I no longer believe in capitalism. At all.

[Aeson]

I suppose I owe Jaguar an apology for always reading his posts as if it were from Harry Potter then...

[Imran Siddiqui]

No. Jaguar and Kuciwalker are roommates. My twin brother does not post here.

Which makes your twin the winner.

[giblets]

No. Jaguar and Kuciwalker are roommates. My twin brother does not post here.

Kuci, and indirectly, Jaguar, are two of my main sources of knowledge on econ topics. The third is my dad. So there tends to be substantial agreement between us.

Maybe you should broaden your horizons a bit.

[Hauldren Collider]

I do plenty of reading on the topic on my own. Hence why I occasionally have disagreements with Kuci.

[Sir Og]

No they aren't. You're basically calling the policy makers insane, because that's what insane people would do.



Central bank economists are the best economists. If you haven't made any actual monetary policy that was put into effect you don't really know what you're talking about. It's the same in economics as in everything else. That said central banks do not generally follow the advice of monetarists, and for good reason.

It's mind boggling when you watch from the side but such are the sad facts of life. Fairly smart people do stupid things all the time for various reasons.
For a perfect example look at Bernanake. Chairman Bernanke seems to be a very different person from Professor Bernanke. He has studied Japan and seemed to know exactly what should be done. He was very critical of BOJ yet when he took charge of the Fed he did almost the same half assed attemt as the BOJ in a similar sittuation.
I don't know why this happenes maybe it is peer preasure from fellow Fed board members, maybe his wife is cheating on him and this is distracting him and clouding his judgment or he suddenly became stupid etc. He even makes up excuses which he knows are false. Like saying that the Fed has been accomodative while by his own metric from 2003 (which is the correct and reasonable metric) they have actualy kept money tight for an extended period of time.

So either the economists at CBs are not that bright or even smart economists are capable of collosal **** ups. Just because some people, some time do monetary policy wrong is not an indictment of monetarism.

[Jon Miller]

In truth, there is a corresponding reduction of demand elsewhere. And that's in demand for the stuff that the equity/capital markets would have purchased with the money had it not been taken away. For example, Apple might have built a new store. And building a new Apple store is every bit as valid for "demand" purposes as building a mansion. Construction workers are paid either way.

Except that if you had read Keynes, you would know that there is a third possibility: Hoarding.

And that is what is going on now. Look at all the cash that companies are sitting on. Look at the huge amounts that is looking to go anywhere 'safe' and so go to negative returns on government bonds/etc.

This is the reason why the government should spend now, because the market has decided that that is what it feels comfortable with. If it wasn't then the companies/banks/etc would be investing all that cash they are sitting on into new plants/companies/etc.

Here is a presentation on Keynes if like me you never read him:

http://www.tnr.com/article/how-i-became-keynesian

As to why companies don't think it worthwhile to invest right now, I think some of it is against the rational actor assumption which is common in monetarist economics. The 'animal spirits' of the entrepreneurs are down, they won't take risk even if they would have jumped at it during a boom.

In some ways this is a positive view of capitalism, it is just taking into account that capitalists are human too.

JM

[Jaguar]

Asking me whether I've read Keynes is a little bit like asking someone of your educational background whether he has read Newton.

Tax codes are a long-term planning thing, and aggregate demand is a short-run problem to manage. (And you don't even always want more aggregate demand!) Moving revenue-neutrally between types of taxes should be largely demand-neutral except under rare liquidity-trap conditions, like the one Keynes lived through or the one we're in now - but if you want to talk aggregate demand, you should ask Chairman Bernanke why he is keeping it so low. We could have more of it right now if he wanted!

[Jon Miller]

I know many people who have taken economics and have not read Keynes. And I don't think you studied economics in college?

I agree that tax codes are more long term things, but they should be designed to not encourage liquidity traps? Also, wouldn't it be very important to not have so many distortions entered in?

Maybe we need to take the power of taxation away from politicians, and make it like a faucet. The politicians determine how much tax is required (as a function of GDP/etc), and the civil servants determine how that tax is applied? The only problem with that is then the efforts of those with power will be in distorting the civil servants actions and not the politicians actions.

It just seems that whatever the tax is (income, consumption, investment, etc), it is always distorted by those who can wield power. And this means that it will not be neutral.

JM

[Jon Miller]

but if you want to talk aggregate demand, you should ask Chairman Bernanke why he is keeping it so low. We could have more of it right now if he wanted!

It isn't clear to me that printing money and giving it to banks would raise aggregate demand.

Perhaps printing money and returning it as a tax refund would. But I am not sure how this would politically work.

JM

[Jaguar]

I know many people who have taken economics and have not read Keynes. And I don't think you studied economics in college?

Sixteen of my thirty-seven courses at Yale counted in the Econ department.

I agree that tax codes are more long term things, but they should be designed to not encourage liquidity traps? Also, wouldn't it be very important to not have so many distortions entered in?

Consumption tax is the least distortionary tax, and what encourages liquidity traps is having a low long-term inflation target and consistently undershooting it, not tax codes.

Maybe we need to take the power of taxation away from politicians, and make it like a faucet. The politicians determine how much tax is required (as a function of GDP/etc), and the civil servants determine how that tax is applied? The only problem with that is then the efforts of those with power will be in distorting the civil servants actions and not the politicians actions.

It just seems that whatever the tax is (income, consumption, investment, etc), it is always distorted by those who can wield power. And this means that it will not be neutral.

JM

Not sure how you plan to move taxes away from democratic scrutiny without people flipping out.

[Jaguar]

It isn't clear to me that printing money and giving it to banks would raise aggregate demand.

Perhaps printing money and returning it as a tax refund would. But I am not sure how this would politically work.

JM

The beauty of open-market operations is that you don't "give" money to anyone. You just pay them in full, at market prices, for things they already own. Monetary policy adds cash to the economic environment without "giving" money to anyone.

[Kidlicious]

It's mind boggling when you watch from the side but such are the sad facts of life. Fairly smart people do stupid things all the time for various reasons.
For a perfect example look at Bernanake. Chairman Bernanke seems to be a very different person from Professor Bernanke. He has studied Japan and seemed to know exactly what should be done. He was very critical of BOJ yet when he took charge of the Fed he did almost the same half assed attemt as the BOJ in a similar sittuation.
I don't know why this happenes maybe it is peer preasure from fellow Fed board members, maybe his wife is cheating on him and this is distracting him and clouding his judgment or he suddenly became stupid etc. He even makes up excuses which he knows are false. Like saying that the Fed has been accomodative while by his own metric from 2003 (which is the correct and reasonable metric) they have actualy kept money tight for an extended period of time.

So either the economists at CBs are not that bright or even smart economists are capable of collosal **** ups. Just because some people, some time do monetary policy wrong is not an indictment of monetarism.

They almost never do monetarism though. 1979 was the only time the FED ever targeted the money supply. With all the talk Bernanke will hasn't just printed money outright. They tried it in Japan and it doesn't work.

Don't get me wrong. I think Volker did the right thing, but that was a special case. You have to target the interest rate in the general case. But the monetarists will never be quiet because it's a political issue.

[Jaguar]

Monetarism isn't about targeting the money supply anymore.

[Jon Miller]

The beauty of open-market operations is that you don't "give" money to anyone. You just pay them in full, at market prices, for things they already own. Monetary policy adds cash to the economic environment without "giving" money to anyone.

But the problem is that the people who would consume (or maybe even invest) don't have any money.

So you are paying market prices for things that people hoard, so it is just furthering the hoarding market instead of the investment market or consuming market.

Yes, after a while (I don't know how long, 10 years... 20? until the next great war?) people will get braver and stop hoarding. But with the issues that exist (euro zone failures, euro zone possible breakup, instability in developing world, crazy politicians in the US refusing to raise the debt ceiling, and so on), the animal spirits of the capitalists will not go back up and so no matter how much money you give them (by buying on the market the things they are hoarding) they won't change and invest. Rather they will just hoard all the more.

JM

[Kidlicious]

Consumption tax is the least distortionary tax, and what encourages liquidity traps is having a low long-term inflation target and consistently undershooting it, not tax codes.

Liquidity traps have nothing to do with either. JM hit it on the head. Liquidity traps are caused by a change in expectations and behavior. There is nothing that can be done about them by the central bank except not doing anything stupid like dumping a bunch of money in the economy which causes devaluation of the currency.