The View From 1776

Measuring Keynes

Robert Stapler assesses the effects of Keynesian economic theories dominating policy making by the Federal Reserve Bank.

Posted by .(JavaScript must be enabled to view this email address) on 01/19 at 05:17 PM
  1. I haven't comment on this blog for a long time. But I often wonder what its up to and what silly things they might be saying.

    I am thinking of "The Islamist Phoenix" by Loretta Napoleoni, whose book is about the phenomenal rise of ISIS. The ISIS group wants to recreate the Caliphate order of the old Islamic world, thinking they can restore the greatness of a past Islamic empire. It's not a practical idea because you can't recreate the past. Putin is trying to do a similar thing, wanting to recreate the Russian Empire.

    Yet The View From 1776 is hankering to do the same, go back in time to when America was first founded. It is a foolish idea because you can't go back in time. Moreover, that time, like the times of the Caliphate and the old Russian Empire, today would be unsustainable because they were stodgy, old fashion systems.
    Posted by .(JavaScript must be enabled to view this email address)  on  01/20  at  10:51 AM
  2. Although Mr. Stapler says Obama's quotes were from "a few days ago" the items posted were from from 2012, almost three years ago, when the economy was, indeed, only beginning to recover.

    Compare the economy of 2015 with 2012 and you will see the results of the Keynesian successes of the Fed and the administration exemplified by a soaring stock market, decreasing unemployment, rising productivity numbers, low inflation, improving consumer confidence, increasing housing starts and increasing rate of GDP growth. Compared to our European friends, who have followed the anti-Keynesian austerity theory recommended by Mr. Brewton, the US economy is doing very well indeed.

    There should be a lesson here in the relative merits of Keynesian economics versus the economics of austerity.
    Posted by .(JavaScript must be enabled to view this email address)  on  01/21  at  03:35 PM
  3. David,

    It is good hearing from you again. I hope you will stay with us for a while for some real dialogue. I do ask, however, that you drop the snarky-ness in the spirit of friendship and respect for the opinions of others not your own.

    It is clear from your response you did not actually read what I wrote, because, if you had, you would see it consists of an honest and open enquiry. Yes, I did come to some conclusions you would natural take as forgone, and I did begin my research with some fixed ideas regarding what does and does not work, and, yes, the result is unflattering of the current administration. Yet, it was not undertaken merely to undermine or denigrate. It was undertaken to learn what if anything useful was accomplished by quantitative easing other than to prop up our financial sector at tremendous cost to us and future generations.

    What I learned from this exercise (and you should also), is that while there may have been some stabilizing effect in the short run, it was not sufficient to warrant what was done. Moreover, each round of easing set us up for the next in a manner not unlike an addiction. All I have gotten from you and other defenders of quantitative easing in justification of it is that horrible things did not occurred as a consequence, and that it appears (to you, not us) that the market steadied as a result without you showing that that would not have happened without QE.

    Posted by .(JavaScript must be enabled to view this email address)  on  01/26  at  12:12 AM
  4. J Jay,

    I see that you did read what I wrote (superficially), and responded to that. The fact that some of my links are from 2012 does not invalidate more recent ones. If you re-read them carefully, you will see that those older links were included, not to show how QE has played out, but rather to show how it was portrayed and what we should expect of it. This, in turn, tells us we are now being told a subtly different tale from back then to distract us from seeing QE’s expectations were not realized; and that some new criteria have been substituted so that success can still be claimed for it. This is rather like me promising that if you will just allow me to pick your pocket today you will be no poorer for it, only to claim tomorrow I promised no such thing and that the pocket picking was merely to lessen the burden of heavy coins slowing you down.

    As regards your list of ‘successes’, I have already shown where those are overstated, but let’s review them again for your benefit.
    a) soaring stock market – debatable until we see what difference halting QE makes. Three times before, the FED and administration declared mission accomplished, and three times they had to step in with additional infusions of fiat money to prevent the stock market from flagging. If they do another round of QE (or its equivalent) we will know it is not working and that the growth is artificial.
    b) decreasing unemployment – it is still higher than historical and does not include the million or so workers who have simply given up. As we have shown before, U3 & U6 are not true measures of unemployment because they are rigged to hide those who leave the workforce more permanently or work ‘off the books’. It is really set up only to report only those receiving unemployment benefits; which, after a time, becomes an almost fixed number based on how large or small a dependency government is willing to support.
    c) rising productivity numbers – yes, productivity is up, though still weak. But, how do you show either QE or the bailouts had anything to do with that. So far as I can tell, most of the money banks and financial institutions make on QE is not – repeat NOT – flowing to production. If it is rising, then it is despite rather than because of those policies
    d) low inflation – under a post-FDR regulated system like ours, Inflation is whatever government decides it will be, and is not therefore a sure or fair indication of economic health. In project management, we have a saying that you can have your project done well, fast or cheap, or any combination of two of those things, but not all three. If you choose to do it fast and cheap, quality will suffer. If you choose to do it well and fast, it will become unreasonably expensive. And, if you choose to do it well, but cheap, getting it done will drag out so long you may miss the whole objective for doing it in the first place. Government keeping a tight grip on inflation (as this one has done) is like that, in that while prices of ‘basket’ commodities (i.e., those affecting CPI) were kept fairly flat, those outside the basket rose steeply (cherry-picked). Luckily (and unexpectedly) for Obama, fuel prices dropped, which did help to rein in some of those other costs in just this past year. While commodity prices stayed low, however, our store of money has roughly doubled as a direct consequence of his policies; which is why the FED worried so much about deflation (not because it hurts us, but because it shows up as inflation). But, that means government and the banks must be sitting on a huge pile of money not yet in circulation, and that too will soon become a problem.
    e) increasing consumer confidence – the surprise is not that this is increasing, but that is has taken this long for confidence to resume
    f) increasing housing starts – same reply as for consumer confidence (i.e., basically same thing)
    g) increasing rate of GDP growth – not when you subtract out the $2+tn of additional debt piled up this year to make that increase. Subtracting $2tn from $18tn leaves $16tn, and that leaves a pretty big hole in our economy. What you don’t realize is that, just like banks, recently acquired debt is counted as part of economic activity for the year, and is entered in both the liability and asset columns. GDP counts both sales and buys, borrowings and repayments, &c as ‘activities’, and are treated indistinguishably. Therefore a high GDP only tells me we’ve had a heck of a lot of activity, not whether that was good or bad for the economy. Generally, that is a good indication, but not always.
    Posted by .(JavaScript must be enabled to view this email address)  on  01/26  at  12:17 AM
  5. Bob,

    I must say you have a unique way of making universally good news seem like bad news that is being hidden from the American public in some kind of nefarious scheme.

    Basically, you are saying that things are really, really terrible, and that we are only fooling ourselves by relying in all these good economic numbers, because what is actually happening (behind the scenes) will soon come to the fore to pop our balloon of happiness.

    Based on your dire predictions, can you recommend what actions we should take?
    Posted by .(JavaScript must be enabled to view this email address)  on  01/28  at  11:07 AM
  6. J. Jay,

    No more than Obama has a way of making universally bad news sound positively wonderful. If our president handed you pig-swill and told you it is ambrosia, I have no doubt you’d gulp it down and declare it delicious. Such is blind loyalty to the man and his ideology.

    No I am not saying “things are really, really terrible”. I am simply presenting findings which happen to contradict the current regime’s claims things are rosier than reality. Nor am I sparing Bush, as he too contributed to this mess by calling for government to intervene to head off a recession, the result of which was bailouts to be administered by incompetents, and a longer, deeper recession than we would otherwise have had to endure. It is only Obama and his sycophants who are claiming the economy is safely recovered. Official sources (including BLS and the FRB) make no such claims despite carefully worded statements suggestive of recovery. You are praising Obama for having (finally) gotten us out of the Great Recession. I am demonstrating we are not out of it yet and have some way to go; and that the one indication of recovery you keep throwing at us (the Stock Market) is, at best, fragile and, at worst, a face-saving sham.

    My advice to you is stop believing politicians pontificating on subjects they aren’t really qualified to judge. I am confident we will ride this out, and that our economy will right itself if only self-appointed control-freaks will stop trying to prevent what must happen anyway.
    Posted by .(JavaScript must be enabled to view this email address)  on  01/31  at  07:21 AM
  7. J. Jay,

    You are correct my two Obama quotes are from 2½ years ago (my bad). However, are they really all that different from his more recent pronouncements regarding economic success, including those in his 2014 & 2015 State of the Union addresses? Or, putting this another way, given how often he's made the same debatable claims (only to be debunked soon after), why should anyone believe him anymore now as then?

    Nor is it only conservatives who are noticing this disconnect between Obama’s many statements regarding the recovery and reality. Here is ABC News challenging some of Obama’s more recent claims (see GROWTH ) and another by a WP commenter (see ). Moreover, there’s not a whole lot of difference between what he claims now versus 2½ years ago; so while I blew it on dates, I still got it right on substance.

    In fact, Obama has been taking economic victory laps so often even his supporters have begun suspecting him of backsliding, delusion or corruption. This is especially true when they compare their own difficulties making ends meet with all the ‘good news’ coming from D.C. telling them how much better off they are today than before he came to power. A large swathe of his core supporters are young, minorities, alien, urban, poor, unskilled, uneducated, unemployed (see )... and gullible. Many of them fully expected Obama would magically make their lives better, that his was a ‘transformative’ influence impacting them personally (it is, but not the way they expected). They honestly believed his election (and re-election) would raise them out of poverty, wipe away debts, redistribute wealth on a massive scale, instigate ‘social justice,’ and usher in the long awaited socialist utopia. And, at fleeting moments for just a tiny handful, it was almost true. Six years later (and with less than 2 years to go in his presidency), however, most of them are still waiting and starting to wonder if they’ve been played.
    Posted by .(JavaScript must be enabled to view this email address)  on  02/02  at  12:48 PM
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