‘K’ for Keynesian Economics

May 9th, 2014 at 2:14 pm by David Farrar

From the NZ Initiative:

Keynesian owes its name to a problematic economic theory, put forward in the late 1930s by a brilliant but mercurial English economist with a genius for advocacy and rhetoric, Lord John Maynard Keynes.

Keynes took so many positions on so many issues during his career that it became accepted wisdom, as Winston Churchill once observed, that if you asked two economists for a view you would get three opinions, two of them from Mr Keynes. More reliably, one of his eminent contemporaries, Sir Alex Cairncross, once remarked that Keynes would be “longest remembered for his ideas” but who “never said the same thing for long.”

Keynesian theory contentiously proposes that slumps and recessions are caused by a slump in total spending in the economy. A recession allegedly results because producers respond by reducing output and employment rather than prices and wages. This is because it is hard to reduce money wage rates in the short-term.

The posited drop in output reduces real incomes which further reduces spending, aggravating the recession. Adherents of this theory, Keynesians, call this additional decline a multiplier effect.

The original slump in spending may occur because consumers started saving too much, and spending too little. Keynesian economics refers to slumps due to under-consumption as ‘the paradox of thrift’.

Alternatively, investment spending may slump because investors irrationally lose confidence, or ‘animal spirits’.  

Keynes’ remedy was for governments to increase government spending and/or to print money in order to lower interest rates and simulate investment spending. The spending boost would have a multiplier effect on national income.

Politicians would not even have to worry much about the quality of the spending. Paying people to dig holes and fill them in again could be a fine thing. Keynes himself suggested burying gold bars at the bottom of a disused mine. Money spent excavating the useless mine would boost national income.

This theory is popular with governments because it supports government deficit spending and printing money in economic downturns, while not imposing any real offsetting discipline during upturns.

Keynes’ impatience to alleviate today’s slump by such means meant discounting the risk of causing more or bigger future slumps from public debt crises and/or the need to curb inflation. His ‘in the long run we are all dead’ riposte to those who pointed out that slumps were self-correcting in time came to epitomise his side of that debate.

Keynes is dead, but public debt crises live on.

I think what has happened in Europe shows the problems of following Keynes’ advice for too long.

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46 Responses to “‘K’ for Keynesian Economics”

  1. wikiriwhis business (4,002 comments) says:

    Keysnian Economics is socialism which is why the west is falling and failing.

    We need Austrian Economics to minimise the state and let the markets direct.

    Keep men and their agenda’s out of our lives

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  2. thePeoplesFlag (245 comments) says:

    Given the rapid demise of the Business Round Table, I’ll wager Keynesian economics will outlast the NZ Initiative.

    “Keynesianism is dead” – NZ Initiative, 2014

    “The NZ Initiaitve is dead” – Keynesianism, 2020.

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  3. Yogibear (366 comments) says:

    thePeoplesFlag

    Keynesianism died a deserving death in the 1980s. Ronnie and Maggie clubbed it with the spade they used to pre-dig its grave.

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  4. burt (8,269 comments) says:

    The economic ideology of socialism – an ideology that has always failed every single time it is tried.

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  5. mikenmild (11,247 comments) says:

    ‘I think what has happened in Europe shows the problems of following Keynes’ advice for too long.’
    And your preferred guru is whom?

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  6. Bob R (1,375 comments) says:

    “….very few people know that the world economy has actually grown more slowly since we adopted neoliberal policies in the 1980s than in the so-called bad-old-days of state intervention in the 1950s, 1960s and 1970s.”

    Ha-Joon Chang

    http://www.multinationalmonitor.org/mm2008/092008/interview-chang.html

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  7. alloytoo (543 comments) says:

    Should government’s borrow to spend during a recession or should a government slash it’s spending to match it’s revised means?

    Keysnian economics suggest we should attempt counter downward cycles with future growth and profits. Which means you spend an awful lot of time fighting a wave which should be ridden.

    Prudent borrowing allows the state to maintain service levels, and shelter the most vulnerable, but it doesn’t attempt to turn the tide. When the cycle turns there isn’t nearly as much debt to repay as Keysnian theory.

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  8. ShawnLH (5,063 comments) says:

    “I’ll wager Keynesian economics will outlast the NZ Initiative.”

    Oh good, because spiralling and out of control inflation was so much fun in the 70’s.

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  9. SW (240 comments) says:

    Yea thank god for the neoliberal revolution in the 1980s that reduced public debt where ever it was adopted…

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  10. All_on_Red (1,583 comments) says:

    “There is not an economy anywhere whose long-term prospects can be said to have been improved as a result of the Keynesian policies that were applied in the aftermath of the GFC scuttles. A sober appraisal of the consequences scuttles any and all attempts to argue the contrary”
    http://quadrant.org.au/magazine/2014/03/dangerous-return-keynesian-economics-five-years/

    Supply is what creates demand. The link is worth reading if you have any interest in economics.

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  11. All_on_Red (1,583 comments) says:

    Mikey
    I’m a fan of Says Law and the Austrian School.Read that link

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  12. stephieboy (3,078 comments) says:

    wikiriwhis business (3,427 comments) says:
    May 9th, 2014 at 2:24 pm

    Tell us precisely how Austrian economics will work in e.g the NZ scene.?
    Abolish the Reserve Bank.?
    All the apparatuses of State and central govt.?
    No food , hygiene and health safety regs etc.?
    Carry on…..!

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  13. Fentex (974 comments) says:

    I think what has happened in Europe shows the problems of following Keynes’ advice for too long.

    Keynes advised paying down debt when the opportunity presents. NZ did and we benefitted from that, if others don’t but still borrow for public spending they aren’t following Keynes advice and are no reflection on his theory – except a danger of inappropriately invoking his theory.

    Spain and Greece are examples of not following either side of the pro or anti Keynes debate and don’t represent a win or loss in either ledger of that debate.

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  14. stephieboy (3,078 comments) says:

    This gives a useful summary of the modern Austrian school,

    “..The school hasn’t produced anything of much value since then. Now they are primarily a small group of cranks funded by even richer cranks through the von Mises Institute looking for self-serving rationalizations couched in the form of economic theory.”

    http://rationalwiki.org/wiki/Austrian_school

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  15. tom hunter (4,843 comments) says:

    There are two main reasons that Keynesian economics survived to the extent it does.

    First, it provides the intellectual justification for more government spending, which the Left want anyway. That’s the reason the FDR administration so happily seized upon Keynes, even though FDR himself did not understand the theory!

    Second, the way economies have been assessed for the last 80 years is with the good old GDP measure, which just happens to have “spending” as its biggest component. A perfect fit for a theory that advocates more spending as the path to economic recovery and growth, even if that means rooting savers with zero percent interest rates to force them to spend.

    With those two things in place it should not be a surprise that Keynesian theory has survived a near-death experience in the 1970’s when it’s forecasted results did not eventuate (“Stagflation, what’s that? That’s not possible), and will also survive it’s more recent failure in fixing the GFC.

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  16. Fentex (974 comments) says:

    it’s forecasted results did not eventuate (“Stagflation, what’s that? That’s not possible), and will also survive it’s more recent failure in fixing the GFC.

    Those places suffering the least in the GFC are those places most closely following Keynes prescription (y’know, like NZ) so it scores no points against Keynes to refer to it as a problem for his theory.

    But I don’t think we ought get too comfortable with how relatively well we’ve done to date as the GFC is more than a temporary dip in a regular business-cycle. It seems quite clear to me that for forty years now the worlds economies have been heading into trouble for a variety of related reasons (the combination of uneven benefits of efficiency with increasing concentration of wealth, vastly expanded monetary base, unreasonable proportion of transactions consumed by financial services, rapid relocation of industries, dislocation of traditional relationships by disruptive digital technology and exploitation of legal authority by the unproductive and their like).

    I personally think there’s a mighty large shoe yet to drop, and the debate between Keynesian stimulus and Austrian restraint is mostly beside the point.

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  17. tom hunter (4,843 comments) says:

    Those places suffering the least in the GFC are those places most closely following Keynes prescription (y’know, like NZ) so it scores no points against Keynes to refer to it as a problem for his theory.

    Japan, France, Italy, Greece, Spain,…. the USA? They’ve followed Keynesian theory more poorly than Germany? On the contrary their governments have thrown vast amounts of money at their economies since the GFC, but without getting the same results the Germans did – which suggest the German success is based on other factors.

    In any case I said “fixed”, not ameliorated. Any economic recession or depression can have it’s terrible effects on people reduced if the government gives them money for food, shelter, health care, and education. That’s social welfare and that’s also basically what NZ has done, which is one of the reasons I’m very concerned about the extra $50 billion we’ve borrowed to prop ourselves up with. It truly is a borrow-and-hope policy and I don’t think having people spend money on their particular “holes” have actually done anything real to stimulate the economy.

    In any case Keynesian theory claimed that it could fix economic problems and get an economy back to normal – meaning that people got back into jobs and the economy showed real economic growth. To a lot of uneducated people in the 1930’s that seemed to have been the case – even though the US suffered a brutal recession in the late 1930’s after several years of applying Keynes. There was also another 30 years of seeming success – until the 1970’s when governments spending more money in a recession not only failed to fix the recessions but actually made things worse.

    The GFC has simply proved that again, which is why we get all this rubbish about how the Keynesian Stimulus package in the US in 2009 “saved” the US economy. That’s just shifting the goalposts, since the claim at the start was that without the stimulus unemployment would go higher and linger longer – and then went higher and lingered longer anyway.

    But I do agree with your next comment:

    I personally think there’s a mighty large shoe yet to drop, and the debate between Keynesian stimulus and Austrian restraint is mostly beside the point.

    Me too. The factors you list may be overwhelming any theory as simplistic as Spend-More-Money – or Spend-Less, though I would suggest that the so-called Austrian economic theory is about a whole lot more than just government spending – it’s about all money in the system.

    As an example I don’t agree at all with the idea that spending cuts will save Greece any more than a Keynesian approach will. The debts are simply too large to be dealt with: they will have to be written off at some stage. No conceivable spending cuts or economic growth stimulus can repay them or outgrow them. The bailouts of Greece and other European countries since the GFC are less about putting money in the pockets of ordinary people via saving their private sectors than sluicing it through to European banks, including other European central banks.

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  18. thor42 (971 comments) says:

    I think it’s very revealing that the Western countries following Keynesian policies are in the poo.

    New Zealand, on the other hand, has gone mostly the other way – anti-Keynesian – and has done very well.
    “Rockstar economy” and all that.

    I’m sure that in the years and decades to come, our sailing through the GFC will be an essential part of economics textbooks – “how to correctly run an economy”.

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  19. stephieboy (3,078 comments) says:

    Yes thor42 ,the NZ economy is it seems a” rock star’ economy but without both the excesses of Keynesian policies nor those of the Austrian school. I think the failure of Libertariannz and its compete winding up underlines the total lack of credibility of the isms in this area with the average person in NZ society
    Certainly fringe stuff this Libertarianism.

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  20. Kea (12,841 comments) says:

    I think the failure of Libertariannz and its compete winding up underlines the total lack of credibility of the isms in this area with the average person in NZ society

    stuuuuupidboy ! What have we talked about regarding you typing before you stop and think ?

    Other political parties have failed too. Like the Christian Heritage Party for example. Do you similarly think that means Christianity has failed ? Or is this ANOTHER example of special pleading based on religion ?

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  21. Meatloaf (196 comments) says:

    The Keynesianism theory sounds great in theory, but there’s something they aren’t telling you. In every country that has a central bank which creates debt out of nothing and then lends it to the government, they also have an income tax imposed at about the same time. USA, 1911-income tax, 1913-Federal Reserve. NZ-income tax 1930s, central bank-1930s. So more money is created at first, but then, oh wait a minute, people need to pay income tax, meaning less money.

    The other thing they aren’t telling people is Capital Adequacy requirements. Each registered bank must keep a certain amount of money on hand. Let’s suppose that you lend the bank $1,000, the bank must keep 8% of that $1,000 on hand. But that depends on the loan. If it wants to lend for personal or business loans, they must keep 8% of that $1,000 on hand, and can lend the rest for personal or business loans.

    However, if the loans are on property or to the government, they don’t need to keep the full 8% on hand. They must keep 8% on hand multiplied by the risk weighting of the loan. Personal/business is 100%. Mortgages are only 50%. Government loans are 20%. So the reason the mortgage rate is half of the personal loan rate, is banks need to keep more money on hand if it is for a personal or business loan.

    And the reason loans to the NZ government pays so little, is because the bank needs to keep even less on hand, for a loan to the government. So this system, doesn’t subsidise business. Government gets a low interest rate loan, and then property gets the next portion, and business and personal loans are last in line. And the higher the property price the more people pay in rates, more money to the Councils.

    This makes it expensive for businesses to upgrade, and that’s why we’re only able to compete internationally by farm goods and tourism. All the stuff we import is cheaper than producing it ourselves.

    The 2nd and 5th plank of the communist manifesto say income tax and central banking, and now I understand, why Karl Marx came up with such an idea. And Keynesianism has those two planks of the communist manifesto. Milton Friedman, was a disciple of Hayek the Austrian, he believed in free markets but believed in a little bit of government intervention, and he said the central banks should just be overturned with one responsibility to create a 4% increase in the money supply. So if pure monetarism replaced central banking, we wouldn’t have these classes of loans imposed by the central bank which make it harder for business expansion.

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  22. stephieboy (3,078 comments) says:

    Birdbrain the fact that Libertariannz got 0.005% of the popular vote in the last election speaks volumes, Brings back memories of the total and laughable lack of success for the two communist parties CPNZ and their rivals the Socialist Unity party.
    That’s what i had in mind. New Zealanders reject extremist ideologies like your Libertarianism or are you thinking of starting an Islamic Jihadist equivalent .?
    How was it down at the Mosque today.?

    Heh,heh,heh …!

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  23. Meatloaf (196 comments) says:

    One of the issues I have with Libertanianism, is that, they don’t believe in marks at school or a syllabus. So how will we get good engineers, if people aren’t being assessed, and their’s no school syllabus. And what about technology. Technology, makes some people’s skills obsolete. These same people who have been made redundant still have a place in society, but for a while, they will be looking for work. Technology and people being laid off, is just a fact of life. So how do these Libertarians expect people to cope.

    In the days where everyone worked on the farm, these issues didn’t matter. In our modern society they do matter. So these extremes don’t work in reality.

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  24. slijmbal (1,236 comments) says:

    My understanding is that the Keynesian approach works, if it does work, in ‘mild’ recessions/downturns but not in major ones.

    This is because the increased spend is too small in comparison to the extent of the problem when it’s fundamental – a bit like the RB trying to control our exchange rates.

    The bulk of the Western world did not follow that approach. The printing presses were in overdrive.

    There are also indications that the Keynesian approach can actually exacerbate the boom/bust cycle as it delays corrections as DPF posted. Thus it’s a scary policy to follow but sadly politically attractive as it provides the view that the government is actually doing something even if it’s actually ineffective.

    It’s unclear whether it has a +ve, neutral or -ve effect and in what situations it does so.

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  25. Jeff83 (745 comments) says:

    DPF’s summary and this post is so totally off the mark. If for no other reason that Keynesian economics requires saving in uptimes, which the posts does not elude to it requiring.

    The USA followed a Keynesian path, printing a hell of allot of money (QE), and spending . Its economy even with its politics being brought to a stand still has rebounded quickly as a result.
    Europe followed a path of austerity and is still mirred in recession.
    The UK went half and half (austerity and money printing) it has returned to growth, strongly, but was later to do so than the US.

    Now the above analysis over simplifies everything, but in no way has Keynesian economics been disproved by the recent financial crisis.

    The real ‘risk’ with Keynesian economics is that it gives politicans an excuse to live beyond their means in good times as well, when what it really says is in these times the government should be saving, something governments are terrible at. The debt the US and Europe built up during the 90 and 2000s is the real issue.

    Fortunately in NZ we spent those years paying off our debt, and even building up an asset (Cullen Fund).

    Again in NZ we are lucky that in the previous 20 years we have done pretty well. THe concerning thing is we are still not planning for how we are going to pay for such a huge percentage of the population to be not working (minor baby boom oneside and massive retirement at the other).

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  26. Tom Jackson (2,553 comments) says:

    The real ‘risk’ with Keynesian economics is that it gives politicans an excuse to live beyond their means in good times.

    Yes, but I doubt this blog’s critics of Keynes could explain the rationale behind his theory, and it’s not like the basic idea is particularly difficult.

    I particularly enjoy that Lord Keynes, the saviour of capitalism, should be pilloried as a socialist.

    If the people on this blog want to be scared of an economist, they should try Thomas Piketty.

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  27. Tom Jackson (2,553 comments) says:

    One of the issues I have with Libertanianism, is that unlike communism, no libertarian society has even half worked anywhere.

    Even the fucking commies could get it together to have a reasonably stable society.

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  28. Meatloaf (196 comments) says:

    Yes, libertarianism, has never worked. A liber. will tell you to have user pays on everything. When Ruth Richardson introduced user pays, we still had income tax, GST, rates etc. So we still had to pay those normal taxes, plus extra. In the USA, from 1787 til 1913, they only had tax on domestic made goods, tax on imported goods, and property tax. Until 1913, the USA had surpluses in all years except years of wars.

    Their was no user pays, except postage. Three taxes were more than enough. In 1913, an income tax was imposed with central banking, and they paid for big wars by borrowing from the central bank, with an income tax to reduce the amount of money in circulation, and every year since then, their’s almost never been a surplus.

    So 3 taxes, with no user fees is actually workable, if government remains small. User pays has never worked, three taxes have. And that’s why I don’t believe in a sugar tax.

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  29. Meatloaf (196 comments) says:

    Actually, Keynes’ original statement, was to have expansionary spending in really rough times. He knew that if unemployment is small, its easy for governments to spend plenty, and only reduces unemployment slightly. Whereas if done in times, where unemployment is big, big spending will lower unemployment big time.

    He said that when the going is good, government should pay it back. Ah, but if the money is created by a central bank charging interest on the money it issues, you can only pay the interest. The reason the US has had deficits almost each and every year after 1913, is the Federal Reserve is a privately owned corporation. Whereas our Reserve bank is owned by the New Zealand government.

    So, if the government borrows when its bad, do they have the discipline to pay it back when all is good? If they can, it is workable, depending on whether the central bank is owned privately or by the government.

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  30. igm (1,413 comments) says:

    mikenweak: Get back to your State house and start mowing your own lawns. Why should taxpayers pay for losers like you to have their properties’ grounds maintained. Sick of hearing belly-aching bludgers mouthing fiscal advice when they personally, are leeching disasters.

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  31. tom hunter (4,843 comments) says:

    If for no other reason that Keynesian economics requires saving in uptimes, which the posts does not elude to it requiring.

    True, but that’s simply because that rule has rarely been followed. NZ under Richardson, Birch and then Cullen did actually pay down the debt in good times but that was an exception both in our history and globally.

    The USA followed a Keynesian path, printing a hell of allot of money (QE), and spending . Its economy even with its politics being brought to a stand still has rebounded quickly as a result.

    Nonsense on stilts. As the following graph shows this US recovery from a recession has been the weakest and slowest of the last 40 years – and I’ve seen graphs that include earlier US recessions from the 1940’s to the 1960’s that show the same thing.

    Europe followed a path of austerity and is still mirred in recession.

    The second part of that sentence is true but the first part is more nonsense, as shown by the following graph of government spending through the GFC to 2011 for France, UK, Italy, Spain and Greece. If by “austerity” you mean that they raised taxes or introduced new ones that’s true – and it’s not smart to do in a recession – but real, substantial spending cuts?

    Now the above analysis over simplifies everything, but in no way has Keynesian economics been disproved by the recent financial crisis.

    That’s the other reason Keynesianism is still with us: it can never be disproved. If the state spends a boatload of money and the economy recovers then it’s claimed that the theory worked. If the state spends a boatload of money and the economy does not recover then it’s claimed that not enough money was spent, which is Krugman’s apologia for the failure of the 2009 “Stimulus” package to do what it was claimed it would do: $850 billion was not enough, it should have been $2 trillion.

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  32. SW (240 comments) says:

    Tom Hunter – re your point about Keynesianism being unable to be disproved – can that not be said of most economic theory. Would you agree that in NZ the only structural change to our economy occurred during the forth Labour government?

    Let’s be honest, since the 1980s New Zealand has slid down the OECD rankings in most meaningful economic indicators. Would someone like yourself say that is because NZ did not go far enough with those reforms?

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  33. tom hunter (4,843 comments) says:

    …. can that not be said of most economic theory.

    I think so, but Keynesian theory is unique in that despite the failures to achieve what its proponents claimed it would achieve – economic growth without inflation in the 1970’s, a faster and more comprehensive recovery from the GFC than if the State had not tried a “stimulus” – it continues to be pulled out of the 1930’s time warp whenever there is a demand for the state to increase its spending, especially in relation to ending recessions and recovering from them as fast as possible.

    And I already pointed out why this is so; that the theory is not even really being judged on its own merits.

    Let’s be honest, since the 1980s New Zealand has slid down the OECD rankings in most meaningful economic indicators.

    Being honest would require acknowledging that New Zealand had been sliding down the OECD rankings in most meaningful economic indicators since the 1950’s. I especially note the incredible drop from 6th place in 1974 to 18th in 1979 based on PPP measured GDP.

    Would someone like yourself say that is because NZ did not go far enough with those reforms?

    I don’t think those reforms could have gone much farther in terms of the state selling off liabilities and the like, but we certainly should have made the tax system simpler and put in place systems that steadily reduced people’s reliance on the State for healthcare and education, as has been done for retirement.

    But obviously the implication of your point is not only that the fourth Labour government reforms have not worked – meaning we should not have pursued them in the first place and should not “reform” any further – but the results don’t stack up to the earlier years of Golden Weather. The OECD data above indicates that the economic policies we were following in those years – defiantly Keynesian, statist and non-neoliberal – saw us decline farther and faster than we have since the 1980’s.

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  34. SW (240 comments) says:

    “But obviously the implication of your point is not only that that the fourth Labour government reforms have not worked….”.

    Not really, if I was trying to make a point at all it was that ‘neoliberal economic theory’ (for lack of a better word but you know what I mean) has consistently failed to achieve what it is meant to achieve – namely economic growth.

    I accept your point about New Zealand’s previous slide down the OECD rankings – but the 1980s reforms were suppose to reverse that slide and not worsen it.

    My own position is that reform was obviously necessary after Muldoon nearly crippled the country. However, the pace and extensiveness of the reforms was not necessary – I much prefer what Australian politicians did over the same period.

    As for reducing government in areas like health and education – do you have any successful international models to recommend? Personally I’m thankful that we have a strong health and education system by any international standards and that this is one area where the market ideologues haven’t managed to downgrade our international position.

    i’m very thankful to live in a country where you don’t need wealthy parents to get a decent education or expensive medical care when needed. Perhaps I’m biased because without that type of government support I know my life chances would not have been great. I don’t understand how you can build a true ‘meritocracy’ though without the government providing some basic things to level the playing field. Prior to government assistance large numbers of the population do not get educated simply because of their birth circumstances.

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  35. Tom Jackson (2,553 comments) says:

    And Tom Hunter still hasn’t shown why Keynes’ basic insight into recessions is wrong.

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  36. tom hunter (4,843 comments) says:

    but the 1980s reforms were suppose to reverse that slide and not worsen it.

    According to that data – and annoyingly it only runs to 2000 – we slid to 20 by the early 1990’s and then held, which is interesting because the lag time of the 1980’s reforms would be about half-a-decade at least. So while they have not reversed the slide as their more overheated proponents claimed, they appear to have at least arrested it. And if a slide from 18 to 20 in 20+ years is worsening then what can be said about 1950-1979 when we dropped from 2 or 3 to 18?

    My own position is that reform was obviously necessary after Muldoon nearly crippled the country.

    I think that’s partisan bullshit. I hated Muldoon’s guts for a whole bunch of reasons and voted against him the first chance I got. But I’m not going to kid anybody that he was not doing exactly what any Keynesian Labour party would have done – and did do in the Third Labour government. Muldoon hated the reforms.

    However, the pace and extensiveness of the reforms was not necessary – I much prefer what Australian politicians did over the same period.

    I hear this all the time but the fact is that Australia had already been reforming on things like tariffs and subsidies since the early 1970’s, as well as starting to hold extensive debates within government agencies and NGO think-tanks about reforming state ownership, taxes and regulations. Hawke and company had a solid base of thinking, agreement and the accomplishments of previous Labor and Liberal governments to build on in 1983. They did not just have to start from scratch.

    By contrast politicians in NZ really did not want to know until the late 1970’s (and even then the discussion was minimal) and thanks to Muldoon effectively nothing happened until 1984, by which time we were much farther in the shit than Australia, with a commensurate need to do more and do it faster.

    As for reducing government in areas like health and education ..

    I’m very thankful to live in a country where you don’t need wealthy parents to get a decent education or expensive medical care when needed.

    Oh god I can see where this is going: you’re a hard line right-winger who wants to destroy our precious state health and education sectors. Actually I’m not into purist Libertarian, let alone Objectivist, doctrines, but I don’t think it’s a smart idea to have the state occupying 80% or more of any part of a society.

    – do you have any successful international models to recommend?

    I have something better – a New Zealand example to recommend. It’s called Kiwisaver and the idea behind it is exactly as I described, a desire to enable individual citizens to become more independent and less reliant on the State – for retirement. That the motivation had nothing to do with making people more free but simply to try and avoid a potential fiscal catastrophe in the future does not matter too much to me.

    However, if even a centre-left government can do this in retirement it’s time to bite the bullet in healthcare and education, and for much the same reasons, especially in healthcare. I think any Left-winger who tells people that they can depend on the government in the future for their healthcare needs – especially as the demographics bend towards to an older population – is spinning the same tale as those who once claimed you could rely solely on the government for one’s retirement. Not even the left wants to make that argument any longer.

    There are similar but even stronger arguments to be made with regard to healthcare, where the demographics are the same but the costs are ramping up relentlessly. Rationing will only work to a certain point, as was recently found in the case of Herceptin, where you actually did have to be wealthy to buy the life-saving cancer drug because the fabulous “free” system refused to. I can see plenty of such incidents in the future where vote-buying will destroy the supposed cost controls of our system. Better to give everybody a “Healthsaver” fund they can build up so the state system can concentrate on the catastrophic stuff.

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  37. mikenmild (11,247 comments) says:

    There will always be an element of rationing in any health care system, whether taxpayer funded, insurance based, or a ‘healthsaver’ option. The choice is one between imperfect mechanisms. So far, socialised healthcare would appear to be preferred to the alternatives.

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  38. wat dabney (3,756 comments) says:

    Tom,

    One of the issues I have with Libertanianism, is that unlike communism, no libertarian society has even half worked anywhere.

    The United States would be the nearest thing to a Libertarian country and for all its faults did a much better job compared to the alternatives for most of its 200 years. Certainly it was a beacon during the 20th century statist apocalypse.

    Even the fucking commies could get it together to have a reasonably stable society.

    That’s because the commies were basically running huge prisons.

    By ‘getting it together’ you mean ‘enslaved and murdered millions.’

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  39. tom hunter (4,843 comments) says:

    And Tom Hunter still hasn’t shown why Keynes’ basic insight into recessions is wrong.

    Still got a burn on your ass as a result of the “kook” comment I see. Not that you’ve ever given more than a birdbath-deep analysis of Austrian economics but I’ll play your little game.

    Keynes basic insight into recessions is wrong because it focuses on spending as the be-all and end-all in a capitalist economy, and consumer spending especially. Investment that might create assets that produce real revenue streams, including jobs and saved wealth? Pfft. If it happens it happens but basically it’s no different than buying gold to place at the bottom of a mine and paying people to dig it up. Combined with the way GDP is measured that means the forecasting of the economy is fucked, which is really the only measurement that counts.

    That can be seen in the past and the present. It’s the reason that yee-old Keynesian Ben “Helicopter” Bernanke was airily waving away any suggestions of a meltdown in 2007: consumer spending was cranking along so no issues. The fact that it was based on the artificial bubble of increasing house prices was as relevant to the Keynesians as those gold bars in the mineshaft – until it all went tits up. Which then brings us up to Keynes fabulous solution – filling the resulting gap in aggregate demand.

    I’ll grant that when Keynes developed his General Theory consumer demand really was based around little more than people’s wages and salaries so I can see the argument for filling up a resulting “gap” that developed in a recession as people lose their jobs. But the craziness of the application of Keynesian theory in the GFC is that money has been poured in to fill a gap that was artificial in the first place. That’s just nuts and it goes a long way to explaining why the results have not lived up to the hype.

    But the failure of Keynes can also be seen in the past. As I pointed out earlier the late 1930’s in the USA saw a brutal recession after several years of applied Keynesianism, even in the form of real infrastructure spending rather than just social welfare consumerism. But there’s also the even better reverse example of 1946. Even as early as 1945 the Keynesians were shitting themselves at the thought of what the end of the war would mean. Huge cuts in defence spending were already coming down the pike, with more on the way, plus 11 million or so men coming back to the workforce. And if you look at the GDP figures you do indeed see a huge drop in GDP in 1946, something on the order of 11% from memory, as the government’s share of the economy was drastically reduced and all those cushioning levers of the economic cycles were crippled.

    So – a big recession must have happened no? Perhaps even The Slump II?

    In fact there was no such thing. The US economy went gangbusters. Neither ordinary people nor economists have any memory of 1946 being a crap year economically – which should have destroyed then and there the notion that vast amounts of state spending in the economy are necessary when the GDP crashes and that GDP actually does not measure the health of an economy very well.

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  40. ShawnLH (5,063 comments) says:

    “Actually I’m not into purist Libertarian, let alone Objectivist, doctrines, but I don’t think it’s a smart idea to have the state occupying 80% or more of any part of a society.”

    Agreed, and that describes my position perfectly. Purist libertarianism, including and especially anarcho-Capitalism, has the same flaw as socialism and Marxism. It takes what might otherwise be a valid idea, and turns it into an idol, to the detriment of any other consideration.

    Keynesian economics was a failure for much the same reason, it insists on a State monopoly over many areas where it is simply not necessary, including health and education. The irony about that last one is that the people who suffer the most from the State’s monopoly in education are the poor.

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  41. wat dabney (3,756 comments) says:

    And Tom Hunter still hasn’t shown why Keynes’ basic insight into recessions is wrong.

    There are sufficient problems in practical terms to condemn his “insight”, before we even consider the theoretical issues.

    The biggest problem is that his economic argument is necessarily one deployed by self-interested politicians seeking to buy the next election and line the pockets of their supporters. Suddenly they’re not recklessly borrowing and spending and doubling the national debt; no!, they are merely implementing Keynsian economics!

    There is no fiscal policy too damaging and suicidal not to be redeemed simply by uttering the magic word: “Keynes.”

    Suddenly, to be prudent and careful with taxpayers’ money is positively harmful!

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  42. tom hunter (4,843 comments) says:

    which should have destroyed then and there the notion that vast amounts of state spending in the economy are necessary when the GDP crashes and thatGDP actually does not measure the health of an economy very well GDP is a good way to measure the health of an economy.

    Grrrrrrr……

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  43. ShawnLH (5,063 comments) says:

    A good example of the one track mind of Keynesian economics, and it’s tendency to ignore reality, was Paul Krugman’s now infamous advice to Greece to borrow and spend more to solve a crisis caused by borrowing and spending!

    And yet some people still take the idiot seriously.

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  44. krazykiwi (9,186 comments) says:

    Love this: Fight of the Century: Keynes vs. Hayek Round Two

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  45. wikiriwhis business (4,002 comments) says:

    I take it everyone understands J Key is a socialist Keysnian economist

    he wouldn’t have been allowed his wealth gathering if he wasn’t.

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  46. wikiriwhis business (4,002 comments) says:

    “That’s what i had in mind. New Zealanders reject extremist ideologies ”

    But we keep an extreme establishment going for nearly 150 years.

    The Nat/Lab coalition is over the hill and should be rejected, exterminated with full and extreme prejudice

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