Posted: Fri Dec 16, 2011 10:40 pm Post subject: A question about Keynesian Economics ?
A question about Keynesian Economics ? Keynesian Economics says to help get out of a recession a Government should lower interest rates and increase the money supply how does this help increase aggregate demand and consumer spending ?
A REVIEW OF KEYNESIAN THEORY
The cure for this, Keynes said, was for the central bank to expand the money supply. By putting more bills in people's hands, consumer confidence would return, people would spend, and the circular flow of money would be reestablished. Just that simple! Too simple, in fact, for the policy-makers of that time.
Joined: Apr 15, 2007 Posts: 9167 Location: Western Michigan
Posted: Sat Dec 17, 2011 12:17 am Post subject:
It seems like Keynesian stimulus is less effective today because we have a service economy with almost all industry shipped overseas. When the money supply is expanded a lot of it quickly goes into the pockets of giant multinational corporations that use it to create jobs overseas rather than at home. The dollars then end up in the hands of Chinese lenders. Only a fraction completes the circular cycle needed to spur growth.
Joined: May 12, 2007 Age: 43 Posts: 3584 Location: International House of Paincakes...
Posted: Sat Dec 17, 2011 12:25 am Post subject:
^^^ Exactly, our shitty unsustainable service economy and dependency on imported goods currently sucks about $498 billion per year in American wealth OUT of the American economy.
THANK GOD for the $1 trillion in government domestic deficit spending. Without that, we become a 3rd world hell hole twice as fast! _________________ If someone is able to show me that what I think or do is not right, I will happily change, for I seek the truth, by which no one was ever truly harmed. It is the person who continues in his self-deception and ignorance who is harmed.~Marcus Aurelius
Joined: Sep 22, 2008 Age: 76 Posts: 29275 Location: New Jersey
Posted: Sat Dec 17, 2011 4:32 am Post subject: Re: A question about Keynesian Economics ?
mikecartwright wrote:
A question about Keynesian Economics ? Keynesian Economics says to help get out of a recession a Government should lower interest rates and increase the money supply how does this help increase aggregate demand and consumer spending ?
A REVIEW OF KEYNESIAN THEORY
The cure for this, Keynes said, was for the central bank to expand the money supply. By putting more bills in people's hands, consumer confidence would return, people would spend, and the circular flow of money would be reestablished. Just that simple! Too simple, in fact, for the policy-makers of that time.
You left out the other half. When the economy heats up the some of the additional revenue is taxed off to repay the deficit. Keynsian economic is a form of negative feedback control used to stabilize the economy at a satisfactory level. It works like a thermostat. When the room gets too cold you heat it up and when it starts to get too hot you cut off the heat and let it cool some. That way the temperature is maintained between two set points (the high point and the low point).
Joined: Apr 15, 2007 Posts: 9167 Location: Western Michigan
Posted: Sat Dec 17, 2011 1:24 pm Post subject:
mcg wrote:
Wow. Mercantilism never dies.
Well, neoliberalism sure has worked like a charm. It's too bad you guys have absolutely no answer to the problem of unemployment. Other than "let them eat cake!"
I think my theory explains why the fed can print money like crazy without causing massive inflation. The trade deficit is the answer.
Last edited by marshall on Sat Dec 17, 2011 1:29 pm; edited 1 time in total
Joined: Sep 22, 2008 Age: 76 Posts: 29275 Location: New Jersey
Posted: Sat Dec 17, 2011 1:28 pm Post subject:
GoonSquad wrote:
^^^ Exactly, our shitty unsustainable service economy and dependency on imported goods currently sucks about $498 billion per year in American wealth OUT of the American economy.
THANK GOD for the $1 trillion in government domestic deficit spending. Without that, we become a 3rd world hell hole twice as fast!
Posted: Sat Dec 17, 2011 1:51 pm Post subject: Re: A question about Keynesian Economics ?
ruveyn wrote:
mikecartwright wrote:
A question about Keynesian Economics ? Keynesian Economics says to help get out of a recession a Government should lower interest rates and increase the money supply how does this help increase aggregate demand and consumer spending ?
A REVIEW OF KEYNESIAN THEORY
The cure for this, Keynes said, was for the central bank to expand the money supply. By putting more bills in people's hands, consumer confidence would return, people would spend, and the circular flow of money would be reestablished. Just that simple! Too simple, in fact, for the policy-makers of that time.
You left out the other half. When the economy heats up the some of the additional revenue is taxed off to repay the deficit. Keynsian economic is a form of negative feedback control used to stabilize the economy at a satisfactory level. It works like a thermostat. When the room gets too cold you heat it up and when it starts to get too hot you cut off the heat and let it cool some. That way the temperature is maintained between two set points (the high point and the low point).
ruveyn
Ruveyn is right.
You can only do Keynesianism if you are willing to tax and save during the good times.
If you decide to massively expand public & private debt at the same time until your financial system collapses in a debt crisis, you can't summon Keynes to defend issuing more debt to try and get yourself out of a debt crisis.
That isn't Keynesianism, it's just fantasy economics.
^^^ Exactly, our shitty unsustainable service economy and dependency on imported goods currently sucks about $498 billion per year in American wealth OUT of the American economy.
THANK GOD for the $1 trillion in government domestic deficit spending. Without that, we become a 3rd world hell hole twice as fast!
Joined: Dec 18, 2005 Posts: 14174 Location: Omnipresent
Posted: Sat Dec 17, 2011 3:58 pm Post subject:
M_P, good job with the interview. It's listenable, and also Dean Baker is sane and informed with good ideas. _________________ Plus Alpha-Atheistic anti-theist
Member of the WP Strident Atheists
http://www.wrongplanet.net/postt128417.html
Joined: Apr 15, 2007 Posts: 9167 Location: Western Michigan
Posted: Sat Dec 17, 2011 6:32 pm Post subject:
Master_Pedant wrote:
GoonSquad wrote:
^^^ Exactly, our shitty unsustainable service economy and dependency on imported goods currently sucks about $498 billion per year in American wealth OUT of the American economy.
THANK GOD for the $1 trillion in government domestic deficit spending. Without that, we become a 3rd world hell hole twice as fast!
Really, what has to happen to bring industry back is for places in the developing world to start consuming more relative to the US. I don't completely understand how targeting for higher inflation can positively affect this. It depends highly on what the consequences of an inflating dollar are for the Chinese economy. That depends on how the Chinese government reacts. It could be good or bad.
Joined: Jan 31, 2011 Age: 23 Posts: 5022 Location: in my own little tamarillo jungle,
Posted: Sat Dec 17, 2011 7:52 pm Post subject:
am i the only one that feels Keynesian economics fall far short of describing the global economics of today,
there are so many factors that has little to do with finance in itself. _________________ //through chaos comes complexity//
the scent of the tamarillo is pungent and powerfull,
woe be to the nose who nears it.
Well, neoliberalism sure has worked like a charm. It's too bad you guys have absolutely no answer to the problem of unemployment. Other than "let them eat cake!"
If America had no government-imposed wage floors, a 10-15% flat tax, and fewer regulations like Dodd-Frank, unemployment would be lower. Recessions would be short-lived as the economy adjusted to new price and wage equilibriums.
I already know you don't like this answer, so what is your solution to cyclical unemployment?
Quote:
I think my theory explains why the fed can print money like crazy without causing massive inflation. The trade deficit is the answer.
The US Treasury prints money, not the Federal Reserve. The Federal Reserve controls the amount of reserves banks are allowed to hold, but it does so via an electronic ledger. The additional reserves created by the Fed are not physical dollars stored in a bank vault. Inflation has been tame because banks aren't turning the increased reserves into loans. So far the only inflationary activities the Fed has undertaken are open-market operations.
Joined: Oct 17, 2009 Age: 45 Posts: 5754 Location: Vancouver, BC
Posted: Mon Dec 19, 2011 1:13 pm Post subject:
Telekon wrote:
If America had no government-imposed wage floors, a 10-15% flat tax, and fewer regulations like Dodd-Frank, unemployment would be lower. Recessions would be short-lived as the economy adjusted to new price and wage equilibriums.
I already know you don't like this answer, so what is your solution to cyclical unemployment?
Utter nonsense.
Employers create jobs for one reason, and one reason only: to create products or provide services that can be sold. If I am operating a convenience store, then I need to have 336 person hours (that's 8.4 FTEs) of staff to keep my store open 24 hours a day, seven days a week. But if so few people come into my store between midnight and 6 am that my sales don't exceed my costs, then I will look at cutting 84 person hours. That's a savings of 2.1 FTEs, or one quarter of my labour cost.
Suppose I am in manufacturing. If I have orders for a thousand dozen widgets, then I need a team of widget makers. If I have orders for ten-thousand dozen widgets, I need a bigger team of widget makers and I will start hiring. If my order book falls back to five thousand widgets, then I need to start retrenchment. Now, of course, in manufacturing I also have the option of continuing production during slack demand, storing the goods and then selling them when the market picks up. This is a gamble, because I am now investing in stock, with no assurance of sale.
Abolition of minimum wages does not create employment. Demand for goods and services creates employment. Similarly, minimum wages do not inhibit employment, but rather oversupply of goods and services. Think about where minimum wage jobs are found--the bulk of them are found in retail, in food service and hospitality and in commodities production. The first two are sectors that are highly responsive to consumer spending, the third is subject to high price volatility. 70% of the United States economy is fuelled by consumer spending. When consumers have less money to spend, there is less demand for goods and services, and so employers require fewer employees to meet that demand.
Now, I don't disagree that cost of labour is a significant cost of doing business. But all costs are passed onto consumers, and minimum wages are universal costs that affect all players in the same marketplace equally. The existence of minimum wages is neutral to employment unless minimum wages are set at a level where they cause the cost of production to exceed the price that can be realized in the marketplace. So the issue is not whether or not to set minimum wages, but rather the appropriate level at which to set them.
Similarly, tax neither creates nor inhibits employment. While excessive taxation can affect the liquidity of business and the available dollars in the consumer market, these are indirect impacts of taxation. What flat tax most assuredly does, however, is extract money from consumers because of its regressive nature. A low income earner spends much more money on non-discretionary items (shelter, food, etc.) If low income earners--who largely have effective tax rates of zero, are subjected to 10-15% tax burdens, that is an enormous amount of discretionary spending capacity that is destroyed in an instant.
Meanwhile, high income earners will take home more money--but what will they do with it? Will they spend it? Experience tells us they will not. They will save it or invest it. But where will they invest it? Certainly not in the domestic market, because the drop in consumer spending will mean that there is no capacity for growth in the domestic market, so the result of flat tax would be, I suggest, a significant outflow of capital towards foreign investment opportunities.
It is only when you come to the issue of regulation that you finally come to an area where there may be a meaningful impact. But I suspect you will find that a careful review of regulation will demonstrate that the greatest negative impact of regulation is to mandate the creation of unnecessary employment rather than the prohibition of creating economically necessary employment. Consider my convenience store. I need 336 person hours because workplace health and safety regulations prohibit any worker from working alone. So I need to have two people in place, all the time, even if there is only enough business at a given time to occupy one. But before casting workplace health and safety to the four winds, it's worth examining first whether that regulation accomplishes something that is worth the economic cost of "unnecessary" employment. _________________ --James
