• Tag Archives John Maynard Keynes
  • Bi-Weekly Economic Review: Who You Gonna Believe?

    We’ve had a pretty good run of data recently and with the tax bill passing the Senate one would expect to see markets react positively, to reflect renewed optimism about economic growth. We have improving economic data on pretty much a global basis. It isn’t a boom by any stretch of the imagination but there is no doubt that the rate of change has recently been more positive. We also have a change in tax policy that should, if one believes the economists and politicians on the starboard side of the political divide, be positive for future growth. And stock punters certainly seem to believe both, that the incoming data is the beginning of a trend and that the tax bill is a big positive for growth – or at least corporate profits.
    The problem is that the other markets we monitor – which actually have a much better track record at predicting growth than stocks – are not participating. It is what Alan Greenspan and Ben Bernanke would call a conundrum. The Fed is busy hiking rates and shrinking its balance sheet (well promising to at least) because they see an economy at full employment and inflation that will be jumping just as soon as the Philips Curve really kicks in. And, now they have the added incentive to get moving on those rate hikes because Congress has passed a huge – huge I say – tax cut that will expand the deficit and produce even more growth. At least that’s the Keynesian theory, although the Republicans are selling this as more of a supply-side, Laffer curve, self financing tax cut. Personally, I think the Keynesian and Laffer adherents are both wrong. We are not that far right on the Laffer curve and more debt at this point isn’t the answer.

    This post was published at Wall Street Examiner on December 5, 2017.


  • Goodbye, Net Neutrality. Hello, Liberty.

    The New York Times has published a screed with this title: The Internet Is Dying. Repealing Net Neutrality Hastens That Death.
    Let me remind you of the basic rule of titling breathless articles: begin with the phrase “the death of” or “the end of.” When you read such a phrase, you can be sure that whatever it is, it is not dying. Whatever it has been in the past, it is likely to be in the future. It is not facing the end.
    Here is the logic of the screed.
    The internet is dying. Sure, technically, the internet still works. Pull up Facebook on your phone and you will still see your second cousin’s baby pictures. But that isn’t really the internet. It’s not the open, anyone-can-build-it network of the 1990s and early 2000s, the product of technologies created over decades through government funding and academic research, the network that helped undo Microsoft’s stranglehold on the tech business and gave us upstarts like Amazon, Google, Facebook and Netflix.
    Nope, that freewheeling internet has been dying a slow death – and a vote next month by the Federal Communications Commission to undo net neutrality would be the final pillow in its face.
    Net neutrality is intended to prevent companies that provide internet service from offering preferential treatment to certain content over their lines. The rules prevent, for instance, AT&T from charging a fee to companies that want to stream high-definition videos to people.
    The phrase “preferential treatment” is easy to define: high bid wins. It is the organizational principle of the auction.
    The mainstream media are Keynesian to the core. The fundamental principle of the free market is this: high monetary bid wins. It is the principle of the auction. Liberals hate most auctions. Yes, they like auctions of incredibly overpriced and incomparably ugly art. They don’t get upset when somebody pays $150 million to buy a piece of tripe painted by Picasso. That’s their kind of stupidity. They like it. But they don’t want the common people to have access to open markets. Open markets are only for the elite, in the view of America’s Left.

    This post was published at Gary North on November 30, 2017.


  • Cradles of Capitalism: the City-States of Greece and Italy

    There long has been a persistent academic debate as to whether an “ancient economy,’ referring mainly to Greece, even existed at all. In a field dominated by Marx, Marxists, the 19th century sociologist Max Weber, and such scholars of renown as Sir Moses Finley, the lingering image of the economic world of the Greek polis is that of something very static. We imagine a leisure class lounging at the sandaled foot of an orator while slaves tended to the fields, flogging cows harnessed to ploughs stuck in the mud. It is the notion of a “primitive” economy: money made for status, not investment; credit extended for the purchase of slaves, war waged for the capture of booty, elites in control of craft guilds and tyrant-kings keeping the peace by randomly doling out the goods.
    Then there is ancient epic itself, with the noble Odysseus disdaining seafaring for profit (though he did take all the pay-offs he could collect) and the great Achilles pondering a discovery of precious treasure only so far as it might estimate his aristocratic worth. From this rudimentary foundation, an entire field of Socialist-Keynesian views on the Greek economy has prevailed, with occasional libertarian scholars such as Murray Rothbard and Jess Huerta de Soto getting a word in edgewise. In recent time, however, academia has found much more evidence of technological advances and market-driven considerations on the part of the classical polis than previously thought.
    Keeping in mind that in both ancient Greece (and Renaissance Italy) that democracy was not incompatible with aristocracy, and that oligarchies and tyrants were not necessarily illiberal, several points may be made in defense of the economic model of the city-state: 1) that the stronger the city-state, the greater the industrial and economic expansion; 2) that private property was considered a fundamental economic principle; 3) that banking standards were relatively conservative; 4) that the wealthiest city-states were of the most socially dynamic; 5) that city-state competition spearheaded the modern entrepreneurial Europe; and 6) that the visionary tyrant was almost always business-first in his rule.

    This post was published at Ludwig von Mises Institute on 11/14/2017.


  • Stockman: US Entry Into World War I Was A Disaster

    103 years ago, in 1914, the Federal Reserve opened-up for business as the carnage in northern France was getting under way.
    ***
    And it brought to a close the prior magnificent half-century era of liberal internationalism and honest gold-backed money.
    The Great War was nothing short of a calamity, especially for the 20 million combatants and civilians who perished for no reason discernible in any fair reading of history, or even unfair one.
    Yet the far greater calamity is that Europe’s senseless fratricide of 1914-1918 gave birth to all the great evils of the 20th century – the Great Depression, totalitarian genocides, Keynesian economics, permanent warfare states, rampaging central banks and the follies of America’s global imperialism.

    This post was published at Zero Hedge on Nov 13, 2017.


  • FANG Futures Launch

    The other day, after reading one of my posts, my old boss sent me a note. It was a comment about the madness of investors chasing the hot momentum tech stocks.
    ‘We were reminiscing about this stuff last night and I clearly remember that near the end [of the DotCom bubble], CNBC decided to have the CEO of International Paper on Power Lunch. They immediately received what they said was hate mail. After that, the NASDAQ fell from 5200 to 2000 and it ushered in one of the greatest bull markets ever in old economy stocks (2001-2008).’
    I thought that was a great insight. The mood at the top is downright hostile towards other investing themes.
    I am not sure if we are at an equivalent point. It sure feels like the ‘Just own the damn robots’ mantra has engulfed the collective psyche of the investing public, but hey – we all know what Keynes learned the hard way.

    This post was published at Zero Hedge on Nov 8, 2017.


  • Stocks and Precious Metals Charts – Just Stand

    “In our own times we see that politicians raised under neoliberalism are unwilling and unable to effectively use real Keynesian policies: they can’t do stimulus, when they try, they give the money primarily to the rich.
    They grew to power by being neoliberals; faced with new times they cannot change. In France we saw the main center-left party (really a neoliberal party) implode because it would just not change, and throughout the West center-left neoliberal parties are dying for just this reason. The world has changed, the people who run those parties cannot change…
    Our societies have failed to run themselves acceptably since 2008, and the youngs have no attachment to the status quo since it never ever worked for them. Change is thus not only possible, it is now inevitable.”
    Ian Welsh, When People and Societies Change
    Stocks were rallying off the jobs report.
    The American dream is now a nation of low paid bartenders and waitresses, living from paycheck to paycheck, and preyed upon by corporate behemoths in healthcare, housing, and finance.

    This post was published at Jesses Crossroads Cafe on 03 NOVEMBER 2017.


  • Mainstream Economists Don’t Even Get Their Dimensions Right

    There are many differences between Austrian economics and the neoclassical mainstream, but one of the most critical involves the difficult field of ‘capital & interest theory.’ (Here are three links of increasing difficulty to show the Austrian perspective on these issues: one, two, and three.) This area has been dubbed the ‘black hole of economics’ because it can devour researchers, but in the present post I can use a recent Paul Krugman blog entry to graphically illustrate the Austrian viewpoint. Specifically, Krugman’s diagram doesn’t even get the dimensions right!
    Before diving in, I should acknowledge that this particular dispute has nothing to do with Keynesian policy recommendations. Rather, the problem in Krugman’s diagram is something that is taught in standard economics programs, whether Keynesian, Public Choice, or Chicago School.

    This post was published at Ludwig von Mises Institute on November 3, 2017.


  • What Do You Mean ‘No Inflation?’

    When the Fed launched its aggressive monetary policy in the wake of the 2008 financial crisis, many free-market economists predicted it would result in massive price inflation. That never materialized. As a result, Keynesian economists like Paul Krugman love to finger-point and mock those who criticize easy money policies designed to ‘stimulate aggregate demand.’ They claim the lack of price inflation proves they were right all along. You can massively increase the money supply during a downturn to stimulate the economy without sparking inflation. Free-market people are wrong.
    But just because we don’t see price inflation doesn’t mean there isn’t any inflation at all. After all, the new money has to go someplace. If we don’t see it manifested in rising prices, it’s because we’re looking in the wrong place.
    In response to the Great Recession, the Federal Reserve plunged interest rates to near zero and held them at historically low levels for several years. It also engaged in three rounds of quantitative easing – in essence, printing money out of thin air. Over a span of nearly seven years, the Fed’s balance sheet increased 427%. With all of that new money entering into the economy, one would expect a significant increase in price inflation. And yet the rise in the consumer price index has been muted. In fact, officials at the Federal Reserve constantly fret about the lack of price inflation.
    So where did all that money go?

    This post was published at Schiffgold on NOVEMBER 2, 2017.


  • Anticipating the Anticipations of Others

    ‘Successful investing is anticipating the anticipations of others’
    The actual private object of most skilled investment today is to ‘beat the gun.’ As Americans so well express it, to outwit the crowd and to pass the bad, or depreciating halfcrown, to the other. For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs – a pastime in which he is the victor who plays ‘snap’ neither too soon nor too late, who passes the old maid to his neighbor before the game is over, who secures a chair for himself when the music stops. Or to change the metaphor slightly, professional investment may be likened to those newspaper competitors in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors, as a whole; so that each competitor has to pick not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. We have reached the third degree where we devote our intelligences to anticipating what the average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.’
    John Maynard Keynes, The General Theory of Employment, Interest and Money – 1935

    This post was published at FinancialSense on 10/30/2017.


  • Is Europe Repeating the 1930s?

    Europe is now replicating the 1930s and the mistakes it made with austerity back then as well outside of Germany. Of course, Merkel has imposed the German view of austerity based on their experience but has ignored the opposite experience of the rest of Europe that led to the 1931 Sovereign Debt Crisis and mass defaults.
    It was the year of 1925 when then chancellor of the Exchequer, Winston Churchill, returned Britain to the gold standard. Britain was trying desperately to reestablish itself as the financial capital of the world as if nothing had taken place. Returning to the gold standard resulted in wages being forced down to compete with America. John Maynard Keynes at the time pleaded that this was madness. The pound was overvalued against the dollar by 10% trying to reestablish confidence in Britain but the net result crippled exports and unemployment began to rise and workers engaged in strikes for having wages reduced even though the pound was worth more officially.

    This post was published at Armstrong Economics on Oct 24, 2017.


  • Krugman and the “Heroic” Fed

    Once an avid reader of Paul Krugman’s New York Times twice-weekly columns, I admit to rarely even glancing at his work now, since I know that anything he writes is going to have the theme of ‘Trump evil, Democrats good’ each time, and it doesn’t take long to get one’s fill of that, even if one disagrees with Donald Trump’s policies or cringes at some of his public statements. The real problem, however, is that Krugman also manages to endorse unsound and inflationary economic policies as a ‘solution’ to what he calls ‘Trumpism.’
    If one reads Krugman to see what ‘vulgar’ Keynesian fallacies he is promoting, the man rarely disappoints, and a recent column in which he attacks what he believes will be Trump’s future choice to head the Federal Reserve System only burnishes Krugman’s Keynesian credentials. After claiming that Trump has been like a ‘Category 5 hurricane sweeping through the U. S. government, leaving devastation in his wake,’ Krugman then worries if the Fed will suffer the same fate. One only could hope….
    Before looking at Krugman’s worshipful commentary on the current Fed leadership, a brief point is in order regarding the rest of official Washington that Trump allegedly has devastated. People like Krugman believe that Washington and its gaggle of Alphabet-Soup agencies regulating nearly every aspect of individual lives is the very source of social stability and economic prosperity in this country – provided there are little or no restraints on what government agents can do. As Krugman and his fellow progressives see it, we need more, not less, bureaucratic control of our lives, and especially control by people of progressive bent with ‘elite’ academic credentials, since they are smarter than the rest of us, so they should be able to tell us what to do.

    This post was published at Ludwig von Mises Institute on Oct 17, 2017.


  • More Spending Does Not Drive More Employment

    It is almost universally asserted today that consumer spending drives employment. This thesis gives support to the general Keynesian idea that government should ‘stimulate’ the economy when it is suffering from a recession, whether it is through fiscal or monetary policy.
    Glorious Spending At the core, the idea is that if spending on goods and services goes up, then more people are needed in their production. And, as a consequence, more people are able to get jobs, earn a wage, and thus buy goods and services. In other words, it doesn’t matter if government wastefully increases spending – even if it is borrowed money – because the economic wheels start turning and as growth picks up we’ll be able to deal with debt, deficits, and so on.
    Not to mention the human suffering through involuntary unemployment and poverty that is averted by such a single act!
    Government spending in a recession is therefore seen as an almost costless solution that we simply cannot afford not to make as much use of as possible. So it is easy to understand why Keynesians are at best confused by those arguing against government stimulus, and would likely call them ‘evil’ for opposing something so grand.
    The problem is while the logic is easy to follow, it is based on an utterly false assumption. There is no such relation between consumer spending and employment as Keynesians believe is obvious.

    This post was published at Ludwig von Mises Institute on Sept 27, 2017.


  • The Sermon On The Mount[ain Of Debt]

    ‘Blessed are the young, for they shall inherit the national debt.’ – President Herbert Hoover
    The Hoover administration thought there was no room and was ideologically opposed to fiscal expansion to stimulate aggregate demand. Furthermore, Keynesian theory was not even developed at the time. The General Theory of Employment, Interest and Money was not published until February 1936.
    A policy error, partially due out of ignorance, that led to the Great Depression, though it was monetary policy and the Fed’s failure as ‘lender of last resort’ that ‘put the Great in the Great Depression.’
    …what happened is that [the Federal Reserve] followed policies which led to a decline in the quantity of money by a third. For every $100 in paper money, in deposits, in cash, in currency, in existence in 1929, by the time you got to 1933 there was only about $65, $66 left. And that extraordinary collapse in the banking system, with about a third of the banks failing from beginning to end, with millions of people having their savings essentially washed out, that decline was utterly unnecessary – Milton Friedman

    This post was published at Zero Hedge on Sep 23, 2017.


  • GOLD HAS BROKEN OUT – DON’T BE LEFT BEHIND

    The coming gold and silver moves in the next few months will really surprise most investors as market volatility increases substantially.
    It seems right now that ‘All (is) quiet on the Western Front’ as Erich-Maria Remarque wrote about WWI. Ten years after the Great Financial Crisis started and nine years after the Lehman collapse, it seems that the world is in better shape than ever. Stocks are at historical highs, interest rates at historical lows, house prices are booming again and consumers are buying more than ever.
    HAVE CENTRAL BANKS SAVED THE WORLD?
    So why were we so worried in 2007? There is no problem big enough that our friendly Central Bankers can’t solve. All you need to do to fool the world is to: Print and expand credit by $100 trillion, fabricate derivatives for another few $100 trillion, make further commitments to the people in forms of pensions and medical, social care for amounts that can never be paid and lower interest rates to zero or negative.
    And there we have it. This is the New Normal. The Central Banks have successfully applied all the Keynesian tools. How can everything work so well with just more debt and liabilities? Well, because things are different today. We have all the sophisticated tools, computers, complex models, making fake money QE, interest rate manipulation management and very devious intelligent central bankers.
    Or is it different this time?

    This post was published at GoldSwitzerland on September 7, 2017.


  • Further thoughts on Gibson’s paradox

    ‘The paradox is one of the most completely established empirical facts in the whole field of quantitative economics.’ – John Maynard Keynes
    ‘The Gibson paradox remains an empirical phenomenon without a theoretical explanation’ -Friedman and Schwartz
    ‘No problem in economics has been more hotly debated.’ – Irving Fisher
    Introduction
    Two years ago, I found a satisfactory solution to Gibson’s paradox.i The paradox is important, because it demonstrated that between 1750-1930, interest rates in Britain correlated with the general price level, and had no correlation with the rate of price inflation. And as Friedman and Schwartz wrote, a theoretical explanation eluded even eminent economists, so economists preferred to assume the quantity theory of money was the correct guide to the relationship between interest rates and prices. Therefore, the consequence of resolving the paradox is that the supposed linkage between interest rates, the quantity of money and the effect on prices is disproved.
    Gibson’s paradox tells us that the basis of monetary policy is fundamentally flawed. The reason this error has been ignored is that no neo-classical economist has been able to establish why Gibson’s paradox is valid, as the introductory quotes tell us. Consequently, this little-know but very important subject is hardly ever discussed nowadays, and it’s a fair bet most of today’s central bankers are unaware of it.

    This post was published at GoldMoney on September 07, 2017.


  • Slow Wage Growth Could Be Thanks to ‘Sticky Wages’

    The economic outlook in the United States right now is remarkably positive according to many indicators; unemployment is at it’s lowest since the dot-com bubble, the stock market is at record highs, and inflation is relatively mild. Wages, however, seem to be bucking the trend. Growth in nominal wage rates has remained modest despite a tight labor market, puzzling many commentators. The blame has been spread widely; China, robots, and Baby Boomers are the target of one recent article. However, the answer for this puzzling phenomenon could perhaps be found in the work of John Maynard Keynes.
    One of the central tenets of Keynesian economics is the concept of ‘sticky wages;’ the belief that wages, more so than other prices, are inherently inflexible and rigid, particularly in the downward direction. This key plank of Keynes’ theory has often been used as an argument against deflation and as an impetus for monetary expansion in a recession. Although, these policy prescriptions have been dealt with countless times, what of the underlying claim?
    It turns out that praxeology per se has very little to say about the existence, or non-existence, of sticky wages. Assuming that by ‘sticky’ all that is meant is that it takes a long time for wages to adjust to market pressures, the only judgment being made is a quantitative one. Mises constantly stressed throughout his work that the only judgments praxeology can make are strictly qualitative. For example, if there is a increase in the demand for labour, we know qualitatively that the wage for labor must rise, ceteris paribus. However, in the exact same sense that we cannot predict the magnitude of this increase in wage rate, we can never predict the time it will take for wages to increase.

    This post was published at Ludwig von Mises Institute on September 8, 2017.


  • Irving Fisher and Japan

    Outside the Box, for a number of new readers who have joined us, is a letter in which I feature someone else’s work each week, and often it is a view contrary to mine. I have to continually remind readers that just because I include something in an Outside the Box doesn’t mean that I agree with it. I think it pays us to read people we don’t agree with.
    John Maynard Keynes was an enormously influential economist, but some of his detractors complained that the opinions he expressed tended to change over the years. Once, during a high-profile government hearing, a critic accused him of being inconsistent, and Keynes reportedly answered with one of the following lines (accounts vary):
    When events change, I change my mind. What do you do?
    When the facts change, I change my mind. What do you do, sir?
    When my information changes, I alter my conclusions. What do you do, sir?
    When someone persuades me that I am wrong, I change my mind. What do you do?
    I am rather well-known for suggesting that Japan was a bug in search of a windshield and in predicting that the yen would go 200 to the dollar. About four years ago, when the yen was at 100, I even purchased 10-year options, which were ridiculously cheap, with strike prices 20 to 30 yen higher. I was willing to be patient and wait for 10 years, if I had to.

    This post was published at Mauldin Economics on SEPTEMBER 6, 2017.


  • Keynesian Imbecility Trap, Not Liquidity Trap

    First, let us stroll down memory lane.
    I shall now perform my legendary Ben Stein imitation for your amusement and edification.
    What is liquidity? Anyone? Anyone?Liquidity is the ability to walk into a store and buy something because you have money.
    What is a trap? Anyone? Anyone?
    A trap is something that keeps you from moving.
    What is a liquidity trap? Anyone? Anyone?
    A liquidity trap is when you can walk into a store and buy something, but you choose not to.
    Why is a liquidity trap bad? Anyone? Anyone?
    A liquidity trap is bad because the people in the store cannot sell anything to you. The store may go out of business if there are a lot of people just like you.
    What can be done about a liquidity trap? Anyone? Anyone?
    The government can print money and hand it out to people free of charge, so they will buy things.
    Why is this illogical? Anyone? Anyone?
    That’s the end of my imitation. But let’s assume you are not the kid with his head on his desk, drooling. What is your answer? Why is this idea illogical? Can you figure it out?
    Let’s go to Wikipedia. Here is the opening paragraph of the entry for “Liquidity trap.”

    This post was published at Gary North on August 31, 2017.


  • Anarchists, Big Business and ‘Price Gougers’ Helping Texans Through The Flood

    Before I begin, let me say that here at TDV we don’t look to take advantage of emergencies to promote our worldview.
    But, when we do see totally wrong information being spread widely we feel an obligation to correct it.
    And, the topic of ‘price gouging’ during the Texas flooding is a perfect example.
    ***
    The internet, and of course the mainstream TELL-LIE-VISION programming, has been inundated with outrage that people are selling needed items during an emergency at a markup.
    Most of those who are complaining likely have no knowledge of economics or if they do, it is an understanding warped by a Keynesian outlook that was taught to them during their 12 years of government indoctrination or the 4 years of college propaganda they received shortly thereafter.

    This post was published at Dollar Vigilante on August 30, 2017.


  • Hidden Forces of Economics, Gold and Silver Report

    We have noticed a proliferation of pundits, newsletter hawkers, and even mainstream market analysts focusing on one aspect of the bitcoin market. Big money, institutional money, public markets money, is soon to flood into bitcoin. Or so they say.
    We will not offer our guess as to whether this is true. Instead, we want to point out something that should be self-evident. If big money is soon to come in, and presumably drive the price up to whatever new height – perhaps even the magic $1,000,000 – what comes after?
    In the restless churn that has overgrown our capital markets, investors speculators are always seeking to get into whatever asset is bubbling up. Big money leaving will follow big money entering, as surely as a rock thrown into the air will fall back down.
    In last week’s Supply and Demand Report, we excerpted a quote from economist John Maynard Keynes. He cited Vladimir Lenin discussing how to destroy Western civilization. Here is the full quote (from The Economic Consequences of the Peace):
    ‘Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.

    This post was published at GoldSeek on Monday, 28 August 2017.