Thursday, June 4, 2009

A Long Dead Economist

That economist is Keynes.
Keynes is dead and hopefully too will his General Theory, soon.

I'm not a big fan of Keynes. I think his theories have given politicians a carte blanc to spend spend spend, with no fear of ever paying the bill. With over a trillion dollar deficits this year and rising budget deficits for years to come, all based on a theory of a long dead economist. Maybe we should be looking to see if any of his theories proved to be right?

That is a topic for another day but I found this article to be good. Mainly because I really don't like Paul Krugman.

No doubt there are powerful deflationary headwinds blowing in the other direction today. There is surplus capacity in world manufacturing. But the price of key commodities has surged since February. Monetary expansion in the US, where M2 is growing at an annual rate of 9 per cent, well above its post-1960 average, seems likely to lead to inflation if not this year, then next. In the words of the Chinese central bank’s latest quarterly report: “A policy mistake ... may bring inflation risks to the whole world.”

The policy mistake has already been made – to adopt the fiscal policy of a world war to fight a recession. In the absence of credible commitments to end the chronic US structural deficit, there will be further upward pressure on interest rates, despite the glut of global savings. It was Keynes who noted that “even the most practical man of affairs is usually in the thrall of the ideas of some long-dead economist”. Today the long-dead economist is Keynes, and it is professors of economics, not practical men, who are in thrall to his ideas.

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