“The U.S. turned 234 years old yesterday, and yet over half of the nation’s money supply was created since Helicopter Ben took over the flight controls four years ago.  No wonder gold is in a full fledged bull market . . .”

-David A. Rosenberg  Chief Economist & Strategist
Gluskin Sheff + Associates Inc.

>

>

Fascinating data point by Rosie, which points to the absurdity of the past decade, most especially the Fed’s over-reaction to the economic collapse.

Most people still do not understand what was accomplished with the Bailouts. What helicopter Ben & Co. did — pouring trillions into the banking sector — served only to stave off a secular economic restructuring of the finance sector.

The can was kicked down the road, and their hope was the wild structurally imbalanced economy was allowed to persist.

By comparison, General Motors had gone down a path of bad management, poor products, lack of long term strategy. Their slide into bankruptcy was appropriate; it served to purge terrible management and awful business planning.

However, Banks were not allowed to suffer the fate that all insolvent businesses are supposed to. This was a terrible error, the greatest financial tragedy of the 21st century. That they were allowed to survive mostly intact is the result of the excess influence they have on a corruptible congress and a misguided Federal Reserve.

In light of the Austerian movement, some folks are now arguing that the bailouts were a form of Keynesianism run amuck. Even my pal Roger Nussbaum wrote that “Creating more debt won’t solve the problem of having too much debt. Stimulus creates artificial demand whereas effective policy creates real demand and… neither party understands this.”

There is truth to that, but it also over-simplifies the complexity of what was done to the economy in the guise of saving the system, but was really about bailout out bad banks, and foolish bondholders.

What occurred from March 2008 to present had nothing to do with economic stimulus or Keynes. Indeed, I suspect Keynes would have been aghast at what Bernanke — and Paulson and Bush and Geithner — had wrought . . .

Category: Bailouts, Currency, Federal Reserve

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

54 Responses to “Bernanke Created Half of 234 Years’ Worth of Money Supply”

  1. RW says:

    Yes, there will still be commentary from those who have learned to use “Keynesian” as code for what they hate (sounds more hi-falut’n than just cussing, eh) but what the Bernanke Fed has done has little to do with Keynes or his theory. It isn’t even consistent with Friedman if it comes to that; e.g, http://tinyurl.com/22lpabl

  2. louiswi says:

    Just to keep the record straight, Keynes was quite clear during recessions, government spending is the wise choice AND running surpluses during the good times was equally important.

  3. wunsacon says:

    >> “Keynesian”

    I wonder why we don’t refer to it as “Reaganism”. “Reagan proved deficits don’t matter”, whereas Keynes said something about saving in good times.

    >> By comparison, General Motors had gone down a path of bad management, poor products, lack of long term strategy.

    Not only should the GM shareholders and bondholders have taken a haircut. The laborers and pensioneers should have, too, as a consequence for not demanding GM management put pension monies in a lock box and make less optimistic pension fund investment assumptions.

  4. wunsacon says:

    >> some folks are now arguing that the bailouts were a form of Keynesianism run amuck.

    The finance industry “owns” this country. Cue Simon Johnson’s remarks about how bailouts usually go first to the entrenched interests that caused a country’s problems.

    It’s not Keynesianism. It’s corruption. And a corruption of capitalism and socialism alike.

  5. Robespierre says:

    “some folks are now arguing that the bailouts were a form of Keynesianism run amuck.”

    The bankers needed to be bailed out because:
    1) Elected officials take money from them
    2) How else are Americans going to get their drugs?
    http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aXf9c5B9KWfA
    Banks Financing Mexico Drug Gangs Admitted in Wells Fargo Deal

  6. Efficientish says:

    Somewhat ironically, I think the best trade out there right now is to short gold.

    I did a full breakdown here – I think this is a very compelling trade:

    http://efficientish.blogspot.com/2010/07/euro-gold-relationship.html

  7. hopefully, it doesn’t involve, too much, meta-cognition for some of your Readership, but, the QOTD:

    Property must be secured or liberty cannot exist. —John Adams

    is, quite, fitting to this Context..
    ~~
    though, this: http://www.zerohedge.com/article/inflation-seen-nations-salvation-redux-how-keynes-grew-hate-keynesianism-and-love-monetary-b

    Well, spells out, and, concurs with: “What occurred from March 2008 to present had nothing to do with economic stimulus or Keynes. Indeed, I suspect Keynes would have been aghast at what Bernanke — and Paulson and Bush and Geithner — had wrought . . .”

  8. louis says:

    “Treason, Bribery, or other high Crimes and Misdemeanors”.

  9. HEHEHE says:

    It was basically a bank heist in broad daylight supported by the government. Funny thing is if they had let them go bankrupt (GS, MS, etc) and broke them up we’d be looking at a much more competitive finance industry that would likely be pulling out of its problems at this point. Instead they’ve let them grow more consolidated and take on more risk without removing their bad assets. Tell me how that is going to end well?

    With stimulus waning, inventory rebuild about over, the best you can say is that we have slow growth, 1%ish the next few quarters to a year; it is more likely we fall back into the recession/depression we never left save for the stimulus.

  10. garo says:

    “The can was kicked down the road, and their hope was the wild structurally imbalanced economy was allowed to persist.”

    Barry, Robert Reich has a post on precisely that:
    http://robertreich.org/post/764586220/slouching-toward-a-double-dip-or-a-lousy-recovery-at

  11. The Curmudgeon says:

    Bernanke did what he thought Friedman would have prescribed, but Anna Schwartz, Friedman’s collaborator on the classic “A Monetary History of the United States” felt otherwise.

    There is a profound difference between 2008 and 1929 regarding monetary policy, and it resolves to the gold standard to which our currency was, at the time, pegged, and the pound still carrying reserve currency status, whereas the dollar does today. Friedman correctly identified the crash in prices due to a crash in money supply (as gold flowed out of the treasury due to the unsustainable peg) as a primary incident that turned a stock market crash into a depression.

    From Friedman’s perspective, Keynesianism, i.e., fiscal policy, seemed irrelevant. In my view, there are profound limits to each. We are seeing that even with impossibly expansive monetary policy, prices still remain in the doldrums, as each increase in money supply just barely keeps up with the loss in money velocity; and running a fiscal deficit, particularly for those entities that don’t print their own money (Greece, Spain, Ireland, California, et al), is problematic in the least, particularly when there is no possible way to service the existing debt, let alone a fiscally-stimulative expansion of the debt.

  12. RandyClayton says:

    After the Lehman bankruptcy, which I originally thought was a good idea, I changed my mind. Without an acceptable substitute mechanism in place I don’t think letting the big institutions fail is a good idea. I think the so-called ‘bailouts’ was the best of a list of really poor options. Of course, I was naively hoping for real reforms too.

    I usually agree with you Barry, but I respectfully disagree here.

  13. Patrick Neid says:

    The excuse making by the interventionists knows no bounds.

  14. ToNYC says:

    “Well at least we cut ONE too-big-to-fail institution down to size” ran the recent cartoon.
    http://edsteinink.com/
    The US Capital is dwarfed like the Customs House in Bowling Green vs Chase Manhattan Bank et al.
    The rub here one step removed is that these skyscraper banks are NOTHING without the FED Reserve who allowed them to take our money. 33 Liberty makes those banks into four- story walkups by comparison.
    Thank you edstein as far as you went!

  15. d4winds says:

    you speak an extremely inconvenient truth; there goes your CNBC invite

  16. Marcus Aurelius says:

    Bernanke created half of 234 years’ worth of money supply and borrow and spend did the same for debt. Nothin’ like a little cause and effect.

  17. Machiavelli999 says:

    “served only to stave off a secular economic restructuring of the finance sector”

    I am not sure if this is exactly correct. I don’t have the numbers on the financial sector, but “experts” have been saying a similar thing about the construction sector. That we can’t do stimulus because we are just standing in the way of sector adjustments,

    However, as Brad Delong points out here: http://tiny.cc/5zj0c

    “As of the end of 2010, the construction sector will have shrunk in nominal terms to its size in 1999, when the economy as a whole was only 57% as large as it is today…”

    Again, I don’t have the numbers on the financial sector (where do all these economists get all this data?) but I would guess that the financial sector has felt a lot of pain as well.

  18. Lugnut says:

    So we have learned the Fed’s fiscal management philosophy which I can reduce to:

    Unresolvable bank debt = Very Bad (reduces chance of high price consulting job later inlife)
    Unresolvable taxpayer debt = Who cares (Fed Chairs aren’t elected, so whatev. Let em eat taxes)

  19. Marcus Aurelius says:

    “Bernanke Created Half of 234 Years’ Worth of Money Supply”

    And trickle-down, borrow-and-spend economics created the debt that required the increase in the money supply.

  20. Marcus Aurelius says:

    “Bernanke Created Half of 234 Years’ Worth of Money Supply”

    And trickle-down, borrow-and-spend policies created the debt that required the increase in the money supply.

  21. DeDude says:

    “Stimulus creates artificial demand whereas effective policy creates”

    Standard brain dead foxification of an important issue. Setting it up as if there is an “either or” choice between stimulus and effective policy (the either this or apple pie false choice). Or as if stimulus somehow prevent “effective policy” and effective policy will appear as long as stimulus does not appear. Both stimulus and effective policies are/were needed. The stimulus was needed to stop the free fall and prevent a depression, effective policies are needed to prevent another free fall. The deficit needs to be tackled but not by reducing aggregate demand and throwing regular people into unemployment (further reducing demand, throwing more people into unemployment, further reducing …….). Every single unemployment year is not just a personal tragedy for the unemployed but a loss for society in form of the “products” this person could have produced if capitalism wasn’t so wasteful and inefficient in its use of labor resources. Yes reduce the deficit, but do it by taxing/confiscating the ill gotten gains of the top 1% wealth holders and earners.

  22. The Curmudgeon says:

    @DeDude: If you want less unemployment, there’s an easy way to get it: Allow the market for labor to find its clearing price. Unless you repeal the minimum wage laws, if the market-clearing price does not exceed minimum wage, you will have long-term unemployment. It’s really as simple as that. The Great Depression’s 25% unemployment was due, in great measure, to the refusal of the government to allow labor prices to decline along with all the other prices. FDR, like Obama is now, was owned by the labor unions.

    Incidentally, the most stimulating thing the gov has done in this iteration of economic dislocation is print money. The stimulus package of about $700 billion pales in comparison to the roughly $2 trillion by which the Fed expanded its balance sheet.

  23. DeDude says:

    “Funny thing is if they had let them go bankrupt (GS, MS, etc) and broke them up we’d be looking at a much more competitive finance industry that would likely be pulling out of its problems at this point”

    That is also a statement that Fox has managed to sell to the average idiot that listen to them. There were no realistic way to allow a mass bankrupcy of all the big banks. Nobody would have stepped in to fill the void, when the recent history of investors was a total loss of their investments. A complete credit freeze in an economy as dependent on credit as ours would be a disaster. The banks had to be bailed out, but the stake-holders did not have to be bailed out. We should have followed the Swedish model with nationalization followed by a slow (over 5-10 year) selling back to the successful players in the private sector free market. Unfortunately the US with its cult like adherence to “free market” mantras is not going to stay competitive in a world where countries like China simply does what is right and what works.

  24. DeDude says:

    Curmudgeon; that is fact-free BS. There is no minimum wage in many countries with much higher unemployment than ours (try Zimbawe, Kenya, Uganda, etc.). Allowing the wealthy to suck dry the poor (or unconnected) is the sure way to sink an economy – and when there is nobody around to consume there will be no jobs making those consumables. Try making a nice little chart of minimum wage vs. unemployment for all the worlds countries and you will be surprised that the correlation is not as you predict (the lower the minimum wage, the lower the unemployment). Then try with average wage vs. unemployment (and/or GDP). Wealth and economic growth and employment are all created by a healthy consumer class, not by destroying the consumer class.

  25. dps says:

    And in this country half of the people who ever lived to sixty are alive today. Talk about future liabilities!
    http://www.civicventures.org/publications/articles/take_advantage_of_us.cfm

  26. ToNYC says:

    “However, Banks were not allowed to suffer the fate that all insolvent businesses are supposed to. ”
    That’s assuming that the Federal Reserved for their Members is a business and not a hierarchical cabal executing on its original plan and design do what the Founding Fathers reserved for Congress but that other clueless Princetonian, Woodrow Wilson, allowed to happen.

    http://www.zerohedge.com/forums/zero-hedge-forums/macroeconomic-forum

  27. The Curmudgeon says:

    DeDude: Try doing it with developed economies. Comparing the US to Zimbabwe is like comparing a lion to a house cat. Yes, they are technically in the same family of beings, but there is a world of difference betwixt them. I suppose your theory is that prices don’t matter? There’s no downward-sloping demand curve so far as labor is concerned? Well then, let’s mandate all workers be paid $20/hr in the US. See how that works out for the unemployment rate. In the US.

  28. DeDude says:

    Curmudgeon; If the rule is that lower salary give higher employment why should it not apply to african (or south american) nations with free market capitalism? But anyway, lets take Denmark, Sweden and Norway they have minimum wages twice of ours and what is their unemployment? The main determinant of employment in US is domestic consumption of products and services. If those products are produced in China we get less bang for our bucks because the employment associated with their consumption is only in their transportation and sale (not in their manufacturing). But the essential component in employment is the ability of people to actually purchase products and services so less salary to the consumer class is bad for employment.

  29. The Curmudgeon says:

    @DeDude: Or, compare France, Germany and Spain, that all have a bigger bag of goodies that come with employment than does the US, which is to say, they all have effectively higher minimum costs/wages for employment. They also all have higher unemployment rates.

    The problem with employment is that jobs can’t be mandated and prices shouldn’t be. The government can certainly make up jobs, but in so far as the made-up jobs produce little of economic value, they are effectively just unemployment subsidies.

    It is an abiding truth that real demand depends on real income. But how to get real income from higher employment rates is the question. All I’m saying is that prices matter. If it costs $10/hr to hire someone legitimately (not under the table), then what they produce in that hour must be more valuable than $10. If it only costs $5/hr, well, you get the picture. Minimum wage laws are fairly benign during expansions, as they only matter if the market wage is less than the minimum, and then only until it catches up and exceeds it. In a deflationary environment, where all other prices are declining but the price of labor is held fast at its minimum, serious and lasting damage can accrue to real income and employment, and thereby aggregate economic performance.

    As I’ve said many times before, international wage arbitrage with our trading partners will move wages across the two economic systems to an equilibrium–in the case you cited–with China’s wage rates increasing and America’s decreasing. Any attempt at government forcing of these tides in a different direction will be manifest in dislocations elsewhere, such as our high unemployment rate at present.

  30. constantnormal says:

    What I find amazing is that all this expansion of credit has been insufficient/inadequate to smother deflation.

    This implies an astronomical amount of negative assets lurking out there, and shows clearly the benefit of bankruptcy, which zeroes out negative assets, and focuses the pain directly upon those responsible, and those that enabled the responsible parties (their stock and bondholders).

    Rather than attempt to support an unsupportable miasma of incompetence and debt, we should have been using the bailout monies to try and contain the spread of the damage. If that proved to be undoable, than it surely illustrates that bailing out the banksters was an impossible task from the start.

    This is analogous to amputation of a gangrenous limb (or 5 or 6 of them), in order to save the body, which would eventually re-grow replacements for the amputated limbs.

    If FDR could shut down the entire national banking system , restructure it, and reopen under a new set of rules, there is no reason why we could not have done the same thing, operating the banking system “under temporary management” while the lines were drawn between the quick and the dead, and the responsible perps quickly charged and arraigned for trial.

    Without zeroing out the toxic assets via bankruptcy, we are left with a never-ending Japanese style of interminable mess, with the accumulation of ever-increasing debt preventing interest rates from ever being increased, and the rapidity of the growth of debt being sufficient to put aside any notion of it ever being paid down.

  31. DeDude says:

    I am not suggesting that price of labor has NO effect what so ever. Just pointing out that it is a minor player not a major player. The major player is the demand for labor (i.e. products and services). Demand for labor requires that you have a healthy consumer class with lots of money to spend on products and services. So if you try to increase demand for labor by reducing the price of labor you end up with a Zimbabwe situation (less than a dollar a day salaries, but nobody to purchase the products and services so almost everybody are unemployed). The idea of “then we just sell stuff to other countries” does not work for our huge country/economy. We are a consumer nation with consumption accounting for 70% of our GDP. There are no markets anywhere else that could absorb it if we turned “Chinese” and wanted to have export account for 40% of our GDP. In all developed countries trade is only a minor component of the economy (and jobs), so competing with other countries by lowering labor cost would only have a minor effect on job creation.

  32. DeDude says:

    @constantnormal; the expansion of credit (Fed’s money creation) has no effect unless it (as pointed out by someone else) is able to keep up with the current reduction in money velocity. If you printed up a trillion $100 bills and stored them in huge warehouses that would have absolutely no effect on the economy (spare a few hundred jobs to do it). The expansion of the feds balance sheet only have all those horrible consequences if money velocity is kept the same as before. Ben’s helicopters are so far in a draw with the money velocity enemy.

  33. DeDude says:

    @Curmodgeon; yes companies do what is good for them in the short run, even if it is bad for their country and themselves in the long run. That is part of the inefficiency, waste and destruction caused by free markets. That is why we have to have a strong proactive government that interfere when the actions of companies are destructive the way it interfere with individuals when their actions are destructive. We should counter this destructive international labor arbitrage by import taxes – and counter destructive market forces when they drive recessions deeper with lowering wages just when we need the consumer class to have more spending money. Deflation is an indication that wages are to low (consumers cannot afford the products) not that they are to high. The driver is always the consumer because nobody makes a product they cannot sell – or to rephrase a famous quote: “its the consumer stupid” ;-)

  34. dsawy says:

    Here’s the problem with Keynesian theories of government spending and distinctions of where the spending is going:

    Politicians don’t give a rat’s ass about these distinctions. At all.

    Keynes could say something like this:

    “Government spending on infrastructure and capital goods to generate demand in the face of excess supply and under-utilized labor capacity to generate demand and employment is good policy and will generate jobs.”

    and here’s what politicians hear:

    “Government spending (blah, blah, blah) is good and will generate jobs.”

    And this is what they say when talking to the idiots in the mainstream media:

    “All government spending is good for jobs.”

    The distinctions about where the spending goes is utterly lost on them. So they piss a trillion dollars into the financial sector, where it doesn’t do much other than plug the holes in balance sheets.

    The problem with policy wonks like Keynes and his successors (all of them, on all sides of the spectrum) is that politicians have the brains of a cockroach, the attention span of a five year slurping on a Jolt Cola, and the honesty of a three card monty huckster.

  35. willid3 says:

    i am thinking we are in a demand driven economy (i.e. capitalism) as opposed to command (authoritarian). there are no jobs in our economy without demand for it. either from government being government (for police for example, for fire, or others) or from customers or government demanding goods and services.
    so any thing that destroys demand will actually deflate the economy (always has. always will). so in a time when the private sector (i.e. consumers and business) aren’t demanding any thing at all, and in fact retrenching. mostly due to that collapse in wages/incomes (driven mostly by trying to compete with wages/incomes in 3rd world countries), which leads to business retreating even more as their customers (i.e. employees for some one else) disappear. whats odd about that, is that this is business doing it to them selves. they are destroying their source of demand.
    so what is proposed (and i expect to happen to by the way, right or wrong. as pointed out, politicians do nothing but work to get elected. even if what they propose ends up being wrong) will reduce government demand for goods and services.
    with no replacements.
    as the consumer is tapped out (wages have been falling all decade. now below what they were in the previous decade).
    and business doesn’t contribute any thing that they don’t get demand for (see above).
    and exports won’t make up the difference as the rest of the world is doing the same as the US.

    so that leaves who or what? Aliens from space?
    or is this just the great world wide collapse of all of the economies?

  36. WFTA says:

    It was obviously much smarter to have been a bondholder of Citi that to have been a bondholder of General Motors. Does that tell us that while Joe Voter may dislike Wall Street bankers for their billions in bonuses, he truly hates UAW members for earning enough to buy a home and send children to college?

  37. DeDude says:

    @dsawy;

    The fact that our current crop of politicians do not understand or correctly implement Keynesian theories does not mean that there is a problem with the theories – it means that there is a problem with the politicians. Public works programs are clearly much better stimulus than most of what was passed in the stimulus bill. The problem was that in order to get the last few republican and blue dog “democrat” votes, they had to add a bunch of useless spending to the bill. This close to the election there is nothing they can do – its even in the democrats interest to not succeed in getting another stimulus passed. Then they can blame the (obstructionist say no to everything) GOPsters for any fall in the economy come election time.

  38. constantnormal says:

    @DeDude 2:55

    Are you sure that Ben has managed a draw?

    http://research.stlouisfed.org/fred2/series/MULT

    http://inflationdata.com/inflation/Deflation_Articles/Why_Deflation_Is_Possible.asp

    It doesn’t seem very “draw-ish” to me.

    Of course you are entirely correct when you point out that if they “print” all that money and it never reaches the larger economy, it is much the same as if it had never been printed in the first place. And nobody seems to be willing to force the TBTF banksters to do much of anything.

  39. S Brennan says:

    Curmudgeon,

    “If you want less unemployment, there’s an easy way to get it: Allow the market for labor to find its clearing price. ”

    We’ve tried your idiotic prescription before, the great depression was called “The Great” Depression to separate it from the preceding 5-6 that occurred in the late 19th & early 20th centuries.

    Unlike duffusses today, Henry Ford figured out if workers had more than survival wages they’d spend it on products. It’s too bad folks today are too clueless to understand wages and demand are closely coupled…borrowing on rising asset prices is no substitute for an economic share of productivity increases.

    Workers have had to increasing “invest” in themselves in order up their productivity, the deserve a share in the outcome at least as much…if not more than the share/bond holder. Only a totalitarian [pick your flavor, right or left] would say all wealth should be held by a collective enterprises such as a government, or a government entity…which is all corporations really are.

  40. [...] to avoid a vast restructuring. “The can was kicked down the road,” Barry Ritholtz writes, noting banks weren’t allowed to suffer the same destiny that happens to other insolvent [...]

  41. kwong007 says:

    Is that figure inflation adjusted?

  42. CitizenWhy says:

    I still do not understand why we call banks that are too big to succeed too big to fail.

    I still do not know why we call trading houses (like Goldman Sachs) investment banks.

    One thing: a a major factor in the bank bailout (for 6 institutions, whose reckless trading continues) was jobs. These 6 so-called banks employ a large number of people, especially graduates of elite universities like Harvard. Throwing these aristocrats (an Ivy degree being a patent of nobility) out of work would have created a serious crisis for capitalism.

    Get real. Do not forget that we are an aristocracy, not a democracy, the aristocrats being corporate executives, lobbyists, Ivy league graduates and university executives, and DC politicians, in that order.

  43. Ducky62 says:

    What occurred from March 2008 to present had nothing to do with economic stimulus or Keynes.

    And what Mao, Stalin, Castro, Pol Pot et al did was not Marxism, yet they called themselves Marxists(and what they did Marxism) – so did their supporters. I’m sure Marx would have been aghast

  44. Patrick Neid says:

    “The fact that our current crop of politicians do not understand or correctly implement Keynesian theories does not mean that there is a problem with the theories – it means that there is a problem with the politicians.”

    Too funny. They said/say the same thing about Marxism–the communists that killed and created tens of millions of walking dead were just misguided. But trust us, the theory is sound! LOL.

  45. wunsacon says:

    Ducky62 , Patrick,

    >> Too funny. They said/say the same thing about Marxism–the communists that killed and created tens of millions of walking dead were just misguided. But trust us, the theory is sound! LOL.

    Like the “free market” crowd disowning the deregulatory moves the past 30 years (“it wasn’t deregulation”) because the government failed to also eliminate the FDIC and Fed? Do you laugh at those excuses, too?

    (FWIW, I don’t laugh at it. I merely suggest not trivializing legitimate distinctions.)

  46. davver says:

    BR,

    According to Keynesian in chief Krugman burying bottles full of bank notes in coal mines is good Keynesian stimulus. Also, efficient government programs are bad for the economy.
    _______________________________________
    http://krugman.blogs.nytimes.com/2009/04/14/time-for-bottles-in-coal-mines/
    Time for bottles in coal mines

    President Obama hails the fact that stimulus projects are coming in “ahead of schedule and under budget.” Yay — but boo.

    Ahead of schedule is good. Under budget — well, ordinarily that’s a good thing. But the point of the stimulus is to increase spending! So if we don’t spend as much as expected, that’s less stimulus.

    Paging Keynes, who pointed out the problem with projects that are of some use besides their role as stimulus. Such projects

    because they are not wholly wasteful, tend to be judged on strict “business” principles.

    He then went on to propose an alternative:

    If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

    Seriously: if the projects really are coming in cheaper than expected, that doesn’t mean we should bank the savings; it means that we need more projects.
    ________________________________________________

    While everyone, I’m sure Keynes included, would prefer good spending Krugman believes there is no such thing as bad spending in a downturn and the debt incurred doing so won’t effect us going forward. We also know he supported (grudgingly, but still supported) the bailouts. So exactly why isn’t what we’ve seen the last two years Keynesian?

    Once you tell Washington there is no such thing as bad spending you shouldn’t be surprised to see a lot of bad spending. Government doesn’t always work the way you want and you have to acknowledge its shortcomings and make them a part of any effective theory. Theories based on idealism instead of realistic expectations of government performance are bad theories. And no, I don’t think the problem is the current crop of politicians but rather the real world limitations of what a democracy is capable of.

  47. Rescission says:

    It’s all Bush’s fault. Bush is bad. Obama is brilliant.

  48. Patrick Neid says:

    ” Do you laugh at those excuses, too?”

    I laughed at exactly what I mentioned.

    Your example was the trivial point. Free marketeers having opinions about government’s ability to do anything right is a long way from printing trillions of dollars based on bogus economic thinking akin to the millions dead based on a bogus ism.

    Keynesianism can never work. Not because of a possible faulty model but because it involves politicians requiring a before and after. Like communism/socialism/Marxism it always works on paper but it can never ever work in a real world filled with people. Unless of course you like the Stalin’s and Mao’s of the world.

  49. Solitude says:

    oh stop blaming keynes already!

    Its very easy to dramatize things. Wouldn’t a comparison of debt/gdp been more apt? Money supply is definitely increasing, not disagreeing on that, all i’m trying to point out to is the dramatics.

  50. [...] Ben S. Bernanke created half of 234 years’ worth of the nation’s money supply. [...]

  51. poppysmic says:

    http://moneyhelicopters.ytmnd.com/

    Watch Helicopter Bernanke save the day!

  52. DeDude says:

    @Patrick;

    I know. Capitalism, Dadaism, Socialism, Free-Marketism, Tea-partism, Falosism – if it is an ism “it always works on paper but it can never ever work in a real world filled with people” :-)

    But just like the Bumble-Bee doesn’t care that its not supposed to be able to fly, Keynesianism does not care that it is not supposed to work it just does.

  53. gbgasser says:

    “What occurred from March 2008 to present had nothing to do with economic stimulus or Keynes. Indeed, I suspect Keynes would have been aghast at what Bernanke — and Paulson and Bush and Geithner — had wrought . . .”"

    Thank you Barry. The throwing around of Keynes’ name these days is quite the sport on Fox Tee Vee. Most of the people using the term Keynesian have never read any of his works nor understand the basic insights that Keynes added to economic thought. Prior to Keynes there was no MACRO economy, it was just the microeconomy added together. This why people thought saving more and more was sound advice to all , except Keyenes pointed out that if everyone saved a larger and larger portion of their income or if enough people did it at once they would cause all incomes to drop and therefore savings would be lowered. Fallacy of composition plays a huge role when trying go from a sound suggestion for one to good advice for all. Take trade policy in the Eurozone. They cant all be Germanys. Every net exporter needs a net importer. Flow of funds and sector analyses were all the sorts of things that Keynes understood and others developed later. His model of how the economy works are beyond compare I think.