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October 23, 2008



"... as Keynes himself acknowledged, slumps often tend to correct themselves eventually anyway."

But, in the long run...


"The duty of ordering the current volume of investment cannot safely be left in private hands."

OK, using the arguments originally posted, this is wrong,very wrong. Do I need more arguments?


off topic - Chris you have asked on a number of occasions whether Risk Managers were stupid, bankers stupid etc, and I've been trying to find the right way of explaining the pressures on bankers. Fortunately I've found this coment by a Tim West on Marginal Revolution that expresses it perfectly:

"One thing that I think gets left out is that it's not just a matter of understanding risk at the top of the management chain.

For any publicly held firm, if you can't persuade your shareholders that the risk is not worth the gains, you either join the risk takers or get kicked out. Given the difficulty of educating such a varied class (and that the indications of risk were fairly ambiguous), it was nigh impossible to avoid joining the risk-taking train even if there were severe doubts."


sry Tom West - silly mistake

Bob B

Everyone to his/her own and for several reasons, I rather prefer this recent piece on Keynes in the FT by Ed Crooks:

Doubtless, readers will make up their own minds anyway.

Toronto realtor

I am not so educated in economic theory, but there is written "The duty of ordering the current volume of investment cannot safely be left in private hands." How this can be done without using the fiscal and monetary tools, like budget deficit or lowering the interest rate? And the traditional libertarian comment - how the government can know more about the "right time to invest" than the private sector?
I believe Keynes' thoughts have been strongly presented in most of the world's governments. Politicians have always tried to "buy" economic growth...
Take care


Perhaps it's time to revive the distinction between Keynes and the Keynesians?

Brian Lee

If we are sharing interesting sources on Keynes, I'd like to add - to the superb works by Skidelsky - the books by Donald Moggridge (especially his bio of Keynes) and Donald Markwell's book on "John Maynard keynes and International Relations: Economic Paths to War and Peace". Understanding what Keynes actually thought and why is important before deciding its contemporary and future relevance (which I thnik is very great, BTW).

iron pimp hand

It's hard to understand what Skidelsky since, as he half acknowledges in the article, keynes never really went away. All that really happened was the slight modification of having central banks slam on the breaks when it looks like inflation might become a problem.

Unless he thinks that it might be a good idea to nationalise investment then I cant see what insight of keynes approach to the trade cycle we are supposedly overlooking.

Bob B

"Perhaps it's time to revive the distinction between Keynes and the Keynesians?"

A goodly suggestion but as Greg Mankiw points out somewhere, it's often not clear what Keynes really meant and he was rather apt to endorse sympathetic but conflicting intepretations of his General Theory.

Hicks on: Keynes and the Classics hugely influenced student textbook presentations but its keynesian model is essentially a comparative-static presentation whereas the role of expectations are fundamental in Keynes's General Theory. Where are these expectations supposed to come from - are they exogenous to the model or endogenously determined?

If exogenous then post hoc the General Theory can explain away any macroeconomic events depending on what exogenous expectations are assumed in the analysis.

If endogenous then we enter the (dubious IMO) territory of rational expectations theory which is claimed by many of its exponents to re-establish Classical economics and its policy conclusions.

These are deep waters in which there has been much paddling.

Bob B

Is S&M not going to comment on the letter to the Telegraph by 16 "leading" economists? Quote:

SIR - Further to your interview with Alistair Darling (October 19), we would like to dissent from the attempt to use a public works programme to spend the country's way out of recession. It is misguided for the government to believe that it knows how much specific sectors of the economy need to shrink and which will shrink "too rapidly" in a recession.
Thus the government cannot know how to use an expansion in expenditure that would not risk seriously misallocating resources.

Furthermore, public expenditure has already risen very rapidly in recent years, and a further large rise would take the role of the State in many parts of the economy to such a dominant position that it would stunt the private sector's recovery once recession is past.

Occasional economic slowdowns are natural and necessary features of a market economy. Insofar as they are to be managed at all, the best tool is monetary and not fiscal policy. It is inevitable that government expenditure and debt naturally rise in a recession but planned rises in government spending are misguided and discredited as a tool of economic management.

If it is believed that this recession has features that demand more active fiscal policy, which is highly disputable, taxes should be cut. This would allow the market to determine which parts of the economy shrink and which flourish to replace them.

Notice there are apparently no reservations at all about pouring billions of public money into the retail banks in Britain to prop them up, public guarantees for bank deposits or reining back the Competition Commission from investigating the acquisition of HBOS by Lloyds TSB. I wonder why?

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