Economics Questions

Re: Argentina’s Turnaround Tango

z1235 — Sun, 11 Sep 2011 19:00:32 GMT

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).

Re: Argentina’s Turnaround Tango

ViennaSausage — Sun, 11 Sep 2011 17:01:36 GMT

@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]"

Re: Argentina’s Turnaround Tango

ViennaSausage — Mon, 05 Sep 2011 21:50:07 GMT

Take everything I write with at least one grain of salt.

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.

Re: Argentina’s Turnaround Tango

ViennaSausage — Mon, 05 Sep 2011 21:48:44 GMT

@z1235: fair enough:). thx for the constructive dialouge.

Re: Argentina’s Turnaround Tango

Wheylous — Mon, 05 Sep 2011 21:44:42 GMT

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.

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.

Re: Argentina’s Turnaround Tango

z1235 — Mon, 05 Sep 2011 20:45:23 GMT

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, M_1,and speculation, M_2, and their related liquidity functions, L₁andL_2,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].""

Re: Argentina’s Turnaround Tango

ViennaSausage — Mon, 05 Sep 2011 20:14:17 GMT

Do you have sources pointing to his position of monetary policy solutions?

Re: Argentina’s Turnaround Tango

z1235 — Mon, 05 Sep 2011 19:55:55 GMT

His view included monetary policy "solutions". Your quote only shows that he considered them to be ineffective "under [certain] conditions".

Re: Argentina’s Turnaround Tango

ViennaSausage — Mon, 05 Sep 2011 19:38:09 GMT

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.

Re: Argentina’s Turnaround Tango

z1235 — Mon, 05 Sep 2011 19:27:02 GMT

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"?

Re: Argentina’s Turnaround Tango

ViennaSausage — Mon, 05 Sep 2011 19:22:50 GMT

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.

Re: Argentina’s Turnaround Tango

ViennaSausage — Mon, 05 Sep 2011 19:21:09 GMT

"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."

Re: Argentina’s Turnaround Tango

z1235 — Mon, 05 Sep 2011 18:35:43 GMT

Which part of your post refutes my position? Again from wiki:

"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."

Re: Argentina’s Turnaround Tango

ViennaSausage — Mon, 05 Sep 2011 18:04:33 GMT

"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."

Re: Argentina’s Turnaround Tango

ViennaSausage — Mon, 05 Sep 2011 17:55:41 GMT

"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.