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All mainstream approaches have thoroughly rejected Keynes in the long run ~ the difference is whether it is admitted that Keynes has some relevance in the short run, which the majority denies but a large group of mild neoclassical dissenters under the banner of New Keynesian supports.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Wed Nov 2nd, 2011 at 10:22:02 PM EST
[ Parent ]
All mainstream approaches have thoroughly rejected Keynes in the long run

Please elaborate. What has been rejected? And did Keynes ever reject Fisher's argument or deny the significance of debt build-up?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 3rd, 2011 at 12:37:45 AM EST
[ Parent ]
Did Keynes himself even say anything about the long run? The contracyclical stimulus case advocated by Keynes is in its nature a way to deal with the business cycle, ie deal with short term unemployment. In the long run, Keynes thought the market forces would fix the problem, he just didn't fancy waiting.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Nov 3rd, 2011 at 04:27:59 AM EST
[ Parent ]
Keynes understood, as the neoclassicals pretend not to, that unemployment in the short run meant that we would be poorer 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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 05:00:33 AM EST
[ Parent ]
Nothing of what you say here, is in opposition to what I said above.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Nov 3rd, 2011 at 09:17:55 AM EST
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The idea that we will be poorer in the long term because we did not increase employment during a cyclical economic downturn contradicts the mainstream assumption that an economic downturn represents a departure from a growth track, but if we allow market forces to function, they will return us to that growth track.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 10:28:01 AM EST
[ Parent ]
I disagree. Even when you look at the short term view Keynes had, there are very clear losses in waiting for the market to return to equilibrium. Having an economy operating under potential capacity will result in less output than if it ran at full capacity. It's perfectly straightforward - idle labour will just sit around instead of creating value. This is mainstream, at least if you consider Krugman mainstream.

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.

by Starvid on Thu Nov 3rd, 2011 at 12:24:20 PM EST
[ Parent ]
You know, I remember wandering around the spa town on the German/Austrian border that we stayed near for a week on our honeymoon and being somewhat disturbed by the number of businesses offering things like enemas and colonic irrigation and whatnot.
by Colman (colman at eurotrib.com) on Thu Nov 3rd, 2011 at 12:27:31 PM EST
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Cleanliness is next to godliness. Your body is a temple. Scourge the money-changers, purify the temple gates. Retain within the gold refined by fire.

From a lost essay by Freud on anal Austerianism.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 3rd, 2011 at 12:59:45 PM EST
[ Parent ]
Yes, but it the central tradition pretends that this cost only imposes itself during the recession itself, and has no influence on, say, GDP ten years from now (assuming the depression does not last ten years, which theoclassicals are swift to assure us that it will not, based on historical data from back when we were actually doing something about industrial depressions).

Yes, they really do believe this. I'd quote you chapter and verse, but I don't have my textbooks at hand.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 12:33:42 PM EST
[ Parent ]
But those are only short term losses. Once we get to the "long run" growth path, there is no further losses under the mainstream models, no matter how much short term costs were imposed.

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.

by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 02:47:19 PM EST
[ Parent ]
Even if you return to the growth track in the long run, there will still have been a shortfall of value created in the mean-time. Please observe my beautiful graph. :p



Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Nov 3rd, 2011 at 12:43:50 PM EST
[ Parent ]
Yes, but the neoclassicals assume that doing something about the short-run loss of output comes with the cost of lowering the slope and/or offset of the long-run growth path. And since the long-run path continues indefinitely, there exists a discount rate at which it makes sense to accept the short-run cost.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 12:58:37 PM EST
[ Parent ]
Yes, but I'm not defending the neclassical view of the short term... Both me and Keynes and all saltwater economists believe in contracyclical actions to manage the business cycle!

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Nov 3rd, 2011 at 01:24:55 PM EST
[ Parent ]
However, unlike most "saltwater" economists today, Keynes did not believe in the existence of the long run growth track independent of the short term actual utilization of productive resources, including labor.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 02:57:04 PM EST
[ Parent ]
Yes, but I still haven't claimed that you automatically return to the trend! I said that even if you believe in that idea, there will be lost output if you don't act contracyclically. And returning to a full employment equilibrium in the long run by doing nothing (through wage deflation and without stimulus), does not necessarilly mean you catch up to the trend. You might fall behind the trend permanently, but still reach an equilibrium, just one where GDP is lower, lagging timewise, compared to if you had intervened in the short term.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Nov 3rd, 2011 at 05:19:50 PM EST
[ Parent ]
That is the assumption of the mainstream theory, that the original growth trajectory is still there to return to.

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.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 4th, 2011 at 01:16:17 PM EST
[ Parent ]
Seems the chairman of the Bank of Sweden, Stefan Ingves, doesn't belive that. And he's not even the most Keynesian guy on the board, that would be Lars E. O. Svensson.
   
   
   
Vi vet att finansiella kriser har permanenta effekter på tillväxten. Det stora BNP- tapp som blir följden av en djup finansiell kris går oftast inte att ta igen under perioden efter krisen. Normalt får vi ett skift nedåt i BNP-nivåtrend även om goda tider sedan kan innebära en återgång till samma takt för tillväxten.We know financial crises have permanent effects on growth. The large fall in GDP which results from a deep financial crisis is not usually possible to regain in the period after the crisis. Normally we get a downward shift in the GDP-level trend even if good times later can result in a return to the old pace of growth.


Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Nov 11th, 2011 at 07:30:33 AM EST
[ Parent ]
The quote is from today, as is this graph. I suppose translation is superfluous.



Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri Nov 11th, 2011 at 07:37:12 AM EST
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"However, unlike most "saltwater" economists today"

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

by Cyrille (cyrillev domain yahoo.fr) on Fri Nov 4th, 2011 at 05:27:36 AM EST
[ Parent ]
Saying it casually, or publishing work developing a model that does not contain that assumption?

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.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 4th, 2011 at 01:24:20 PM EST
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Visually, that's pretty much everything you need to know about economics right there.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Nov 3rd, 2011 at 01:48:09 PM EST
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... economists attach more weight to the fictional "long run growth track" line than to the "Actual GDP" line?

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 02:58:01 PM EST
[ Parent ]
In fact, as Richard Koo demonstrated WRT Japan since 1990, the slope of the line can drastically change and the starting point of any new growth can be at or below the maximum level reached before the contraction began. That is how you get "lost decades". The foregone production, if considered as the integral of the volume between a projection of the original growth line and the actual rate experienced, may never even close and may expand indefinitely.

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."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 5th, 2011 at 11:02:45 AM EST
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Since the dawn of time people have known that if you destroy something you will have to spend time and resources to repair it before you can start using it again. Apparently this was lost on modern economics.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Sat Nov 5th, 2011 at 11:11:51 AM EST
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An axiomatic-deductive system of thought needs no firm connection to physical reality. Elegance of form and the appeal of the axioms will do nicely.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 5th, 2011 at 11:16:35 AM EST
[ Parent ]
And thus the amount of angels on the pinhead can continue to increase according to the longterm growth path after the pin has been tipped over and then return to an upright position.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Sat Nov 5th, 2011 at 11:50:44 AM EST
[ Parent ]
funniest comment of the week!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Sat Nov 5th, 2011 at 07:34:00 PM EST
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... in a nutshell, with requires, among other things, the rejection of the General Theory in order to maintain ...

... 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.

by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 02:49:39 PM EST
[ Parent ]
... after having burned the city to the ground and ploughed it with salt.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Thu Nov 3rd, 2011 at 05:26:31 PM EST
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It is an answer to your question: Keynes did, implicitly, say something about the long run. Namely that in the long run we will be better off if we do not waste resources (man-hours, industrial capacity) in the short run.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 12:05:48 PM EST
[ Parent ]
Well, that is the direct conclusion from a statement of Keynes that I do remember to the effect that labor that is left idle when there is socially useful work needed to be done is production that is lost forever.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 3rd, 2011 at 01:01:48 PM EST
[ Parent ]
I have also a vague memory of him noting that it also destroys the productivity of that labor.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Thu Nov 3rd, 2011 at 04:41:58 PM EST
[ Parent ]
I do recall from somewhere that leaving labor unemployed sufficiently long will do that. Could well be from the General Theory.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 3rd, 2011 at 10:29:50 PM EST
[ Parent ]
Hysteresis is a solidly mainstream concept.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Nov 4th, 2011 at 10:41:22 AM EST
[ Parent ]
Of course, physical hysteresis works in the opposite manner ~ leave the metal unstressed, and it maintains its strength, subject it to repeated stress and strain, it weakens.

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.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 4th, 2011 at 01:29:23 PM EST
[ Parent ]
Yes, he said in the long run we're all dead.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Thu Nov 3rd, 2011 at 05:05:39 AM EST
[ Parent ]
Which was more a flippant dismissal of the question than a real answer. But then Keynes did not have children.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 3rd, 2011 at 08:42:47 AM EST
[ Parent ]
The expression was flippant, but the answer was quite serious: the neoclassical long run is incompatible with life as we live it, so inside the neoclassical long run, we are all dead.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 10:24:43 AM EST
[ Parent ]
No, Keynes certainly did not think that market forces would fix the problem "in the long run" ~ in the General Theory, macroeconomic position of unemployment is not seen as a short term departure from a long run equilibrium ~ it is a possible macroeconomic equilibrium in its own right. And Keynes is quite explicit that market forces may make it worse rather than better.

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.

by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 10:22:53 AM EST
[ Parent ]
What has been rejected is Keynes conclusion that it is possible for there to be a macroeconomic equilibrium including substantial, genuine, unemployment, in favor of a neoclassical "long run tendency" to full-employment.

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.

by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 10:47:24 AM EST
[ Parent ]

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