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In that view, "austerity" is just a scary term for leaving the economy to its own devices.
The point of contention is how quickly this entirely fictitious long run, which never appears in any real world long term trends, takes to make its appearance. The New Keynesians can see the short run stretching out for multiple years, and so while their approach points to expansionary austerity "in the long term", it points to actual expansion "in the short term".
Purer mainstream macroeconomic approaches, even more radically divorced from reality than New Keynesian economics, see the long run kicking in more quickly. If it is supposed to kick in on the order of six months or less, that is inside the normal lags for discretionary fiscal policy, and so the thing that discretionary fiscal policy should always be doing is acting as if we were already at that full employment equilibrium.
Sensible real world economic policy advisors, of course, only ever pay attention to the mainstream dogm... errh, approaches when they are useful for rationalizing something that you want to do for some other reason that is less convenient to say than "support employment". I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
That does not, of course, mean that all of the economists that ascribe to the majority of the mainstream approaches would support all of the austerity programs in every details ~ but certainly if the austerity programs were replaced by their preferred policy, it would still be an austerity policy stance, even if different in the details. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
Claiming that the market will move towards a full employment equilibrium in the long run if left alone (which Keynesians think
Ahem.
There is no good reason to think that "the market," if left to its own devices, will ever trend towards a full employment equilibrium - or indeed any general equilibrium at all.
- Jake Friends come and go. Enemies accumulate.
* Unless it gets stuck in a non-full employment equilibrium. Peak oil is not an energy crisis. It is a liquid fuel crisis.
Yes, that's Walras' Postulate. It also works the other way around: If you enforce clearing in the labour and goods market through a determined full-employment policy, then you make financial market clearing easier (because then all you have to do is prevent large discontinuities, and Walras' Postulate will take care of the rest).
All mainstream approaches have thoroughly rejected Keynes in the long run
Neoclassical theology pretends that being poorer in the short run will make us richer in the long run, because (a) short-run unemployment has no long-run costs and (b) short-run unemployment will reduce wage demands, which raises long-run return to capital investment (remember point (a)), thus incentivising capital accumulation, which is the driver of long-run growth.
The central fallacy, of course, is the assumption that capitalists will produce in order to warehouse their goods. That works - sort of - in a barter economy. Not so much in an industrial one.
The thing you refer to as mainstream seems like nothing but Austrian morality play ("we've spent more than we have - now we must face the painful but healthy catharsis"). Peak oil is not an energy crisis. It is a liquid fuel crisis.
From a lost essay by Freud on anal Austerianism.
Yes, they really do believe this. I'd quote you chapter and verse, but I don't have my textbooks at hand.
Whereas, in the real world, there is no distinct long-run growth path, and we are living inside a permanently smaller opportunity frontier if we pursue austerity policies. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
Peak oil is not an energy crisis. It is a liquid fuel crisis.
If you don't buy that assumption ~ good. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
This would not include Krugman, DeLong, Stiglitz, Yves Smith or Thomas, for a start.
I don't really have time to read many more. But really, you can't say "no-one in the mainstream" is saying something that Krugman, co-author of one of the main university manuals, is banging the drums about day and night. Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
Its been a while since I've read Krugman's work, as opposed to his op-eds ~ I'd thought I would have heard it if he had abandoned New Keynesian economics for some other approach, but I'd be happy to have the citation to a paper where he does so. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
I think that is almost certain to be the case for decades in the USA, whether the slope is taken from the growth rate prior to 1970, 1990, 2000 or 2007. I guess the "mainstream" can just keep redefining the slope forever in preference to admitting their assumptions are fallacious. "It is not necessary to have hope in order to persevere."
... that after the short term costs, the assumption that the same long term growth path still exists for the economy to return to. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
This may not seem like a particularly profound piece of advice, but it runs directly counter to the long-run assumptions of central tradition macro.
Our employment is more akin to physical fitness ~ leaving workers unstressed reduces our immediate capacity for work, if we are put to work and subjected to the regular stresses and strains of working, our immediate capacity for work increases. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
In the General Theory, the neoclassical long run does not exist, since uncertainty in the General Theory is not restricted to stochastic risk, but extends to true uncertainty, in the face of which the information required for a neoclassical long run equilibrium does not exist.
Note that true uncertainty is not just an absence of information ~ it is actively created by our actions, since the interactions of decisions not yet arrived at will affect the future in ways that we cannot at present anticipate. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
Accepting that long run tendency in "New Keynesian" economics follows from building the theory on the foundation of the long since falsified neoclassical utilitarian theory of Microeconomic behavior. Samuelson's project to create a hybrid of Keynes' theory and neoclassical micro ~ the project that Joan Robinson famously labeled "Bastard Keynesian" economics ~ didn't work, after all, and so the New Keynesian project is to create space for a simulcra of a Keynesian system in the neoclassical short run out of a set of impediments to the rapid achievement of the neoclassical long-run equilibrium.
Now, a neoclassical long-run equilibrium is the equilibrium which occurs if we project all knowable aspects of today into the future and allow market forces to fully work themselves out. No sensible person with real world experience would imagine that this projection will bear any resemblance to what will actually happen, nor that the long-term experience of economic history corresponds to some approximation of the long run projections of the economic state of previous periods, since crucial decisions will be made in the future that will dominate the "long run tendency" of today's economic state.
The long run could only play out if, in contradiction to all historical experience, we stop making crucial decisions and both economic institutions and technology stop evolving. Hence, as per Keynes witty quip, "in the long run, we are all dead" ~ which is to say, the only certainty is mortality, and also to say, in an economy with living people in it, the people themselves keep erasing old long runs with their actions. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
Did Keynes ever buy into the idea that "debt doesn't matter" that is so popular with the NCE crowd? Did Keynes ever repudiate Fisher's Debt Defaltion Theory of Great Depressions?
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