Hacker News Reader

Comment by lend000 | Hacker News Reader

The thing about Keynesian economics is that it isn't sustainable in the long term, because there is never a plan to pay off the debt accumulated during each recovery. In practice, keynesians talk about increasing spending during recessions but never speak of running equivalent surpluses during 'the good times.'

View on HN

By itself this doesn't prove that it's unsustainable. In fact, there's plenty of evidence around us that it is sustainable, since it's quite rare for states to collapse due to debt (that wasn't caused by exceptional catastrophic circumstances like war/revolution/highly-corrupt mismanagement/etc). State debt doesn't EVER need to be repayed in full, interest on it just needs to stay sustainable. (Which isn't to say debt is without its costs, just that the fact that it doesn't get aggressively paid down during good times doesn't imply inevitable disaster.)

More so, having safe government debt is incredibly useful. Retirement and pension funds and other low-risk investment vehicles depend on them.

This doesn't prove that it's sustainable in principle, only that the time to inevitable collapse is greater than the ~80 years since it's been widely implemented.

In practice, ever-increasing debt absolutely requires ever-increasing growth in order to service it. We've so far been lucky, in that the period during which we've used this policy has coincided with the enormous productivity gains that came with the computer revolution. But rearranging our economy so that it's dependent on continual windfalls from external sources merely to stay afloat seems reckless at best.

If there was ever a point where our current run of innovation starting with the Industrial Revolution were to slow down or stop, then you are correct. However arguing that it's not proven to be sustainable because the fact that it hasn't collapsed in ~80 years only proves that its sustainable for 80 years is makes proving it sustainable impossible. Absent a better theory with better predictions Keynesianism is still the most successful economic theory. Moreover the scenario where innovation stops or slows down is a fairly unlikely scenario and if we're going to have a public policy debate I don't think it's wise to count on it.

Innovation in specific areas slows or stops all the time. The general run of technical progress in a specific area shows an S-curve, in which initial discoveries are made slowly, later progress accelerates as synergies are exploited and greater investment is made, and finally innovation decreases as low-hanging fruit is exhausted and the shape of available technology matches that of the problem domain. For an example of this, see aerospace; it took around sixty years to go from the field's inception to the moon landing and the Concorde, and in the fifty years since we've made mostly incremental progress over the technologies involved in both.

It seems that we're currently approaching the top of the S-curve for computation via integrated circuits; further increases going forward are likely to be incremental and margin-focused, as opposed to paradigm-shattering. Maintaining the 1950-2010 rate of productivity improvement will require new paradigm-shattering advances in some other field (machine learning? Internet of Things stuff?). It's possible that these are indeed forthcoming, and we can continue our absurd growth levels for another fifty years. It's also possible that we're nearing the edge of the problem space and we won't have any more easy order-of-magnitude productivity boosts. If the latter is true, then our economy will inevitably collapse with enormous collateral damage. As an economic system, this seems unstable at best.

This doesn't seem like a reasonable worry really. We will continue to innovate at a more rapid pace until we have real AI or there is a massive disaster(runaway global warming of 8-10 degrees or nuclear war are the most probable), I personally think it will be AI though because I suspect we might be looking at 20-30 years until that happens.

Once real AI comes I'm not really sure what will happen because it is unpredictable how the AI will be made, but if the past is any indication it will be made recklessly in a race between a bunch of companies. Idk how long our current world order will continue to exist and how much the AI works with us after that event. Hopefully the zoo it keeps us in will be nicer than the way we have treated animals, and hopefully that takes 20 years after the birth of real AI.

I wouldn't worry about innovation slowing down, I would worry about the end of meaningful human innovation that we are clearly headed towards.

"Innovation in a specific area slows or stops all the time" Yes, but the general pace of innovation in the entire economy including areas that are slowing down or starting up is pretty consistent. One thing I'd like to make clear is I'm not just talking about 1950-2010 growth rate, I'm talking Industrial Revolution (around 1800 depending on where you are) to now. Ever since society realized we could build machines fueled by energy to increase productivity we've been growing at roughly a 2% pace. Even if it isn't immediately clear where the new productivity gains will come from (although I'd argue there are plenty of promising areas) I think it's more likely than not going to continue.

some possible areas - AI, 3d printing, falling renewable energy prices, continued marginal gains from computers, quantum network communication, longer term - quantum computers, expansion of VR, driverless cars, etc. Point being there are a lot of promising areas on the horizon.

> In practice, ever-increasing debt absolutely requires ever-increasing growth in order to service it.

No, it only needs increasing growth of the rate of debt growth is accelerating; if it is merely constant debt growth (over the long term), constant (not “ever-increasing”) economic growth allows debt service costs to grow constantly and still have the otput not devoted todeny service grow constantly at the same rate.

> We've so far been lucky, in that the period during which we've used this policy has coincided with the enormous productivity gains that came with the computer revolution.

It's been practice (“policy” is a bit too strong) since Eisenhower. And economic growth was stronger earlier in that period than later. Too the extent that it's been sustainable, it's not due to some unusual economic magic of the “computer revolution”.

> But rearranging our economy so that it's dependent on continual windfalls from external sources merely to stay afloat seems reckless at best.

Even to the extent the computer revolution might be relevant, that's not an external source when discussion the economy. That is a thing that was produced within the economy, and government (deficit-financed) spending played an important role in it.

Technically, you don't need to pay off the debt in expansions; you increase spending by deficit spending during recessions, increasing the debt to GDP ratio, and then curtail surplus spending (even without paying down debt, you can even do this with some net deficit spending) in expansions, decreasing debt to GDP ratio mainly by GDP increase. (This still oversimplifies a bit; you really care about the debt service cost to GDP ratio, not the debt to GDP ratio, but the two tend to move in the same direction.)

People dependent on income from wage labor need to pay off debt for sustainability because the ability to do labor eventually declines or is lost.

Governments aren't individuals.

And in practice, Keynesian economies don't do the 'curtail surplus spending' part, so we end up where we are now with debt interest taking up a significant part of US spending, with signs of increasing significantly.

The US basically has (measured by direction of change of debt-to-GDP ratio) in periods of economic expansion even as debt grew in the post-WWII period, except under Nixon and later Republican Presidents and Obama (and even in Obama’s case after the first term debt expansion overlapping the Great Recession and immediate aftermath, the second term was basically flat.)

I'm not sure there is a good case that “Keynesianism” is the problem; the late anti-tax orthodoxy of the Republican Party, which has nothing to do with Keynesian fiscal policy, seems more to blame.

> running equivalent surpluses during 'the good times.'

This is because government debt isn't a zero-sum game.

Especially since our currency is no longer gold standard/backed (partly because of the Great Depression).

The end of the US dollar international convertibility to gold did not happen until August 15, 1971.

It is also exactly the year inflation took off like a rocket - see the "Cumulative Inflation" graph. And the standard of living for the middle class (at least in the US) began to stagnate (up to this day).

https://inflationdata.com/Inflation/Inflation/Cumulative_Inf...

Inflation also took off like a rocket in Switzerland in the early 1970's: https://tradingeconomics.com/switzerland/inflation-cpi

Switzerland was on the gold standard until 1999. Since abandoning the gold standard, inflation in Switzerland has been minimal.

Clearly abandoning the gold standard does not necessarily lead to inflation. You haven't even shown a correlation here, much less causation.

Lack of gold standard is not sufficient for inflation - you also need reckless monetary/fiscal government policies (abundant in the US, taking full advantage of the dollar being the reserve currency)

I was not trying to prove causation. There appears to be correlation, but obviously other factors (like government spending) are at play

The end of convertibility didn't occur in a vaccum though: it was a response to a whole bunch of exogenous causes, including oil price shocks.

Simply not true. A good contemporary example is the governor of California, Jerry Brown, who has been vigorously defending the accumulation of surplus in the name of fiscal rectitude for the last several years.

Not all Keynesian fantasies go on forever. If we are not careful (which we aren't), then at a certain point, those interest payments become a runaway expense. See Puerto Rico. California is not exactly a model of fiscal excellence -- they're in big trouble with pension obligations, amongst other things.

Reply on news.ycombinator.com