The Depression VS Keynesianism

The title above isn't meant to be 100 percent literal. And, I haven't jumped on any conservative bandwagon.

It IS, though, to signify I largely agree with Paul Stiglitz's new essay, that anti-Keynesian monetary contraction may well not have been the primary cause, or even primary exacerbator of, the Depression.

Rather, as in today's economy, it was ultimately an employment issue.

Just as Henry Blodgett noted a week ago that consumers create jobs more than anybody else, Stiglitz notes taht if we can't consume, to put it crudely, job creation is in trouble.

Read the whole thing. He says the same issues apply to the Great Recession, too.

As does, to the degree it worked more than deficit spending in particular or monetarism in general, Stiglitz' solution. It's the other half of the New Deal: A direct federal jobs program, or more than one.

Unfortunately, Obama the neolib ain't a bold experimenter, unlike FDR, so we ain't getting any such thing. Instead, it's "college for all" even as we already face a "higher education bubble."

Why economics isn't even social-science scientific

It doesn't matter the school of thought, whether Keynesian, New Keynesian, neo-Keynesian Vienna School, Chicago School's tweaking of Vienna, or something brand new.

Most economics isn't even at the psychology or sociology level of social-science level of science. And, outside of the research-based behavioral economics, this is true for economics in general.

Take this Australian economist who claims that Keynesians of various stripes are wrong about how debt works in a fiat money society.

He's got interesting ideas. But, especially his three anti-Keynesian talking points at the end? They're not falsifiable. First, you can't falsify a whole society. Second, I don't think they're falsifiable even by computer simulation. Even using "falsify" more loosely than an ardent Popperian, they're really just not falsifiable.

Therefore, they're really not "theory," even in a loosely used sense of falsification. They're policy prescriptions. They're really statements of, "People should believe this about how debt works in a fiat money society."

And, thus, per Hume, with that "should," he's totally jumping the is/ought shark. But, it's not just him; as noted, my take is that most economics is not social-scientific science, but policy prescriptions.

In this particular case, I think they're some interesting policy prescriptions. But, they're not scientific.

Some are good. Others are somewhat straw men, like some claims about New Keynesianism, and, per Wikipedia, ignoring the links between modern monetary theory's roots and original Keynesianism.

Beyond that, here's some specific criticism of MMT.

The only way any macroeconomic theory can be close to scientific is to start by incorporating researched findings from behavioral economics.

At the same time, per Mitchell's blog, and per the main Wikipedia entry about MMT, it does appear at times to be generally "progressive" in its political stance, as noted here:

One commentator today noted that monetarism was neither right- or left-wing. I disagree. The whole edifice of mainstream economics – indeed its roots – are ideologically disposed towards what we call right-wing thinking. Modern mainstream economics is an extension of the marginalist school which emerged in the second half of the C19th to combat the fears the industrialists had about the growing popularity of Marxism.

However, in that same post, Mitchell lauds the Chinese for, in part, being free of democratic constraints. But, both it and New Keynesianism seem to assume too much about people's, or institutions', behavior as rational economic actors. And Mitchell assumes too much about the wisdom of China's leaders, to boot.

So, I think Krugman is right when he says MMT just isn't right. And, while it may not be right-wing, beyond being overly rationalistic, it is a monetarist policy.

Is more than #Keynesianism needed?

It's true that we'll never know if true Keynesian economic action, in and of itself, would have been enough to get us more completely out of the 2008-2009 recession, and sturdy the economy against a second dip of recession quite likely to hit us.

That said, what if Obama had made the stimulus, say, $1.5 trillion? Would that have been enough? If a large part of it were spent on government public works, especially of the type where housing carpenters could have easily been retrained, perhaps.

Certainly, one hallmark of FDR's Keynesian spending was on direct public employment. Not just the deficits were stimulatory, but actually creating jobs was even more so.

Of course, Dear Leader's neoliberalism was too engrained for that, for him to experiment with 21st-century federal jobs creation.

So, Keynesianism alone perhaps would have been enough. Or ...

Perhaps not. More below the fold.

Douthat lies about Social Security

In trying to explain why the country's drift toward the left turned around in its tracks because of alleged "overreach" by Obama, he tells this whopper:
The central premise of the White House’s policy-making, the assumption that an economic crisis is a terrible thing to waste (as Rahm Emanuel famously put it), turned out to be a grave tactical mistake. It drew exactly the wrong lesson from earlier liberal eras, when the most enduring expansions of government — Social Security in the 1930s, Medicare in the 1960s — were achieved amid strong economic growth, rather than at the bottom of a recession.
Socia Security was achieved during strong economic growth?

Ahh, the latest slander against FDR and Keynesian economics.

That said, Douthat may be right that many 2008 Obama voters expected him, like FDR, to be an eclectic liberal of sorts.

After capitalism, after socialism …

Eric Hobsbawm says a new paradigm needs to start by treating money as a means not an end..

Agreed on both that basic observation and the much larger ones, plus the related thoughts that traditional tools of all angles of 20th-century economics, such as Keynesian deficit spending, may just not work here in the 21st century.

So, in addition to not hiring G. Sachs alums, Obama is at fault for not hiring outside-the-box economists in general.

Behind FT reverse crystal ball whimsy, some reality

The Financial Times’ mock “2009 retrospective” is already drawing a fair amount of attention, and deservedly so.

One of its main points is about halfway through. What if John Maynard Keynes as well a Milton Friedman is wrong?

Aside from the points in the news analysis piece about the possibility of 10 percent unemployment, such a washout SHOULD spell the end to Democratic Party neoliberalism. It won’t, in all likelihood, because in reality most Democrats have little more in their political ideas cupboard in many areas than do Republicans.

It wouldn’t totally surprise me if Obama weren’t a one-term president, when all is said and done.