Were the Keynesians wrong?

[username18333]

. . .

So if this is an indication: 66% deflation in the biggest economic sector on earth for 4 decades while it is one of the most fertile sectors economically speaking, then you might start to get a small doubt that a mid deflation of a few percent per year will trigger a deflationary spiral, no ?

2  :  a contraction in the volume of available money or credit that results in a general decline in prices

(Red colorization mine.)

The supply of electronics was expanded.

[DanielT]

2  :  a contraction in the volume of available money or credit that results in a general decline in prices

(Red colorization mine.)

The supply of electronics was expanded.

That is a fail definition if you are trying to defend the idea of deflationary spiral. A Keynesian would say that deflation is price decrease, and not a contraction of money supply. (which never ever happened)

[dinofelis]

The supply of electronics was expanded.

That has nothing to do with it.  We are not looking at the electronics offer and demand.  We are looking at the supposed driving force behind a deflationary spiral if ever there would be a mild deflation: namely the idea that people will not spend NOW to buy something at price X if they simply have to wait for TOMORROW for it to be at price 0.95 X.

If that idea were true, people would not buy expensive computers now, because they can have a better one for less money tomorrow.  They would not buy smartphones now, because they can have a better one (often cheaper) tomorrow.
The expansion of the consumer electronics market and the high turn over in that market proves that the "it's cheaper (and even better) tomorrow" doesn't stop people from spending now, at least in that particular case.  In the food market it would be evident: you're not going to starve today because bread will be cheaper tomorrow.  But in that most frivole market of consumer electronics, it is not true either.

So, if food, and the biggest market in the world, consumer electronics, are not exhibiting the postulated general property of "if people know it's going to be cheaper tomorrow, they will hoard their money today" then the evident truth of that postulate may seriously be questioned.

And it is at the basis of the "deflationary spiral" theorem: "a bit of deflation will make some people postpone their spending to get things cheaper tomorrow, which will induce even more deflation, which will make more people postpone their spending, and so on, until everybody stops spending and waiting for better prices tomorrow"


As I pointed out, the deflationary spiral is the dual of hyperinflation. 
Because exactly the same reasoning holds, in the other way: a bit of inflation will make some people spend today what they planned to buy tomorrow, as it will be cheaper today.  That will cause even more inflation, which will make more people spend today what they wanted to spend tomorrow, and so on, until everybody wants to get rid of his money today in a frenzy, which is hyperinflation.

[username18333]

2  :  a contraction in the volume of available money or credit that results in a general decline in prices

(Red colorization mine.)

The supply of electronics was expanded.

That is a fail definition if you are trying to defend the idea of deflationary spiral. A Keynesian would say that deflation is price decrease, and not a contraction of money supply. (which never ever happened)

. . .

The supply of electronics was expanded.

That has nothing to do with it.  We are not looking at the electronics offer and demand.  We are looking at the supposed driving force behind a deflationary spiral if ever there would be a mild deflation: namely the idea that people will not spend NOW to buy something at price X if they simply have to wait for TOMORROW for it to be at price 0.95 X.

. . .

So, if food, and the biggest market in the world, consumer electronics, are not exhibiting the postulated general property of "if people know it's going to be cheaper tomorrow, they will hoard their money today" then the evident truth of that postulate may seriously be questioned.

And it is at the basis of the "deflationary spiral" theorem: "a bit of deflation will make some people postpone their spending to get things cheaper tomorrow, which will induce even more deflation, which will make more people postpone their spending, and so on, until everybody stops spending and waiting for better prices tomorrow"

. . .

1. By the very denotation of “deflation” (see my previous post) it does.

2. a) “[P]eople” (dinofelis) (Who, exactly are you talking about?) do postpone the purchase of electronic goods and, thus, so hoard their capital.
2. b) That “deflation” (dinofelis) is the conventional deflation—“ a contraction in the volume of available money or credit…” (Merriam-Webster, Inc.).

[Erdogan]

If you want to understand inflation, here is another superb article by Keith Weiner:

http://keithweinereconomics.com/2012/01/06/inflation-an-expansion-of-counterfeit-credit/


"I don’t know if a decent suit cost $20 (i.e. one ounce of gold) in 1911.  Today, one can certainly get a decent suit for far less than $1600 (i.e. one ounce), and one could pay 3 or 4 ounces too for a high-end suit.

My point is that consumer prices are a red herring.  Increased production efficiency tends to push prices down, and monetary debasement tends to push prices up.  If those forces balance in any given year, the monetary authorities claim that there is no inflation.

This is a lie."

And the explanation comes in the article.

Adding my anti-state view: Whenever some value is created, productivity increase or whatnot, they want it. They just take it. The people does not see the theft, they don't analyze the production process to see that more value is created for less factors, and that they should pay less.

Why haven't they secured the productivity increase in mobile phones for themselves, instead of letting the price slide to the benefit of the consumers? I think they were just taken by surprise, it happened too fast. And: They did take some, the "new land" of radio frequencies. (Yeah, they just took the new land). They sold GSM lisenses in European countries for 50 B USD per license per country a decade ago. Of course, it is technology dependent licenses, so they can sell the spectrum again when technoloy develops.

[DanielT]

1. By the very denotation of “deflation” (see my previous post) it does.

Money supply essentially never contracted in history. What happened is the decrease of prices.

[username18333]

1. By the very denotation of “deflation” (see my previous post) it does.

Money supply essentially never contracted in history. What happened is the decrease of prices.

Hence, Keynesian economics has not, by the examples given here which concern supplies, been demonstrated to be errant: perceptions of “deflation” have.

[bmarch]

Keynes is the troll of economic theorists used by universities and interested parties to add theoretical justification for their parasitism.

Keynes was probably terrible at saving money. Marx was for a fact. I think Keynes appeals to people who are suseptible for lazy quick fixes in general. We live in a different world now as well and so I think something as simple as "save money for future consumption and investment" is a principle we all need to adhere to a lot more now. Society might grind along at a slower pace, but it will probably have to since things are growing in complexity globally.

Managing a global economy is a much larger pipe dream than managing farmers in Siberia was during the Soviet regime. So much more impossible. Governments and citizens alike will have to become more coherent going forward if anything is going to get done.

A debt is profitable for its creditor. Ought one not pursue profit?

What is the purpose of pursuing profit. Are you building anything? Do you need the funds to secure your livelihood? Do you get off on seeing people squirm in debt? Are you a parasite or do you add value. Governments or individuals may have different intentions at different times. It's easier to be a parasite under a keynesian regime.

Keynesians, particularly those writing for the financial times recently, argue that keynesian central banking serves as a benevolent management tool. But this reads as the classic globalist agenda of central control to me. Parasites always want dependents. Check out Jon Rappoport at nomorefakenews.com

[bmarch]

Keynes is the troll of economic theorists used by universities and interested parties to add theoretical justification for their parasitism.

Keynes was probably terrible at saving money. Marx was for a fact. I think Keynes appeals to people who are suseptible for lazy quick fixes in general. We live in a different world now as well and so I think something as simple as "save money for future consumption and investment" is a principle we all need to adhere to a lot more now. Society might grind along at a slower pace, but it will probably have to since things are growing in complexity globally.

Managing a global economy is a much larger pipe dream than managing farmers in Siberia was during the Soviet regime. So much more impossible. Governments and citizens alike will have to become more coherent going forward if anything is going to get done.

Wrong.  Keynes is not the prevalent "school" in academia.  Its probably neo classical

Keynes did public service and was an astute investor.  His theories comes from market experience and public service experience.  IOW "real life experience" not academic theories.  He only started to get popular again recently after the 2008 crash.  His main thing is using fiscal policy and focus on unemployment numbers

The govt has no reason to "save money"  when they can just "print money".  You are totally confusing household economics and macro and blaming everything on Keynes.  Since 80's there have been no Keynesian influence on policy.  It was more Friedman

Since 2008 Keynesians and central bankers have been salivating at being able to bring on more assets. We're in a pretty bad mess. I also recommend reading the Archonology series at runesoup.com. A little bit unrelated to the strictly economic discussion here, but the series talks about how City of London banking interests, IMF, etc. are able to rake in quite a lot more ownership over North America under the Bretton Woods system. Heavy reading so it might not be for everyone. I almost want to say that the Keynesian argument is usually pushed by globalists (and hence at universities more so, but unknowingly, by extension), but the picture is pretty complex if you zoom out far enough.

[twiifm]

Keynes is the troll of economic theorists used by universities and interested parties to add theoretical justification for their parasitism.

Keynes was probably terrible at saving money. Marx was for a fact. I think Keynes appeals to people who are suseptible for lazy quick fixes in general. We live in a different world now as well and so I think something as simple as "save money for future consumption and investment" is a principle we all need to adhere to a lot more now. Society might grind along at a slower pace, but it will probably have to since things are growing in complexity globally.

Managing a global economy is a much larger pipe dream than managing farmers in Siberia was during the Soviet regime. So much more impossible. Governments and citizens alike will have to become more coherent going forward if anything is going to get done.

Wrong.  Keynes is not the prevalent "school" in academia.  Its probably neo classical

Keynes did public service and was an astute investor.  His theories comes from market experience and public service experience.  IOW "real life experience" not academic theories.  He only started to get popular again recently after the 2008 crash.  His main thing is using fiscal policy and focus on unemployment numbers

The govt has no reason to "save money"  when they can just "print money".  You are totally confusing household economics and macro and blaming everything on Keynes.  Since 80's there have been no Keynesian influence on policy.  It was more Friedman

Since 2008 Keynesians and central bankers have been salivating at being able to bring on more assets. We're in a pretty bad mess. I also recommend reading the Archonology series at runesoup.com. A little bit unrelated to the strictly economic discussion here, but the series talks about how City of London banking interests, IMF, etc. are able to rake in quite a lot more ownership over North America under the Bretton Woods system. Heavy reading so it might not be for everyone. I almost want to say that the Keynesian argument is usually pushed by globalists (and hence at universities more so, but unknowingly, by extension), but the picture is pretty complex if you zoom out far enough.

Who are these Keynesians and Central Bankers are you referring to?  Bernanke is more of a Friedmanite.  Certainly not the ECB or the IMF.  They were recommending austerity.

You must be talking about Krugman.  But He's just professor who has an op ed piece.  He has no influence over any policy.  And he's not mainstream he's on the left.

That runesoup site.  WTF?  It's a conspiracy theory site.

[bmarch]

Keynes is the troll of economic theorists used by universities and interested parties to add theoretical justification for their parasitism.

Keynes was probably terrible at saving money. Marx was for a fact. I think Keynes appeals to people who are suseptible for lazy quick fixes in general. We live in a different world now as well and so I think something as simple as "save money for future consumption and investment" is a principle we all need to adhere to a lot more now. Society might grind along at a slower pace, but it will probably have to since things are growing in complexity globally.

Managing a global economy is a much larger pipe dream than managing farmers in Siberia was during the Soviet regime. So much more impossible. Governments and citizens alike will have to become more coherent going forward if anything is going to get done.

Wrong.  Keynes is not the prevalent "school" in academia.  Its probably neo classical

Keynes did public service and was an astute investor.  His theories comes from market experience and public service experience.  IOW "real life experience" not academic theories.  He only started to get popular again recently after the 2008 crash.  His main thing is using fiscal policy and focus on unemployment numbers

The govt has no reason to "save money"  when they can just "print money".  You are totally confusing household economics and macro and blaming everything on Keynes.  Since 80's there have been no Keynesian influence on policy.  It was more Friedman

Since 2008 Keynesians and central bankers have been salivating at being able to bring on more assets. We're in a pretty bad mess. I also recommend reading the Archonology series at runesoup.com. A little bit unrelated to the strictly economic discussion here, but the series talks about how City of London banking interests, IMF, etc. are able to rake in quite a lot more ownership over North America under the Bretton Woods system. Heavy reading so it might not be for everyone. I almost want to say that the Keynesian argument is usually pushed by globalists (and hence at universities more so, but unknowingly, by extension), but the picture is pretty complex if you zoom out far enough.

Who are these Keynesians and Central Bankers are you referring to?  Bernanke is more of a Friedmanite.  Certainly not the ECB or the IMF.  They were recommending austerity.

You must be talking about Krugman.  But He's just professor who has an op ed piece.  He has no influence over any policy.  And he's not mainstream he's on the left.

That runesoup site.  WTF?  It's a conspiracy theory site.

Thanks for the discussion I have to move onto other things now.

[Elwar]

http://www.vox.com/2015/2/5/7981461/negative-interest-rates-europe

Interest rates on a range of debt — mostly government bonds from countries like Denmark, Switzerland, and Germany but also corporate bonds from Nestlé and, briefly, Shell — have gone negative. And not just negative in fancy inflation-adjusted terms like US government debt. It's just negative. As in you give the owner of a Nestlé bond 100 euros, and four years later Nestlé gives you back less than that.

"the zero lower bound isn’t a theory, it’s a fact, and it’s a fact that we’ve been facing for five years now." -Paul Krugman

[bmarch]

I put this out there to people; do you, as an individual, choose not to support the prevailing economic paradigm since it violates morality at its core? ie. inflation which steals value from savers. Or do you meld into the collective and parrot news about how some companies might not meet their obligations, basically adding sentiment to the keynesian paradigm. It's your choice.

[Erdogan]

In the free market, negative interest rate is impossible...but, what you normally think of as interest on a loan, is the general interest rate, plus risk, and something for the work of the bank. For lending to the bank (deposit), you get zero interest rate, zero risk cost (because the bank is safe by their definition) minus the cost of administration (it is always the bank who gets the cost covered, never you).

So what we can have in the free market, when interest and risk is zero, is the cost of administration, payable by you.

The negative rate that ECB is talking about, is the bank's deposits in the central bank, and that is not the free market, because the ECB by regulation decides what the banks have to deposit... at least to some degree.

[twiifm]

In the free market, negative interest rate is impossible...but, what you normally think of as interest on a loan, is the general interest rate, plus risk, and something for the work of the bank. For lending to the bank (deposit), you get zero interest rate, zero risk cost (because the bank is safe by their definition) minus the cost of administration (it is always the bank who gets the cost covered, never you).

So what we can have in the free market, when interest and risk is zero, is the cost of administration, payable by you.

The negative rate that ECB is talking about, is the bank's deposits in the central bank, and that is not the free market, because the ECB by regulation decides what the banks have to deposit... at least to some degree.

No read the article again.  He cites some cases of corporate bonds a negative interest rate

[Erdogan]

In the free market, negative interest rate is impossible...but, what you normally think of as interest on a loan, is the general interest rate, plus risk, and something for the work of the bank. For lending to the bank (deposit), you get zero interest rate, zero risk cost (because the bank is safe by their definition) minus the cost of administration (it is always the bank who gets the cost covered, never you).

So what we can have in the free market, when interest and risk is zero, is the cost of administration, payable by you.

The negative rate that ECB is talking about, is the bank's deposits in the central bank, and that is not the free market, because the ECB by regulation decides what the banks have to deposit... at least to some degree.

No read the article again.  He cites some cases of corporate bonds a negative interest rate

Searching for reasons, I found rules and regulations. In my opinion, this is non-free-ness. He also pointed to bonds as safe, and that can mean two things: Safety againts default, and safety against theft. Safety against default: nothing is more safe then the actual money in your mattress. Safety against theft is the money management aspect, discussed above. So it still holds that negative interest rate, when you remove the money management aspect, is impossible in the free market.

In a non-free non-market, anything is of course possible, it can not even be discussed sensibly how it works economically.

So, example from the text, If some pension fund is coerced into owning a commercial bond with a negative interest rate, how is that not robbery?