Alternatives to Keynes or Austerity
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M
morganist
This is the suggestion I made.
http://morganisteconomics.blogspot.co.uk/2012/09/i-had-this-published-at-huffington-post.html
If Keynesian principles are necessary and prudent stave off a recession, why aren't they heeded to restrain booms? Remember, during periods of strong growth, Keynesians are supposed to hike interest rates and run surpluses. Whatever happened to that? Oh, right. Politicians forget the discipline part and focus on cheap money. That's the entire point: Keynesian economics works in theory, not practice. In practice, it's machinations are corrupted by Politicians and Central Bankers who abdicate the pain to keep themselves, and their friends, in a job.
The question is what to do? Let the economy heal itself. Unfortunately, much larger structural problems were concealed by decades of cheap credit. The real answers are unpalatable: institute big tariffs against third-world producers, slash income and corporate taxes, deregulate, radically shrink the size and scope of Government, balance the budget overnight, end public sector unionization, end all bailouts, let the banks fail. None of those measures will see the light of day. The "solution", bare minimum, is to withdraw currency debasement, and let the economy find it's natural equilibrium. The problem, is that this equilibrium point is more than 20% GDP less, than where we stand today. No politician wants to touch that, nor does Congress.
Bill Gross said the US Dollar will collapse if America continues down this financial path. There's a huge contingent that agree with him.
The answer to your question is simple: Let the Free Market WORK.
When it's allowed to work, huge portions of America will find itself broke, penniless, jobless, and realize it's been lied to for the past 2 decades.
The question is what to do? Let the economy heal itself. Unfortunately, much larger structural problems were concealed by decades of cheap credit. The real answers are unpalatable: institute big tariffs against third-world producers, slash income and corporate taxes, deregulate, radically shrink the size and scope of Government, balance the budget overnight, end public sector unionization, end all bailouts, let the banks fail. None of those measures will see the light of day. The "solution", bare minimum, is to withdraw currency debasement, and let the economy find it's natural equilibrium. The problem, is that this equilibrium point is more than 20% GDP less, than where we stand today. No politician wants to touch that, nor does Congress.
Bill Gross said the US Dollar will collapse if America continues down this financial path. There's a huge contingent that agree with him.
The answer to your question is simple: Let the Free Market WORK.
When it's allowed to work, huge portions of America will find itself broke, penniless, jobless, and realize it's been lied to for the past 2 decades.
Not to mention the fact that recessions are CAUSED by monetary restraint neccssary to cool the inflation caused by Fed/Gummint excesses with money...
True. Solving problems it creates? Worthless and destructive.
Really, the market should set interest rates. The Fed shouldn't exist. The price of money would be determined by supply and demand. As demand rises, the cost of money increases, exerting a negative feedback loop on overheating conditions. As demand falls (recession), money becomes plentiful and cheap (stimulative) etc. That assumes a fixed or quasi fixed money supply. Doesn't really work under fractional reserve banking, where one conjured loan satisfies as collateral on another banks sheet to leverage more debt against it.
M
morganist
I thought keynesians were more about maximising employment.
Same old story... GREED! Trying to "get something for nothing".
No, the chief objective of Keynesian economics is to smooth out the business cycle. Which indirectly, is supposed to maximize employment. As Scat mentioned, instead, they exacerbate the business cycle.
In practice, the FED has a dual mandate which is contrary to the Keynesian principles they invoke when it's convenient for them to do so: 1) strong dollar and 2) strong employment. Congress and the Executive hold the other side that equation (in theory), and are supposed to run deficits during bad times (check), but surpluses during good (nope). The Fed is supposed to lower rates during bad times (check), and hike them during good (nope). This is the schizoid "policy" our leaders subscribe too. In reality, they're only Keynesians when it's convenient for them to be Keynesian. When the hard part comes, neither the Congress or FED hold up their end of the bargain so we get these repetitive asset bubbles/busts that are extremely destructive to the economy, and ironically, the "dual mandate" the FED is chartered to uphold (strong employment). What's going on here is Congress and the FED operate off a very short time horizon (2 or 4 year Congressional or Presidential cycle), and vote for monetary policy that benefits their reelection chances, not in the best interest of the nation or the economy!! This is no different than the quarterly or semi-annual time horizons adopted by Wallstreet Executives, that in retrospect, encouraged reckless risk taking. Sound familiar? The same mentality that's infected Wallstreet has infected Congress and FED. This is why Keynesian economics does not work. The "hard part" is never implemented because bureaucrats always vote to keep themselves in a job, rather than do what's best for the Country! So now, we're run by cowards who've exchanged short-term gain for long-term pain. Sound familiar? Offshoring? Social Security? Medicare? This is the entire political mantra of the last 50 years.