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Thoughts from the Frontline

Where’s the Growth?

September 21, 2014

In 1633 Galileo Galilei, then an old man, was tried and convicted by the Catholic Church of the heresy of believing that the earth revolved around the sun. He recanted and was forced into house arrest for the rest of his life, until 1642. Yet “The moment he [Galileo] was set at liberty, he looked up to the sky and down to the ground, and, stamping with his foot, in a contemplative mood, said, Eppur si muove, that is, still it moves, meaning the earth” (Giuseppe Baretti in his book the The Italian Library, written in 1757).

Flawed from its foundation, economics as a whole has failed to improve much with time. As it both ossified into an academic establishment and mutated into mathematics, the Newtonian scheme became an illusion of determinism in a tempestuous world of human actions. Economists became preoccupied with mechanical models of markets and uninterested in the willful people who inhabit them….

Some economists become obsessed with market efficiency and others with market failure.…

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Shawn Allen

Today, 2:19 p.m.

Your presupposition that the words “secular stagnation” were useful meant that you pretty much lost me from the outset.

“secular” implies that markets move in predictable cycles ala technical “analysis” and I consider it nonsense akin to voo doo.

If by secular you just mean long-term then just say long-term

Today, 2:08 p.m.

As a biological scientist, I read this economic theory with some difficulty.  Can someone please tell me—How do we tell an over-regulation from one that prevents the seemingly ever growing criminal element in business?  One person’s burdensome regulation may be the one that prevents Wall St from stealing my money.

Dallas Kennedy

Today, 1:42 p.m.

Great article! Economic theory today is indeed a pathetic sight.

Today, 12:32 p.m.

John, you wrote: “Keynesians argue that Abe had the right idea, he just didn’t spend enough and will need to spend a lot more in the near future. In other words, fiscal and monetary stimulus can lift inflation and boost growth in the short term… but the problem is that you can’t have that stimulus if you want to consolidate the national debt and boost tax revenues at the same time.”

You didn’t explain how that’s wrong in your view.

Yesterday, I had the good fortune to see this video: The Economy: Does More Government Help or Hurt - Stephanie Kelton only. The New Economic Perspectives post describes it as follows: “Video of public debate on the role of Government in the economy presented at the Kansas City Public Library, Plaza Branch on September 16, 2014.”

Stephanie Kelton’s blog begins her biography as follows: “Stephanie Kelton, Ph.D. is Associate Professor and Chair of the Department of Economics at the University of Missouri-Kansas City.”

She is a Post-Keynesian (not to be confused with New Keynesian), but many of your criticisms are addressed, and, I believe, debunked, in the video.

Stephanie Kelton lays out the Modern Money Theory (MMT) critique of Austrianism (aka “austerity” and “laissez-faire” among others).

Let me keep this brief and end by saying that the criticism you level at Keynesianism, that it is akin to faith-based and the facts be damned, is the exact same criticism leveled at the Austrian School of Economics and somewhat also the Chicago School (non-monetarist aspects, as MMT encompasses monetarism), that especially the Austrians are not data-driven but reject the data when it shows them wrong, that they are ideologues and ignore the facts presented that refute their a priori assumptions.

Ken Templin

Today, 12:06 p.m.


I have read your work for many years and this week’s column is an excellent summary of why Keynesian economics is showing its flaws.  My simple view is that anything done in excess (drinking and drugs on the human body and debt and government regulation on an economy) will ultimately destroy the structure it was intended to benefit.

Thanks for the thoughts.
Ken Templin

Craig Cheatum

Today, 10:20 a.m.

Hey John, it seems to me like you are describing supply-side economics, not Keynesian at all.  Keynes would have us save when the economy is good so we would have reserves when the economy reversed.  I can’t think of any sustained period when that happened, so supply-side policies have dominated for at least 3 decades. During the Bush years, some economists used the term double Santa Claus because spending was dramatically increased along with massive tax cuts (even when we were in a so-called expansion and should have been saving not spending). Even on the out years.  Obama on his first day in office explained that the deficit would be $1.3 trillion for the first 5 years.  Even with that general knowledge, what did Congress do to cut spending, nothing.

So what we are seeing is nothing new.  Commitments were made a long time ago.

I do agree more and more that there will be big reset. Over what period of time is a bigger unknown.

From a personal standpoint I’d like to see more work on derivatives (is it possible to eliminate almost all of them?)and velocity of money (some say the only important thing to watch, but what is the prognosis for the steep drop to continue, or will it reverse any time soon.

Today, 8:54 a.m.

Those of us facing retirement, whose investments have been severely impacted by this economy, have some catching up to do. The highest income earners realize this is the last opportunity to save for the inevitable. The spending spigot is now closed for many of us.

Ski Milburn

Today, 8:48 a.m.


This is your second post in a row wondering where the growth went.  Must be that bee has gotten under your saddle real good.  Watch out for when it stings, the horse is going to start bucking.

Your obsession with economics, most especially all things Keynesian, reads like a hammer looking for a nail.  You’d do better looking elsewhere in your toolbox.

Truth is, economists, like central bankers, and CEO’s, and athletes, and movie stars, and so many others all think it’s all about them.  Truth is, they have a whole lot less to do with it than they think.  The steering wheel of their personal bus isn’t actually connected to much except luck, timing, and will power, two of which they have little to do with.

And I’ve been following the Keynes vs Austrian economic debate since I was fascinated by economics in college.  More and more it looks like debating which kind of hammer to pound the nails in with when it’s actually time to pull some out. 

Both sides are so relentlessly Newtonian in their own way, when it seems we’re really dealing with something much closer to the particle/wave duality paradox that bedevils modern physics.  How can particles (individuals) have free will when waves (the collective) exhibit predictable behavior?  And what do you do when behavior is motivated by something other than the hammer that you’re currently holding?

How can monetary policy stop working, when three decades of it have delivered the riches of supply, but the evaporation of demand?  But, I answer my own question.

For a clue, there was a great book published not too long ago about the debt supercycle.  You might remember who wrote it, but if you read it and everywhere it says “government debt” just substitute “debt” and much will be revealed. Try it on “student debt” if you want answers to one of the questions in this post.  We are being broken on the altar of this false religion.  But you knew that, you just didn’t open your eyes quite wide enough.

And last, it seems from your many posts that your kids are doing great.  When exactly did you stop beating them?

Today, 7:22 a.m.

John, well written and thoughtful article. I represent a microcosm of what you described. As a physician/entrepreneur, I have directly or indirectly created 2000 jobs in the past 10 years in addition to years of medical practice, writing and lecturing. The current climate inside of medicine and for taking risks has caused me to pull back and sit on the sidelines. To a person, my former medical colleagues want out of medicine because of over regulation and interference with their patient relationships. What departs with them is years of wisdom and what remains are expensive drugs many cannot afford and a plethora of gadgets and gizmos for monitor patients with little insight into the human condition. You simply can’t have good health without that understanding. I think this parallels your discussion of economics and brings to mind the old cliche’; ‘the patient died with perfect numbers’.

gary legon 40861

Today, 7 a.m.

It’s easy to critique and harder to offer alternate solutions.  I can agree with some of your points but not nearly all of your criticism. Poor Keynes almost literally hung in effigy because his accolytes believe in some economic purity that will work sometimes but not always.  That’s the real world interfering in theory.  So while I agree in part, I do not agree with your whole thing. 
I wondered what you meant when you listed the 3 things that are the mantra of all who oppose regulation regularly trot out. Would that be to allow further poisoning of the food supply, air, water… what exactly?  Or maybe it is those onerous banking rules after the extremes reached by those wonderful folks who gave us 2008. If it were that simple, then let’s go back to the good old days of robber barons and child factory workers. 
It’s one thing to complain about the debt buildup or a ridiculous tax code but quite another to roll them up all together in the Republican mantra you seem to be extolling.  Talk about blind belief. 
I have come to expect a lot more from you.  Keynes is no more the problem than Hyack.  It is blind belief in theories over real world experience. The more I read Keynes own actual words the more he stands tall.  He was a very good investor himself and was a wonderful student of human nature.  Is it all correct, all the time, no. Some work well, others not, but to continue to pound away at one of the great thinkers is just over the top. I am disappointed.

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