tag:blogger.com,1999:blog-6245381193993153721.post8950585090692183825..comments2024-03-28T17:08:15.784-07:00Comments on Social Democracy for the 21st Century: A Realist Alternative to the Modern Left: Austrian Business Cycle Theory: Its Failure to explain the Crisis of 2008Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.comBlogger88125tag:blogger.com,1999:blog-6245381193993153721.post-11230919683475441332014-12-27T21:31:09.959-08:002014-12-27T21:31:09.959-08:00"Your argument seems to be that because ABCT ...<i>"Your argument seems to be that because ABCT fails to explain 2008, it's incorrect. "</i><br /><br />That is not my argument. Yes, ABCT does not explain the 2008-2009 crisis and recession, but this is not the reason why it is false.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-31185786717696538032014-12-27T15:47:13.223-08:002014-12-27T15:47:13.223-08:00Your argument seems to be that because ABCT fails ...Your argument seems to be that because ABCT fails to explain 2008, it's incorrect. That's assuming ABCT is a comprehensive theory of recessions. However, ABCT only is an explanation of why some recessions occur--recessions caused by a large increase in the money supply and/or a large increase in credit which leads to a shift to 'capital goods'. It doesn't explain, for example, why a recession would be caused by a war, or the invention of a new technology. That some Austrian economists have adapted/expanded ABCT to explain more of economic history is hardly an argument for why older versions of ABCT could never explain any recession accurately, or, at least, one factor among several (because a recession won't necessarily have only one cause).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-67756695114308620502014-12-26T02:01:41.313-08:002014-12-26T02:01:41.313-08:00On the contrary the modern ABCT has all the flaws ...On the contrary the modern ABCT has all the flaws of Hayek's theory:<br /><br />http://socialdemocracy21stcentury.blogspot.com/2013/08/why-austrian-business-cycle-theory-is.html<br /><br />That the modern Austrians have tried desperately to make their theory fit the evidence only underscores its failure.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-13941717012740937412014-12-26T01:23:26.976-08:002014-12-26T01:23:26.976-08:00Sure, as originally formulated; I wouldn't dis...Sure, as originally formulated; I wouldn't dispute that. But ABCT has evolved since then. Austrian economists don't talk about ABCT like it's just what Hayek wrote (note that you said 'classic ABCT'). It's perfectly sound to say that it's consistent the original ABCT theory that 'artifically low interest rates' could lead to a consumer debt or asset bubble *also* and not just a shift to 'capital goods', because it's fundamentally a theory about malinvestment/unsustainable activities. Nowadays, when people talk about ABCT, they're talking about it like Murphy and the other Mises Institute folks talk about it, where the emphasis is on any unsustainable economic activity linked to expansion of credit and/or the money supply in excess of overall production, not just what Hayek wrote.<br />And just because a theory undergoes changes doesn't make it wrong. I mean, you call yourself a post-Keynesian, presumably because you see flaws in Keynesian theory from 40 years ago. So it's reasonable to assume Keynesian theory you subscribe to will be different in 20 years because of any failures it has to explain economic phenomena in the 2020s. But would that mean Post-Keynesianism fails to explain the 2008 financial crisis? Concordantly, I don't see how Hayek's failure to understand the full implications of his theory invalidates modern-ABCT (regardless of its merits). Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-1024009136975509862014-12-26T01:03:51.418-08:002014-12-26T01:03:51.418-08:00"In other words, ABCT doesn't say that th...<i>"In other words, ABCT doesn't say that the only form of malinvestment to occur would be in the form of 'capital goods' (in Austrian sense), but also loans that can't be repaid, too much speculation, etc."</i><br /><br />On the contrary, the classic ABCT is only<br />concerned with real capital investments -- there is nothing in it about consumer debt or asset bubbles.<br /><br />That the Austrians have been forced to come up with ad hoc changes to their theory only suggests that it is like epicycles on epicycles.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-48088254900554117672014-12-26T00:59:14.726-08:002014-12-26T00:59:14.726-08:00I am not attempting to vindicate ABCT. That's ...I am not attempting to vindicate ABCT. That's why I said my post shouldn't be taken as an endorsement of ABCT. I said you were being unfair to ABCT, as in your argument against it was invalid.<br />My point was that according to ABCT, excessive debt and reckless lending are more likely to occur if the money supply expands much faster than overall production / interest rates are below the 'natural rate' (not that I believe in such a thing). My point was just that the excessive debt and reckless lending of the 2000s is consistent with ABCT. In other words, ABCT doesn't say that the only form of malinvestment to occur would be in the form of 'capital goods' (in Austrian sense), but also loans that can't be repaid, too much speculation, etc.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-54332637653217029162014-12-25T22:37:27.647-08:002014-12-25T22:37:27.647-08:00"expansion of the money supply via the Federa...<i>"expansion of the money supply via the Federal Reserve makes it easier for irresponsible lending in the private sector to occur"</i><br /><br />Low interest rates ***with poorly regulated banks and financial institutions** make it easy for "irresponsible lending in the private sector to occur" -- that does not vindicate ABCT.<br /><br />Also, economists dispute whether houses are capital goods.<br /><br />And even if true none of those points vindicates the theory: ABCT already fails on the non-existence of the unique Wicksellian natural rate and the false loanable funds theory.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-70001025637088600472014-12-25T21:14:09.019-08:002014-12-25T21:14:09.019-08:00You've been unfair to ABCT here--expansion of ...You've been unfair to ABCT here--expansion of the money supply via the Federal Reserve makes it easier for irresponsible lending in the private sector to occur, and housing is, in fact, a capital good (an Austrians think of them) because houses are expensive to build, involve a lot of 'higher-order' goods, and it takes a while for the payoff from building them to occur (again, it's highly likely less houses would've been built if the Fed hadn't lowered interest rates as low as they did in the early 2000s). (None of this is intended to be taken as an endorsement of ABCT).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-44787692164053304152012-07-03T23:26:18.496-07:002012-07-03T23:26:18.496-07:00Suo,
"Now, regarding Minsky (whom I like a l...Suo,<br /><br />"Now, regarding Minsky (whom I like a lot)…<br /><br />Minsky’s FIH work is actually a regurgitation (of sorts) of Schumpeter (his teacher at Harvard), albeit clothed in the Keynesian vernacular of "animal spirits" and "effective demand." "<br /><br />The Financial Instability Hypothesis essentially flows from three propositions:<br /><br />1. Any model of capitalism must be able to produce a depression or a collapse as a potential outcome (his own conjecture).<br />2. Money is created endogenously by banks as credit (Schumpeter)<br />3. The future is uncertain, and expectations are subjective (Keynes)<br /><br />Schumpeter stated in his work that endogenous expansion of purchasing power by banks was required for entrepreneurs to create new markets. Minsky ran with this idea and asked what would happen if instead that endogenous expansion of purchasing power was funneled to gamblers and speculators who used the funds to play casino in asset trading on a rising market.mojo.rhythmhttps://www.blogger.com/profile/14901306439675127615noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-41833169869064314382011-01-19T04:35:35.943-08:002011-01-19T04:35:35.943-08:00Lord Keynes, this short text will actually prove (...Lord Keynes, this short text will actually prove (and also disprove) your assertion about the failure of the ABCT in explaining the Crisis of 2008:<br /><br />http://www.economicthought.net/2009/08/consumer-credit-and-the-theory-of-the-cycle/<br /><br />There, Jesus Huerta de Soto claims that when credit expansion is targeted to consumer goods, it also triggers a boom/bust cycle. He actually says that Rothbard's claim was wrong all the way.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-6140881458239312622010-12-12T11:42:32.814-08:002010-12-12T11:42:32.814-08:00Lord Keynes, in your Nov 14th post you said you’d ...Lord Keynes, in your Nov 14th post you said you’d read the two Mises papers (“Stabilization of the Monetary Unit from the Viewpoint of Theory" from 1923 and “Monetary Stabilization and Cyclical Policy" from 1928) that I've pointed you to. <br /><br />Have you read them? <br /><br />And if so, do you now agree that the Mises version of the old Circulation Credit Theory of the Trade Cycle (now known as the Austrian Business Cycle Theory) accurately explains the current financial crisis – Yes or No?suo Martehttps://www.blogger.com/profile/03379409145057374887noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-18240437058304995682010-11-15T09:15:59.876-08:002010-11-15T09:15:59.876-08:00LK, you're confusing cause and effect, and usi...LK, you're confusing cause and effect, and using a field full of straw-men to give the illusion that you're actually attacking the real ABCT.<br /><br />First, is there a single written account of the ABCT? No. Just as there is no single written account of a theory of gravity. Each physicist formulates his own application of general principles, and there can be substantial disagreement amongst them even when a single set of general principles are chosen. So ABCT, as a general set of principles, lays out that interventions into the interest market, and the market generally, by a non-profit motivated actor necessarily disrupts the capital structure of the entire market, diminishing the responsiveness of the capital structure to profits and losses.<br /><br />Could this formulation be attacked as not being "the true Autrian"? Certainly. But according to this formulation it is easy to see that Fed monetary policy, FHA and HUD intervention, Fannie Mae and Freddy Mac, and tax incentives gave private profit-and-loss actors the means to give contracts and develop a service industry that WOULD HAVE BEEN UNSUSTAINABLE but for the govt interventions.<br /><br />More to the point, as these lines of production are insulated from immediate market corrections through govt fiat, they expanded and subsumed more of the market share of end-consumers. But as the market sought equilibrium, those who were making profits from being the beneficiaries of govt policy suddenly realized that there was no longer any benefits in the structures they had established because there were losses that the govt couldn't make disappear.<br /><br />This explains why there can be a boom/bust even in mortgages for "consumer's" homes - its not just the home, but the capital structure involved in creating and selling and repackaging and insuring the real estate MORTGAGES. The capital structure in these mortgages and their resale market is what was distorted by govt intervention. It makes no difference that the end product was a consumer's good. In fact, the goal of all capital structure is to produce consumer's goods so your contention is truly misguided in claiming that because consumers were affected, the ABCT must be faulty.iawainoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-46768662461512483762010-11-14T04:32:40.093-08:002010-11-14T04:32:40.093-08:00I expressly didn’t engage in your type of interest...I expressly didn’t engage in your type of interest rate comparison because it its simplicity is its error. Federal Reserve policy during the 1956-58 period relied on Regulation Q, multiple discount rates by the various Reserve System branches AND federal funds rate changes to control credit expansion. In other words, when market rates declined, the Federal Reserve interpreted the decline as “easy” monetary policy and when rates rose, the Federal Reserve believed the rise was “tight” monetary policy. As Mises would argue, this simplicity obscures how changes in the quantity of money alters current and expected future prices on assets and exchange rates. And this is why Federal Reserve performance was “mixed” during the 1950s leading up to The Great Inflation. The Federal Reserve's incoherent policies gyrated the economy from recession to expansion throughout your so-called "Golden Age" of Keynesianism. The Federal Reserve’s monetary policy (during this period) was PROCYCLICAL NOT COUNTERCYCLICAL; the Federal Reserve slowed money supply growth when rates FELL and permitted faster money supply growth when rates ROSE.<br /><br />You really need to understand what discounting is & its role in the expansion & contraction of credit which is the expansion & contraction of the quantity of money. This is not something that can be explained in a few sentences and I’m NOT engaging in “an appeal to authority” here. You need to understand how credit expansion & contraction worked during the 1950s and if you did, you would not have made the simple comparison of 1956-58 to 2002-05. Please refer to pgs 104-105 of Mises’s elaboration of Circulation Theory in his 1928 paper to explain the theoretical error behind the Federal Reserve’s discount rate actions during this period. You’re obviously unaware the discount rate INCREASED from 1.5% to 3.5% in a series of seven steps between 1954-57. <br /><br />The US experienced a “sharp recession” between 6/1953 and 5/1954 according to the NBER. Real GNP fell 3.2%, industrial production fell 9.4% and unemployment increased above Govt’s “4% full employment target” to 6.1% As this was the first recession under a Republican president since 1929, the Federal Reserve began a round of easy monetary policy. As a result of this procyclical expansion of the money supply, the recovery from recession lasted 13 quarters between 1955-57; real GNP rose at an average 3.4% annual rate and industrial production at a 6% average rate and after a sharp decline in 1956 it returned to an annual growth rate of 2-4% until the start of the 1957-58 recession. Please see pages 106-172 of Book 1, Vol 2 of Meltzer’s History of the Federal Reserve for the sources of my empirical proof here. Also beginning on pg 172 is the empirical proof of the 1958-60 expansion.<br /><br />Suffice to say, you’ve again simply cherry-picked apples & oranges rates and attempting to compare them. Reality is much more complicated than your analysis. Bottom line: your comparison absolutely does not refute the fact that the Federal Reserve creates asset bubbles when it artificially holds the real interest rate below what it otherwise would be w/o this manipulation.<br /><br />I’m leaving for NYC today for work & not back until Friday. I will follow up w/ you then. And thank you for saying you’ll read the Mises papers from 1923 & 1928. I’d also encourage you to purchase the Meltzer books (both Vols 1 & 2). Amazing amounts of data here – astounding really. The story goes he had as many as 12 students doing the research, on & off, over a multi-year period. If you appreciate lots facts, details & primary sources as I do, you’ll love this book.<br /><br />Best.suo Martehttps://www.blogger.com/profile/03379409145057374887noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-49520436284939826672010-11-14T00:59:17.071-08:002010-11-14T00:59:17.071-08:00Considering you know Mises is the fountainhead of ...<i>Considering you know Mises is the fountainhead of the “Austrian” version (which is a “mere elaboration” in his own words) of the old Monetary Theory of the Trade Cycle, why critique Rothbard instead of Mises?</i><br /><br />Because Rothbard’s version appears to be more influential amongst modern Austrians.<br /><br />Regarding Mises’ essays “Stabilization of the Monetary Unit from the Viewpoint of theory" and “Monetary stabilization and cyclical policy”, I have found them in <i>The Causes of the Economic Crisis and Other Essays before and after the Great Depression</i> (ed. P. L. Greaves), Ludwig von Mises Institute, Auburn, Ala., and will read them.<br /><br /><i>Have you actually read Mises's "Theory of Money & Credit" in which the ABCT "elaboration” of the old Monetary Theory of the Trade Cycle was first put forward</i><br /><br />What are pages numbers exactly, for the 1953 edition? (trans. H.E. Batson; Yale University Press, New Haven).Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-32386112722006194422010-11-13T15:39:23.085-08:002010-11-13T15:39:23.085-08:00Respectfully Lord Keynes, do you really want to pu...<i>Respectfully Lord Keynes, do you really want to put my source Meltzer's History of the Federal Reserve against a journal article by Kaldor to dispute the Federal Reserve's "Great Inflation"? </i><br /><br />If you want to refute Kaldor, go ahead and offer actual <i>arguments</i> refuting him, don’t resort to a lazy <a href="http://en.wikipedia.org/wiki/Argument_from_authority" rel="nofollow">appeal to authority fallacy.</a><br /><br /><i>Tell me precisely where Meltzer is incorrect in his History of the Federal Reserve Vol 1.</i><br /><br />Why on earth would Meltzer be the only source you consult on the causes of the Great Depression?<br />Perhaps you are unaware of, say, Irving fisher’s debt deflation theory, as developed by Hyman Minsky?<br /><br /><i>Even Chairman Bernanke admitted the Federal Reserve is responsible in his March 2009 interview on 60 Minutes. </i><br /><br />His is another lazy appeal to authority fallacy. Just because Bernanke said something it does make it true.<br /><br />And incidentally, Bernanke holds the monetarist view of Friedman that Fed policy <i>exacerbated</i> the depression, not caused it. This is not incompatible with the view that its fundamental causes were <br /><br />(1) a poorly regulated/essentially laissez faire financial system; <br />(2) irrational speculation on asset prices<br />(3) excessive private debt used to fuel asset speculation<br />(4) bursting of the asset bubble<br />(5) debt deflation<br />(6) a spill over into the real economy<br />(7) bank runs, bank collapses<br />(8) debt deflationary spiral<br /><br />All of this was made worse by incompetent Fed policy (with its “gold standard” mentality and a gold exchange standard that transmitted deflationary shocks to other countries), but that was not the fundamental cause.<br /><br />Another point: the US had serious depression in the 1890s when the Federal reserve did not even exist. <br /><br />Australia also suffered a horrific depression at the same time, when it had no central bank, a free baking system and a gold standard.<br /><br />The business cycle existed long before central banks.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-78161898210474179532010-11-13T15:21:22.166-08:002010-11-13T15:21:22.166-08:00Is Christina Romer a “Post Keynesian”?
No. She is...<i> Is Christina Romer a “Post Keynesian”?</i><br /><br />No. She is a neoclassical New Keynesian<br /><br /><i> Keynesian terms and classic demand-side Keynesian economics how is that leading American Keynes inspired economists got it so PRECISELY wrong?</i><br /><br />There weren’t “PRECISELY wrong” at all.<br />First, in actual fact there WERE 2 recessions after WWII:<br /><br /><b>Recession of 1945, Feb–Oct 1945, GDP decline: −12.7%</b><br />"The decline in government spending at the end of World War II led to an enormous drop in gross domestic product making this technically a recession. This was the result of demobilization and the shift from a wartime to peacetime economy. The post-war years were unusual in a number of ways (unemployment was never high) and this era may be considered a "sui generis end-of-the-war recession"<br /><br /><b>Recession of 1949, Nov 1948–Oct 1949, GDP decline: −1.7%</b><br /><br />US fiscal policy in 1948-1949 shifted to a class Keynesian stimulus that ended this recession. <br />http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States<br /><br />So tell me again, how are these facts not explained by Keynesianism?<br /><br /><a href="http://books.google.co.nz/books?id=jM4ku5Bmb64C&pg=PA55&dq=Recession+1949+stimulus&hl=en&ei=LxrfTOz1AY7RcbTa6ZcM&sa=X&oi=book_result&ct=result&resnum=2&ved=0CDIQ6AEwAQ#v=onepage&q=Recession%201949%20stimulus&f=false" rel="nofollow">Norman Frum, Recession Prevention Handbook: Eleven Case Studies, 1948-2007, p. 55</a><br /><br />And regarding my earlier comment: Samuelson thought there would a slide back into actual depression and stagnation after the war:<br /><br /><a href="http://books.google.co.nz/books?id=xnckeeTICn0C&pg=PA340&dq=Samuelson+worried+depression+post+war&hl=en&ei=rxvfTKK0GYSkcfuTgZgM&sa=X&oi=book_result&ct=result&resnum=7&ved=0CEoQ6AEwBg#v=onepage&q&f=false" rel="nofollow">Burton Feldman, The Nobel Prize: A History of Genius, Controversy, and Prestige, p. 340.</a><br /><br />He was wrong. Keynes was right.<br />The global prosperity and full unemployment post-1945 under Keynesianism economics also shows Keynes’ system was right. Pointing to some mistaken predictions in the first years of the Keynesian era by early Keynesians, as though this is some powerful argument against Keynesian theory is ridiculous.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-38398570956649502332010-11-13T15:01:15.379-08:002010-11-13T15:01:15.379-08:00Regarding the chart, I never said it showed real i...Regarding the chart, I never said it showed real interest rates. <br /><br />I suggested that you might like to find a chart with real interest rates to prove your own points.<br /><br />But given that real interest rates are nominal rates minus inflation, you could easily do some calculations based on the nominal rate.<br /><br />In 1956/1957/1958, the Federal funds rate went down to about 1%.<br /><br />US inflation in those years:<br />1956 1.5<br />1957 3.3<br />1958 2.8<br /><br />The real interest rate must have been negative in 1957/1958/1959<br />Perhaps even -2.3% around 1958.<br /><br />From 2002-2004, the Federal funds rate was about 2% and 1%<br /><br />US inflation rates<br />2002 1.6<br />2003 2.3<br />2004 2.7<br />2005 3.4<br /><br />In 2002 it probably went negative, and in 2004 it was probably about -1.7%.<br />In other words, exactly what I said: about the same level as in 1956-1959, and perhaps 1958 had even lower negative rate.<br /><br />It also looks like 1961/1962 had almost zero real interest rates as well.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-4427736613122416612010-11-13T04:30:11.090-08:002010-11-13T04:30:11.090-08:00And to be crystal clear, Lord Keynes: do you conte...And to be crystal clear, Lord Keynes: do you contend the Mises version of the Monetary Theory of the Trade Cycle does not accurately describe the current financial crisis - Yes or No?suo Martehttps://www.blogger.com/profile/03379409145057374887noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-81999605745093692922010-11-13T04:27:27.357-08:002010-11-13T04:27:27.357-08:00Lord Keynes, back to my original questions in my o...Lord Keynes, back to my original questions in my original post which you've not answered:<br /><br />1. Considering you know Mises is the fountainhead of the “Austrian” version (which is a “mere elaboration” in his own words) of the old Monetary Theory of the Trade Cycle, why critique Rothbard instead of Mises?<br /><br />2. Have you read Mises's 1923 & 1928 papers ("stabilization of the monetary unit from the viewpoint of theory" and "monetary stabilization and cyclical policy," respectively) - Yes or No?<br /><br />Also, a new question: Have you actually read Mises's "Theory of Money & Credit" in which the ABCT "elaboration” of the old Monetary Theory of the Trade Cycle was first put forward - Yes or No?suo Martehttps://www.blogger.com/profile/03379409145057374887noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-40542581062191528422010-11-13T03:58:35.301-08:002010-11-13T03:58:35.301-08:00suo Marte: "The Federal Reserve caused the Gr...suo Marte: "The Federal Reserve caused the Great Depression"<br /><br />Lord Keynes: "It did not. Its contractionary policy exacerbated the downturn."<br /><br />I respectfully recommend you update your reading my friend. You're simply wrong. Tell me precisely where Meltzer is incorrect in his History of the Federal Reserve Vol 1. <br /><br />Your denial of reality is stunning. Even Chairman Bernanke admitted the Federal Reserve is responsible in his March 2009 interview on 60 Minutes... I'm sure it's posted on YouTube somewhere if you don't believe me.<br /><br />I don't mean to give you a hard time here Lord Keynes but denial of reality makes constructive dialogue very difficult. Have you actually read Meltzer's Vol 1 (or Vol 2 for that matter)?suo Martehttps://www.blogger.com/profile/03379409145057374887noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-63528256679262558962010-11-13T03:43:53.817-08:002010-11-13T03:43:53.817-08:00suo Marte: "1965-1980 was the “Great Inflatio...suo Marte: "1965-1980 was the “Great Inflation” - the Federal Reserve’s perverse policy of wealth destruction by devaluing the money in our pockets."<br /><br />Lord Keynes: "You badly mangle history. Double digit inflation was caused by the oil shocks – this wasn’t the Federal Reserve, and even the higher single digit inflation was due to a number of factors (e.g., dismantling of the US commodity buffer stocks and a surge in primary commodity prices from 1969 onwards), all exacerbated by the breakup of Bretton Woods and wage-price spirals:<br /><br />Nicholas Kaldor, (1976) “Inflation and Recession in the World Economy,” Economic Journal 86 (December): 703–14."<br /><br />Respectfully Lord Keynes, do you really want to put my source Meltzer's History of the Federal Reserve against a journal article by Kaldor to dispute the Federal Reserve's "Great Inflation"? Please give this some thought and let me know.suo Martehttps://www.blogger.com/profile/03379409145057374887noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-64833367908692007432010-11-13T03:30:01.713-08:002010-11-13T03:30:01.713-08:00suo Marte: “From that point until 1951 the Federal...suo Marte: “From that point until 1951 the Federal Reserve was essentially managed by the US Treasury to monetize the war debt through inflation – the devaluation of our purchasing power.”<br /><br />Lord Keynes: “No, it wasn’t. <br />It was run to achieve full employment and low inflation – targets it both achieved.”<br /><br />From Chapter 7 (“Under Treasury Control, 1942 to 1951"), Vol 1, pgs 579-8 of Meltzer’s History of the Federal Reserve:<br /><br />“The period from 1942 to March 1951 divides almost equally into years of war and years of peacetime expansion. For Federal Reserve policy, the period can be treated as a whole, a repeat with different details and a different outcome of the experience during and after WW I. Once again the Federal Reserve put itself at the service of the wartime Treasury, and once again it had difficulty extricating itself from Treasury’s grasp after the war. And again it took almost as much time to free postwar monetary policy as to fight the war."<br /><br />"The Federal Reserve summarized its “primary duty” in wartime as “the financing of military requirements and of production for war purposes” (Board of Governors of the Federal Reserve System 1947)."<br /><br />“After the war, Congress removed controls (1947), but it soon restored them (1948). In the early postwar years, the Federal Reserve used margin requirements to limit securities purchases. Credit controls proved difficult to administer and ineffective against inflation.”<br /><br />“Eccles described his work in wartime as “a routine administrative job…The Federal Reserve merely executed Treasury decisions” (Eccles 1951, 382). When his term ended in February 1944, he offered to resign but agreed to remain if the president would commit to consolidation of banking regulation and supervision under a single agency. His appointment as a member of the Board ran to 1958, as chairman to 1948.” <br /><br />Incidentally, Meltzer in the footnote on pg 580 also writes:<br /><br />“According to Eccles, Roosevelt agreed to consolidate the banking agencies but soon afterward rejected Eccles’s proposal. Eccles did not resign.”<br /><br />I believe Lord Keynes I’ve quoted enough from Meltzer’s history above to prove I’ve accurately characterized the Federal Reserve. Are you mature enough to acknowledge this fact? <br /><br />Or, are you saying me, Meltzer, the Board of Governors of the Federal Reserve System and the Chairman of the Federal Reserve (Eccles) are all wrong & you're correct?suo Martehttps://www.blogger.com/profile/03379409145057374887noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-38930560272039025202010-11-13T03:04:49.968-08:002010-11-13T03:04:49.968-08:00In response to my request to please share w/ me th...In response to my request to please share w/ me the specific “superior financial regulations between 1945-1980 which you say is prevented “hugh asset bubbles” to provide a link to a long post that talks about many things other than my request. I assume you’re pointing me to this portion of the post in the link: <br /><br />“For instance, from about the 1930s to the 1980s, many countries had policies of financial regulation that included many of the following:<br /><br />1. Interest rate ceilings<br />2. Liquidity ratio requirements<br />3. Higher bank reserve requirements<br />4. Capital Controls (that is, restrictions on capital account transactions)<br />5. Restrictions on market entry into the financial sector<br />6. Credit ceilings or restrictions on the directions of credit allocation<br />7. Separation of commercial from investment (“speculative”) banks<br />8. Government ownership or domination of the banks.<br /><br />(Ito 2009: 431–433).<br /><br />These were abolished as financial liberalization and capital account liberalization became widely adopted in the 1980s and 1990s.<br /><br />In the case of the US, we can point to a number of important acts of financial deregulation that were the direct causes of the crisis:<br /><br />(1) Repeal of the Glass-Steagall Act (1999)<br />In the US, the Glass-Steagall Act, initially created in the wake of the Stock Market Crash of 1929, prohibited banks from both accepting deposits and underwriting securities. This led to segregation of investment banks from commercial banks. Glass-Steagall was effectively repealed for many large financial institutions by the Gramm-Leach-Bliley Act in 1999.<br /><br />Joseph Stigliz has argued that <br /><br />“The most important consequence of the repeal of Glass-Steagall was indirect—it lay in the way repeal changed an entire culture. Commercial banks are not supposed to be high-risk ventures; they are supposed to manage other people’s money very conservatively. It is with this understanding that the government agrees to pick up the tab should they fail. Investment banks, on the other hand, have traditionally managed rich people’s money—people who can take bigger risks in order to get bigger returns” (Stiglitz 2009).<br /><br />Deposit insurance does make sense when it protects a commercial banking sector prevented from making highly speculative and risky investments. <br /><br />(2) Hiding Liabilities on Off-Balance Sheet Accounting<br /><br />Banks used off-balance sheet operations called special purpose entities (SPEs) or special purpose vehicles (SPVs) to take on toxic asset-backed securities…”<br /><br />Is this your answer to my request?suo Martehttps://www.blogger.com/profile/03379409145057374887noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-74644178193015083042010-11-13T03:02:29.572-08:002010-11-13T03:02:29.572-08:00If the post WWII boom was so easily explained in K...If the post WWII boom was so easily explained in Keynesian terms and classic demand-side Keynesian economics how is that leading American Keynes inspired economists got it so PRECISELY wrong?<br /><br />I'd appreciate your point of view... I mean, don'tcha wonder how they got it so wrong?suo Martehttps://www.blogger.com/profile/03379409145057374887noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-61629322167265193932010-11-13T02:58:57.395-08:002010-11-13T02:58:57.395-08:00“Just because Samuelson and others thought the eco...“Just because Samuelson and others thought the economy would slide back into recession shows nothing more than that they were wrong.”<br /><br />Thank you for agreeing w/ me that these Keynes inspired economists were wrong to say removal of Govt’s war ‘stimulus’ would result in recession. <br /><br />You also say these Keynes inspired American economists “should have listened to Keynes.” <br /><br />Now, if Keynes himself was the only Keynesian capable of using his framework & methodology to get it right, how can you be certain that “An alternative macroeconomics like Post Keynesianism would NOT have made those mistakes [the Govt policy blunders responsible for our current economic mess]?<br /><br />Is Christina Romer a “Post Keynesian”?suo Martehttps://www.blogger.com/profile/03379409145057374887noreply@blogger.com