That's it. First Obama openly states in a joint press conference with Israeli PM, Netanyahu, longstanding US policy with regard to Israeli-Palestinian negotiations that final borders should be based on the 1967 borders with land swaps, leading to Netanyahu not only openly objecting to this strenuously, but to getting 28 standing ovations in Congress for complaining further about this to a mere 26 that Obama received for his State of the Union message; but now Obama flubbed a toast to the Queen of England, speaking over their national anthem as the orchestra began playing it in the middle of Obama's toast, an unforgivable blunder on the part of Obama, who clearly should have stopped in mid-sentence, as Rush Limbaugh explained in a 6 minutes and 42 seconds moment by moment explanation, clearly showing Obama's total unsuitability to serve as president ( http://www.mediate.com/online/limbaugh-rails-obama-on-toast-flub-im-tired-of-people-making-excuses-for-these-people ). Clearly, these actions by Obama are grounds for impeachment.
And, actually, it might be good to have those impeachment hearings going on those vitally important grounds, so that nobody will bother if Obama ignores the debt ceiling limit come August 2 and just orders US Treasury Secretary Geithner to just keep on issuing fresh US bonds to cover bills previously approved by the US Congress as they come due. Makes sense to me, :-).
Wednesday, May 25, 2011
Thursday, May 19, 2011
On The Lighter Side: How To Pick Up An Economist
This has been floating around the blogosphere for awhile now, but figure we could all use a few chuckles, originally due to Sarah Skwire , http://www.modifiedrapture.com/wp/?p=210 .
The Top Ten Lines for Hitting on an Economist
1. You've got the curves to supply my demand!
2. Let's go to bed and try to disprove the law of diminishing marginal utility.
3. You're my very favorite kind of moral hazard.
4. I have a feeling you really understand the "nature of the firm."
5. Baby, I love you so much, I'm willing to forgo my exit option.
6. Wanna talk about our private goods?
7. You're an economist, I'm an economist. How about a little horizontal integration?
8. Now those are some tangible assets.
9. I'll reveal my preferences if you will.
10. Bottom up or top down?
The Top Ten Lines for Hitting on an Economist
1. You've got the curves to supply my demand!
2. Let's go to bed and try to disprove the law of diminishing marginal utility.
3. You're my very favorite kind of moral hazard.
4. I have a feeling you really understand the "nature of the firm."
5. Baby, I love you so much, I'm willing to forgo my exit option.
6. Wanna talk about our private goods?
7. You're an economist, I'm an economist. How about a little horizontal integration?
8. Now those are some tangible assets.
9. I'll reveal my preferences if you will.
10. Bottom up or top down?
The Food Stamp Fight
Newt Gingrich is receiving a lot of well deserved criticism for calling President Obama “the food stamp President" but as Dottie Rosenbaum notes cutting the food stamp program is part of Paul Ryan’s long-term budget plan:
Figure 1 of her CBPP discussion says a lot. First of all – the rise in food stamp recipients is a consequence of the Great Recession. As the economy recovers, food stamp payments are projected to decline. Of course countercyclical fiscal policy is seen as a bad thing by this generation of Herbert Hoover Republicans.
The other thing to note is that food stamp expenditures were less than 0.3 percent of GDP before the Great Recession and are projected to fall below 0.3 percent of GDP over time. As usual – GOP fiscal “discipline” is limited to big cuts in small programs.
The House-passed plan to convert SNAP (the Supplemental Nutrition Assistance Program, formerly called food stamps) to a block grant and cut the program by almost 20 percent rests on the false claim that the program is experiencing “relentless and unsustainable growth.”
Figure 1 of her CBPP discussion says a lot. First of all – the rise in food stamp recipients is a consequence of the Great Recession. As the economy recovers, food stamp payments are projected to decline. Of course countercyclical fiscal policy is seen as a bad thing by this generation of Herbert Hoover Republicans.
The other thing to note is that food stamp expenditures were less than 0.3 percent of GDP before the Great Recession and are projected to fall below 0.3 percent of GDP over time. As usual – GOP fiscal “discipline” is limited to big cuts in small programs.
Monday, May 16, 2011
What To Do If The Debt Ceiling Is Not Raised? Ignore It
We are indeed approaching an unprecedented situation. As I have repeatedly pointed out, the US is the only nation ever to have a nominal debt ceiling, long ignored as a trivial matter since its imposition in 1917, given the routine way it has been raised so many times previously. But now we approach a battle royal, where House Republicans refuse to allow for any tax increases as part of any deficit reduction deal, and it would be extremely unwise of Obama or the Dems to agree to the more radical of their demands for spending cuts, including the fact that the only way they can defeat Obama next year is if they can engender a financial crisis leading to a return to a recession, which they can then blame on him. And if he is foolish enough to let them do that, well, then he may deserve not to be reelected.
So, my proposal is that if the Congress is unable to come to some sort of reasonable deal that will allow a vote on raising the debt ceiling, Treasury Secretary Geithner should simply ignore the debt ceiling and continue to pay the bills as they come in, thereby avoiding any defaults or spending cuts or financial crises. The fact is, in the absence of any direct instructions from the Congress on which bills should be paid and which should not be in the face of crashing into the debt ceiling (surely we are not talking about paying no bills at all), he has no authority not to follow the instructions of the Congress in its latest budget, and spend what has been mandated. That will be the last coherent instruction from the Congress, and I say he should obey that in the absence of anything else more specific. Indeed, it will be the only responsible thing to do.
Now, many might complain that "the law is not being obeyed." Well, yes, and I think that is too bad. But many laws fail to get enforced. The last administration clearly broke our laws against engaging in torture, but they were not and are not being punished, although supposedly we are torturing no more now. About half the states have anti-adultery laws, but the only case I am aware of within decades of any of them being enforced was an absurd one near me in Luray, Virginia, where a district attorney was arrested for it after his mistress turned him in, testifying against him. He had been stupid enough to cheat on this mistress, but it was for cheating on his wife that he was officially put away.
As it is, this debt ceiling limit, not in force in a form like ours anywhere else (The EU has rules tied to percent of GDP, 60%, but never enforced with some countries in permanent violation, e.g. Belgium), is a stupid law anyway, like those laws against adultery. It should simply be ignored, the sooner the better, so as to render it irrelevant. Tea baggers may bring lawsuits, but who is going to arrest the Treasury Secretary? Will a court have the nerve to start making specific rulings about what should be cut and what should not be cut, or what taxes should be raised to meet the debt ceiling? No.
My main regret is that this charade will move us ever that closer to becoming a banana republic. But, if it comes about, it will be because we have banana Republicans in the House of Representatives.
So, my proposal is that if the Congress is unable to come to some sort of reasonable deal that will allow a vote on raising the debt ceiling, Treasury Secretary Geithner should simply ignore the debt ceiling and continue to pay the bills as they come in, thereby avoiding any defaults or spending cuts or financial crises. The fact is, in the absence of any direct instructions from the Congress on which bills should be paid and which should not be in the face of crashing into the debt ceiling (surely we are not talking about paying no bills at all), he has no authority not to follow the instructions of the Congress in its latest budget, and spend what has been mandated. That will be the last coherent instruction from the Congress, and I say he should obey that in the absence of anything else more specific. Indeed, it will be the only responsible thing to do.
Now, many might complain that "the law is not being obeyed." Well, yes, and I think that is too bad. But many laws fail to get enforced. The last administration clearly broke our laws against engaging in torture, but they were not and are not being punished, although supposedly we are torturing no more now. About half the states have anti-adultery laws, but the only case I am aware of within decades of any of them being enforced was an absurd one near me in Luray, Virginia, where a district attorney was arrested for it after his mistress turned him in, testifying against him. He had been stupid enough to cheat on this mistress, but it was for cheating on his wife that he was officially put away.
As it is, this debt ceiling limit, not in force in a form like ours anywhere else (The EU has rules tied to percent of GDP, 60%, but never enforced with some countries in permanent violation, e.g. Belgium), is a stupid law anyway, like those laws against adultery. It should simply be ignored, the sooner the better, so as to render it irrelevant. Tea baggers may bring lawsuits, but who is going to arrest the Treasury Secretary? Will a court have the nerve to start making specific rulings about what should be cut and what should not be cut, or what taxes should be raised to meet the debt ceiling? No.
My main regret is that this charade will move us ever that closer to becoming a banana republic. But, if it comes about, it will be because we have banana Republicans in the House of Representatives.
Judgement
As Barkley reminds, the Day fast approaches. Sincerely do I hope, fervently do I pray that those who count on being raptured out of here come the 21st will indeed get their wish. But speaking of judgement, it's the grading season. My favorite exam was the one that defined "Aggregate Demand Externality" as follows: "When an increase in money demand leads to pollution."
Sunday, May 15, 2011
Mad About Mahdis: Will The Hidden Imam Dis-Occultate?
I have already been too worried about the Rapture supposedly going to happen on May 21, according to Harold Camping of Family Radio Ministry, although he said this would happen once before already, and it didn't. In any case, I am glad that my wife, Marina, is scheduled to fly home from Moscow on May 22, so she won't have her pilot zooping off to heaven while her plane is halfway across the Atlantic Ocean.
But now comes the news reported by John Burgess at http://xrdarabia.org/2011/05/12/on-the-end-times-iranian-shia-version that various Iranian Shi'i clerics are being charged with sorcery for forecasting that the 12th Imam, who has been Hidden in Occultation for many centuries, will appear soon, bringing the end of the world. If they Hidden Imam dis-occultates, nobody will need to obey the government, so, wow, big surprise that the current government (already reacked by internal conflicts of various sorts) is cracking down on this sort of stuff. The good news is that apparently the Hidden Imam will only pull this trick three years after King Abdullah of Saudi Arabia dies, and as he is still alive, well, I guess we have at least three more years before this happens. Of course by then, Oct. 21 will have passed by, when, according to Camping the world will have already ended following the upcoming Rapture on May 21.
In any case, with all this sort of stuff coming up, who needs to worry about a failure to raise the debt ceiling (or better yet, simply abolish it all together)?
But now comes the news reported by John Burgess at http://xrdarabia.org/2011/05/12/on-the-end-times-iranian-shia-version that various Iranian Shi'i clerics are being charged with sorcery for forecasting that the 12th Imam, who has been Hidden in Occultation for many centuries, will appear soon, bringing the end of the world. If they Hidden Imam dis-occultates, nobody will need to obey the government, so, wow, big surprise that the current government (already reacked by internal conflicts of various sorts) is cracking down on this sort of stuff. The good news is that apparently the Hidden Imam will only pull this trick three years after King Abdullah of Saudi Arabia dies, and as he is still alive, well, I guess we have at least three more years before this happens. Of course by then, Oct. 21 will have passed by, when, according to Camping the world will have already ended following the upcoming Rapture on May 21.
In any case, with all this sort of stuff coming up, who needs to worry about a failure to raise the debt ceiling (or better yet, simply abolish it all together)?
Thursday, May 12, 2011
Is Paul Ryan Endorsing the Reagan-Greenspan Social Security Reform?
Paul Ryan’s Path to Prosperity argues:
This statement may have been true 30 years ago but as Sita Nataraj and John Shoven noted:
In other words, we did have real reform in 1983. Nataraj and Shoven, however, caution that focusing on the unified budget may have led the government to reduce taxes and increase spending such as we did during the Presidency of George W. Bush. Funny thing – Congressman Ryan wants to cut income taxes even further.
Social Security is financed through a pay-as-you-go system, which means that current workers’ Social Security taxes are used to pay benefits for current retirees … Real reform – especially with respect to Social Security – must reflect demographic reality.
This statement may have been true 30 years ago but as Sita Nataraj and John Shoven noted:
In order to ease the burden on workers during the retirement of the baby boom generation, the 1983 Social Security Reforms set payroll taxes above the level needed to pay current benefits, thus partially prefunding the baby boomers' retirement. The military and civil service retirement programs followed suit in the mid-1980s and switched from pay-as-you-go financing to funded systems. The excess income generated by these retirement programs was held in the federal trust funds, which have accumulated almost $3 trillion since the reforms took place.
In other words, we did have real reform in 1983. Nataraj and Shoven, however, caution that focusing on the unified budget may have led the government to reduce taxes and increase spending such as we did during the Presidency of George W. Bush. Funny thing – Congressman Ryan wants to cut income taxes even further.
Wednesday, May 11, 2011
Speaker Boehner Claims Crowding-Out
John Boehner addressed the Economic Club of New York on May 9 claiming the recent fiscal stimulus actually hurt job creation:
James Rowley and Mike Dorning of Bloomberg report that Boehner’s claim has been contradicted:
It is nice to see real reporting on economic issues and the claims of certain politicians!
The massive borrowing and spending by the Treasury Department crowded out private investment by American businesses of all sizes.
James Rowley and Mike Dorning of Bloomberg report that Boehner’s claim has been contradicted:
House Speaker John Boehner, giving Wall Street leaders his prescriptions for growing the U.S. economy and reducing the nation’s debt, built his case on several assertions that are contradicted by market indicators and government reports ... Boehner’s statement in his Wall Street speech that government spending “is crowding out private investment and threatening the availability of capital” runs counter to the behavior of credit markets. “Look at interest rates. Look at capital spending,” said Nariman Behravesh, chief economist of IHS Inc., a research firm based in Englewood, Colorado. “It’s very hard to come to a conclusion that there’s any kind of crowding out.” The cost of borrowing is low by historical standards. Yields on 10-year Treasury notes were 3.21 percent and yields on 2-year Treasury notes were 0.59 percent at 5 p.m. in New York yesterday, according to Bloomberg Data. Average spreads on investment-grade corporate bonds have narrowed from 1.64 a year ago to 1.39 on May 9, according to Barclays Capital.
It is nice to see real reporting on economic issues and the claims of certain politicians!
Monday, May 9, 2011
Blame Skidelsky For The Keynes "Central Plan" Fiasco
I have now had a chance to view the Econ Stories pieces done by John Papola with Lord Robert Skidelsky, including the one that supposedly provides the basis for the now-controversial Round Two of Keynes vs. Hayek, particularly the remark by "Hayek" accusing "Keynes" of having a "central plan." It is unclear what preceded the remarks by Skidelsky, but in the video showing him discussing the matter, with his comments interspersed with pieces from the Keynes vs Hayek video, there is no question that he asserts that Hayek was most motivated to criticize Keynes by his own fear of Soviet central planning (and his participation in the socialist planning controversy), even as he (Skidelsky) admits that Hayek never accused Keynes of being a central planner. Rather the issue was that he saw Keynes as a "thin wedge" for others who might be "let loose" to support such central planning: http://www.facebook.com/video/video.php?v=10150165612007003&=281384538984 .
What is really curious about this is that, as I commented before on an earlier thread on this, in his 2006 article, "Hayek vs Keynes: The Road to Reconciliation," which appeared in the Cambridge Companion to Hayek, 2006, Skidelsky never mentions this at all. He identifies Hayek as differing with Keynes on "where to draw the line" in government activities and also on his criticism of the "money motive." Skidelsky is clear that Hayek never thought Keynes supported central planning.
The discussion in the video is rather strange. Skidelsky is clear that Hayek never commented directly on Keynes's General Theory in print. He states that if Hayek did comment, particularly in bringing up this recently developed central planning critique, he did so "privately." In effect, he reconfirms that Hayek never made such an argument in print, although there is no question that Hayek was much involved with the socialist planning controversy beginning in the 1930s.
One item that Skidelsky seems to have missed is that during much of the 30s Hayek was working on his Pure Theory of Capital, published in the early 1940s, and reportedly viewed this as his fundamental critique of Keynes's ideas. The book did not get much attention, and it was after it was published that Hayek pretty much gave up arguing about Keynes's macroeconomics, although he would return to make comments about it later, more on grounds of its inflationary potential, again, not anything about some tendency to central planning.
Recently reported letters from the early 1930s by people on both sides of the debate also show no signs of any focus on central planning as an issue. The letter by four London economists, including Hayek, criticizing Keynesian views, focused on the role of hoarding, arguing for stimulating investment over consumption, criticizing public investment ("not a time for new municipal swimming baths"), and argued for a return to free trade from the trade war triggered by the Smoot-Hawley tariff. Not a word about central planning, even as a distant possible threat.
Bottom line here appears to have two points. One is that Papola and Roberts must be let off the hook on having put this claim by Hayek that Keynes supported a "central plan" into their video (and I apologize to them for blaming them). Of course, they did it, but it is also clear that Robert Skidelsky made such claims to them that supported what they did. What then is the final point of contention is when and where did Skidelsky come up with this view of what really bothered Hayek, given that he never said (or wrote) any such thing before, indeed appeared to specifically deny that Hayek made such an argument, and there remains no published evidence of Hayek ever making such a claim or argument about Keynes. So, let us blame Skidelsky for this fiasco of a misrepresentation of what Hayek thought about Keynes.
What is really curious about this is that, as I commented before on an earlier thread on this, in his 2006 article, "Hayek vs Keynes: The Road to Reconciliation," which appeared in the Cambridge Companion to Hayek, 2006, Skidelsky never mentions this at all. He identifies Hayek as differing with Keynes on "where to draw the line" in government activities and also on his criticism of the "money motive." Skidelsky is clear that Hayek never thought Keynes supported central planning.
The discussion in the video is rather strange. Skidelsky is clear that Hayek never commented directly on Keynes's General Theory in print. He states that if Hayek did comment, particularly in bringing up this recently developed central planning critique, he did so "privately." In effect, he reconfirms that Hayek never made such an argument in print, although there is no question that Hayek was much involved with the socialist planning controversy beginning in the 1930s.
One item that Skidelsky seems to have missed is that during much of the 30s Hayek was working on his Pure Theory of Capital, published in the early 1940s, and reportedly viewed this as his fundamental critique of Keynes's ideas. The book did not get much attention, and it was after it was published that Hayek pretty much gave up arguing about Keynes's macroeconomics, although he would return to make comments about it later, more on grounds of its inflationary potential, again, not anything about some tendency to central planning.
Recently reported letters from the early 1930s by people on both sides of the debate also show no signs of any focus on central planning as an issue. The letter by four London economists, including Hayek, criticizing Keynesian views, focused on the role of hoarding, arguing for stimulating investment over consumption, criticizing public investment ("not a time for new municipal swimming baths"), and argued for a return to free trade from the trade war triggered by the Smoot-Hawley tariff. Not a word about central planning, even as a distant possible threat.
Bottom line here appears to have two points. One is that Papola and Roberts must be let off the hook on having put this claim by Hayek that Keynes supported a "central plan" into their video (and I apologize to them for blaming them). Of course, they did it, but it is also clear that Robert Skidelsky made such claims to them that supported what they did. What then is the final point of contention is when and where did Skidelsky come up with this view of what really bothered Hayek, given that he never said (or wrote) any such thing before, indeed appeared to specifically deny that Hayek made such an argument, and there remains no published evidence of Hayek ever making such a claim or argument about Keynes. So, let us blame Skidelsky for this fiasco of a misrepresentation of what Hayek thought about Keynes.
The Skunk At The Party -
Crooked Timber has a little Hume-fest going on with people sending their favorite quotes: David celebrates his 300th birthday today. I love reading Hume : I love the prose, that is - who doesn't? But much of what he says so charmingly strikes me as absurd.
It is Hume that we can thank - and when I say 'thank' I mean, of course, 'curse' - for the Belief-Desire Model of rational agency. The economists' very conception of rationality is his inheritance. You know the quotes - "reason is and ought only to be the slave of the passions"; " tis not contrary to reason to prefer the destruction of the whole world to the scratching of my little finger" yadda yadda. (Incidentally, Smith in the Theory of Moral Sentiments says, in effect, it is contrary to reason to prefer the destruction of the whole world - well it's an earthquake in China, actually- to a scratch on my finger).
But the thing is, if reason can't motivate without being filtered through some desire, we couldn't have an intellectual discussion, couldn't discuss the very question of whether practical reason is or is not purely instrumental, for example : if "discussion" means listening to and evaluating the arguments made, drawing conclusions from the evidence, changing one's view when confronted with an unanswerable objection- and so on. Reason must move me directly, e.g., to change my mind, to draw the conclusions that follow from what I believe - without any antecedent desire being necessary.
And don't get me started on is's and oughts!
I love The Dialogues on Natural Religion, I love the History of England. You can have The Treatise and the Enquiry, thanks. But I wouldn't have wanted to miss the former, so a grudging Happy Birthday, Davey.!
It is Hume that we can thank - and when I say 'thank' I mean, of course, 'curse' - for the Belief-Desire Model of rational agency. The economists' very conception of rationality is his inheritance. You know the quotes - "reason is and ought only to be the slave of the passions"; " tis not contrary to reason to prefer the destruction of the whole world to the scratching of my little finger" yadda yadda. (Incidentally, Smith in the Theory of Moral Sentiments says, in effect, it is contrary to reason to prefer the destruction of the whole world - well it's an earthquake in China, actually- to a scratch on my finger).
But the thing is, if reason can't motivate without being filtered through some desire, we couldn't have an intellectual discussion, couldn't discuss the very question of whether practical reason is or is not purely instrumental, for example : if "discussion" means listening to and evaluating the arguments made, drawing conclusions from the evidence, changing one's view when confronted with an unanswerable objection- and so on. Reason must move me directly, e.g., to change my mind, to draw the conclusions that follow from what I believe - without any antecedent desire being necessary.
And don't get me started on is's and oughts!
I love The Dialogues on Natural Religion, I love the History of England. You can have The Treatise and the Enquiry, thanks. But I wouldn't have wanted to miss the former, so a grudging Happy Birthday, Davey.!
Thursday, May 5, 2011
The Medicare Debate: Eliminating = Saving
The Ryan long-run fiscal plan has so many twists and turns, it is truly amazing. For starters, the Republicans are once again telling us that cutting taxes is the path to reducing the deficit. But then Paul Ryan did come up with one idea of how to cut government spending – his phase-out of the Medicare program. Of course, Speaker Boehner and other Republican leaders are realizing that if they get behind Ryan’s proposal to phase out Medicare, it will cost them politically. So they at first decided to duck and run from this idea. But ala Twitter, the Speaker wants us to know he has not abandoned the Ryan Medicare phase-out proposal:
So the Ryan proposal is supposed to “save” Medicare by eliminating it! George Orwell would be proud!
Saving Medicare off the table? Absolutely not. Nothing is off the table except raising taxes. Tax hikes will hurt economy & job creation.
So the Ryan proposal is supposed to “save” Medicare by eliminating it! George Orwell would be proud!
Wednesday, May 4, 2011
Even If the Recent Slowdown in Real GDP Growth Were a Blip
David Leonhardt is rightfully concerned about the state of our economy and reports:
For the entirety of 2010, real GDP growth barely undone the decline in real GDP for 2009. And with zero growth for 2008, our economy is around 10% below potential GDP. So even if this were a blip and we returned to growth rates around 3% or 4%, we will be far below full employment for quite a while.
For the second straight year, the recovery seems to be at risk of stalling. The economy grew at an annual rate of only 1.8 percent last quarter — eerily similar to the 1.7 percent growth last spring, just when job growth started slowing down ... White House advisers and Ben Bernanke, the Federal Reserve chairman, argue that the bad news is a merely a blip caused by bad weather, a temporary cut in military purchases and other one-time factors. They may be right, too. Stock market investors certainly share their optimism: the Standard & Poor’s 500 index is near a postrecession high.
For the entirety of 2010, real GDP growth barely undone the decline in real GDP for 2009. And with zero growth for 2008, our economy is around 10% below potential GDP. So even if this were a blip and we returned to growth rates around 3% or 4%, we will be far below full employment for quite a while.
Tuesday, May 3, 2011
Ayn Rand and Me: Article Based on an Interview with Michael Perelman
http://michaelperelman.wordpress.com/2011/05/04/ayn-rand-and-me-article-based-on-an-interview-with-michael-perelman
Monday, May 2, 2011
Those Pesky Postwar Recessions
Well, the debate over my post on Keynes on central planning has gone viral all over the place, and I shall make no attempt to link to all of it. However, I do want to comment further on a point raised actually in Facebook debates on this by one of the makers of the video in question, John Papola. This has to do with the accusation that Keynes was (maybe) a supporter of what has been called "military Keynesianism," with the point being made in the video that unlike what lots of Keynesians supposedly said (Samuelson being provided in the debates as an example in 1943, although not Keynes himself), we did not go into a deep depression after WW II, even though there was no massive fiscal stimulus and there was this sharp drop in government spending with the end of the war.
This curiously relates to a matter that has been much argued about previously on various blogs, namely the nature of the short and sharp post-WW-I recession of 1919-20. Some have argued that this shows how wrong Keynes was, because laissez-faire was followed, including letting prices (and some wages) fall sharply in 1921, with the economy bouncing back very nicely, after having the unemployment rate soar from 5% in 1920 to 9% in 1921. Most economic historians have attributed this recession to "postwar adjustment problems."
OTOH, some of those making a big fuss about that recession somehow fail to notice that in fact there was a post-WW-II recession, if also very brief, if sharp. It occurred in 1945 with the sharpest decline in wartime spending, although not much remembered. However, the official stats have US declining in GDP by a whopping -12.7% in that year, although that number must be taken with some grains of salt due to all kinds of measurement issues and restructurings. Some say this exaggerates things as the unemployment rate only went from 1.5% to about 3.6%, a rise, but not all that much to get worked up about.
Two points. The first is that this latter event does not account for the massive decline in female labor force participation that occurred in 1945, from about 38% to about 30%. We all know (or should) that those withdrawing from the labor force do not count in the unemployment rate. That not very large increase in the UR does not disprove that there was a sharp (if short) decline in GDP. (Rosie the Riveter went home to boom out those babies, and to buy houses to be built, given that basically none had been for about 15 years in the US).
The other point, which is perhaps more cogent for the debates here, involves monetary policy. Frightened of rising inflation, the inexperienced Fed raised the discount rate sharply during 1919-20, halting doing so in June, 1920 as it became clear that the economy was plunging into recession. OTOH, the very loose monetary policy of WW II basically continued during the immediate postwar years, only finally ended with the Fed-Treasury Accord of 1951 in the face of rising inflation tied to the Korean War. So, it may well have been that the Fed was listening to Samuelson and was slow to tighten monetary policy, thereby helping to ease that postwar transition and make sure that the one after WW II was not as sharp as the one after WW I, despite the much larger adjustments that were made.
Added: For some strange reason the system is not allowing me to comment. So, I shall reply to some comments here in the main post.
To John Papola.
OK, I grant that you have "Keynes" saying "too bad" about the wartime achievement of full employment and accept that you recognize that he was a pacifist prior to WW II. In the same place he made his statement you quote he expressed optimism that full employment could be achieved after the war with aggregate demand management without interfering with individual decisionmaking.
I am not sure why you cite Higgs on reduced consumption levels due to rationing and so forth in WW II. Everyone knew about that, certainly including Keynes who discussed such matters in his "How to pay for the war," which was all about restraining the excessive aggregate demand associated with the war.
I continue to maintain that one needs to track labor force participation. Womens' participation rose at the beginning of the war above anything previously seen and then fell at the end of the war sharply. Anyone who quotes unemployment rate changes without noticing that is being disingenuous at best. I have no problem at all with tracking employment rates (percent of working age employed) rather than unemployment rates, which have always been known to suffer from these problems.
Russ,
The recession started in Feb. 1945, but went on for 8 months, with NBER giving the GDP decline as -12.7%, larger than any since, including our most recent recession. Sure, there were measurement issues and index number problems with all that restructuring, but the 2% increase in the official unemployment rate combined with the 8% decline in female labor force participation is consistent with a pretty sharp decline in GDP, if not necessarily a full -12.7%.
This curiously relates to a matter that has been much argued about previously on various blogs, namely the nature of the short and sharp post-WW-I recession of 1919-20. Some have argued that this shows how wrong Keynes was, because laissez-faire was followed, including letting prices (and some wages) fall sharply in 1921, with the economy bouncing back very nicely, after having the unemployment rate soar from 5% in 1920 to 9% in 1921. Most economic historians have attributed this recession to "postwar adjustment problems."
OTOH, some of those making a big fuss about that recession somehow fail to notice that in fact there was a post-WW-II recession, if also very brief, if sharp. It occurred in 1945 with the sharpest decline in wartime spending, although not much remembered. However, the official stats have US declining in GDP by a whopping -12.7% in that year, although that number must be taken with some grains of salt due to all kinds of measurement issues and restructurings. Some say this exaggerates things as the unemployment rate only went from 1.5% to about 3.6%, a rise, but not all that much to get worked up about.
Two points. The first is that this latter event does not account for the massive decline in female labor force participation that occurred in 1945, from about 38% to about 30%. We all know (or should) that those withdrawing from the labor force do not count in the unemployment rate. That not very large increase in the UR does not disprove that there was a sharp (if short) decline in GDP. (Rosie the Riveter went home to boom out those babies, and to buy houses to be built, given that basically none had been for about 15 years in the US).
The other point, which is perhaps more cogent for the debates here, involves monetary policy. Frightened of rising inflation, the inexperienced Fed raised the discount rate sharply during 1919-20, halting doing so in June, 1920 as it became clear that the economy was plunging into recession. OTOH, the very loose monetary policy of WW II basically continued during the immediate postwar years, only finally ended with the Fed-Treasury Accord of 1951 in the face of rising inflation tied to the Korean War. So, it may well have been that the Fed was listening to Samuelson and was slow to tighten monetary policy, thereby helping to ease that postwar transition and make sure that the one after WW II was not as sharp as the one after WW I, despite the much larger adjustments that were made.
Added: For some strange reason the system is not allowing me to comment. So, I shall reply to some comments here in the main post.
To John Papola.
OK, I grant that you have "Keynes" saying "too bad" about the wartime achievement of full employment and accept that you recognize that he was a pacifist prior to WW II. In the same place he made his statement you quote he expressed optimism that full employment could be achieved after the war with aggregate demand management without interfering with individual decisionmaking.
I am not sure why you cite Higgs on reduced consumption levels due to rationing and so forth in WW II. Everyone knew about that, certainly including Keynes who discussed such matters in his "How to pay for the war," which was all about restraining the excessive aggregate demand associated with the war.
I continue to maintain that one needs to track labor force participation. Womens' participation rose at the beginning of the war above anything previously seen and then fell at the end of the war sharply. Anyone who quotes unemployment rate changes without noticing that is being disingenuous at best. I have no problem at all with tracking employment rates (percent of working age employed) rather than unemployment rates, which have always been known to suffer from these problems.
Russ,
The recession started in Feb. 1945, but went on for 8 months, with NBER giving the GDP decline as -12.7%, larger than any since, including our most recent recession. Sure, there were measurement issues and index number problems with all that restructuring, but the 2% increase in the official unemployment rate combined with the 8% decline in female labor force participation is consistent with a pretty sharp decline in GDP, if not necessarily a full -12.7%.
Friday, April 29, 2011
Did Keynes Support Having a "Central Plan"?
That he did is charged by "Hayek" in the freshly released "Keynes versus Hayek: Round 2" at http://www.youtube.com/watch?v=GTQnarzmTOc , put out by Russ Roberts and John Papola, with backing from the Mercatus Center at George Mason. Like its predecssor, it definitely sides with Hayek, but is also highly hilarious, with pretty much anybody able to enjoy Papola playing Bernanke handing out wads of cash to bankers, and some other goofy stuff, such as libertarian anarchist Ed Stringham eagerly interviewing "Keynes" after he is declared the winner in a boxing match after being knocked down by "Hayek."
However, I do find it disturbing that increasingly Austrians and some others have taken to charging Keynes with having supported "central planning," as indeed done in this video. Is this correct? I think that the answer is largely "no," with it certainly being that answer if one means by that command central planning of the Soviet type that Hayek criticized in his Road to Serfdom (which Keynes praised, btw, when it first came out).
I think the strongest evidence for Keynes supporting central planning comes from two sources, which I shall quote. The first comes from his 1920s essay, "The End of Laissez-Faire," which has been identified as the inspiration for the movement for indicative (non-command) planning that was seen after WW II in such countries as France, Japan, India, South Korea, and some other places, although not UK or US.
After noting that uncertainty can lead to inequality of wealth and the unemployment of labor, he states: "I believe that the cure for these things is partly to be sought in the deliberate control of the currency and of credit by a central institution, ans partly in the collection and dissemination on a great scale of data relating to the business situation, including the full publicity, by law if necessary, of all business facts which it is useful to know. These measures would involve Society in exercising directive intelligence through some appropriate organ of action over many of the inner intricacies of private business, yet it would leave private initiative and enterprise unhindered." (p. 318 from Essays in Persuasion)
One can argue that Keynes is offering a hopeless contradiction when calling for this "directive intelligence," probably the closest he came anywhere to command, with his simultaneous limit on that regarding leaving "private initiative and enterprise unhindered," this latter certainly not fitting with the full-blowin command socialist model at all.
Regarding the information gathering, well, of course that is now generally done in most higher income economies, and many have argued that this was the essence of the indicative planning operations carried out in many countries, when they worked at their best, as some claim was the case in France in the 1950s, when businesspeople needed some sort of external push to revive their animal spirits, to use Keynesian language, and that seeing projections of demands by others helped provide this.
The other passage that some have pointed to as possibly suggesting a central planner tendency by Keynes comes from the final chapter of the General Theory, p. 378:
"Furthermore, it seems unlikely that the influence of of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investmenet. I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment; though this need not exclude all manner of compromises and of devices by which publich authority will co-operate with private intiative. But beyond this no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community."
One can argue again here that Keynes is setting himself up for some sort of impossible contradiction, and Hayek may well have argued that such control of investment would lead to his road to serfdom slippery slope. However, it is clear from later passages that what Keynes had in mind was ultimately the control of the aggregate of investment rather than of its specific forms or details.
These almost certainly provide the strongest evidence for Keynes supposedly supporting there being a "central plan." But it looks at most, putting the two together, like one that involves lots of provision of information and data along with some sort of control of aggregate investment, while leaving most of the decisions up to "private initiative." This hardly constitutes a "central plan," and certainly not one of the sort that the actually existing Hayek criticized. The fictional one in the video should have spoken more carefully.
However, I do find it disturbing that increasingly Austrians and some others have taken to charging Keynes with having supported "central planning," as indeed done in this video. Is this correct? I think that the answer is largely "no," with it certainly being that answer if one means by that command central planning of the Soviet type that Hayek criticized in his Road to Serfdom (which Keynes praised, btw, when it first came out).
I think the strongest evidence for Keynes supporting central planning comes from two sources, which I shall quote. The first comes from his 1920s essay, "The End of Laissez-Faire," which has been identified as the inspiration for the movement for indicative (non-command) planning that was seen after WW II in such countries as France, Japan, India, South Korea, and some other places, although not UK or US.
After noting that uncertainty can lead to inequality of wealth and the unemployment of labor, he states: "I believe that the cure for these things is partly to be sought in the deliberate control of the currency and of credit by a central institution, ans partly in the collection and dissemination on a great scale of data relating to the business situation, including the full publicity, by law if necessary, of all business facts which it is useful to know. These measures would involve Society in exercising directive intelligence through some appropriate organ of action over many of the inner intricacies of private business, yet it would leave private initiative and enterprise unhindered." (p. 318 from Essays in Persuasion)
One can argue that Keynes is offering a hopeless contradiction when calling for this "directive intelligence," probably the closest he came anywhere to command, with his simultaneous limit on that regarding leaving "private initiative and enterprise unhindered," this latter certainly not fitting with the full-blowin command socialist model at all.
Regarding the information gathering, well, of course that is now generally done in most higher income economies, and many have argued that this was the essence of the indicative planning operations carried out in many countries, when they worked at their best, as some claim was the case in France in the 1950s, when businesspeople needed some sort of external push to revive their animal spirits, to use Keynesian language, and that seeing projections of demands by others helped provide this.
The other passage that some have pointed to as possibly suggesting a central planner tendency by Keynes comes from the final chapter of the General Theory, p. 378:
"Furthermore, it seems unlikely that the influence of of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investmenet. I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment; though this need not exclude all manner of compromises and of devices by which publich authority will co-operate with private intiative. But beyond this no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community."
One can argue again here that Keynes is setting himself up for some sort of impossible contradiction, and Hayek may well have argued that such control of investment would lead to his road to serfdom slippery slope. However, it is clear from later passages that what Keynes had in mind was ultimately the control of the aggregate of investment rather than of its specific forms or details.
These almost certainly provide the strongest evidence for Keynes supposedly supporting there being a "central plan." But it looks at most, putting the two together, like one that involves lots of provision of information and data along with some sort of control of aggregate investment, while leaving most of the decisions up to "private initiative." This hardly constitutes a "central plan," and certainly not one of the sort that the actually existing Hayek criticized. The fictional one in the video should have spoken more carefully.
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