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Keynes vs. Keynes...
Posted by James (more from James) on Fri, 6 May 2011 06:49:05
In Reply to: Keynesianism is Macro Econ, duh!, Reality, Thu, 5 May 2011 18:27:34

first off, I fully agree, Keynesianism is macroeconomics + thus is aggregate rather than individually oriented (though good macro policy will of course benefit the individual)...

what I wanted to comment on though (I've probably done so before), is there is Keynesian policy and there is Keynesian policy... I know you're bias is libertarian, but, putting one's personal views aside...

When I learned about Keynes in university (almost 20 years ago!), I don't recall any discussion of TBTF. Well executed Keynesian policy involves contractionary policy during good times (eg appropriately raising taxes, decreasing investment in industry, etc) and expansionary policy during bad times (eg lowering taxes, investing in industry), and all policy decisions must carefully take into account lags, various elasticities, etc. The objective is to reduce the magnitude of oscillations in the economy, to stabilize it (as an engineer, I look at it as an exercise in control theory). An annually balanced budget tends to exacerbate economic cycles. The principles are no different than what one should do in one's own personal finances (or the finances of a corporation). Hoard "cash" in good times to use in bad times + provide stability. There was no discussion of "bailouts" however. Well executed policy should be proactive + prudent, not reactionary...

That said, I suppose historically (and I am no historian!!), Keynes himself has been criticized for being spendy... this is often reinforced in real life: governments tend to only run deficits + do things wrong, and that may be a valid argument from the libertarian side: better to just leave well enough alone (vs mess it up worse)... a libertarian might be happy enough with high volatility (where there is a great depression, there is great future opportunity)... and fair enough...

However, that governments *can* be wrong does not mean that they always *are* wrong. There are examples out there of proper Keynesian policy, but I will defer from commenting further to avoid the kind of political discussion not welcome on this bb... what I would like to say though is, the world would be much better off, if we were all much better educated. I find it very frustrating when a government with good fiscal policy gets ejected in favour of another with rather poor fiscal policy, on the basis of election promises. A libertarian might argue that is why we need less government. I would argue, we need a more intelligent electorate that would reject poor governments... perhaps the libertarian view is more realistic! imho, that is rather depressing...

btw, by the above, I do not mean to imply "Reality" (or a libertarian view) is not intelligent... I know he's pretty smart... but on this topic, I view the libertarian view as "might as well just disconnect the thermostat + live with the cold in winter + hot in summer because the one I bought isn't perfect"... which, ironically, I do a little of ;-)...

(I'll stop ranting now)...

James...

posted by 216.59.2...

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