Friday, June 1, 2012

410: The Utopia of the Free Market - Keynes

From the end of the Great Depression until the early 1970s, Keynesian economics provided the main inspiration for economic policy makers in Western industrialized countries. 

The influence of Keynes (1883 - 1946)'s theories waned in the 1970s, due to stagflation, which is a situation in which the inflation rate is high and the economic growth rate slows down and unemployment remains steadily high.

It also waned because of  critiques from Milton Friedman, and Friedrich Hayek and other economists who were less optimistic about the ability of interventionist government policy to positively regulate the economy. 

From the early 1980s to 2008, the normative consensus among economists was that attempts at fiscal stimulus would be ineffective even in a recession, and the policy was rarely employed by the governments of advanced nations.  

In 2008 there was a rapid shift of opinion among prominent economists in favor of Keynesian stimulus, and from October policy makers began announcing major stimulus packages, in order to head off the possibility of a global depression. 

By early 2009 there was universal acceptance among the world's economic policy makers about the need for fiscal stimulus. 

Yet by late 2009 the consensus among economists began to break down, and in 2010 with a depression averted but unemployment in many countries still high, policy makers generally decided against any further stimulus policies.

With the end of the brief consensus for Keynesian policies, but with the neoliberal policies  still discredited, several commentators have predicted that the Macroeconomic domain will see a return to ideological struggles.  

Keynes's central theme was, that the modern capitalist economy does not automatically work at top efficiency, but can be raised to that level by the intervention and influence of the government.

It was Keynes's view that an over-reliance on maths is a mistake, because mathematical models will always depend on the validity of their underlying assumptions.

And one of these assumptions was the utopian idea, that man will always acts rationally and based on a rational awareness of his self-interest.

An other assumption was the workings of "the silent hand" as mentioned by Adam Smith, expressing the belief that the free market is self-regulating by itself eventually.

Modern mainstream macroeconomics has become closely integrated with maths, at the expense of other disciplines such as political economy and history.

Keynes put much emphasis on the role of uncertainty. Uncertainty refers to situations in which we have no statistical basis to go on.

In his opinion economics is not some kind of natural science with fixed mathematical models, 

but a moral science which has to take into account the peculiarities of human behavior. Ethics should once again have a role in guiding capitalism.

The big challenges of our future will be themes like the redistribution of wealth, the role of a government, in what sense is a free market economy not a utopia.

The Discussion

[13:18] herman Bergson: Thank you....
[13:19] herman Bergson: Little philosophy today and much economics
[13:19] Gemma Allen (gemma.cleanslate): :-)
[13:19] Gemma Allen (gemma.cleanslate): well it is a philosophy
[13:19] Mick Nerido: Can the European Union survive?
[13:19] Gemma Allen (gemma.cleanslate): makes more sense than adam smith
[13:20] herman Bergson: But  most important observation i s that in fact nobody knows how our economic system really works 
[13:20] Merlin (merlin.saxondale): Well it was interesting
[13:20] herman Bergson: When you read about financial markets, banks and stuff like that....
[13:20] Merlin (merlin.saxondale): I've started to scroll the chat window back a bit and it saves the jumpyness
[13:21] herman Bergson: as an average cant understand it anymore
[13:21] Gemma Allen (gemma.cleanslate): so trye
[13:21] Gemma Allen (gemma.cleanslate): true
[13:21] Bejiita Imako: hmm indyes
[13:21] Gemma Allen (gemma.cleanslate): they say one thing and then do another... the banks
[13:21] Bejiita Imako: yes
[13:21] herman Bergson: and most important is the role of the government in this all...
[13:21] Bejiita Imako: its a mess for sure
[13:22] herman Bergson: The neoliberalist trends are destructive with respect to social cohesion, is my opinion...
[13:22] herman Bergson: the heavy emphasis on the individual who has to take care for himself
[13:22] Gemma Allen (gemma.cleanslate): here that is not the liberal thought
[13:23] Gemma Allen (gemma.cleanslate): that is the conservative thought
[13:23] Mick Nerido: Fear and the unknown drive the markets down it seems...
[13:23] Merlin (merlin.saxondale): Herman... What is the difference between a Liberal and a Neo Liberal in your terminology?
[13:23] Lizzy Pleides: it is the question to find a new definition for a new social market economy, right?
[13:23] Gemma Allen (gemma.cleanslate): liberals worry about everyone
[13:23] herman Bergson: Yes the US the word is used wrongly...
[13:23] Gemma Allen (gemma.cleanslate): Yes-ah!
[13:23] Gemma Allen (gemma.cleanslate): lol
[13:23] herman Bergson: they confuse liberals with libertarians I think
[13:23] Gemma Allen (gemma.cleanslate): hard to relate to the others
[13:24] Gemma Allen (gemma.cleanslate): no
[13:24] Merlin (merlin.saxondale): Well in that case, me too
[13:24] Gemma Allen (gemma.cleanslate): libertarians want NO governmenbt
[13:24] Merlin (merlin.saxondale): Not exactly the same, but closely related
[13:24] herman Bergson: liberals too....
[13:24] herman Bergson: and theo liberalisme even stronger...
[13:24] Merlin (merlin.saxondale): Gemma, isnt that Liberals you mean?
[13:25] Merlin (merlin.saxondale): But not in the UK meaning
[13:25] Gemma Allen (gemma.cleanslate): no liberals democrats want more govennment
[13:25] Gemma Allen (gemma.cleanslate): MORE help for education
[13:25] Bejiita Imako: ok
[13:25] Merlin (merlin.saxondale): But in Herman's sense, where Ayn Rand is regarded as liberal
[13:25] Gemma Allen (gemma.cleanslate): More taxes on the wealthy
[13:25] Gemma Allen (gemma.cleanslate): nonnono
[13:25] herman Bergson: US meaning of the word 'liberal' is historically not correct
[13:25] Gemma Allen (gemma.cleanslate): super super conservative
[13:25] Gemma Allen (gemma.cleanslate): i know
[13:25] herman Bergson: so confusing :-)
[13:25] Gemma Allen (gemma.cleanslate) GIGGLES!!
[13:25] Gemma Allen (gemma.cleanslate): ...LOL...
[13:25] Gemma Allen (gemma.cleanslate): but that is all it is
[13:25] Gemma Allen (gemma.cleanslate): Yes-ah!
[13:26] herman Bergson: Well if you ask me what to do in the present situation....
[13:26] Clerisse Beeswing: If society was oneside it would be boring
[13:26] herman Bergson: I really dont know....except stop believing in the Utopia of the Free Market
[13:26] Merlin (merlin.saxondale): Herman... What is the difference between a Liberal and a Neo Liberal in your terminology?
[13:27] herman Bergson: make society more social....
[13:27] Gemma Allen (gemma.cleanslate): I am a real liberal here in the USA sense or the word
[13:27] Merlin (merlin.saxondale): Did I miss your answer?
[13:27] herman Bergson: liberalism originated from the theories of John Locke....and is focused on the individual and his rights....
[13:28] Mick Nerido: US Liberal Big Gov Consertive small Gov
[13:28] herman Bergson: neo liberalism (as far as I have understood) focuses more on the rights of the individual in relation to the role of the government...
[13:28] Merlin (merlin.saxondale): ok
[13:29] herman Bergson: You could say that it is a counter movement agains the social welfare state as it developed in the 60s of the previous century
[13:29] Gemma Allen (gemma.cleanslate): where can we find that definition on the web?
[13:29] herman Bergson: It is in Wiki....
[13:29] Gemma Allen (gemma.cleanslate): hmmm
[13:29] Gemma Allen (gemma.cleanslate): ok
[13:29] Gemma Allen (gemma.cleanslate): wil check it later
[13:29] Bejiita Imako: individual right sound good but it seem to mean that everyone just think of them selves and do not care for anyone else
[13:29] Bejiita Imako: and that's a bad thing for sure
[13:29] herman Bergson: A good example of the neoliberal credo you find in the so called Washington Consensus of 1989
[13:30] Mick Nerido: Have to log out . Thanks Herman and all...
[13:30] Bejiita Imako: ok cu Mick
[13:30] Lizzy Pleides: TC Mick
[13:30] Bejiita Imako: bye
[13:30] herman Bergson: Just look on Washington Consensus in Wikipedia...
[13:30] herman Bergson: Bye Mick
[13:30] Gemma Allen (gemma.cleanslate): Bye, Bye   
[13:30] herman Bergson: There you find a list of 10 points....
[13:31] herman Bergson: one of the points is deregulation for instance....
[13:31] herman Bergson: Less government controll
[13:31] Merlin (merlin.saxondale): Well in UK, the Liberal party was basically the opponent of the Conservative party,
[13:32] herman Bergson: Next lecture I'll introduce the godfathers of neoliberalism , Friedman and Hayek
[13:32] Bejiita Imako: ok
[13:32] herman Bergson: then we'll look into the difference between liberalis and neo....mor ein detail
[13:33] Bejiita Imako: ah ok
[13:33] herman Bergson: After that I'll come with one or two lectures in which we can evaluate how the future has to look...
[13:33] herman Bergson: Free Market or not....government control or not and to what degree....
[13:34] Bejiita Imako: need to find a balance
[13:34] herman Bergson: And all these issues you will find in the programs of the political parties of your country...
[13:34] Clerisse Beeswing: Just sounds like a bunch of give and take
[13:34] Bejiita Imako: you cant just set it free to provocate companies like today cause then everything is just about company owners wanting more and more money without delivering anything of good quality or even at all
[13:35] herman Bergson: Yes Clerisse....and it is in the political debate that you can hear how much people will give and take and why
[13:35] Fred123 Aiten: someone once said "You make a living by what you get; you make a life by what you give."
[13:35] Clerisse Beeswing: But in a debate people try to outbluff each other
[13:35] herman Bergson: Yes Bejiita...that is one of the problems of today....profit and stockholders dominate the scene
[13:36] Clerisse Beeswing: I like that Fred
[13:36] Bejiita Imako: yes and they just want more and more without delivering, taking overprices like crazy ect
[13:36] Bejiita Imako: so only the rich can afford
[13:36] herman Bergson: Yes Fred.....what is a social society?
[13:37] herman Bergson: Well I read today for instance that people pay interest on loans....
[13:37] herman Bergson: In real this means that 80% of the population is paying this interest to 10% of the population....the rich
[13:37] Clerisse Beeswing: Gosh If I didn't have to chi chang in my pocket
[13:38] herman Bergson: and this widens the gap between rich and poor...
[13:38] Gemma Allen (gemma.cleanslate): no worries clerisse
[13:38] herman Bergson: Start reading about money....the reason why we have to pay interest....
[13:38] herman Bergson: how banks generate money....
[13:39] Merlin (merlin.saxondale): My concentration limit has been reached
[13:39] Gemma Allen (gemma.cleanslate) GIGGLES!!
[13:39] Gemma Allen (gemma.cleanslate): ...LOL...
[13:39] herman Bergson: I did this all day today.....
[13:39] Gemma Allen (gemma.cleanslate): happens a lot merlin
[13:39] herman Bergson: You can start reading tomorrow Merlin :-)
[13:39] Merlin (merlin.saxondale): Yes :)
[13:39] Merlin (merlin.saxondale): Oh I followed it fine until now
[13:40] bergfrau Apfelbaum: very interesting it was! Thank you, herman, & class :-)
[13:40] herman Bergson: Thank you for your participation again.....
[13:40] herman Bergson: Class dismissed