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In case anyone was wondering, the stupidity of the inflation predictors is carrying on without a single second's concern for reality. Matt O'Brien gives a good summary of exactly why people might continue making those same arguments, despite their theories having been completely and utterly wrong for the last four years;

http://www.theatlantic.com/business/archive/2013/07/the-derp-and-fall-of-inflation-fearmongers/277347/

Noah Smith then did a nice job expanding on it in his own blog;

http://noahpinionblog.blogspot.com.au/2013/07/do-inflationistas-really-believe-what.html


Basically, there's all kinds of people who continue to argue against quantitative easing, for a wide variety of reasons, but never to do with recognising what actually happeneall pushing stuff that everyone should know by now just doesn't like up with reality, charlatans, cranks and conservative economists.

The strangest and silliest of the groups are the charlatans. These are the guys who trade on the line between populism and economics, where fact checking is near to non-existant. Faced with their predictions failing entirely, they've either decided that inflation is high, but official rates are lying (Niall Ferguson) or official rates don't matter because it feels like bread and milk is more expensive, even when it isn't (Erick Erickson). Krugman calls these guys the residents of Outer Derpistan and says they're harmless, and have no impact on anything at all.

Then there's the cranks - the Austrians and the gold bugs and everyone else who's attached to a very strange, populist view of economics. These are the guys who spent the last four years shouting 'ha ha look at the gold price, that proves the real rate of inflation and the coming bubble"... only to see gold drop 25% in a few months, because inflation isn't about a single commodity, you idiots.

Then there's the hedge fund owners and other money managers who made big bets on high inflation four years ago (these bets are called widowmakers, named after the Japanese speculators who made bets that inflation will soar in response to Japanese money printing during the lost decade only for those bets to go really bad and turned a few wives in to widows). Basically, these people have since responded in two ways. The first are the ones who see they got their bet wrong, don't really get why and are now pissed at the Fed for what they conclude must have been cheating. The second lot are basically carrying on as if they were never wrong, making the same claims about inflation, trying to continue their appeal to old investors who instinctively like hearing about the perils of easy money... but note that while their rhetoric hasn't changed, they're sure as hell not making those same inflation bets again.

Finally, there's the conservative economists, and note that's small c conservative. This is the realm of folk who've rose up in the wake of the 70s stagflation, and have spent their careers working with neo-classical economic models. This group is probably the biggest disappointment, and the biggest problem, because it's full of people with otherwise respectable careers, O'Brien mentions Marty Feldstein, and Smith mentions Steve Williamson. These are guys with good economics records, who's economic frameworks just don't work for this current problem. Unfortunately, professional pride finds a place, and these folk don't back down. As a result, they've basically side-stepped how completely wrong they were to argue against printing money because it will cause inflation, to now arguing against printing money because stability. Which sounds like it means something, but doesn't.



Anyhow, if you've ever wondered why economics seems about as useful as soothsayers reading chicken entrails, it's because economics is deeply, deeply mired in politics and money.

I wonder why this thread isn't full of the usual suspects like the IRS and Trayvon Martin thread?

 Easy E wrote:
I wonder why this thread isn't full of the usual suspects like the IRS and Trayvon Martin thread?

If only there was a way to link austerity to Benghazi...

a good thread... if you can call something about such a depressing subject, involving millions of people losing out for years, good.

this is old, but it's an intriguing debate chaired by the Beeb's Paul Mason, where supporters of Maynard Keynes take on supporters of Friedrich Hayek, one of the poster boys for the austerity movement.

http://www.bbc.co.uk/programmes/b012wxyg

I'm just going to point out that the last chapter on the last 5 years of US' monetary policy hasn't been written; what the economic reaction will be when the Fed does taper and extracts itself from the market. I'm a believer in America and that we'll continue to be a powerful, growing economy, but claiming 'victory' over some school of thought or another while we still don't know the entirety of our own 'score' is premature and a number of prominent money managers have made this observation before. And this is not an arguable point. We can argue over whether or not the extraction will be simple or complex, painless or painful, but nobody credible can actually say what, specifically, the outcome will be.

At this point, it's glaringly obvious that US is doing better than Europe but it's impossible to extract the role of government and poltics from how and why Europe is in the situation that it is now in. The austerity that has arisen there directly follows the profligacy (i.e. lack of austerity) of the very early 2000s. Various countries, most notably Greece--but now after the recent 'coming to light' of a massive amount of derivatives trades Italy entered into in the late 90s, seemingly with the intent of hiding their true balance sheet with the intent to fulfill the strictures of Maastricht and enter into the EU... Italy! This is no 'peripheral'-- these countries should never have had the prosperity that they enjoyed in the first place. They didn't know what to do with 'easy money', didn't know how to manage it, and so it was spent, unwisely, and althought much of the benefit went to the citizenry in the interim, the removal of that illusory wealth creates a whole host of problems for the people who became accustomed, perhaps even entitled, to it.

And that's the big warning for the economically Left; this is an entire continent, led by graduates of the most prominent academies and of the most technocratic backgrounds, with the best intentions and historical incentive to do well, and by and large they have got it utterly wrong. Forecasts, outcomes, fiscal, social, economic... the exalted party of noble technocrats, the 'academic elite', have not had success. Not Lagarde, arguing for austerity. Not Hollande, arguing for redistribution and confiscation, not Draghi, who it appears increasingly likely committed at least a minor fraud to get Italy into the EU...

This is argument for smaller government in my mind, not larger. If the EU commission could not be bigger than the market, there is no legislate-regulatory body that can be. The sum of individual actors aggregated into the market is simply too far beyond even very powerful individuals to 'control'.

I think Bernanke found success because he was simply riding the 'trend', so to speak, allowing the market to stabilize and rebound more quickly. Without his intervention, I think it's likely that the US would be in largely the same place... arguably a better place even, but the ride down would have been even more V-shaped and the bottom lower and rockier.

A compelling argument, in some ways. I have to say I found your use of "entitled" and "left leaning" to detract from your point quite a lot. None of the politicians in control in Europe during the boom years were particularly left wing.
"Entitled" I would say is entirely in your own head, and is insulting to the people living in these countries.

 sourclams wrote:

And that's the big warning for the economically Left; this is an entire continent, led by graduates of the most prominent academies and of the most technocratic backgrounds, with the best intentions and historical incentive to do well, and by and large they have got it utterly wrong.

Yes, an entire continent, but not an entire state. Being a member of the EU is not the same as being Georgia.

 sourclams wrote:
I'm just going to point out that the last chapter on the last 5 years of US' monetary policy hasn't been written; what the economic reaction will be when the Fed does taper and extracts itself from the market.

We do know the result of the Fed just hinting at tapering.


And we know the effect of that change in rates on investment, particularly housing, therefore...

I'm a believer in America and that we'll continue to be a powerful, growing economy, but claiming 'victory' over some school of thought or another while we still don't know the entirety of our own 'score' is premature and a number of prominent money managers have made this observation before.

No, really, the collapse of austerity is about as complete as it gets. Their predictions simply didn't happen, and the intellectual basis for their arguments disappeared.

Now, long term there'll be plenty more points of debate between folk on the economic impacts of deficit spending, and in different situations one side or the other will produce a stronger case. But on this particular issue, when facing a recession strong enough to hit the zero lower bound, there couldn't have been a more emphatic result.

At this point, it's glaringly obvious that US is doing better than Europe but it's impossible to extract the role of government and poltics from how and why Europe is in the situation that it is now in. The austerity that has arisen there directly follows the profligacy (i.e. lack of austerity) of the very early 2000s. Various countries, most notably Greece--but now after the recent 'coming to light' of a massive amount of derivatives trades Italy entered into in the late 90s, seemingly with the intent of hiding their true balance sheet with the intent to fulfill the strictures of Maastricht and enter into the EU... Italy! This is no 'peripheral'-- these countries should never have had the prosperity that they enjoyed in the first place. They didn't know what to do with 'easy money', didn't know how to manage it, and so it was spent, unwisely, and althought much of the benefit went to the citizenry in the interim, the removal of that illusory wealth creates a whole host of problems for the people who became accustomed, perhaps even entitled, to it.

You can't just roll up policy during recession and policy outside of recession and talk about them as if they were the same thing. I mean, yeah, sure, developed countries all over the world were too willing to run unsustainable budgets during the 2000s and before. And during that time you would have found me along side the rest of the deficit scolds talking about the need for serious long term changes to fiscal policy.

But if you hit a demand driven recession the rules change, and you really, really need government to expand its spending to prevent a downward spiral. This has been shown very, very clearly in the last four years. And then, once you've moved through recession it makes sense to start talking about fixing the deficit issue again.

This is argument for smaller government in my mind, not larger. If the EU commission could not be bigger than the market, there is no legislate-regulatory body that can be. The sum of individual actors aggregated into the market is simply too far beyond even very powerful individuals to 'control'.

Of coruse government action impacts on markets. I mean... central banks exist, and they are the primary factor in determining interest rates and inflation. And of course government spending impacts markets, because government spending is upwards of 20% of GDP in most countries - if they increase or decrease that we know it has a material effect on aggregate demand.

I think Bernanke found success because he was simply riding the 'trend', so to speak, allowing the market to stabilize and rebound more quickly. Without his intervention, I think it's likely that the US would be in largely the same place... arguably a better place even, but the ride down would have been even more V-shaped and the bottom lower and rockier.

That's been the call of the right wing for generations - that letting the collapse happens just means it will happen quicker, and therefore recovery will happen quicker. There's never been a single piece of evidence produced to indicate it works, though.

And more than that, it just doesn't make intuitive sense. I mean, ask a sky diver if hitting the ground harder means he's back up on his feet quicker.

 whitedragon wrote:

 Easy E wrote:
I wonder why this thread isn't full of the usual suspects like the IRS and Trayvon Martin thread?

If only there was a way to link austerity to Benghazi...

ZING! Good one!

Sebster: Good thread... keep 'em coming.

 sourclams wrote:

And that's the big warning for the economically Left; this is an entire continent, led by graduates of the most prominent academies and of the most technocratic backgrounds, with the best intentions and historical incentive to do well, and by and large they have got it utterly wrong. Forecasts, outcomes, fiscal, social, economic... the exalted party of noble technocrats, the 'academic elite', have not had success. Not Lagarde, arguing for austerity. Not Hollande, arguing for redistribution and confiscation, not Draghi, who it appears increasingly likely committed at least a minor fraud to get Italy into the EU...

And then there's Scandinavia, which comparatively speaking has cruised through the recession. Sure, we've felt the impact and people have lost their jobs, but by and large every Scandinavian country has weathered the storm quite nicely.

Insert obligatory "not enough population" argument here.

Here's a pretty little graph for people interested in government spending and infrastructure. And it even includes Australia!



Its a product of McKinsey Global, who have a wonderfully sinister name, or maybe not and I'm just playing too much Shadowrun Returns...

Anyhow, the study looked at how population and economic changes would need to be supported with new infrastructure, leading to a percentage of GDP each country would have to spend to properly support those changes. Which they then compared to how much each country actually spent. As you can see, Japan and Australia have historically overspent - Japan because of the Lib Dem pork barrel and the excesses of 15 years of attempted stimulus, and Australia possibly because of the mining boom (but that is just a guess... it's a 15 years average so it couldn't be the national broadband...).

But the rest of the listed countries all underspent according to their infrastructure needs by between 0.6 and 1.0% of GDP. And all I can is that right now debt is cheap as it gets and there is plenty of surplus labour, and you'd be mad not to expand the spending. But it doesn't happen.

sebster wrote:But the rest of the listed countries all underspent according to their infrastructure needs by between 0.6 and 1.0% of GDP. And all I can is that right now debt is cheap as it gets and there is plenty of surplus labour, and you'd be mad not to expand the spending. But it doesn't happen.

I am quite amazed that the US hasn't taken the opportunity to rebuild their entire interstate road system and supplement it with a series of light railways.

As a Swede I can only agree, our rail network is in desperate need of an upgrade, and has been for quite some time now.

 azazel the cat wrote:

sebster wrote:But the rest of the listed countries all underspent according to their infrastructure needs by between 0.6 and 1.0% of GDP. And all I can is that right now debt is cheap as it gets and there is plenty of surplus labour, and you'd be mad not to expand the spending. But it doesn't happen.

I am quite amazed that the US hasn't taken the opportunity to rebuild their entire interstate road system and supplement it with a series of light railways.

I don't know about the rest of the country, but here in Oklahoma the majority of people don't give a feth about public transit and right rail because only homeless drug addicts and welfare queens take public transit. Real people drive cars...

 azazel the cat wrote:
I am quite amazed that the US hasn't taken the opportunity to rebuild their entire interstate road system and supplement it with a series of light railways.

Air transport is increasingly less desirable, both for reasons of fuel costs and the general shittiness that is waiting around in an airport. Expansion to light rail as an alternative for medium distance trips is a terrific alternative (when in the US my wife and I were tipped off to take the Acura from Washington to NY, and it was a cheaper and all-around better option). And yet expansion of light rail is very limited.

There's also freight. Freight looked like a tech that was in decline, but a funny thing happened in the late 70s - it started expanding its share of total transport again. Further expansion to that network would take pressure off the road networks, and reduce the transport costs for business. It's an all around bonus. And yet expansion of the freight network is very limited.


Automatically Appended Next Post:

 d-usa wrote:
I don't know about the rest of the country, but here in Oklahoma the majority of people don't give a feth about public transit and right rail because only homeless drug addicts and welfare queens take public transit. Real people drive cars...

I read a hilarious piece the other week about rail was a liberal plot to make Americans more accepting of collectivism. Seriously. I mean, at some point we've just got to be honest and say the other side of this 'debate' just doesn't give a gak about whether things are actually practical, real world options, because they're far more interested in talking about political nonsense.

I'll see if I can find the article.

EDIT - that was easy. It was George Will writing for Newsweek. And if you think I was exaggerating above read the article http://www.thedailybeast.com/newsweek/2011/02/27/high-speed-to-insolvency.html

"...the real reason for progressives’ passion for trains is their goal of diminishing Americans’ individualism in order to make them more amenable to collectivism.

To progressives, the best thing about railroads is that people riding them are not in automobiles, which are subversive of the deference on which progressivism depends. Automobiles go hither and yon, wherever and whenever the driver desires, without timetables. Automobiles encourage people to think they—unsupervised, untutored, and unscripted—are masters of their fates. The automobile encourages people in delusions of adequacy, which make them resistant to government by experts who know what choices people should make."

 azazel the cat wrote:

sebster wrote:But the rest of the listed countries all underspent according to their infrastructure needs by between 0.6 and 1.0% of GDP. And all I can is that right now debt is cheap as it gets and there is plenty of surplus labour, and you'd be mad not to expand the spending. But it doesn't happen.

I am quite amazed that the US hasn't taken the opportunity to rebuild their entire interstate road system and supplement it with a series of light railways.

It's a shame we can't get the USA to invade the USA and then win the hearts and minds of the population by overseeing and paying for an extensive reconstruction of the countries infrastructure, whilst helping to set up and oversee free and democratic elections.

Or something.

 AlmightyWalrus wrote:
As a Swede I can only agree, our rail network is in desperate need of an upgrade, and has been for quite some time now.

Leave SJ alone!!

 azazel the cat wrote:

sebster wrote:But the rest of the listed countries all underspent according to their infrastructure needs by between 0.6 and 1.0% of GDP. And all I can is that right now debt is cheap as it gets and there is plenty of surplus labour, and you'd be mad not to expand the spending. But it doesn't happen.

I am quite amazed that the US hasn't taken the opportunity to rebuild their entire interstate road system and supplement it with a series of light railways.

You, me both... and I'm surprised that transport/shipping companies don't get on board either.

It's because "Save the Roads!" is not a very effective political drum to beat on to get votes in an election year. Sad, but true.

 whembly wrote:

 azazel the cat wrote:

sebster wrote:But the rest of the listed countries all underspent according to their infrastructure needs by between 0.6 and 1.0% of GDP. And all I can is that right now debt is cheap as it gets and there is plenty of surplus labour, and you'd be mad not to expand the spending. But it doesn't happen.

I am quite amazed that the US hasn't taken the opportunity to rebuild their entire interstate road system and supplement it with a series of light railways.

You, me both... and I'm surprised that transport/shipping companies don't get on board either.

While in sentiment, I kind of agree with you guys, I also agree and have noticed the trend that d-usa shared: Outside of major metro areas (LA, NY, Chicago) that have traditionally already been established as light rail, subway type towns, public transportation is heavily frowned upon.

The reason why long haul trucking is still fairly big, is that many of those guys go on routes that STILL do not have a rail depot to deliver freight goods, especially in the west. I personally think that the Interstate system needs work all over the place, not just those that are in high traffic big city areas. I mean, did you know that when Ike envisioned the Interstates, he had visions of WW3, where the US was the land of battles, and he wanted the ability to land aircraft on straight stretches of road, should the "natural" airstrips be taken?

 Tannhauser42 wrote:
It's because "Save the Roads!" is not a very effective political drum to beat on to get votes in an election year. Sad, but true.

People already forget the big spending bill in 2009 was all about "shovel ready" projects, that turned out not to be.

I'd be fine with a carefully and efficiently run $300BN physical infrastructure rebuild program, if it wasn't handled by the people who brought us shovel ready projects.

Amtrak is one of the most successful freight haulage companies in the world.

However I am against railways on the grounds that they tend to encourage the lower classes to move about the country.

 Kilkrazy wrote:
Amtrak is one of the most successful freight haulage companies in the world.

Seriously?

They barely own any track and have to rent track from freight haulers to use those lines.

http://nationalatlas.gov/articles/transportation/a_freightrr.html

Amtrak Express (reporting marks AMTK, AMTZ) provides small-package and less-than-truckload shipping among more than 100 cities. Amtrak Express also offers station-to-station shipment of human remains to many express cities. At smaller stations, funeral directors must load and unload the shipment onto and off the train. Amtrak hauled mail for the United States Postal Service and time-sensitive freight, but canceled these services in October 2004 due to minuscule profits.[77] On most parts of the few lines that Amtrak owns, trackage-rights agreements allow freight railroads to use its trackage.

from: http://en.wikipedia.org/wiki/Amtrak#Freight

They are not a real freight hauler by any stretch of the imagination.

You need to read The Economist on the matter rather than wikipedia.

You need to realize AMTRAK is not a freight carrier.

EARLIER this month, the New York Times's "Freakonomics" blog asked a panel of experts whether Amtrak, America's government-run passenger rail company, could "ever be profitable".

From The Economist: http://www.economist.com/blogs/gulliver/2012/01/amtrak

That Economist link makes the point quite neatly about the silly way in which some, and only some, public infrastructure is picked out as needing to be profitable. Nobody ever worries about the hundreds of billions invested in roads that don't make a profit.

But put down a train line and a carriage and everyone freaks out that it needs government money. Weird. And the kind of weird that can only really make sense when you realise that a lot of people think stupid gak like this "...the real reason for progressives’ passion for trains is their goal of diminishing Americans’ individualism in order to make them more amenable to collectivism."

fishy bob wrote:

 AlmightyWalrus wrote:
As a Swede I can only agree, our rail network is in desperate need of an upgrade, and has been for quite some time now.

Leave SJ alone!!

SJ has nothing to do with this, it's Trafikverket (former Banverket) who haven't been perfoming very well, but in the end it's due to a looooooooong period of funds-cutting and a refusal by the goverment (both the left and the right) to pay for the maintainance of the rail network. It's not free.

Okay, so, I'm no economist, but I think I've pricked through the technical terms to figure out the basics of the Keynesian vs austerity debate, or at least the Keynesian side of it.

Let's if I get this right:
1) In any country's economy there are two players: the market/industry, and the government.

2) An economy can either be running well, with interest/return on investment rates up, and the markets/industry making and investing money and stuff, or it can be in bad straits, with jobs going out the window, people and companies stopping to invest money, etc. The latter situation can, it seems to me, turn into a bit of a vicious circle.

3) In the former situation, government austerity is not a drawback, and can arguably be a good thing, since the market/industry puts enough money into circulation to pick up the government's slack, while the government gets to put up a balanced budget.

4) In the latter situation, government austerity can be a bad thing. Since the market/industry has stopped investing money jobs are being lost, people can't pay their bills and mortgages anymore, etc. No one in the business of making money is going to stick their head out to jumpstart the economy, because that costs money, so it's up to the government to pick up the slack. They need to actively put money into the economy until it's up and running on its own again.

5) If, instead, they go along with everyone else and tighten the belt for whatever reason, not only is the economy not being jumpstarted, the reduction of money flowing into the economy is now occurring on both sides of the equasion, and government austerity not only doesn't do anything to fix the problem, it may actively exacerbate it (though that's apparently still up for debate).

This is the Keynesian model, correct? I must admit, it has a certain balance and elegance to it that for some reason, I like.

A few questions/remarks/random thoughts:
Numerically/economically, this makes sense. However, my sense of justice is outraged. I'm very much under the impression that the economy (where appropriate) is in the dire straits it is because of unwise/corrupt/moneygrabbing investments by the top investors in the market/industry (y'know, dodgy mortgages, lending money to other unsavory practitioners, sluicing money away to offshore/ Cayman Islands accounts rather than reinvesting, etc), and the solution to fixing the mess corporate greed created inn the first place is to give the perpetrators (whether companies or individuals, I care not) who messed it all up more money. That's just wrong. Heads should roll.
This, I think (and this is pure conjecture on my part), is most likely the subconscious reason for austerity policies still being listened to/applied. People like the idea of the wrongdoer being punished. That austerity doesn't actually do so and may even be actively (again, unconfirmed) creating more victims is beside the point. Someone's being punished, and that's the main thing.

This one's a bit more of a hindsight is 20/20 deal, but may be applicable to the future: While the Keynesian model cures the symptom (at least in theory), would it not be a better idea to prevent the problem from occurring in the first place and put checks and balances in place to prevent corporate greed, with its inevitable shortsightedness, from ever again attaining the power/freedom to screw things up this badly?
Admittedly, this is very much based on the assumption that corporate greed is what got us in this mess in the first place, or at the very least that the mess wouldn't have been nearly as bad without it. I've been told that economies tend to be cyclical anyway, so a reversal of fortunes may not have been entirely avoidable.

Did that make any kind of sense?

Bran Dawri wrote:
Okay, so, I'm no economist, but I think I've pricked through the technical terms to figure out the basics of the Keynesian vs austerity debate, or at least the Keynesian side of it.

Let's if I get this right:
1) In any country's economy there are two players: the market/industry, and the government.

2) An economy can either be running well, with interest/return on investment rates up, and the markets/industry making and investing money and stuff, or it can be in bad straits, with jobs going out the window, people and companies stopping to invest money, etc. The latter situation can, it seems to me, turn into a bit of a vicious circle.

3) In the former situation, government austerity is not a drawback, and can arguably be a good thing, since the market/industry puts enough money into circulation to pick up the government's slack, while the government gets to put up a balanced budget.

4) In the latter situation, government austerity can be a bad thing. Since the market/industry has stopped investing money jobs are being lost, people can't pay their bills and mortgages anymore, etc. No one in the business of making money is going to stick their head out to jumpstart the economy, because that costs money, so it's up to the government to pick up the slack. They need to actively put money into the economy until it's up and running on its own again.

5) If, instead, they go along with everyone else and tighten the belt for whatever reason, not only is the economy not being jumpstarted, the reduction of money flowing into the economy is now occurring on both sides of the equasion, and government austerity not only doesn't do anything to fix the problem, it may actively exacerbate it (though that's apparently still up for debate).

This is the Keynesian model, correct? I must admit, it has a certain balance and elegance to it that for some reason, I like.

That's pretty much it. It gets a little more complicated because not every instance of poor economic activity is the same. In some cases declining employment can be driven by rising prices (due either to rising costs of materials or excessive inflation) - in these cases the worst thing you can do is print more money and undertake big deficits, as that would only exacerbate the problem. In a nutshell that's basically what happened in the 1970s.

The trick then, is figuring out what kind of economic problems you've got. And that can be a tough thing to figure out (though this recent GFC was dead easy), but it's made a lot harder by the number of people who reject the idea entirely.

A few questions/remarks/random thoughts:
Numerically/economically, this makes sense. However, my sense of justice is outraged. I'm very much under the impression that the economy (where appropriate) is in the dire straits it is because of unwise/corrupt/moneygrabbing investments by the top investors in the market/industry (y'know, dodgy mortgages, lending money to other unsavory practitioners, sluicing money away to offshore/ Cayman Islands accounts rather than reinvesting, etc), and the solution to fixing the mess corporate greed created inn the first place is to give the perpetrators (whether companies or individuals, I care not) who messed it all up more money. That's just wrong. Heads should roll.

Sure, it isn't fair, but economics is a system, not a morality play. Keynes famously said 'we have magneto trouble', and while that quote has lost a little impact over time, because we now understand Magneto as an X-Man villain instead of as a car part, the meaning is still there. What he's saying basically is that economics is a system, like a car engine, and when the car engine isn't working, you fix it. The economy is just another system and the same applies.

Before Keynes almost all writing about rise and fall of economies focused on the decadence at the height of the bubble. But ultimately none of that matters, and none of it is what caused the crash - 1929 didn't happen because people were buying stupidly expensive champagne, and its effects didn't linger for years afterwards because of that champagne either.

This, I think (and this is pure conjecture on my part), is most likely the subconscious reason for austerity policies still being listened to/applied. People like the idea of the wrongdoer being punished. That austerity doesn't actually do so and may even be actively (again, unconfirmed) creating more victims is beside the point. Someone's being punished, and that's the main thing.

I absolutely agree. Although I'd say it isn't just about someone else being punished, but a good old bit of self-flaggelation. It's the idea that society as a whole has been excessive, and now we must repent through suffering. And if you can get the moral high of repentance while it's someone else who suffers through joblessness...

While the Keynesian model cures the symptom (at least in theory), would it not be a better idea to prevent the problem from occurring in the first place and put checks and balances in place to prevent corporate greed, with its inevitable shortsightedness, from ever again attaining the power/freedom to screw things up this badly?
Admittedly, this is very much based on the assumption that corporate greed is what got us in this mess in the first place, or at the very least that the mess wouldn't have been nearly as bad without it. I've been told that economies tend to be cyclical anyway, so a reversal of fortunes may not have been entirely avoidable.

Did that make any kind of sense?

It makes great sense, and they're all good points you've made.

And yeah, it'd be great if we could avoid all this in the first place. But part of the problem there is that it isn't necessarily greed per se, but excessive optimism. It isn't really greed to put money in to an asset that's going to grow 20% in value every year, it's just what you're supposed to do in business. The problem comes when the market as a whole starts believing all these assets will just keep going up forever - then you get a bubble that's going to pop when everyone realises all of a sudden how ridiculously optimistic they've been.

That is, as you say, something we've been witnessing in economics for a very long time (tulips, anyone?) But there were controls put in place to limit these kinds of things - limits on how much companies could borrow compared to their assets, limits on what retail banks could invest in and other similar stuff. But that stuff slowly got pulled apart as the efficient market hypothesis* took hold and was used to convince politicians that all those controls were a leash on business. Also a factor was the development of derivatives and their part in creating a vast shadow banking complex, which evolved far quicker than regulatory bodies could possible adapt, if they'd even been willing to do so.


*The efficient market hypothesis is basically that while individuals may not have perfect information or be rational, the market as a whole removes that noise and acts as a perfect indicator of all publically known information. It works pretty well as a theory in some places, but has been way over-applied elsewhere.

 azazel the cat wrote:

sebster wrote:But the rest of the listed countries all underspent according to their infrastructure needs by between 0.6 and 1.0% of GDP. And all I can is that right now debt is cheap as it gets and there is plenty of surplus labour, and you'd be mad not to expand the spending. But it doesn't happen.

I am quite amazed that the US hasn't taken the opportunity to rebuild their entire interstate road system and supplement it with a series of light railways.

Our electrical grid and Broadband networks could use a lot of work too.