When I wrote "is there really no one any longer prepared to leave the
recovery process to the market?" I meant is there no one who is prepared
to make those adjustments to policy settings to allow
entrepreneurially-managed private sector firms to drive recovery? I was
always for the bailouts in principle although very disappointed with how
they were done. But once financial markets were stabilised, there really
wasn't much needed to allow the recovery to take place naturally. Some
things, sure, but not much. Instead we got the stimulus which is more
than recreating the conditions of the early 1930s. As I see it, economic
conditions are far worse today because of the stimulus than they would
have been had there been no stimulus at all. That is why I would like to
see Keynesian economics centred as it is on aggregate demand disappear.
This is the debate economists ought to be having right now but for some
reason we are not.
The question I would ask is whether if we could go back to that moment
in time at the start of 2009 following TARP, given what we now know,
would we still attempt to drive recovery through the introduction of a
stimulus package? What worries me is that most economists would, which
only says to me that we lack an ability to learn from experience.
As for Austrian liquidation and all that, my economic roots are inside
the English classical tradition which is significantly different. And if
anyone thinks policy in the 1930s was just some form of
let-the-chips-fall-where-they-may laissez faire, their history books
must tell a very different story from mine.
Dr Steven Kates
School of Economics, Finance
and Marketing
RMIT University
Level 12 / 239 Bourke Street
Melbourne Vic 3000
Phone: (03) 9925 5878
Mobile: 042 7297 529
>>> Robert Leeson <[log in to unmask]> 09/11/11 2:10 AM >>>
Steve writes "is there really no one any longer prepared to leave the
recovery process to the market?"
Since my objective is to persuade, I hope the following question is not
misinterpreted as inflamatory: Does he mean the Austrian economic
solution ("liquidate labor, liquidate stocks, liquidate the farmer,
liquidate real estates") which last time - to illustrate the Law of
Unintended Consequences - led to an Austrian final solution (liquidate
the Jews and any member of the Austrian School who can be rounded up)?
All solutions are market solutions (politican and bureaucrats have their
own markets in mind). It make no sense to advocate the dictatorship of
"the markets" when there is a Cholera-style engineering malfunction. In
anything but a Coase Theorem science fiction world, this requires a
public 'health' solution - separate drinking water (savings into capital
expenditure) from second hand investment toxins.
The current situation is similar to that decribed in _Ideology and the
International Economy: The Decline and Fall of Bretton Woods_. The
Bretton Woods community were united by
1. a determination to preserve their system;
2. an inability to adequately understand the system they were
regulating.
When they were nudged into oblivion by George Shultz, their system
collapsed - not into barbarism as they predicted - but into a reasonably
well functioning market-based generalised float (as most academic
economists predicted).
There are two differences between the current Talibank system and the BW
system.
1. The academic community have so far failed to embrace a fundamental
alternative (we lack a Milton Friedman);
2. For the Talibank system to collapse into a functioning alternative
requires new markets to be created (uninterruptible
savings-into-capital-expenditure channels).
The Talibank have almost unlimited access to taxpayer funds to prop up
their system. Democracy and market-based economic systems may not
survive the externalities of the tax-subsidised dictatorship of "the
markets" (the peddlers of second hand investment toxins).
RL
----- Messaggio originale -----
Da: "Steve Kates" <stevOggetto: Re: [SHOE] S = I?
I considered getting into this on the first run but then thought better
of it. But with Rob’s latest posts, and then the posting by James whose
fundamental points I am in agreement with, I think I might chance my arm
at some kind of reply.
I might also note that there really doesn’t seem to have been an HET
aspect to the original issues Rob raised, or at least none that I can
see off hand. But to reply properly in my view is to go back into the
realm of HET and into the world of pre-Keynesian economics. This is why
HET is so important to economic theory. We historians of economics
retain our tribal memory.
In an I=S environment, saving so far as a national economy goes is not
money. Saving is output. Saving is the proportion of total production
that is not consumed but turned into investment. There is, of course,
also the flow of money payments but they ought to be seen as a
distraction to the real issues involved.
The rate of increase in the flow of money payments in an era of debt,
deficits and vast oceans of non-value adding expenditures greatly
exceeds the rate of increase in the flow of real value adding output.
The problem we have is not the absence of expenditure. It is the absence
of products any additional expenditure can be used to purchase.
Why is that? Many reasons but let me just point out two. Firstly, there
has been so much misdirected expenditure, initially with government
direction of production prior to the GFC and then even more so following
the stimulus. Secondly, given the nature of government policy, business
has gone into a shell. You would have to be very brave to take on
additional capital investment in this environment. But while it is hard
to make such calculations, going back to the first point, it does seem
to me that there are few free resources available that could be readily
deployed into activities that would make a profitable return. All this
is from the classical theory of the cycle.
But really, the last thing we need is another demand stimulus, this one
forced by governments onto a clearly reluctant banking sector. It seems
to be a modern version of Douglas Social Credit or Gesell’s stamped
money with the aim being to get money spent. The policy focus should
instead be on trying to create an environment in which businesses will
undertake value adding activities. Spending in itself is not the answer,
which the two years of the stimulus ought by now to have quite
comprehensively shown.
I know this is an old idea, and one that may no longer be sayable in
mixed company, but is there really no one any longer prepared to leave
the recovery process to the market?
Dr Steven Kates
School of Economics, Finance
and Marketing
RMIT University
Level 12 / 239 Bourke Street
Melbourne Vic 3000
Phone: (03) 9925 5878
Mobile: 042 7297 529
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