the intention of helping people along during short-term difficulties, but we have individuals who live off of the welfare state. Again, human nature makes it hard to turn away free money.

The auto and airline industries were given subsidies to prevent total failure. Once the subsidies were lifted, consolidation ensued and new companies entered the respective industries. Essentially, the subsidies just delayed the inevitable.

Each time that we create a subsidy, members of Congress end up fighting tooth and nail to ensure the subsidies remain in place, so their constituents can continue to maintain the lifestyle to which they've become accustomed.

The next evolutionary step for an economy that relies on Keynesian intervention as commonplace is socialism. Rather than have the government pay the private sector to inefficiently run the economy, it seems more efficient (though marginally so) to cut out the middle man (subsidies) and have government run the economy directly (socialism).

Mind you, I'm not a socialist, nor do I advocate for socialism. This is merely an observation that an economy that relies up Keynesian-backed subsidies tends to be an inefficient alternative to socialism. If you want to have a market economy, allow the market to drive the economy. If you want to have a social economy, allow the government to run the economy. Don't do some amalgamation of the two in which the government pays out money to maintain the auspices of a market economy.

I hope I didn't step out of line on this, as economics tends to be very political in nature. I'm just thought it made sense, given my actual field of study was macro economics and environmental economic policy, to chime in.

 

As was mine, with the exception of the artificial emphasis on the environmental piece. My degree was in 1977 when the "Greens" were the lunatic fringe. I kind of still see them thusly. I believe government has gotten out of the "stoking economic growth" business at exactly the wrong time. As for innovation, every attempt to interfere with its natural progression is almost always a very bad thing. Align the incentives the right way and stand back. Apple didn't become the world's richest corporation with a government handout, but it did almost fail without a "subsidy" from Microsoft while Steve Jobs was making cube computers and animated films. Reliance on so-called (actually MIS-called) free markets only works if you want to smack down M&A activity. M&A is the natural enemy of market economics. Long live TR. "Bully!" Trust busting.

Free market? If only we had one. It's ALL socialism, corporate or individual. I'd rather kill the corporate kind. I've known farmers are actually Defense Contractors all my life. Or maybe diplomats at State?

I'm sitting on Amtrak in El Paso, TX looking into Ciudad Juarez right now. I can see what works and what doesn't from here. They have a more free unstimulated market than El Paso does for sure. i don't do quasi-religious worship of "tough love" economics that Austrian Schoolers worship at the altar of. If we don't all do somewhat well, eventually no one does. Juarez proves that. If there's no "floor" all there is is "hole".

 

Economics isn't close to politics, it is politics, so my last post on this.

As the other fellow mentioned, "Human Nature" is involved, AKA self interest, it is always at work, never resting (power corrupts). "The entire boom from post-WW2 to 2000 was Keynesianism at work." Yes it was, AKA debt at work but don't forget the darker "Booms" and various Busts related to the "Booms".

Though the government might be sovereign in their own currency, I am not. Among other things, when they print and create inflation, they're stealing from everyone not in a position to demand more fiat... Which is many of us 99%.

For my part, I'd much rather the "Hidden Hand" of nature and sound money than Keynesian experts.

 

Environmental economics is the study of resource management. Basically, my thesis was two-fold: economic cost of gasoline consumption & the zero value proposition for drivers AND the value of commodity pricing in a free-energy environment. My conclusion, whether right or wrong, was that commodity pricing has no value in a free-energy environment. A complete waste of six month of research, if you ask me, since that conclusion was fairly obvious.

 

I think you explained it well. I agree with everything you said - and loathe the system that would implement it.

It is truly kicking the can down the road, and "death by 1000 cuts" as opposed to quick and painless.

Anything farther would be politics I assume - and become *EDITED*

 

Hence the reason why I have repeatedly stated that a no politics rule on a system that deals intimately with a subject related to money is "silly to the extreme", to the point all you end up with is a boring parade of "coin porn" and "guess the grade" posts. [/snore]

It's no more possible to discuss coins without politics than it is to discuss flight without air.

 

Kurt, I went to college from 01-05, and I took a lot of econ. All we were taught was Keynesian economics. I can't help but see our current fiscal focus as anything other than Keynesian at both the state and federal level. And I don't think the "multiplier" is working.

 

How can you believe that M&A is antithetical to a free market? If there is a willing buyer and a willing seller, a market is made. It doesn't matter if we're talking about potatoes, marbles, cars, buildings or corporations.

 

It's easy! A so-called "market" only has its quintessential beneficial properties when there are many producers with very little power. That's Econ. 101! The market only is one if power is in the hands of the consumer. I thought everyone knew monopoly or oligopoly distorts and destroys the virtues of a market. No?

 

The multiplier works just fine, if you look where job creation is happening (Such as non-Japan Asia) and adjust for the progressivity, or lack of it, of income taxation. The multiplier not only DOES work, it mathematically HAS TO, unless tax cheats hide income.

 

Yeah, Econ is now Env. Sci. So is chemistry, physics, geology, nuclear science, biology, medicine. It's ALL Env. Sci. when the agenda is deindustrialization to create a globally "flatter" economy - a goal I disdain with enthusiasm. I carry around zero generational guilt over aggressive economic growth policies. What destroys environments is poverty.

 

Keynesianism can't exist at state levels because almost none are allowed to run unfunded deficits fiscally. Only the federal gov't can, and absent full employment, they SHOULD and/or MUST.

By the way, study the history of business cycles and hard money. Hard money CAUSES recessions, panics and depressions by incentivizing hoarding money and other harmful behaviors.

 

"You're killing me smalls."

It wasn't and isn't hard money causing "recessions, panics and depressions". How long has it been since the US was on a hard money standard? No recessions or busts since then?

The cause of those events can be laid at the feet of fractional reserve lending (counterfeiting). Hoarding money isn't a "harmful behavior", it is a reaction to harmful behavior... Counterfeiting!

 

Not true! Look at the frequency and especially the DEPTH of downturns during the hard money era!!! MUCH WORSE than anything post-hard money or fiat era, MUCH WORSE. It's NOT EVEN CLOSE!! The invention of fiat currency made recessions far fewer, less severe, and with longer intervals of growth between them. Of course, if you had attended my Money Talk at Chicago in 2011, you'd know that. Charts, graphs, numbers, the whole schmeer.

The meme that fiat currency makes the business cycle more volatile is a vicious lie perpetrated by bullion hawkers. The historical facts are on my side on this.

Hard money is PURE ECONOMIC EVIL! It's not just wrong, its proponents KNOW it's wrong, and continue to propose it anyway. Hence, evil.

 

Glad I missed it, no need to propagate faulty reasoning further. (lol)

 

You sound like a judge finding the defendant guilty without looking at the evidence and without a trial.

 

Like saving money with the insurance company with the little green gecko, for hard money believers, "it's what they do" - Austrian School economists deny the value of data in favor of something called "praexology", which translates pretty close to "because I said so." Anyone who dismisses either or both of data and/or economic expertise immediately is a suspect for disseminating bullsnot beliefs.