24 Jan 2012

Krugman and Kuehn Take Me to the Woodshed on the 1920-1921 Depression

Economics, Federal Reserve, Krugman, Shameless Self-Promotion 118 Comments

I have all sorts of sarcastic wise-alecky things I could say, but let me just play the straight man on this one. On Sunday Krugman had a quick post titled “Harding” in which he alluded to unnamed gnats who kept repeating that the 1920-1921 experience showed the success of austerity policies. Krugman at that time referred to his earlier post on the subject, and then said:

And let me be peevish: if you’re reading this blog, before demanding that I respond to some argument or other, why not use the little search box off to the right? Not always, but often, I’ve already done what you demand.

(Keep that in mind; it will prove humorous in a bit.)

Then I imagine what happened is that someone (perhaps Daniel Kuehn himself) either in the comments or over email, informed Krugman that Kuehn had recently published a note in the Cambridge Journal on just this issue. So in a follow-up post on Monday, titled “More Than You Want to Know About Warren Harding,” Krugman wrote:

Yesterday I mentioned that they’re still flogging the old line that Warren Harding proved that austerity works. I linked to my old demonstration that the 1921 economy was nowhere near the liquidity trap, and that there was substantial monetary easing, making comparisons to the current situation nonsense.

Daniel Kuehn has more. it turns out that the Austrians/Austerians have their timing all wrong:

[From Kuehn's paper:] Austerity proponents depend on the argument that substantial cuts to federal spending moved the economy to a recovery in 1921, but this understanding fails on multiple counts. The bulk of both fiscal and monetary austerity occurred immediately prior to the onset of the depression. Any austerity in policy decisions by the Wilson administration, the Harding administration or the Federal Reserve Board after the depression began were moderate compared with the considerable austerity measures taken by the Wilson administration and the Federal Reserve before the downturn. The evidence seems to suggest, even more clearly than in the case of the Great Depression, that postwar austerity may have even helped cause the 1920–21 depression. Subsequent monetary easing by the Federal Reserve occurred concurrently with the economic recovery, which itself was underway by the time Warren Harding took the oath of office.

And here’s a chart:

I am quite sure, however, that none of this will stop the Harding thing from being rolled out again repeatedly.

So naturally I clicked on the link to Daniel’s paper, where I read this: “Contrary to the claims of Woods (2009) and Murphy (2009), most of the austerity measures were implemented by the Wilson administration before industrial production peaked in January 1920.”

I thought, “That’s funny. I was meticulous in my research of the fiscal year / presidential term issues. There’s no way I made the mistake Daniel is attributing to me.” The reason I remembered, incidentally, is that the federal fiscal years ran on different dates back then (from starting in July 1, not October 1 as they do now), and presidents were inaugurated in March, not January. So you have to be careful when assigning events to one administration versus another.

Now when Daniel cites “Murphy (2009)” he is referring to my Freeman article. I was curious to see if, by condensing the research I had done for my book, I ended up sounded like I was one of the right-wing fools who doesn’t understand how calendars work, that Daniel and Krugman find so exasperating.

Well no, because neither “Harding” nor “Wilson” appear in my Freeman article. (I mean that literally: I just tried searching for the terms at the webpage of the article; no hits.) Not only does my article consist of true statements, there is nothing even misleading (at least regarding the presidents responsible for what) in there.

Then, just for fun, I looked up my fuller treatment in my book, The Politically Incorrect Guide to the Great Depression and the New Deal. (BTW if you call yourself my fan and haven’t read that book yet, well, I don’t know what that is, but it’s something. It’s like saying you went primal and you eat a croissant for lunch every day.) Here’s an interesting excerpt. It’s a bit long but please do read the whole thing slowly. I think you will enjoy it, if you’ve understood the criticism that Krugman and Daniel have leveled above. The italics are in the original, but the bold I have added right now:

As with the evaluation of Hoover’s high-wages policy, his high-federal-budget policy can be usefully contrasted with the depression occurring at the end of Woodrow Wilson’s watch. With the conclusion of World War I, the U.S. government slashed its budget from $18.5 billion in FY 1919 down to $6.4 billion one year later. As the U.S. economy entered a depression at the turn of the decade, receipts fell. The Wilson Administration responded by cutting spending even more, down to $5.0 billion in FY 1921 and then following with a single-year slash of 34 percent, down to $3.3 billion in FY 1922. (Because of the fiscal/calendar year mismatch, it is debatable whether Wilson or Harding should be associated with the FY 1922 budget.)

So how do the two strategies stack up? We already know that Hoover faced 20+ percent unemployment after the second full year of his Keynesian stimulus policies. Wilson/Harding, on the other hand, was Krugman’s worst nightmare, taking the axe to federal spending in a way that would have given even Ron Paul the willies, and during a depression to boot! Yet as we already know, unemployment peaked at 11.7 percent in 1921, then began falling sharply. The depression was over for Harding, at the corresponding point when a desperate Hoover had decided to (try to) rein in his massive budget deficits.

In fairness, we should concede that there can be no truly controlled experiments in the social sciences. It is theoretically possible that Krugman’s interpretation of history is correct. Presumably he would argue that the 1920-1921 depression was exacerbated (or perhaps even caused) by the enormous cuts to government spending. And he might further argue that Hoover’s profligacy averted unemployment rates of, say, 40 percent in 1931.

But Occam’s Razor recommends the simplest answer staring us in the face: the old-school economic wisdom was correct, while the newfangled Keynesian remedies proved disastrous. (For what it’s worth, Coolidge never let federal spending exceed $3.3 billion, even though he presided over the most prosperous decade in U.S. history.) During a depression, when every private citizen is cutting nonessential spending, the government should do so as well. The experience of the Harding and Coolidge administrations reminds us that Americans used to treat government as a (huge) business; it could run up debts during emergencies such as war, but then it had to pay them off as a matter of fiscal responsibility. (Murphy, pp. 49-50)

Incidentally, I am pretty sure (though not positive) I wrote the above before I even knew who Daniel Kuehn was. I don’t think I was reluctantly dealing with an objection that a Keynesian had raised to my views on 1920-1921; I’m pretty sure (again, not positive) that I actually tried to be a Keynesian for a minute and look at the world with such eyes.

This post is already long, so let me hit one other major point: In his Cambridge note, Daniel refers matter-of-factly to the “austerity” under Herbert Hoover. Huh? In the last fiscal year that can be attributed to Hoover, the federal budget deficit was 4.5% of GDP. In the first three years of FDR’s reign–when Christina Romer says FDR’s deficits ushered in the strongest recovery in American history, and showed the strength of countercyclical fiscal policy–the deficit averaged 5.1 percent of GDP.

I’m not so sure the historical record is as solidly pro-Keynesian and Krugman and Kuehn would have us believe.

P.S. It may appear that I’m throwing Tom Woods under the bus in this post, but I’m not. It’s true that if you read Tom’s article (cited by Kuehn), you might walk away thinking all of the budget cuts occurred under Harding. But as far as I can tell, Tom makes nothing but true statements, and he has some great quotes from leftist historians on the mystery of the 1920-1921 depression. Anyway, time is scarce and I’ll let Tom defend his honor from the young whippersnapper if he wants.

P.P.S. There are some other elements of Kuehn’s note that, in a perfect world, I would address. But I’m not a tenured academic, and nobody is paying me to respond to him. I will just note that there is a lot of assertion, example the stuff about the recovery being ushered in by Fed loosening. I’m not saying I know this to be wrong–after all, it would be consistent with canonical Austrian business cycle theory, do we all agree?–but I’m saying Daniel hasn’t demonstrated it. For example, he hasn’t (in that note at least, maybe he did it in his earlier article) shown that the unemployment rate only started falling until after the Fed changed course.

118 Responses to “Krugman and Kuehn Take Me to the Woodshed on the 1920-1921 Depression”

  1. Daniel Kuehn says:

    Thanks for this. Your referee report for the RAE article was extremely helpful on several points – one of them was differentiating between the three pieces I was responding to. If you remember, I went back and meticulously changed several passages (and then listed what I changed in my response) that had previously treated all three publications as saying essentially the same thing.

    This note (as anyone who reads it can tell) is not meant to be a response to you or Woods or anyone else in particular – it’s just meant to provide my take on what the 1920-21 depression has to say about austerity.

    I’m going to go back, reread it carefully to see where I’m naming names and where I’m just referencing “the argument for austerity” more generally – and ask CJE to publish an errata on that sentence you mention (and any others like it). I don’t think there should be many others like it, because the note was really just a reaction to the austerity argument writ large.

    If anyone happens to notice anything like this in the RAE article, please feel free to let me know. I think I addressed every incident of it from that one in the draft stage when Bob took me to the woodshed.

  2. Beefcake the Mighty says:

    This kind of thing would be a whole lot easier if Austrians just refuted the Keynesian monetary theory that allows them to dismiss critics of deficit spending by saying, “well, we’re in a liquidity trap now, the usual rules don’t apply,” which is the essence of K and K’s argument.

    Problem with that is, too many Austrians have basically a neoclassical theory of money, which if anything is even worse than the Keynesians theory. Better to not look too closely, I suppose.

  3. Daniel Kuehn says:

    Also – the timing thing was less about Wilson/Harding (they both cut, after all) and more about the simple fact that the austerity pre-dated the 1920-1921 depression so it’s a bizarre thing to cite as the solution.

    Also – one last thing – the passage Krugman cites makes it sound as if I could maybe think the post-war cuts caused the 1920-1921 depression. If you read my whole note, I hope it’s clear that’s not the view I’m pushing (although they could have contributed). More on that here: http://www.factsandotherstubbornthings.blogspot.com/2012/01/krugman-on-1920-21.html

    Thanks again for scrutinizing this Bob.

    • Bob Roddis says:

      It’s really not that complicated.

      The predatory state funded its adventure in the European slaughter fest via the Fed. The government’s war-making adventure (and not the free market), caused the inflation and distortions. When spending was reduced and rates were raised, this caused the inevitable bust. Despite all this, free people in the market were able to readjust prices and their plans and quickly restored prosperity with minimal help from technocratic overseers. The world works the way we say it does, not the way Keynesians say it works.

  4. Bob Roddis says:

    Everything in both of Kuehn’s papers is consistent with how Rothbardians understand the world to work. It is so refreshing to learn that Krugman and Kuehn have finally disavowed the central thesis of the Keynesian Hoax, that “the free market” is unstable, will lead to unemployment and is the cause of the boom/bust cycle. Kuehn explains how the Fed from the beginning was the financier of the first world slaughter-fest and how government retrenchment from the government-induced distortions caused the 1920 depression. From Kuehn’s latest paper:

    During World War I federal expenditures ballooned and although the new income tax was able to partially finance the war effort, most of the financing was done through federal borrowing and by the highly accommodating monetary policy of the Federal Reserve. The role of the Federal Reserve at this time was expressed unambiguously by the New York Federal Reserve Bank Governor Benjamin Strong, who told a Congressional committee in 1921 that ‘I feel that I, or the bank at least, was their [the Treasury’s] agent and servant in those matters’ and further added that the wartime inflation caused by the low interest rates maintained by the bank were ‘inevitable, unescapable, and necessary’ for prosecuting the war (Strong, 1930).

    However, after the war ended the deficit spending of the Wilson administration and the expansionary policy of the Federal Reserve were sharply curtailed to bring a halt to the inflation. By November 1919 the Wilson administration balanced the federal budget, slashing monthly expenditures by almost 75% in a matter of months.4 The New York Federal Reserve Bank raised the discount rate by 244 basis points over the course of eight months, with other Reserve System banks following suit. Shortly after these austerity measures were taken, the 1920–21 depression was under way. Postwar industrial production in the USA peaked in January 1920 as the economy moved into a major depression, with production levels dropping by 32.5% by March 1921.5 This loss in output is second only to the Great Depression in American economic history (Romer, 1999), although its duration was considerably shorter. Declines in output were matched by precipitous drops in employment and the price level. The proximate cause of the 1920–21 depression was a deliberate fiscal and monetary retrenchment following World War I. [@156]

    Then, the economy fixed itself except, perhaps, with some alleged “help” from the Fed which lowered interest rates from the 7% range to the 4.5% range during a period of serious deflation.

    In conclusion:

    1. Soon after its creation, the Fed was employed to help fund the war effort, a completely elective war on the part of the US.

    2. The Fed and the government caused the artificial boom and price increases during the war.

    3. The Fed and the government caused the very serious bust by cutting spending and raising rates.

    4. The relatively unhampered market was able to readjust prices, and thus prosperity, with amazing speed.

    5. This is the very reason this episode is not taught to school children in government schools. The schools are teaching a fraudulent history.

    So, where’s the evidence that the boom/bust cycle is caused by the free market? Where’s the evidence that the world does not operate the way Rothbardians say it does? Where is the evidence that the world works like the Keynesians insist?

    • Daniel Kuehn says:

      Romer’s work on 1920-1921 might change your views a little on #3 as an exclusive claim.

      #4 is an odd point for people to make – it’s a bit of an optical illusion because the depression was so deep, the recovery looks rapid. It actually wasn’t an especially shot depression, though, if you look at the NBER dating. I do agree, of course, that after the inflation-fighting policy of the Fed was scaled back the market recovered fine. I’m not aware of any “hoax” that says that’s not possible.

      #5 is just wacky.

      None of your final three questions were questions I’ve ever claimed to have evidence for in these two articles. I don’t see this as quite the clash of the titans that you do.

      • Major_Freedom says:

        “#4 is an odd point for people to make – it’s a bit of an optical illusion because the depression was so deep, the recovery looks rapid.”

        That’s no “illusion”. That is exactly what ABCT predicts. Very painful, but quick depression, followed by quick recovery, with no relapse, because the recovery is real.

        “#5 is just wacky.”

        It’s true.

        • Daniel Kuehn says:

          I’m saying it WASN’T a quick depression. Don’t quote me on this, but my recollection is that it was the longest downturn since the Fed was created, after the Great Depression and the Great Recession. It only looks quick in the data because it was so deep (y axis depth makes the x axis breadth seem shorter, in other words).

          It was not a “quick recovery”.

          And no – ABCT does not predict that. I’m aware of no rendition of ABCT that provides information on the timing of the recovery. If you are, please let me know.

          • Major_Freedom says:

            “It was not a “quick recovery”.”

            It was quicker than the two times Keynesian policies were maximized, the Great Depression and the Great Recession.

            Depends on what you define as “quick.” If I define “quick” as 18 months or shorter, then it was “quick.”

            “And no – ABCT does not predict that. I’m aware of no rendition of ABCT that provides information on the timing of the recovery. If you are, please let me know.”

            Hmmm, maybe you’re talking past me, but I wasn’t saying ABCT predicts specific time periods for recovery, I was saying that ABCT predicts that the recovery will be maximized if economic calculation based on sound money, and no government fiscal stimulus, are maximized.

            I know Mises and Hayek both held that monetary stimulus can only delay the recovery, which of course means prolonging the recovery. We can never observe counterfactuals, and ABCT only says that recovery will be quickest when monetary stimulus ends.

    • Lord Keynes says:

      “So, where’s the evidence that the boom/bust cycle is caused by the free market? Where’s the evidence that the world does not operate the way Rothbardians say it does? “

      Since fractional reserve banking IS a voluntary and free creation of agents on the free market, then – by Rothbard’s own theory – the free market is plagued by a boom/bust cycle. Duh.

      The assertion that FRB is fraud, and so on, is nothing but ignorance and cultish dogma.

      • Silas Barta says:

        I hereby assign complete ownership of my dance pad to Alice, and I assign complete ownership to Bob. Both of them always have full right of access to the dance pad, and should carry out further activity on that basis.

        Voluntary and fraudless, right?

        If you don’t get the analogy, the point is this: the problem is not with FRB per se, it’s with ill-defined ownership rights. If two people think they have full access to the same $X (or dance pad), and act on that basis, bad stuff happens, and you don’t remove that badness by stealing from the rest of society to vitiate the invalid promise.

        • Lord Keynes says:

          “If two people think they have full access to the same $X (or dance pad),”

          In the case of a FR demand deposit, it is not owned by 2 people. Nor is there “full access” to the same money.

          (1) a FR demand deposit becomes the property of the bank. You LOSE property rights when you signed the contract.

          http://socialdemocracy21stcentury.blogspot.com/2011/10/more-historical-evidence-on-mutuum.html

          http://socialdemocracy21stcentury.blogspot.com/2011/10/what-british-law-says-about-fractional.html

          (2) you get in return a debt instrument: a promise to repay a debt the bank owes you from the banks’s OTHER money: its reserves, borrowing in the interbank market or sales of financial assets.

          (3) the money repaid to you is merely a tantundem, not the original money.
          http://socialdemocracy21stcentury.blogspot.com/2011/10/if-fractional-reserve-banking-is.html

          (4) the whole transaction is an exchange of present money for future money and future goods (e.g.,
          banking services, use of cheques, a debit card, electronic funds transfer overseas, and often foreign exchange transaction services without charge or little charge compared to other businesses)

          http://socialdemocracy21stcentury.blogspot.com/2011/12/callable-option-loans-and-fractional.html

          • Silas Barta says:

            I’m aware of all that, Lord_Keynes. The problem is that both people act *as if* the money is in effect 100% theirs (and the government tries to maintain this expectation through FDIC, etc). That makes it either fraudulent, involuntary, or an invalid property right in the same way that the dance pad arrangement would be.

          • Major_Freedom says:

            Economically speaking, there is no difference between a tantundem demand deposit where the ownership of the money resides with the depositor but is loaned out by the bank, and a FR debt account where the ownership of the money resides (you allege) with the bank and is loaned out by the bank.

            In both cases, the depositors ACT as if the money is theirs, as both have the contractual right of withdrawal on demand.

            Since it is a contractual right to withdraw the money on demand, whenever the depositor wishes, this statement:

            “(4) the whole transaction is an exchange of present money for future money and future goods (e.g., banking services, use of cheques, a debit card, electronic funds transfer overseas, and often foreign exchange transaction services without charge or little charge compared to other businesses)”

            is simply false. There is no economic exchange of present for future goods. Economically speaking, both depositors are not exchanging present ownership for future ownership. Economically speaking, they both retain present ownership because both have the right to withdraw the money on demand at any time.

            Just because there is a time period that passes between going from one’s house to the bank, does not make a sum of deposited money an economic exchange for future goods, any more than me taking 1 minute to go from my kitchen to my garage to get into my car doesn’t make my putting the car into the garage an economic exchange for future goods. It’s still a present good.

            Goods don’t become future goods just because humans aren’t the goods themselves and thus must traverse through spacetime to get to the goods themselves. That is a metaphysical limitation and necessity. Economics on the other hand deals with purposeful human behavior GIVEN those metaphysical necessities exist. Within the matrix of time, there are present goods and future goods. Yes, both present and future goods are future goods in the metaphysical sense. Even a sandwich resting in front of you on a lunchtable is a “future” good in the metaphysical sense.

            When economists say present goods versus future goods, they mean having the right to immediately consume/possess the good as soon as it is humanly possible given metaphysical limitations that require time, and not having the right to immediately consume/posses the good as soon as it is humanly possible given metaphysical limitations that require time.

            Since both tantundem demand deposits, and FR account deposits, are economically equivalent in terms of the depositor having the right to withdraw/possess the money as soon as it is humanly possible, given the metaphysical limitations of having to travel through spacetime, it is economic “fraud” (not necessarily legal fraud) to treat them as different in the policy sphere.

            If every FR depositor is aware of what happens to their money (and most depositors actually aren’t aware), if every payee is aware of what they are receiving, then should FR banking exist, then the costs of the resulting boom/bust cycle will have to be incurred by those who participate in it, as justice would require, which means those who advocate for FR cannot also advocate that those who don’t engage in it, be forcefully deprived of their money (taxed) and indirectly bail out those who engaged in FR but lost.

            Because you support violence backed taxpayer financed bailouts of FR banks, you are in no position to lecture anyone who says FR should be outlawed by violence backed security institutions.

        • Bob Roddis says:

          The problem with “voluntary” FRB is that the PAYEES aren’t probably real clear on the nature of the beast, even if the depositors are (and I’m not convinced depositors are clear on the nature of the beast). Further, the workability of free banking FRB is irrelevant to everything and everybody except to those who plan to employ it as a business model in the not-so-near future. It may work. It may not. I don’t care. This is a diversion.

          This is LK’s only argument against fiat money expansion. He’s lost. We’ve won.

      • Beefcake the Mighty says:

        Lord Keynes is the intellectual equivalent of [something unflattering--RPM].

        • Beefcake the Mighty says:

          Bob, you suck!

          • Major_Freedom says:

            Darn I missed it. Can you use a non-offensive, clue based explanation of what you said that doesn’t use “rhymes with” techniques?

            • Beefcake the Mighty says:

              Bob, you still suck!

            • Beefcake the Mighty says:

              Major_Freedom, just google “hairy milk dud.”

      • Major_Freedom says:

        “Since fractional reserve banking IS a voluntary and free creation of agents on the free market, then – by Rothbard’s own theory – the free market is plagued by a boom/bust cycle. Duh.”

        So you admit that the Fed can only exacerbate the boom/bust cycle by standing ready to ensure FR banks always have a source of fresh new funds, that enables them to expand credit even more than they otherwise could?

    • Lord Keynes says:

      “4. The relatively unhampered market was able to readjust prices, and thus prosperity, with amazing speed.”

      LOL … “amazing speed,” my eye.

      A recession lasting 18 months is in fact a very long one by the standards of the post-1945 US business cycle.

      The average duration of US recessions in the post-1945 era of classic Keynesian demand management and the neoliberal era has been about 11 months.

      The average duration of recessions from 1919 to 1945 was 18 months – so even at the time it wasn’t even short.

      • Silas Barta says:

        A recession lasting 18 months is in fact a very long one by the standards of the post-1945 US business cycle.

        And a very short one by comparison to the Great Depression or the current recession (properly identified).

      • Major_Freedom says:

        “The average duration of US recessions in the post-1945 era of classic Keynesian demand management and the neoliberal era has been about 11 months.”

        Averages usually tend to decline when you ignore the tail ends of the time period considered, where the lengths of those depression were in the years.

        It’s always funny watching Keynesians ignore the Great Depression and the current depression, the two times when Keynesian policies were maximized, and present the rest as evidence that Keynesianism works.

        • Lord Keynes says:

          “it’s always funny watching Keynesians ignore the Great Depression and the current depression”

          (1) the average length of US recessions from 1945-2009 is 11 months, including the great recession (December 2007- June 2009).

          (2) Hoover didn’t use proper Keynesian stimulus to end the contraction of 1929-1933, and anyone who says so is ignorant.

          As for when moderate stimulus was used after 1933:

          Year | GNP* | Growth Rate
          1930 | $900.00 | -8.59%
          1931 | $840.70 | -6.58%
          1932 | $730.50 | -13.10%
          1933 | $720.30 | -1.39%
          1934 | $797.70 | 10.74%
          1935 | $868.90 | 8.92%
          1936 | $981.10 | 12.91%
          1937 | $1032.50 | 5.23%

          1938 | $997.40 | -3.39%
          1939 | $1077.80 | 8.06%
          1940 | $1170.80 | 8.62%

          you got growth rates of 10.74%, 8.92%, 12.91%, 5.23%.

          Fiscal contraction plunged the economy back into recession in 1938, growth resumed when fiscal expansion resumed.

          • Major_Freedom says:

            “the average length of US recessions from 1945-2009 is 11 months, including the great recession (December 2007- June 2009).”

            I don’t hold the Great Recession to have ended in June 2009. I hold it to be still in effect. Unemployment, using old methods of calculation, including those who left the labor force because it’s so bad, is still in the double digits.

            “Hoover didn’t use proper Keynesian stimulus to end the contraction of 1929-1933″

            That must have been the case right? Because the economy got so bad? “Proper” is “higher than whatever exists if there is high unemployment and high idle resources but I won’t define what high means.”

            “you got growth rates of 10.74%, 8.92%, 12.91%, 5.23%.”

            “Fiscal contraction plunged the economy back into recession in 1938, growth resumed when fiscal expansion resumed.”

            You are just defining recessions as declines in aggregate spending. That’s what using aggregate spending statistics such as GNP measure, even when indexed by some arbitrary basket of goods deflater. GNP ignores real economic activity and unemployment.

            • Lord Keynes says:

              “I don’t hold the Great Recession to have ended in June 2009. I hold it to be still in effect. Unemployment, using old methods of calculation, including those who left the labor force because it’s so bad, is still in the double digits.”

              I don’t hold the recession of the 1890s to have ended in 1896. I hold it to be still in effect. Unemployment including those who left the labor force because it’s so bad, was still in the double digits in 1898.

              “You are just defining recessions as declines in aggregate spending. That’s what using aggregate spending statistics such as GNP measure”

              Which is exactly what Austrians do:

              http://socialdemocracy21stcentury.blogspot.com/2012/01/austrian-substitutes-for-gdp-they-are.html

              Just like Roddis, hoist on your own petard, buddy.

              • Major_Freedom says:

                “I don’t hold the recession of the 1890s to have ended in 1896. I hold it to be still in effect. Unemployment including those who left the labor force because it’s so bad, was still in the double digits in 1898.”

                Where’s the data for that?

                “You are just defining recessions as declines in aggregate spending. That’s what using aggregate spending statistics such as GNP measure”

                “Which is exactly what Austrians do:”

                “http://socialdemocracy21stcentury.blogspot.com/2012/01/austrian-substitutes-for-gdp-they-are.html”

                First, Austrians don’t define recessions as declines in aggregate spending.

                Second, you’re not addressing my argument. I am challenging your assertion that measuring aggregate spending is a valid measure for prosperity.

                The fact that some Austrians critique GNP/GDP, and use some other aggregate to estimate prosperity, isn’t a valid response to what I said to you. It is ad hominem tu quoque. I am not here defending “us” versus “them.”

              • Major_Freedom says:

                If you think GDP is a valid measure of economic prosperity or output, then calculate the following total for me:

                2 sandwiches/$10.00 + 2 coffees/$4.00 + 2 cookies/$2.00

                What is GDP? $16.00? How can the money that is spent measure the output of goods?

            • Gene Callahan says:

              “I don’t hold the Great Recession to have ended in June 2009. I hold it to be still in effect”

              Cause the facts is what ever I wants em to be!

          • Bob Murphy says:

            LK, I’m not being sarcastic, I’m genuinely asking: What is your criterion for Keynesian stimulus? E.g. you say there is stimulus, albeit mild, from 1934-1937. So what was true in those years, that wasn’t true in (say) 1932-33? And obviously your definition can’t involve GNP itself, since then you would be saying, “Stimulus occurred if the economy grew, stimulus did not occur if the economy shrank.” I mean, that might be a reasonable definition, but then we don’t need to look at the data to see if Keynesianism is true–it’s true by definition.

            • Lord Keynes says:

              “What is your criterion for Keynesian stimulus?”I

              (1)
              Your question is presumably: how do you implement a stimulus properly designed to counteract a recession and drive an economy back to positive GDP growth and high employment.

              Simple:

              (1) calculate potential GDP,
              (2) estimate the Keynesian multiplier and
              (3) then design fiscal policy to expand demand by tax cuts and/or appropriate level of discretionary spending increases to hit potential GDP via the multiplier.

              This is Keynesianism 101, and I find it astonishing you require it explained to you.

              In the case of the Great Ddepression, it was obvious that the govenrment needed to intevene to stop the banking system from collapsing. Otherwise stimulus was just bailing out a sinking ship.

              A case in point:

              In 1931, US GDP collapsed by $14.7 billion dollars, in a debt deflationary spiral with bank failures and a collapse in employment and investment. If we assume a multiplier of 4 (which is very high), then Hoover’s spending increase of $257 million dollars might have generated at most $1.028 billion of GDP in fiscal year 1931.

              But GDP fell by $14.7 billion dollars, and it is the height of idiocy to seriously argue that Hoover’s increase in spending in fiscal year 1931 could have prevented the depression, by stimulus to offset such a catastrophic fall in GDP. It could never have done any such thing.

              (2)
              You appear to be an anarcho-capitalist. Or am I wrong?

              There are big name Austrians who in fact endorsed government intervention during a depression for stability: Hayek and Lachmann.

              Hayek:

              http://socialdemocracy21stcentury.blogspot.com/2011/09/did-hayek-advocate-public-works-in.html

              Lachmann:

              “Policies based on Keynesian macro-economic recipes might have succeeded (had they then been tried) in 1932 and did succeed in 1940 because it so happened that at the bottom of the Great Depression as well as during the Second World War all sectors of the economy were equally affected. In 1932 any kind of additional spending on whatever kind of goods would have had a favourable effect on incomes because there was unemployment everywhere, as well as idle capital equipment and surplus stocks of raw materials. “

              Lachmann, L. M. 1973. Macro-economic Thinking and the Market Economy: An Essay on the Neglect of the Micro-Foundations and its Consequences, Institute of Economic Affairs. p. 50.

              Hear Lachmann give a qualified endorsement of interventions for stability in a depression here in his own words.

              Don’t pretend your anti-Keynesian dogmatism on this subject is “the” Austrian view. It isn’t.

              • Bob Murphy says:

                LK, put aside your astonishment for a second. I have said that Herbert Hoover implemented Keynesian remedies, albeit weaker than what Paul Krugman would have wanted. You said that no, that what Hoover did wasn’t Keynesian at all, and only a moron could think so.

                Then you said what FDR did in his first three years was a mild form of Keynesian medicine.

                So I’m asking you, what is the difference? I don’t think it can be the deficit as a share of GDP, since it was 4.5% under the worst Hoover year, and averaged 5.1% when you said it was weak medicine (but medicine nonetheless).

                I am hoping your answer doesn’t boil down to, “Hoover didn’t do Keynesianism, because the economy kept contracting, yet we know FDR must have done at least some Keynesianism, because the economy started growing again.”

                So please tell me whether (a) yes that is your answer, and you are proud of it, or (b) no that’s not your answer, you have a criterion for telling me the dividing line between stimulus/no-stimulus that isn’t directly tied to growing/shrinking GDP.

              • Bob Murphy says:

                Let me try to save us one exchange of outraged comments, LK. You are saying we are supposed to calculate potential GDP, calculate the multiplier, etc. So from 1933 to 1934, what changed so drastically as to render Hoover’s policies a model of austerity, while FDR’s policies were such as to usher in the fastest recovery in US history? The numbers on the fiscal side aren’t really that much different.

                Somebody like Scott Sumner can argue coherently that it was all about monetary policy, and fiscal policy is irrelevant. But that’s not what you (or Romer or Krugman) is arguing.

              • Beefcake the Mighty says:

                “Simple:

                (1) calculate potential GDP”

                LOL! Oh wait, he’s serious…

              • Bob Murphy says:

                Beefcake I might even have let an Urban Dictionary reference pass on that one. (Not really, don’t do it.)

              • Major_Freedom says:

                “Lord Keynes”:

                Your question is presumably: how do you implement a stimulus properly designed to counteract a recession and drive an economy back to positive GDP growth and high employment.

                Answer: You abstain from introducing violence into an otherwise peaceful exchange economy, and let private property owners stimulate the economy based on economic calculation.

                Simple:

                Simple minded.

                (1) calculate potential GDP

                (2) estimate the Keynesian multiplier

                (3) then design fiscal policy to expand demand by tax cuts and/or appropriate level of discretionary spending increases to hit potential GDP via the multiplier.

                Bwahahahahaha, is that, is this, is THIS what “Keynesianism” boils down to? This is the most idiotic, crude, sorry excuse for economic thinking I have ever heard. It is utter witch-doctoring.

                For one to “calculate” “potential GDP”, when GDP is just a measure of aggregate spending, is nothing but astrology.

                For one to “estimate” the Keynesian multiplier is also astrology.

                For one to use “discretionary spending” when the problem is not spending but discoordination, is more astrology. It is like believing the government doling out bailouts and giving subsidies to politically connected friends, can substitute for economic calculation in a context of consumer preferences (i.e. profit and loss).

                So Keynesianism is pulling numbers out of one’s derriere, then advocating that the government decide who gets borrowed money and inflated funny money to reach that number pulled out of one’s derriere.

                No mention of economic calculation. No mention of purging the economy of malinvestments. No mention of coordination. No mention of stimulating the economy according to real consumer spending patterns (spending which is above zero). No mention of the market process. No mention of the opportunity costs of government activity and spending. No mention of entrepreneurs. No mention of Keynesianism’s inherent violation of property rights and concomitant reduction of standards of living. No mention of the destructive effects of inflation of the money supply and artificially low interest rates. No mention of any economic theory whatsoever.

                Sad.

    • david stinson says:

      Yes, Bob. That’s how I interpreted it as well. In other words, it was the absence of supposedly countercyclical (but actually market-process-undermining) fiscal “stabilization” policy that was key, even in the presence of initial but temporary monetary disequilibrium. Contrast this with our current situation in which significant government fiscal intervention, by undermining market processes, has “stabilized” the economy but done so in a bad way – in the trough – by elevating the demand for money.

      I would expect most Austrians would understand that significant fiscal austerity could be initially discoordinating (In the arithmetic GDP sense), even in the absence of prior monetary disequilibrium, while markets and entrepreneurs determine how best to redeploy resources. What matters is what barriers governments put in the way of recoordination.

  5. Bob Murphy says:

    Daniel, it’s not a big deal (to me) and you don’t have to submit errata to the journal. The one thing that bothered me was the part I cited, where you say “Contrary to the claims of Woods (2009) and Murphy (2009).” The reader–such as, say Paul Krugman–would get the idea that these dumbo Austrians don’t know that a lot of the budget cuts occurred under Wilson. That’s partly why Krugman said in his post, showering praise on your research, “The Austrians/Austerians have their timing all wrong.”

    • Daniel Kuehn says:

      Ya I know. I don’t want people to have that impression, and it certainly wasn’t my intention.

      If the process is easy there’s absolutely no reason not to correct it. You were right when you mentioned it the first time, and I should have been looking out for it this time.

      re: “That’s partly why Krugman said in his post, showering praise on your research”

      Ya, but we know he has an attitude about this stuff regardless!

  6. Bob Murphy says:

    Daniel, far more than addressing this issue, I would love if you used your in with Krugman to ask him to comment on the debt-burdening-our-grandchildren stuff. I mean, Robert Waldmann refers to a supposedly definitive Diamond paper from 1965. Dean Baker admitted in the comments to Nick Rowe that Rowe’s point was obvious (which means Baker’s whole thesis collapses, but hey who’s counting?). So I’m curious to see Krugman weigh in on this.

    • Daniel Kuehn says:

      Ya – I emailed him once on the debt thing – clearly he didn’t respond.

      You know I discussed that Diamond paper twice in our back-and-forth on my blog, long before Waldman brought it up.

    • Daniel Kuehn says:

      re: “(which means Baker’s whole thesis collapses, but hey who’s counting?)”

      Well – which means that your and Rowe’s read on Dean and Paul don’t hold up.

      So… maybe you misinterpreted them in the first place if he thinks this is so obvious, and they’re more along the lines of what I’ve been claiming?

      Or maybe they’re not along the lines of what I’ve been claiming and they’re just covering their ass now. We can’t read their minds. But that is the other obvious interpretation.

      • Bob Murphy says:

        DK wrote:

        Well – which means that your and Rowe’s read on Dean and Paul don’t hold up.

        So… maybe you misinterpreted them in the first place if he thinks this is so obvious, and they’re more along the lines of what I’ve been claiming?

        Or maybe they’re not along the lines of what I’ve been claiming and they’re just covering their ass now. We can’t read their minds. But that is the other obvious interpretation.

        I am going to state this one more time, for the record:

        (1) Dean Baker and Paul Krugman both used as their main line of argument, that if we exclude foreigners holding the debt, then deficits today cannot possibly burden our descendants, because the government at that time would just be taking money from one grandkid and giving it to another. So it’s neutral, regarding the grandkids as a collective.

        (2) Waldmann points out that this argument is totally, completely, utterly wrong. Diamond proved it in 1965, and Waldmann is stunned anybody in this day and age is arguing otherwise.

        (3) Baker says sure, it’s possible for our deficits today to burden our grandchildren, but hey we have unemployed resources right now so it won’t in practice.

        Daniel, you’re saying you don’t think that’s a bit slippery? And how about Baker and Krugman ignoring the huge volume of posts generated by at least 3 bloggers that they have demonstrated they read–then coming back and positing on the topic a few weeks later, as it nothing had come up in the meantime?

        You’re right, there is an obvious interpretation here.

        • anon says:

          Bob, to what extent do you and Nick’s argument require the interest rate to be above the growth rate?

          Nick says having the interest rate below the growth rate is a ponzi scheme? But what about having the interest rate equal to the growth rate? Might Krugman and Baker be assuming this?

          Delong had a post, “Is There Any Reason to Think the Interest Rate On U.S. Governement Debt In the Future Will Be Greater Than the Growth Rate of the Economy?” which seemed to suggest in real life the interest rate does not function the way Nick’s model suggests.

          (I’ve been asking Rowe about this and he hasn’t responded in a way that I understand.)

          (To the extent that your argument doesn’t depend on interest rates I think it may depend on your utility assumption. But (I suspect) there were still be no monetary burden in an econmony with money and trade rather than just apples.)

          • Major_Freedom says:

            I was wondering the same thing as you, anon.

            I think the apples example won’t be able to give an answer given its assumptions, because it treats money and real production as equivalent. This makes it easy to conflate growth in interest and rates and spending, with growth rates in real productivity.

            If money and goods are made distinct from each other, then the real rate of productivity growth can be anything really, and the government will be able to keep borrowing money at any interest rate, as long as they can finance it by inflation.

            Hence the actual “growth rate” that we should compare interest rates to is not the rate of growth in real goods, but the rate of growth in the money supply.

            Of course it should go without saying that the more government borrows and spends, and the more they inflate, the less productive the economy will become.

  7. Lord Keynes says:

    (1) “As with the evaluation of Hoover’s high-wages policy, his high-federal-budget policy can be usefully contrasted with the depression occurring at the end of Woodrow Wilson’s watch.”

    There was no depression.
    According to Romer, real GNP contraction was 3.47% from 1919 to 1921. By contrast, a depression is where real output falls by 10% or more.
    Balke and Gordon’s figures show a GNP decline of 5.58% from 1920–1921 – a moderate recession, but still no depression.

    Figures here:

    http://socialdemocracy21stcentury.blogspot.com/2011/12/depression-of-19201921-austrian-myth.html

    This wasn’t like 1929-1933: Ttere was no serious financial crisis, mass bank failures, or large collapsing asset bubble financed by large amounts of private debt (as there in fact was in 1929-1933). There was consequently no debt deflationary spiral in 1920-1921.

    (2) “We already know that Hoover faced 20+ percent unemployment after the second full year of his Keynesian stimulus policies.”

    Hoover did not engage in a countercyclical Keynesian stimulus designed to end the depression. Small increases in total government spending by trivial amounts in the face of massive GDP collapse do not constitute Keynesian stimulus.

    http://socialdemocracy21stcentury.blogspot.com/2011/05/herbert-hoovers-budget-deficits-drop-in.html

    (3) “Wilson/Harding, on the other hand, was Krugman’s worst nightmare, taking the axe to federal spending in a way that would have given even Ron Paul the willies, and during a depression to boot!”

    There was no depression, see (1)

    (4) “But Occam’s Razor recommends the simplest answer staring us in the face: the old-school economic wisdom was correct, while the newfangled Keynesian remedies proved disastrous.”

    There was no Keynesian countercyclical stimulus designed to end the depression in fiscal years 1929-1933.
    And as for austerity it did nothing much for a robust recovery in the 1890s.
    The moderate recession of 1890s caused high double digit unemployment for nearly a decade:

    Year Unemployment rate
    1892 3.72%
    1893 8.09%
    1894 12.33%
    1895 11.11%
    1896 11.965
    1897 12.43%
    1898 11.62%
    1899 8.66%
    1900 5.00%
    (Romer 1986: 31).

    http://socialdemocracy21stcentury.blogspot.com/2010/10/us-recession-of-19201921-some.html

    This is empirical evidence that flats and blatantly contradicts your paeans to the free market. Furthermore, there was no central bank in the 1890s inflating the money supply. So you’d expect performance to be even better than 1920-1921, when a central bank did exist..

    In his Cambridge note, Daniel refers matter-of-factly to the “austerity” under Herbert Hoover. Huh? In the last fiscal year that can be attributed to Hoover, the federal budget deficit was 4.5% of GDP.”

    Government spending as a percentage of GDP does not tell whether fiscal policy is expansionary or contractionary.

    In fiscal year 1930, Hoover actually ran a budget surplus, not a deficit. Federal policy was contractionary in this fiscal year.

    In fiscal year 1933, total federal spending was cut in relation to fiscal year 1932. Hoover introduced the Revenue Act of 1932 (June 6) which increased taxes across the board and applied to fiscal year 1932 and subsequent years. These were highly contractionary measures, and these two policies are the very antithesis of Keynesianism.

    So all you’re left with is fiscal year 1931 and 1932: Hoover did indeed raise federal spending in these years (especially in 1932), but it was woefully inadequate. In no sense do these miserable increases compared to the scale of the GDP collapse contradict Keynesian economics. Once you factor in state and local austerity and surpluses total federal spending barely moved.

    • Bob Roddis says:

      There is still no reason to believe that the free market is unstable or leads to depression or perpetual unemployment which is the basis of the entire Keynesian program. The boom and bust of WWI and 1920-1921 were caused by the government. Further, if it is indeed true that, “according to Romer, real GNP contraction was 3.47% from 1919 to 1921. By contrast, a depression is where real output falls by 10% or more”, this is simply more evidence that sharply ending an unsustainable bust through “austerity” is the best policy. Yes, “austerity” induced the bust which was inevitable and then people in the market sorted things out.

      The fact that Hoover allegedly did not follow a “pure” Keynesian program also means nothing. The Great Depression was not caused by the free market either and Hoover certainly did not rely upon laissez faire as the phony court historians have taught generations of sheep, I mean public school students. There are no historical facts in either episode (or any historical episode for that matter) at odds with Austrian and Rothbardian analysis. We understand how the world works.

      What Kuehn has demonstrated is that the entire basis of the Keynesian program, the allegation that the business cycle is caused by the free market, is fallacious.

      • Lord Keynes says:

        “There is still no reason to believe that the free market is unstable “

        You subscribe to a Rothbardian theory that fractional reserve banking IS an inherent cause of boom/bust cycle.

        Once on my blog you declared that you have no problem with
        free and voluntary FRB:

        “Michael Rozeff disagrees with Rothbard on FRB [pdf]:

        http://www.independent.org/pdf/tir/tir_14_04_02_rozeff.pdf

        If the depositors aren’t misled and the payees aren’t misled, who cares?”

        Bob Roddis@Oct 3, 2011 06:54 AM
        first comment here:
        http://socialdemocracy21stcentury.blogspot.com/2011/10/if-fractional-reserve-banking-is.html

        If so, then your free market, with its free and voluntary FR banking, would, by your own theory, generate a boom/bust cycle.

        Hoist with your own petard, buddy. Well done.

        • Bob Roddis says:

          Also posted above:

          The problem with “voluntary” FRB is that the PAYEES aren’t probably real clear on the nature of the beast, even if the depositors are (and I’m not convinced depositors are clear on the nature of the beast). Further, the workability of free banking FRB is irrelevant to everything and everybody except to those who plan to employ it as a business model in the not-so-near future. It may work. It may not. I don’t care. This is a diversion.

          This is LK’s only argument against fiat money expansion. He’s lost. We’ve won.

          This line of “debate” is pointless.

      • Bob Roddis says:

        Typo:

        sharply ending an unsustainable BUST through “austerity” is the best policy should have read:

        “sharply ending an unsustainable BOOM through “austerity” is the best policy.”

    • KP says:

      “This is empirical evidence that flats and blatantly contradicts your paeans to the free market. Furthermore, there was no central bank in the 1890s inflating the money supply. So you’d expect performance to be even better than 1920-1921, when a central bank did exist.”

      The Sherman Silver Purchase Act, gold export fees, and the Bank of England constitutes a free market?

      • Lord Keynes says:

        (1) The Sherman Silver Purchase Act, passed in 1890, caused a recession in 1896 did it – and high unemployment until 1899?? Even though it was repealed in 1893 by Grover Cleveland? Maybe sun spots were also to blame ….

        (2) the Bank of England caused America’s double dip recession did it? How pray?

        (3) in any case, I didn’t say it was a Rothbardian fantasy world: I said it was comparatively MORE laissez faire than 1920-1921, when America had a central bank, an dthat is correct.

        • KP says:

          LK what are you talking about?

          You said 1890′s – a decade – not 1896 specifically. I never once said the Silver Purchase Act caused a recession in 1896. It did contribute to the panic of 1890 though.

          As for the Bank of England, it created a bailout fund for Barings debt, from a loan from the Bank of France and withdrew credit from the US.

          Whether the market was comparitaviley more free seems debatable when all influences are considered. At any rate, it cannot be labeled a failure of free markets

        • Major_Freedom says:

          ” in any case, I didn’t say it was a Rothbardian fantasy world: I said it was comparatively MORE laissez faire than 1920-1921, when America had a central bank, an dthat is correct.”

          And 1920-1921 was comparatively more laissez-faire than 1929-1945, which is why the recovery was so much more rapid

    • Beefcake the Mighty says:

      “Once you factor in state and local austerity and surpluses total federal spending barely moved.”

      I thought Keynesians (correctly, for the most part) stressed the difference between spending by the central govt (whose debt can be monetized) and spending by non-central govts (whose debt cannot be monetized). Does LK even know what he’s arguing here?

  8. Bob Roddis says:

    In defense of Tom Woods, Tom clearly explained how fortuitous it was that Wilson had a stroke at the end of his term and was thus physically unable to formulate any government programs to “help” deal with the bust (at around 3:00):

    http://www.youtube.com/watch?v=czcUmnsprQI

    I’ll leave it to the Keynesians to prove that this episode is meaningless because there was allegedly “adequate effective demand and no liquidity trap“ and therefore “any demand management that was required could be achieved by adjusting monetary policy.”

    Of course, since the entire episode was caused by the government (not the free market, as always), the alleged efficacy of “demand management” remains unproven and preposterous.

  9. Invisible Backhand says:

    Would you say I told you so

    Oh, I told you so

    I told you someday you’d come crawling back and asking me to take you in

    I told you so

    But you had to go

  10. david stinson says:

    Bob & Daniel,

    The Romer 1988 paper cited by Daniel in his CJE paper finds, according to the abstract (I don’t have access to the full paper), that a revised GNP data series “suggests that aggregate demand movements had much less effect on real output during World War I and the Depression of 1921 than is commonly believed.” Am I correct in presuming that that implies wages/prices were necessarily less sticky at that time?

    • Bob Murphy says:

      David Stinson wrote:

      Am I correct in presuming that that implies wages/prices were necessarily less sticky at that time?

      I would say so, though I’ve been drinking with Casey Mulligan at the local tavern.

  11. Patch says:

    Lord Keynes comes once again to the rescue, with his axe to grind with all of his blog posts and massive armada of evidence that he throws at anyone.

    Unfortunately for Lord Keynes, most of this has been discussed already (on his blog, of all places). The gory details can be found in Keynes numerous blog posts:

    “Real US GNP Growth Rates 1870–1913 in Romer

    Real US GNP Growth Rates 1870–1913 in Balke and Go…

    Real GDP and GDP per capita, 1870-1913, Selected N…
    US Real GNP 1945–1973

    Real US GNP Growth Rates 1870–1900 in Romer

    Real US GNP Growth Rates 1870–1900 in Balke and Go…
    US Real GNP Growth in the 1880s

    Why was US Unemployment so High in the 1890s?

    The US Recessions of the 1890s in Balke and Gordon…

    US Real GNP Estimates 1869–1879″

    All of which are from November of 2011. In my criticisms of these figures, I noted that with Romer and Balke and Gordon’s revised GNP estimates off of Lebergott, the Panic of 1893 and the subsequent recession was much lighter in terms of GNP decline than Kuznet/Kendritch initially suggested. As a result, Romer’s revised and Lebergott’s unemployment figures, which are based partly off of such massive declines, are overstated. Lord Keynes and I went back and forth, each step of the way Lord Keynes starting a new blog post until we eventually got to the supposed Keynesian “Golden Era” of 1945-1973.

    As for the Depression of 1920-21, on a somewhat interesting note, couldn’t the “softness” in GNP decline be attributed to the decline in government taxes and spending? I haven’t looked at the facts fully yet, but this is an important caveat.

  12. Yancey Ward says:

    Just my own pet peeve here, but you can talk about Wilson and Harding, but Republicans controlled the House and the Senate starting in March 1919. And note that the war didn’t officially end until June of that year.

    • Bob Murphy says:

      Yancey you’re right, but I don’t even need to go there, since I wasn’t making the mistake Krugman thought Daniel had busted “us Austrians” on.

  13. Lord Keynes says:

    Also, the 1890s, with high unemployment rates and (by Balke and Gordon’s GNP figures) a double dip recession co-inciding with government fiscal contraction from 1893 to 1896 does not support the austerity brings prosperity garbage:

    http://socialdemocracy21stcentury.blogspot.com/2012/01/us-unemployment-in-1890s.html

    • Major_Freedom says:

      Aggregate spending (GNP), even GNP “corrected” by an inflation index, does not measure real output. It measures total quantity of money and spending.

      Less aggregate money and spending does not mean people are worse off.

      • Lord Keynes says:

        It measures total quantity of money and spending.

        (1) The first part is plainly a false statement. Money aggregates (M0, M1 , M2) measure “total quantity of money”, not GNP.

        (2) Aggregate spending (GNP), even GNP “corrected” by an inflation index, does not measure real output

        If you seriously believe this, then Rothbard’s Gross Private Product (GPP) aggregate and Mark Skousen’s Gross Domestic Output (GDO) aggregate are all invalid and useless too.

        http://socialdemocracy21stcentury.blogspot.com/2012/01/austrian-substitutes-for-gdp-they-are.html

        You’d be left with no way to tell whether an economy is in recession or expanding at all. All your blathering about Keynesianism not working and especially about austerity “working” in 1921 collapses.

        There was a recovery in 1921 based on what?

        • Major_Freedom says:

          “The first part is plainly a false statement. Money aggregates (M0, M1 , M2) measure “total quantity of money”, not GNP.”

          Aggregate spending is primarily a function of money supply, so no, it’s not a false statement. Measuring aggregate spending is an indirect measure of money supply.

          There is more spending today compared to 100 years ago not because the same money supply is being turned over more rapidly, but because there is more money in existence.

          “Aggregate spending (GNP), even GNP “corrected” by an inflation index, does not measure real output
          If you seriously believe this, then Rothbard’s Gross Private Product (GPP) aggregate and Mark Skousen’s Gross Domestic Output (GDO) aggregate are all invalid and useless too.”

          Exactly. GDP, GNP, GDP, GO, are all invalid for measuring economic prosperity.

          I agree with Mises’ position:

          “It is possible to determine in terms of money prices the sum of the income or the wealth of a number of people. But it is nonsensical to reckon national income or national wealth. As soon as we embark upon considerations foreign to the reasoning of a man operating within the pale of a market society, we are no longer helped by monetary calculation methods. The attempts to determine in money the wealth of a nation or of the whole of mankind are as childish as the mystic efforts to solve the riddles of the universe by worrying about the dimensions of the pyramid of Cheops.”

          “If a business calculation values a supply of potatoes at $100, the idea is that it will be possible to sell it or to replace it against this sum. If a whole entrepreneurial unit is estimated $1,000,000, it means that one expects to sell it for this amount. But what is the meaning of the items in a statement of a nation’s total wealth? What is the meaning of the computation’s final result? What must be entered into it and what is to be left outside? Is it correct or not to enclose the “value” of the country’s climate and the people’s innate abilities and acquired skill? The businessman can convert his property into money, but a nation cannot.” – Human Action, 4th ed., p. 217.

        • Major_Freedom says:

          “You’d be left with no way to tell whether an economy is in recession or expanding at all. All your blathering about Keynesianism not working and especially about austerity “working” in 1921 collapses.”

          Haha, no, I can make ALL my arguments from theoretical considerations that are non-hypothetical logical necessities.

          I can say that it is guaranteed that government spending did not and will never cure any recession, because of the logical fact that employment, productivity, or output does not depend on “aggregate spending” or coercive agencies violating individual property rights.

          Consumption spending does not generate wealth. It consumes wealth. Government borrowing and spending cannot generate a recovery, because recoveries can only occur on the basis of economic calculation which only the market process can deliver.

          All your blathering on trying to find vindication for Keynesian witchdoctory out of data mining, will never prove Keynesianism as valid, because we can never observe the counterfactual world of what things would have been like if something else were done instead.

          Economics can only be a theoretical, logic based field of inquiry.

          Looking as past data and pretending that it vindicates your theory, only means that you don’t grasp the nature economic science.

          In all your blathering on your blog, you never make a theoretical case for Keynesianism. You can only look up data. That means you’re not an economist, but a historian.

          You pretend that observing increasing employment that temporally occurs after a Keynesian spending spree, somehow proves Keynesianism true, instead of the opposite, and equally consistent theory that economies recover DESPITE Keynesianism, and the theory that if you see growing employment after government spending, it is employment in the WRONG sectors that don’t match consumer preferences because the economy contains a coercive agent spending money and consuming economic resources that makes people believe there is an opportunity for employment as if employment cannot exist any place else.

          I hate to say this, but for the last I don’t how many years you have been running your blog, you have been engaged in a total and complete waste of time. Nothing of what you have written has ever come within even a light year’s distance from seriously challenging Austrian economics. Your mind seems to be utterly incapable of grasping economic logic because you want to believe that economics is an empirical science. It isn’t. The economy cannot be controlled and repeated, and the subject matter learns over time.

          Praxeology and thymology are the only correct approaches to economics. The reason why you see perpetually high unemployment today, despite the government spending like a drunken sailor and the Fed holding rates at zero, and printing trillions of new dollars, is because of people who believe that there is no such thing as economic laws deduced from first principles.

          • Bob Roddis says:

            We’ve determined long ago that LK does not comprehend the concept of economic calculation.

            • Major_Freedom says:

              That incomprehension is based on him choosing a flawed epistemology of positivism applied to economics.

              He doesn’t get it that positivism is inapplicable to human action, and thus of economics.

              • Bob Roddis says:

                You give him too much credit. He knows the outcome he wants and collects anecdotes to support the pre-determined outcome.

              • Major_Freedom says:

                That’s pretty much what positivists do.

  14. Bob Roddis says:

    Here’s a quote that purports to be by John Quiggin from a book I do not own and have not read. It concerns “free banking” in Australia in the late 1800s. If this is a true and accurate description of their rules and experience, it has no resemblance whatsoever to a strict Rothbardian system. It sounds like a whole bunch of trouble. LK relies upon this period in pursuit of his inept and anecdotal approach to economic “theory”.

    Here’s a quote from a paper with a relatively positive view of the free banking era, which nonetheless notes the systemic collapse of 1893

    Australia provides a textbook example of free banking in practice. One writer on the subject commented that in Australia “the legal framework with which banks operated was perhaps the least restrictive of any on record” (Dowd 1992).Butlin (1953),commented that “there was no tender law, no central bank, no legal control over the total volume of bank loans, and only a very primitive control by the banks themselves through a loosely applied rule of thumb (cash reserves should be to one-third the sum of deposits and notes) concerning reserves against all liabilities”.

    the 1840 Colonial Bank Regulations issued by British Treasury governed colonial banking. The requirements included that: capital should be a determinant amount and must be fully subscribed; total debts must not exceed three times the paid up capital and that all notes were to be payable on demand in specie at the place of issue. Failure to pay on demand for a total of 60 days in any year entailed forfeiture of incorporation. Personal liability for bank shareholders was capped at an amount equal to twice capital and loans against real estate, shops or merchandise were to be prohibited. Amendments to the regulations in 1846 limited the note issue to the amount of paid up capital.

    Banking was not substantially affected by the regulations, however. For example, the restrictions on total debt and note issue were largely ignored (Butlin 1986). Likewise, banks found loopholes around the prohibition on lending for land (Pope 1989). In practice, Australian colonial banks were allowed to raise the limits on note issue by including coin and bullion in paid-up capital. Over time, even this stricture was relaxed; by 1856 the Bank of Australasia secured a licence to print private notes up to the value of three times its specie and bullion holdings. Reserve requirements were easily met as “double counting” was permitted: reserves used to back the note issue were simultaneously used to provide liquidity in the event of a deposit withdrawal. Rules limiting total indebtedness were also no threat because deposits were excluded.

    This freedom of note issue was, however, accompanied by strong liability provisions. In most colonies by the late 1860s, shareholders had unlimited liability for their note issue (Pope 1989).

    Source is OPTIMAL REGULATION OF ELECTRONIC MONEV: LESSONS FROM THE “FREE BANKING” ERA IN AUSTRALIA by THOMAS A. ROHLING AND MARK W. TAPLEY*
    Economic Papers: A journal of applied economics and policy, Volume 17, Issue 4, pages 7–29, December 1998

    http://critiquesofcollectivism.blogspot.com/2011/02/john-quiggin-on-abct.html

  15. Lord Keynes says:

    “So from 1933 to 1934, what changed so drastically as to render Hoover’s policies a model of austerity, while FDR’s policies were such as to usher in the fastest recovery in US history?”

    (1) I never said Hoover’s policies were “a model of austerity” in all years. Yes, he ran a federal budget surplus in fiscal year 1930. In fiscal 1933 federal fiscal policy was contractionary, especially after tax increases in 1932. However, I have said repeatedly that in 1931 and 1932, for example, his federal fiscal policy was expansionary, but woefully inadequate to counter the depression. It appears I need to scream this into your ears for you to understand it. The error is in assuming Hoover’s fiscal expansion in 1931 and 1932 could ever have stopped the GNP collapse. It couldn’t have: it was feeble compared to the scale of the GNP collapse, and saying Hoover tried a properly designed Keynesian stimulus to stop the depression is nonsense. Saying Hoover was a “Keynesian” and spending huge and appropriately large sums of money (by the criteria I lisetd above) to stop the depression is nonsense.

    (2) What changed in 1933?
    The US did the following:

    (1) abandoned the gold standard
    (2) Roosevelt stabilised the banking system and monetary inteventions by the Fed
    (3) there was a shift to moderate fiscal expansion by 1935 and 1936.

    As is well known of course, even in these years fiscal expansion was not large enough to drive the US back to high employment and its potential GNP. But the policy interventions had their effect on GNP:

    1933 | $720.30 | -1.39%
    1934 | $797.70 | 10.74%
    1935 | $868.90 | 8.92%
    1936 | $981.10 | 12.91%
    1937 | $1032.50 | 5.23%
    1938 | $997.40 | -3.39%
    1939 | $1077.80 | 8.06%
    1940 | $1170.80 | 8.62%

    Fiscal contraction plunged the economy back into recession in 1938, but growth resumed when fiscal expansion resumed.

    The Roosevelt had an insufficiently expansionary fiscal policy was known a long time ago: E. Cary Brown, “Fiscal Policy in the ‘Thirties: A Reappraisal”, The American Economic Review 46.5 (1956): 857-879.

    In other nations, fiscal expansion was done on a scale large enough to create much better recoveries.

    New Zealand
    http://socialdemocracy21stcentury.blogspot.com/2011/09/keynesian-stimulus-in-new-zealand.html

    Japan
    http://socialdemocracy21stcentury.blogspot.com/2011/08/takahashi-korekiyo-and-fiscal-stimulus.html

    Germany
    http://socialdemocracy21stcentury.blogspot.com/2011/09/fiscal-stimulus-in-germany-19331936.html

    • Major_Freedom says:

      You’re not answering Murphy’s question. You’re quibbling over semantics.

      Murphy asked:

      “So from 1933 to 1934, what changed so drastically as to render Hoover’s policies a model of austerity, while FDR’s policies were such as to usher in the fastest recovery in US history? The numbers on the fiscal side aren’t really that much different.”

      You said:

      ” I never said Hoover’s policies were “a model of austerity” in all years.”

      This is just semantic quibbling. Clearly Murphy’s point was about what you believe made Hoover’s policies were “austere/contractionary/anti-Keynesian/inadequate/etc/etc/etc”

      Whatever you want to call “not enough Keynesianism.”

      He pointed out that the numbers on the fiscal side between Hoover and FDR were not that different.

      “It appears I need to scream this into your ears for you to understand it. The error is in assuming Hoover’s fiscal expansion in 1931 and 1932 could ever have stopped the GNP collapse. It couldn’t have: it was feeble compared to the scale of the GNP collapse, and saying Hoover tried a properly designed Keynesian stimulus to stop the depression is nonsense. Saying Hoover was a “Keynesian” and spending huge and appropriately large sums of money (by the criteria I lisetd above) to stop the depression is nonsense.”

      Hahaha, you sound like your head is about to explode.

      You’re just defining “Not enough Keynesianism” by the outcomes. If the economy improved, there was enough Keynesianism. If the economy does not improve, there was not enough Keynesianism. You’re not showing anything other than defining recoveries as Keynesian and slumps as not enough Keynesianism.

      You’re not showing why Hoover’s was not enough, and why FDR’s was enough, in and of themselves. You’re relegating yourself to pointing to the outcomes and saying the good outcomes are Keynesian and the bad outcomes are not enough Keynesianism.

      You can never be right or wrong, because you’re just giving definitions.

      “However, I have said repeatedly that in 1931 and 1932, for example, his federal fiscal policy was expansionary, but woefully inadequate to counter the depression.”

      You see? If the economy falters, by definition to you there wasn’t enough Keynesianism.

      Hoover in reality, of course, engaged in massive and unprecedented spending. You can’t say it wasn’t Keynesianism solely because the economy didn’t improve. That’s just assuming your worldview is correct no matter what the outcome happens to be.

      “In other nations, fiscal expansion was done on a scale large enough to create much better recoveries.”

      “New Zealand”

      “Japan”

      “Germany”

      LOL, so these are examples of Keynesianism because the economies improved?

    • Bob Murphy says:

      For those who are on the fence, let me make sure you see the remarkable admission Lord Keynes is unwittingly making here. He wrote:

      I have said repeatedly that in 1931 and 1932, for example, [Hoover's] federal fiscal policy was expansionary, but woefully inadequate to counter the depression. It appears I need to scream this into your ears for you to understand it. The error is in assuming Hoover’s fiscal expansion in 1931 and 1932 could ever have stopped the GNP collapse. It couldn’t have: it was feeble compared to the scale of the GNP collapse, and saying Hoover tried a properly designed Keynesian stimulus to stop the depression is nonsense.

      Look at the part I put in bold. No matter whatever happens in the history of the world, Lord Keynes will be literally incapable of rejecting his Keynesian views. By definition, if a government implements a policy of stimulating aggregate demand through increased spending, and yet GDP falls, then Lord Keynes will declare that the government didn’t spend enough.

      This is the claim (of nonfalsifiability) that many anti-Keynesians make, and for some Keynesians perhaps it is unfair. But it literally applies to Lord Keynes. I have asked him a few different ways for clarification, and he is being crystal clear here. “Enough” stimulus occurs when GDP starts rising. With that as your benchmark, you’d better hope your theory is right.

      One last thing: For those who are still on the fence, and aren’t sure which guy you can trust to be playing fair with the facts. Notice in this comment Lord Keynes describes something that happened for five years as “nearly a decade.” Interesting.

      • P.S.H. says:

        “This is the claim that many anti-Austrians make”

        You mean anti-Keynesians, right? Because otherwise I can’t make sense of your sentence.

      • Lord Keynes says:

        “Lord Keynes will be literally incapable of rejecting his Keynesian views. By definition, if a government implements a policy of stimulating aggregate demand through increased spending, and yet GDP falls, then Lord Keynes will declare that the government didn’t spend enough.”

        That is totally false.

        There would be an easy empirical way to demonstrate that a Keynesian stimulus failed and that, moreover, something is wrong with the theory:

        (1) in an economy experiencing a recession
        (1) calculate potential GDP,
        (2) estimate the Keynesian multiplier and
        (3) then design fiscal policy to expand demand by tax cuts and/or appropriate level of discretionary spending increases to hit potential GDP via the multiplier.
        (4) implement the stimulus
        (5) if GNP continues to collapse, then you have empirical evidence that your stimulus failed, and that your theory has flaws.

        In short, you invent a view and attribute it it me.
        Chalk another one up for the straw man fallacy.

        “This is the claim (of nonfalsifiability) that many anti-Keynesians make, and for some Keynesians perhaps it is unfair.”

        LOL.. Coming from someone whose methdology ( I assume) is apriorism and praxeology, you appear to be projetcing your own methdological weakness onto me.

        On the contrary, Keynesian theory IS falsifiable and based on empirical evidence.

        “Notice in this comment Lord Keynes describes something that happened for five years as “nearly a decade.””

        I assume you’re referring to this:

        “The moderate recession of 1890s caused high double digit unemployment for nearly a decade

        Year Unemployment rate
        1892 3.72%
        1893 8.09%
        1894 12.33%
        1895 11.11%
        1896 11.965
        1897 12.43%
        1898 11.62%
        1899 8.66%

        1900 5.00%
        (Romer 1986: 31).

        Is it honest to refer to 7 years of unemployment over 5% as “nearly a decade” or not?

        Let ‘s see if you are capable of basic honesty.

        • Lord Keynes says:

          Correction:

          “The moderate recession of 1890s caused high double digit unemployment for nearly a decade“

          I see now this was poorly worded: I should have said:

          “The moderate recession of 1890s caused high unemployment for nearly a decade“

          It is true that the double digit employment only lasted 5 years: I made a false assertion in haste in my response to someone above.

          However, the fact remains that unemployment was high for 7 years.

          • Major_Freedom says:

            Was your accusation that Murphy was being dishonest only “poorly worded” as well? It seems your accusations against others and assertions in general are as non-falsifiable as your ridiculously contradictory “economic” worldview.

            You not only called 5 years “nearly a decade”, which shows you’re more interested in rhetorical flourishes with the intent to mislead, than you are with honesty, but you also had the gumption to accuse Murphy of being dishonest for calling you out on saying 5 years is “nearly a decade.”

            Is that your bag? Accuse others of dishonesty when they disagree with you and/or correct you?

            This is bottom dwelling discourse you’re spewing onto this blog, LK. You give Keynesianism an even worse name, and that’s saying something.

            • Lord keynes says:

              “Was your accusation that Murphy was being dishonest only “poorly worded” as well? “

              I withdraw that accusation and apologise to Robert Murphy.

              My point that 7 years of high unemployment over 5% is “nearly a decade” stands.

        • KP says:

          “then design fiscal policy to expand demand by tax cuts and/or appropriate level of discretionary spending increases to hit potential GDP via the multiplier.”

          But the fiscal policy wasn’t appropriate enough!

          • Major_Freedom says:

            (1) calculate potential GDP,

            (2) estimate the Keynesian multiplier and

            (3) then design fiscal policy to expand demand by tax cuts and/or appropriate level of discretionary spending increases to hit potential GDP via the multiplier.

            (4) implement the stimulus

            (5) if GNP continues to collapse, then you have empirical evidence that your stimulus failed, and that your theory has flaws.

            (1) is just an arbitrary number. GDP measures aggregate spending. But any aggregate spending is just as good as any other. How can an entire worldview be based on choosing an arbitrary number?

            (2) is not only just an arbitrary number, but the only income that can possibly be raised by virtue of the “multiplier” is profit income. But profit income is not wage income, and so it cannot possibly improve the employment situation. You can’t say that what you really mean is that the additional profit income will be saved and invested, because the multiplier says that the economy will only be improved to the extent that the additional sales revenues are not spent for business purposes, and that the rise in incomes will be the greater, the higher is the “marginal propensity to consume” and the lower is the “marginal propensity to save.”

            (3) is just presuming the Keynesian model is true, when it should be what it must be judged under.

            (5) is what happened 1931-1932. GNP continued to collapse, despite the stimulus implemented. You can’t say the collapse in GNP does not falsify Keynesianism on the basis that when GNP collapses, Keynesianism “simply could not” have been implemented. You’d be talking in circles. You’d never be wrong no matter what happens. If GNP does not collapse, Keynesianism works and hence is confirmed. If GNP does collapse, then there wasn’t enough Keynesianism, which means Keynesianism still works and was not falsified.

            That makes your worldview non-falsifiable!

            Keynesianism, it seems, is nothing but a fetish for GNP. If GNP goes down, Keynesianism was absent. If GNP goes up, Keynesianism was present.

            What else is your silly worldview other than “by definition an increase in GNP”? LOL

            • Lord keynes says:

              “is what happened 1931-1932. GNP continued to collapse, despite the stimulus implemented.”

              LOL..

              In 1931 and 1932, federal fiscal policy was not designed to stop the depression.

              Let’s take federal spending as an example. Ignore state and local fiscal effects for the moment.

              In 1931, US GDP collapsed by $14.7 billion dollars. If we assume a multiplier of 4 (which is very high), then Hoover’s spending increase of $257 million dollars might have generated at most $1.028 billion of GDP in fiscal year 1931 (since state and local fiscal contraction simply cancelled out a lot of the federal expansion it didn’t, of course).

              By the basic Keynesian principles I have referred to above, to stop the downturn, Hoover needed to spend an additional $3.675 billion in fiscal year 1931 in stimulus. He did no such thing. Not even close.

              $257 million dollars is not $3.675 billion. Hoover’s federal fiscal exapansion was 6.9% of the sum required.

              Hoover’s fiscal policy in 1931 was weak and feeble fiscal expansion, woefully inadequate.

              It was not Keyensian stimulus designed to end the depression, but merely weak, feeble expansion, and anyone who thinks it would have ended the depression is peddling ignorance and stupidity.

              In reality, as I said above, state and local fiscal policy has to be taken into account when calculating the actual expansionary effect of total US government fiscal policy in 1931 and 1932.

              .

              • Major_Freedom says:

                “In 1931 and 1932, federal fiscal policy was not designed to stop the depression.”

                Because GNP fell, right? LOL

                “In 1931, US GDP collapsed by $14.7 billion dollars. If we assume a multiplier of 4 (which is very high), then Hoover’s spending increase of $257 million dollars might have generated at most $1.028 billion of GDP in fiscal year 1931 (since state and local fiscal contraction simply cancelled out a lot of the federal expansion it didn’t, of course).”

                “By the basic Keynesian principles I have referred to above, to stop the downturn, Hoover needed to spend an additional $3.675 billion in fiscal year 1931 in stimulus. He did no such thing. Not even close.”

                Why is “potential GDP” $14.7 billion higher than what it was in 1931? Because that is what GDP was in 1931?

                It was not Keyensian stimulus designed to end the depression, but merely weak, feeble expansion, and anyone who thinks it would have ended the depression is peddling ignorance and stupidity.

                It was not Keynesianism because GNP fell? LOL

        • Major_Freedom says:

          “if GNP continues to collapse, then you have empirical evidence that your stimulus failed, and that your theory has flaws.”

          That is exactly what happened 1931-1932.

          GNP continued to collapse, despite the stimulus!

          Or are you going to again fall back on the non-falsifiable assertion that the stimulus “just couldn’t” have worked by virtue of the fact that GNP fell, thus again making the assertion that Keynesianism is by definition an increase in GNP?

          “On the contrary, Keynesian theory IS falsifiable and based on empirical evidence.”

          What would the economy of 1931-1932 have had to look like if Keynesianism was in fact falsifiable and failed?

          “Is it honest to refer to 7 years of unemployment over 5% as “nearly a decade” or not?”

          You weren’t referring to unemployment of “over 5%” when you said “nearly a decade.” You quite clearly were referring to unemployment in the DOUBLE DIGITS when you said “nearly a decade.”

          You said:

          “The moderate recession of 1890s caused high double digit unemployment for nearly a decade.“

          You did not say:

          “The moderate recession of 1890s caused above 5% unemployment for nearly a decade.“

          You’re not capable of honesty, LK. Bob’s the honest one.

          • Lord Keynes says:

            “That is exactly what happened 1931-1932.

            GNP continued to collapse, despite the stimulus!”

            False. See my response above.

            “What would the economy of 1931-1932 have had to look like if Keynesianism was in fact falsifiable and failed?”

            (1) By the basic Keynesian principles I have referred to above, to stop the downturn, Hoover needed to spend an additional $3.675 billion in fiscal year 1931 in stimulus.

            (2) Hoover needed to at least stop fiscal contraction by states and local government, so some bailout of them was necessary to make (1) work.

            Of course, by stablising the banking system the GNP collapse would have been significantly reduced as well.

            If (1) and (2) had been done and the economy had continued to collapse in 1931, then this would have been a failed stimulus. It would provide strong empirical evidence against Keynesian theory.

            • Major_Freedom says:

              False. See my response above.

              Your responses above are non responses. You just asserted Keynesianism was not tried because GNP fell.

              (1) By the basic Keynesian principles I have referred to above, to stop the downturn, Hoover needed to spend an additional $3.675 billion in fiscal year 1931 in stimulus.

              (2) Hoover needed to at least stop fiscal contraction by states and local government, so some bailout of them was necessary to make (1) work.

              Of course, by stablising the banking system the GNP collapse would have been significantly reduced as well.

              If (1) and (2) had been done and the economy had continued to collapse in 1931, then this would have been a failed stimulus. It would provide strong empirical evidence against Keynesian theory.

              This doesn’t answer the question. You are just asserting that $3.675 billion had to be spent, on yet another baseless assertion of what “potential GDP” should be and on a fallacious multiplier concept, which uses an arbitrary number of 4, all of which itself is a baseless assertion derived from an arbitrary past GDP in 1931.

              LOL, this isn’t economics, this is withdoctoring.

              You’re only saying that GNP didn’t rise, because Keynesianism wasn’t tried, and because Keynesianism wasn’t tried, because GNP fell.

              Your idiotic ideology is in full view for everyone to see.

        • Beefcake the Mighty says:

          “(1) calculate potential GDP”

          OK, enlighten us on this point. How do you propose to do this, exactly? (This should be amusing.)

          • Lord Keynes says:

            “(1) calculate potential GDP”

            OK, enlighten us on this point. How do you propose to do this, exactly?i

            It is well known that potential GDP during the first years of the 1930s has been calcuated to be about $100 billion.

            http://www.forbes.com/2009/02/12/stimulus-depression-deficits-opinions-columnists_0213_bruce_bartlett.html

            http://socialdemocracy21stcentury.blogspot.com/2011/05/herbert-hoovers-budget-deficits-drop-in.html

            • Beefcake the Mighty says:

              I was right (as usual): this WAS amusing.

              Basically, potential GDP is taken to be the GDP in some arbitrary base year. Then, the “output gap” for some other year is calculated by subtracting that year’s GDP from the base year GDP. Finally, the relevant deficit is obtained by dividing that output gap by the multiplier (pulled out of one’s ass or, in this case, Brad deLong’s ass).

              [Further commentary removed.--RPM]

              • Joseph Fetz says:

                Dude, you’re starting to push it with Murph. There is this little thing called reasoned debate, which I see that you have some sense in your comments, but you keep pushing on Bob’s generosity.

                In the 2 years that I have been coming to this site I have never seen Bob censor ANYBODY! You’re the only guy, and you don’t seem to get the hint.

                What’s your deal?

              • Beefcake the Mighty says:

                @Joe

                I guess I’m a hard guy to get through to.

              • Beefcake the Mighty says:

                BTW Joe, since LK clearly conceives of his Keynesianism in the same way he insultingly caricaturizes praxeology (as a non-falsifiable tautology, akin to ideology or religion), while flooding the blog with cut-and-pasted data he clearly does not understand, at what point *should* reasoned debate give way to outright mockery?

              • Major_Freedom says:

                Beefcake:

                For what it’s worth, I agree with Joe. You’re going to get Murphy’s blog banned again.

                Try to have a little more courtesy.

              • Beefcake the Mighty says:

                Who’s going to ban Bob’s blog?

              • Major_Freedom says:

                The domain host.

                Maybe you’re not aware, but a while back Murphy’s blog was banned because it contained allegedly foul language. He had to go through unnecessary hoops to get it back.

                I’m just saying go easy and refrain from anything that any temp worker with an inferiority complex would have reason to believe can get him promoted if he reports this blog again because of things you’re saying.

              • Beefcake the Mighty says:

                OK, fine, if he’s getting legitimate flack over this kind of thing, I shall hence forth cease and resist, although I cannot completely guarantee self-control when it comes to particularly loathsome cretins like LK or Gene Callahan.

                At any rate, I think we all know the real reason Bob’s site was down last month was because he didn’t pay his internet bill.

              • Joseph Fetz says:

                Bob’s a very standup guy, he’s often admitted to his own mistakes in both economics and life. If “not paying his bill” was the issue, he would have said so.

                Trust me, that wasn’t the issue.

            • Beefcake the Mighty says:

              Also, why do you keep talking about “austerity” measures by state and local govts? I thought any Keynesian worth his stripes understood the difference between the fiscal situations of the federal vs local govts?

            • Major_Freedom says:

              It is well known that potential GDP during the first years of the 1930s has been calcuated to be about $100 billion.

              “It is well believed” is not a proper foundation for the truth or validity of an argument.

              It was also “well believed” that the Earth was flat.

              Even if you stick 100 Keynesian clowns into a room, and they arrive at a consensus of potential GDP being $100 billion, that doesn’t serve as a foundation for the exact logic and economic principles that backstop this figure. It’s merely evading and pointing a finger at others and saying “They said it was $100 billion, so that’s what I believe.”

              Is that all you have? Deferring to your silly masters for what potential GDP should be? You do no research or thinking for yourself, you do not make the case yourself, you just parrot what your masters say.

              You got nothing. You lost. If we wanted parroted talking points from your masters, we’d ask them where they got their arbitrary “potential GDP”. Of course they will probably say the same nonsense as you: “It’s the consensus figure.”

              Seems like Keynesians are a bunch of sheep who defer to whoever happens to have most influence with the treasury. LOL

  16. Beefcake the Mighty says:

    Lord Keynes is the intellectual equivalent of a hairy kernel:

    http://www.urbandictionary.com/define.php?term=hairy%20kernel

  17. Beefcake the Mighty says:

    Lord Keynes is also the intellectual equivalent of a hairy sandwich:

    http://www.urbandictionary.com/define.php?term=Hairy%20Sandwich

  18. Bob Roddis says:

    The Kuehn paper demonstrated that the 1920 boom/bust cycle was induced 100% by the government. Since both the 1920 and 1929 [and 2008] depressions were caused by the government, and not the free market, there exists no evidence to support the notion that the free market fails and/or even needs “stimulus” which is the bedrock belief of the Keynesians. Thus, pointing to depressions that lacked “stimulus” as proof of anything is preposterous. Austrians have demonstrated the self evident truths that people engage in exchange, that their values are subjective and that the only way to measure those values is with unadulterated market prices after people have engaged in exchange. Further, distortion of those market prices is a recipe for disaster. The underlying facts behind every single Keynesian economic anecdote are always fully explainable employing the self-evident Austrian truths about the nature of human society.

    LK’s use of anecdotes from the 1800s against Austrians when the use of FRB notes in United States currency was in season is beyond dishonest. His fallback line is that because some Austrians think private FRB could work that therefore Austrians are somehow stuck with the consequences of FRB notes in the 1800s. That “argument“ is pathetic. To the extent that some Austrians think that future PRIVATE COMPETING FRB notes might find a market has nothing to do with FRB U.S. currency from the 1800s. Any payee accepting some future private FRB note will be fully informed that it is quite a different animal than a warehouse receipt or there would be fraud. People in the 1800s were unsophisticated about the dangers of FRB notes and unaware of their dangers. Pointing to depressions under such a regime totally verifies Austrian analysis while saying absolutely nothing about the alleged efficacy of Keynesian programs. (Quiggin and LK like to use Australia in the late 1800s as an argument against “free banking” but which does nothing but verify Austrian analysis).

    Keynesians a) cannot (and do not attempt to) show that the market fails or requires “stimulus”; b) have no starting point for their theory in self-evident human action; and c) purposefully refuse to engage Austrians regarding the undeniable way that human society operates.

    • Joseph Fetz says:

      I used to love jammin’ that tune back in the day. Unfortunately, the members are socialists, but hey, they still jammed!

      • Beefcake the Mighty says:

        Oh yeah, they’re outright commies, but they could rock, that’s for sure.

        • Joseph Fetz says:

          There are only a few instances where I had the leave a pit because it was just getting too insane. RATM is one.

          • Beefcake the Mighty says:

            When I saw them many moons back, they had a book stand set up, selling Chomsky, Zinn, et al. I wanted to topple it over, but the concession stand stopped serving beer before I could work up sufficient motivation.

            • Beefcake the Mighty says:

              I should stress here that there are brilliant left-wing critics of American foreign policy, and Chomsky is actually not so bad in this regard (although his response to 9-11 was pathetic). Zinn, however, is 100% tool.

  19. Bob Roddis says:

    Rothbard speaks on 1893:

    Poor Grover Cleveland, a hard-money Democrat, assumed the presidency in the middle of this monetary crisis. Two months later, the stock market collapsed, and a month afterward, in June 1893, distrust of the fractional reserve banks led to massive bank runs and bank failures throughout the country. Once again, however, many banks, national and state, especially in the West and South, were allowed to suspend specie payments. The panic of 1893 was on. In a few months, Eastern bank suspension occurred, beginning with New York City. The total money supply—gold coin, Treasury paper, national bank notes, and national and state bank deposits—fell by 6.3 percent in one year, from June 1892 to June 1893. Suspension of specie payments resulted in deposits—which were no longer immediately redeemable in cash—going to a discount in relation to currency during the month of August. As a result, deposits became less useful, and the public tried its best to intensify its exchange of deposits for currency. [pp. 168-169].

    http://mises.org/books/historyofmoney.pdf

    HT2 J.F. Catalan

  20. MH says:

    I think keynesians are completely wrong about the interest-rate cuts (occurred in May 1921) :

    http://www.bankofcanada.ca/monetary-policy-introduction/why-monetary-policy-matters/4-monetary-policy/

    “The Bank of Canada’s policy actions relating to the overnight interest rate have almost immediate effects on the exchange rate and interest rates, but current estimates suggest that it takes between 12 and 18 months for most of the effect on aggregate output to be observed. Most of the effect on inflation is not apparent for between 18 and 24 months (Duguay 1994). And even these estimates are subject to considerable variation. [...] If, on 1 January 2005, the Bank of Canada observes an event in the world economy that is likely to reduce aggregate demand beginning in June of the same year, there is nothing the Bank can do in January to fully offset that shock. Even if it responded immediately and lowered its policy rate in early January, there simply would not be enough time for its policy to stimulate aggregate demand sufficiently to offset the effects of the shock by June.”

    The quickly resolved 1921 depression must be credited to a sharp decline in nominal wages. Austrians were right about that.

  21. Greg Ransom says:

    So Daniel Kuehn & Paul Krugman misrepresented what you wrote.

    Who would have thunk ….

    Daniel is a very poor reader .. that needs to be said again and again.

    It’s a special problem in having discussions with Daniel. He simply doesn’t read well.

    Because Daniel repeatedly gets wrong the plain words & language of those he wishes to engage, he ends up wasting tons of peoples time, and he ends up spreading false representations of what people are saying.

    What Daniel needs is a Government warning label attacked to all of his web comments …

    • Beefcake the Mighty says:

      I’d ask you to tell us what you really think, but frankly I don’t care.

  22. Demo Rep says:

    Savings = Investment

    A-L-L Government deficits on the left side CUT Investment on the right side
    = CUT Jobs, Jobs, Jobs

    - regardless of ALL Keynes MORONS.

    The FedResSys adds to the mess by having variable per adult money supplies (besides monetizing part of the USA govt deficits) and the rigging of LOW LOW LOW interest rates

    – causing all sorts of BAD loans to be made (i.e. the stock market margin loans in the 1920s and the subprime mortgage loans in 1993-2007).

    Result – GOVERNMENT caused recessions / depressions
    – with the now added SUPER USA/State/Local debts since 1929
    – with a direct potential for total econ meltdown when interest rates go up on such debts.

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