Tag Archives: Social Sciences

Who The Fuck Is This Keynes-Guy?

For most people, with no relation to the financial sector and ordinary knowledge of economics, the name John Maynard Keynes means next to nothing. So, it’s a pleasure to share this article written by William Alpert and Sol Sanders; an excellent presentation of the famous economist that shaped our economy after World War II, but now has come back to haunt us with the possibility of making some huge mistakes.

“Keynes wouldn’t have been a Tea Party-er. But there is little doubt that his mind and heart would not have been with the Dodd-Frank-Geithner spend-until-we- recover crowd who have taken his name in vain. “

William T. Alpert and Sol W. Sanders


“Few would dispute the claim that John Maynard Milord Keynes was a genius. He was one of a long line of British writers on the political economy, who revolutionized the sport. He was brilliant if sometimes torturous in seeking to explain the riddle of human economic life,” the two authors states.

Like his British (mainly Scots) forbears, and like their offspring on the Continent who continued the tradition after it had died in Britain, he was a savant of political, repeat, political economy. For they understood as successive generations of practitioners of “the dismal science” often have not, that it is not a science.

They also knew that those who use statistics and, may the Lord help us, the new digital revolution, to build their “constructs”, not only to examine but to predict human behavior, will usually fail.

Keynes, certainly, understood the “political” part of political economy well before James Buchanan received his Nobel Prize in public choice theory for its “discovery.”

Torturous? Well, at least more than a bit Machiavellian.

He rather quickly left his Cambridge colleagues behind, including a homosexual lifestyle, when he ventured into the world.

He had minimum truck with the leaders of the chattering classes of his time, the inbred Bloomsbury Set, and even less with the Fabian Society.

The latter, of course, thought they had found the ultimate formula for a several hundred years search in utopian, Christian, anarchy, syndicalist, Marxian and other European socialism.

But unhappily, they were completely derailed by the Soviet heresy. For example, H.G. Wells would write a pamphlet not only endorsing but calling Stalin “beloved” on the eve of the Moscow Trials.

Torturous, too, if you are a layman and have tried to struggle through his General Theory of Employment, Interest and Money, generally acknowledged as his magnum opus or through an incredible array of writing – some of it surprisingly good.

See for example his The Economic Consequences of the Peace, in which he predicts the disastrous outcome of the Treaty of Versailles.

Keynes not only put his stamp on the academic world and excelled in the vicious infighting of government bureaucracy but he made a fortune gambling in commodities.

Machiavellian? Keynes not only put his stamp on the academic world and excelled in the vicious infighting of government bureaucracy but he made a fortune gambling in commodities.


A fund he set up for his Cambridge alma mater despite taking a massive hit during the Stock Market Crash of 1929, produced an average increase of 13.2% compared with the general market in the United Kingdom declining by an average 0.5% per annum until 1945.

His contempt for many if not most of his bureaucratic contemporaries was monumental.

After the Bretton Woods agreements were signed, the attempt to reset the world’s economies after World War II over which he presided, he snidely told one of his gophers:

“The clerks have got it wrong again. The Bank [International Bank for Reconstruction and Development, latterly to be called The World Bank] should have been called ‘fund’, and the Fund [International Monetary Fund] should have been called ‘bank’.”

In his own way, Keynes could be called the father of Europe’s post-World War II miraculous reconstruction.

This time his proposal that modest reparations should be sought, that all the powers should unite in rebuilding and with American credits under the Marshall Plan was accepted.

They had been rejected when as a young rising star in the British Treasury he had proposed them as early as 1915 and at the Versailles Conference. But Keynes, alas, was not by any means always right!

“The day is not far off”, he wrote, “when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems/the problems of life and of human relations, of creation and behavior and religion.”

In 2011 we are still waiting.

His reputation, however, has become omnipresent – – spreading even to his self-acknowledged opponents. In 1999, US President Richard Nixon, having thrown his own primitive economic prejudices to the winds and instituted disastrous wage and price controls, said, “We are all Keynesians now”.

But however politically wily domestically or brilliant at international strategy, it’s unlikely that Nixon knew much about what Keynes had in fact argued.

Things haven’t changed.

A Greek chorus of the kind of economists who believe econometric models can predict social and political events is once again invoking the Old Boy’s name to bless profligacy.

It is true that Keynes was an interventionist, that he believed government had a role and should employ it, to curb and limit the business cycles which have dominated modern economic life since The Industrial Revolution began with the advent of capitalism — and perhaps before.

Keynes set strict limits on how governments might borrow and toss capital into the machinery to get it up and going again.

But Keynes set strict limits on how governments might borrow and toss capital into the machinery to get it up and going again.

Keynes did believe in something he called “socialized investment”, that is public funds/borrowing that had to be made for the general good beyond the normal functioning of the capitalist system. And, if not lick the business cycle, to at least ameliorate it.

He wanted to set up separate budgets – for current accounts and for longer term capital projects which might require government assistance if not sponsorship.

He neither believed in general funding of an amorphous public debt through public borrowing and spending, nor of using the tax tables to work out solutions to social problems.

That’s something, by the way, that most corporations do today but which the Congress, which so far hasn’t produced this year’s budget. has never undertaken for one of the largest commercial enterprises in the world, the US government.

But he neither believed in general funding of an amorphous public debt through public borrowing and spending, nor of using the tax tables to work out solutions to social problems.

For a man who could twist the English language until it screamed for mercy, he actually made this point very clearly:

The more socialized we become, the more important it is to associate as closely as possible the cost of particular services with the sources out of which they are provided even when a grant-in-aid is also required from general taxes.

This is the only way by which to preserve sound accounting, to measure efficiency, to maintain economy and to keep the public properly aware of what things cost.

As early as 1931 (although it was hardly early for the British who already had endured a painful decade of restoration of the pound to its pre-war status), Keynes, in a radio address, said:

“[At] the present time, all Governments have large deficits. For government, borrowing of one kind or another is nature’s remedy… for preventing business loses from being, in so severe a slump as the present one, so great as to bring production altogether to a standstill. It is much better in every way that the borrowing should be for the purpose of financing capital works, if these works are of any use at all than for the purpose of paying doles [or veterans’ bonuses]. But, so long as the slump lasts on the present scale, this is the only effective choice for the one purpose or the other [or a diminished Sinking Fund, which has the same effect] is practically inevitable For this is the case, fortunately perhaps, where the weakness of human nature will, we can be sure, come to the rescue of human wrong-headedness.”

“… My own policy for the Budget, so long as the slump lasts, would be to suspend the Sinking Fund, to continue to borrow for the Unemployment-Fund, and to impose a Revenue Tariff. [Author’s note: Few recognize that his The General Theory was written with the assumption of an economy closed to foreign trade – – unlike our own today, but that is the subject for another time.] To get us out of the slump we must look to quite other expedients. When the slump is over, when the demands of private enterprise for new capital have recovered to normal and employment is good and the yield of taxation is increasing, then is the time to restore the Sinking fund and to look critically at the less productive state enterprises.” 

Perhaps even more to the point:

“I should aim at having a surplus on the ordinary Budget, . . . thus gradually replacing dead-weight debt by productive or semi-productive debt. . . . I should not aim at attempting to compensate cyclical fluctuations by means of the ordinary Budget.”

His ghost must be screaming about the downs at Tilton in Sussex where his ashes were scattered in 1946.

Maybe Keynes wouldn’t have been a Tea Party-er. But there is little doubt that his mind and heart would not have been with the Dodd-Frank-Geithner spend-until-we- recover crowd who have taken his name in vain.

President Barack Obama’s stalwarts may think they know what they are doing, throwing “stimulus” about – mostly in the form of supporting and expanding government through national and regional public sector employment.

But their claim that it is all following the philosophy of one of the last of the great political economists (rather than today’s econometricians pretending they are) is false.


His ghost must be screaming about the downs at Tilton in Sussex where his ashes were scattered in 1946.

By William T. Alpert and Sol W. Sanders

Source: International Risk Analysts

Video Bonus

John Maynard Keynes and his sharpest theoretical opponent F. A. Hayek, two of the great economists of the 20th century, come back to life to attend an economics conference on the economic crisis.

Before the conference begins, and at the insistence of Lord Keynes, they go out for a night on the town and sing about why there’s a “boom and bust” cycle in modern economies and good reason to fear it.


Related by the Econotwist’s:

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Why The Monetary Union Is A Failure

Over the last months it’s become quite clear that Europe‘s monetary union (EMU) is – more or less – a failure. So, what happened? And what do we do now? In this article professor Kevin O’Rourke provide a comprehensive explanation of the why’s and how’s, and put forward some suggestions for possible solutions of the greatest crisis in modern European history.

“Whether EMU can survive in the long run if the status quo persists is an open question.”

Kevin O’Rourke

“In order to understand why EMU happened, we often turn to the familiar Mundell-Fleming monetary policy trilemma. Given intra-European capital mobility, the decision by a subset of EC members to move to EMU was a logical, if radical response to the challenges posed by this trilemma. However, the institutional framework of EMU is seriously flawed,” Kevin O’Rourke writes.

Kevin O’Rourke is Professor of Economics at Trinity College Dublin, a co-organiser of the CEPR’s Economic History Initative, a Research Fellow of the National Bureau of Economic Research, and a Member of the Royal Irish Academy.

He received his PhD from Harvard in 1989, and has taught at Columbia University, UCD, Harvard, and Sciences Po (Paris).

He is currently serving as President of the European Historical Economics Society, and an Editorial Board member of World Politics.

Here is professor O’Rourke’s recent article, syndicated by www.eurointelligence.

A Tale of Two Trilemmas

For decades economists have argued that fiscal union was a desirable, and perhaps indispensable, complement to EMU.

What we now know is that a common euro zone framework for regulating financial institutions, and dealing with the consequences of their failure, is equally important.

We have a monetary union with neither of these complementary institutions, and it is clear that this architecture is not fit for purpose.

How did we end up here, and what happens now?


To answer these questions it is helpful to turn to what Dani Rodrik has labelled the “fundamental political trilemma of the world economy”. Rodrik argues that “we cannot simultaneously pursue democracy, national determination, and economic globalization.

“If we want to push globalization further, we have to give up the nation-state or democratic politics. If we want to maintain and deepen democracy, we have to choose between the nation-state and international economic integration.”

And if we want to keep the nation-state and self-determination, we have to choose between deepening democracy and deepening globalization” (Rodrik 2011, pp. xviii-xix).

The argument is that “deep globalization” involves a commitment to not just open commodity and capital markets, with the constraints that these imply, but also to a competition for mobile factors of production that makes it difficult for national governments to adopt regulatory standards or other interventionist policies, even when their populations want this.

The solutions are either to allow popular opinion to manifest itself through supra-national mechanisms, or to ignore it.


EMU solves the political trilemma by abandoning national monetary policy-making, and delegating it to a technocratic Central Bank.

The fact that this has occurred without fiscal union, or common banking policies, can be well understood within the trilemma framework.

Regarding fiscal policy, the combination of the nation-state and democracy has prevented deeper political union: German voters (among others) do not want a transfer union, while Irish voters (among others) do not want a common tax system.

When it comes to banking regulation, on the other hand, the combination of deep economic integration and national policy-making has made it very difficult to respond to the clear demands from citizens for far stricter banking regulation.


It seems that EMU is stuck between two trilemmas, one economic and the other political. Where do we go from here?

There are several features of EU politics which are relevant in thinking about this issue.

The first is the question of governance: how decisions should be made at a supranational level is a contentious issue, which can again be illustrated by means of the trilemma. For most people, ‘democracy’ involves direct elections to parliaments which legislate.

One could leave European decision-making to the European parliament, but the nation-state remains the basic focus of political identity and authority, and national governments remain centrally involved in the process.

One solution would be to prioritize national parliaments and the nation-state: one could then have intergovernmental cooperation, but this would involve national vetoes, and it is hard to see a particularly proactive EU emerging in such a scenario.

The other solution is what we have: an essentially intergovernmental mode of decision-making that gives rise to accusations of a ‘democratic deficit’. This has created a constituency in Europe that is hostile to further integration.


The second relevant feature of EU politics is the international cleavages that exist regarding EMU. In particular, German citizens were opposed to it at the time, and this has political implications today.

The third feature is the existence of sharp intra-national cleavages in opinion regarding the EU in general, and EMU in particular.

The unskilled and the poor tend to be opposed to both, while the skilled and the rich tend to be in favour. The potency of these divisions was illustrated in the 2005 and 2008 referenda in France and Ireland, where voters divided largely along class lines.

Superimposed upon these long-run political cleavages are the effects of the global crisis of 2008-9, and the present banking crisis.

In principle, the global financial crisis could have led people to view the EU as a port in the storm, and there is an element of this in the Irish referendum approving the Lisbon Treaty in 2009. On balance, however, Eurobarometer surveys indicate that attitudes towards the EU have become more negative during the crisis, while there has been a fairly dramatic deterioration in trust in the institutions of the Union.

The interaction between a sharp economic crisis in several countries, and underlying class-based or national hostility to EMU, could turn out to be a potent one.

Even more serious could be the mishandling of the banking cum debt crisis. The decision of the ECB to veto the new Irish government’s desire to impose burden sharing on private bank bondholders is extraordinary, and provides Irish eurosceptics with an extreme example of the democratic deficit in action.

Meanwhile, taxpayers in Finland and elsewhere are revolting against the notion that they should bail out their profligate partners – recognising that this is a European banking crisis that needs a European solution might help change perceptions.

So would recognise that an end to regulatory competition in the financial sector would be a more logical concession to be sought from the Irish, in return for cutting interest rates, than an increase in their corporate tax rate.

Whether EMU can survive in the long run if the status quo persists is an open question.

Governments have tended to muddle between the stark trade-offs implied by the political trilemmas, but this crisis may force them to confront those trade-offs head-on.

What happens then is anyone’s guess.

By Kevin O’Rourke

Related by the Econotwist’s:


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Why Gold & Silver Prices Will Continue to Explode Higher

The price of gold reached a new record high Thursday at 1354 dollar per ounce, silver touched a new all time high at 23,5 dollar an ounce.

J.S. Kim at SmartknowledgeU.com on why gold/silver prices will explode higher in 2011 and coming years, and the fraudulent nature of the global monetary system:

Market Snap Shots

Gold: Slightly down after the new record, however, RSI is still tending up.

Here’s the last six week’s chart:

And here’s the last 48 hours:

*

SILVER: Seem to follow the gold price pattern. However, the last six week’s chart show – as opposite of gold –  a slightly downward tending RSI.

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