Keynes, Keynesian, Keynesianism ... an awkward progression. Anyway, to the extent there's a rhyme & reason to the Paulson/Bernanke-Geithner/Cox response to the ongoing economic crisis, it's been Keynesian. (It's debatable whether John Maynard was himself "Keynesian".)
The fallacy or error is, fiscal policy has been Keynesian ever since 1930-something with only a brief & partial supply-side interruption (8 years of Reagan minus Tip "Reagan's budget is 'dead on arrival'" O'Neil). Unlike the 1930's, state & local & federal governments are already leveraged to the hilt, long before the current crisis. Governments, just like banks, hedge funds, SIV's, or any other borrower, must eventually pay-off their debts. Or be perceived to have that ability. But, as I wrote before, that perception must be grounded on fact & analysis, something the U.S. govt has not been subject to in the past but is becoming subject to now. Today's WSJ observed the Chinese are shortening maturities, possibly (probably) due to credit concerns. The Keynesian solution will not work if & when no one wants to lend the money to create the deficit-spending "solution". Today, that 'someone' is Red China, Japan, or OPEC, each with their own problems and not to be mollified by the notion we can print more dollars as they are nondollar investors.
Geithner, et al, are "generals fighting the last war", the Great Depression. While many of the problems are the same or similar, the solution cannot be the same as we are starting from the point of maximum Kenyesian intervention.
I haven't entirely developed this analysis: this post is more planting the 'germ' of an idea. The old nostrums won't work but I need to translate that gut-feel into analysis. (Whether or not and when I can further elucidate it are other questions.) I think we'll see 10%+ unemployment. Whether we see the -10% decline in GDP that, unofficially, defines a "depression" (as opposed to recession) is another matter. But I think & fear that policymakers are pushing us further over the cliff, not pulling us back, and at the same time increasing its height. They've "doubled-down" on Citibank & BofA, and the UK continues to paint itself into a complete nationalization corner.
JRB
1/21/09
The fallacy or error is, fiscal policy has been Keynesian ever since 1930-something with only a brief & partial supply-side interruption (8 years of Reagan minus Tip "Reagan's budget is 'dead on arrival'" O'Neil). Unlike the 1930's, state & local & federal governments are already leveraged to the hilt, long before the current crisis. Governments, just like banks, hedge funds, SIV's, or any other borrower, must eventually pay-off their debts. Or be perceived to have that ability. But, as I wrote before, that perception must be grounded on fact & analysis, something the U.S. govt has not been subject to in the past but is becoming subject to now. Today's WSJ observed the Chinese are shortening maturities, possibly (probably) due to credit concerns. The Keynesian solution will not work if & when no one wants to lend the money to create the deficit-spending "solution". Today, that 'someone' is Red China, Japan, or OPEC, each with their own problems and not to be mollified by the notion we can print more dollars as they are nondollar investors.
Geithner, et al, are "generals fighting the last war", the Great Depression. While many of the problems are the same or similar, the solution cannot be the same as we are starting from the point of maximum Kenyesian intervention.
I haven't entirely developed this analysis: this post is more planting the 'germ' of an idea. The old nostrums won't work but I need to translate that gut-feel into analysis. (Whether or not and when I can further elucidate it are other questions.) I think we'll see 10%+ unemployment. Whether we see the -10% decline in GDP that, unofficially, defines a "depression" (as opposed to recession) is another matter. But I think & fear that policymakers are pushing us further over the cliff, not pulling us back, and at the same time increasing its height. They've "doubled-down" on Citibank & BofA, and the UK continues to paint itself into a complete nationalization corner.
JRB
1/21/09
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