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But keynesians deserved to be discredited on this issue? They don't understand stagflation...
by kjr63 on Tue Aug 2nd, 2011 at 11:08:55 AM EST
[ Parent ]
The Phillips curve neither follows from nor implies what Keynes wrote in The General Theory. What was done in the 1970s was to use the failure of the Phillips curve to discredit Keynes' insight about lack of aggregate demand causing recessions.

In particular, Keynes was not particularly concerned with inflation.

But, more importantly, in the 1970s there were a number of financial crises that were successfully contained by means of government intervention even as the economy spent a decade in crisis. But by discrediting government intervention we then spent 20 years removing the ability of the government to contain financial crises, as well as filling the civil service and international functionanriat with neoliberals who believe the market will provide...

Another idea of the 1970s which was immediately discredited was The Limits to Growth, which turned out to be pretty much on the mark.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Tue Aug 2nd, 2011 at 05:25:14 PM EST
[ Parent ]
Keynes was smart enough to know if the goddamn house is burning down you don't worry that the toilets are backed-up.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Tue Aug 2nd, 2011 at 05:57:59 PM EST
[ Parent ]
But, more importantly, in the 1970s there were a number of financial crises that were successfully contained by means of government intervention even as the economy spent a decade in crisis.

Perhaps, but did they know what they were doing? I'm skeptical.

Stagflation is the simplest form of inflation. It is caused by rising (economic) rent. And there is a very simple and quick fix to it. Rent tax. (But you don't find this in any textbook.)

by kjr63 on Fri Aug 5th, 2011 at 05:29:45 AM EST
[ Parent ]
But if the rent is captured outside your borders through a cooperation on the sales of vital raw materials, then that rent would be hard to tax.

OPEC - Wikipedia, the free encyclopedia


Long-term oil Prices, 1861-2007 (orange line adjusted for inflation, blue not adjusted).


Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Fri Aug 5th, 2011 at 06:01:09 AM EST
[ Parent ]
Yes, indeed. But that is a political problem, not an economic one.
by kjr63 on Tue Aug 9th, 2011 at 04:19:23 AM EST
[ Parent ]
Depends on how greedy the colluding suppliers get.

If they go all the way to demand destruction pricing, you can eat their markup by imposing taxes on the raw material in question. You will still have high prices and attending issues for your industrial production, but you won't be hemorrhaging hard currency.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Aug 10th, 2011 at 05:53:29 AM EST
[ Parent ]
If anybody tells you that he knows The One True Cause Of All Inflation (or stagflation, for that matter), you should check your wallet because you are being taken for a ride.

In the particular historical case of the '70s, the primary causes of the growth slowdown were (a) increasing demand drain from deteriorating foreign balance between The WestTM and raw materials producing countries (principally OPEC) and (b) the end of the rebuilding of the European capital plant destroyed by the world wars.

The growth slowdown created a distributional problem, because the Fordist political economy's distributional policies were based on high real growth rates. Inflation followed from the failure to resolve this distributional conflict. Inflation was firmly and finally arrested when the distributional conflict was resolved by breaking the labour side's power to sustain the conflict.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 5th, 2011 at 04:21:20 PM EST
[ Parent ]
Neither should we mystify these matters.
It is just a simple logical conclusion that growing monopolisation rises prices and cuts production at the same time.
by kjr63 on Tue Aug 9th, 2011 at 04:32:56 AM EST
[ Parent ]
Simple and logical, perhaps, but not necessarily true. There are plenty of historical examples of monopolies leading to lower prices and more production, when profit maximisation is rendered subordinate to the logic of industrial mass production.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Aug 10th, 2011 at 05:55:19 AM EST
[ Parent ]
James K. Galbraith: James K. Galbraith: The Final Death (and Next Life) of Maynard Keynes
This is a bad movie and we have, of course, seen it before. You may recall that in 1960 the Uncle of, as it happens, of Larry Summers, co-invented a concept called the Phillips curve, stipulating on very weak empirical evidence and no clear theory the relationship between the unemployment rate and the rate of inflation. True Keynesians, including my teacher, Nicholas Kaldor, Joan Robinson, Robert Eisner, a great hero of mine, and my father were appalled. The construct was doomed to collapse and when it did, after 1970, the school that most people thought of as Keynesian was swept away in the backwash.

Today, the failure behind the recovery forecast is conflated with the failure of the stimulus itself and the same thing is happening again. Those who failed most miserably to forewarn against the financial crisis have, as a consequence, regained their voices as scourges of deficits and public debt. There is a chorus of doom as those who once thought the new paradigm could go on forever are now inveighed against living beyond our means and foretell federal bankruptcy and the collapse of the dollar and the world monetary system amongst other scary fairy tales. This includes such luminaries as the leadership of the International Monetary Fund and of all things, the analytical division of Standard and Poor's -- an enterprise on which one might hope at least a small amount of modesty might have developed or devolved in the wake of recent events.

It would be pathetic if it were not so dangerous. But the fact is, these forces are moving down a highway which has been cleared of obstacles by the retreat, indeed the destruction of the False Keynesian position.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Aug 9th, 2011 at 12:11:15 PM EST
[ Parent ]
Keynesians understand stagflation just fine.  Morons in DC who think they understand Keynesianism don't understand Keynesianism and stagflation.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Tue Aug 2nd, 2011 at 06:03:38 PM EST
[ Parent ]

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