Keynesian Economics Is Hot Again

https://www.bloomberg.com/view/articles/2017-04-10/keynesian-economics-is-hot-again

by mpweiher • 9 years ago

85 83 9 years ago

qubex7• 9 years ago

I read economics at the very epicentre of Keynesianism (LSE) in the heady years in the overheated run-up to the Great Recession (1999-2003), but I must say that there was no sense of his teachings being in any way obsolete: in some sense, there was a critique of his orthodoxy (I remember an accurate quip to the effect that The General Theory of Employment, Interest, & Money was not general, nor a theory, but a collection of cobbled-together maxims and heuristics), and there was the not unreasonable notion that his observations needed grounding (e.g., with agent-based modelling), but Keynes’ status had not been called into question. If anything, in fabled Third Way Cool Britannia, there was a concerted effort to confirm his relevance in the face of apparent success of the neo-classicists. Time bore him out, of course, and the Austerity policies that set in right thereafter pretty much have served as confirmatory particle-accelerators of the economists’ creed.

tarikjn• 9 years ago

I believe it is a bit too early to declare it a success. Can we exclude that it is not accelerating rising cost of living and economic inequality, and the general weakness of the middle class? Also, what is top-down imposed austerity with no option of bankruptcy? To me it is also a form of Keynesianism. The general consensus is that things are headed in a better direction for Iceland or Detroit than they are for Greece.

qubex7• 9 years ago

”Austerity with no possibility of bankruptcy” doesn’t strike me as anything doctrinarian, really.

As for declaring it a non-success, and bemoaning, the supposed death of the middle class, you couldn’t be more wrong: it might be faltering in the West, and we might observe a local pressure upon the middle class, but in the Far East (China, India) the latter is very much ascendant.

Nokinside2• 9 years ago

'Keynesian' is not strongly tied to Keynes the person or his thinking or writings. Keynesian's have buried Keynes long time ago. Anti-Keynesians are still carrying his corpse around.

Neo-Keynesian theories formulated and grounded Keynes's ideas better than he did and the field moved on. Today New classical macroeconomics and New Keynesian macroeconomics contribute methods to each other. 'Keynesian' today is just tendency or general direction.

If you want to spot dead ends in the economic thinking, you must look at schools who study the teachings of the founder and never improve upon them ('X said', 'X thought') Keynesian economics is not one of them.

qubex7• 9 years ago

Quite true. Modern ’Keynesians’ took his imprimatur and ran with it, they did not fossilise themselves upon the dicta of the Great One. That’s why it remains relevant today (at least in some guise or another) and why it incorporates methods the totemic founder would have never even contemplated (agent-based modelling, behaviourist economics, and globalisation).

cmurf2• 9 years ago

Galambosians. Anarcho-capitalists. More extreme by far than anti-government libertarians. http://www.harrybrowne.org/articles/Galambos.htm

tim3334• 9 years ago

Anti-Keynesians are still carrying his corpse around.

The thing I've seen more is Keyenes ideas got adopted by left wingers and used as a justification to expand government and then the anti-keynesians react against that. The actual Keyenes was quite capitalistic and his ideas are not incompatible with small govenment.

conanbatt4• 9 years ago

The Great Recession is 2007-2009.

Also we have to bear in mind Keynes was a free market ideologue, and said taxes should be at tops 25% of GDP.

Keynes truly helped model how to get out of recession, but he did not know the danger of government not being able to go back to a smaller state. Hayek and Friedman were more confident that it was a bad path.

dnautics7• 9 years ago

Can you give an example of one of these austerity policies? So far as I can tell, no country after the great recession has decreased their soverign debt load (as in, budget surplus, not deficit reduction). Moreover, an austerity policy is terrible for the working class if you choose to direct it at social services instead of directing it at greasing cronies, which so far as I can tell is what every country that has undergone "austerity" has done.

asar• 9 years ago

Whenever I read longer articles on macro economic theories it feels like torture. Overly complicated explanations, the urge to model every event and attach a probability to it. A while back this was on the hn frontpage https://aeon.co/essays/how-economists-rode-maths-to-become-o... Definitely put things into perspective for me.

thisisit• 9 years ago

One problem I have with economics is the tendency to proclaim proof after just one data point and that too in hindsight.

Just like this particular article is doing. It proclaims people doubted government can simulate growth and now recession has proven them wrong. Isn't it in hindsight and just one data point?

qubex7• 9 years ago

The real problem with economics (as perceived by somebody that first studied applied mathematics, and then macroeconomics, and then went into management) is that it styles itself an annex of mathematics, but lacks the invariants necessary to construct the deep symmetries typical of physics or other hard sciences. We literally have nothing to work with other than those superficial relationships econometricians can measure and somehow boost into statistical significance.

fullshark• 9 years ago

I love that piece, I think the problem is the opposite though, not complicated enough models, in part because they are trying to model an absurdly complicated system with overly simplistic assumptions. This piece highlights that attempts to simplify the model (variable X doesn't matter!) have failed to fulfill their promise.

tim3334• 9 years ago

I think the problem is more that they are trying to use mathematics to model something that is mostly non mathematical in nature - human behaviour.

acd• 9 years ago

Economics is a science where the researchers often assume how the world works as opposed to measure how things works in reality. Economics is sometimes dressed up with mathematics but it is still a soft science.

In other sciences such as mathematics and physics you have to prove how things works. You cannot just make up an arbitrary model and say this is how we think it works.

Consumer credit is created by keynesian now abundant that is owned by richest percent. Thus many the middle class are now debt slaves to the rich percent. This also goes for house pricing which is what caused the last economic crisis.

Keysnian economics does not take into account that printing new money, the new money does not directly go into salary inflation, it goes to factory automation. Factory automation decreases the price of goods and are thus deflationary. Software is also automation which again will have a deflationary force. One robot replaces on average 5.7 humans.

To sum it up Keysanism make the richest one percent richer and most everyone else poorer. The way Keysnaism does this is by central banks printing new debt out of nothing that the richest percentage then owns. Whats the next bubble Keynesian economics is going to create trillions of Hedge funds that may burst or subprime auto loans?

qubex7• 9 years ago

I’m an applied mathematician turned macroeconomist: what you accuse in your first two paragraphs is true, but it is not for want of trying. We just lack the invariants and symmetries that physicists luxuriate in. We literally have nothing more to work with than what statistics can measure, typically as ambiguous time-series with dozens of aggregate variables subject to wide observation errors and biases. It’s pretty awkward, and we’re very much aware of it.

Nokinside2• 9 years ago

It's still better to think and formulate hypothesis in math. It's easier to criticize and falsify.

Even if the math is there to express an idea formally, it's time well spent.

forapurpose• 9 years ago

You cannot just make up an arbitrary model and say this is how we think it works.

Perhaps it's meant as hyperbole, but that doesn't happen in economics. Models are not arbitrary, but the result of years of hard work based on generations of research. And then the models are tested and retested against reality.

Some problems, such as economics, are important to solve even though the universe does not make it easy for us with an abundance of objective data. 'Why are food prices rising worldwide' is a bit more complicated than 'why does one body fall toward another body of greater mass', but it's just as important.

unholiness• 9 years ago

Macroeconomics novice here.

From what I can tell, these two economic theories rely on competing assumptions. Keynesian economics is the theory that results from assuming the size[0] of an economy will closely follow the amount of aggregate demand. Neoclassical economics is the theory that results from assuming the size of an economy will closely follow the amount of aggregate supply.

In microeconomics there is no such duality. Rather, there is an understanding that supply and demand are each elastic with respect to one another. We measure this and reason amount markets while thinking about two explicit quantities: the elasticity of demand and the elasticity of supply. The two numbers (and the ratio between them) will tell you a lot about the effects that various conditions will have on a market.

My question is: Is there a corresponding concept of e.g. "the elasticity of aggregate demand" in macroeconomic theory?

If so, could articles like this be made more objective by providing concrete measurements of this figure on some time scale, rather than subjectively stating things like "Keynesian economics is hot again"?

If not, what prevents or complicates the existence of such a quantity?

[0] Please correct me if I am misusing this or any other economic terms and concepts

petilon4• 9 years ago

> the size of an economy will closely follow the amount of aggregate supply

I find this hard to understand.

Consider your local McDonalds franchise. According to this theory, if the franchisee makes more Big Macs (i.e., increases supply) the economy will grow. We know that's not true. More customers aren't going to walk in the door just because the franchisee made more Big Macs. Given that he wasn't turning away any customers to begin with, the franchisee can't make more Big Macs until more customers start walking in the door. Stated another way, supply does not drive demand, it is demand that drives supply.

This 'neoclassical economics' is balderdash that has been used to give tax cuts to the wealthy, under the guise that such tax cuts will increase supply which will then grow the economy. It won't. It is demand that drives supply. If we must use tax cuts to drive economic growth then give those tax cuts to the middle class, and raise minimum wages, because the middle class will then use the extra money to buy more Big Macs.

jules3• 9 years ago

If you increase the supply of fast food you increase competition which lowers prices so people will consume more. The economy is obviously driven by a balance between supply and demand, with prices being the mediator.

conanbatt4• 9 years ago

Oh man, its the 70's again.

Or should I say 50's.

dnautics7• 9 years ago

Well Keynesian economics is balderdash that is used to give stealthily give subsidy to the wealthy under the guise of "encouraging growth" and "maintaining stability". Just who do you think benefits when the middle class is thrusted onto an economic treadmill that can only be survived by investing in big corporations run by the already rich?

If we must use lowering interest rates to drive economic growth, then give those low interest rates to the middle and lower class, not the big banks.

cmurf2• 9 years ago

Cheap money, both QE and low top end taxes, increases the money supply, and it does absolutely increase demand: stocks, bonds, and real estate. The top 20% own 92% of the stocks. It is a lower risk for wealthy people to pay cheap top end taxes and stuff what remains into stocks or real estate, than it is to open a business or expand an existing business. It's a state sponsored hoarding policy that heavily favors wealthy people.

That it doesn't trickle down to the working class is by design. It's not a mistake. They're not stupid. This is the entire point of privatization of social security. It just dumps more cash into the stock market, driving up prices, benefiting the early investors more than it benefits the new investors.

tormeh2• 9 years ago

Consider your local McDonalds franchise

No. Macroeconomics and microeconomics are different fields for a reason. Doing this doesn't work.

stale20022• 9 years ago

No. That's not how microeconomics and supply/demand curves works.

"increasing suppy" does not mean "producing more goods". Increasing supply means producing more goods AND lowering prices so much that those goods are then sold.

And then consumers look at the price and will decide to buy more.

That's how supply and demand curves work.

wcarss• 9 years ago

Hey so, your argument rests on the assumption that the ultra-micro applies to the macro, which you've just taken as a given, and which is likely false. Even if it were given, there are further problems in there.

So that's not great, but on top of that, you seem to be solely using your bad argument to inject a strong opinion about a basically unrelated matter. The parent asked about methods of measuring how different analyses of macroeconimics lean toward working off of one theory or another, and whether there are hybrids, and it appears you are just advocating that one theory is clearly right and that you know how to fix the economy.

I even agree roughly with what you're advocating, but please, we should try not to do that. Your argument is bad, so you're kind of auto-wrong here, but much worse: you are not even wrong at the person you appear to be talking to. You're just tossing wrong into the wind here, and it makes your (our) position look bad, and cheapens the discussion, which has now become just pitched disagreements.

I say this overtly hostile thing not to harm you 'petilon, because I bet you're great, and I think we're on the same team, but both because we should do the best we can to argue well, and this is the real thing I care about: we should make sure that when talking we aren't just spouting partisan parrotship, but are seriously reading and responding to what others have actually said.

The parent asked a pretty cool question -- I hope it doesn't get lost forever under the weight of the us vs. them debate that is now dominating the thread after your comment unfortunately hijacked it.

BenoitEssiambre• 9 years ago

If not, what prevents or complicates the existence of such a quantity?

I'm not an expert either but this type of thing is incredibly hard to measure not only because of the constantly changing external forces from changing governments, technological progress, "animal spirits" etc., these things alone would make it nearly impossible, but there is also the role of money creation and very imperfectly run central banks around the world destabilizing things even much more. Think of it like trying to measure demand elasticity of bitcoins, it seems to be changing by the minute.

Anyways, this whole discussion seems like a straw man to me. How can they pit keynesianism against neoclassicism and gloss over monetarism and the importance of money and central banks? Few serious economists will defend neoclassicism as a main causal factor of recessions at this point. Comparing descendant theories of Keynesianism with descendants of monetarism would be more appropriate.

xapata• 9 years ago

I'd say Keynesianism can be summed up by his famous statement, "In the long run we are all dead." It's the acknowledgement that simplistic macroeconomic models may describe asymptotic behavior, but while the dynamic system is slowly trending to those ends, many people can suffer.

Thus, in the meantime, it'd be good to have some market intervention. Intervention in moderation, for moderation.

quantumofmalice• 9 years ago

We seem to lurch back and forth between Keynesian and Chicago School economics, without hearing about things like Georgism[1] or Distributism[2].

The cynic in me says this is because the financial elites are comfortable with either option.

[1] https://en.wikipedia.org/wiki/Georgism

[2] https://en.wikipedia.org/wiki/Distributism

beaner• 9 years ago

It seems like a tug of war between the capitalists and the government. They each adopt and promote the economic theories which they think justify their actions and desires.

conanbatt4• 9 years ago

Milton Friedman was georgist on taxes: he was in favor of land value tax. Who else is in favor of LVT? Stiglitz, Krugman.

Wait, left and right economist agree on LVT?

"You might see disagreement between economists, but if you were to put a varied group of people and a set of economists in the same room, you will soon find that its everyone against the economists" -~ Milton Friedman

arca_vorago• 9 years ago

The guy who basically said profit should always be a companies goal regardless of the social, environmental, or political costs? I think keynesianism is part of the problem, not the solution.

BjoernKW3• 9 years ago

I think it never really fell out of fashion, nor has it ever been properly implemented. Keynesianism consists of two elements:

1. Stimulating growth when organic growth is low.

2. Paying back the debt taken on to be able to do #1 when organic growth is self-sustaining again.

Politicians usually only consider #1 but conveniently forget about #2 because it doesn't suit their motives. This probably also is why conservatives and libertarians criticise Keynesianism as a leftist ploy to further big government and the expansion of the public sector.

Keynesianism implemented properly and without ideology is a reasonable strategy.

CalChris3• 9 years ago

Keynesianism a feedback control loop. Neoliberalism is an open loop. Do you save money for a rainy day or do you spend it like a drunken sailor?

dnautics7• 9 years ago

The assumption is that the feedback control loop is timed correctly. And the second assumption is that the natural system of economics doesn't have it's own feedbacks. If you wire a feedback control loop even slightly wrong you can wind up with positive feedback instead.

Moreover the feedback control comes at a cost. What if the cost is "the rich get richer and the poor get poorer"?

lkrubner• 9 years ago

Paying back the debt taken on to be able to do #1 when organic growth is self-sustaining again.

This happens automatically when growth is strong. Even if the nominal debt keeps growing, it shrinks as a percentage of the GDP, so long as the growth of the GDP is faster than that the growth of the nominal debt. So for instance, in the USA, between 1945 to 1980, the national debt shrank from 98% of GDP to 33% of GDP. The USA ran budget deficits in many of those years, but it didn't matter, because the nominal growth of the GDP was much faster that the growth of the debt.

BjoernKW3• 9 years ago

It doesn't happen automatically if the government in question acts irresponsibly, which more often than not unfortunately is the case and also the reason why structures like the Euro convergence criteria are in place to keep governments in check (which in recent years often hasn't exactly worked out).

Consultant32452• 9 years ago

http://www.macrotrends.net/1381/debt-to-gdp-ratio-historical...

The last 37 years aren't looking so hot. :(

dnautics7• 9 years ago

Keynesianism implemented properly

Who gets to decide where the money for stimulus goes and how can I be that person so that I can enrich me and my friends?

CalChris3• 9 years ago

Who gets to pay to clean up after the crash when people have no money?

We’ve learned this lesson a few times already.

BjoernKW3• 9 years ago

In principle: The electorate. I agree though that the potential for rent-seeking and cronyism is a problem with any government investment.

tim3334• 9 years ago

The government decides naturally and typically the spending is on things like infrastructure or unemployment benefits. I'm not quite sure how you would game it in a practical way.

dragonwriter3• 9 years ago

Keynesianism implemented properly and without ideology is a reasonable strategy.

If you have an objective, you aren't acting without ideology, and if you don't have an objective, you have nothing at which to direct at strategy. Talking about a strategy without an ideology is nonsense.

wjossey• 9 years ago

Highly recommend http://www.econtalk.org/ regardless of preference between Chicago or Keynes. While the host is of a Chicago bent, the interviewees come from across the spectrum. I've been a regular listener for almost a decade now, and it's a joy every week.

misterbishop• 9 years ago

This is only happening because self-aware socialist movements are starting to find a broad appeal. Paul Krugman discredited himself as a politico by spending the last 2 years staning for Hillary Clinton. In the process, he had to argue against many of the policies he built his career advocating.

bassman9000• 9 years ago

The Great Recession changed a lot of minds

I bet it did. Old study from UCLA:

http://newsroom.ucla.edu/releases/FDR-s-Policies-Prolonged-D...

Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.

After scrutinizing Roosevelt's record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.

Edit: missed an important quote

"Ironically, our work shows that the recovery would have been very rapid had the government not intervened."

ianamartin• 9 years ago

Here's a simple formula to help with all of this:

macroeconomics = survivorship bias

teboowo• 9 years ago

Would you mind explaining this?

pipio21• 9 years ago

For me this is economics propaganda from a mainstream economics info company, as biased as you could be.

Keynesianism is simply the idea that the people in power could avert crisis doing terrible things like printing money, which is what QE (quantitaive easing) and negative interest rates is.

Of course the people in power love to have all the power. Those people love taking automatically economic resources from you(and billions of other people) and doing things like traveling the world in their private jets fighting "climate change".

I personally know those guys. They believe you should not overpopulate the world having kids, and that you should always use public transport, while they use multiple mansions and private jets consuming more energy and generating more contaminating in a single move than thousands of families do in an entire year.

But they believe they are special and they could do it. Because they are luminaries.

Keynesianism is the dogma based in Keynes that justify, the 0.1 percent automatically taking 3 or 4 percent of the wealth of the world every single year in order to "save the world".

We have not lived yet the consequences of printing that much money. Debt has grown exponentially and this can't be sustained and it will stop.

This is propaganda for us letting them double down.

notthemessiah2• 9 years ago

You've got a cartoonish view of Keynesianism. Where did you get it from?

jazzyk• 9 years ago

I think he is talking about "Keynesians", who use Keynes as theoretical cover for their statist/elitist policies.

For example, Keynes advocated that governments spend the money that they HAVE (saved from budget surpluses when the times are good) to help the economy recover from a recession - and it is not a bad idea, per se.

The problem is that the US government has never had a surplus in recent history (save for one year 20 years ago).

Hence money printing.

jaggednad• 9 years ago

I dont think you understand what Keynesianism is. Keynesianism doesn’t say anything about money giving the 0.1 percent. You should read up in what Keynes actually said

notthemessiah2• 9 years ago

Also, if you think that Keynes advocated a negative interest rate, you should read Ch 16 and 17 of the General Theory.

dragonwriter3• 9 years ago

Keynesianism is simply the idea that the people in power could avert crisis doing terrible things like printing money, which is what QE (quantitaive easing) and negative interest rates is.

No, it's not; while Keynesians tended to view QE as necessary monetary policy given the absence of fiscal stimulus, Keynesians almost invariably viewed the crisis to which QE was the response as one which called for fiscal rather than monetary stimulus as the primary response, viewing monetary policy responses as poorly adapted to the situation and ineffective at dealing with it (which they generally turned out to be). In fact, Keynesianism as a modern school of economic policy is more about countercyclical fiscal policy than anything else.

I'm not sure there is any theoretical school behind the current de facto total reliance on monetary policy; that seems to more be a result of Congress being completely disinterested in dealing with the economy in any productive manner leaving the Fed as the only institution that is capable of acting than any coherent, theoretically grounded policy approach.

snomad2• 9 years ago

The fundamental unacknowledged problem with Keynes is it relies on natural rate of inflation, which only happens with population growth. See Japan's continual stagnation despite endless amounts of inflationary policies.

The 4 main econ drivers for the US over the next 20 years - China's ascension to number 1 world economy, pension and social security debt and lack of funding, the toll of automation and the gig economy, population growth (or lack thereof) in the US and other major allied nations.

We will embrace keynes as solutions to those problems, because that is what those in power know and are comfortable with. The fact the 2008 crises didn't end in 1930s like depression will all but assure them they are right. The question is whether or not that was a one-off lucky "save" largely successful because of the global coordination that went along with American policies (China, Japan, and Europe), and if so, will that global coordination be done for future economic crises, which seems unlikely to me based on the totality of global history.

pwaai• 9 years ago

China's ascension to number 1 world economy

My gripe with this is that people seem to take this as a fact that hasn't even occurred with almost 100% certainty that it will happen.

A lot can go wrong in 20 years. So far, all economies that challenged US in the past mysteriously gets IMF'd, pulling the rug out of a credit bubble that they help create by twisting the arms of the central banks that are supposed to be free from this kind of interference:

This documentary about Japanese central bank is eye opening to just how much grip the US hegemony has, one which I fail to see China being able to emulate anytime soon because of the hostage situation that US allies are finding themselves in.

https://www.youtube.com/watch?v=p5Ac7ap_MAY

The theory that states Sadam was whacked because he started to accept euro instead of the petrodollar standard makes an awful lot of sense.

cryptonector2• 9 years ago

Japan did not get IMF'ed, as you put it. They simply did not liquidate, liquidate, liquidate. Instead they just extended-and-pretended. Surprise! It didn't work.

IMFing is real, but also only really applicable to smaller economies. All it really is is a bailout of bad-creditors disguised as credit to bad-debtors, leaving the latter in worse shape in the end and without having helped them with immediate problems at all. This only works when the amounts in question can be ponied up by taxpayers in the IMF member countries without causing too much political trouble. When the amounts involved are large enough (e.g., in the case of Japan in '89) this just doesn't even get proposed, not least because there was very little external bad-credit to bailout! We saw some of this game played intra-Eurozone, but in the European case the taxpayer was going to have to bailout the banks no matter what, whereas in the Japan case the problems were entirely domestic.

The idea that Bush went after Hussein because Hussein's reserve currency preferences is utter hogwash. Iraq's economy back then simply wasn't remotely big enough to move that needle and lacked the potential to for decades longer. Moreover, if Iraq preferred the euro then, why not now, and where's the damage to the dollar?? The answer is that it does not matter what choice of reserve currency Iraq, Iran, or Saudi Arabia (say) prefer -- it would have made zero difference in 2003, as it almost certainly didn't. Bush had no shortage of reasons to go after Hussein -- no need to reach for conspiracy theories about that!

snomad2• 9 years ago

Well, one, China is already number 1 in PPP.

Two, they are already setting up parallel institutions just to prevent being IMFd that (see AIIB).

Third, they already have numerous renminbi trading deals with several countries where goods are exchanged without ever being converted into dollars.

cryptonector2• 9 years ago

The Great Depression was made so much the worse by the terrible policies that followed (Hoover's first, then Roosevelt's). In particular: the failure to "liquidate, liquidate, liquidate" (as Andrew Mellon wanted in '29), the subsequent insufficient devaluation (Hoover didn't devalue; Roosevelt did but not enough) and the banning of gold (while notionally retaining a gold standard for trade) -- this killed international trade, perhaps more so than Smoot-Hawley. Insufficient devaluation kills imports, but when international trade is settled in a currency not your own (e.g., gold) it also kills exports! You can't neither liquidate nor devalue. Add to all this labor market rigidity (e.g., brow-beating companies into not lowering wages led to inability to hire) and other terrible policies, and the 30s were a mess.

The 2008 crisis too was followed by bad policies everywhere (e.g., competitive currency debasing and reflation attempts, QE, ...), but nowhere near as bad. In particular there was no gold standard, currencies were mostly floating, and no attempt was made to shut down international trade. Not that a gold/whatever settlement system is necessarily bad, but that floating currencies made it impossible to insufficiently devalue, as Roosevelt did.

We seem to have learned some bad lessons from the Great Depression (Keynesian economics good), but also some good lessons as well (trade good). We have also seen Rooseveltian policies applied elsewhere since then, always with terrible results. E.g., insufficient devaluation / trade killing policies have been applied a number of times in Latin America, only there the U.S. dollar plays the role of gold.

Perhaps the best way to think about credit crises is to think that the aftermath lasts as long as it takes to clear bad debts, including the processes of repossession, plus the amount of time it takes new owners to return their acquisitions to profitability. Get debtors' mothballed assets back into production by liquidating them.

Deflation, by the way, is good and unavoidable in a credit crisis. It speeds up the process of identifying and working out marginal and bad debt. It helps the poor. It helps prospective and actual new owners. The worst thing that can happen in a crisis is for assets to become non-productive and under-maintained for so long that they effectively rot/rust away and become unsalvageable, and this is what happens when governments and banks extend-and-pretend.

tim3334• 9 years ago

problem with Keynes is it relies on natural rate of inflation

Keynes wrote a lot of stuff but if you consider what I think is his main idea, as mentioned in the article, "the idea that aggregate demand shortages exist and can be corrected by the government stimulus" then inflation is kind of irrelevant to that.

Also it's not the answer to the problems you mention. The policy as Keynes intended it was just to boost government borrowing and spending during recessions and then stop when the recession is over.

Keynes name does sometimes get invoked by politicians to push policies that Keynes himself wouldn't have been into.

Keynesian Economics Is Hot Again

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