Keynes was wrong | 57 comments (57 topical, 0 editorial, 0 hidden)

Re: Keynes was wrong (4.00 / 3)

Scarcity is a failure of the imagination. Very recently there have been floods in the Western Balkans and the relief effort in Croatia has definitely been hamstrung by the "lack of money". Not lack of people or resources: lack of EUro-pegged fiat money to mbilize them.

In Italy, after the Aquila Earthquake, the Italian government was "forced" to raise fuel taxes in order to pay for disaster relief and reconstruction, because the necessary government expenditure would not be monetised by the ECB.

In Spain, years after the Lorca earthquake, in a region with ample resources idle as a result of the construction sector slump, reconstruction still hasn't begun because of... lack of fiat money.

I am not saying that after a natural disaster the wealth and productivity of the affected community won't be affected. I'm saying that there are two ways for that GDP hit to manifest itself: devaluation of the local currency, maybe inflation; or unemployment and permanent reduction of productivity, risk of insolvency from reduce aggregate income. Hard-money views end up producing unemployment, preventing the repair of damaged fixed capital, and generating a debt overhang through reduced growth. But the currency is "sound".

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sun Jun 1st, 2014 at 07:04:54 AM EST
[ Parent ]

Re: Keynes was wrong (none / 0)

It's not very different from playing Civilization, really: would you ever let any of your cities lie idle, without producing anything?

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

by Starvid on Sun Jun 1st, 2014 at 09:43:17 AM EST
[ Parent ]

Re: Keynes was wrong (none / 1)

What about insurance?

I'm not being flippant. New Zealand's current economic growth rate (4%) apparently owes a substantial amount to the reconstruction of the city of Christchurch, destroyed by earthquakes a couple of years ago, and which is largely funded by insurance money which is flooding in from overseas.

Surely the reconstruction efforts you mention should be covered by some sort of disaster insurance fund? And whether public or private, this would amount to the creation of money, wouldn't it?

_{It is rightly acknowledged that people of faith have no monopoly of virtue
- Queen Elizabeth II}

by eurogreen on Sun Jun 1st, 2014 at 12:05:14 PM EST
[ Parent ]

Re: Keynes was wrong (none / 1)

I presume Christchurch took out insurance before_ the earthquake?

My point is that the existence of a fiscal authority is the ultimate insurance policy.

So, what kinds of implicit guarantees are Eurozone governments providing that they shouldn't be in the business of providing? I can think of half a dozen off the top of my head:

deposit insurance for banks

granting limited liability to businesses

disaster relief

access to health care

access to education

access to legal redress

public safety

All of these are implicit guarantees that every citizen in Europe expects to enjoy relatively free of charge. These are large contingent liabilities of the state. Any and all of them could not be undertaken by a private entity that didn't charge hefty fees up front and wasn't adequately capitalised in case a particularly large claim presented itself. Would you pay a savings deposit insurance premium to an inadequately capitalised insurance company? (not that "sophisticated investors" didn't do exactly that when they bought CDS "protection" over the past 10 years) Would you incur risks with a full-liability entity having less capital than your potential loss? Would you trust you can be rescued from a disaster by an entity without the capital and operating income to actually fund a rescue operation? How about health insurance from an entity without the resources to pay for the treatment? How about your right to file a complaint to an entity without the necessary money to operate a grievance handling system? How about contracting physical security or firefighting services from an entity without the operating income to actually deploy security or firefighters?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sun Jun 1st, 2014 at 12:38:08 PM EST
[ Parent ]

Re: Keynes was wrong (4.00 / 5)

Scarcity of money is the question of political motivation. Keynes (and Krugman, Marx, Piketty - and if we follow Michael Hudsom, we can add Adam Smith) foresaw money hoarding as an essential problem.

Zero Hedge returns to the broken windows fallacy often. They argue, the money for broken windows (or a disaster ravaged city) would have gone productively somewhere else. The Keynesian observation is actually - there come times when money is so strictly hoarded (or captured), that there is no selfish motivation to invest it anywhere productive. Things get so bad that it is then helpful to brake windows, dig holes, drop bombs.

Money functions basically as economic activity rights. When mathematics and politics combine to inevitably "stable" money concentration, and all power belongs to money holders, they will find the ways to keep their holdings valuable - or obtain everything else in return. That is why zerohedgy hyperinflation fears are pretty laughable - that will come when when People With Money will decide.

by das monde on Sun Jun 1st, 2014 at 01:10:12 PM EST
[ Parent ]

Keynes was wrong | 57 comments (57 topical, 0 editorial, 0 hidden)

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