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Keynesian economics is mostly just based on the idea that consumer demand drives the economy ("aggregate demand"). This demand usually is discussed in terms of

by nhashem 13y ago

Keynesian economics is mostly just based on the idea that consumer demand drives the economy ("aggregate demand"). This demand usually is discussed in terms of consumer spending, but this is frequently misrepresented by strawmen such as "Keynesians just thinks reckless spending is the solution to everything" or "Keynesians think the way to get out of debt is more debt." This is false. For example, it's not contradictory to believe in Keynesian fundamentals and supply-side economics, if you think tax cuts would indeed stimulate private spending to the point of increased tax revenue (which actually did happen when marginal tax rates were cut from 91% to 70% as was done in 1964[0]). You can also be a Keynesian and believe in a balanced budget, if you think deficits are causing inflation that the Fed needs to keep interest rates high to fight, and thus those high interest rates are suppressing private sector economic activity (as was true in the 1990s[1]). The Great Recession has caused the bizarre circumstance of a liquidity trap[2] -- simply lowering interest rates isn't stimulating economic activity, and inflation is low. The Keynesian prescriptions for this are unconventional monetary policy (the Fed's "quantitative easing," which can be done because there's little risk of inflation) and government fiscal deficits (to make up for the lack of consumer demand). Somehow this gets warped into thinking that people like Ben Bernanke and Paul Krugman think you can solve any economic problem by printing dollars and/or getting into more debt. [0] http://en.wikipedia.org/wiki/Revenue_Act_of_1964 http://en.wikipedia.org/wiki/Revenue_Act_of_1964 [1] http://www.washingtonpost.com/blogs/wonkblog/wp/2012/08/06/what-we-can-learn-from-clintons-1993-tax-hike/ http://www.washingtonpost.com/blogs/wonkblog/wp/2012/08/06/w... [2] http://en.wikipedia.org/wiki/Liquidity_trap http://en.wikipedia.org/wiki/Liquidity_trap

adventured 13y ago
The notion that inflation is low is a lie. The CPI was substantially altered in the early 1990s to mask the huge increases in prices that have gone on. Housing is skyrocketing again right now, fueled by a massive inflation binge the likes of which the planet has never seen before. The cheap money is flowing into assets (stocks, real estate), as the Fed said it intentionally wanted to have happen. Nationally housing values are now climbing at a 10%+ annual clip again (20% in Phoenix, with markets like DC at all time highs), driven by the Fed's inflationary posture of QE + hyper low interest rates. That equates to trillions of dollars worth of asset inflation annually. Housing is one of the most important inflation metrics, and it's going up massively right now. It's not the economy rebounding causing it. How do I know? Well beyond the obvious QE + low mortgage rates + lack of job creation, we're creating almost zero construction jobs right now (compare that to the last two times housing prices soared). Stocks have been juiced (inflated) by the easy money policies, leading to an S&P that now has a higher PE ratio than the last bubble. And given that S&P earnings are now eroding backwards, said PE ratio will probably continue to expand beyond that. College costs? Massive inflation. College costs doubled in ten years against the backdrop of the great recession. Welcome to government inflation. Healthcare costs? Massive inflation. Food prices? Near all time highs. Energy costs? $90 oil, $3.60 gasoline. Both are prices that would have been considered beyond outrageous just 10 or 12 years ago. Now that's the new normal. Meanwhile the US is producing more oil than at any time in the last 30 years, so it's not a supply problem (it's easy to see that by comparing the available supply of oil and gasoline against 2003 numbers). Our gasoline usage is back to 2002x levels, but prices are up 175% or so. Home prices are up 75% to 150% in most major markets over 15 years. Given incomes aren't soaring, and we have 14.x% real unemployment, that's a dramatic increase. Even with gold's sizable pullback with the climb of the dollar in the last few months, at $1400+, it's also a price that would have been considered impossible just ten years ago. Ditto silver (up 500% in 10 years) or platinum. Everything screams: inflation wave.
- philwelch 13y ago
  > Nationally housing values are now climbing at a 10%+ annual clip again (20% in Phoenix, with markets like DC at all time highs), driven by the Fed's inflationary posture of QE + hyper low interest rates....It's not the economy rebounding causing it. How do I know? Well beyond the obvious QE + low mortgage rates + lack of job creation, we're creating almost zero construction jobs right now (compare that to the last two times housing prices soared). Or it's a combination of the following: * We just had a housing bubble in the mid-2000's that entailed building lots and lots of houses. Since the population hasn't appreciably increased since then, there are actually enough houses to go around. * The foreclosures and short-sales caused by the housing bubble popping have shook out, and this is just a reversion to the mean. > College costs? Massive inflation. Yeah, who guessed that federally incentivized lending would make the cost of something go up? > Healthcare costs? Massive inflation. Mostly trackable to US health care policy. > Food prices? Near all time highs. > Energy costs? $90 oil, $3.60 gasoline. Well yeah, that's what's making the food costs go up. > Meanwhile the US is producing more oil than at any time in the last 30 years, so it's not a supply problem The US might be, but oil is a global market. Plus, the world is increasingly forced to use more and more expensive sources of petroleum, like oil sands and shale, which were not cost-effective just 10 or 12 years ago. Nonetheless, it's not (purely) a supply problem. You really think that quantitative easing has a higher impact on energy prices than literally millions of people in China and India buying petroleum-fueled vehicles and driving them around? If rising oil prices are an inflationary USD phenomenon, why do we see the same pattern for Swiss Francs, Emirati Dirhams, Mexican Pesos, Euros, Iceland Kronas, or Pounds Sterling? http://www.indexmundi.com/commodities/?commodity=crude-oil&months=120&currency=chf http://www.indexmundi.com/commodities/?commodity=crude-oil&#... As for precious metals, the simple fact is that the world's mineral resources are harder and harder to get at over the years, and with the rest of the world rapidly developing, demand for natural resources is going to increase. But yes, if you cherry pick parts of the economy where prices are going up and ignore parts where they aren't, you're going to see an inflation wave.
  - brc 13y ago
    >You really think that quantitative easing has a higher impact on energy prices than literally millions of people in China and India buying petroleum-fueled vehicles and driving them around? Yes. Again, supply of oil has increased, and oil/gold ratios are pretty static. The big leg of the movement is in the USD. >If rising oil prices are an inflationary USD phenomenon, why do we see the same pattern for Swiss Francs, Emirati Dirhams, Mexican Pesos, Euros, Iceland Kronas, or Pounds Sterling? Most of those currencies have engaged in competitive devaluation against the USD to prevent exports becoming uncompetitive. In countries where the currencies have not matched the USD depreciation, energy prices aren't anywhere near as high. >As for precious metals, the simple fact is that the world's mineral resources are harder and harder to get at over the years, and with the rest of the world rapidly developing, demand for natural resources is going to increase. Population growth isn't that fast as to force a doubling of commodities in the short timeframe that has happening. What is required is a flooding of the denominator - USD. Printing any currency leads to inflation across the board. When it is the 'reserve' currency of the world, you get global inflation. There is nothing to argue in this; it is the stated aim of the QE policies.
brc 13y ago
What you post is true. Not all followers of Keynes are believers are money-printing stimulators. But the reverse is not the case. Just about all money-printing 'stimulators' like to throw Keynes around as justification for doing so, no matter how far away it is from the original theme. The basic tenet of running surpluses to fund deficit spending in years where confidence has dipped isn't all bad. But there are plenty of people who endlessly bang the 'spend spend spend' drum and justify it by pointing at Keynes.

by nhashem 13y ago

adventured 13y ago

The notion that inflation is low is a lie. The CPI was substantially altered in the early 1990s to mask the huge increases in prices that have gone on. Housing is skyrocketing again right now, fueled by a massive inflation binge the likes of which the planet has never seen before. The cheap money is flowing into assets (stocks, real estate), as the Fed said it intentionally wanted to have happen. Nationally housing values are now climbing at a 10%+ annual clip again (20% in Phoenix, with markets like DC at all time highs), driven by the Fed's inflationary posture of QE + hyper low interest rates. That equates to trillions of dollars worth of asset inflation annually. Housing is one of the most important inflation metrics, and it's going up massively right now. It's not the economy rebounding causing it. How do I know? Well beyond the obvious QE + low mortgage rates + lack of job creation, we're creating almost zero construction jobs right now (compare that to the last two times housing prices soared). Stocks have been juiced (inflated) by the easy money policies, leading to an S&P that now has a higher PE ratio than the last bubble. And given that S&P earnings are now eroding backwards, said PE ratio will probably continue to expand beyond that. College costs? Massive inflation. College costs doubled in ten years against the backdrop of the great recession. Welcome to government inflation. Healthcare costs? Massive inflation. Food prices? Near all time highs. Energy costs? $90 oil, $3.60 gasoline. Both are prices that would have been considered beyond outrageous just 10 or 12 years ago. Now that's the new normal. Meanwhile the US is producing more oil than at any time in the last 30 years, so it's not a supply problem (it's easy to see that by comparing the available supply of oil and gasoline against 2003 numbers). Our gasoline usage is back to 2002x levels, but prices are up 175% or so. Home prices are up 75% to 150% in most major markets over 15 years. Given incomes aren't soaring, and we have 14.x% real unemployment, that's a dramatic increase. Even with gold's sizable pullback with the climb of the dollar in the last few months, at $1400+, it's also a price that would have been considered impossible just ten years ago. Ditto silver (up 500% in 10 years) or platinum. Everything screams: inflation wave.

philwelch 13y ago
> Nationally housing values are now climbing at a 10%+ annual clip again (20% in Phoenix, with markets like DC at all time highs), driven by the Fed's inflationary posture of QE + hyper low interest rates....It's not the economy rebounding causing it. How do I know? Well beyond the obvious QE + low mortgage rates + lack of job creation, we're creating almost zero construction jobs right now (compare that to the last two times housing prices soared). Or it's a combination of the following: * We just had a housing bubble in the mid-2000's that entailed building lots and lots of houses. Since the population hasn't appreciably increased since then, there are actually enough houses to go around. * The foreclosures and short-sales caused by the housing bubble popping have shook out, and this is just a reversion to the mean. > College costs? Massive inflation. Yeah, who guessed that federally incentivized lending would make the cost of something go up? > Healthcare costs? Massive inflation. Mostly trackable to US health care policy. > Food prices? Near all time highs. > Energy costs? $90 oil, $3.60 gasoline. Well yeah, that's what's making the food costs go up. > Meanwhile the US is producing more oil than at any time in the last 30 years, so it's not a supply problem The US might be, but oil is a global market. Plus, the world is increasingly forced to use more and more expensive sources of petroleum, like oil sands and shale, which were not cost-effective just 10 or 12 years ago. Nonetheless, it's not (purely) a supply problem. You really think that quantitative easing has a higher impact on energy prices than literally millions of people in China and India buying petroleum-fueled vehicles and driving them around? If rising oil prices are an inflationary USD phenomenon, why do we see the same pattern for Swiss Francs, Emirati Dirhams, Mexican Pesos, Euros, Iceland Kronas, or Pounds Sterling? http://www.indexmundi.com/commodities/?commodity=crude-oil&months=120&currency=chf http://www.indexmundi.com/commodities/?commodity=crude-oil&#... As for precious metals, the simple fact is that the world's mineral resources are harder and harder to get at over the years, and with the rest of the world rapidly developing, demand for natural resources is going to increase. But yes, if you cherry pick parts of the economy where prices are going up and ignore parts where they aren't, you're going to see an inflation wave.
- brc 13y ago
  >You really think that quantitative easing has a higher impact on energy prices than literally millions of people in China and India buying petroleum-fueled vehicles and driving them around? Yes. Again, supply of oil has increased, and oil/gold ratios are pretty static. The big leg of the movement is in the USD. >If rising oil prices are an inflationary USD phenomenon, why do we see the same pattern for Swiss Francs, Emirati Dirhams, Mexican Pesos, Euros, Iceland Kronas, or Pounds Sterling? Most of those currencies have engaged in competitive devaluation against the USD to prevent exports becoming uncompetitive. In countries where the currencies have not matched the USD depreciation, energy prices aren't anywhere near as high. >As for precious metals, the simple fact is that the world's mineral resources are harder and harder to get at over the years, and with the rest of the world rapidly developing, demand for natural resources is going to increase. Population growth isn't that fast as to force a doubling of commodities in the short timeframe that has happening. What is required is a flooding of the denominator - USD. Printing any currency leads to inflation across the board. When it is the 'reserve' currency of the world, you get global inflation. There is nothing to argue in this; it is the stated aim of the QE policies.

brc 13y ago

What you post is true. Not all followers of Keynes are believers are money-printing stimulators. But the reverse is not the case. Just about all money-printing 'stimulators' like to throw Keynes around as justification for doing so, no matter how far away it is from the original theme. The basic tenet of running surpluses to fund deficit spending in years where confidence has dipped isn't all bad. But there are plenty of people who endlessly bang the 'spend spend spend' drum and justify it by pointing at Keynes.