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Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]
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Thinking outside the box I really hope this article is tongue in cheek. If not (or even if so) then I have a better idea… just replace money with bananas and release several million monkeys into every major city. It will stop people and companies getting into debt because they have to be spent quickly before they go off or marauding monkeys steal them (what with monkeys being vastly more likely to act in a consistent manner than any government that has ever existed since the beginning of human history).
If science ever finds a away to expunge people from history and un-invent their ideas from people’s minds, making all books on the subject vanish into some dimensional tesseract, I would nominate John Maynard Keynes as the most pressing candidate for expungement.
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Who Are We? The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.
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Sadly, I don’t think it’s tongue in cheek. But two bits in particular made me smile :
1. where he talks about the methods of dropping cash into the economy without wasting fuel on helicopters. I don’t think I have ever seen a helicopter drop merchant suggest the easiest and most obvious method, which is absolutely guaranteed to ensure that the cash is distributed to every nook and cranny of he economy – simply not collecting taxes. I think that tells you all you need to know about where these fellows are coming from.
2. where he encourages governments to be bold and discard old fashioned caution, brushing off any worries about currency destruction and hyperinflation with an airy reference to how they’ve been pretty good at managing to avoid such calamities in the past. To the extent that they have been successful at warding off such evils in the past (and of course they have not always been so) perhaps that boring old caution might have had something to do with it ?
But what makes me smile most of all is to my usual reflection on new proposals of economic lunacy. Today’s lunacy would merely add to the countless lunacies already imposed on commerce by politics, which amount to a towering burden that one would think must be crippling. And yet the creature survives – and even thrives. What an extraordinarily resilient creature free market capitalism must be if it can survive all the lunatic schemes that are devised to hobble it.
In re. the banana proposal: see Larry Niven’s article “The Roentgen Standard“.
Is this really all that different from quantitative easing? Also, am I missing something or did Hadas counsel a massive expansion of the money supply while simultaneously criticizing low interest rates for punishing those who save? That seems inconsistent. I admit that I haven’t read Keynes directly, but my understanding was that Keynes did not argue that expanding the money supply wouldn’t lower the value of the currency, he only argued that — under certain circumstances — expanding the money supply would “kick start” growth so that there was little or no net loss of currency value. Do I have that wrong?
Lee,
Absolutely spot-on.
Governments could stop collecting taxes and simply print the money instead. (OK, I know: they don’t print money anymore. Rather, they create electronic credits. But you know what I mean.)
Indeed, if the problems of the global economy are being caused by too little money, it makes me wonder why so many politicians in Europe and the US actually want to raise taxes.
How many rounds of Quantitative Easing were there and did the Economy go into a boom cycle?
One of the reasons QE doesn’t work is local manufactures are not ready to satisfy demand resulting in demand being satisfied by imports, but I’m only a dumb Bogan, so what would I know.
Quite correct Perry.
As for the issue itself.
Money should not just be a medium-of-exchange – it should also be a store-of-value. Just because economic value is subjective does not mean it can not be stored – for example gold and silver have served this function for thousands of years (and for good reasons).
As for lending (borrowing) it should be financed (100%) by REAL SAVINGS – by the sacrifice of consumption.
Keynesianism denies all the above – and all the leading politicians (including the leaders of my own tribe – the Conservative Party) are Keynesians – and they are all wrong. Absolutely and totally wrong – not over details (such as whether the extra “demand” will be satisfied by imports or not) but over the central principle itself.
One does not build long term prosperity by expanding “demand” – by lending out money that no one has saved.
The whole revolt against “Says Law” is wrong – utterly and completely wrong.
I am no fan of Keynes but it’s my understanding that several things he advocated are ignored by those who serve in his name. For example, while he advocated increased government spending in down times (an awful idea), he also advocated the government saving during the good times (which would almost undoubtedly lead to extended periods of financial prosperity). As it is, the spend when it’s bad, spend more when it’s good mentality just leads to the boom and bust (with extended bust) cycles that we are seeing.
Unfortunately, it’s an ideological war that we have little chance of winning as it’s not about the correctness of the ideology but about finding an excuse to engage in behavior which directly and indirectly rewards those indulging in the behavior. Keynes was simply wrong but he has become a patsy for the corrupt.
Paul M : “Money should not just be a medium-of-exchange – it should also be a store-of-value”
But for how long ?
Money cannot serve as a medium of exchange unless it is already a store of value. Its use as a medium exchange depends entirely upon the holder believing that it will serve to store value long enough for him to get stuff in exchange for it in future. Of course, that allows for money that is a poor and leaky store of value – a currency that depreciates at 5% a year will serve perfectly well for users who expect to hold the money only for a few months, which is long enough for most medium of exchange uses. So money that is a poor long term store of value can still be usable as a medium of exchange. Indeed even in the German hyperinflation, until the final madness of the summer of 1923, the German people still used their marks for transactions. They just didn’t plan on hanging on to them for very long. For longer term stores of value – ie as long as a few weeks or months – they tried to get their hands on dollars, or at least consumer durables.
Anyway the point is that money as a medium of exchange depends on it being an adequate store of value. Once money fails to retain its value long enough to make it to the next exchange, it has ceased to be money.
Surely the criminal Hank Paulson and the retard Alan Greenspan should be expunged before anyone else.
Collectively, the Baby Boomers should ideally all be dumped into a pit of Ebola infected corpses.
Now how about?
Richard:
You make some fair points. Keynes was writing before the advent of the modern welfare state and the NHS. Government spending as a percentage of GDP was much smaller, and therefore a comparatively small boost in government spending during a recession would have a greater effect on the economy, the multiplier effect. However, since 1945, the modern welfare state is such that governments, even in good times, spend over 40% of GDP, and thus the boost of a bit of extra government spending during recessions has become almost imperceptible. I think the multiplier has ceased to function, and with it, the raison d’etre of Keynsian economics.
I have it in mind that Keynes himself said that governments should spend no more than 25% of GDP, and hence it is hardly surprising that his theory does not work when they routinely spend over 40%. Can anyone confirm that for me?
When I first heard of Keynes’ multiplier, it struck me as a ‘perpetual motion machine that accelerated’, i.e. not only defying the laws of physics, but mocking them too (mm for the laws of economics). The ‘multiplier’ is a reworking of Bastiat’s Broken Window Fallacy, what is seen and what is not seen, but getting it wholly wrong. Henry Hazlitt demolished Keynes so totally that one has to ask why anyone bothers to do so again.
Imagine, if you would, a mountain village, cut off by snow in winter, with dwindling supplies of food and fuel. If the Mayor proposes some government spending to ‘boost’ the economy, would that help? It might help the recipients of the money outbid others, but the productive capacity of the village remains as it was or worse, as resources are re-allocated by the (inedible) pork-barrel policy. If the multiplier works, at what point does it start? A village, a town, a county, a city, a province?
The multiplier assumes that the state gathering money and spending is more likely to generate economic activity than the same money left in the hands of the original owners. It also skates over the fact collecting it tends to destroy some of the wealth in the process, and blithely discounts the value of information held by the owners of the confiscated wealth lower down the pyramid of power that is not available the state.
It really is a weird theory, and for every bit of ‘wealth generating infrastructure’, there is also a bridge to nowhere, a largely empty ‘community centre’, a loss making stadium kept running with ongoing subsidies or some other white elephant boondoggle.
It is not just a bad idea, it has been demonstrated to be a bad idea countless times.
The mistake we make in arguing against Keynesian theory is to assume that our opponents’ motivation for supporting it is that they believe in it. This is no doubt true for some of the more gullible amongst them but the true motivation for those that count is that it’s an excuse for helping themselves to your wealth.
Richard:
If Keynes’s multiplier did ever work, the point I would make is that with states routinely spending 40% of GDP, it won’t any more. To that extent, Keynesianism is an obsolete construct. However, the point you make is valid, it is a mistake to think that the people advocating a Keynesian solution do so because they really think it will work.
You can no more debate economics with a Keynesian than debate principles of hospitality with Charles Manson.
A visual aid for the uninitiated.
Alisa:
To a large extent, I think Keynesian economics was based on a con. It sought to use government spending to counter a recession and reanimate the “animal spirits” of the markets. The people were meant to be conned that things were getting better, and so behave as if they were. The idea was that it would turn into a self-fulfilling prophecy.
It may or may not have worked at the time, but welfare state government spending is such that it is always spending and borrowing at full steam ahead, whether there is a recession or not. There is really no scope for “stimulus” or the multiplier effect to work. Unless you could get government spending in normal times down to the sort of levels that existed in Keynes’s time (and that cannot happen with a welfare state), then there is no point even discussing Keynesianism.
For me, the issue with Keynes is not whether he knew that he was talking nonsense, he seems clearly to have had the arrogance to permit himself to say whatever he wanted, confident that he would not be challenged by those who ‘mattered’ (the governing classes and their sycophants), but whether those who profess ‘Keynesian’ economics (in whatever form) in the present day actually fear that they are talking nonsense as they don’t quite understand what they are saying, or if they know that they are talking nonsense but it is their Shamanism that gets them a living so they carry on not expecting to be challenged.
Alisa, where do I get the hammer to break the glass? And where are the bandaids in case the glass scratches me? And what do I do then? And aren’t we supposed to be thinking outside the box, not breaking into it?
Indeed, JohnK.
I agree with Lee Moore: this article doesn’t seem to be tongue-in-cheek, but rather a serious attempt at economic “analysis”. As such, it’s among the stupidest things I’ve read in a very long time. I was tempted to post a snarky comment on the site, but then realized (1) I would have to register with the site to do so, and (2) it’s a Reuters News site. #2 means that the readership isn’t intelligent enough to be worth the bother of #1.
Re Keynes, he was worthless as an economist (his General Theory is an internally inconsistent hodge-podge of long-discredited ideas he’d salvaged from the garbage heap of economics) but a savvy investor (which is where he made his not inconsiderable wealth). He wasn’t stupid, and at the end I don’t think he actually believed his own theory himself (he was notorious for propounding some silly idea and then repudiating it soon afterward). I remember reading a (possibly apocryphal) story that late in his life he attended an economic conference, and afterward remarked that everyone there was a Keynesian but himself.
Keynsianism made no more sense in 1935 than it does today, but it had (and has) the virtue of giving politicians pseudo-intellectual cover for what they want to do anyway. Hence its refusal to die, notwithstanding all the stakes pushed through its undead heart by Hazlitt and countless others.
I think all you need to know about this article is in the second paragraph.
“Governments are reluctant to borrow more [money] because their balance sheets are stretched.”
On what planet is that true?
Fraser:
You’re right. I breezed right past that sentence, but it really does sum up the level the article is at, doesn’t it? The thing is, there’s a perspective from which that sentence actually makes sense. All you have to do is assume that nobody actually deserves whatever wealth they have (“You didn’t build that”), and then all the things that look like arguments against borrow-and-spend government start to look like arguments in favour of it. At that point, anything up to just shy of monetary collapse seems like responsible government.
First, create a vast sum of money. That is easy. Money is readily available in infinite quantities.
Now I think of it, I can’t remember a time I’ve seen Bob Mugabe and Edward Hadas in the same room.
lairdb, I loved the Niven piece! Thanks for the link — and the laugh.