Adrian Salbuchi talking with Max Keiser about Hyperinflation of Argentina and US

Adrian Salbuchi talking with Max Keiser about Hyperinflation of Argentina and US

Why Keynesianism Doesn’t Work: Part 1

Any economic theory faces the same tests as any other scientific theory. It isn’t good enough to say well, look, it worked this time but didn’t seem to that time. A theory needs to be able to explain all the evidence: one counter-example is enough to kill a theory.

And Keynesianism, or at least the crude type that is argued over in politics today, has failed just such a test as Don Boudreaux Russ Roberts reminds us.

According to that basic set of theories about how the economy works, there should have been a huge recession in 1946/1947. In both the UK and the US: all those returning servicemen with no jobs. All that huge amount of government borrowing to pay for the war stopping, there should have been a plunge in aggregate demand and thus something between a recession and another Depression.

And yes, economists like Paul Samuelson were predicting exactly that.

According to the prescription, the two governments should have borrowed vastly more, spent more again, in order to prevent such a failure of the economy. This isn’t arcane, this is just straight simple Keynesianism.

However, that’s not what actually happened. The soldiers came home, the governments reduced the borrowing and the spending (the UK actually ran budget surpluses for several years) and yet the economy boomed. There was no recession, certainly not a depression, unemployment did not soar.

We can argue until the cows come home about whether Roosevelt’s New Deal ended the Depression (I think not, it extended it, your view may differ), whether Obamanomics will lead us out of our current difficulties (I think not) But Keynesianism as Keynesianism faces a much sterner test than this.

What happened to the 1946/7 recession? If it’s not possible to explain that absence within the confines of the theory then the theory is wrong, or at least incomplete, whatever we might say about the other two periods we love to argue about.

Tim Worstall

Dramatic shift in European view a 'big game changer'

THE GOVERNMENT has met all economic, banking and structural targets for the first six months of the year that were required as part of the international rescue package for Ireland, Minister for Finance Michael Noonan said.

The “troika” of the three international bodies – EU Commission, European Central Bank and International Monetary Fund – had yesterday morning completed their quarterly review of Ireland’s performance, he said, and concluded that the country had met all its obligations under the Memorandum of Understanding.

“We have met the fiscal targets. We have met the banking targets. We have met the structural reform targets. I am also pleased that the external partners have concluded that the Irish programme is on track, and we are making good progress.”

Mr Noonan said that notwithstanding the decision by ratings agency Moody’s to downgrade Ireland’s investment grade to junk status, the country was still aiming to fully return to the markets by 2013 in accordance with the rescue programme timetable.

He qualified this by pointing to the huge uncertainties that have beset economies and banking globally over the past two years.

“Looking forward for two years to July [2013], it’s an eternity to be looking forward, given all that has happened,” he said.

Mr Noonan was at a news conference where he and Minister for Public Expenditure and Reform Brendan Howlin gave their response to the conclusion of the review carried out by officials from the troika. Both Ministers held their final meeting with senior troika officials yesterday.

Mr Noonan emphasised European governments’ view of the extent of the issue had changed dramatically in the past week.

Portraying it as a “big game changer”, he said: “For the first time since I became a Minister, everybody around the table at Ecofin [the meeting of EU finance ministers] is seeing the problem as a European problem and a euro problem, rather than, or in addition to, the problem in individual countries.

“If there’s a heads of government meeting next week, the focus will be on that problem,” he said.

The adjustment necessary in December’s budget may be more than the €3.6 billion stipulated in the memorandum, Mr Noonan confirmed. He said it was too early to say with any certainty how much more, as there were too many variables to allow the making of an accurate assessment.

“The Government’s position is we are working towards a correction target of €3.6 billion. We regard that as a minimum. We may have to go slightly above that in a correction,” he said.

He made implicit criticism of Moody’s for the timing of its ratings downgrade for Ireland.

“There were general comments of displeasure across Europe that this decision was taken.

“It’s certainly peculiar that they would have moved to re-rate Ireland within 48 hours of the adjudication of the troika of Ireland’s programme. You’d think it was reasonable to wait until today or tomorrow to see what the troika was saying,” he said.

Moody’s rating was of marginal consequence, he added, as Ireland was currently not in the markets.

Mr Howlin said the Government’s comprehensive review of spending would be in a position in the autumn to offer budgetary choices that might provide alternatives to social welfare rate cuts or increases in income tax.

On reform of wage-setting for sectors including hospitality and security, Mr Howlin said last week’s High Court ruling that joint labour committees had no constitutional basis had fundamentally altered the situation.

Geithner Interview - the Debt Ceiling Fight (Meet the Press)

A Tim Geithner Interview, speaking on behalf of the Federal Reserve - the Debt Ceiling Fight (Meet the Press)

"The Most Important Thing We Can Do Is To Be Taking Steps To Get People Back To Work"

Geithner talking economics theory.. and what's best for Americans...