Topic: Were the Keynesians wrong? (Read 5582 times)

Searching for reasons, I found rules and regulations. In my opinion, this is non-free-ness. He also pointed to bonds as safe, and that can mean two things: Safety againts default, and safety against theft. Safety against default: nothing is more safe then the actual money in your mattress. Safety against theft is the money management aspect, discussed above. So it still holds that negative interest rate, when you remove the money management aspect, is impossible in the free market.

In a non-free non-market, anything is of course possible, it can not even be discussed sensibly how it works economically.

So, example from the text, If some pension fund is coerced into owning a commercial bond with a negative interest rate, how is that not robbery?
 

No read the article again.  He cites some cases of corporate bonds a negative interest rate

In the free market, negative interest rate is impossible...but, what you normally think of as interest on a loan, is the general interest rate, plus risk, and something for the work of the bank. For lending to the bank (deposit), you get zero interest rate, zero risk cost (because the bank is safe by their definition) minus the cost of administration (it is always the bank who gets the cost covered, never you).

So what we can have in the free market, when interest and risk is zero, is the cost of administration, payable by you.

The negative rate that ECB is talking about, is the bank's deposits in the central bank, and that is not the free market, because the ECB by regulation decides what the banks have to deposit... at least to some degree.

I put this out there to people; do you, as an individual, choose not to support the prevailing economic paradigm since it violates morality at its core? ie. inflation which steals value from savers. Or do you meld into the collective and parrot news about how some companies might not meet their obligations, basically adding sentiment to the keynesian paradigm. It's your choice.

http://www.vox.com/2015/2/5/7981461/negative-interest-rates-europe


"the zero lower bound isn’t a theory, it’s a fact, and it’s a fact that we’ve been facing for five years now." -Paul Krugman

Thanks for the discussion I have to move onto other things now.

Who are these Keynesians and Central Bankers are you referring to?  Bernanke is more of a Friedmanite.  Certainly not the ECB or the IMF.  They were recommending austerity.

You must be talking about Krugman.  But He's just professor who has an op ed piece.  He has no influence over any policy.  And he's not mainstream he's on the left.

That runesoup site.  WTF?  It's a conspiracy theory site.

Since 2008 Keynesians and central bankers have been salivating at being able to bring on more assets. We're in a pretty bad mess. I also recommend reading the Archonology series at runesoup.com. A little bit unrelated to the strictly economic discussion here, but the series talks about how City of London banking interests, IMF, etc. are able to rake in quite a lot more ownership over North America under the Bretton Woods system. Heavy reading so it might not be for everyone. I almost want to say that the Keynesian argument is usually pushed by globalists (and hence at universities more so, but unknowingly, by extension), but the picture is pretty complex if you zoom out far enough.

What is the purpose of pursuing profit. Are you building anything? Do you need the funds to secure your livelihood? Do you get off on seeing people squirm in debt? Are you a parasite or do you add value. Governments or individuals may have different intentions at different times. It's easier to be a parasite under a keynesian regime.

Keynesians, particularly those writing for the financial times recently, argue that keynesian central banking serves as a benevolent management tool. But this reads as the classic globalist agenda of central control to me. Parasites always want dependents. Check out Jon Rappoport at nomorefakenews.com

Hence, Keynesian economics has not, by the examples given here which concern supplies, been demonstrated to be errant: perceptions of “deflation” have.

Money supply essentially never contracted in history. What happened is the decrease of prices.

If you want to understand inflation, here is another superb article by Keith Weiner:

http://keithweinereconomics.com/2012/01/06/inflation-an-expansion-of-counterfeit-credit/


"I don’t know if a decent suit cost $20 (i.e. one ounce of gold) in 1911.  Today, one can certainly get a decent suit for far less than $1600 (i.e. one ounce), and one could pay 3 or 4 ounces too for a high-end suit.

My point is that consumer prices are a red herring.  Increased production efficiency tends to push prices down, and monetary debasement tends to push prices up.  If those forces balance in any given year, the monetary authorities claim that there is no inflation.

This is a lie."

And the explanation comes in the article.

Adding my anti-state view: Whenever some value is created, productivity increase or whatnot, they want it. They just take it. The people does not see the theft, they don't analyze the production process to see that more value is created for less factors, and that they should pay less.

Why haven't they secured the productivity increase in mobile phones for themselves, instead of letting the price slide to the benefit of the consumers? I think they were just taken by surprise, it happened too fast. And: They did take some, the "new land" of radio frequencies. (Yeah, they just took the new land). They sold GSM lisenses in European countries for 50 B USD per license per country a decade ago. Of course, it is technology dependent licenses, so they can sell the spectrum again when technoloy develops.

1. By the very denotation of “deflation” (see my previous post) it does.

2. a) “[P]eople” (dinofelis) (Who, exactly are you talking about?) do postpone the purchase of electronic goods and, thus, so hoard their capital.
2. b) That “deflation” (dinofelis) is the conventional deflation—“ a contraction in the volume of available money or credit…” (Merriam-Webster, Inc.).

That has nothing to do with it.  We are not looking at the electronics offer and demand.  We are looking at the supposed driving force behind a deflationary spiral if ever there would be a mild deflation: namely the idea that people will not spend NOW to buy something at price X if they simply have to wait for TOMORROW for it to be at price 0.95 X.

If that idea were true, people would not buy expensive computers now, because they can have a better one for less money tomorrow.  They would not buy smartphones now, because they can have a better one (often cheaper) tomorrow.
The expansion of the consumer electronics market and the high turn over in that market proves that the "it's cheaper (and even better) tomorrow" doesn't stop people from spending now, at least in that particular case.  In the food market it would be evident: you're not going to starve today because bread will be cheaper tomorrow.  But in that most frivole market of consumer electronics, it is not true either.

So, if food, and the biggest market in the world, consumer electronics, are not exhibiting the postulated general property of "if people know it's going to be cheaper tomorrow, they will hoard their money today" then the evident truth of that postulate may seriously be questioned.

And it is at the basis of the "deflationary spiral" theorem: "a bit of deflation will make some people postpone their spending to get things cheaper tomorrow, which will induce even more deflation, which will make more people postpone their spending, and so on, until everybody stops spending and waiting for better prices tomorrow"


As I pointed out, the deflationary spiral is the dual of hyperinflation. 
Because exactly the same reasoning holds, in the other way: a bit of inflation will make some people spend today what they planned to buy tomorrow, as it will be cheaper today.  That will cause even more inflation, which will make more people spend today what they wanted to spend tomorrow, and so on, until everybody wants to get rid of his money today in a frenzy, which is hyperinflation.

That is a fail definition if you are trying to defend the idea of deflationary spiral. A Keynesian would say that deflation is price decrease, and not a contraction of money supply. (which never ever happened)

(Red colorization mine.)

The supply of electronics was expanded.

The macro "law" is the macro-economic consequence of a certain postulated type of behavior of individual economic agents.
The theorem that (even mild) deflation will lead to a deflationary spiral, is based upon the idea that individual agents will hoard more, and spend less, today, because they know that they will get "more" for the same money.  That is a postulated behavior that is at the basis of the theorem on the Keynesian deflationary spiral.

We clearly see in specific cases, such as with computers and i-phones, that that behavior is NOT universal. 
That is sufficient to undermine the theorem, which is based upon that hypothesis.

If individual agents do NOT (systematically) defer spending because of *MILD* deflation, then this will NOT induce a deflationary spiral.  The price deflation (versus performance) in the computing market is actually HUGE: it is given grossly by Moore's law, which gives you a 100% deflation in 18 months, or grossly 66% yearly deflation !!!
Moore's law has been observed to hold until very recently for about more than 4 decades.  It starts to level off a bit.

So we have seen a deflationary market (which is btw the BIGGEST ECONOMIC SECTOR ON EARTH - the electronics market) which has been deflationary for about 66% for about 4 decades, without this market to stall totally (that is, without customers stopping to buy stuff that devaluates at a rate of 66% per year !).

So if this is an indication: 66% deflation in the biggest economic sector on earth for 4 decades while it is one of the most fertile sectors economically speaking, then you might start to get a small doubt that a mid deflation of a few percent per year will trigger a deflationary spiral, no ?

(All red colorization mine.)

That is a typical keynesian point of view. Inflation leads to increased productive output, unless when it don't, so they just add some new law and a new name, stagflation. Higher prices is soo good, except cheap oil, that is good. More money and credit is so good, but it is never relevant politics to just give people the money, or lower the tax. No, the extra money must always go to someone. Trickle down halleluja, but trickle up from some consumer to the investor, that is never good. There are no rules in keynesianism, it is only hapless statistics and correlastions that doesn't even correlate, and can not really be reliably collected. No respect for logic.

The real point of the rules you discover or express in academia, is that they either work, or the rule is wrong.

There is theory on how money works. It works for all money. Of course you have to define money, which is also covered. Don't shy away by calling it something else, like currency.

I don't think Bitcoin has been around long enough for traditional economics or monetary theories to apply. The use, the price of bitcoin is so fresh and untested that none of it's history can be applied (yet) to it and arrive at conclusions that are generated using the same principles against the dollar or any other fiat currency.