Bob Lucas on the comeback of Keynesianism

"I feel the current situation requires a lender of last resort but not a fine tuner."

I agree with this,and I call it Bagehot's Principle. Please let us know if he elaborates on what he means.

Keynes is dead. Socialism is not. Intervention is not. Keynes has become a code word for justifying intervention. it is a code word for a movement left by the body politic, as a reaction to geopolitical changes more than anything else.

The problem we are facing today is the RESULT of the kind of inflation and manipulation that Keynes recommended, and the reason that the inflation did no good, was for the reasons Hayek stated.

We have ruined our people. Money and prices are knowledge. And we used that lack of knowledge to make our people into the unwashed ignorant consumers.

And there is no technology that the west currently possesses that can increase production sufficiently to work off the debt as increases in production.

So, whereas Hayek thought Keynes was so obviously wrong that it wasn't worth his time to refute him, we are all about to get a lesson, a tragic one, in how incompetent the controls that the government has are, in the face of a work force that is not a century ahead of it's global competitors in technology and infrastructure.

The only profit we have been making for the past decade is in selling our opportunity costs to immigrants, and our citizen's initiative to material consumption, our business leaders to the exploitation of fiat money, and our social order to debt inflation.

Anyone in government wants to support keynes. Because it justifies their jobs. Just like any other religion justifies the existence of it's priests. But industry knows better. The entire infrastructure of the country, from it's taxes, to laws, to roads, airports and air traffic control, to electrical grid, to factories, to it's banking system, and especially it's local banks that are deprived of knowledgeable lending management, is in decay. Now, is that because we ahve not taxed people enough? Or is it because, with cheap money, none of these investments is worth investment by the private sector?

It's the latter.

Keynes will have a short rebirth. It will be his ghost. Because this is not going to be a two year recession. It's going to be a five to eight year global depression. And on the other side. Keynes will be dead.

Curt

First, the economic argument regarding democratic societies has been foolishly reduced into either Say's Law and the Austrian school variations or poor Keynes, as if this is the only operative dynamic.

Second, the main problems afflicting America's "Free Market" have to do with what was originally called Monetarism via Friedman and the manipulation of the money supply to float debt; and Phil Gramm style deregulation that allowed the derivative markets, especially Credit Default Swaps, to operate like a back alley crap shoot. Keynes's theories have nothing to do with these two particualr circumstances since Capitalism wasn't functioning in these peculiar ways during the early part of the 20th century.

Sad, the argument involving economics, and moreover Capitalism, is reduced into such elemetary discussions. The economic situation -- now a global dynamic -- also involves how aggregate growth affects each respective nation, competing foreign markets that have expanded into entirely new areas in the past 20 years, credit management, liquidity, investment house abuse, unfettered greed, labor problems, flat wages, overdeveloped real estate markets, and a whole lot more. It's far more complex than merely categorizing the arena of economics as being mainly controlled by either lower taxes or tax and spend, or supply-side or demand-side, which is what the Keynes vs. Friedman argument is mainly about.

Additionally, much of the abuse within the deregulated markets, is more of a sociological and philosophical consideration. Much of it stems from the root notion, fortified by F. Hutcheson and Adam Smith that people in general are trustworthy and care about strangers, distilled into The Invisible Hand. The Invisble Hand is a feat of magic; as it sounds, it does not exists. It's Invisible because it never was and never could be. People in general, sad to say, aren't trustworthy and in an individualistic society don't care that much about strangers. If you believe otherwise, prove it by leaving your wallet unattended on the conference room table for an hour, or keep your doors at home unlocked tonight.

Unfortunately, this is a society populated by a fair number of swindlers, ranging from crack dealers to CDS pushers. Just ask Alan Greenspan -- who drank the Ayn Rand Kool Aid -- if you doubt it. And since it's a mostly Me First culture, then regulation is obligatory. And through the use of that regulation the vicissitudes and exigencies of the market will over time require both demand-side and supply-side stimulus. All the political demonization over one point or another is hogwash.

[...] the past year's events have challenged their theories—as the University of Chicago's Robert Lucas told me last fall, "everyone is a Keynesian in a foxhole." Among economists with actual influence on policy over the [...]

[...] events have challenged their theories—as the University of Chicago’s Robert Lucas told me last fall, “everyone is a Keynesian in a foxhole.” Among economists with actual influence on [...]