tag:blogger.com,1999:blog-6245381193993153721.post5239099955325050484..comments2024-03-28T17:08:15.784-07:00Comments on Social Democracy for the 21st Century: A Realist Alternative to the Modern Left: Steven Horwitz on Stimulus Spending and HayekLord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-6245381193993153721.post-54526038057738151912012-08-26T06:57:20.015-07:002012-08-26T06:57:20.015-07:00LK,
Why do you use GDP data from the 19th century...LK,<br /><br />Why do you use GDP data from the 19th century when you stated on your blog dated 8/25/2012 Davis “All this alert us to how questionable is the whole project of real GNP/GDP estimates for the 19th century”. Would if not be more factual to state that reliable date in regard to GDP is not available.<br />Hoodnickhttps://www.blogger.com/profile/04632837703787299848noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-4634859950987687822012-08-25T13:16:14.806-07:002012-08-25T13:16:14.806-07:00Just a quick point: Kryzanowski and Roberts's ...Just a quick point: Kryzanowski and Roberts's reference to "archival evidence" is a tad misleading, for there were quite public statements from finance ministers reported in the press promising government intervention to protect depositors.<br /><br />E.g., the Minister of Finance to the McKeown<br />Commission, 1924:<br /><br /><i>"Under no circumstances would I have allowed a bank to fail during the period in question . . . If it had appeared to me that the bank was not able to meet its public obligations, I should have taken steps to have it taken over by some other bank or banks, or failing that, <b>would have given it necessary assistance under the Finance Act, 1914.</b></i><br /><br />The full evidence is given Kryzanowski and Roberts 1993: 365ff.<br />Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-11524344240383585612012-08-25T12:59:47.810-07:002012-08-25T12:59:47.810-07:00LK, I think we are not really disagreeing substant...LK, I think we are not really disagreeing substantively w.r.t. Canada, since I referred only to the 1930s, and there were neither failures nor mergers during that time, the 1923 HB failure having been the last of its sort prior to the Great depression. I will however say that, if there were "implicit" guarantees the evidence for which consists of "archival evidence," it is hard to see how those guarantees could have had any bearing on the Canadian public's confidence in the banks concerned.George Selginhttp://www.terry.uga.edu/~selgin/noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-73321484323897146582012-08-25T10:31:07.339-07:002012-08-25T10:31:07.339-07:00As someone who generally takes a Post-Keynesian ap...As someone who generally takes a Post-Keynesian approach to macroeconomics, but Austrian approach to political economy, I think you correctly point out several issues in Horwitz's post. However, I think one of your critiques fails to get at the main issue highlighted by Horwitz.<br /><br />You note, "Post Keynesians and, I suspect, even New Keynesians understand that spending on asset bubbles would be just another disaster, and that what is needed is thoughtful public investment and social spending, not “just any old spending.”<br /><br />I agree, but this doesn't answer the question of how government can be persuaded to not spend money on unproductive uses (ie. another asset bubble) or what represents "thoughtful public investment and social spending." In theory those efforts would be grand, but I remain unconvinced that political incentives will, in reality, lead to that result. <br /><br />IMO, that is an important takeaway from Horwitz on Hayekian limits of knowledge (http://bubblesandbusts.blogspot.com/2012/08/hayekian-limits-of-knowledge-in-post.html)<br /><br />Lastly, these comments offer some great discussion...so thanks. Anonymoushttps://www.blogger.com/profile/00720722626969395929noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-77949564738910056742012-08-25T10:30:02.207-07:002012-08-25T10:30:02.207-07:00Corrections:
"E.g., in 1923 the Government o...Corrections:<br /><br />"E.g., in 1923 the Government of Quebec provided <b>$15 million</b>"<br /><br />"... This confidence persisted during the 1930s" (Kryzanowski and Roberts 1993: <b>366</b>)."Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-64901686427763099642012-08-25T10:27:48.165-07:002012-08-25T10:27:48.165-07:00(1) " as for the Bank of Montreal, look ... i...(1) <i>" as for the Bank of Montreal, look ... in the absence of central banks ... banks in financial distress will look to other banks for loans ... . But to claim this as evidence that Canada "really" had a central bank before 1935 is, first of all, poppycock"</i><br /><br />You are correct. But I have not asserted that Canada "really" had a central bank. <br /><br />I said only that "the Bank of Montreal ... <i>in some ways acted like a de facto central bank</i>," a proposition that seems entirely correct to me. <br /><br />(3) <i>"Finally, regarding the 1930s, I've read the article you refer to and there were no government guarantees of deposits."</i><br /><br />The article says there was no "explicit" government guarantees of deposits, only "implicit" ones, which the private sector took notice of.<br /><br />E.g., in 1923 the Government of Quebec provided $15 for the merger of the Bank Nationale with the Banque<br />d'Hochelaga to avoid a bank failure (Kryzanowski and Roberts 1993: 365).<br /><br />When in 1923 the Home Bank of Canada failed, "depositors in the Home Bank petitioned the Canadian Government for compensation and received payment up to 35 percent of the value of their deposits" (Kryzanowski and Roberts 1993: 365).<br /><br />Furthermore:<br /><i>"Archival evidence suggests that after 1923 the Canadian government provided <b>an implicit guarantee that no chartered bank would be allowed to fail and cause depositor losses. Although never formally embodied in law, this implicit guarantee was<br />equivalent to 100 percent deposit insurance."</b></i> (Kryzanowski and Roberts 1993: 365).<br /><br /><i>"In summary the archival evidence is consistent with our hypothesis that beginning in 1923, <b>an implicit guarantee from the Canadian government (amounting to 100 percent implicit insurance) stood behind all domestic bank deposits.</b> The government actively facilitated mergers during the 1920s to avoid firesale insolvency and successfully created public confidence that no bank would be allowed to fail. This confidence persisted during the 1930s" </i> (Kryzanowski and Roberts 1993: 365).Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-11630740792450042392012-08-25T09:22:31.368-07:002012-08-25T09:22:31.368-07:00The Canadian troubles in 1907 were due to a Canadi...The Canadian troubles in 1907 were due to a Canadian regulation which, quite inadvisedly, limited banknote issues (but not deposits) to bank capitalization, exposing the banks to problems when, as in the year in question, sharp increases in the public's desired C/D ratio put them up against the regulatory constraint. The regulation was relaxed, and that was the end of that.<br /><br />1914 of course is much more complicated. Suffice to say that the problem here was WWI and the consequences of British gold export restrictions, and consequent mass liquidation of foreign securities, which after all the canadian system handled rather well.<br /><br />Finally, as for the Bank of Montreal, look: of course in the absence of central banks, which let us not forget) are privileged statutory monopolies, banks in financial distress will look to other banks for loans, and to big banks especially. But to claim this as evidence that Canada "really" had a central bank before 1935 is, first of all, poppycock and, second of all, more an argument against the need for statutory currency monopolies than one favoring such. <br /><br />Indeed, there were many occasions during the 19th c. when genuine central banks turned to commercial ones for short-term loans.<br /><br />Finally, regarding the 1930s, I've read the article you refer to and there were no government guarantees of deposits. All that the government can be said to have done was to practice forbearance by not shutting banks down while they were temporarily insolvent, which other authorities claim was the case only for a couple of them and only for a year or so around 1932. This forbearance was, furthermore, only necessary the the extent that a strict (non-market based) "mark to market" rule was in play; under traditional bank accounting principles those banks would almost certainly have been kept open anyway. George Selginhttp://www.terry.uga.edu/~selgin/noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-28985942583567643372012-08-25T08:55:25.014-07:002012-08-25T08:55:25.014-07:00Some quick points on Canada:
(1) In the 1800s, Ca...Some quick points on Canada:<br /><br />(1) In the 1800s, Canada had a large private bank called the "Bank of Montreal" that in some ways acted like a de facto central bank.<br /><br />For government interventions to stabilize Canada's financial system pre-1930, see Charles Goodhart and Gerhard Illing (eds.), <i>Financial Crises, Contagion, and the Lender of Last Resort: A Reader</i>, p. 121:<br /><br /><i>"However, the Bank of Montreal (founded in 1817) very early became the government's bank and performed many central bank functions. Because Canadian banks kept most of their reserves on 'call' in the New York money market, they were able in this way to satisfy the public's demand for liquidity, again precluding the need for a central bank. <b>On two occasions, 1907 and 1914, however, these reserves proved inadequate to prevent a liquidity crisis and the Government of Canada had to step in to supplement the reserves</b>."</i><br /><br />(2) Canada did not see a financial sector meltdown from 1929-1933 because of implicit government guarantees and interventions:<br /><br />Kryzanowski, Lawrence, and Gordon S. Roberts. 1993. "Canadian Banking Solvency, 1922-1940," Journal of Money, Credit, and Banking 25: 361-376.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-63283183681233715612012-08-25T08:49:43.648-07:002012-08-25T08:49:43.648-07:00Actually, central banks were in fact not all that ...Actually, central banks were in fact not all that common at the time to which you refer. Switzerland didn't have one; neither did Sweden, or any of the British dominions, or Italy, or...well, it's a long list. That Canada didn't have a central bank until 1935, and yet (despite heavy dependence on trade with the U.S.) altogether avoided the crises that regularly afflicted the U.S. from 1873 through 1914, and avoided both bank failures and much of the monetary contraction that slammed the U.S. in the early 1930s, is particularly instructive, or will be to anyone not wedded to the naive view that central banks prevent more crises than they help to bring about.<br /><br />In any event, although I don't call myself an Austrian, Larry White, who is one of the coauthors of "Has the Fed Been a Failure" and the author of a darn good book on Scottish banking, as well as plenty of other historical stuff, hardly fits your sweeping generalization about Austrian economics. There are after all Austrians and "bastard" Austrians, just as there are Keynesians and bastard Keynesians.George Selginhttp://www.terry.uga.edu/~selgin/noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-31317410341713671052012-08-25T08:39:10.277-07:002012-08-25T08:39:10.277-07:00Thanks for that. You might also consider linking t...Thanks for that. You might also consider linking to your later post concerning Joseph Davis' work, since that's also relevant here.George Selginhttp://www.terry.uga.edu/~selgin/noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-70777696113325563412012-08-25T05:13:27.271-07:002012-08-25T05:13:27.271-07:00I have noted this above after the quotation, to ma...I have noted this above after the quotation, to make clear to readers what Selgin et al. 2010 argues.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-28116835499744210192012-08-25T04:56:12.229-07:002012-08-25T04:56:12.229-07:00More Austrian distortions of history. They tend to...More Austrian distortions of history. They tend to take the view that the 19th century was an idyllic capitalist era untainted by what they call "Keynesianism". However, it is quite clear that governments during the 19th century often intervened during recessions.<br /><br />Example: In 1874 Congress shot down the "Inflation bill" which sought to inject newly printed dollars into the system -- something like a 19th century version of QE. While this was rejected it led the way to the silver purchases of 1878 which were basically the same thing.<br /><br />Not to mention the fact that outside of the US central banks had been in existence for some time. Intervention was rife across the 19th century, but the Austrians -- being a cult -- prefer mythology to history.Philip Pilkingtonhttp://www.nakedcapitalism.comnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-59872760744151698342012-08-25T03:41:26.323-07:002012-08-25T03:41:26.323-07:00You create a rather misleading impression in quoti...You create a rather misleading impression in quoting from my, Lastrapes, and White's paper, in that the passages immediately following those you quote supply further evidence that appears to favor Romer's general conclusion over that of Balke and Gordon.George Selginhttp://www.terry.uga.edu/~selgin/noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-29744228228177344102012-08-24T19:50:43.669-07:002012-08-24T19:50:43.669-07:00"With more knowledge becoming available, this..."With more knowledge becoming available, this should also cause an improvement in the functioning of economies."<br /><br />Maybe this is true in a world of no change or quasi change . But in a world of constant change of data, more knowledge does not necessarily mean that we have reduced uncertainty. Isaac Izzy Marmolejohttps://www.blogger.com/profile/11954588809878738480noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-51710337757608283152012-08-24T17:23:13.109-07:002012-08-24T17:23:13.109-07:00(1) "Recessions should be getting shorter,&qu...(1) <i>"Recessions should be getting shorter,"...</i><br /><br />And the data cited above show they did after 1945, certainly compared with the 1919–1945 period. And this is only the data for the US. No doubt one could cite evidence from European countries, Canada, Australia, etc.<br /><br />(2) First, I find the criticisms you cite from Mises.org unconvincing, and secondly not all of them are dismissive at all:<br /><br /><i>"<b>So while Minsky's story accurately describes the present financial-market turmoil</b>, it does not provide any satisfactory explanation based on previously established and identified phenomena. It arbitrarily puts the blame for instability on the capitalistic economy without even making the slightest attempt to establish a logical verification for this claim. We have seen, however, that it is the existence of the central bank that lays the foundation for financial instability. This means that, contrary to Minsky and the other post-Keynesians, the source for current financial turmoil is likely to be the central bank, i.e., the Federal Reserve's monetary policies."</i><br /><br />http://mises.org/daily/2787<br /><br />Shostak's only real "criticism" as far as I can see is that he thinks the central bank that is the main cause of the instability. That ignores the role of effective financial regulation, which can prevent Minsky cycles from happening.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-34608161373564254692012-08-24T15:29:19.673-07:002012-08-24T15:29:19.673-07:00Recessions should be getting shorter, as Steffan K...Recessions <b>should</b> be getting shorter, as Steffan Karlsson has outlined here:<br /><br />http://stefanmikarlsson.blogspot.com/2007/03/why-economy-is-less-cyclical.html<br /><br />I also invoke the Hayekian view of the use of knowledge in society. With more knowledge becoming available, this should also cause an improvement in the functioning of economies. You will likely contend with a theory of incentives to hide information, but I contend that is due to perverse incentives caused by government through intervention. Political incentive, regulation, regulatory arbitrage, supplantation of spontaneous order.<br /><br />You could argue in the line of Minsky's Financial Instability hypothesis that the changes in the size and power of the financial sector can make things worst without keynesian regulation, but this is severely flawed. The FIH has been critiqued numerous times at your much hated site. Brace yourself for the URl, Lord Keynes, I know you are delicate:<br /><br />https://www.google.com/search?hl=en&safe=off&sa=X&ei=zP83UI3-FsqRiAK1-IHAAw&ved=0CBwQvwUoAA&q=site%3Amises.org+financial+instability+hypothesis&spell=1&biw=1366&bih=667<br /><br />Anonymoushttps://www.blogger.com/profile/11822025819046965291noreply@blogger.com