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.
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Excerpt from “National Self-Sufficiency“
By John Maynard Keynes
The Yale Review, June 1933
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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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Even today I spend my time — half vainly, but also, I must admit, half successfully — in trying to persuade my countrymen that the nation as a whole will assuredly be richer if unemployed men and machines are used to build much needed houses than if they are supported in idleness. For the minds of this generation are still so beclouded by bogus calculations that they distrust conclusions which should be obvious, out of a reliance on a system of financial accounting which casts doubt on whether such an operation will “pay.”
We have to remain poor because it does not “pay” to be rich. We have to live in hovels, not because we cannot build palaces but because we cannot “afford” them.
The same rule of self-destructive financial calculation governs every walk of life. We destroy the beauty of the countryside because the unappropriated splendors of nature have no economic value. We are capable of shutting off the sun and the stars because they do not pay a dividend. London is one of the richest cities in the history of civilization, but it cannot “afford” the highest standards of achievement of which its own living citizens are capable, because they do not “pay.”
If I had the power today, I should most deliberately set out to endow our capital cities with all the appurtenances of art and civilization on the highest standards of which the citizens of each were individually capable, convinced that what I could create, I could afford–and believing that money thus spent not only would be better than any dole but would make unnecessary any dole. For with what we have spent on the dole in England since the war we could have made our cities the greatest works of man in the world.
Or again, we have until recently conceived it a moral duty to ruin the tillers of the soil and destroy the age-long human traditions attendant on husbandry, if we could get a loaf of bread thereby a tenth of a penny cheaper. There was nothing which it was not our duty to sacrifice to this Moloch and Mammon in one; for we faithfully believed that the worship of these monsters would overcome the evil of poverty and lead the next generation safely and comfortably, on the back of compound interest, into economic peace.
Today we suffer disillusion, not because we are poorer than we were — on the contrary, even to-day we enjoy, in Great Britain at least, a higher standard of life than at any previous period — but because other values seem to have been sacrificed and because they seem to have been sacrificed unnecessarily, inasmuch as our economic system is not, in fact, enabling us to exploit to the utmost the possibilities for economic wealth afforded by the progress of our technique, but falls far short of this, leading us to feel that we might as well have used up the margin in more satisfying ways.
But once we allow ourselves to be disobedient to the test of an accountant’s profit, we have begun to change our civilization. And we need to do so very warily, cautiously, and self-consciously. For there is a wide field of human activity where we shall be wise to retain the usual pecuniary tests. It is the state, rather than the individual, which needs to change its criterion. It is the conception of the Secretary of the Treasury as the chairman of a sort of joint stock company which has to be discarded. Now, if the functions and purposes of the state are to be thus enlarged, the decision as to what, broadly speaking, shall be produced within the nation and what shall be exchanged with abroad, must stand high among the objects of policy.
For more information
(a) Posts about the work of John Maynard Keynes:
- The greatness of John Maynard Keynes, our only guide in this crisis, 4 December 2008
- About the state of economic science, and advice from a famous economist, 8 December 2008
- Words of wisdom about the global recession, from the greatest economist of our era, 29 December 2008
- Some thoughts about the economy of mid-21st century America, 12 January 2009
- Economics is not a morality tale, 14 January 2009
- Keynes comments on our new-found love of austerity, 21 June 2010
(b) Lessons and even advice from the past
- From the 3rd century BC, Polybius warns us about demographic collapse, 11 June 2008
- President Grant warns us about the dangers of national hubris, 1 July 2008
- de Tocqueville warns us not to become weak and servile, 21 July 2008
- About the state of economic science, and advice from a famous economist, 8 December 2008
- Words of wisdom about the global recession, from the greatest economist of our era, 29 December 2008
- Napoleon’s advice to President Obama about the financial crisis, 29 April 2009
- A warning from Alexis De Tocqueville about our military, 7 August 2009
- Another note from our past, helping us see our future, 16 September 2009 — by Daniel Ellsberg
- A great philosopher and statesman comments on the Bush-Obama tweaks to the Constitution, 10 October 2010 — by Edmond Burke
- A top businessman and banker explains our political and economic challenges, 30 April 2011
- Advice from one of the British Empire’s greatest Foreign Ministers, 18 November 2011 — by Lord Palmerston
- George Orwell sends us a note, giving some perspective on our situation, 22 January 2012
- Thomas Jefferson saw our present peril. We should heed his warning., 21 April 2012
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I thought I had to venture into the fringe to hear such things. John Keynes was as far as I had to look.
I think this is even more true now than when it was written. So, what shall we do with our great excess, afforded by the progress of our technique?
Reading Keynes, it is noticeable that he took the availability of growing amounts of (fossil) energy needed to power ‘the progress of our technique’ completely for granted – hence his faith in the infallibility of compound interest as a cure for all ills. He was right in his lifetime, though: it is only now, nearly a century later, that we face real doubts about society’s ability to continue to extract the energy flows it needs in sufficient quantity from the lower-grade and costly-to-exploit (e.g. tar sands, polar oil) fossil resources remaining.
Using the remainder of our fossil energy inheritance – which is still substantial – to build a less carbon-dependent civilisation is the equivalent of Keynes’ desire to build shining cities instead of the dole. That’s not happening here in the UK, though, where state is backing away from renewable energy targets and private power businesses are refusing to invest in nuclear.
Meanwhile, in another echo of your extract, dairy farmers here are planning to pour away their herds’ production in protest at being made to take a price cut that means they will be paid less than the cost of producing it. We have learned little.
F{***} Keynes. When Ron Paul wins the nomination, Keynes last death nail will be hammered in.
And 2+2 will equal 5 and Pi = 3.
Thank you AustrianMan, a purer expression of ignorance has seldom been posted at this website.
I can think of a personal thing relating to this. When I was at secondary school if I had taken a pool of all the kids there: “What do you want to be a university lecturer or a millionaire”. I would have guessed that 80%+ would have chosen being the university lecturer. Personally I think the reverse would be true nowadays.
The other question I could have asked: “who is more important an engineer or a millionaire”. 99%+ would have answered “the engineer”. The reason was value. What did we value then? Millionaires, at that time, were seen to be necessary evils. Grubby, rip off merchants, usually got their money by criminal or near criminal actions. Lecturers were people of wisdom and knowledge, without which no society can exist. Engineers created wealth: energy, houses, tools, utilities, et al. Everyone knew that. Millionaires were just some ‘wide boys;’ who managed to make a buck of all these wealth creating activities But they in themselves, usually (with some honourable exceptions) made no wealth themselves, they just managed to grab some of the flow and put it in their pocket, usually by corrupting politicians.
The greatest scorn was for speculators, “parasites’ was the usual description back then and “why are they allowed to exist” was the usual comment..
Funnily enough, banks were well regarded back then. Honest and decent would have been the adjectives used then. Note banks, back then, actually invested, even in people. I remember when I got my degree, got a job in London, but had no money to get a flat (etc). My bank gave me an overdraft (at reasonable interest rates) to get there, put up a deposit for a rented flat and survive until I got my pay checks.
I also remember when I got into some financial trouble, that my bank got me out of it. Not by more and more loans, but by setting up a saving scheme for me (which I earned interest on) and making me put fixed amounts of money into it. That was a bank in those days.
How far we have fallen into greed and barbarity. Note everyone believed in greater wealth for themselves and others, just it was another (and far better) measure of true wealth.. And we all believed we would get continually wealthier.
We were wrong.
“To be or to do”….JB
Perhaps the new generation are just more scared of being poor. Maybe that’s why they’d choose position over accomplishment.
Also, there is just a general debasement in society if you compare from now to what it was generations ago.
Gold standard was replaced by paper standard back up by faith in polititians. Save & Invest formula of seccess of the last 5000 years was replaced by Borrow & Spend Robber Rarons were replced by Robber Government. Culture of production was replaced by culture of govermental money manipulations
Thanks a lot, Keynes.
It’s taken a massive effort — tens of millions of dollars and decades of effort — to dis-educate so many Americans so that Alex’s level of ignorance becomes typical. His comment is a wonderful example of what I describe in the summary to this post.
(1) “Gold standard was replaced by paper standard back up by faith in polititians”
(a) Keynes great influence came after publication of his great General Theory in 1936. By then most nations had already gone off the gold standard.
(b) No nation recovered from the Great Depression without going off the gold standard. Here is a graphic demonstration:
(c) For more about the gold standard see:
(2) “Save & Invest formula of seccess of the last 5000 years was replaced by Borrow & Spend”
That widespread use of deficit financing has nothing to do with Keynes, who said that government budgets should be balanced over a business cycle. It’s the Big Lie applied to economics, with fantastic success. As with so much right-wing propaganda. See yesterday’s post for more examples.
(3) “Robber Rarons were replced by Robber Government.”
We still have robber barons, perhaps even more powerful now than in the 19th century (but in different ways). And governments have been robbing people since government was first invented.
(4) “Culture of production was replaced by culture of govermental money manipulations”
It is more accurate to say that our economy has gone from one based on production to finance — money manipulation by corporations. That’s a serious problem, in large part cused by repeal of the regulations put into place during the New Deal. Keynes would find this horrifying.
(a) Gold Standard gone in 1971 when Nixon canceled “Benton Wood” and proudly announced “I am now a Keynesian in economics”.
(b)see above + recovery happened despite governmental manipulations with gold not thanks to.
(2) FM – “Keynes, who said that government budgets should be balanced over a business cycle.”
And what economic mechanism should regulate that balancing according to Keynes?
Uh, I know. First let’s destroy old mechanism. And then let’s declare that “government should”.
(4) FM – “That’s a serious problem, in large part cused by repeal of the regulations put into place during the New Deal. Keynes would find this horrifying.”
If you kill natural feedback (constrained quantity of money for example or any other aspect of market) then yes you have no choice but to regulate it manually. And you are right, instead of repealing regulations regulator has no pile new regulations on the top of the old ones.
And NO, Keynes wouldn’t be horrified. He acted from the position that “in the long run we are all dead” or in other words “I know that this system is not working in a long run, but I don’t give a f**k what will happened after me”.
Let me break you news, FM. We are in a “long run” now!
I don’t have time to correct Alex’s net set of errors. However, FDR took us off the gold standard during the Great Depression — revaluing the US dollar. He also ended convertibility of the US dollar into gold. Nixon eliminated the last remaining element, convertibility into gold by other recognized governments.
It’s not essentially a gold standard when citizens cannot convert into gold.
Alex,
I’m sure this is hopeless, but you rely on sources which systematically lie to you. It’s become a national problem, on both left and right, and the USA is in great problem so long as its citizens have so little regard for truth and facts.
Alex gives us more misinformation and outright fantasy. Alex is almost certainly sincere, but relies on sources that lie to him.
(1) “And what economic mechanism should regulate that balancing according to Keynes?
Uh, I know. First let’s destroy old mechanism. And then let’s declare that “government should”.
What is this “old mechanism”? Governments have borrowed for millenia. Phillip II’s Spain — with almost all the gold in the world — defaulted on his loans. Twice.
Governments have most often borrowed for wars. Such as the UK fighting Napoleon and the US Civil War.
(2) Re: the bubbles caused by repeal of New Deal regulations on banks.
“If you kill natural feedback (constrained quantity of money for example or any other aspect of market) then yes you have no choice but to regulate it manually.”
Depressions caused by financial bubbles happened frequently in nations using the gold standard. In fact the 19th century was marked by frequent depressions (no food stands and medicaid then, so they caused immense suffering). Esp the worldwide Long Depression of 1873-1879, which was in some ways worse than the 1929-1937 event.
(3) “Keynes wouldn’t be horrified. He acted from the position that “in the long run we are all dead” or in other words “I know that this system is not working in a long run, but I don’t give a f**k what will happened after me”.”
That’s an insane interpretation of what Keynes meant. But it does show us that you have no idea what you’re talking about, and are just repeating talking points you’ve been told.
(4) Let’s talk a step back and look at the big picture
This dynamic is quite similar to what one gets from talking with die-hard commies — when there were such people. They know what they’ve been told, and believe it with a religious-like fervor that’s immune to facts. There are dozens of such conversations in the comments on the FM websites, in which we get falsehood followed by misrepresentation followed by exaggeration. Then they start again.
It’s identical to what we often see in the comments about climate science. AGW believers cite scintists agreeing with them, since scientists are always to be believed. Replying with work of other (equually well-qualified) scientists in peer-reviewed journals — and we’re told that’s nonsense. Scientists — even simple facts — are believed only when they support AGW, and not otherwise.
The commonality: while on opposite sides of the political spectrum, both reflect something in the character of Americans today. Is self-rule a chimera for such a people (ie, a mythological creature)?
I’ll post links for this comment later. I’m on the road today.
FM “What is this “old mechanism”? Governments have borrowed for millenia. Phillip II’s Spain — with almost all the gold in the world — defaulted on his loans. Twice.”
The problem you are describing is between two guys: Philip and another guy – owner of the bank somewhere in Geneva. The fact that after the first default Philip received the second loan and etc… some sources say 9 loans total and defaulted on all of them tell me that everything was somehow perfectly fine for both parties (two guys).
Any king has a lifespan upon completion of which there is a chance of resetting things and stopping of idiocy. State on another hand insures continuation of idiocy.
Philip had to beg for loans. State under paper currency standard is inflating itself out of debt destroying people savings in a process.
King like State can of course raise taxes, but it is deadly dangerous business for king, unlike for State.
For any given king there are several dozens of absolutely legitimate siblings who are watching his ass and waiting for any resentment in a country to take an action. For a State as a monopoly on law, legitimacy and violence there is no accountability. There are only temporary custodians with their temporary interest.
Alex,
I have no idea what you are attempting to say. You like Monarchy more than Republics? It’s too confused for comment. Two examples.
(1) “and defaulted on all of them tell me that everything was somehow perfectly fine for both parties (two guys).”
Kings, governments, companies — all often get new loans after defaulting. Defaults are usually partial, and new lending can avoid total default and produce higher recoveries. Creditors are not “perfectly fine” after a default.
(2) Any king has a lifespan upon completion of which there is a chance of resetting things and stopping of idiocy. State on another hand insures continuation of idiocy.
A State is an abstraction. The government consists of people, who both change their policies and are replaced. Governments in a Republic are far more easily changed than under a Monarchy, one reason you don’t see many Kings any more (except as heads of state, figureheads).
The point remains clear: governments have borrowed for thousands of years, and often had to default (through mismangement or misfortune). The gold standard provides no mechanism to prevent this.
(3) If you would like to learn something about these things, I suggest:
“I want my, I want my, I want my….”
http://www.youtube.com/watch?v=dlPjxz4LGak
Ah, the Life of Ideas!
Thx FM
Breton
Great piece!
You know I never really understood why many of today’s economists had something against Keynesian methods. I mean it makes good sense that if used in the way they were most likely meant to be used – which I would assume was in the most productive, good-hearted and forward thinking ways possible – then his process would have been sound for the most part.
Although I do have to say that reading up a bit on Austrian economics makes the latter sound “healthier.”
P.S – what’s with the adverts?
WordPress is a free service to both authors and readers, supported by advertising. You may not have noticed the ocassional adverts. There might soon be more of them.
“You know I never really understood why many of today’s economists had something against Keynesian methods.”
The anti-Keynesian arguments are largely identical to those used during the 1930s. Both times similar arguements were deployed for similar political purposes.
Most (not all) of these are “zombie economics” — repeatedly returning from the dead, no matter how many times refuted because of their political utility.
Does national debt/gdp ratio matter? It was some kind of milestone as the USA approached 100%Debt/GDP.. If fiscal stimulus pushes us to 150% Debt/GDP, does that matter? Honestly, I’m not really sure myself. Japan pushed the fiscal stimulus to pretty high levels and was up to 200% — can Japan just carry on. 300% debt/GDP? 500% debt/GDP?
For the USA the answer is simple. Rather than spending all this money on useless foreign military adventures we could put this money back to work here in the USA. That’s where a hunk of this money is all going . Either we rebuild Afghanistan or we rebuild American; it was our choice. Either give up all the wars and bases, or man up and accept a decaying infrastructure and economy as one of the costs of a large military empire. That’s how I feel.
(1) There is a massive body of history and theory suggesting that debt/GDP matters. How it matters, and at what level, depends on many factors. Growth, inflation, nature of the debt, who owns the debt, interest rates, etc.
(2) Agreed on the nature of the spending. That’s a subject of many posts on the FM website since I originally advocated a large fiscal stimulus in Fall 2008. In brief, fiscal stimulus should provide life support for vital services which might otherwise be defunded, for households at risk of poverty (eg, unemployment insurance, medicaid, food stamps), repeain and upgrade of vital infrastructure (do it when it’s cheap), and investments in infrastrcuture that will earn an economic return.
Foreign wars are the equivalent of putting money in bottles, burying them, and paying people to dig them up. It workss as stimulus, but is quite mad.
Posts about fiscal policy, and how we should have done the stimulus programs:
Just look around to see the results of Keynesian economics. We gave it a go, and although it provided an apparent boost in the beginning decades, It failed in less than 100 years. It just barely outlasted the soviet model.
Don,
That’s brutally false.
(1) The period of using something remotely like Keynesian economics was 1945-1979, during which the US had some of the fastest economic growth in its history. Especially impressive considering our high levels of income and growth (we had small numbers in the late 19th century, which make fast rates of growth easier).
(2) After 1979 the Fed adopted monetarism, the conservative “Chicago school” alternative to standard neo-Keynesia thinking. It quickly failed, replaced by purely descretionary Fed policy-making. Saying whether that worked or not is beyond the scope of a comment, and perhaps cannot even be determined today.
(3) Keynes was clear that the government budget should be balanced over the business cycle. With Reagan, the GOP adopted what appears to be a deliberate policy of ruining the government’s solvency by massive spending increases and repeated rounds of tax cuts. Attributing that to Keynes is madness, no matter how frequently conservatives repeat the lie.
(4) Global economic growth during the past ten years has been among the fastest ever. The developed nations are experiencing slowing growth, probably due to demographics plus competition from the emerging nations.
(5) Most of the problems affecting the EU and USA are political, not economic. The massive screw-up of our US mortgage bubble and the European Monetary System have nothing to do with Keynesian theory or practice.
Don,
Please say if you’d like more information. I can post links later today.
“With Reagan, the GOP adopted what appears to be a deliberate policy of ruining the government’s solvency by massive spending increases.”
While this is a true statement, it wags a finger at the GOP like they are at fault. No administration has turned this back.
Eventually you will see that the GOP and the DEM are two sides of the same coin that lost it’s value a long, long time ago.
(1) “While this is a true statement, it wags a finger at the GOP like they are at fault. No administration has turned this back.”
Not correct. The only Democratic administration was Clinton. The last Bush Sr fiscal year deficit was $290B (using the Federal govt’s cash basis accounting). Clinton slowly reduced it, producing surpluses in 1998-2001 fiscal years totally $560 billion. Obama inherited the worst recession since the 1930s (by many metrics Q4 2008 – Q1 2009 was similar to the 1929-30 crash). He continued Bush Jr’s stimulus programs, and the resulting deficits.
(2) Eventually you will see that the GOP and the DEM are two sides of the same coin that lost it’s value a long, long time ago.
No “eventually” about it. During the past few years I’ve written many posts explaining why this is so, in painful detail.
Incorrect. Congress holds the purse strings. Congress has been controlled by the DEMs plenty of times both during and after Reagan. Of course, liberals always claim that they don’t really have any power when they get blamed for the results of their folly. The so-called conservatives are more inconsistent, if creative, with their whining.
Don,
Please, partisan boilerplate like that does not help any of us.
(1) It’s an exaggeration to say that Congress “holds the purse strings.” The President has powerful influence at many steps in the budget process, including veto authority.
(2) During most of the time since 1982 (the period under discussion) the President’s party controlled at least one house of Congress. That combination gives them considerable leverage.
(3) During several key periods, the President’s party controlled both houses (see Wikipedia’s clear table): Clinton’s first Congress (1993-1995), and during most of the Bush Jr. administration (2001-2007). Both periods were critical in changing the course of US debt. Clinton in starting to reverse the Reagan-Bush Sr deficits; Bush Jr in sending the debt on its current trajectory to the moon.
The last is the most important, as Bush jr inherited a balanced budget, had control of Congress (except the Senate 2007-08, having only 49 votes), and a decent economoy during his 8 years in office (the 2001 recession was the mildest of the past century). Bush Jr wrecked the government’s finances, to an extent that even today fixing them will be politically difficult.
So Keynes is saying that when people are suffering due to a slavish elevation of adherence to ideas over the well being of the people, it is the ideas that must be abandoned or at minimum subordinated to the needs of the people. Fascinating concept. People. Ideas. In that order. Very catchy. I like it!
But what about hardware, in this case assets. What about debts owed and property? Where do these fit in the order of importance? Behind ideas you say? I agree, for to elevate property over even ideas (let alone people), the rules of finance, accounting, and law that we live by makes a mockery of the very concept of property and ownership.
So it’s: People, Ideas, Hardware. In that order!
Austrians believe and profess that property (hardware) rights trump all others, for property ownership defines us. Thus, “We are our things.”, and a man without property is no man at all. Admittedly an attractive concept for a rich guy like me, but personally I’m going with people first, then Ideas (just the way I roll), and property, while still important, not saying it’s unimportant here, last.
Fleshing out the other economic schools in this context of People, ideas, and hardware deserves more thought on my part. An open debate over this ordering of priorities is long overdue.
That’s a brilliant comment, with some out-of-the-box thinking. Worth pondering.
One detail, however:
“Austrians believe and profess that property (hardware) rights trump all others, for property ownership defines us.”
It’s been a long time since I studied Austrian theory, during which many brain cells have died. But I don’t recall that as an aspect of Austrian “theory” (more precisely, of this loose school of economic theory — not like the better-defined theories in physics).
This is a core belief of libertarian thinking, which is a political belief-system. And believers in Austrian economic theory are politically libertarians.
This goes to an interesting aspect of western thinking: the complex relationships between philosophy (including religion), economics, and politics. Many (most?) of us have a confused and somewhat contradictory mixture of beliefs in these areas.
Bloom discusses one form of this in Closing of the American Mind: those who believe in Neitzche’s philosphy AND Marxist political-economy theory. Which are fundamentally incompatable in many ways.
Another example: Christian libertarians. If we could only hear what Jesus would say. In fact, I think some of this speeches gives us a clear answer.
There’s really something to be learned from many different schools of economics. But that being said, at this time money should be created to fund projects of actual economic value in the real economy. But not bridges to nowhere. The amount of money created should be fairly equal to the real economic value of the projects. The goal should be “full” employment first of all for the purpose of social and family stability, then for the economic purposes of improving household balance sheets and re injecting purchasing power into the real economy for the purchase of real goods and services produced by businesses. (Is that Keynes?)
The very deliberate and purposeful “mistake” by Bush and Obama was to prioritize saving politically well connected insolvent banks. Think of the amounts made available to them vs the pittance made available by Obama in his stimulus plan, minus the tax breaks of that package which achieved next to nothing economically. The banks should have been put into receivership and recapitalized after the executives were removed, the shareholders wiped out, and the bonds converted into equity, assuming there even was any.
Like Hoover, Obama has been waiting around for the return of the confidence fairy curtsey of renewed Wall Street debt creation. Remember all those circa 2009 useless photo ops of Obama with the “titans of industry” as they used to call them? Obama’s economic policy, like Hoover’s, in the words of FDR is only “debt and more debt.” as a way to get back to the world of 1927, oh, I mean the would of 2006. My mistake.
The money created by the Fed for asset purchases – all to stoke the financial markets – is not getting into the real economy, I suspect by design, and so America is still stuck. The effect is a slow deflation for the real economy, and inflation, or trying to maintain inflated prices, for financial assets or financialized assets such as houses. (Is that really Keynes?)
One thing Obama could have done to sweet talk the confidence fairy into tip toeing back would have been to undertake a massive criminal investigation of Wall Street along with a serious reintroduction of honest regulation starting with Glass–Steagall. Even if the economy was still limping, he would have been massively ahead in the polls via the public perception of at least a return to fundamental justice, especially considering he’s running against the likes of Romney.
I’ve long thought the same as you, Unna, that the Fed’s “funny money” would have done much more real long-term good if it were targeted directly at municipal infrastructure bonds or other similarly real endeavors, rather than toward bad mortgage debt and the US Treasury.
But I guess people are happy enough to see the nominal value of their houses and 401K’s return to pre-crash levels and don’t care so much about what might have been.
Whatevs….
I vaguely recalling reading a story that there was something in the Fed charter specifically prohibiting investing in municipals, but anyway, right now the municipal market doesn’t really need the Fed. Rates on municipal bonds have been lower than ever. Really, it defies gravity and feels like a massive bubble and scares the hell out of me, but there you go. Any city with a decent credit rating can borrow itself to death — the problem, of course, is that however low the interest rate is, you still need the tax base to pay back the money. In this economy, income generating investments are always spotty. Capital appreciation is unlikely due to the efforts to prop up property values — with the massive unsold inventory held by banks looming over it.
For more about the perilous financial condition of some American States.
An extremely readable and very balanced history of the Great Depression and Hoover’s and FDR’s fumbling responses to it is David Kennedy’s Freedom From Fear, part of the Oxford series on American History. He also gives a very clear explanation of why the gold standard tied the hands of the international community and why it had to be abandoned.
Regarding Unna’s mention of Obama and photo ops, I know of a financial expert known to all of you who was pulled out of the waiting lounge at Kennedy, on his way to Europe and flown by private jet to Hilton Head to meet Obama in the midst of the 2008 financial crisis. He thought his moment had come to save the country but it was an in and out photo op. Says something about our problem solving approach – get someone from central casting.
Thanks for the tip to Freedom from Fear, and the interesting anecdote!
Maximus, I stumbled upon your Blog quite by accident while doing research on my historical novel about Quintus Fabius Maximus.
All very interesting. I think it was a huge mistake to depart from the Keynesian economic model. You can see the results.
The plutocrats say that they are the job creators and must have their taxes cut. Their taxes have been cut again and again and I don’t see them creating any jobs! In truth, the consumer is the job creator. If we don’t buy, the businesses make no money, and if we have no jobs, we don’t buy. A simple concept. I don’t understand why our politicians and those who vote for them don’t get it.
If you’re looking for somebody to help you write these blogs, I strongly recommend Tiberius Graccus.
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FM note: From Wikipedia –
Your comments qualify these days as lost history. Few people today remember the embrace of Monetarism during late 1970s (and its rapid failure), and the embrace of chronic full-cycle long deficit spending — directly contrary to Keynes advice. The seminal article for the latter being “Taxes and a Two-Santa Theory“, Jude Wanniski, National Observer, 6 March 1976.