These days, investors have to search far and wide to find positive data points, let alone a positive outlook, for the U.S. and global economies.
And, without question, the financial crisis and slowing global growth, combined with previously weak economic fundamentals in the U.S., are indeed formidable obstacles to any investor's hope for optimism.
Still, perhaps the real the danger lies in not where we are but in denying where we can be, and that's where John Maynard Keynes comes in.
For those unfamiliar, Keynes, along with Milton Friedman and Karl Marx, are the three major philosophers of modern economics.
In the United States, policy markers since 1981 have favored market absolutism, Friedman's view, peppered by government intervention, Keynes' view, when needed.
More recently, during the current decade, market absolutists appeared to have had free rein. Some of these market absolutists are now arguing that 'the market should run its course' and 'recessions, even deep recessions, are an essential part of the business cycle,' etc. Don't believe any of it for a moment, Keynes would say.
Expansion is the normal condition
It was part of the genius of Keynes that he revealed to us that the natural state of the economy is expansion and that a downturn is "extraordinary imbecility." Further, Keynes also reminds us that recessions, or economic downturns, are not necessarily self-correcting.
Keynes also believed that the market economy, in the form of mixed capitalism, could survive only if it earned the support of the public by raising living standards.
So how would a Keynesian look at the current economic situation in the United States? The Keynesian would argue that the recession shows signs of worsening and must be reversed by not only financial system support and aid to banks, but by large fiscal stimulus and government intervention. The market, left to its own devices, may not generate enough demand to start an expansion. Also, for a while the direct and indirect government activity in the economy must increase -- including through public works projects -- until private investment and commerce rebounds.
Economic Analysis: Everything Keynes argued for and successfully demonstrated was intended not to take over the market, but to preserve it. With the right policies, the economic expansion returns. Keynes was right in the 1930s, as demonstrated by FDR's New Deal and by federal government spending for World War II in the 1940s. The view from here argues he will be proven right again today.
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Reader Comments (Page 1 of 1)
10-29-2008 @ 4:11PM
TX CHL Instructor said...
"Keynes was right in the 1930s, as demonstrated by FDR's New Deal"
Revisionism. FDR's New Deal may well have prolonged the Depression.
10-29-2008 @ 4:14PM
JCH said...
"Revisionism. FDR's New Deal may well have prolonged the Depression. ..."
Says who? Some flunky economist whose chair was paid for by some right-wing fruitloop?
10-29-2008 @ 5:00PM
Matt said...
TX CHL Instructor is right. Many of FDR's new deal policies served to prolongue and deepen the recession. We won't get into the keynesian efforts through fannie and freddie (the true pioneers of mortgage securitization, albeit with better standards for their paper) that created a worldwide misallocation of capital that's biting us right now. And his pet creation - the US central bank, alternatively known as the 'creature from Jekyll Island' - is the root cause of all this madness. Remember Greenspan earlier this week?
I tremble reading this article, for how wrong it is. Ludwig von Mises is the true sage in this situation, and the Austrian School (specifically Hayek's interpretation of the Business Cycle) has the only real answer for what's going on now and why. The vicious monetary expansion of Bernanke and Paulson is keynes-inspired, and the suggestion that debts be forced into default actually goes back to Hayek and Mises.
All that being said, I don't really feel like you're laying out Keynes philosophy or how it could offer remedy to this situation. In fact you're really only laying out an intensely interventionist policy that may make things better or terribly worse in the long run.
10-30-2008 @ 5:50AM
Dan Barnett said...
When I was in school we called von Mises & Hayek's theories, "Anarcho-selfish-ism".
Haven't we had enough of it already?
11-01-2008 @ 1:52AM
Laura Harrison said...
To understand Keynes in the context of his opposition to marx and also to laissez-faire, it is worth reading about the development of his ideas - such as through books by Donald Markwell, Donald Moggridge, and Robert Skidelsky.
11-11-2008 @ 3:18AM
Dov Henis said...
Life Monetized Energy, that Fuels Culture, That Drives Evolution.
Evolution Of All Matter Is Fueled By Energy.
What About Keynesian Notes In Economy?
A. At the serendipitous genesis of Earth life
The serendipitous genesis of Earth life, the up-phase of RNA-conformation oligomers into self- replicating genes - constrained energy polymers - was driven and effected by the sun's radiation.
This is evidenced by the Circadian rhythm, an innate genes characteristic, inborn due to the energetic conditions during their genesis, when direct sunlight was their only source of energy, available at different times of day in accordance with their location on Earth...
B. Life monetized energy
Genesis was a set-up of a matrix-field of energy with a potential extended between its source, the sun radiation, and the precipitated organisms. Thus started the ongoing formation and maintenance of Earth's biosphere.
And since the genes were thus born they could evolve only along more favorable energetic directions, towards ever higher constrained energy capacitance and stabler components. Survival was the direction, and survival is propagation. After all, Life's genesis was the start of Darwin's evolution. An ever more favorable energetic direction have included, most probably, energetic advantage of homochirality. And chiral homogeneity furnished, most probably, stable self-replication of biopolymers.
Thus Life monetized energy since life's day one.
C. Energy, capacity of acting or being active, fuels culture
Culture is a basic biological entity. It is the ubiquitous elaboration-extension of the sensing of and reactions, by genes-genome, to the goings-on in and beyond the outermost membrane of their housing, the cell, and of multicelled organisms, to the totality of their outer and inner environments.
These sensings and reactions are enabled by energy, the capacity of acting or being active.
D. Culture drives evolution of all constrained energy items
By plain common sense it is culture, the ubiqitous biological entity, that imprints genetics and drives evolution of Earth life.
And it is culture, the ubiqitous cosmic entity, that imprints the constitution of all matter in the universe.
E. Life, culture, matter and evolution are fueled by energy
And energy, the capacity of acting or being active, is REAL. It is not a virtual reality, an artificial image-environment experienced through human sensory stimuli.
F. What about Keynesian notes in economy?
In the present return to Keynesian steering out of the catastrophic world economy crisis the government is called to stimulate demand through fiscal measures, to effect a balancing act, 'creating' just enough money to cover a 'natural' amount of economic activity, without gliding either towards inflation or unemployment.
This is, in effect, assigning to money and credit in the economy the functional attributes of energy in life's evolution.
However whereas energy, the capacity of acting or being active, is real, money and credit are virtual reality. Their functionality depends on the image-environment experienced through human sensory-imagination stimuli. This smacks of psychology or faith-religion.
So what are the odds that a Keynesian course will steady the rocking boat? The odds are like odds of other things that depend on human reactions-attitudes. This steadying course will be as effective as the conformation of the 'people' with the 'hopeful' reactions-attitudes on which the
Keynesian assumption is based...
Dov Henis
(A DH Comment From The 22nd Century)
http://blog.360.yahoo.com/blog-P81pQcU1dLBbHgtjQjxG_Q--?cq=1
11-13-2008 @ 12:20PM
Dov Henis said...
Real And Virtual Energy, And Keynesian Salvation Prospects
A. From an earlier post:
In the present return to Keynesian steering out of the catastrophic world economy crisis the government is called to stimulate demand through fiscal measures, to effect a balancing act, 'creating' just enough money to cover a 'natural' amount of economic activity, without gliding either towards inflation or unemployment.
This is, in effect, assigning to money and credit in the economy the functional attributes of energy in life's evolution.
However whereas energy, life's and evolution's monetized currency, the capacity of acting or being active, is real, money and credit are virtual reality. Their functionality depends on the image-environment experienced through human sensory-imagination stimuli. This smacks of psychology or faith-religion.
So what are the odds that a Keynesian course will steady the rocking boat? The odds are like odds of other things that depend on human reactions-attitudes. This steadying course will be as effective as the conformation of the 'people' with the 'hopeful' reactions-attitudes on which the
Keynesian assumption is based.
B. Odds of economy's salvation via Keynesian prospects
- Economy's salvation via Keynesian prospects depends on the "people's" reactions-attitudes to sensory-imagination stimuli effected in them by their societal environment.
- The stimuli thus effected depend, in turn, on the cultural constitution of the "people".
- It is difficult, very difficult, to modify human culture by decree or even by revolution. Human culture changes normally by evolution, a slower, more basic, process than by decree or revolution or even - as exposed in the present world economy - than by reaction to a catastrophe. The evidence of this is all around us nowadays in the world stock markets, and in the lobbyings of inflated-bubbled-businesses for public help lest the "people" are hurt by recession due to the collapse of the bubbles.
The present tone of the world's culture, and even ethics, including the banners of a variety of types and shades of greed, has been set by the 20th century Technology Culture. Its essence is the legitimacy and admiration of gaining capital via virtual activities, activities without or beyond production of real assets, real life resources.
So the odds of the economy's salvation via Keynesian prospects are, in the long run, proportional to the odds that the culture of Earth's humanity will evolve towards ever more rational self-organization...which is, how unsurprisingly rational, the odds of every organism to survive...
Dov Henis
(A DH Comment From The 22nd Century)
http://blog.360.yahoo.com/blog-P81pQcU1dLBbHgtjQjxG_Q--?cq=1