Monday, March 09, 2009

Point-Counterpoint: Keynesian vs. Market Solutions

A U.S. economist argues in favor of Keynesian-style government intervention in response to the recession:

The role of government is to ensure a “wise laisser faire”. This is not the free-for-all capitalism that has been recommended by the current economic theory, and seems to have been accepted as gospel by economic planners, and also many economists, since the Thatcher and Reagan governments. But it also is a significant middle way between those who see the economic disasters and unemployment of unfettered capitalism, on the one hand, and those who believe that the government should play no role at all.

The idea that unfettered, unregulated capitalism would invariably produce the good outcomes was a wrong economic theory regarding how capitalist societies behave and what causes their crises. That wrong economic theory fails to take account of how the animal spirits affect economic behaviour. It fails to take into account the roles of confidence, stories and snake oil in economic fluctuation.

~Yale economist Robert Shiller, "A Failure to Control the Animal Spirits," in today's Financial Times


A New Zealand politician argues in favor of market-based solutions to the global recession:

"We don't tell New Zealanders we can stop the global recession, because we can't," says Prime Minister John Key. "What we do tell them is we can use this time to transform the economy to make us stronger so that when the world starts growing again we can be running faster than other countries we compete with."

That idea -- growing a nation out of recession by improving productivity -- puts Mr. Key and his conservative National Party at odds with Washington, Tokyo and Canberra. Those capitals are rolling out billions of dollars in stimulus packages -- with taxpayers' money -- to try to prop up growth. That's "risky," Mr. Key says. "You've saddled future generations with an enormous amount of debt that then they have to repay," he explains. "There is actually a limit to what governments can do."

Mr. Key's coalition government has moved fast to implement a program of tax cuts, regulatory reform and government retooling. He won't label it supply-side economics and smiles when asked if he's a Milton Friedman or Friedrich Hayek acolyte. "I'm not deeply ideologically driven," he says. "I believe in good center right politics."

Mr. Key's program focuses first on personal income tax cuts, which -- given that the new top rate, as of April 1, will be 38% -- are still high, especially when compared to Hong Kong and Singapore. Cutting the corporate tax rate -- which is now 30% -- isn't as crucial just now as keeping liquidity flowing, Mr. Key argues. Why? Corporate money is "mobile." "If you really are out of whack with the prevailing corporate tax rates, and there's been a global shift toward countries lowering their corporate tax rate, then you're not likely to attract capital, or you're likely to lose capital."

For now, the prime minister is focusing on chipping away entrenched regulations that drive away foreign capital -- a contrast to the U.S. and Australia, which are reregulating their markets in the wake of the financial crisis. "Good regulatory reform can be an important catalyst toward driving economic growth and coming out of the recession faster," Mr. Key says.

Much of Mr. Key's reform agenda hinges on his belief that he has to prepare his country to compete in the global economy. "The world, whether we like it or not, will become more and more borderless." That means Wellington is planted firmly behind free trade. "The sooner Doha is completed," Mr. Key says, referring to stalled global trade talks, "the better from our point of view."

~From the WSJ interview of New Zealand Prime Minister John Key

12 Comments:

At 3/09/2009 1:19 PM, Anonymous Norman said...

How about the Keynesians (closet Socialists, really) showing when and where this theory actually worked, ever. Not to my knowledge.

 
At 3/09/2009 2:53 PM, Blogger 1 said...

Well isn't that what liberals/socialists are all about?

Wanting someone else's money to finance their stupid ideas?

Liberals like Judith Warner of the New York Times doesn't want to hear the "usual stuff about cost-benefit and outcomes"...

 
At 3/09/2009 3:27 PM, Anonymous Machiavelli999 said...

@Norman,

There are many, many examples if you actually take time to learn economic history.

 
At 3/09/2009 3:28 PM, Anonymous Machiavelli999 said...

@1,

You want someone else to finance your police protection you LAZY, PARASITIC, SOCIALIST SLOUCH!!

 
At 3/09/2009 4:28 PM, Blogger QT said...

There are many, many examples if you actually take time to learn economic history.

If history is filled with numerous examples of Keynesian success as you suggest, why is it that you do not offer any?

Declaring facts proven does not make it so. Without evidence to support the central claim, the claim remains unproven.

 
At 3/09/2009 4:41 PM, Blogger 1 said...

Poor mach stumbles badly again but then that shouldn't be to much of a suprise: "You want someone else to finance your police protection you LAZY, PARASITIC, SOCIALIST SLOUCH!!"

Wrong again...

It seems libtards want cops more than anyone else, right mach?

BTW mach can you gives us any examples, credible examples to back up this bit?

"There are many, many examples if you actually take time to learn economic history"...

Why don't YOU take the time to deliver even one example?

 
At 3/09/2009 7:21 PM, Blogger @sethstorm said...

New Zealand doesn't have the scale that Australia and the United States have.

 
At 3/09/2009 11:03 PM, Blogger QT said...

New Zealand doesn't have the scale that Australia and the United States have.

Good point.

 
At 3/09/2009 11:22 PM, Anonymous Anonymous said...

Time for a little refresher course.

 
At 3/10/2009 1:43 AM, Blogger Paul Walker said...

Don't be taken in, John Key may say the right things but that doesn't mean he is doing the right things. He is far from being a believer in free markets, in fact Key has an all too powerful interventionist streak. Its too early in the current government's term to be certain as to its true agenda, but from what we have seen this far, I'm not hopeful.

 
At 3/10/2009 5:34 AM, Blogger OBloodyHell said...

> There are many, many examples if you actually take time to learn economic history.

And yet you conveniently can't be bothered to list off a single F***ing one, can you?


For everyone else, "many, many" in Machspeak, is equivalent to "an integer less than one" in standard English.


> If history is filled with numerous examples of Keynesian success as you suggest, why is it that you do not offer any?

Because, QT -- he's a lying sack of s***, as usual. He makes crap up on the off chance that no one will call him on it. He's just demonstrating, once again, that he's as useful as a turd on a silk sheet.

 
At 3/10/2009 1:43 PM, Blogger Audacity17 said...

I remember hearing this crap about Japan in the late 1980s. "New capitalism" and "managed capitalism".

 

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