Archive for the 'Keynes' Category

Lawrence Klein: Keynesian Economist Who Wanted to Sidestep the Constitution

October 24, 2013

By Richard M. Ebeling


Nobel Prizing-winning Keynesian economist, Lawrence Klein died on October 20, 2013, at the age of 93. A long-time professor of economics at the University of Pennsylvania, he was awarded the Nobel Prize in 1980 for his development of econometric (or statistical) models of the United States “macro” economy for purposes of prediction and “activist” government policy making.

 

He also was a senior economic advisor to Jimmy Carter during his successful run for the presidency in 1976, but Klein declined a position in the Carter Administration for fear of the negative publicity from his membership in the American Communist Party in the 1930s. 

 

What is less well known today is that immediately after World War II he was one of the great popularizers of the “new economics” of John Maynard Keynes, especially in his widely read book, The Keynesian Revolution, published in 1947.

 

Keynes’ Conception of Government as Savior

In The General Theory of Employment, Interest, and Money (1936) Keynes had argued that the market economy was inherently unstable and susceptible to wide and unpredictable swings in output, employment, and prices. Worse yet, he asserted, the market could get stuck in a prolonged period of high unemployment and idle resources. Only judicious government monetary and fiscal policy could assure a return to sustainable full employment. Read the rest of this entry »

“Modern Market” Monetarism?

October 17, 2012

by Mario Rizzo

Douglas Irwin, a very fine economist at Dartmouth College, has a very puzzling opinion piece in yesterday’s Financial Times. The root of the puzzle is that Irwin seems to accept what I consider the naïve monetarist view, yet calling it by a new name “market monetarism,” that the effectiveness of monetary policy largely revolves around portfolio adjustment effects that are induced by an increase in real balances. (Isn’t this warmed over Pigou, and 1970s monetarism?)

What seems to be new is the “Divisa monetary indexes” which weight the different components of the monetary aggregates by their monetary services. In principle, this is what Milton Friedman talked about in his course “Money: The Demand Side” in the early 1970s. He said then that he thought it would be a good idea to weight the various components of the money supply by their “degrees of moneyness.” He did wonder, as I recall, if these weights would be stable over time.

Now, by this new measure, monetary policy has been tight. In fact, the money supply is no higher today than in early 2008. Read the rest of this entry »

Uncertainty and the Keynesians

July 20, 2012

by Chidem Kurdas

At the current economic juncture two camps offer diametrically opposed macro policy prescriptions. Economists on the Keynesian side such as Joseph Stiglitz and Paul Krugman advocate further monetary easing by the Federal Reserve and massive new federal deficit spending. The opposing camp includes Austrians and monetarists. Among its distinguished members is Allan Meltzer, who in a recent Wall Street Journal op-ed column argues against monetary stimulus and favors reduced government spending.

These correspond to two ways of understanding the sluggishness of the US economy,  explanations based on different time horizons Read the rest of this entry »

European Austerity in Perspective

April 26, 2012

by Chidem Kurdas

Attempts to rein in government spending necessarily have unpleasant side effects.  Thus the Dutch government collapsed amid budget talks to control the deficit.   And British national output appears to be shrinking.

Keynesians and advocates of the Obama administration’s colossal budget see this as vindication for unrestrained government spending. But in fact what we see in Europe is a very unfortunate consequence of past unrestrained spending. Read the rest of this entry »

Supply and Demand in Music

January 17, 2012

by Edward Peter Stringham*

Many economists are criticized for being unable to communicate their ideas in am intelligible and non-boring way. How many people, for example, jump to listen about a debate about the Austrian theory of the business cycle? It turns out quite a lot. John Papola and Russ Roberts demonstrated to the world that lots people will actually listen to an economics discussion if presented in an interesting way.  Their videos recently surpassed 4.5. million views. They did an amazing job especially with their good casting decisions for the reporter at the end of the second video.

This year I decided to run a video contest for students to create music videos that help illustrate the laws of supply and demand. Read the rest of this entry »

Keynes, the Future and Present Austerity

January 2, 2012

by Chidem Kurdas

In 1930, John Maynard Keynes dashed off an amazing prophecy. Extrapolating from the productivity gains of the past centuries, he came to the bold conclusion that the fundamental economic problem of scarcity would fade away in 100 years or so. Thanks to technological innovation and the accumulation of capital, the ancient condition of limited resources to satisfy competing wants would give way to a new age of plenty. Human beings would then face a very different quandary, namely what to do with themselves once they no longer have to work in order to survive.

Eighty-one years into the timeline Keynes suggested in his article, “Economic Possibilities for Our Grandchildren,” scarcity shows no sign of disappearing. Where did he go wrong? Read the rest of this entry »

“A Divine Miracle”

September 1, 2011

by Jerry O’Driscoll  

In the August 24th Wall Street Journal, Harvard Professor Robert Barro penned a hard-hitting op ed: “Keynesian Economics vs. Regular Economics.” He contrasts the lessons of standard economics with some of the unsubstantiated claims of Keynesian economics. He zeroes in on the idea that transfer payments provide economic stimulus.

Transfer payments in the guise of food stamps, unemployment benefits, and income redistribution generally have been the centerpiece of this administration’s policy to stimulate the economy. Barro quotes Agriculture Secretary Vilsack’s claim that the multiplier effect of food stamps is close to 2.

Trouble is, as Barro notes, “there is zero evidence that deficit-financed transfers raise GDP and employment – not to mention evidence for a multiplier of two.” Read the rest of this entry »

“Keynesian Death Spiral”

August 4, 2011

by Jerry O’Driscoll  

In Wednesday’s Wall Street Journal, Kevin Hassett explains the economic logic against fiscal stimulus (“Stimulus Optimists vs. Economic Reality”). It’s a superb piece.

The more powerful one believes fiscal stimulus to be, the more adept the Keynesian policymaker must be. If the stimulus has powerful positive effects when added, it will have powerful negative effects when withdrawn. Hence, the application of stimulus and its withdrawal must be precisely timed. An economist would ask from whence the knowledge to do this would come.

As Hassett notes, however, stimulus has not two but three stages. It may boost growth when added, but must slow growth when withdrawn. The third stage comes when taxes (current or future) must be paid to fund the stimulus. That stage is always negative in its effects. Thus, Hassett concludes that “the total impact of the Keynesian policy is negative over its life.”

The case for fiscal stimulus is even weaker in the aftermath of a major financial crisis, such as we have experienced. Downturns, measured by employment, are longer in the wake of such crises. Hassett cites the Reinhart and Rogoff estimate of an average duration of 4.8 years. Short-term stimulus becomes very problematic in the wake of such crises.

 “…Aggressive stimulus sets off a kind of Keynesian death spiral in which nervous politicians adopt repeated stimulus packages in order to avert near-term distress, the cumulative effect of which can be ruinous.”

(Though Hassett does not note it, Keynes was aware of the problem. He described it as the bismuth/castor oil cycle. The patient inevitably dies.)

Hassett’s analysis fits the current situation very well.

George Soros, F.A. Hayek, and The Constitution of Liberty

May 1, 2011

by Mario Rizzo

I think George Soros is a good man. To me he seems like a person who wants to make the world a better place. He, like Keynes, is against comprehensive economic planning (ambiguities about “planning” noted) but thinks that financial markets are inherently unstable and thus must be regulated by a nimble or flexible regulator.

I was at a forum last Thursday at the Cato Institute in Washington, DC in which Ronald Hamowy, Bruce Caldwell, Richard Epstein, and George Soros ostensibly discussed F.A. Hayek’s The Constitution of Liberty (the new, definitive edition). This post is not meant as a report of the event. I am not a reporter. However, I want to focus on a number of points that Soros made about Hayek’s views. I hope this will clarify some sources of misunderstanding about Hayek that may be quite common in some quarters. Read the rest of this entry »

Keynes Versus Hayek: An Empirical Matter

January 22, 2011

by Gene Callahan

Imagine that you saunter to the faculty cafeteria one day and sit down at a table already occupied by two theoretical physicists. You discover them deep in a debate. One says he has developed the wind-driven theory of leaf fall that portrays the path of a leaf, once it has left its parent tree, to be determined almost entirely by the wind. The other fellow has a gravity-driven model of leaf fall, which has it that it is gravity controlling the show. You are somewhat amazed by the fierceness of their debate, and by the fact that they just keep going on at the level of theory. Finally, exasperated, you ask, “Has it ever occurred to either of you that you are both right? Read the rest of this entry »

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