A Greek Tragedy for Anti-Keynsians

It's common for Austrians and pro-freemarketers to lambast even light Keynesians about their conclusions. We hear things such as "you just don't understand" economics or markets constantly. For better or worse, Wall Street is overwhelmingly pro- free market and anti-Keynesian. As we often point out, people have a fantastic ability to fool themselves. Here is a great example.

Keynes vs. Hayek

Yo yo yo! Rap style!



Word.

Keynes wasn’t all wrong. He just wasn’t all right.

Keynes’ General Theory of Employment, Interest and Money revolutionized economic thought in 1936 and ignited a debate that continues to this day. Prior to Keynes, classical economists correctly believed that economies have self-correcting mechanisms that maintained prosperity and full employment. Keynes argued that the propensity of firms to invest could be too low compared with that of household savings, leading to recurring depressions. Keynes believed that through government fiscal policy, i.e. lower taxes and higher spending, that the government could help the private sector and restore full employment. Politicians seem to have forgotten the part of the policy about lower taxes for the most part.

The Great Long Run Blog Debate #2: Keynesian Economics

Keynes has been a popular topic lately. By Keynes I mean both John Maynard and his economic theory of government intervention into the free market. To quote wiki:

Idiot Revisited: Fisher

A while back, last September 9th to be exact and right before the world really fell apart, I took some flack for calling the Dallas Fed President Richard Fisher the economic idiot of the week. If you don't recall why, let me help you. As the world was rapidly deflating in a giant credit crunch, Mr. Fisher's position was described in the Fed's meeting minutes as

"While the financial system remained fragile and economic growth was sluggish and could weaken further, he saw a greater risk to the economy from upward pressures on inflation." [Emphasis mine]

A few months later he changed his tune and accepted that the right thing to do during a credit crunch is not tighten credit, but rather expand credit and liquidity. Thankfully, Bernanke already knew this.

I raise this issue again because Mr. Fisher was in the news again today. Bloomberg reported on some of his remarks this week. I'll quote from Bloomberg's article (again, emphasis mine):

Sokath, his eyes opened

I recently moved back to Canada after living for four years in Seoul, Korea. Before Seoul, I spent four years in Seattle, WA. For the first time in eight years I'm a Canadian tax payer and soon to be a voter again. We're having a Federal election in October. I'm thinking of voting for the Natural Law Party as a kind of protest vote. The Liberal and Conservative parties look nothing like the versions I knew eight years ago.

One of the interesting things about living abroad is you begin to understand how much internal propaganda your own nation generates and how much you subconsciously swallow. It's not until you live abroad and see Americans or Koreans telling themselves nearly the same kinds of things Canadian tell each other, you realize this.

Economic Idiot of the Week

The Fed doesn't get it, at least not entirely. While I normally don't read the minutes to the Federal Open Market Committee meetings, I thought they might shed light on the Fed's thinking at this critical stage in the economy. Here is a paragraph from the minutes of the August 5th meeting:

What is Money?

I had an exchange with a commenter in the thread after my post about the Fed.  Seems he saw a video (the link is in the thread, I don't really recommend that anyone waste 47 minutes of their valuable time watching the thing) called 'Money as Debt' by Paul Grignon, a Canadian gentleman who is all up in arms about the concept of fiat money, especially of the type known as credit money.

The Fed - Part II

In part I, we talked a little bit about what the Fed does, and how it tries to juggle its multiple mandate to safeguard the banking system, achieve the highest level of employment possible, and keep inflation under control.

The Fed - Tool of the New World Order or Jewish Conspiracy? Part I

How about 'none of the above?'  Of course, there are many people who would pick both, and add a few choice words as well.  It is true enough that the founding fathers were very suspicious of central banks, and worked hard to prevent the United States from having one.  These days, though, a country without a central bank is like a hockey team without a goalie - it's not against the rules, but it would lead to some wild action.

Derivatives - Good, Bad, and Ugly

The press loves to talk about 'derivatives' as if all the evils of the world can be wrapped up in a single word.  What's wrong with Wall Street? Derivatives.  Why did you lose your job? Derivatives.  Why can't the Mets bullpen get the job done?  Okay, that one's not about derivatives.  I don't think.