Generally I agree with the Keynesians, but I'm skeptical that the main explanation for the stagnation in median wages (employment has gone up and down, was down to 4% in the late 90's) we have observed for past several decades is due to Neoliberalism. There are a lot of drivers including massive technological change and the complex effects of a reduction in trade barriers that have all played a role.
Perhaps economics is failing, but I think it's not entirely because of a Neoliberal vs. Keynesian dichotomy, it's at least as much because the economy is shifting and we haven't come up with a good economic paradigm for coping with these rather important shifts.
That said, I think a more Keynesian approach to economics is well warranted. Largely they have had a much better approach to monetary policy in the recent crisis.
I'm a big proponant of the idea that what we really need is more valuable shit to do. Higher demand is part of this, so Keynesian approach would help. But we really, IMO, just need more things that we value enough. Higher demand for quality goods is a start. Buying locally made items, paying for better artists, engineers, scientists, etc. We need more projects.
Space program helps. Smart housing programs. Railroads. Microgeneration of electricity, etc.
Technology is just a force multiplier. It's up to society to decide how to structure itself. Who owns technology? Who pays for its development? This is where the ideological fault lines lie.
"We are all Keyensians now" - Richard Nixon, right before the wheels came off[1]. Of course, WIN buttons and wage and price controls were just ludicrous.
[1] not too awful badly, but still... "waiting for Ronald Reagan" was one of the main plot drivers in the recent season of "Fargo". It was kind of bleak then.
"Monetary" sure sounds like "monetarism" and one of the great recent aggregators of monetarist theory is generally considered to be Milton Friedman. One of the standard-bearers of that tradition now is Scott Sumner.
If Mises and Hayek were triumphant, government share of the economy would have gone down, or at least remained constant. But instead it has grown substantially.
It always surprises me how many of Reagan's critics fail to point out that Reagan was a hypocrite who grew the total size of government. His anti-government rhetoric was rhetoric only.
Same with Bush. I recall reading that he grew government almost as much as LBJ.
I suspect that both Cruz and Trump would do likewise, maybe more than Clinton or even Sanders. Trump in particular I predict would be a big spender.
But this misses the point. The part of neoliberalism that isn't working is free trade. It's turned into a way for domestic corporations to leverage foreign authoritarian regimes and their oppressed populations as a sink of cheap labor. It's becoming clear that the reciprocal side of free trade may never come as states like China won't allow it, which makes it just a unilateral liquidation of the American worker and American industry.
I am absolutely for free trade with free people but that rhetoric has been used to sell something much different.
I think a great many people who would consider themselves Keynesians are rather pro free-trade. I'm thinking here of Paul Krugman who despite have recently backed off saying trade is universaly good has been very much pro free trade.
It's also not at all clear that free trade is the primary culprit in the decline of manufacturing labor. Robots are way cheaper over the long term than are even abused sweat-shop workers.
Krugman acknowledges that trade as universally positive is a bit wrong, but even so doesn't think protectionism is necessarily the correct solution.
This being said, the poor huddled masses of the authoritarian regimes generally get a little bit freer and have an improved standard of living because of it, generally.
So I found another source which contradicts at least my first glance impression of yours. Here is something that might be more instructive[0], federal spending only, not including state and local spending. To be fair to Reagan, he didn't control state and local government spending.
Interpreting it is still somewhat difficult, but it looks like there was a peak of spending towards the start 80's. Definitely, other than after the 2008 crisis, federal spending did not increase as much as your other plot suggests.
Once again, this demonstrates the sin that is plotting multiple plots ontop of each other, can yield misleading impressions.
Have you ever lived under communism to know what is like? Can you recognize communism when the party that promotes communist measures have not the word "Communist" in the name?
At the end of the day what's wrong with ideology is that people look to ideology, just as they did to religion, to provide some sense of comfort and security and make them feel as if things will okay in the future. Neo-liberalism and Communism don't do that. Religion did that. That's what people want.
Your problem with ideology is that its not as comforting as religion? I think ideology can help take a 10,000 foot view of highly complex situations. There are many factors in a political or economic decision but we can easily say that free markets have worked better through global history than communism.
Economics is all about models. Models that are highly constrained by the current level of technology and other variables. Variables which are in constant flux. With big data you don't need models, you have actual real time information about the entire system. You also have means of using that data to make live predictions that can change all the time. Just because history says that "free markets" worked best, does not mean that this is true any more. It was historically a fact because you did not have big data or ways of computing to process supply and demand properly.
Big data is just data. Though it's often sold as delivering omniscience, it doesn't inherently explain causation. It could allow in the creation of better or new models, and reduce the delay in finding out what we already know with existing models. But you won't ever get rid of models completely, as any method of prediction is itself based on a model.
But I agree with your bigger point about there being possible methods/technologies that supersede some aspects of naked free markets, or mixed markets as we know them.
> With big data you don't need models, you have actual real time information about the entire system.
Your comment makes absolutely no sense.
Models are just means to predict the future based on observations made in the present and/or in the past.
The available data, in this sense, serves only two purposes: serve as the starting conditions to analyze how scenarios may evolve within a given degree of accuracy, or to build correlation models to help analyze scenarios with a given degree of accuracy.
A model is a tool that tells you how systems evolve and lets you infer what you can expect out of them in order to make informed decisions.
> You also have means of using that data to make live predictions that can change all the time.
Again, this is absolute nonsense. Models are used to make decisions based on how things are expected to be years and decades into the future. It makes absolutely no sense to claim that you can tell how things will be in the immediate future if you're trying to make decisions based on what will happen over the following decades.
> Just because history says that "free markets" worked best, does not mean that this is true any more.
Holy non-sequitur, Batman. You sure wanted to shoe-horn that little gem in there.
Furthermore, free-market isn't or will not be any more or any less true than what is right now or was in the past. The free market is just a specific theoretical definition of an economic system. It establishes conditions, draws relationships between factors and their effects, and provides a tool to model the evolution of economies.
Some assumptions followed in the definition of a free market don't hold in some real-world economies, but it is already quite thoroughly established that the evolution of real world economies does agree quite well with the evolution of economic models based on free market principles if governments ensure that these economies follow basic free market principles.
> It was historically a fact because you did not have big data
> Models are just means to predict the future based on observations made in the present and/or in the past.
Models are representations of reality. If you have the actual reality, as in all transactions for every product made by every agent, you don't need a model as you have the actual data. You can watch that in real time, and you can also test hypothesis and theories in real time. That in opposition to a model, say an economic model, which would be based on some theoretical assumptions attempting to predict supply and demand while looking at certain variables. If you have all the transactions that every single agent makes, as well as all social-economic variables about that person in real time, then any theory you have about their behavior can be tested in real time, rather than against a model, and validated or thrown away.
> A model is a tool that tells you how systems evolve and lets you infer what you can expect out of them in order to make informed decisions.
Models are representations of reality, rather than simple inference it's much more powerful to have actual data from reality available to test your theories, not just a model. Models are simplified versions of reality, a reality which is forever changing. Economic models are often wrong.
> Models are used to make decisions based on how things are expected to be years and decades into the future. It makes absolutely no sense to claim that you can tell how things will be in the immediate future if you're trying to make decisions based on what will happen over the following decades.
And this is why economics is often wrong. Knowing what is happening right now and responding to it, is much more powerful than making theoretical assumptions about how things are and then waiting and praying that they are right... which often they are not.
> The free market is just a specific theoretical definition of an economic system. It establishes conditions, draws relationships between factors and their effects, and provides a tool to model the evolution of economies.
I don't know which tools you are talking about. I don't know what evolution you are talking about.
One reason the free market is superior to central planners is exactly because central planners did not have actual market data but instead had to rely on models for supply and demand. When central planners have access to real time actual market demand as well as all data about each agent, it makes it much more likely that they will succeed at their job than the way the Soviet Union did it.
You clearly have no clue about what you're talking about. You obviously don't understand what a model is, let alone how and why it's used, and you clearly don't understand the role models play in decision-making processes.
Furthermore, you are completely oblivious to the reality and application of models in general and economic models in particular.
If you are entirely oblivious to the issue you're trying to discuss, it's pointless to continue discussing it with you.
See this model "estimates how an economy might react to changes in policy, technology or other external factors."
This model uses real data. Why use this model at all? Why not change the policy itself and see the effects of it in real time? If you can do that as you can in terms of some decisions which are reversible. If on the other hand that's not possible, why not validate this model continuously against the real market with every single policy to point to its weaknesses and failures? That's what big data allows you to do. That's all I was getting at.
Theoretically, free markets do work best. But practically, they do not exist other than in nature itself. Free markets are, like nature, void of positive feedback loops. Free markets dispose of irrational actors. Free markets trend towards efficiency.
"It was historically a fact because you did not have big data or ways of computing to process supply and demand properly." Realize "the market" is the computing mechanism and that the real-time information it produces is decentralized and fragmented.
Perhaps a technological solution will aid "the market" in converging more quickly and ultimately democratize the information it produces. I truly hope so. But, based on my observations, the market isn't doing that great job disposing of irrational and/or bad actors. This terrible article on The Guardian is an example.
> Mention it in conversation and you’ll be rewarded with a shrug. Even if your listeners have heard the term before, they will struggle to define it. Neoliberalism: do you know what it is?
> Its anonymity is both a symptom and cause of its power.
That might be a cultural thing or me hanging in the right circles (or the wrong ones) but neoliberalism is quite well known in Europe. Many intellectuals have discussed its particularities and most people know at least what it broadly refers to.
And yet not everyone knows how pervasive and influential it is thanks to its very discrete influence on vocabulary and political one-liners though. HN has a neoliberal vibe and I have a feeling a lot of us around here are conflating neoliberalism with capitalism.
At least in America, I think we are much happier with "neoliberalism" than Brits are. Both Bill Clinton and Ronald Reagan, are considered two of our most effective presidents. The 1980s and 1990s saw fairly significant economic gains.
Only significant if you ignore 1933 to 1978. Otherwise it's mediocre. If you're a working class family it's dismal. You achieved no increase in wealth between 1980 and 2000. And then lost ground in real terms since 2000.
You do know that between 1933 and 1978 there were a couple of incidents that ended up influencing the world's economy more than basic economic models, don't you?
I mean, I'm sure we can agree that an event like WW2 alone, with the shift from peace-time to war-time economy experienced by the leading economies of the world, does influence things a bit more than the theoretical effect of some economic systems.
Nobody disagree that it didn't influence things, but how it did is up for discussion.
People who back up Keynes, will say it was the wartime investment that drove the economy.
Neoliberal will say the war pretty much destroyed every economy except the American, leaving America relatively rich, which is why that period looked so good for them. Had there been no war, everybody would have been better off.
Ironically, most of the people I've seen claiming it was the war that saved the economy were neoliberal in their feedback economic beliefs, while many notable Keynesians have argued that domestic policies played a major role in the wake and post-war expansion, with only a weak connection to the war (in that the war weakened political resistance to them.)
One of the things that happened in the war was the government effectively erased private debt in the US. And took on a like amount onto it's books. And it raised top rate income taxes sky high and kept them there for decades. That's the period of high growth.
People blame ideologies trying to hide some simple, basic facts: when 1 billion people in China and 1 billion in India earn $50 a month and the minimum wage in US or Europe is $40-50 we don't like anymore the competition and open market, so we run in circles blaming ideologies that don't even exist in reality anywhere.
$40-50 per day, not hour. The comparison is that the average US or European worker make in a day as much as the Chinese or Indian worker in a month. This huge difference of potential creates tensions on the market and in the liberal (no idea where the "neo" comes from, maybe Matrix?) economic doctrine the tendency is the competition to drive the gap to minimize or close. Will that be with European workers earning $50 per month or Chinese earning $50 per day? None, because the European protectionism is distorting the market and maintaining the tensions with the price of immigration, terrorism etc.
Politically, the article attacks conservatism and libertarianism which discourage a strong government role in regulating the economy. Within the context of economics, this is referred to "liberalism." Neoliberalism (the subject of the article) refers to economic liberalism.
Everybody in power is Keynesian today. Everybody. That is an ideology created from Keynes books once he is dead. The last part is important because if you get to read Keynes, which most Keynesians have not, you would discover what Keynes said and what is Keynesianism is different, so it is very important that he is dead for him to agree with the current system.
In elite schools people are Keynesian, in central banks, in Government,and the media of course(New York Times, The Guardian,everybody) because they benefit from it basically taking resources from the majority of people into their pockets.
You find Austrian economist only in the private sector, but they had lost the war so far.
We had multiple QE, zero interest rates, now into negative territory, we had bail outs, now into bail ins(bank deposit confiscation).
That has a name and it is Keynesianism.
It did not work and we are worse today that before.
Their solution: double down. Banning cash so they could confiscate your savings. Higher taxes. And of course making Hayek and Mises alternatives the Scapegoat of all the mess that we suffer today.
By the way, Austrian economics and Neoliberalism are two different things.
I agree that everyone in power today is Keynesian. I also agree that "Keynesian" is not what Keynes wrote.
Long term, we may be worse off. But short term, Keynesian macro economic policy works. Collectively, society is too stupid for the alternative to work: don't centralize and don't panic.
> I agree that everyone in power today is Keynesian. I also agree that "Keynesian" is not what Keynes wrote.
You hit the proverbial nail in the head.
Sometimes it appears that the people in power picked up Keynes' book and instead of reading "borrow and spend away in recessions, cut spending and pay the debt during economic expansion", they just read "borrow and spend away" and that was it.
What an incredibly frustrating read. The author quoting Andrew Sayer pretty much sums up their understanding of economics: "Interest is ... unearned income that accrues without any effort." Interest is an assessment of risk. Our superior ability to assess risk is the primary reason we are the dominant life form on this planet.
Technological revolutions create economic growth, as understood by Schumpeter.
Governments do not create economic growth. Debt does not create economic growth.
We are at the early stages of probably the largest technological revolution in human history...meaningful economic growth will follow, although there could be another financial crisis in the meantime.
49 comments
[ 4.8 ms ] story [ 29.4 ms ] threadPerhaps economics is failing, but I think it's not entirely because of a Neoliberal vs. Keynesian dichotomy, it's at least as much because the economy is shifting and we haven't come up with a good economic paradigm for coping with these rather important shifts.
That said, I think a more Keynesian approach to economics is well warranted. Largely they have had a much better approach to monetary policy in the recent crisis.
Space program helps. Smart housing programs. Railroads. Microgeneration of electricity, etc.
[1] not too awful badly, but still... "waiting for Ronald Reagan" was one of the main plot drivers in the recent season of "Fargo". It was kind of bleak then.
"Monetary" sure sounds like "monetarism" and one of the great recent aggregators of monetarist theory is generally considered to be Milton Friedman. One of the standard-bearers of that tradition now is Scott Sumner.
http://www.usgovernmentspending.com/spending_chart_1900_2020...
If Mises and Hayek were triumphant, government share of the economy would have gone down, or at least remained constant. But instead it has grown substantially.
It always surprises me how many of Reagan's critics fail to point out that Reagan was a hypocrite who grew the total size of government. His anti-government rhetoric was rhetoric only.
I suspect that both Cruz and Trump would do likewise, maybe more than Clinton or even Sanders. Trump in particular I predict would be a big spender.
But this misses the point. The part of neoliberalism that isn't working is free trade. It's turned into a way for domestic corporations to leverage foreign authoritarian regimes and their oppressed populations as a sink of cheap labor. It's becoming clear that the reciprocal side of free trade may never come as states like China won't allow it, which makes it just a unilateral liquidation of the American worker and American industry.
I am absolutely for free trade with free people but that rhetoric has been used to sell something much different.
It's also not at all clear that free trade is the primary culprit in the decline of manufacturing labor. Robots are way cheaper over the long term than are even abused sweat-shop workers.
Krugman acknowledges that trade as universally positive is a bit wrong, but even so doesn't think protectionism is necessarily the correct solution.
http://www.nytimes.com/2016/03/28/opinion/trade-labor-and-po...
This being said, the poor huddled masses of the authoritarian regimes generally get a little bit freer and have an improved standard of living because of it, generally.
Interpreting it is still somewhat difficult, but it looks like there was a peak of spending towards the start 80's. Definitely, other than after the 2008 crisis, federal spending did not increase as much as your other plot suggests.
Once again, this demonstrates the sin that is plotting multiple plots ontop of each other, can yield misleading impressions.
[0]http://www.usgovernmentspending.com/spending_chart_1900_2020...
Charts like these need to be viewed with independent factors in mind.
The Cold War just might have had something to do with the growth in state outlays from 1950-1990, for example.
And then after 2002 there was another military expansion of course, followed by a spike for the 2008 financial crisis.
But I agree with your bigger point about there being possible methods/technologies that supersede some aspects of naked free markets, or mixed markets as we know them.
Your comment makes absolutely no sense.
Models are just means to predict the future based on observations made in the present and/or in the past.
The available data, in this sense, serves only two purposes: serve as the starting conditions to analyze how scenarios may evolve within a given degree of accuracy, or to build correlation models to help analyze scenarios with a given degree of accuracy.
A model is a tool that tells you how systems evolve and lets you infer what you can expect out of them in order to make informed decisions.
> You also have means of using that data to make live predictions that can change all the time.
Again, this is absolute nonsense. Models are used to make decisions based on how things are expected to be years and decades into the future. It makes absolutely no sense to claim that you can tell how things will be in the immediate future if you're trying to make decisions based on what will happen over the following decades.
> Just because history says that "free markets" worked best, does not mean that this is true any more.
Holy non-sequitur, Batman. You sure wanted to shoe-horn that little gem in there.
Furthermore, free-market isn't or will not be any more or any less true than what is right now or was in the past. The free market is just a specific theoretical definition of an economic system. It establishes conditions, draws relationships between factors and their effects, and provides a tool to model the evolution of economies.
Some assumptions followed in the definition of a free market don't hold in some real-world economies, but it is already quite thoroughly established that the evolution of real world economies does agree quite well with the evolution of economic models based on free market principles if governments ensure that these economies follow basic free market principles.
> It was historically a fact because you did not have big data
This is absolute nonsense.
Models are representations of reality. If you have the actual reality, as in all transactions for every product made by every agent, you don't need a model as you have the actual data. You can watch that in real time, and you can also test hypothesis and theories in real time. That in opposition to a model, say an economic model, which would be based on some theoretical assumptions attempting to predict supply and demand while looking at certain variables. If you have all the transactions that every single agent makes, as well as all social-economic variables about that person in real time, then any theory you have about their behavior can be tested in real time, rather than against a model, and validated or thrown away.
> A model is a tool that tells you how systems evolve and lets you infer what you can expect out of them in order to make informed decisions.
Models are representations of reality, rather than simple inference it's much more powerful to have actual data from reality available to test your theories, not just a model. Models are simplified versions of reality, a reality which is forever changing. Economic models are often wrong.
> Models are used to make decisions based on how things are expected to be years and decades into the future. It makes absolutely no sense to claim that you can tell how things will be in the immediate future if you're trying to make decisions based on what will happen over the following decades.
And this is why economics is often wrong. Knowing what is happening right now and responding to it, is much more powerful than making theoretical assumptions about how things are and then waiting and praying that they are right... which often they are not.
> The free market is just a specific theoretical definition of an economic system. It establishes conditions, draws relationships between factors and their effects, and provides a tool to model the evolution of economies.
I don't know which tools you are talking about. I don't know what evolution you are talking about.
One reason the free market is superior to central planners is exactly because central planners did not have actual market data but instead had to rely on models for supply and demand. When central planners have access to real time actual market demand as well as all data about each agent, it makes it much more likely that they will succeed at their job than the way the Soviet Union did it.
Also your tone stinks, work on that.
Furthermore, you are completely oblivious to the reality and application of models in general and economic models in particular.
If you are entirely oblivious to the issue you're trying to discuss, it's pointless to continue discussing it with you.
https://en.wikipedia.org/wiki/Computable_general_equilibrium
See this model "estimates how an economy might react to changes in policy, technology or other external factors."
This model uses real data. Why use this model at all? Why not change the policy itself and see the effects of it in real time? If you can do that as you can in terms of some decisions which are reversible. If on the other hand that's not possible, why not validate this model continuously against the real market with every single policy to point to its weaknesses and failures? That's what big data allows you to do. That's all I was getting at.
"It was historically a fact because you did not have big data or ways of computing to process supply and demand properly." Realize "the market" is the computing mechanism and that the real-time information it produces is decentralized and fragmented.
Perhaps a technological solution will aid "the market" in converging more quickly and ultimately democratize the information it produces. I truly hope so. But, based on my observations, the market isn't doing that great job disposing of irrational and/or bad actors. This terrible article on The Guardian is an example.
And yes, we can... I mean, I do, I mean, ya, sure :)
> Its anonymity is both a symptom and cause of its power.
That might be a cultural thing or me hanging in the right circles (or the wrong ones) but neoliberalism is quite well known in Europe. Many intellectuals have discussed its particularities and most people know at least what it broadly refers to.
And yet not everyone knows how pervasive and influential it is thanks to its very discrete influence on vocabulary and political one-liners though. HN has a neoliberal vibe and I have a feeling a lot of us around here are conflating neoliberalism with capitalism.
So we just need encourage totalitarian empire-madness in Asia and Yurp and it'll all be fine. Because that's what's behind '33 to '78.
You do know that between 1933 and 1978 there were a couple of incidents that ended up influencing the world's economy more than basic economic models, don't you?
I mean, I'm sure we can agree that an event like WW2 alone, with the shift from peace-time to war-time economy experienced by the leading economies of the world, does influence things a bit more than the theoretical effect of some economic systems.
People who back up Keynes, will say it was the wartime investment that drove the economy.
Neoliberal will say the war pretty much destroyed every economy except the American, leaving America relatively rich, which is why that period looked so good for them. Had there been no war, everybody would have been better off.
What do you mean, in the hypothetical case in which tomorrow, the minimum wage is the same everywhere? I certainly don't make $40 an hour.
Huh?
Everybody in power is Keynesian today. Everybody. That is an ideology created from Keynes books once he is dead. The last part is important because if you get to read Keynes, which most Keynesians have not, you would discover what Keynes said and what is Keynesianism is different, so it is very important that he is dead for him to agree with the current system.
In elite schools people are Keynesian, in central banks, in Government,and the media of course(New York Times, The Guardian,everybody) because they benefit from it basically taking resources from the majority of people into their pockets.
You find Austrian economist only in the private sector, but they had lost the war so far.
We had multiple QE, zero interest rates, now into negative territory, we had bail outs, now into bail ins(bank deposit confiscation).
That has a name and it is Keynesianism. It did not work and we are worse today that before.
Their solution: double down. Banning cash so they could confiscate your savings. Higher taxes. And of course making Hayek and Mises alternatives the Scapegoat of all the mess that we suffer today.
By the way, Austrian economics and Neoliberalism are two different things.
Long term, we may be worse off. But short term, Keynesian macro economic policy works. Collectively, society is too stupid for the alternative to work: don't centralize and don't panic.
You hit the proverbial nail in the head.
Sometimes it appears that the people in power picked up Keynes' book and instead of reading "borrow and spend away in recessions, cut spending and pay the debt during economic expansion", they just read "borrow and spend away" and that was it.