So far, all I see is opinion supported by "convieniently unavailable" references. For once, demonstrate your knowledge by providing a publically available link that shows Keynes great insight on stagflation. If Keynes is so gifted, why is he limitied to fixing the bust, (steering the bus by looking in the rear view mirror), instead of preventing it?
When one refers to scholarly research one will refer to scholarly sources. Bit obvious really How dreadfully utopian of you! Shocks happen, behaviour inflame problems etc. There's no point in suggesting otherwise. The best on offer, particularly with capitalism that encourages monopoly power, is to reduce the threat of crisis
There is scholarly research in the public domain, only those with something to hide reference unverifiable references. No wonder you are a Keysnian, you don't think anything can be predicted. How sad.
Unlike you I always use best practice. I do not use secondary sources, using almost entirely peer reviewed scholarly research. Your reaction, following your crass error, is expected. I'm not a Keynesian. I would fall within the institutionalist camp. I'm just able to acknowledge the importance of different schools of thought. Its the sensible thing to do. In contrast, due to ideological limitation, you've simply made very silly statements.
You call me crass, yet you have yet to prove that your peer reviewed, scholarly research, is anything but some academic's need to publish or perish. You are dodging the question. Show me where Keynes predicts stagflation.
I have absolute faith that spending at the federal level is capable of stimulating the economy and thus leading to more production, greater output and as a result reduce deficits. My trouble is, I have very little faith in the agents of the state to distribute those stimulus dollars in a way that will lead to these outcomes. Honestly, the original question doesn't really make any sense. I assume what you're trying to get at is whether stimulus spending and running budget deficits in the short run can lead us out of this slump? It's impossible to know, it's certainly possible, it worked in the 80's... it depends a lot on where the money goes and the size of the stimulus.
Could deficit spending continue the housing boom? That would have kept the construction trades employed, the mortgage backed securities viable. But, only if housing prices kept increasing (securing those 125% loan to value loans). The problem was housing was overpriced by the boom. Inflating housing prices even further, would only make the bust that much worse. The Keysnian solution, isn't a solution.
The better question would be: "Do we want it to?" to which the clear answer is no. House prices were inflated because loan requirements were reduced and these iffy-loans were packaged with more secure ones and then sold as if it was an A+ investments, which hindsight now tells us it wasn't Back to my first statement. The housing bubble had little, probably nothing to do with Keynesian economics.
The theory of Keysnian economics is government spending can offset reduced consumer spending. In this recession, those that lost their jobs to the housing bust, could have been put into other construction jobs. But, housing prices, being over priced, would have fallen, causing the same bust, the same financial collapse. There was no way to stop the crash, after it started. Only well before, where Keynes is silent. The demand for cash for homes, created the demand for AAA investments, to act as bank reserves. Had interest rates adjusted up, the demand for homes would have fallen. The right interest rate would have avoided the bubble, and the bad paper it created. Because, the Keynesian solution is applied after the crash - when it is too late. It is better to avoid the bubble, which drives spending to unsustainable levels. What does Lord Keynes say about doing that?
You can't say that as if it's fact. It's am empirical question that neither of us can know the answer to. You seem to believe that stimulus would have had to been put directly into construction/housing which isn't the case at all, it's about introducing more liquidity into the system and hoping that velocity works it's magic. There's a lot that went on, I think the biggest issue was the implicit (turned out to be explicit) guarantee from the FED that it'd bail out creditors which created a horrible set of incentives. Monetarist and Austrians would certainly agree with you on that. I'm certain it played a factor, but how big of a factor is the most interesting thought, I tend not to put too much faith in fiscal policy being the all healing salve that some seem to think it is. Not sure why you have such vitriol towards the guy, him and his followers have your best interest at heart, you just don't happen to agree with the path to get there. Stimulus spending makes no sense prior to a crash, Keynes simply acknowledges the instability inherent in capitalism and offered a solution. Sure, avoiding bubbles sounds marvelous but so far as I can tell, no one knows how to accomplish that. Oddly enough, austerity, a policy I'd assume you'd embrace is what a a new Keynesian would prescribe in good times.
Take all the money borrowed for homes, subtract what would have been borrowed without the bubble - that was added to the economy. Not ony in construction and products for homes, but in all kinds of things. Spending was at an unsustainable level. Goods and services were grown, based on that unsustainable level. Back off spending, sales of goods and services, fall, people get laid off, decreasing spending even futher. As I said two posts ago, government spending would have to maintain that spending tragectory, also usnsustainable. Could the crash been better, or worse, with different handling, that I can't say. That the crash was unstoppable once it started, I am very confident. That, the rating agencies looked the other way (because their competitors wouldn't), low interest rates and lair loans cause housing to appreciate so fast that liar loans lost their risk (for a while), banks made risky loans knowing Fanny and Freddie would buy them, etc., etc. Letting the market set interest rates, instead of the Fed would have tempered the crash, and could have avoided it, if they increased fast enough to keep home prices on a sustainable tragectory. Why the vitriol, Keynes gave politicians the permission they were looking for to deficit spend. I wasn't advocating stimulus spending before the crash, that would have exacerbated the crash. Read "The Beer Game". Booms and busts are related to the lag time between demand and supply. The tech bubble crashed when capacity exceeded need, the housing bubble when there were more homes than buyers. If the lag time is very long, prices increase to reduce demand, if there is no lag, supply meets demand, so no need to increase prices. But, in between, banks will loan money to companies willing to meet the apparent demand, and as in the beer game, that demand is almost always inflated. When too much capacity is built, the money spent on excess capacity is locked up. If I understand Keynes correctly, he saw savings (austerity) as the cause of crashes due to the fallacy of thrift.
Of course you realise that Marxist economists would have a very different perspective on this. It is not people that are not spending enough money; It is the wealthy people that are not spending enough of their money. I just think Keynes's "paradox of thrift" can be very misleading. Now first let me say that I am a big enthusiast of these types of "paradoxes". There are plenty of them in economics, and I wish more of them would get attention. But those who use the paradox of thrift as an economic perspective make the mistake of simply classifying everyone into a single group of people who are both consumers and workers. This ignores the fact that some groups of people are able to consume much more than other groups of people. And it is not merely through work that they consume, but also through the ownership of capital and land rents. An unemployed person with little savings should NOT be spending over his means to help stimulate the wider economy.
What should they be spending it on to stimulate the economy? The wealthy didn't get that way, or stay that way, by keeping their money under their mattress. They invest their money with people that spend it to make more money. Keynes paradox of thrift looks at a snapshot of time, not the long term results. Pelosi was the one that said it was the money the unemployed spent that would recover the economy, not me. In capitalism, as long as the government is doing it's job preventing unfair advantsge (which it isn't), competition will drive rent, and the prices for goods and services, to the lowest possible price. Regulation keeps prices high - compare the price over time for Lasik compared to "insured" medical procedures. Is it Lasik surgeons that are getting screwed, or the rest of us?
Such innocence of capitalism! Capitalism naturally delivers market concentration and therefore rent through 'unfair advantage'
And, of course your believe in the benevolence of Market Socialism. All the evils of capitalism, without the checks and balances of competition.
Evils? No need for emotionalism. Its simply about the profit motive and how that impacts on firm organisation. Economic reality is of course often ignored by the right wing
Who keeps the people in the government that manage Market Socialism, from engaging in their own version of "profit motive", staying in power? What are the checks and balances?
You're not making sense. The profit motive is maintained in market socialism, but- due to the rational change in ownership-firm organisation changes accordingly (e.g. firm size is restricted by aspects such as economies of scale). But that's irrelevant. You've simply made another error, adding capitalism to Keynesianism in the list of political economic terms you don't really understand
Since when did the government worry about economies of scale? Or, the efficiency required to make profits (when you have tarriffs)? Check and balances are irrelevant? Your lack of understanding goes way beyond terms.
Sadly, it's you who is failing to understand. Market socialism is market oriented, very little would change in regards to the type of government that'd be in place so frankly your question was completely irrelevant. The market continues to be guided by profit, government is still government, could very well be set up the same as our is.
The source of economic growth is not spending but saving. Keynesian economics argues the precise opposite, which is why it has failed us time and time again.
Another ignorant comment. The only failure in Keynesian economics is the bastardised version that tried to convince us that it was just about a political decision over a perceived unemployment-inflation trade-off
Are you rejecting my comment that saving is the source of economic growth, or the comment that Keynesian economics in general argues that spending is the source of economic growth?