I received a long set of comments to an old post (June 18, "Why A Depression is Inevitable, and Economic Collapse Inescapable"). The long comment is there on that post, but to keep from resurrecting an old post, I'm going to re-post it here in its entirety, with comments. As this was an anonymous comment, I have no idea where they came from or if they'll be back, but perhaps they would be curious about my response.
A few facts.Apparently, our friend has never visited here except for reading this. First off, he seems to think I'm a fan of Republicans and opposed to Democrats. Wrong: I'm a fan of small governments and maximum liberty and opposed to crony capitalism whether the party in power has an R or D after their name. Like many folks, I don't see a dime's worth of difference between the mainstream R and D.
1) Keynes was not a socialist. He believed capitalism was the best economic system.
2) Keynes did not advocate running a deficit. He believed that governments should, in normal times, run a surplus. It was Glen Hubbard of George W. Bush's council of economic advisors who said that "Deficits don't matter".
3) The one fiscal conservative in the USA in the last 30 years was Bill Clinton.
4)The one party with by far the greatest share of deficit spending run up under their time in power is the Republican party.
5) Keynes was also not a tax-and-spend fanatic. He believed that a government should not take more than 25% of National Income in taxation at most.
6)Business expansion is predicated on real demand. That means you only make enough of x that you believe will be demanded in the market. DO you really believe that if you made ten billion luminous pink garden gnomes that would create a market of that size by virtue of producing it? Besides, if employers were scared from employing extra people, wouldn't they just utilize the employees they have more? But no, the latest figures show that employees are not being utilized, and workforces taking weeks off from production. Why? Red tape! Bah! No, it's lack of demand out there.
7) When America threatened to default on it's debt, it was just the same as you taking a hug loan with a credit card, and refusing to pay. That is right - if you hadn't raised the debt ceiling and defaulted, you would have STOLEN OTHER PEOPLE'S MONEY. That is called theft. I'm sure you like to see a jail sentence for people who hold up a store. Well, it would have been exactly the same thing. But worse.
8) THE US (under Bush) gave the bankers on Wall Street $800 billion. Why? Because of a whole off-the-books shadow banking system that hid the real risk and value of debt off the balance sheet. The U.S. Financial Crisis Inquiry Commission reported its findings in January 2011. It concluded that the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages and dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk. The highest proportion of bad loans for property were in the commercial sector - not private sector for homes, interestingly enough.
9) Geithner isnt a Keynsian. He is pumping money (quatitative easing) into the US economy to make money cheap and stimulate demand. Keynes said this is "like pushing on a string" i.e. not effective. However, it has helped avert a total catastrophe - the sort that austerity would have brought. Just take a look at Greece. There was nothing wrong with the Greek economy, but the government owed lots of money to the banks. It has deflated (which means the economy has shrunk) and guess what? The deficit has got bigger because there are more people out of work and on welfare / not paying taxes.
Anyway, I advise you read a general economic text book (not Austrian - they don't even count as economics and they reject the scientific method plus they have no tools to examine finance - and their model's predictive power is non-existent. And realise that if you get a bunch of austerity nuts in, balancing the budget in a recession - you will have a major depression, and people will die of starvation all over the country.
1. Should you be back, I'd like to point out that I don't believe I ever said Keynes was a socialist - (a search with that Google tool in the upper left returns no post with those two words in it) not that it matters.
2. I'm not entirely sure I've ever even said Keynesian economics is categorically wrong, although it is wrong as practiced in the world today. In this post, I said "John Maynard Keynes himself never said the government should deficit spend in good times, only as an emergency measure. " I said the same basic thing in this post and that's from just a few seconds of searching. This part, however, is laughable:
It was Glen Hubbard of George W. Bush's council of economic advisors who said that "Deficits don't matter".He may have well said that, but two things: first, you must be a kid because I remember being told the same thing in the 1970s, and throughout my entire adult life; second, you imply I must be a fan of George W. Bush. While he had his merits, he was an economic disaster.
3. I don't buy that Bill Clinton was an economic conservative; a better description is pragmatist. He triangulated and found what people wanted, not really having any real principles other than love of power and attention. I don't believe we've had a real economic conservative since Warren G Harding fixed the depression of 1921. Ronald Reagan did some good things, for sure, but he cranked the deficit spending up to bankrupt the Soviet Union. It apparently did, but is now bankrupting us.
4. Numbers, and real quantitative data, please. You have a 50-50 chance of being right, but you need to give me some real, inflation-adjusted numbers. I wouldn't bother, though, it's not very relevant to the problem we're in now.
5. The problem is not Keynes, it's the way governments have implemented it in the world today. Look, we don't need to have a gold or silver standard, or the stone rings from Yap; all we need is the discipline to not debase our currency. The problem with the whole economic system, from the Federal Reserve to the tax system, is that politicians can't resist f**ing with it! Whether it's printing extra money to hand out to welfare mothers, or to go bomb Libya, it's the government that's the problem. History says whenever they go off a commodity standard, governments eventually debase their currency into worthlessness. Go read the intro to the book, "Guide to Investing in Gold and Silver", written by a partner of that radical Robert Kiyosaki (the "Rich Dad, Poor Dad" franchise). He gives example after example.
6. I'm not sure what your point is. I'm not saying supply causes demand, but aren't you saying that flooding the market with low cost money causes demand? Whatever - you're saying employers are trying to keep employees on hand, even though they're not working them to lots of overtime because demand is low; that appears to be true. Companies are "saving for a rainy day" and trying to keep people from being hurt. Shame some are trying to get that "extra" money they're holding on to.
7. But America didn't threaten to default on its debt, it simply would have had to stop borrowing more. There was plenty of money to pay the interest on the debt, which is not defaulting on the debt; the trade was to pay the interest but stop deficit borrowing. It would be a spending cap. As I said in that article you're responding to was, (in a crisis) "Anyone who has so much as run a newspaper route, or any business, or anyone even the least bit grounded in reality would say to pay your debts and not spend the money you don't have. "
8. That whole $800 billion bailout was a disgrace - we're in complete agreement. Furthermore, the $2.2 Trillion that the Bernank gave to the European banks to prop them up was even worse. The banks should have been allowed to fail - just like GM and Chrysler. There would have been widespread misery, but I believe that has just been delayed, because I believe there's no way to head off the bad times that are coming. Your point about the Financial Crisis Inquiry Commission is one I've made many times: the collapse could not have happened without the complicity of Fannie and Freddie along with the Fed. In short form, the government is the problem.
9. This is a difference without a distinction. Has QE really "... helped avert a total catastrophe - the sort that austerity would have brought"? Wanna ask the folks living in the tent cities around the country? What about the savings being wiped out by inflation? Have we had GDP growth or useless monetary inflation? (oh, the government doesn't count food in the cost of living, or inflation; isn't that special?) The treasury is printing money out the wazoo to buy our own bonds so we can deficit spend, we're creating money out of thin air and that is going to be a problem. Dude, we have a debt that's virtually 100% of GDP - how does that end well without cutting back spending? Greece is coming here. I find it interesting that you say Austrian economics isn't even worth looking at and "...their model's predictive power is non-existent" In the years coming up to 2008, I read a large number of writers who claim to be Austrian economists that predicted the 2008 crash and the one that's still coming. I believe it was 2005 or 2006 when I first read that the sub-prime mortgages were rolling up to around a quadrillion dollar leverage and was going to collapse the banking system. I didn't see a single Keynesian say it was going to happen. Maybe some did, but I haven't run across any.
Finally, you say, "And realise that if you get a bunch of austerity nuts in, balancing the budget in a recession - you will have a major depression, and people will die of starvation all over the country." See, I think the world is on the verge of dumping the US dollar as the reserve currency. China has been getting out of dollars as fast as they can (without causing a panic); not buying gold, but buying gold mines - along with copper, aluminum and everything else they might need. Opec is talking with Russia, China and Europe about no longer selling oil in dollars. Brazil, Russia, India and China are instituting the BRIC currency. The signs of the death of the dollar are everywhere. When the dollar dies because America couldn't control its spending habit - could be this year, could be next year - the "major depression and people will die of starvation all over the country" is coming here. You seem to advocate printing more money. At some point, don't you think the rest of the world is going to say those dollars are worth less because there's so many more of them, and start looking for something that holds value better?
Oh, yeah, one more thing. You'll find that my readers have zero tolerance for "proof by appeal to authority". BTW, is that you Dr. Bernanke?