My interventionist friends are touting this article as proof that government intervention is the best way to stimulate and maintain an economy:
http://www.nytimes.com/2011/09/02/opinion/argentinas-turnaround-tango.html?_r=1&scp=1&sq=argentina%27s%20turnaround&st=cse
To my knowledge, this is NOT a classic ABCT (correct me if I am wrong) because much of the intervention was due to fiscal and not monetary intervention. Does ABCT still follow with fiscal intervention? How would you refute the successes of raising taxes, strengthing the social safety net, and increasing government spending?
EXCERPT: " Why have Argentines embraced bigger government? In part because the preceding era showed how poorly austerity measures — the sort now being pushed by conservatives in the United States — promote growth. In the late 1990s, Argentina cut government spending drastically on the order of its lenders at the International Monetary Fund. Predictably, between 1998 and 2002, Argentina’s economy shrank by almost 20 percent. It was only after Argentina turned its back on these austerity demands, and defaulted on its debt, that it began to recover. "
It is a classic ABCT. I just posted an answer to it here.
"It is a classic ABCT. I just posted an answer to it here."
I would beg to differ. I do not see any evidence of central bank intervention, only government intervention. ABCT suggests that " business cycles (or, as some Austrians prefer, "credit cycles") as the inevitable consequence of excessive growth in bank credit, exacerbated by inherently damaging and ineffective central bank policies, which cause interest rates to remain too low for too long, resulting in excessive credit creation, speculative economic bubbles and lowered savings."
Key words are central bank, interest rates, and credit creation.
They article does not cite those factors, rather, it cites government fiscal policy. TMK, fiscal policy is not part of ABCT.
The article does cite monetary factors.
"Inflation is a result of companies being unable to meet consumer demand and should be resolved by boosting loans for production, Mercedes Marco del Pont, the current central bank president, says. She plans to increase the money supply by 28 percent this year to accommodate economic growth, a move she says won’t affect inflation."
Are you implying that 25% inflation and 28% increase in money supply are simply results of fiscal policy, i. e. caused by taking more from Group A and giving it to Group B?
Yes the article does cite monetary factors, BUT, that is for future actions, not the past actions which (allegedly) yielded the growth (tax + spend by the government.) The increase in money supply is to (allegedly accomodate) economic growth of the past.
I am saying that, as the article suggest, growth was caused by fiscal policy alone, not monetary policy. Fiscal policy alone would be totally Keynesian. Monetary policy is not Keynesian at all.
You call "growth" a 9% nominal GDP increase under 20%+ inflation and 20%+ increase in money supply? Both money supply and inflation have been high for a while there. It was the central bank president that was quoted in the article about her having to keep increasing the money supply in order to support "growth". It's textbook Keynesian crap. Textbook ABCT.
Fiscal policy alone would be totally Keynesian. Monetary policy is not Keynesian at all.
?
ViennaSausage:Assuming it was an increase in the money supply, this is not "textbook Keynesian crap." But it would be textbook ABCT.
Assuming it was both an increase in money supply and an increase government spending (as is usually the case), then it's both textbook Keynesian crap and textbook ABCT.
Fiscal Policy alone is textbook Keynesian.
Monetary Policy alone is textbook Chicago.
Monetary Policy + Fiscal Policy together is not texbook Keynesian.
The very monetary/fiscal dichotomy is Keynesian crap in its own right. But, anyhow...
Wikipedia on Keynesian Economics:
"Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle."
I am quite ignorant of the matter, yet I may hopefully throw some ideas out there that someone can develop some more:
1) Argentina pegged its currency on the US dollar, essentially a type of monetary policy.
2) "defaulted on its debt" - a) No more payments to other countries. The problem is it also leads to decreased investment by other countries...
"Wheylous: 1) Argentina pegged its currency on the US dollar, essentially a type of monetary policy."
Thanks Wheylous. This is the type of information I was looking for in regards to understanding if Argentina's "success" was due to monetary or fiscal policies.
"z1235: The very monetary/fiscal dichotomy is Keynesian crap in its own right."
I'd beg to differ. Keynes had a specific "formula" for when to use fiscal and monetary policy. Fiscal policy for times of recession/depression, monetary policy for "normal" times. It is apt to acknowledge the nuance as to not build a straw man argument.
From the same wikipedia article:
"The latter opens the possibility of regulating the economy through money supply changes, via monetary policy. Under conditions such as the Great Depression, Keynes argued that this approach would be relatively ineffective compared to fiscal policy. But, during more "normal" times, monetary expansion can stimulate the economy."
Which part of your post refutes my position? Again from wiki:
"The latter opens the possibility of regulating the economy through money supply changes, via monetary policy. Under conditions such as the Great Depression, Keynes argued that this approach [monetary policy] would be relatively ineffective compared to fiscal policy. But, during more "normal" times, monetary expansion can stimulate the economy."
To add clarity, they may be a difference between Keyensian Economics as in the adherents and advocates that derived from Keynes, and Keynesian Economics, the arguements that came from Keyens the man himself.
OK, perhaps we're not speaking the same language (English) here. How does Keynes' opinion about the ineffectiveness of monetary policy "under [certain] conditions" refute the position that Keynesianism includes both monetary and fiscal policy "solutions"?
I am not saying the statement refutes it or not, just stating that the man has a different view than that of the current crop of followers.
His view included monetary policy "solutions". Your quote only shows that he considered them to be ineffective "under [certain] conditions".
Do you have sources pointing to his position of monetary policy solutions?
Here:
"Keynes provides a rationale for pursuing short term relief from those problems by means of budgetary deficits and monetary inflation - palliatives that must ultimately just make matters considerably worse."
"Keynes advocates government "monetary policy directed at influencing the rate of interest." However, he believes that the other factors that influence the investment demand-schedule are too powerful for such "monetary policy" alone to achieve levels of investment sufficient to maintain full employment."
"In his usual style, Keynes offers a mathematical model to trace the relationships of monetary policy and expectations. These relationships depend on cash holdings, M, and liquidity preferences, L, for purposes of transactions and reserves, M1, and speculation, M2, and their related liquidity functions, L1 and L2, which are determined by income, Y, and interest rates, r. Aside from M, none of these factors are precisely determinable, as Keynes candidly notes, (and even M has more than a few ambiguities). Nevertheless, he proceeds to explain the general impacts of monetary policy in these broad, ill defined terms.
"A change in M [the money supply] can be assumed to operate by changing r [interest rates], and a change in r [interest rates] will lead to a new equilibrium partly by changing M2 [reserves held for speculation], and partly by changing Y [income] and therefore M1[transactions and ordinary contingency reserves].""
Careful: Their currency was pegged to the dollar until 2002:
The Argentine Currency Board pegged the Argentine peso to the U.S. dollar between 1991 and 2002 in an attempt to eliminate hyperinflation and stimulate economic growth. While it initially met with considerable success, the board's actions ultimately failed. In contrast of what most people think, this peg actually did not exist, except only in the first years of the plan. From then on, the government never needed to use the foreign exchange reserves of the country in the maintenance of the peg, except when the recession and the massive bank's withdrawals started in 2000.
As I said, I am throwing out ideas. I am not sure they actually make sense, but they are something to look into. What I was thinking was that maybe the peg caused their money to follow the US's money with all of its inflationary roller coasters, which might have hurt them.
This might be a poor explanation.
Another idea (possibly):
Cutting jobs led to unemployment: yes, but it's good, because it simply cut employment due to malinvested capital.
Take everything I write with at least one grain of salt.
@z1235: fair enough:). thx for the constructive dialouge.
No worries. Keep throwing those ideas out. Whether or not you are right or wrong in the end, it helps further my understanding of this topic.
@z1235, from the same Wikipedia article, here is a criticism that Keynesian Economics, as in Keynes the man, is not about both fiscal and monetary policy: "In terms of policy, the twin tools of post-war Keynesian economics were fiscal policy and monetary policy. While these are credited to Keynes, others, such as economic historian David Colander, argue that they are, rather, due to the interpretation of Keynes by Abba Lerner in his theory of Functional Finance, and should instead be called "Lernerian" rather than "Keynesian".[19]"
ViennaS: I was definitely aware that you are not the first person holding your position. We spent too much time disecting a (monetary/fiscal) red herring which to a Fabian Socialist such as Keynes would be completely irrelevant in achieving his goal of a centrally planned (socialist) economy. There is no doubt in my mind that, once Keynes had decided that there's a need for government intervention in the economy while the population seems resistant to tax increases, he could care less if the money came from the printing press down in the basement (i.e. monetary policy).