Globalization and Keynesianism

[eridani]

http://krugman.blogs.nytimes.com/2013/08/10/globalization-and-keynesianism/?smid=tw-NytimesKrugman&seid=auto&_r=0

Looking at some of the comments on yesterday’s column, I see that a fair number of readers believe that Keynes is no longer valid because any increase in domestic demand will simply “leak” abroad. This is a widespread view, but it’s wrong. Globalization has been impressive, but it has not proceeded far enough to make Keynesian analysis irrelevant.

Actually, you should realize this point immediately just by thinking about the Great Recession itself. If domestic spending all goes on stuff made in China, the one-two punch of plunging home construction and falling consumer spending should have done all its damage abroad, not here in America. Obviously that didn’t happen.

<snip>

I should also mention Nakamura and Steinsson (pdf), who use regional variation to estimate the size of the fiscal multiplier; they find that for U.S. regions, it comes in at around 1.5. And the U.S. economy as a whole is much less open than any one of its regions, so the overall multiplier should be larger.

Again, globalization apparently doesn’t change the basics. In the long run, Keynes is still alive.

[NoOneMan]

1. Let Keynes be a forgotten relic of the 20th century

Another tired idea that--while less wrong--is still divorced from physical reality.

[Jim Lane]

2. Many -- probably most -- professional economists would disagree with you.

Keynes's theories have of course been refined and modified in the years since he worked, but then, so have Isaac Newton's.

[NoOneMan]

3. Newton practiced science, not religion

I don't give a damn what economists think anymore to be honest. They are merely men who stand behind the curtains, and just as clueless as the rest.

[Jim Lane]

4. Keynesian economics has an excellent record of making predictions that come true.

For example, economists like Paul Krugman, whose basic orientation is Keynesian, said that the stimulus package wasn't big enough to deal with the problems the economy faced as of January 2009. They predicted that it would do some good but not enough to meet the optimistic goals announced by the Obama administration. They were right.

Your criticism is valid only as to those economists who start with a conclusion -- based on personal preference or on who's paying them -- and then try to find theories to support it. Those people exist but they're not the entire profession.

[NoOneMan]

6. Now, I did say less wrong

Sure, if you frame a perception of reality in a narrow context and engineer a society around your theories, in enough time, people will begin to think what you say has value and recognizable truth.

For example, without a broad reality-based context, I could claim that a human with an automatic rifle has a better chance of killing a deer when hunting than one without a weapon (to lobby for such weapons). But, such a statement rests upon some premises that must first be accepted to make it a rational and sane thing to say. First, I never explore an alternative as a viable reality (like a bolt action rifle or a bow). I never explore the consequences (violence from a population of automatic rifle equipped people) and use them in a balanced view of the proposition. I also never explore the alternatives to hunting in general (such as farming and gathering), but rather place a priori value on hunting and the efficiency of the hunters to even make the proposition in the first place. Doing such may not ever manifest into a "better" world at all, so using such a statement to make automatic rifles permissible or even mandatory is a fallacious argument. Our current reality understands this (somewhat, though there are fringe elements whose perception is poisoned).

So the Keynesian basically asserts that government stimulation (commanding of energy) will lead to an organic growth in both production (the exploitation and destruction of the natural world) and wealth (the potential to command energy for further exploitation) and therefore combat deficient demand (not wanting to consume energy for environmental exploitation) in the private population. And sure, while the current source of energy has a sufficiently high EROEI (energy return on energy invested) to create surplus energy to harvest more, maintain infrastructure and power production, then it should always translate into a higher velocity of energy and growth across the board. That is where the Keynesians are correct.

But in a world of dwindling EROEI (which is about a fifth of what it was in the time of Keynes I think), then such commanding of energy has a dwindling effect on actual real growth, especially when such a large amount of the surplus energy simply needs to be expended to maintain a bloated infrastructure the civilization depends on (which as it grows larger, saps a larger and larger portion of the per capita available energy). That aside, we also have a problem with the premise of the value of growth and production in general; every day we realize that commanding energy is tethered to a concrete amount of environmental destruction and atmospheric carbon. We cannot stimulate without simultaneously destroying and polluting, and are those negative consequences really weighed in against the "positives" (those being more exploitation and a higher velocity of energy in the name of Godly growth)? Finally, Keynesians do not often consider alternatives to the general economic model all their theories rest upon (like the hunters wouldn't), and never do consider there may be other ways to live that humans engaged in for 99% of their existence as a species that could be better at promoting human physical and mental well-being.

The problem is that in order for Keynes to be correct, you must already exist in the post-modern capitalistic rabbit-hole where Chesire cats hang from trees and mad hatters serve tea. And in such a rabbit hole, everyone else with an alternative idea seems insane and growth galore, to infinity, is the only answer. If that is alone your only concern, then yes, promoting the highest velocity of energy by ensuring that the most amount of people as possible can command energy for exploitation is the only "correct" conclusion.

We are headed though for a tumultuous future. There will be more room for more perspectives to be seen (my prediction), and catastrophes will finally allow those voices to come through. In any case, in the immediate future, we are fuck from manifestation of the ideas from Friedman, Keynes, Marx, et al.

[Taitertots]

5. LOL, Newtons gravity equation is actually wrong. It only yield sufficiently accurate results.

Claiming economics is a religion shows that you have no idea what economists are actually doing to generate their results. Hint, it is rigorous statistical analysis.

[NoOneMan]

7. Scientific consensus can change over time.

It is subject to testing and revision. That is its nature. Subjective values and morals do not interfere with such a process. The results of science are not good or bad, but they merely are.


Economics started with false (or unproven) premises. Equations were created (mocking Newtonian physics) with the goal of showing how the natural forces of the market are a reflection of the natural forces of nature (and thereby the very product of God and a part of the divine). Everything in modern economics was born through this very foundation and such refinements are not necessarily meant to illustrate objective reality (as science does), but rather to bolster what policies promote a reality one already values as "good"; hence, why there are many different schools of economics (because there are many perception of what is "good" and how to get there).

Economics is not simply rigorous statistical analysis. Its playing with number to reach pre-conceived conclusion, in order to achieve a belief based "goodness"

[Taitertots]

8. Your opinions about economics are unequivocally false

I'm not sure why you put "good" and "goodness" into quotations, they are largely non-existent in economics textbooks, journals, and discourse. Concepts like that are considered normative concepts and generally outside the purview of economics.

Have you ever:
A) Taken an economics course at a college
B) Read a college level economics textbook
C) Read an economics journal
D) Done anything to learn about econometrics (is this the first time you ever heard that word?)
E) Tried to learn about an economic models like IS-LM

How did you form your opinion about economics? From what I can tell, you are basing your opinion on nothing but your own preconceived notions. Your opinions about economics are being misshaped by talking head television economics and self serving politician pseudo-economics.

[NoOneMan]

9. And that is your opinion

Yes, I have taken economics courses where I was exposed to a variety of opinions on this social/moral science such as Nelson's Economics as Religion for example (I don't feel like digging out my textbooks honestly). Another more recent source that really exposes the hokey foundation of this institution and how it works in our rabbit hole is The Cult of the Market.

If its your prerogative to continue to fool people into thinking there is substance under the smokey guise besides bullshit and moral judgments, you're free to. The bottom line though is that the main difference between Joseph Smith and Adam Smith was that the later just created a product that more people felt giddy embracing; his followers preferred accumulation of wealth to women.

Today, we are left in a pretty devastated state on the edge of despair because these moral systems that guided--no, necessitated--production and exploitation (and subsequent pollution) were divorced from physical reality and tethered rather to morality. We find ourselves stuck in an unnecessary game (that is destroying us) whose rules produce predictable outcomes merely because we are forced to follow them by this system itself (and the "study" of such a game system is what we today call economics, which acts to reinforce and refine the systems mechanisms according to bias).

There is a plethora of literature and articles dumbed down enough for even a zealous economist to understand. It is not my opinion alone. More examples:

http://www.scientificamerican.com/article.cfm?id=the-economist-has-no-clothes

The physical theory that the creators of neoclassical economics used as a template was conceived in response to the inability of Newtonian physics to account for the phenomena of heat, light and electricity. In 1847 German physicist Hermann von Helmholtz formulated the conservation of energy principle and postulated the existence of a field of conserved energy that fills all space and unifies these phenomena. Later in the century James Maxwell, Ludwig Boltzmann and other physicists devised better explanations for electromagnetism and thermodynamics, but in the meantime, the economists had borrowed and altered Helmholtz’s equations.

The strategy the economists used was as simple as it was absurd—they substituted economic variables for physical ones. Utility (a measure of economic well-being) took the place of energy; the sum of utility and expenditure replaced potential and kinetic energy. A number of well-known mathematicians and physicists told the economists that there was absolutely no basis for making these substitutions. But the economists ignored such criticisms and proceeded to claim that they had transformed their field of study into a rigorously mathematical scientific discipline.

http://www.bloomberg.com/news/2013-07-17/is-economics-a-science-or-a-religion-.html

Take, for example, free trade. In judging its desirability, economists weigh projected costs and benefits, an approach that superficially seems objective. Yet economists decide what enters the analysis and what gets ignored. Such things as savings in wages or transport lend themselves easily to measurement in monetary terms, while others, such as the social disruption of a community, do not. The mathematical calculations give the analysis a scientific wrapping, even when the content is just an expression of values.
Similar biases influence policy considerations on everything from labor laws to climate change. As Nelson put it, “the priesthood of a modern secular religion of economic progress” has pushed a narrow vision of economic “efficiency,” wholly undeterred by a history of disastrous outcomes.

[Taitertots]

12. LOL, at you for quoting two opinion pieces that are not peer reviewed and contain no actual data

Basically, the only thing that would support your opinion is actual evidence that suggests that all the economic models yield erroneous results. In the absence of this, you should be able to see that your opinion is nothing more than discontent that economics doesn't consider the things that YOU want it to, not economics inserting "morality", "goodness", or any other normative value absent in economic modeling and theory.

You post appears to be an implicit acceptance that current economic analysis yields sufficiently accurate results, but the analysis is based on data that just doesn't include YOUR moral values.

If you are going to complain about Adam Smith, it is worth noting that he lived more than 200 years ago. Do I need to make a list of people who had erroneous beliefs about science 200 years ago (Hint: anyone who believed in Newton physics)? People have made errors and rigorous analysis (economic of scientific) is the only way we move toward a better understanding of the world.

[NoOneMan]

13. Nelson's book is well referenced. Give it a quick read and get back to me

You post appears to be an implicit acceptance that current economic analysis yields sufficiently accurate results, but the analysis is based on data that just doesn't include YOUR moral values.

While the rules of an unnecessary, arbitrary game system may produce general trends that those rules are designed to promote (only within a society subjugated by such a system mind you), such results do not objectively manifest to improve the human condition when considered in a broader reality-based context. And economics isn't just the study of what happens in this game system because economics actually implemented and continually refines this game according to biases and moral judgments that spurred its originally invention; it is implicitly concerned with the human condition, purporting that economic growth and increased wealth is "good" at its core. It is after all used to influence policy and change the game system occasionally to accomplish these very goals.

What I consider moral is irrelevant. In reality, there is a tangible amount of carbon pollution associated with every dollar in circulation. In reality, all production results in pollution and the destruction of our habitat. In reality, our globe is suffering from catastrophic climate change due to overproduction that occurred under the watch of these social-scientists we call economists.

Your social science considers some of its effects (Keynes: commanding energy leads to an increase in the velocity of energy) but not others (such as the carbon intensity of such energy and its warming effects). Bias is at its very core for ignoring production's direct physical real world impact that can be objectively measured with science, while instead focusing on measuring things like jobs or profits.

[FogerRox]

10. ARRA: 175 billion in infrastructure spending created exactly the number of jobs

Using the decades old 2.5 multiplier for infrastructure, the 175 billion should have created 4.2 million jobs.

The old relic worked as advertised.

[NoOneMan]

11. It worked in an unnecessar system to produce an outcome that is desirable based on unproven premises

I've said before here: according to hide-and-seek-onomics, I can predict Ill find you if you don't hide well. That's rather irrelevant if I do not force you to play with me, and if you do not have any preconceived judgments of if being found is "good" or "bad". It is very relevant if I put a gun to you head and say "hide".

Yes, we are all subject to these economic "laws" that--if followed--produce a somewhat predictable outcome. But the necessity of the current economic system itself is as arbitrary as judging these outcomes as "good" or "bad" (but gravity exists whether or not you believe in it, despite any biases). If jobs and the consumption of energy alone manifested an improved human condition at all times, why it would be China that would be the ultimate utopia we should achieve. There is more to human existence than production, and humans may not be able to exist with the byproducts of production that the system necessitates.

It is believing that this "game"'s rules are necessary and their outcomes are "good" is religious. The study and refinement of the game system is only important to a population that it subjugates (and will only be so insofar as they are willing to be subjugated).