How Keynesian Stimulus Works

One of the most important ideas of 20th century economics was Keynes demonstration that Say’s Law does not hold for whole economies. Say’s law argued that economies will right themselves – tend to equilibrium – at full production. Keynes showed that will economies tend to equilibrium, they don’t tend to equilibrium at what is called a “Pareto Optimal” state. That is the point where there are no “win-win” situations left, in specific terms no one’s utility can be increased without an exactly equal decrease in someone else’s utility. Sometimes the ship of an economy rights itself, by sinking to the bottom.

This conclusion, that economies can stabilize after a shock at a lower level of production was his reason for calling for “priming the pump” stimulus: spending which would encourage people not to defer purchases, or businesses not to defer investment based on fears about the economy. This later leads to General Equilibrium Theory of Kenneth Arrow. The idea is this: the market depends on people making decisions based on obvious and present information, and transmitting the results of that decision by purchasing or not purchasing. This will be reflected in price, and since price information travels, if not immediately, then faster than anything else, the whole of production and consumption will move to a point where everything that people can produce, will be sold, and everything people want to buy can be obtained. However, if people worry about inflation, they will buy earlier than they want, and if they worry about deflation they will buy later. This means the job of government is to make it so that people balance the risks to growth and inflation, and, on net, buy when they want to buy, and save when they want to save.

A deflationary spiral begins with the expectation of future earnings drops, and people both defer buying and businesses defer investing. In Keynesian terms the economy’s liquidity preference rises, and becomes a vicious circle. People want to be liquid, because they see everyone else wanting to be liquid. Money disappears under the mattress of the economy, the velocity of money drops. Keynes observed that “one man’s expenditure is another man’s income.” That means if everyone stops buying, businesses don’t expand capacity, but wait for capacity to fall in price so they can buy it cheaply, and that means fewer jobs, which means less income, which means less buying, which means even more incentive for businesses to wait for cheaper labor and production. Prices never fall enough to get buying going again.

Malthus hypothesized that eventually holders of rent would begin spending. Keynesians countered that holders of rent will not buy production, but will instead buy rents, or buy unproductive labor. That is, they will buy things like paintings and art objects and land, because these things are rents, or buy, and put out of production, competitors. Or they will buy servants and other forms of labor which do not increase the wealth of the society. Thus, sayeth the Keynesians, government, as the ultimate rent holder, is a better “buyer of last resort” than the wealthy holders of rents. Not to put too fine a point on it, the Malthusian solution was tried in the 1930’s – by Nazi Germany, Fascist Italy, and Militarist Japan. The holders of rent in those societies got together and began spending when labor got cheap enough. On weapons.

So how does this work? How can you “just print money?” Well you can’t. But there’s a reason why you can run the printing presses and it works here. Let me explain.

What is money worth? Well it is worth holding money if there is something in the future that you want to buy. Thus, anyone’s willingness to hold currency is going to be predicated on that currency being able to buy something in the future. Now, inflation risk is one people get – your money won’t buy as much in the future, and you can’t rent that money out for enough interest to keep up with that inflation. However, there is another risk, that is the risk of collapse. That risk shows up in two forms, closely related. One is hyper-inflation. A government that is on the verge of collapse runs the presses, people see collapse is coming, and demand higher and higher amounts of money. The government responds by printing even more money. If collapse is not staved off, a spiral begins. It doesn’t matter if the government ran the presses first, or prices shot up first, the result is the same. The other risk is the risk of depressionary collapse, where the very fabric of the economy disintegrates, and there is no future.

The reason both of these are related is that in such circumstances, a government is faced with a “spend or die” decision. For example, during a total war. The government must spend to win the war, or the government is, well totaled. It doesn’t matter what the long term implications are, because lose the war, and there is no long term. Governmental regimes that get into this situation often aren’t very competent to begin with, and printing more money tends to get spent on the very things that got them into trouble in the first place. It doesn’t matter how many checks Chang Kai-Shek wrote, he wasn’t going to win his war, because he was a terrible Commander in Chief. Regimes often face a spend or die situation that is not in the national interest: the country will still be there, but the regime will not be. High inflation becomes hyper-inflation when the tendency to equilibrium is broken.

Governments that fail to spend in such circumstances collapse.

This situation is the converse of the death bet. The death bet is that the actor making the bet will be gone before the negative consequences come to pass. The deflation/high inflation/hyper-inflation bet is that if the government doesn’t make the bet, it’s dead anyway. In finance, this is sometimes called the “eat babies” case. That is, if the bet fails, we will all be eating babies and previous money won’t be worth anything any way.

This is why stimulus, properly applied can work. Because not spending isn’t going to lead to equilibrium, as Krugman pointed out in his “Depression Economics” op-ed, the default isn’t stability that will be disrupted by government changing demand, the default is a downward spiral that will destroy economic arrangements and connections, that will have to be rebuilt at higher cost. Such circumstances are like burning down a house – it is much cheaper and faster to burn down a house, than it is to rebuild it. In normal cases allowing some part of a house to fail and then replacing it is better than replacing everything in the house all the time, but if the house is burning, it is better to put out the fire before it consumes the house.

This is why economists worship equilibrium: in equilibrium situations, one can let unsustainable things continue, because sooner or later they will stop, and the economy will right itself. Covnersely, economists are professional worries, they worry about things that will puncture equilibrium, and the wise ones advise taking steps to prevent disequilibrium, and as importantly, remove even the fear of disequilibrium from people’s minds. Again Krugman neatly points out way: in disequilibrium, one has gone through the looking glass. Sanity is insanity, caution is crazy, timidity is termity. This means, from an economic stand point, that in disequilibrium, all the habits of rational economic actors become destructive to the economy, as opposed to constructive. People can no longer make good decisions, because the very Bayesian backdrop against which they weigh decisions, becomes wrong. By the time enough evidence has piled up that their experience is wrong, it is too late.

For this reason when disequilibrium takes hold, it is necessary to ameliorate, bail out, and provide relief to people who made “bad decisions” – because they weren’t making “bad decisions” in the same sense. Perhaps they were doing things that were unwise in the context of equilibrium, perhaps not, but in disequilibrium many people who made somewhat risky, but acceptable, decisions, are suddenly faced with the loss of everything. Imagine you are playing poker, you win a bit, and gloat. Gloating is perhaps unwise. The person you are playing against pulls out a gun and shoots you in the face. This is a penalty out of proportion to your mistake.

Since it is impossible, or at least very expensive, to go through and decide on a case by case basis whether a person made a risky, but reasonable, decision given expectations of equilibrium, it is better to set rules within which most people were reasonable, and then have relief even for those who might have been outside those boundaries, but who were probably being unreasonable. Within the rules give restructuring, basically wipe the slate clean and set results where they are sustainable in the current environment. This usually means cramming down all of the actors in the decision. Outside, provide relief so that while the people involved might lose all or most of what they have, they are not so wiped out as to be out of the game entirely. People who are out of the game are the source of an economy downshifting to a lower level.

The reason that pump priming works then is because there isn’t some fixed and knowable amount of money in an economy. Instead, much of “money” is that the whole ant hill is working in the first place. It is activity which money controls and directs, and if there is less activity in the future, there is less money. Avoiding the “down shift” – even if it means inflation taxing some of the actors involved – is better because there is more money on the other side.

One problem we have had is that Keynesian economics is counter-cyclical. Governments should be careful and balanced in good times, saving. Governments should spend in bad times. Now this upsets people who are hoping for deflationary collapses, it creates a built in upward spiral on prices. But then, that is better, because it means that fewer people are waiting for prices “to go down” and will work and spend now. However, the win for the people who are prudent in bad times is still quite substantial. By not participating in the bubble, they have not lost. I have clients who have seen their portfolios drop by 70%. And worse, they are in investments that are not going to recover. Had a bad year? I know people who have seen more money vanish in the last year than most Americans will earn in their lifetimes. That’s their personal money. The sensible people come through far better off.

The policies of the Repbulicans, on the other hand, have been pro-cyclical. Run deficits when times are good, throw fuel on the inflation fire, and create bubbles that people can chase. This is because much of the economy has been static for 30 years. It literally is impossible to get ahead in most of the economy except by driving other people out. Thus, people have demanded bubbles, because in these overheated ares of the economy, money is spent freely and fortunes can be made. Pro-cyclical policies, liberals have been pointing out, are unsustainable, because when crisis comes, counter-cyclical action will be needed anyway. This is why hearing from the deficit reduction people now is insanity – where were they when it was time to reduce deficits? Many were calling for “tax cuts” to “return money to the tax payers.” Calling for deficit reduction now means that the cheap dollars borrowed for tax cuts, will have to be paid back in expensive illiquid dollars. Borrowers should borrow expensive and pay back cheap, not the other way around.

Thus the key to pump priming is to divide it into very different kinds of spending. One is pure amelioration: just keep people from going bankrupt and not being ever able to participate in the middle class again. One of the massive failures of the Bush executive was that it allowed the tech bust to happen, and many extremely bright well trained people essentially never went back to earning as much as they had been before. The second is restructuring. This is what incompetent governments get wrong. It is what the last year of the Bush executive has gotten wrong. It is what Obama might well get wrong. Remember, the economy is in disequilibrium, it isn’t enough just to get back to where things were before, because where things were before was what created the mess in the first place.

This is why liberals and progressives right now are calling for broader action, to remove the sources of disequilibrium from society, and balancing the cost of doing this with reasons for people to continue to stay in society. The wealthy just want the instability removed, and they want someone else to pay the cost, and then have things go back to the way they were before. Keynesian stimulus isn’t simply spending, it is spending with an eye to restoring equilibrium, and then recapturing enough to pay back the stimulus. That is, collect taxes on the increased economic activity that preventing a downshift creates, and both paying back that debt, and having a cushion of borrowing power for the next occurance.

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Stirling Newberry

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  • “That is, they will buy things like paintings and art objects and land, because these things are rents, or buy, and put out of production, competitors”

    So raising taxes on the rich during a depression will put money back to productive use? This counters the R position – “Higher taxes will make a depression worse.”

  • “This is why economists worship equilibrium”

    Good luck with equilibrium in a system that’s chaotic (not Bayesian backdrop). This is the old assumption the system is “manageable” which is only true within some limits.

    The problem with “some limits” is that all the variables are not known (some are unknown), and some are umeasurable.

    Finally, the Bush adminisration was and is running Keynsian and War Spending, absence of control (limits) on banking, and lowering taxes on the wealthy, all of which contribute to bubbles, crashes, and lack of “productive money”. All these variables were run “out-of-limit” or “without limit”, and the system broke.

  • by the time you hit depression economics the rich have been hit by the “crash tax.”

    The way to tax the rich in such circumstances is to take their toys away.

  • I think Bush actually did a long term favor to the world by allowing a system that was headed for long term stagnation to crash and burn. Well managed and it may have continued for another ten or twenty years, but the problems would have been far worse when it did crash.
    Yes, extreme personal wealth is economically inefficient, but it’s politically impossible to point it out, not only because those with the most are usually the most ruthless, powerful and smart, but also because they are the role model for all the wannabes. So the situation really needed a disaster of the magnitude of the last eight years to truly pop the bubble.
    Up until the twentieth century, money was based on a commodity, specifically gold. Now it’s entirely based on faith in the backing institution, ie. government and its tax base. This makes the monetary system a public utility, similar to a road system. We don’t need to go to a fully socialized economy to recognize that the monetary system is a public utility, the value of which is based on everyone’s contribution. You can have rich and you can have poor, but only as relative extremes to a broad middle.
    I first started to figure this out by wondering how Volcker cured inflation by raising interest rates. Inflation may be caused by loose money, but the higher rates hurt those who want to borrow on the expectation they can be productive enough to pay it back. That’s why he mostly just caused a recession, which reduced the demand for capital and exacerbated inflation. It was only when Reagan pushed deficit spending to two hundred billion by 1982 and borrowed lots of surplus wealth off those with a surplus of wealth that inflation started to wane. That’s why having Volcker up there beside Obama makes me think he’s either being too smart by half, or not smart enough.
    The banks are already being nationalized and they will likely be fully nationalized by the time this is all over. Do we spend enormous wealth to restore them to health and return them to the private sector, under a heavy blanket of regulation, or are there other options?
    While we need national currencies to provide the broad based medium of exchange, one large banking system wouldn’t work very well. It should be a multilayered system, just as we have multilayered government, with small banks at the local level, medium ones at the regional level and a various large banks serving aspects of the national and international economy. As public institutions, their profits would support the infrastructure of the communities that generated this wealth in the first place, rather then being siphoned off for the few, or outside interests. The function of competition would remain, as the various communities would compete to provide the best environment for their citizens and business and poorly run locales would tend to loose support.
    If paper wealth is progressively taxed, that would reduce the ability to monopolize the investment potential of the economy and there wouldn’t be the need to create credit bubbles to invest excessive savings. If people didn’t have the incentive to drain value out of their communities and environment in order to store it in a bank, then the only way to build wealth would be to store it in stronger communities and a healthier environment.

  • Incorrect. Silver, not gold, is history’s main monetary metal. The classical gold standard had it’s origins in the post-Napoleonic war inflation in Britain, which systematically began unifying the banking system with recoinage based on Gold. It was not, however, until the 1840’s that Britain was largely on a gold standard. The international gold standard was established relatively quickly in the 1871-1880 period, and lasted in effect only until the outbreak of World War I, when it was suspended to pay for the war itself. The attempt to reimpose it beginning in 1925 failed and collapsed during the 1930’s.

    As Smith and Hume pointed out, the quantity of base money does not create value, but can, instead, merely generate inflation. It was from this observation that Smith argued that the “wealth of nations” was specialization and capital, not stock of monetary base, and that national policy should be to accumulate specialization, capital, and an endogenous market system, rather than attempting to acquire monetary base.

  • Thanks for this one Stirling. We have a generation now where even the liberals have grown up too much with Friedman and not enough with Keynes, and find these concepts and even this way of thinking alien. There is a sense in which we can “print money”, though: we can monetize the debt.

    Not for Stirling, but for others, let me explain this a bit: the supply of money in the economy in a simplified model (leaving aside international considerations for a moment) consists of the money issued by the Federal Reserve, the monetary base, and the amplifications of that money caused by various forms of credit, the multiplier. When you put $100 in the bank, you still “have” the $100, according to our accounting conventions, but the bank will lend most of that money out (well, in normal times), keeping only a small portion, the “reserve”. So if the bank lends out $95 of your money, and you still “have” $100, $100 becomes $195 in the economy. Really, what you have is $100 of debt from the bank, but the accounting system does not treat it that way: the banks are privileged to treat their debts as money. And, of course, when the guy who got the $95 puts his money in a bank, the process iterates again. Lowering interest rates encourages more lending (increasing the “velocity of money”), which causes this process to iterate more, and increases the money supply by increasing the multiplier.

    We can simply “print money” in the sense that the Fed can expand the monetary base and use the funds to buy US government debt. Since the Fed is supposed to return whatever revenue it gets beyond expenses to the Treasury anyway, this cancels out the debt. By increasing the money supply, this creates inflationary pressure – in effect, the debt is being paid with an inflation tax – but increasing the multiplier by lowering interest rates also increases the multiplier and creates inflationary pressures, and no one seems to get a heart attack over that. The thing is we’re facing a lot of deflationary forces, and seeing a lot of actual deflation, concentrated in housing, equities, and gas prices, and in wages, as measured against productivity. The credit crisis is contracting the money supply by contracting the multiplier; deleveraging is doing the same; needed reforms like limits on leverage and perhaps increased reserve requirement (another form of the same thing) also decrease the multiplier. We have room for considerable inflationary pressure just to counterbalance all this.

    So if we increase the monetary base and decrease the multiplier, we could end up with the same growth in money supply we have now (though it would be hard to control that precisely) or somewhat more or less, but not out of control.

    So it may be that the financial crises gives Obama *more* scope to spend and create the programs he wants. It will be paid for with an inflation tax, which is in turn taken, at least partially, from the deflation caused by the financial crises itself. However, both much of Obama’s program and the financial reforms imposed in response to this crisis are likely to be long-term. A likely result is that future monetary growth will be more a function of government spending and less the games of the financial sector. Essentially, the financial sector will be paying for all this, but in the future not now (although much immediate cramming down is required too) – paying for it by having a much smaller share of the money supply dedicated to their games, and therefore much less potential for total accrual of wealth. The growth of the money supply occurs more in the base and less in the multiplier. It is worth pointing out that the Fed buys some government debt as a matter of course and did so at a considerably higher rate until 1974 (the fed argues that this is not “monetization” if it is in line with their monetary growth targets. I think that looks like a semantic game, but never mind). This seems to me what we should aim for, both for workability and for fairness.

    Two problems: the first is the international system, especially the currency trade. Keynes was writing at a time when these things were much different. What I have suggested would likely put serious downward pressure on the dollar, which has good and bad aspects, but cannot be allowed to get out of hand. The “good” news is that all the other major players are in the same boat as the US, and none are as likely to be as dogmatically averse to screwing their financial sectors for the sake of the overall economy as is the US, not even Britain, judging by their recent actions. A fall in all currencies is a fall in none, though this may require some Bretton-Woods style coordination.

    The second is the Fed. Is it really on our side? I don’t know why every blog in existence isn’t screaming about the Fed lending $2 Trillion to various banks (see http://www.bloomberg.com/apps/news?pid=20601087&sid=aatlky_cH.tY&refer=worldwide) and refusing to disclose even to whom they gave the money or what they accepted as collateral. That even dwarfs the bailout! My theory is that Paulson wanted to buy the troubled assets at close to model value, or better, and the congressional caveats on the bailout made that difficult, so the Fed did it for him, which is why he’s now redirecting the bailout to the equity infusions he earlier resisted.

    By doing this, he has also made what I just proposed more difficult: the Fed can scream about all the debt it already has. I suspect this is deliberate. Pauly and Bernie are trying to tie Obama’s hands so as to prevent any “new New Deal”.

    It is time for “central bank independence” to go on the table. Those who say the Fed is private and that it is public are both wrong: it is a deliberately opaque hybrid. The Open Market Committee ultimately calls the shots, and it includes both government appointees and representatives of the regional Feds, which are private – owned by member banks. Liberals deeply resist hostility to the Fed, which gives it enormous scope to screw liberal policies and politicians, which it has done at least since Burns. First, liberals avoid criticizing the Fed because conservatives do. The key difference is what do you propose in place of this hybrid: completely public or completely private control of the money supply. I’m with the former and think it should be the liberal position. Also, attacks on “bankers” have an historical association with anti-semitism. But this history should not make us accept that the private interest of the financial industry is identical to the public interest or isolate the banking industry from criticism, including severe criticism for severe offenses. Finally, the apologies for Fed independence invoke the need for expert technocracy over populist ignorance, an argument to which many liberals are sympathetic. However, our ultimate elitist institution, the Supreme Court, imposed our worst President ever in defiance of the popular vote for venal political reasons. Liberals need to recognize that elite vested interests often trump expertise: after all, I don’t think any of the Supes, even Thomas, failed to realize that Bush was an idiot, which was pretty obvious; just given their politics, they did not care.

  • A deflationary spiral begins with the expectation of future earnings drops, and people both defer buying and businesses defer investing. In Keynesian terms the economy’s liquidity preference rises, and becomes a vicious circle. People want to be liquid, because they see everyone else wanting to be liquid. Money disappears under the mattress of the economy, the velocity of money drops.

    This preference for liquidity can result in a liquidity trap. When this happens, saving increases over both consumption and investment. This slows consumption by reducing aggregate demand, and it also reduces investment since savings are not invested when opportunity is declining and risk increasing.

    Liquidity preference increases because in a deflationary period, money increases in value as prices decline in response to decreasing demand. This means that money gets hoarded, and banks don’t lend. Since the money supply is increased through debt, money supply contracts with credit. As debt is retired or destroyed through default or forgiveness, there is less money available in the absence of new lending, and what money there is available awaits increasing opportunity in a down market. But as the market continues to decline as consumption continues to contract, investment opportunities are rare. As Stirling observed, money at the top is committed to non-productive use, contributing little to the economy.

    A liquidity trap is sprung when money is not committed to investment because investment opportunities are contracting and risk is increasing. So banks do not loan, because no one who is credit worthy wants to invest, there are few good speculative opportunities in an environment of falling prices, and consumer credit risk is too high for banks to fund debt spending for consumption.

    Even banks themselves aren’t interested in to lending to each other because like everyone else, they figure can do better staying liquid than taking on risk that is underpriced. As a result the economy contracts as incomes drop, debt is defaulted on, and the production/consumption cycle dries up for lack of demand. Prices fall due to oversupply as inventories have to be liquidated in order to meet maintenance costs. Bankruptcies multiply as the velocity of money decreases and economic activity declines across the board.

    Thus, even if savings are low, as they are now, injecting funds into the financial system to increase liquidity does not result in increased lending and consequently to increased economic activity. Banks are reluctant to lend in such an environment, since they see more risk of loss than opportunity for profit. In a deflationary environment, real interest rates are negative as nominal rates of the most secure debt approach zero, so holding onto funds is the best economic course. The government finds that it cannot mandate that banks lend — which is where we are now. Banks are either recapitalizing after forced deleveraging, or committing injected funds to free after-tax buy-outs due to tax deductions for losses. What this means is that the normal process of monetary stimulus fails. Similarly, fiscal means such as reducing taxes are insufficient as well. For example, declining revenue forces cut backs in government employment, further reducing demand.

    This leads to spiraling deflation, which is very difficult to reverse. It is the economic bogeyman.

    The Keynesian solution is to inject money where it will be spent on consumption of goods that will stimulate production and lead to increased investment, jumpstarting the economy. In order to increase aggregate demand quickly, the injection of funding has to be at the bottom. This is what “helicoptering” money actually means. It means jumping over the usual ways that the Federal Reserve and Treasury use to influence economic policy to go to the source of the problem in collapsing aggregate demand.

    Of course, this is only intended to last as long as it takes to jumpstart the economy so that the normal cycle of income > savings/consumption > investment > production > income can resume. Then the debt incurred for stimulus can be retired during the ensuing period of economic growth through increased revenues.

    Keynnesianism is often represented as equivalent to government spending, leading to “socialism” as governmental control replacing the omniscient and omnipotent mechanism of the “free market.” However, this is a misunderstanding of Keynes. Worse, it has become a right wing mantra used in the disinformation war. It’s important to understand the outlines of this at least because there are going to be a lot of right wing criticisms of Obamanomics as “Keynesianism” and “socialism” in the coming period.

    Probably a better way of paraphrasing Keynes is that government policy, including spending does matter, in contrast to the neoliberal notion that “government is the problem.” Government is necessarily a major player macro-economically and taking a negative or head in the sand approach to this is economically naive. Moreover, given right wing policies, it is also disingenuous. The right wing has no trouble with using government to further crony interests, as the current monetary and fiscal policies go to show.

    If government is going to be a player, and it is, then it should play nice. There are ways of doing this that are well understood. That is the overall point that Keynes was making. Keynes was arguing not for bigger government as conservatives like to misrepresent, but more efficient government in relation to the economy, given the prevailing circumstances.

    As Krugman points out in a 1999 paper inspired by his thinking about Japan in relation to the Great Depression, sometimes this means stepping through the looking-glass with respect to the “normal” way of economic thinking. He concludes:

    The whole subject of the liquidity trap has a sort of Alice-through-the-looking-glass quality. Virtues like saving, or a central bank known to be strongly committed to price stability, become vices; to get out of the trap a country must loosen its belt, persuade its citizens to forget about the future, and convince the private sector that the government and central bank aren’t as serious and austere as they seem.

    The strangeness of the situation extends to policy discussion. Because the usual rules do not apply, conventional rules of thumb about policy become hard to justify. We usually imagine that policy is more or less based on conventional models – in particular, that normally policy will be based on the simple, rather dull models in the textbooks rather than exotic stories that might be true but probably aren’t. In the case of the liquidity trap, however, conventional textbook models imply unconventional policy conclusions – for inflation targeting is not an exotic idea but the natural implication of both IS-LM and modern intertemporal models applied to this unusual situation.To defend the conventional policy wisdom one must therefore appeal to various unorthodox models – supply curves that slope down, demand curves that slope up, multiple equilibria, etc.. So unworldly economists become defenders of analytical orthodoxy, while the dignified men in suits become devotees of exotic theories.

    What I hope that I have done in this paper is to make clear how conventional the logic behind seemingly radical proposals like inflation targeting really is, and conversely how hard it is to rationalize what still passes for sensible policies among many officials. Let’s see it it works this time around.
    Thinking about the liquidity trap

    See also Wikipedia-Liquidity Trap

  • It is time for “central bank independence” to go on the table. Those who say the Fed is private and that it is public are both wrong: it is a deliberately opaque hybrid. The Open Market Committee ultimately calls the shots, and it includes both government appointees and representatives of the regional Feds, which are private – owned by member banks. Liberals deeply resist hostility to the Fed, which gives it enormous scope to screw liberal policies and politicians, which it has done at least since Burns. First, liberals avoid criticizing the Fed because conservatives do. The key difference is what do you propose in place of this hybrid: completely public or completely private control of the money supply. I’m with the former and think it should be the liberal position. Also, attacks on “bankers” have an historical association with anti-semitism. But this history should not make us accept that the private interest of the financial industry is identical to the public interest or isolate the banking industry from criticism, including severe criticism for severe offenses. Finally, the apologies for Fed independence invoke the need for expert technocracy over populist ignorance, an argument to which many liberals are sympathetic. However, our ultimate elitist institution, the Supreme Court, imposed our worst President ever in defiance of the popular vote for venal political reasons. Liberals need to recognize that elite vested interests often trump expertise: after all, I don’t think any of the Supes, even Thomas, failed to realize that Bush was an idiot, which was pretty obvious; just given their politics, they did not care.

    The US needs to decide whether it wants a central bank whose mission is monetary stability or a national bank whose mission is growth. These missions have been confused.

    That the Fed is a hybrid “quasi-governmental” entity is no accident. The Federal Reserve Act was written by people who wanted a financial sector in control of financiers and they crafted the legislation to be as close to their ideal as was manageable politically. In fact, it is a tunnel into the Treasury.

    The creation of the Fed was not a model of disinterest, the result of application of economic expertise, or anything else that one might think would have gone into the process. The country needs to revisit the concept of the Fed and its role in the economy. The right wing call for abolition of the Fed and a return to the gold standard is naive. However, many liberals are taken in by this nonsense. Moreover, there is no well-articulated progressive position on the table to counter it.

    The left erroneously thinks that it has the Fed on its side owing to the Fed’s mandate to manage the economy with respect to employment. This not been the interpretation the Fed has put on this mandate, however, which has been more managing the economy for “growth,” read the asset class.

    Liberals and progressives need to wake up and acknowledge that they’ve been had. This game is not working to the advantage of distributive justice. Therefore, it results in distortions and is bad economic policy as well as bad political policy.

  • There has to be a better effort to inform the general public using the same sort of simplistic arguments the conservatives have used so successfully. One might be pointing out how ridiculous it is for those who hate government to worship money, since the monetary system is a state function(even though it’s been licensed out to the Fed). The fact that taxpayers are being called on to support it as last resort is clear evidence.
    The example I think works is to compare it to a road system. Everyone can understand how roads are a public function in which rights and responsibilities are balanced. This isn’t “socialism”, since it doesn’t mean state ownership of production, etc. It’s just a better understanding and simple explanation of de facto reality.
    The Federal Reserve system did grown out of the bank of England model, which grew out of Rothchild banking, but that was originally based on a gold based currency, since the Rothchilds started as goldsmiths and created a credit system out of their stored gold. Whether it’s gold or silver, it was still a commodity based system that no longer exists.
    Political power originated as a function of private initiative, but we finally developed a way to make it a public trust that wasn’t mob rule and there are very few monarchists still arguing we need to go back to kings. So now we need to finally make the monetary and banking systems a public trust as well.

  • The Fed is a cutout to provide a federally insured currency to a private banking system.

    “on which the Treasury has to pay interest.”

    The Fed doesn’t just print currency and send it into the system; it creates the funding used to purchase interest-bearing government debt. The process of money creation involves interest obligation for taxpayers.

    Since the interest is in excess of the money created, more money has to be created through more debt in order to service the interest.

    This, and fractional reserve banking (lending money you don’t have), is the essence of the US financial system. The deal is all on the side of the financiers.

    It wouldn’t be as bad if the financiers didn’t expect the government to become the lender of last resort as well as the provider of the federally-insured currency. But current developments show that they are relying on this.

    We need to get some balance here.

  • All money is loaned into existence. Interest charged on that money. Where does the money to pay the interest come from?

    It’d be like loaning money to a poker game. The bank loans a thousand dollars into the game and at the end of a round charges fifty bucks in interest. There remains a thousand dollars worth of debt but there’s only 950 dollars left in the game.

    Next round. After paying interest, 900 dollars left in the game and still a thousand dollars worth of debt.

    While a few players may do well for a time, the day comes when there’s just not enough money to keep the game alive.

    Only in the real world this money is collateralized by real property which gets repossessed when the game crashes.

    I did inhale.

  • Manageability is an illusion. Any system is somewhat linear over a range of values for given parameters. This gives an illusion of management & control.

    Outside of that range the system is not manageable. It’s chaotic. We have phrases for that, “its god’s will”, “divine intervention”, “act of god”, “natural disaster”, and the best one of all “who could have known”.

    And in the long term all companies go bust.

  • they require different tools, but it’s not even as difficult as gaming many linear systems are.

    The real trap is that right now people want a rigged casino.

  • So what do you think of increasing debt monetization and decreasing (further) the multiplier, so as to move a greater share of the inflation tax revenue from the financial system fantasy circus to the public coffers?

  • Don’t forget they are the borrower of last resort as well. Where would all that money the government borrows be invested if it wasn’t being recycled through the public sector?

    Don’t you like that the very people who say we don’t need to pay taxes, go and borrow enormous amounts of money when they get put in charge? Sort of like the loan officer who says you don’t really need to pay your mortgage down, in fact you can just borrow money on your house. Then he takes your house. At what point do they think they own the government?

    It’s like a hurricane that has been building, sucking energy out of the world’s resources for the last three hundred years and just came on land.

  • which is why moments of crisis come when more promises have been made than can be paid. There are three choices. One is to accept collapse. people aren’t generally willing to do that. The other is to impose collapse on some people, and not others. Generally this involves killing them. The third is to create a new sphere of economic expansion and channel activity into it.

    It’s the most attractive option, but requires real creativity. Which is why when it needs to happen, people are sitting around either preaching the need to accept collapse, or the need to impose it on others.

    Something people need to realize is that if collapse is coming, there’s no need to talk about, just dig a hole and fill it with cans of food and ammunition. Instead, the useful intellectual labor is conceptualizing a new expanding equilibrium which makes use of the period of disequilibrium.

  • Haven’t there been local currency systems which time stamp the money so that it isn’t hoarded? Which would be a form of up front inflation. I think it has to be a matter of increasing capital gains taxes to a much higher rate than payroll taxes. Since most real money is electronic, it couldn’t be concealed, especially if it becomes a world wide paradigm, so that tax havens wouldn’t undercut the system. I think the great advantage here is social and environmental, because abstract wealth would be considered the collective endeavor it really is, while private wealth would be a function of increasing responsibilities matched by increasing rights. That if you add value to your community and environment, your status improves, while those who subtract value, either by waste or hoarding, have their status reduced.
    The economy has to be based on the fundamental understanding that savings is limited by prudent investing. Not only does this mean lending standards can’t be reduced without creating credit bubbles, but also that the borrower’s ability to create wealth is the basis of the financial system, so they are a valuable resource which must be nurtured, not exploited. Growth is, by its very definition, bottom up, not top down.

  • New money? No.

    The Fed is the only source of new money.

    Money is not wealth, just the medium by which we conduct business.

    We can bring in more money from other countries with trade surpluses, but because of the international nature of central banks, this too leaves us all in the maze.

    Crap like this drove me to smuggling dope.

    Until I realized they control that too.

    I would agree that when new wealth is created, increasing the supply of money is fair and needed.

    But the money supply should remain in the hands of our legislative branch and there should be no interest applied to new money introduced into the system.

    Abolish the Federal Reserve.

    I remember playing monopoly with my brothers. I played the banker and gave myself the ability to raise the value of hotels, motels and how much it costs to pass go or to buy a get out of jail card.

    I ended up with all the money.

    I did inhale.

  • It strikes me that, reading your analysis above, the reasons “conservatives” so hate keynsianism is that it destroys the relative value created in the already moneyed classes by deflation.

    Deflation has always seemed to me to be the tool used by the moneyed classes, those who engage in little productive work but live by compound interest, to drive out the entrepeneurs and speculators who devalue their money by either creating new sources of real wealth (entrepeneurs) or by creating the appearance of wealth (speculators).

    Because keynsian government action essentially creates new entrepeneurs, see Stirling’s discussion about “Instead, the useful intellectual labor is conceptualizing a new expanding equilibrium which makes use of the period of disequilibrium” above, not fully dependent on the already moneyed it destroys the leverage their underutilized money gives them in a deflationary economy.

    Finally, it becomes an imperative in any anti-deflationary strategy to increase taxation not on any form of labor but on varying forms of wealth. Raising capital gains taxes is one step but another, probably better, tax would be something like imposition of the Swiss wealth tax. Thus, it would seem wrong to me to raise any income taxes in a deflationary economy (income being the result of at least marginally productive labor) but instead taxing wealth which is the least productive. A tax on wealth (both in its static and capital gains forms) would, of course, set the moneyed class howling in pain but would provide for a truly progressive tax and redistribution scheme while preserving and emphasizing the return on labor in a somewhat flatter income taxation scheme. This would possibly drive a wedge between Joe the Plumber sorts who see their wealth as arising from labor and the trust fund class that has always stood behind the Republican party.

  • 1. What was the actual experience in the 1930s, if you know? What blocs opposed FDR (and how)? What blocs (if any) was FDR able to lure into alliance? Entrepreneurs? Ever?

    2. What wedge issues did FDR use to split inherited wealth from workers?

    The right to unionize was one in the cities, but I doubt it was popular in rural areas. But FDR WAS popular in rural areas, I think.

    Rural electricity initiatives. Maybe some CCC initiatives. Maybe some supports for farm prices. Maybe being seen as opposing banks for the little guy.

    3. The political environment is much different now, and new issues must be located. Rural and suburban voters must be appealed to. But the FDR example would be interesting, if anyone if familiar with it.

    4. I suspect that the wedge political issue most important in next two years is bank bailout/mortgage holder in suburbs.

    Any specific proposals?

  • Dr. Prabhat Patnaik, professor at the Centre for Economic Studies and Planning at Jawaharlal Nehru University in New Delhi, recently wrote:

    Neo-liberalism specialized in selling an illusion, namely that the unfettered functioning of markets, both commodity markets and financial markets, constituted the best economic arrangement for a society. This illusion had been buried in the 1930s, by the experience of the Great Depression, and by the theoretical endeavours of John Maynard Keynes, a British Liberal and Michael Kalecki, a Polish Marxist. But it was resurrected to serve a specific purpose.

    SNIP

    Behind this resurrection were financial interests, re-acquiring hegemony in a new incarnation, after the setbacks faced by them during the Depression, war and immediate post-war years. Keynes had called for the “euthanasia of the rentier” and the “socialization of investment”. In his view, the basic fault of the market mechanism was that it could not distinguish between “enterprise” and “speculation”. . . Resurgent finance capital, in its new “globalized” garb, starting from the late sixties, took its revenge on Keynes, and decided to put the clock back. It “sold”, or imposed through agencies like the IMF and the World Bank, its free market ideology all around the globe. While Keynes had wanted finance to remain national, so that nation-States could have the autonomy to pursue employment-promoting policies, “globalized” finance forced nation-States to open their doors to its unfettered movements, and justified it by invoking the illusion of an efficient free market.

    In this excerpt, Dr. Patnaik brings to the fore three central issues that I found are quite contentions among so-called progressives.

    First, of course, is the issue that Keynes identifies as being the basic, fatal flaw of the market mechanism: its inability to place a higher value on real investment on wealth-producing enterprises and to devalue or even penalize speculation, which creates no wealth, but merely transfers it. Or even destroys wealth, when collateral effects are accounted for, as per the work of James Crotty on the “The Neoliberal Paradox: The Impact of Destructive Product Market Competition and Impatient Finance on Nonfinancial Corporations in the Neoliberal Era .”

    It is all well and good to explain how a Keynesian stimulus works. But it would help to achieve a full resolution of the problem by also stressing that the breakdown, or disequilibrium, that requires stimulus, results from the triumph of speculation over enterprise in the markets.

    In a recent presentation to the United Nations, Dr. Prabhat Patnaik further explained this issue:

    John Maynard Keynes, writing in the midst of that Depression, had located the fundamental defect of the free market system in its incapacity to distinguish between “enterprise” and “speculation” and hence in its tendency to get dominated by speculators, interested not in the long-term yield on assets but only in the short-term appreciation in asset values. Their whims and caprices, causing sharp swings in asset prices, determined the magnitude of productive investment and hence the level of aggregate demand, employment and output in the economy. The real lives of millions of people were determined by the whims of a bunch of speculators under the free market system.

    Keynes wanted this link to be severed through what he called a comprehensive “socialization” of investment, whereby the State acting on behalf of society always ensured a level of investment in the economy, and hence a level of aggregate demand, that was adequate for full employment. This prescription entailed not only a jettisoning of the free market system in favour of State intervention, but also restraints on the free global mobility of finance, since meaningful State intervention could not be possible if the nation-State faced internationally-mobile capita. “Let finance be primarily national”, he had said, if the State had to have the autonomy to intervene meaningfully in the economy.

    More importantly, the attack on Keynes has been mounted by an identifiable faction, a financial oligarchy if you will, that seeks to “profit” from the triumph of speculation over enterprise. Paul Krugman notes in his introduction to Keynes’ The General Theory of Money, Employment, Interest, and Money, that a panel of conservatives scholars in 2005 that was asked to indentify the ten most dangerous books ever written, selected Keynes’ as one, and even considered The General Theory more dangerous than the books of V.I. Lenin and Frantz Fanon.

    Second is Patnaik’s observation that agencies like the IMF and the World Bank have been key institutions in the re-imposition of “neo-liberal” economic theories. Unfortunately, in the past, Newberry has called for a greater role of the IMF and the World Bank. The extent to which these institutions, and other institutions, can be freed from capture by “neo-liberalism” needs to be carefully considered, and implemented, before they can be given larger roles.

    Third, is Patnaik’s observation concerning the autonomy of nation-states, and the goal of the “neo-liberal” financial oligarchy of limiting and overcoming that autonomy. As I have raised the question before, if the sovereign nation state is not made the primary tool in focusing and harnessing the aspirations of citizens, what other tool is there?

    Of course, this also begs the question of what happens when some or all of the institutions of the sovereign nation state are captured by “neo-liberal” financial oligarchy – something that has clearly happened in the case of the United States over the past three decades.

  • This brings up the central economic question facing a world entering the period of globalization. That question has been answered implicitly by the ruling Western elite who are bent on perpetuating control of the global economic system for their advantage. The current international institutions, Bank of International Settlements, World Bank, and International Monetary Fund, etc. are their creation, and they have lobbied hard for the key fundamentals of neoliberalism, namely, free markets, free trade and free flow of capital. The objective is also to remain in control of the creation and control of money, as is the case under dollar hegemony and elite control of the Fed.

    This is too big a topic to undertake on this thread, but it is key to what happens going forward. Patnaik zeroes in on it.

  • It’s safe to say the financial elite have some grasp of the fact that surplus wealth accumulating at the top of the economic pyramid is less productive than that circulating through the lower levels. Which means they have a clear motive in not seeing a logical understanding of economics being broadly understood. Suffice to say they have been effective in obscuring the topic and distracting the general public. Which makes the current crisis problematic, from their perspective, as it is the seizing up of the economy by the monopolization of the medium of exchange which is the primary source of this situation. (Sort of like what happens to a running engine when you remove the oil.) Since they now require government help, in order to prevent being subordinated to government, their only option is to win the contest and subordinate government. This was Paulson’s obvious intention, but his initial effort was far too crude and he was forced to accede some control of the banks and is seemly struggling to develop a backup plan. This is being thwarted by the natural predatory instincts of his cohort, as they fight over profits from the money he’s put on the table. So I see the structure collapsing, but then the need is to develop an alternative model, otherwise a similar credit bubble will build as we are encouraged to save the currency the banks control and can siphon an increasing percentage of the profits. As I’ve argued before, that means a public banking system incorporated at all the various levels of government, feeding its profits back into the communities which produced the wealth and not just one top down nationalized bank.

  • but you will never be able to sell “banks v govt to the death” to the public

    need to keep goals firmly in mind

    but frame the arguments to very specific short term problems, and flavor of the month political issues

  • It is hard for me to see what is happening now as a net transfer of wealth *to* the public coffers. It’s true that we don’t know what the Fed has done with 2 trillion, but if it were significantly used to buy T-bills, I think that would be quickly noticed. So I assume it is going into private hands. It seems that what they are doing is giving private players such a claim on the public purse that it will overpower any inflation tax revenue advantages of the sort I am discussing. They are also trying to prevent the deflation that will make inflation tax to the government possible by firehosing the financial industry with funds; not the same thing at all.

  • The problem here is not economics per se but philosophy of economics, which presupposes an overarching philosophy. The various economic solutions are pretty well understood at this point, so it’s not so much a matter of arguing about what works as it is what the desired result is. That is a normative decision that is the subject of the philosophy of economics. Philosophy deals with the overarching framework in terms of norms, while science deals with organizing facts based the frame. It is a mistake to think that economics operates purely rationally, i.e., logically organizing facts, independently of a normative framework. To ignore the foundational role of normative presuppositions is to concede the field to the opponents’ frame.

    The philosophy of economics deals with such issues as what the goal of economics as an applied social discipline should be. This is normative. It concerns whether, for example, economics aims at a result for society based on morality, utility, or freedom to compete, etc. as the core value. The way this is answered is very different with respect to the socio-economic consequence of policy.

    The way this is answered depends on the framework in terms of which a society make decisions based on core values, not as emoted through lip-service, but in actual practice. This is a question of national philosophy and its application through national life, including governing, e.g., policy-making, legislation and judicial philosophy and practice.

    The fundamental issue that the US is now facing in this regard is the confusion of so-called growth with national prosperity. To some degree at least, this confusion is intentional.

    The way that the ruling elite has framed the debate portrays an economics of unlimited growth based on unfettered competition though free markets, free trade and free capital flows as not only the optimal way to national prosperity consistent with individual liberty, but the only way, all other choices leading inexorably to socialism and then totalitarianism. Of course, this is self-serving and totally bogus.

    The good news is that as the world enters the period of globalization, there are other powerful voices emerging. BRIC (Brazil, Russia, India and China) are not buying into this, and are not going stand idly by while the US and its Western allies try to cram it down on them. The shock doctrine described by Klein is illustrative of this cram down.

    Progressives need to join this coalition and start pushing back hard for global prosperity based on distributive justice, sustainability, and the enduring core values recognized as essential to personal unfolding in harmony with cooperative community. Arguing at the margins about peripheral issues is just a distraction, and the opposition will do its best to keep the debate centered there in order to avoid discussion of real issues.

    The fundamental challenge is to deal with the current framework in which the debate is being carried out in the US politically. That means educating the public about the way the issue has been framed to the advantage of the plutocratic oligarchy that controls the political system, hence, the socio-economic system, too. Changing the frame will automatically frame the desired solution in such as way as to make it obviously superior to the way the game is currently rigged in the name of “freedom,” and wrapped in the flag to make a bad deal look good.

    There is already a good deal of work done in this field. The job now is to organize it for simplified presentation and get it out there in every way possible. It doesn’t seem that the Obama team is going to do this without some pretty severe prodding.

  • Well said. For example, the notion that the utility of a quantity of money for a person declines as that person gets more money, all else equal, is perfectly coherent in terms of opportunity costs and other very conventional economic concepts. But any attempt to maximize utility that measures it that way is going to see greater equality as greater utility, all else equal. Now, sometimes other factors, such as the need for incentives can override this, but if we simply recognize that 10 people with $100 represents greater utility than one person with $910 and the others with $10 each, we will be much further ahead in evaluating economic choices.

  • I think that as the situation gets more severe, “We the people,” vs, “The greedy bankers” will appeal to broad segments of the population. Think about the outcry about the bailout.

    The situation is more dire than anyone with any profile is willing to admit, so that as the ship of the economy keeps grinding against ever more rocks, the “Full steam ahead” and the sounds of partying from the bridge are going to sound increasingly grating to those down below.
    Not only the economic status quo, but the political situation is being roiled in ways that will cause many people to question old assumptions and look for new directions. Traditionally those at the top try to channel anger toward outsiders and specific groups, so why not try making a broad brush argument for blaming it on a financial model that was designed to fleece the general population. Point out the connection between shrinking 401(k)s, financial sector bonuses and the fact that so much of it really was a giant Ponzi scheme. Try comparing the Republican mantra of “No taxes,” while they run up enormous debt, to a loan shark who says you don’t have to pay your mortgage and can just borrow against your house. It might open a few eyes to the reality of the situation.

    Yes, long complex arguments are not what will win this fight. You want barbershop type points.

  • It’s not one that might immediately appeal to the audience in this country. Americans think linear. All that relativity stuff is just flip flopping.
    Nature is a convective cycle of expanding energy and consolidating structure. This economic bubble is in many ways similar to a hurricane that has been bouncing around at sea for literally hundreds of years, drawing energy from the entire world’s resources. Now it has struck land and can no longer grow, only drop what it’s sucked up, back down on whatever is below.

    The Obama team has necessarily bought into the old model. He climbed that ladder, now he has to depend on it. The fact that the ladder is falling quite rapidly will eventually eliminate his dependancy on it. When that time comes will be the time to get the message across that a new model is necessary, not just fixing the old one.

    P.S. I recently added a post to my diary page that is tangental to my overall philosophy; http://agonist.org/brodix/20081111/an_essay_contest_on_the_nature_of_time

  • Makes my brain hurt. It’s one of the lengthiest I’ve seem. Passionate points — and I’m lacking the conceptual framework to understand most of it.

    I can think of no way to “sell” the economic ideas expressed here.

    That is, put them into five bullet points in a presentation.

    I can suggest Patterson’s sales model. Works for me.

    1. Define the problem
    2. Proove it
    3. Demonstrate your unique solution
    4. Handle objections
    5. Close.

    coupled with sonata form, Theme, Development & Recaptulation – or Tell ’em, Tell ’em again, and Tell ’em.

    This ignores “trial closes” Aka: Do you understand/Does that make sense/”OK”? At frequent intervals.

    I’ll volunteer to put the presentation together/edit it. Post in on the Agonist. Work it through the revision cycle.

    Y’all have to write the “notes” which are the companions to each slide. First question:

    Who’s the audience?

    As there are many eloquent writes on this thread, here’s the first rule – please answer the question in less than 10 words.

  • “The middle class.”

    Arguments are matter of timing, as much as anything and the time will come when the current effort to throw money at the problem fails. Maybe next spring, at the earliest.

    Money is the oil in the engine. It’s supposed to be pumped to the top, so it can flow back down and lubricate all the parts, not stay at the top and trickle down occasionally.

    Keep in mind this is politics, not academics. The issue is necessarily apparent and the strategy is leverage. As K. Rove formulated it, make the opponent’s strength a weakness. They have all the money, but they are destroying the monetary system in their greed, so actually they are doing the job for you. The need is to have an argument to counter when they try putting it back together as it was. Timing.

  • Now, what’s the Goal?

    For the purposes of this discussion let’s define goals as the “ideal”, and Objectives as measureable results.

    Have the Treasury take over the Fed?
    Eliminate fractional Reserve Banking?

  • You don’t find the hardest possible target and bang your head against it. You find the points of leverage where the least effort can have the greatest effect. Do it bottom up; Promote “Community banking” as an alternative to “commercial banks.” Think credit unions. Emphasize that if people banked with a locally incorporated non profit bank that functioned as a part of the local government and the profits generated went back to that local government as community income, thus supplementing taxes, it would be obviously in the community’s interest to support that bank, as opposed to a commercial bank, which might be able to offer better interest rates, or a toaster oven, but would be taking its profits out of the community. Present the idea to communities and local governments which are having economic problems, getting a few to try it and start a snowball effect. Maybe get a name economist to write an article to run in some local papers.

    Also make the point that total savings is limited by prudent investing, so that a few people having enormous wealth does limit the ability of those with more modest savings to effectively invest it. The credit bubble wasn’t caused by people willing to borrow more than they should, since they are, by definition, not the brightest crayons in the box, but by the desire to invest more then the economy could support.

    It’s these sort of clear observations that normal people can internalize which lay the groundwork for political momentum to take on the bigger issues.

  • The most obvious point about this post is that there isn’t even a pretense of an anecdote, much less actual data, of Keynesian stimulus ever actually working. Its pure ideological speculation.

    So far as I’m aware, there isn’t any actual example of Keynesian stimulus working. It was tried in the 1930’s, but the Depression kept going. It was tried in 1990’s Japan, but made things worse. Nixon famously said “We’re all Keynesians Now”, in 1971, just at the beginning of the disastrous 1970’s. It was tried earlier in 2008.

    Much of the speculation is baloney also. “much of the economy has been static for 30 years.” Are you kidding? Its been totally dynamic. Whole new sectors have arisen. 30 years ago, not only didn’t we have PCs, we didn’t have venture capital. “One of the massive failures of the Bush executive was that it allowed the tech bust to happen, and many extremely bright well trained people essentially never went back to earning as much as they had been before” Are you kidding? The tech bubble happened under Clinton. As to the Tech Bust, what would you propose Bush did about it? A massive stimulus package for Tech bubble billionaires who didn’t get out before it was exposed that their fancy net application didn’t actually have any revenue?

  • I think Bush actually did a long term favor to the world by allowing a system that was headed for long term stagnation to crash and burn.

    Brodix, that was what the Leader meant when he kept telling us that in the long term he would be proven right.

  • History may remember Bush as the worst President that was ever absolutely necessary.

    – K


    “The best-informed man is not necessarily the wisest. Indeed there is a danger that precisely in the multiplicity of his knowledge he will lose sight of what is essential.”

    – Dietrich Bonhoeffer

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