Comment by joe_the_user | Hacker News Reader

Comment by joe_the_user | Hacker News Reader

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I think it's good to get opinions from solid economists on the right and the left.

And what I would say about recent US government policy is that it has been bad when measured by either Keynesian OR monetarist yardsticks.

This is essentially because the massive growth of US financial obligations has gone ultimately to bailing out the large financial institutions rather than to any Keynesian job creation scheme. So essentially you have a situation where neither the free market nor government do anything to create jobs.

Krugman can legitimately say the Federal budget deficit as such is not high. What massively inflating is the "other obligations" - Fannie Mae bonds, student loan bonds, etc. Here we have massive "inflationism" (as Doug Noland would term it).

Krugman is a partisan so he's glossed over the unneeded spending of the bailout in later commentary but he did say "The longer we live with zombie banks, the harder it will be to end the economic crisis."

IE, the bank bailout is a massive money-hole where banks have become "zombie" entities that are neither "private" in the sense of being disciplined by the market nor "public" in the sense of having any obligation to the public. The present situation is one where the money that could go to either a stimulus or a tax-cut is shoveled to these "zombies" instead.

I'm not sure that a deficit of 12% of GDP (all of which has been monetized for the last half year) is "not high." If this deficit spending were actually going to financial institutions and disappearing (which is happening with much of the fed's lending of late, but primarily because the few borrowers who are qualified are not enamored with leverage at the moment), you would have a point, but our government is spending that money as it normally would: 58% of federal spending is entitlement programs, 19% is for killing people on the other side of the world, and the remaining 23% is sprinkled among programs that are each too small to be worth mentioning.

"If this deficit spending were actually going to financial institutions and disappearing (which is happening with much of the fed's lending of late, but primarily because the few borrowers who are qualified are not enamored with leverage at the moment), you would have a point..."

The Fed printing money and giving it to the bank adds to effective over-all spending and so effective deficit spending is going to the banks.

You might idly slice the size of the official Federal deficit any way you wish - high by comparison to earlier GDP ratios, low in comparison to the GDP ratios of other countries (Japan has a public debt of ~100% of GDP - funny how they have the world's highest ratio here despite their huge trade surpluses).

But this slicing doesn't mean much with the Fed and Fannie Mae's activity involving massive shoveling of money into the housing and other sectors.

And it should be clear it doesn't matter if this happens "primarily because the few borrowers who are qualified are not enamored with leverage at the moment". Indeed, the whole point is using money to prop up failing sectors makes it more likely that fewer in the private sector will want to borrow for actual productive investment.

I would agree that Krugman's pushing for larger deficit misses the elephant in the living room that is the bailout. But hey, he complained once and that's more than many did.

Like I said, this is neither Keynesianism nor Monetarism as such but a state "captured" by the various industries which suckle off it (especially defense, financial services, education, health care but also others).

You might idly slice the size of the official Federal deficit any way you wish - high by comparison to earlier GDP ratios, low in comparison to the GDP ratios of other countries (Japan has a public debt of ~100% of GDP - funny how they have the world's highest ratio here despite their huge trade surpluses).

I don't think it's fair to compare the public debt of one country to the annual deficit of another. It is akin to saying "It's alright that I put $8000 on my CC last month because Bob down the street owes $70,000." While Bob may be in dire straits, he probably didn't accumulate all that debt in the last 8 months.

Trifles aside, It's refreshing to see someone with a very different perspective from my own who realizes what is going on.

Yes that would be an obvious mistake but I simply mis-typed.

Public debt to Public debt, the US is not notably high on relative to other industrialized nations.

See: http://en.wikipedia.org/wiki/List_of_public_debt

Japanese debt is mostly domestic, unlike most countries who have sold bonds to a lot of different people, largely china.

I'm afraid I just find it a little bizarre that Keynesian economics is considered in some way "left", or partisan. It's really just based on observation, and does not endorse any radical redistribution of wealth - it's designed to encourage growth and minimize recession. Right-wing economics is very real, however, and seems to be based more on a kind of moral outrage against the very notion of taxation than any empirical measure. And it seemed to be working - Clinton and Blair endorsed the very assumptions of this approach - but is looking somewhat tattered now. Has Keynesianism ever been shown to have failed? I've not seen evidence of this.

> Has Keynesianism ever been shown to have failed? I've not seen evidence of this.

What evidence would you accept? How does one falsify Keynesianism? High inflation? A bearish currency? High unemployment?

Yes - high inflation (i.e. too high, not 5%), substantial currency devaluation (not hyperinflation but worse than a mere annoyance), and especially high unemployment - higher than we have now under the market-focused orthodoxy. But it needs to be compared to a useful control. For example, if it's limited to the 1970's, it would be hard to isolate from the impact of the oil crisis. And if it's limited to the US/Britain, you need to explain why the high-spending tiger economies can be discounted.

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