Tag Archives: john maynard keynes

Keynes looks 80 years into the future and across the Atlantic, to explain our broken values

Summary:  A sad aspect of our age is the willful blindness we impose on ourselves. It’s not just the blindness to our world so often described on this website, but also blindness to our past. To avoid learning from our sages we mutilate their message — then laugh at the debased result. Perhaps the clearest case of that is Keynes, one of the greatest economists of the past century — now mocked by people in the grip of indoctrinated ignorance. Here we look at one of his many brilliant insights, one that applies as well today as it did in his time.

Weighing the worth of all things


Excerpt from “National Self-Sufficiency

By John Maynard Keynes

The Yale Review, June 1933


There is one more explanation, I think, of the re-orientation of our minds. The 19th century carried to extravagant lengths the criterion of what one can call for short “the financial results,” as a test of the advisability of any course of action sponsored by private or by collective action. The whole conduct of life was made into a sort of parody of an accountant’s nightmare.

Instead of using their vastly increased material and technical resources to build a wonder city, the men of the 19th century built slums; and they thought it right and advisable to build slums because slums, on the test of private enterprise, “paid,” whereas the wonder city would, they thought, have been an act of foolish extravagance, which would, in the imbecile idiom of the financial fashion, have “mortgaged the future” — though how the construction to-day of great and glorious works can impoverish the future, no man can see until his mind is beset by false analogies from an irrelevant accountancy.

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The Titanic’s lessons for us about the coming economic crisis

Summary: Bad decisions often transform a crisis into a disaster.  Sometimes bad decisions are unavoidable. Today we’ll look at two episodes of the past, mining them for useful lessons for us about leadership.


  1. Introduction
  2. Learning from the Titanic
  3. Learning from the Great Depression
  4. Looking at responses to the 2008-2009 crash, and the crises that followed
  5. Conclusions
  6. For more information about solutions

(1)  Introduction

The world economy again totters.  The center ring of the daily media circus again features doomsters, perma-bears, and panicked experts — all hurling mockery at the decisions of our leaders. Some of this is valid. Much of this results from the critics’ combination of ignorance and hubris, like those fans at NFL games yelling that they could do better if allowed on the field.

Does history provide any yardsticks with which we can evaluate our leaders’ performance?

(2)  Learning from the Titanic

At 11:40 pm on 14 April 1912 the RMS Titanic was approaching a crisis, steaming at almost full speed through an ice field under a dark sky (no moon, no Venus), no wind (no waves breaking on the ice).  Warnings of ice have been received and ignored. The lookouts sound three bells — for object dead ahead.  Was disaster inevitable at this point, or could the officers have save most of  the passengers and crew?

(a)  What could First Officer William Murdoch have done?

He ordered the rudder “hard astarboard” and the engines “full astern”, intending to steer around the iceberg.  The Titanic almost made it; under the water it’s hull gently brushed against the ice.  Water entered through long lines where plates buckled and seams opened.

The Titanic probably could have survived if at that second Murdoch decided not to turn the ship, instead direct hitting the iceberg.  Only the first few compartments would have flooded.  The roughly 56 firemen birthed in the forward block of F Deck would have died, along with scores of 3rd class passengers.  But this was not a “by the book” response, and only a bold (genius, or reckless) officer would have done it.

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Europe has chosen a harsh future. All the paths for Greece lead into darkness.

Summary:  This week Europe’s leaders faced a choice somewhat similar and perhaps equally momentous as America’s leaders faced in 1787.  But this week they chose a path that looks punitive and short-sighted, pursuing European unification but likely to generate discord and eventually fragmentation.  Seldom does one act determine the future, but they might find it difficult to undo what’s been done this week.  The only certain result is much suffering and humiliation for the Greek people.  We can only guess at how this will work for Europe as a whole.


  1. The new bailout: the EU imposes Carthaginian deal on Greece
  2. For Whom the Bailout tolls
  3. Why are the EU member nations doing this?
  4. Lord Keynes explains the hidden truth behind this news
  5. For more information: posts explaining what’s happening and likely consequences

(1)  The latest bailout: the EU imposes Carthaginian deal on Greece

Greece passed their last easy exit.  Signing the latest bailout agreement (not yet done) leaves them no way to leave this highway to ruin, except by smashing through the guard rails and off the causeway.  Only fools commit a nation to a course of action without providing an emergency out — but Greece’s leaders have do exactly that.  We don’t yet know the exact terms of the deal, as it gains the necessary legislative approvals.  But these seem likely forecasts:

  1. Exchanging their existing bonds — issued mostly under Greek law — for bonds issued under creditor-friendly UK law both diminishes their sovereignty and makes the eventual default far more difficult.
  2. Exchanging bonds issued to private investors for loans from quasi-governmental agencies makes the eventual default far more difficult.
  3. Pledging their gold reserves eliminates a vital resource needed to buy imports during the default and devaluation process.
  4. Little, perhaps none, of the new money goes to the Greek people.  Rather it goes to banks and other Greek creditors.
  5. After this bailout, Greek sovereign debt will be almost twice GDP, with little hope for significant growth during the next few years.
  6. The EU demands severe restructuring of the Greek government, difficult in good times but perhaps impossible during the coming downturn.
  7. In exchange for bailing our EU banks, the EU imposes crippling austerity on Greece.  A long severe recession seems the best possible outcome.
  8. This occasion, like the dozen or so previous major summits, provides an opportunity for politicians to falsely claim “peace prosperity in our time” — but few economists concur.
  9. The coming months will further weaken Greece, so that the eventual necessary default and devaluation occur under conditions far worse than today’s.

Extreme outcomes seem likely, which might include depression (GDP already 17% below peak) and collapse of Greece’s political regime (probably not in the April elections, but in 2013 or 2014).  Contagion to the rest of Europe is a high risk, especially to Portugal, Spain, and Italy.

(2)  For Whom the Bailout tolls  (willl be updated)

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A warning from the past. Might the American Empire drag down America?

Summary:  Hubris is the great destroyer of Empires.  Especially the mad American Empire, which costs much, brings no economic benefits (no treasure ships coming home, no advantage to our exports), and multiplies our enemies.  Britain’s post-imperial periods was painful, as it will be for us if we fail to learn from the past.

Americans take great pride in our weaponry, such as the new Virginia Class attack submarines — among the most sophisticated weapons ever built, $2 billion each, with no relevant foe warranting their deployment.  Likewise we exult in the Americans of our Special Operations Command, among the most skilled and dedicated soldiers in world history — almost 60 thousand strong (roughly the size of Canada’s armed forces), operating in 75 nations, “an almost industrial-scale counterterrorism killing machine” (in the words of John Nagel, former advisor to Petraeus and President of Center for a New American Security).  And in our world-girdling chain of hundreds of bases around the world.

Can we afford them?  Or does their cost weaken us, more than offsetting their benefits?  This was asked at the twilight of the British empire.  They ignored the question, dooming Britain to decades of economic decline — punctuated by financial crises.  We can learn from these warnings, prophetic then and perhaps today as well.

Mike Lofgren (recently retired after years of work on the staff of the House and Senate budget committees; see his recent LA Times op-ed) sent me a powerful example, a memorandum from John Maynard Keynes (then in the Treasury), written in August 1945.  Days before we cut off Lend-lease aid, a severe blow to the UK.  In July 1946 Keynes negotiated the Anglo-American loan (see Wikipedia), incurring a crushing debt (at favorable rates) to keep the Empire afloat for another generation.  It was finally paid off in 2006.  This is from The Lost Victory: British dreams, British realities, 1945-1950 by Correlli Barnett (1995),

… we undertake liabilities all over the world and slop money to the importunate represents an over-playing of our hand, the possibility of which will come to an end quite suddenly and in the near future unless we obtain a new source of assistance.

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Leadership in action: when resource constraints meet conspicuous consumption, we just ignore the problem

Summary:  Rising population, finite resources.  Don Vandergriff asks if we have the creativity and wisdom to cope with these two colliding trends? 

“In the long run we are all dead. Economists set themselves too easy, too useless a task if, in tempestous seasons, they can only tell us that when the storm is long past the ocean is flat again.”
— John Maynard Keynes in A Tract on Monetary Reform (1923)

I don’t understand why we don’t confront these issues head on? Is that we suffer from hubris? Or, is it people are just so scared, they ignore the data? 

What pisses me off about lack of leadership on these issues, and our own arrogant ignoring the signs is that in no time in human history have we possessed the information and resources to fix problems before they get too bad. The problem is hubris, stupidity and organized religions, all of them. 

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Keynes comments on our new-found love of austerity

Summary:  We’re living in an time of deja vu.  Our Af-Pak War repeats the mistakes of Vietnam; Europe’s economic policy repeats mistakes of the 1930’s.  Slow and stupid are the two sins God always punishes.

(1) Mark Thoma (Prof economics, U Oregon) coined a term for the advocates of austerity now (i.e., increase savings during a recession; they fit no current school of economic theory) — Correction on 21 June:  it was coined by  Rob Parenteau of The Richebacher Letter (source).

Who is correct, Keynes who argued that budget cuts in a recession make things worse — his “paradox of thrift” — or the austerians who say that budget cuts restore “confidence in the markets” and make things better?  {source}

As usual, John Maynard Keynes gives us a pithy answer.  He wrote to American journalist Walter Case on 14 September 1931:

To read the newspapers just now is to see Bedlam let loose. Every person in the country of super asinine propensities, everyone who hates social progress and loves deflation, feels that his hour has come, and triumphantly announces how, by refraining from every form of economic activity we can become prosperous again.

(2) For a clear explanation of the issues, I recommend “Now and Later“, Paul Krugman, op-ed in the New York Times, 20 June 2010 — Opening:

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A note about the US economy and the recent elections (yes, we’re nuts)

One core reality too-often ignored in post-election analysis:  the role of the economy.  Americans tend to vote their pocketbook in elections to Congress and the Presidency.

This is nuts, on many levels.

  1. Who sets economic policy?
  2. How long between policy changes and results?
  3. How do policy-makers navigate?
  4. But at least they have economic theory to guide them!
  5. And so the American people rationally votes…

(1)  Who sets economic policy?

The most important agency setting US economic is the Federal Reserve.  The Fed can act quickly to change one of the fastest-acting economic variables (monetary policy).  “Fast” means over 6 – 9 months.  The President and Congress have little influence over the Fed, except by the slow process of new appointments — and the atomic bomb of limiting its power.

(2)  How long between policy changes and results?

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