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View Diary: Why do conservatives hate Keynes (55 comments)

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  •  But isn't it the opposite? (0+ / 0-)
    Adam Smith pointed out that if the government kept interest rates low the markets would favor well thought out investment, but if rates went up too high investors would speculate and harm national prosperity (ahem, Lehman Brothers).
    When rates are too low, excessive speculation ensues, as in the 00's, but when they're higher, more real investment happens, as in the 80's & 90's. When money is too easily available, barring prudent regulation and strong oversight, it tends to get abused in dangerous speculation.

    This can be said of almost anything, really.

    Doesn't take away from Keynes' ideas, though. But Smith was talking about the supply side, not the spending side, which Keynes was, in this instance. In a recession, you want rates to be low, of course. But you also want money to be spent, especially on stimulative activity, and not speculated with. A strong and healthy economy depends on more than just rates, then, but also smart spending, on stimulus and growth, and on prudent regulation.

    Also, jackboots, black helicopters and FEMA camps. Gotta have those.

    "Liberty without virtue would be no blessing to us" - Benjamin Rush, 1777

    by kovie on Sun May 12, 2013 at 06:53:13 AM PDT

    •  bank rates were low (1+ / 0-)
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      but CDOs are fundamentally loans.  Smith suggested that the government forbid loans at interest rates too far above the minimum in the market. The theory was that anyone offering rates significantly above minimum was not operating a prudent business - certainly something one can say about  high interest rate  tranches on CDOs or liar loans with enormous balloon rates.  Consider also the interest rates offered by Baine Cap on the dividend recap bonds they sold.

      Suppose we taxed interest on loans more than 2% above some index at 90% and made contracts with collateral in those cases non-enforceable.

      I'm not sure how much real investment happened in the 80s or 90s, but Smith's point is that sensible market regulation is needed to direct investment into productive avenues and away from speculation. Keynes also addressed this very issue  and argued that lending money should be made to be a low return occupation.  This is an aspect of Keynes proposals that is rarely referenced. Keynes argument is that if you want higher returns you should openly invest.

      Since Keynes and certainly since Smith, the lines between investing and lending have been made more complex, but the point I was really trying to make, which you got, is that even as far back as Smith, economists knew that governments should regulate markets for public prosperity.

      self-appointed intellectual cop

      by citizen k on Sun May 12, 2013 at 07:42:50 AM PDT

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      •  As you may or may not know (0+ / 0-)

        I'm basically a Hamiltonian wrt economic, monetary and fiscal policy, obviously adjusted for the past 200+ years of economic and financial developments and understanding. I.e. I'm a fan of the "American System" envisioned by Hamilton and championed and implemented by Clay, Lincoln, TR, etc., that favors direct government intervention and investment in, and regulation of, the economy, including its financial system, when, where and in a way that makes sense, to promote shared prosperity and the common good.

        Over time this came to include adding welfare state components to ensure that no one would sink below a certain level (obviously not fully implemented yet), especially under FDR, but also under previous administrations. In one form or another, such a system, when adopted, has proven to be the best one in terms of benefiting the largest number of people, and not just the rich. But it's also proven to be the most sustainable one in terms of macroeconomics.

        I think that Keynes basically took this system and proposed enhancements and adjustments to account for major economic downturns. In essence, it's the best real-world system that anyone's ever come up with, however imperfect.

        "Liberty without virtue would be no blessing to us" - Benjamin Rush, 1777

        by kovie on Sun May 12, 2013 at 10:36:16 AM PDT

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