THE first financial big test for B Ob is what to do about General Motors in particular and the other wobbling companies in general. Let them fail, if the market wont fund them anymore or give them taxpayers money. Joe Sixpack could get stroppy about the latter alternative !!
I think that people here have a somewhat backwards understanding of Keynes. The only thing that has died recently is Friedman's monetarism which, despite what some of the self-styled libertarians may assume, calls for the extreme expansion of the money supply right now (Friedman thought that aggressive easing would have avoided the great depression). Bernanke has followed his and Shwartz's advice and it has clearly failed. Keynes saw only a minor role in monetary easing (hence why the monetarists disagreed with him) and instead argued in favor of fiscal stimulus. History has proven that fiscal stmulus is the best way of fighting a depression. Germany and Japan pursued fiscal stimulus in the early thirties and came out of the depression far earlier than anyone else, and strong enough to almost take over the world. Japan in the 90s pursued monetarist policies (attempt to reinflate the money supply with negative real interest rates) and failed. The USA is now in the same position. Keynes foresaw this failure and called it the liquidity trap. So, despite what Murray Rothbard or whoever you read might try to tell you, Keynesians are not into printing money - they are into deficit spending - two very different things. There are basically 3 ways to approach the current problem: 1) Monetarist - print money like there is no tomorrow, re-inflate asset values as quickly as possible 2) Keynesian- deficit spending to raise employment and sustain aggregate demand 3) Austrian - liquidate bad debts, allow insolvent institutions to fail, reduce the overall debt-load and start over from a sound base. While the Austrian solution sounds good in theory, the danger is that once you willingly start a deflationary spiral, it is very hard to stop, and no one knows where it will end. Starting from a sound foundation might not seem so appealing when that foundation looks like something out of Mad Max.
Its funny. we heard from all three 'schools' of economics and ALL THREE of them claim the empirical evidence supports their case. Heck I'm surprised the marxisits havent chimed in to claim they also so right. What does that tell us?People look at history and try find cases that support their cases, virtually nobody is immune to biases
Hey wait a minute! Isn't that what Thatcher used to break the unions and set Britain on the road to wealth? also, Reagan was a fan of this school...?Meyes not sure the theorists' name. In a nutshell, "survivor of the fittest"....Reagan brought the airline pilots to their knees....now I'm not aligning myself with this ideology, just chiming in....what else is there to do at 5:00 a.m.? (besides, you know what!)
just to clarify a bit more, the Keynesian solution is not to "bury people in debt again", at least not private debt. The Keynesian solution is to jumpstart business through government borrowing and government employment. Rather than targeting credit through the banking system, it targets income and spending directly through government employment. The idea is that when the economy is in the dumps in your area, 1)the federal government borrows the money (by issuing treasuries, at VERY low interest right now) to rebuild the local highway 2) The local unemployed construction workers are hired for the job, as are engineers, and local firms get contracts to help 3) those people who would have sat around unemployed get paid, go out in the community and shop at the stores, buy a new car, etc, etc, 4) those people in the secondary businesses see their incomes increase, and they go to other businesses and buy things. 5) as the velocity of money increases, those secondary businesses start hiring to meet demand, and wages start to climb 6) by the time the road has been rebuilt, there are jobs waiting for the construction workers to expand commercial businesses and build homes for the people who are now making good income again 7) as business grows, in part thanks to the new infrastructure that lowers their transportation costs, eventually the tax revenue generated by the businesses and incomes in the area pays off the debt for the road rebuilding project, and now everyone is employed and has a nice new road, problem solved That's how it works in theory anyway. The only part that doesn't work in reality is that once the good times are rolling again, everyone votes to give themselves a tax cut instead of paying off the debt. On the other hand, the Monetarist solution looks like this: 1) central bank lowers rates 2) consumers take on loans to buy things because they are attracted by the low interest rates, businesses expand because the cost of financing is cheap 3) personal consumption and business investment increases demand, and raises revenues and incomes at local businesses 4)local businesses hire more people to meet demand and expand 5) businesses can't find enough employees to meet demand, so wages start rising 6)as wages rise, the price of goods rises, aka inflation 7) the central bank raises rates to slow down business and consumption, slowing wage increases. prices and employment stabilize at a new (hopefully optimal) equilibrium As with Keynsian solutions, it's the last bit that we never follow (ie greenspan keeping rates low for too long) leading to excess debt continuing to be created and inflationary bubbles. The other problem is that because it is indirect (depends on banks to lend, and consumers to borrow rather than government hiring) it doesn't always work, like right now when the USA is in a liquidity trap (when banks won't lend and consumers don't want to borrow, even with low fed funds rate). That's why almost every serious economist in the world right now has given up on the idea that the problem can be solved by credit at this point, and pretty much every major country in the world is preparing to implement some sort of fiscal stimulus plan. "we are all Keynsians now" is more true than ever. That's probably why it was so surprising to read that Keynsian economics is apparently "dead" according to this post on ET. Really, nothing could be further from the truth right now.
Maybe it's just that it's all a cycle and none of the systems are perfect and have a tendency to break down. I am of that opinion anyway, there's going to be flaws in everything and time's going to magnify them and eventually they'll ruin the whole system. Kind of like our bodies or a car or any other system.
That's a pretty good understanding of the situation right now except for :- 1. Boosting government employment is a false way to reduce unemployment and is done on credit, which will have to be paid back later. 2. Giving handouts to companies like General Motors will secure thousands of jobs at great expense and only temporarily 3. When the above workers are in employment and decide to buy household goods etc, They will probably buy goods made in Asia. Thus benefitting Asia even further at great expense. The West will imho have to bite on the bullet and only support those industries and companies that can become self supporting soon. The risk of rioting etc. is however great,
Uhm, There is still no real production. It's just credit sloshing around. You can build highways all day long, but without any real production, it's just fluff. Keynesian economics is nothing more than mis-information to keep normally smart people arguing like morons. Just like you guys are doing now. The whole nation is operating on borrowed money, hence borrowed time. Austrian economics has been pointing at the crux of the problem the whole time, central banksters. The fun times are over, kids. Get ready for a bumpy ride.