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Keynes was wrong

by cagatacos Wed Jun 4th, 2014 at 01:54:26 AM EST

When, many years ago, I joined this site (at that time still will using my real name - such naïveté), I believed - very strongly, I might add - in two things:

  1. That the symbol at the top-left corner of this site was someting good
  2. That the debt overhang that I was forecasting (and correctly so) would end up in hyperinflation.

Clearly I was completely wrong on both counts. Regarding point 1, the EU and the Euro are destroying Europe in front of our eyes...

But I am here to talk about point 2.

I always looked at Paul Krugman as a man with the heart in the right place, but not understanding anything about economy (mind you, they give the economics "nobel" to all kinds of people - that is never an argument). How could he not see the coming hyperinflation? So I read him, with both love and contempt.

Again, I was totally wrong: it is quite obvious how things pan-out: Keynesian macro got things mostly right. It was really interesting to read Paul over the years and just see how his predictions turned out mostly right (and mine mostly wrong).

Now, I understand that this might be confusing: how can I suggest - in the title - that Keynes was wrong and say all this?

front-paged by afew


Its the politics, stupid! (and remember, economy is mostly politics by other name)

Sometime ago, I was thinking on how good it was if somebody had devised a system that would penalize nations that would had both systemic trade deficits and SURPLUSES. Not being an economist, I was not aware of the International Clearing Union, the Bancor... another Kenyes' idea, of course.

Now, it is kinda interesting that we ended up with the IMF instead of the ICU. Ah.. if we only had got the ICU instead. Actually this starts to show up the first problem with Keynes: the devised system is not very resilient to design changes. Get something wrong and you get a problem (is it OK if I call the IMF a problem?)

But there is an even more serious issue with this arrangement: Keynesianism requires an elite that is both well-intentioned and intelligent. If the elite is dumb or has other motivations (like, say, protect the rentiers) then we have a problem. Question: What is the probability of having a decent, enlightened elite? Notice that the elite is especially important in Keynesianism because the good functioning of the system requires functioning top-down institutions (transnational and national).

I would say that a global system (and Keynes was proposing a global system) contains the seeds of its own destruction if it requires a decent and enlightened elite: global systems will be, by construction complex and will have a distant management cohort prone to be taken by special interests that can organize at a global scale. These special interests would more easily be the interests of rentiers (just because they will have the resources to organize at the global scale).

But the biggest problem with Keynesianism is not that. And this leads me back to my stupid predictions about hyper-inflation.

Notice, very importantly that I was hardly alone in my stupidity: "serious" economists would share similar concerns. Serious people in general. But not only that: when I hear conversations on the street, I can hardly remember a case where people had a Keynesian view of money - it was only hard money views...

...Indeed Paul Krugman (no link - but this was somewhere on his blog) once noticed that people in America considered the deficit a very important problem... in the time of FDR. Results of a poll made at the time.

The fundamental problem of money is that the individual/psychological relationship that we have with it is fundamentally opposed to its systemic behaviour. Money can be created, destroyed, devalued, etc (and should be managed). But our personal relationship with it makes it very difficult to accept that that fundamental tool for survival can be (and should be) so easily manipulated/managed. At the core people have a "gold bug" view of money. Put a median eurotriber on the pulpit vs a zerohedger (discussing money) and the the zerohedger will "win" the debate for most people.

Keynes might be right about money, but Keynes is also counter-intuitive and difficult. It takes time to get it. It is politically hard to defend him: you will not easily get a majority with you (and if you disagree, just look what is happening now).

Actually the notion about money is the easiest problem to solve: through the education system. It would not be difficult to devise a curriculum that would pass on the intuition of how money works in society. But, while that would be possible in the future it is hardly any consolation now...

And of course, there is the class thing: the "euthanasia of the rentier" might make rentiers jittery. And, as per above, they would not have much trouble to convince most people that inflation is the bogey-man.

Don't read me wrong: I am not proposing anything in alternative. Just pointing out the flaws that I perceive in what passes for Keynes thought (I say "what passes for Keynes thought" because I never read the man directly).

Finally I want to address one problem with my reasoning above, the problem is this: Keynesianism was possible and real after WWII. I want to argue that this is circumstantial:

  1. WWII and all the tragedy around shaped an environment where concern for the common good was possible afterwards.

  2. The communist threat: western elites had to compromise quite a bit to control the expansion of communism. While communism might have not been very good for the ones living under it, it was good for us: scaring the elites into some concessions. Now your cynicism might vary: but I am actually convinced that this was the most important reason enabling Keynesianism in the west.

  3. [Of least importance] Times of abundance (as the post-WWII period was) are more inline with Keynes thought making him easier to defend.

The more I discover Keynes' economic thought, the more it impresses me (in a positive way), but I believe that the political requirements for it to happen are utopic.

The title of this post is obviously provocative, but I think it might be correct on the political front.

Display:
Absent WWII Keynes might have been seen similar to Henry George. He would have his small group of die-hard fans claiming that if only we used his ideas everything would be better, but without a plausible story of how to politically getting from here to there. It is the problem with wanting to save the current system, when its leaders are busy destroying it.

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by A swedish kind of death on Sat May 31st, 2014 at 07:25:03 AM EST
I think that there's something to the argument that the war made Keynes.

Without the opportunities for investment created by the destruction of Europe, would the Trente Glorieuses have taken place?

At some level, war automatically generates economic stimulus in its wake, because someone has to clean up and rebuild. Moreover, investment in basic research (so as to create ever more ingenious ways to kill one another) ensures at war's end that there is a standing catalog of new technologies to be commercialized.

Arguably, the same could be had by simply making investment in basic research without the killing, but as a species Is suspect we aren't that clever.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sat May 31st, 2014 at 07:37:46 AM EST
[ Parent ]
Has Keynesianism ever been tried out on a large scale without war?

I know he didn't invent a economism that takes war to prove its logic.

Keynesianism seems like a macro version of Giving Forward.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sat May 31st, 2014 at 09:48:16 AM EST
[ Parent ]
Well, Sweden tried it without being in the war, but the war was still there.

I am thinking along the lines of Keynes ideas being there in the 30ies but even governemtns that tried stimulus then switched and got double-dip recession. That is in the capitalist west, fascists and comunists had less scruples about causing national debt in order to mobilise the resources of society.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sat May 31st, 2014 at 10:44:06 AM EST
[ Parent ]
...in the capitalist west, fascists and comunists had less scruples about causing national debt in order to mobilise the resources of society.

Michael Kalecki explains that phenomenon rather well. Once the business class bought in to the fascist rule they felt that the state WAS representing their interests and that they would benefit mightily from the bargain. From Kalecki:

                                                                     III

1.  One of the important functions of fascism, as typified by the Nazi system, was to remove capitalist objections to full employment.

The dislike of government spending policy as such is overcome under fascism by the fact that the state machinery is under the direct control of a partnership of big business with fascism.  The necessity for the myth of 'sound finance', which served to prevent the government from offsetting a confidence crisis by spending, is removed.  In a democracy, one does not know what the next government will be like.  Under fascism there is no next government.

The dislike of government spending, whether on public investment or consumption, is overcome by concentrating government expenditure on armaments.  Finally, 'discipline in the factories' and 'political stability' under full employment are maintained by the 'new order', which ranges from suppression of the trade unions to the concentration camp.  Political pressure replaces the economic pressure of unemployment.

2.  The fact that armaments are the backbone of the policy of fascist full employment has a profound influence upon that policy's economic character.  Large-scale armaments are inseparable from the expansion of the armed forces and the preparation of plans for a war of conquest.  They also induce competitive rearmament of other countries.  This causes the main aim of spending to shift gradually from full employment to securing the maximum effect of rearmament.  As a result, employment becomes 'over-full'.  Not only is unemployment abolished, but an acute scarcity of labour prevails.  Bottlenecks arise in every sphere, and these must be dealt with by the creation of a number of controls.  Such an economy has many features of a planned economy, and is sometimes compared, rather ignorantly, with socialism.  However, this type of planning is bound to appear whenever an economy sets itself a certain high target of production in a particular sphere, when it becomes a target economy of which the armament economy is a special case.  An armament economy involves in particular the curtailment of consumption as compared with that which it could have been under full employment.

The fascist system starts from the overcoming of unemployment, develops into an armament economy of scarcity, and ends inevitably in war.



"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat May 31st, 2014 at 11:38:19 PM EST
[ Parent ]
Times of Abundance might be a factor of importance after all. By definition, scarcity means that there is not enough for everyone - with whatever money. The turn away from Keynesian economics started in the 1970-80s, soon after the "Club of Rome" report. Self-conscious elites might be thinking along the lines of my earlier comment today, adjusted:
Is there a point to enlighten everyone? Confused population is a part of the political-economic game...
by das monde on Sat May 31st, 2014 at 08:36:52 AM EST
I think Keynesianism will be the way we take once the neolib economy has finally crashed and burned enough times no-one will give it even a minimum level of credence.

Still far way, iow. Still far too many suckers to milk for that!

The weak link will always be the grifters who can corrupt anything...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sat May 31st, 2014 at 09:51:41 AM EST
[ Parent ]
...once the neolib economy has finally crashed and burned enough times...

...there may not be enough left to enable us to start over in a meaningful way - possibly not until current population levels have been divided by ten or more. In another forty years fossil fuels will be vary scarce and a large portion of the world's population will be, perforce, using what ever sustainable energy they can manage. If we have not built enough renewable energy sources such as wind, solar, tidal and geothermal a lot of the world will look like current day Romania or Bulgaria, except with less liveable cities and an overall lower level of complexity. Universal health care and education beyond elementary and middle school will be a thing of the past - only a few will have access to such things.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jun 1st, 2014 at 09:07:53 AM EST
[ Parent ]
.. The only use for which oil is really direly necessary for civilization is lubricants, and biological sources will cover that.

I see this vision of the future a lot, and it is not possible. Because given this alternative lots of things which we would not currently do becomes very palatable.

Such as cheap-skating reactor construction.  There is no natural law keeping anyone from ripping out the furnace of a coal plant, sticking in a fission heat source and turning it back on.

Nor is it required by physical reality that one has to hold a decade of hearings before running a railline. And so on and so forth.

by Thomas on Sun Jun 1st, 2014 at 09:20:04 AM EST
[ Parent ]
Thirty years ago I suggested to my physicist brother-in-law that the long term solution to reactor by-products was to launch them onto a trajectory that would take them into the sun. "That should do it." was his response. The problem then was how to get them safely off the Earth's surface and onto that trajectory. I think it is within our technical capability today to design and build a rail gun that could fire a vitrified projectile onto such a trajectory. Such a system could also serve to cheaply send materials either into low earth orbit, geostationary orbit or to one of the L5 points and could make development of a facility on the Moon sustainable and support asteroid capture and mining. Once acceptable reliability has been demonstrated we would have eliminated a major obstacle to next generation nuclear power plants. The project could be justified on the basis of the waste disposal alone.
 

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jun 1st, 2014 at 02:44:07 PM EST
[ Parent ]
Needless to say, such a system should be powered by renewables, probably wind and solar plus rather significant energy storage devices.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jun 1st, 2014 at 02:46:28 PM EST
[ Parent ]
The reason everyone went for geological disposal is that it is reversible - All suggestions that end up in a situation where we cant get the stuff back if we decide to are irresponsible because we might well have uses for it once it is cooled of.

Nuclear waste straight out of a reactor is nasty stuff. Nuclear waste 500 years later.. is barely "hot" at all and contain a bunch of quite rare metals. in addition to the obvious: platinum, palladium, and technetium.

Tc is an beta-emmiter, but it has a very long halflife, doesn't exist in nature and makes nifty alloys.

This is why I tend to find concerns about really long term viability of storage a bit absurd. If we are still around at all, someone will be digging it back up.
And in an "no fossil fuels" context, noone will care.

Dry cask storage will do. Uhm. It'll probably do for the full five hundred years. There are older concrete structures than that standing, and casks are manufactured to a very high standard.

by Thomas on Sun Jun 1st, 2014 at 05:38:08 PM EST
[ Parent ]
Nothing wrong with processing out as much useful elements as possible prior to disposal. But it would be a good idea to require that all long term storage be at +150 meters elevation or greater. I agree that it is possible to do nuclear acceptably well. I just seems that it is not probable, given our level of social competence. We can't even handle money without causing social catastrophe.


"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jun 1st, 2014 at 07:11:59 PM EST
[ Parent ]
Dry cask storage will do. Uhm. It'll probably do for the full five hundred years. There are older concrete structures than that standing...

Modern concrete does not favorably compare to Roman concrete, which comprises a lot of the long standing concrete structures extant. Roman concrete used high alumina content volcanic ash as a major component. But not all volcanic ash is created equal. Again, I suspect that we could create concrete storage facilities that would last >500 years, but I am far from convinced that we will - due to lack of social competence.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jun 3rd, 2014 at 08:51:46 AM EST
[ Parent ]
Scarcity is a failure of the imagination. Very recently there have been floods in the Western Balkans and the relief effort in Croatia has definitely been hamstrung by the "lack of money". Not lack of people or resources: lack of EUro-pegged fiat money to mbilize them.

In Italy, after the Aquila Earthquake, the Italian government was "forced" to raise fuel taxes in order to pay for disaster relief and reconstruction, because the necessary government expenditure would not be monetised by the ECB.

In Spain, years after the Lorca earthquake, in a region with ample resources idle as a result of the construction sector slump, reconstruction still hasn't begun because of... lack of fiat money.

I am not saying that after a natural disaster the wealth and productivity of the affected community won't be affected. I'm saying that there are two ways for that GDP hit to manifest itself: devaluation of the local currency, maybe inflation; or unemployment and permanent reduction of productivity, risk of insolvency from reduce aggregate income. Hard-money views end up producing unemployment, preventing the repair of damaged fixed capital, and generating a debt overhang through reduced growth. But the currency is "sound".

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sun Jun 1st, 2014 at 07:04:54 AM EST
[ Parent ]
It's not very different from playing Civilization, really: would you ever let any of your cities lie idle, without producing anything?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Jun 1st, 2014 at 09:43:17 AM EST
[ Parent ]
What about insurance?

I'm not being flippant. New Zealand's current economic growth rate (4%) apparently owes a substantial amount to the reconstruction of the city of Christchurch, destroyed by earthquakes a couple of years ago, and which is largely funded by insurance money which is flooding in from overseas.

Surely the reconstruction efforts you mention should be covered by some sort of disaster insurance fund? And whether public or private, this would amount to the creation of money, wouldn't it?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Sun Jun 1st, 2014 at 12:05:14 PM EST
[ Parent ]
I presume Christchurch took out insurance before_ the earthquake?

My point is that the existence of a fiscal authority is the ultimate insurance policy.

So, what kinds of implicit guarantees are Eurozone governments providing that they shouldn't be in the business of providing? I can think of half a dozen off the top of my head:
  • deposit insurance for banks
  • granting limited liability to businesses
  • disaster relief
  • access to health care
  • access to education
  • access to legal redress
  • public safety
All of these are implicit guarantees that every citizen in Europe expects to enjoy relatively free of charge. These are large contingent liabilities of the state. Any and all of them could not be undertaken by a private entity that didn't charge hefty fees up front and wasn't adequately capitalised in case a particularly large claim presented itself. Would you pay a savings deposit insurance premium to an inadequately capitalised insurance company? (not that "sophisticated investors" didn't do exactly that when they bought CDS "protection" over the past 10 years) Would you incur risks with a full-liability entity having less capital than your potential loss? Would you trust you can be rescued from a disaster by an entity without the capital and operating income to actually fund a rescue operation? How about health insurance from an entity without the resources to pay for the treatment? How about your right to file a complaint to an entity without the necessary money to operate a grievance handling system? How about contracting physical security or firefighting services from an entity without the operating income to actually deploy security or firefighters?


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sun Jun 1st, 2014 at 12:38:08 PM EST
[ Parent ]
Scarcity of money is the question of political motivation. Keynes (and Krugman, Marx, Piketty - and if we follow Michael Hudsom, we can add Adam Smith) foresaw money hoarding as an essential problem.

Zero Hedge returns to the broken windows fallacy often. They argue, the money for broken windows (or a disaster ravaged city) would have gone productively somewhere else. The Keynesian observation is actually - there come times when money is so strictly hoarded (or captured), that there is no selfish motivation to invest it anywhere productive. Things get so bad that it is then helpful to brake windows, dig holes, drop bombs.

Money functions basically as economic activity rights. When mathematics and politics combine to inevitably "stable" money concentration, and all power belongs to money holders, they will find the ways to keep their holdings valuable - or obtain everything else in return. That is why zerohedgy hyperinflation fears are pretty laughable - that will come when when People With Money will decide.

by das monde on Sun Jun 1st, 2014 at 01:10:12 PM EST
[ Parent ]
By definition, scarcity means that there is not enough for everyone - with whatever money.

So let's introduce the concept of Democratic Deflation - democracy is inversely proportional to engineered scarcity.

The reality is of course there's plenty for everyone, as long as it's distributed fairly and not hoarded by those delusional individuals who believe they have a right to it.

Is there a point to enlighten everyone?

From the elite point of view, the idea is horrific.

Practically education is a game changer, because if you give as many people as good an education as possible, at least a few of them will research and invent the fuck out of the future.  

You want real growth based on real activity? Educate, inform, and involve. Then stand back and watch what happens.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Jun 1st, 2014 at 01:40:02 PM EST
[ Parent ]
Notice that the elite is especially important in Keynesianism maintaining a functioning industrial society because the good functioning of the industrial system requires functioning top-down institutions

Fixed it for you.

You are free to favour village-level localism. But village-council localism will not have electricity.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 31st, 2014 at 11:03:31 AM EST
Village areas can make out fine. Here 50% of our electricity is local and renewable. A second turbine on the river is planned, and with some more solar and some wind, the village (and surrounding smaller villages) could reach 100% local renewable. And it's not even DFHs in charge.

Major industrial-level generation is surely much more needed for the large urban areas.

by afew (afew(a in a circle)eurotrib_dot_com) on Sat May 31st, 2014 at 11:30:10 AM EST
[ Parent ]
Were the turbines produced locally? And I mean, including supplying the materials.
Is there a fully autonomous network at local level? Which would not only that it needs not be connected, but that all its operations can be run from the village -including writing software for it.

Then wiring towards the houses must be done by a local craftsman. As would writing and enforcement of safety regulations.

OK, I'm not actually trying to piss you off. So I'd better stop.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sat May 31st, 2014 at 12:38:00 PM EST
[ Parent ]
You know the answers to these questions. Of course the turbines are not produced locally. Of course (in France) the local network cannot be independent of EDF.

Wiring towards consumers, maintenance, etc are done by the local network employees. Writing software or regulations at local level is not impossible, though obviously standardisation would be desirable.

But my point was not to say that there was no need for largescale industry. Just to counter the local=candlelight theme.

by afew (afew(a in a circle)eurotrib_dot_com) on Sat May 31st, 2014 at 12:56:01 PM EST
[ Parent ]
Something like the subsidiarity principle so dear to Starvid?
But in a positive way (subsidiarity  is often used as dog whistle for deregulation): starting local and going bottom up rather than top down...
by Bernard on Sat May 31st, 2014 at 03:47:40 PM EST
[ Parent ]
But the thing is that localism does mean candlelights.

You can do a lot of things bottom-up, but maintaining a reliable electricity network is just not one of those things. For the same reason a deregulated market of small tradesmen cannot do it.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 31st, 2014 at 06:03:11 PM EST
[ Parent ]
The local electricity authority here (and it is far from unique in rural France) has maintained its network for decades without outside aid (other than standardisation, very good thing). It is part of the national network 1) by legal obligation 2) out of need to distribute half the electricity consumed from outside sources. The second constraint could change with increased local generation.

I'm not suggesting an independent local grid would be a good idea, nor that there is some magic bottom-up solution for electricity generation. Just that I think your sweeping disqualification of local potential is mistaken.

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Jun 1st, 2014 at 02:06:28 AM EST
[ Parent ]
I'm not dismissing local potential to do good work. I am dismissing local potential to protect you from incompetent or malicious central elites, which was the key contention of the diary.

If you want to vest enough power with local warlords that they are able to offer effective protection from malicious central warlords, then you will not have electricity.

Because your local regions won't share the same set of rules and dispute resolution systems which enable trade. Which means you will be unable to draw upon a supply chain (of both commodities and technical specialists that you cannot feasibly train at the local level) robust enough to sustain industrial production. And even if by some miracle you have the raw materials readily at hand, and you are willing to expend a disproportionate amount of effort training specialists, you will not be able to deploy the products of advanced industry into a large enough market to recoup the fixed costs of establishing the industrial production and supply chain.

Now, if you are talking about localism in the sense of the local authority being empowered to support bottom-up initiatives, then that's perfectly fine and proper. But it's not a bottom-up, local system of governance. It's a top-down, centralist system of governance which leaves room for local, bottom-up initiatives.

The key difference, and the way you tell the difference, between the two is that in the latter system the center can kill any local initiative that is deemed seriously contrary or disruptive to the center's planning or interests. (Imagine, if you will, a local authority establishing an excise on non-locally produced products. This is something the center will come down on like a ton of bricks.)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 1st, 2014 at 03:40:35 AM EST
[ Parent ]
Great synopsis Jake.

Remember that 40 million Euro fine proposed (legislated?) in Spain for removing your solar panels from the grid and powering off batteries?

Not sure if it is/would be enforced but it's a hell of a message. A ton of bricks indeed!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sun Jun 1st, 2014 at 04:23:51 AM EST
[ Parent ]
OK, completely agree. ;)
by afew (afew(a in a circle)eurotrib_dot_com) on Sun Jun 1st, 2014 at 05:10:52 AM EST
[ Parent ]
I will say this: within a 20 mile radius we have two dams with 10 turbines between them. Even though Entergy, through the political process, got the right to sell power to the citizens of the city of Mountain Home, they have no generation facilities within 100 miles and I am pretty sure they just resell power from the dams that they acquire on the market. But in the event of a national disruption I still expect to have power delivered. One generator alone will more than supply all needed power for our county and the surrounding counties. Were there problems with this I would not be surprised were problems to appear in the distribution power lines - Arkies being Arkies.


"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jun 1st, 2014 at 03:20:18 PM EST
[ Parent ]
For the same reason a deregulated market of small tradesmen cannot do it.

A deregulated market of large corporations can't do it either (q.v. Enron et al) so I'm not entirely sure what your point is here.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Jun 1st, 2014 at 01:43:07 PM EST
[ Parent ]
A deregulated market of large corporations is a contradiction in terms. Large corporations create their own regulations in the absence of a strong central authority to bring them to heel.

That this regulation protects the interests of the large corporations and their immediate stakeholders is of course unsurprising. And that these interests do not coincide with electricity for everyone is equally unsurprising.

So my point is that if one likes having both electricity and democratic accountability, then one needs a central authority which is democratically accountable and strong enough to come down on major corporations like a ton of bricks.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 1st, 2014 at 02:06:42 PM EST
[ Parent ]
This whole subthread throws me back to a discussion we had in 2006:
One also has to think of economies of scale, or rather of limitations imposed by small scales. There are technologies that simply cannot be deployed by a community below a certain size.

My point is that the technological infrastructure is not a cheat, it's precisely what allows you more control of the way to get there from here, and it may be what makes it possible to begin with.

I mean, suppose the Amish wanted to build a wind turbine. Are the turbine blades going to be made or wood, or wrought by an ironmonger? Where do you get advanced materials from?

Then again, 3D-printing holds long-term promise in this regard...

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sun Jun 1st, 2014 at 06:38:29 AM EST
[ Parent ]
See Randy Wray's New Meme for Money on the New Economic Perspectives blog:
  1. A Meme for Money, Part 1: Introduction (December 3, 2012)
  2. A Meme For Money, Part 2: The Conservative Framing (December 4, 2012)
  3. A Meme for Money, Part 3: Framing the Alternative Approach (December 5, 2012)
  4. A Meme For Money, Part 4: The Alternative Tax Meme (December 6, 2012)
  5. An Alternative Meme for Money, Part 5: A Spending Meme (December 10, 2012)
  6. An Alternative Meme for Money, Part 6: Alternative Framing on Inflation (December 11, 2012)
  7. An Alternative Meme for Money: Conclusion (December 13, 2012)


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sun Jun 1st, 2014 at 06:32:23 AM EST
I have been hammering for a long time on the fact that the money as a thing conceptual metaphor is the greatest obstacle to democratic Keynesianism. Any autocrat can be a Keynesian.

De facto gold standard

Let's not forget that money as a thing is a powerful metaphor people use to relate to the economic system, and that, moreover, it applies outside the financial sector. And, as Galbraith said, the process by which money is created is so simple that the mind is repelled. I sometimes wonder whether the fiat money system wouldn't unravel in a confidence crisis if ordinary people abandoned the money as a thing metaphor.
Eurozone Aims For Mars
It's worse than that. Europe spent the 20 years after the end of the Gold Standard trying and failing to maintain a fixed exchange regime. Also, prior to the Great Depression, European Countries were central to the failure of the previous incarnation of the Gold Standard, both contributing to causing the crisis and to prolong it. Somehow Continental European economic policy makers just don't get fiat money and are enamored of "money as a thing" common-sense economics.
Ferguson hates on Keynes
A lot of people come into Environmental Economics from engineering or natural science, and such a background predisposes one against social convention ("fiat" money, nominal accounting) and for objective measures (real accounting, hence commodity money, gold standards, and thermodynamic money standards). "Money as a thing" is one of the most engrained concepts in our culture and it dovetails with the engineer/scientist tendency to prefer a commodity standard for money.

See also what Paul Samuelson says here after 1'26"

Also: TIME TO DROP THAT OLD-TIME RELIGION by Randy Wray (April 30, 2010)

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sun Jun 1st, 2014 at 06:54:02 AM EST
Some clarifications:

  1. I am not trying to proselytize here (I can do that, but not in this case).

  2. I am suggesting that a large complex system will be taken by special interests. And that Keynesianism needs a decent elite.

  3. I would like to avoid "black and white", "all or nothing" scenarios. This is not between local primitivism vs total globalism. There are many models in-between, as far as the imagination can go. To be provocative, I would venture that the "nation-state" model worked well in Europe post-WWII. While not my model of choice, it seemed to have served us better than the EU/Euro model.

  4. I actually think that some form of Keynesianism can work in times of scarcity. Nominal growth is a good thing (as in inflation protecting the workers vs the rentiers).

Keynes was, as far as I can see, a globalist. That part I do not believe it would work. This is irrespective of my likeness/dislikeness of the globalist idea.
by cagatacos on Sun Jun 1st, 2014 at 07:51:11 AM EST
Capture is not inevitable. This is blatantly obvious, because if it was, history would be 100% a series of casestudies in feudalism.

The current status quo is not the working out of inevitable historical forces - To the contrary, the very problem is that politically active plutocrats have worked out how to disguise their personal desire to rearrange the world beneath their bootheel as the common weal, the looting of the treasury and the common weal as optimal policy, and their immunity from justice and the law as necessary for peace and order.

They accomplish this by the systematic and organized bribing, corruption and ownership of public discourse and the so-called discipline of economics.

In the post-WWII era it became obvious that who-so-ever formulated the intellectual tools politicians use to set policy determines the course of governance to a far greater extent than any politician could. Because the ghostly hand of Kenyes guided all the western world.

At this point, people noticed that endowing university chairs is much cheaper than winning elections.

And so economics died as an academic discipline.

Nothing. Absolutely nothing which has been written in economics since Keynes died should be trusted without massive piles of real world evidence backing it up. If an economist says the sun is shining, look out the window to check.

If this sounds like the rantings of a paranoiac? Yes. I am aware. It is unfortunately also true. This isn't a secret conspiracy. The heritage foundation and all the other conspirators have webpages and press releases where they brag about what they are doing.
It's a chutzpah conspiracy. Where people don't give in credence because it is fracking audacious.  

by Thomas on Sun Jun 1st, 2014 at 08:58:11 AM EST
[ Parent ]
I wonder if Thomas Piketty has broken the logjam on that?

People are talking about economics. OK, relatively few people are reading his book, but for example : I was in New Zealand two weeks ago, and he was on the cover of the widest-circulation magazine (and the articles were quite good). The fact that he has expounded some simple ideas, which have strong moral overtones, and that the high priests of economics are reduced to hand-waving and bluster, will surely bring more people to seriously question their unquestionable orthodoxy.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Sun Jun 1st, 2014 at 12:00:10 PM EST
[ Parent ]
Hand waving and bluster has worked so far.  I don't see why it won't continue through the near term.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sun Jun 1st, 2014 at 12:45:49 PM EST
[ Parent ]
Historical patterns suggest that Keynesianism is the last tool governments reach for when in social emergencies, such as the financial crash following Lehman Bros. Keynsianism is then practiced, grudgingly, minimally, half-heartedly. It saves the day and yet as soon as it is put into action the usual chorus of howls from the rentier class sabotages the policy by moaning about the trade deficit or national debt, so as soon as possible the policy is abrogated and we go back to predatory capitalism-as-usual.

The social and economic results are unmistakably positive, yet the bulk of the spending has been to the military, or equally stupid short-term myopics such as saving GM (without insisting they switch to turbine rotor making and all-electric transport).

That same money if dedicated to wifi broadband rollout, better public transport and a marshall plan for renewables would have done much more than it did to encourage employment and prosperity, even at the stingy, minimalist, half-throated levels it was given.

The more I think about it, it seems as big a no-brainer as acknowledging the earth rotates around the sun, (the resistance to its acceptance is at least as robust), and will one day this resistance will seem equally absurdly illogical (as well as a massive conflict of interest).

The repellent method in which fiat money is created can only be condoned and redeemed by social democracy implementing government counter-cyclic spending to keep unemployment from getting too high, otherwise wealth is increasingly sucked into the maw of high finance and away from welfare services, pensions, and credit/loans to small and medium sized business.

Otherwise it's Wall Streets and Walmarts all the way down...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Jun 3rd, 2014 at 03:44:43 PM EST
David Graeber: "Spotlight on the financial sector did make apparent just how bizarrely skewed our economy is in terms of who gets rewarded" - Salon.com

After my piece came out, for instance, The Economist rushed out a response just a day or two later. It was an incredibly weakly argued piece, full of obvious logical fallacies. But the main thrust of it was: well, there might be far less people involved in producing, transporting, and maintaining products than there used to be, but it makes sense that we have three times as many administrators because globalization has meant that the process of doing so is now much more complicated. You have computers where the circuitry is designed in California, produced in China, assembled in Saipan, put in boxes in some prison in Nevada, shipped through Amazon overnight to God-knows-where... It sounds convincing enough until you really think about it. But then you realize: If that's so, why has the same thing happened in universities? Because you have exactly the same endless accretion of layer on layer of administrative jobs there, too. Has the process of teaching become three times more complicated than it was in the 1930s? And if not, why did the same thing happen? So most of the economic explanations make no sense.

All true, and very correct about the universities, but there's got to be an official-if not economic-explanation for why we didn't get this Truly Great Thing that everyone was expecting not all that long ago. Like: Keynes was all wet, or such a system just wouldn't work, or workers aren't educated enough to deserve that much vacation, or the things we make today are just so much better than the things they made in Keynes' day that they are worth more and take more work-hours to earn. There must be something.

Well, the casual explanation is always consumerism. The idea is always that given the choice between four-hour days, and nine or ten-hour days with SUVs, iPhones and eight varieties of designer sushi, we all collectively decided free time wasn't really worth it. This also ties into the "service economy" argument, that nobody wants to cook or clean or fix or even brew their own coffee any more, so all the new employment is in maintaining an infrastructure for people to just pop over to the food court, or Starbucks, on their way to or from work. So, sure, a lot of this is just taken as common sense if you do raise the issue to someone who doesn't think about it very much. But it's also obviously not much of an explanation.

First of all, only a very small proportion of the new jobs have anything to do with actually making consumer toys, and most of the ones that do are overseas. Yet even there, the total number of people involved in industrial production has declined. Second of all, even in the richest countries, it's not clear if the number of service jobs has really increased as dramatically as we like to think.  If you look at the numbers between 1930 and 2000, well, there used to be huge numbers of domestic servants. Those numbers have collapsed. Third, you also see that's what's grown is not service jobs per se, but "service, administrative, and clerical" jobs, which have gone from roughly a quarter of all jobs in the `30s to maybe as much as three quarters today. But how do you explain an explosion of middle managers and paper-pushers by a desire for sushi and iPhones?



'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Wed Jun 4th, 2014 at 12:40:06 AM EST
No time for extensive comment now, but it is really quite galling that Graeber of all people should accuse others of "obvious logical fallacies"! :D

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Jun 4th, 2014 at 01:21:03 PM EST
[ Parent ]
I'd certainly like a hint where you see Graeber's obvious logical fallacies. At least his book read perfectly coherent.
by generic on Wed Jun 4th, 2014 at 01:42:21 PM EST
[ Parent ]
Are you serious? This is the guy who knows absolutely nothing about the economics of credit, despite writing a book which was actually even named "Credit"!

To boot, he was arguably the guy who willingly and knowingly destroyed the "Occupy Wall Street" movement, relegating it to eternal obscurity instead of forming the basis for a populist revolt against economic inequality.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Jun 4th, 2014 at 01:46:58 PM EST
[ Parent ]
Also, please enjoy this article, where Graeber manages to completely misunderstand the banking system, despite the article being about a "banking for dummies" release from the Bank of England...


Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Jun 4th, 2014 at 01:50:06 PM EST
[ Parent ]
That reads like bog standard endogenous money Post - Keynesianism if you take out the details and try to make a point.
And I remember Occupy being destroyed by synchronised DHS raids. I doubt Graeber ran those.
by generic on Wed Jun 4th, 2014 at 03:20:48 PM EST
[ Parent ]
Um, specifics, please?

As far as I can tell, his understanding is perfectly sound.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 4th, 2014 at 06:36:12 PM EST
[ Parent ]
Everything Graeber wrote is consistent with what I learned in Perry Mehrling's Money and Banking course.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 4th, 2014 at 10:24:53 PM EST
[ Parent ]
The explanation is that increasing productivity necessitates the creation of "ancillary services" to keep people employed. This is what Kalecki called "overhead and ancillary wages".

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Jun 4th, 2014 at 03:14:14 PM EST
[ Parent ]
And let us not dwell on the increasingly large portion of gains from increased productivity that go to capital. People might get the wrong idea. As John Stuart Mill noted long ago, justifying capitalism on the basis of its ability to create wealth neither says nor implies anything about how that wealth is distributed. But the capitalists see it as a 'law of nature' that those who make the money get to decide how it is distributed, to the extent that it is distributed at all and regardless of the consequences of the distribution that they make.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 4th, 2014 at 03:54:37 PM EST
[ Parent ]
I suppose that the reason that there is no crushingly argued paper detailing just how "overhead and ancillary wages" ate up ALL of the gains in productivity for the bottom 80% of the workforce is that the prospect of being able to do so is laughable, even to 'Mainstream' economists. Best just to keep quiet about increasingly skewed income distribution - damn Pikittey!

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 4th, 2014 at 05:23:00 PM EST
[ Parent ]
Two things tend to get conflated, as I see it: Money and physical resources.

It is a crime when money is scarce, there should be an adequate provision of such to allow the economy to function at full capacity.

That being said, a completely different reasoning should be applied to natural resources: here scarcity can be real. The "Keynesian" inflation of the first oil shocks had nothing to do with keynesian policy, it was because there was real scarcity of a resource and, naturally, inflation ensued.

In my view (someone with little knowledge of economic history) the oil shocks set the stage for the attack on Keynes. Both sides, I believe were wrong: It was not a problem caused by Keynesianism. BUT, there is nothing that Keynes seem to have to offer to solve this problem. Indeed there might be no real solution to this problem: if a resource is scarce, access to it will be problematic. No economist can solve that (only mitigate it).

Even in a sound economy, resource scarcity can happen. And because of this conflation between money and resources it seems that keynesian economists tend to not discuss resource scarcity very much (one cannot print oil).

by cagatacos on Thu Jun 5th, 2014 at 10:47:34 AM EST
Keynesian economists - as opposed to the "crass Keynesian" saltwater types - very often discuss resource scarcity. They just don't cite Keynes on that subject, because Keynes didn't really have anything interesting to say about resource scarcity.

Keynes did not write the Economic Theory of Everything, after all.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jun 5th, 2014 at 02:01:05 PM EST
[ Parent ]
Keynes did not write the Economic Theory of Everything, after all.

Keynes is mainly (but not exclusively) about the business cycle, and how it can be managed. This might sound like just a small thing - it is not.


Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Jun 24th, 2014 at 07:11:55 PM EST
[ Parent ]
It is a crime when money is scarce, there should be an adequate provision of such to allow the economy to function at full capacity.

so few people get this point. I wonder: do people outside of Germany understand this point? I remember a few years ago I was having lunch with a guy from Greece...and he was complaining to me about inflation!
I was speechless.  

by rz on Fri Jun 6th, 2014 at 03:46:25 AM EST
[ Parent ]
Two things tend to get conflated, as I see it: Money and physical resources.
Follows straight from the frame money as a thing.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jun 6th, 2014 at 04:52:24 AM EST
[ Parent ]


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