I think interesting Post Keynesian proposals for incomes policies during the 1970s. I don’t think anybody has shown the economic theory behind these to be mistaken.

Business cycles are a fairly controversial topic (debate about them mirrors that about the great moderation in many ways), and perhaps one that should be elaborated on a little more extensively. Since they are often currently modeled as “shocks” (including in Minsky’s approaches) and a traditional understanding of business cycles is less credit-driven, I’d argue that you’d do a service to your readers by preventing them from simply believing in “the business cycle” but instead calling it into question.

Second, I think the statistical argument against the “great moderation” is unconvincing, as you yourself point out that the methodology is flawed in the first place. But the real argument against the great moderation theory appears to be in chapter … However, I think it’s fair to wonder whether the recent crisis renders the “great moderation” bogus, in much the same way that the oil crises of the 70s supposedly demonstrated the ineffectiveness of Keynesianism.

Fair enough on ‘problematic’ but I stand by my basic input that you have to choose polemical or serious. If the latter, then even for a broad audience, you should not dichotomize.

On Keynesian social democracy, I agree all this is problematic, but I’m trying to sum up, very quickly, the package of ideas that was displaced by market liberalism. As your quote indicates, the received view of proponents at the time was that these things fitted together very well. The fact that they failed in the 1970s makes it obvious that there are problems and I plan to talk a bit more about this in some other chapters.

I searched myself crazy to find evidence of your claim in renationalization. Unless you have a magical reference that I can’t find you misinterpret a desire to establish the equal competitive access to a National Broadband Network with renationalization (i.e. with regulation). Telstra’s private, Optus is private and Australia has (like the rest of the West) a competitive landscape of communications providers, that is still dominated by previous state owned monopolists (which is why, certainly in a lower density region such as big chunks of Australia) government steps in, not to nationalize but to ensure the effective breaking of its previous monopoly. To Chris’ point as well: communications networks have some characteristics of natural monopolies but not too much, not like water or electricity by any stretch of the imagination. If we’re having this talk, & having it with relative ease, it is precisely because of privatizations; there’s not a chance in hell a Telstra would have delivered broadband if unchallenged (they might have given you B-ISDN or something ITU-like but not broadband or anything IETF-like).

The idea of somebody like Quigley leading a charge for nationalization is, if you’ve met him, one of the least natural to have.

On the other thing:

Well, I separated myself from Blair so putting me back in that cage is not very friendly.

I typed ‘Keynesian-welfare state social democracy’ in google and came up with this:

http://oud.frankvandenbroucke.be/html/soc/PU000117.htm

(which is nice because he’s Flemish, like me, and I tend to disagree with him on most things)

You present this 5-word string as if it’s something self-evident and self-evidently demarcates in a strict way between social-democrats and Austrians (or economic liberal ideas in general) – and that’s, I’m more & more convinced, just not on.

I quote from the link:

I cannot go through all the arguments here, but let me put it as follows. The identification of “classical social democracy” with “effective Keynesianism” relies on hidden assumptions, which are too easily taken for granted. Once, so it is assumed, we lived in a “golden age” during which, first, the appropriate policy for social democrats confronted with unemployment was in all circumstances some mixture of fiscal and monetary demand expansion organized by governments, and second, Keynesianism, so conceived, was essentially unproblematic in less open economies. Neither of these assumptions is true (4).

This at least demonstrates (and yes it’s from 2001, but Frank’s still a social democrat and I don’t think he’s very much changed his views on this) that the relation ‘Keynes & social-democracy’ is not as simplistic as you say. Sure, the anti-Keynes reaction was too vehement – and in part led to what we’ve seen lately. Sure, seen from the US (and most of Europe – as of recently) we need the governments to be stronger (certainly the international government, see I’m a real ‘soc1al1st – I have not problem with the ‘international’). But we also need to realize that ‘open economies’ and the reduction of the power of ‘representative middle field’ has its advantages. So it’s neither – or it’s both – whatever you want but if you’re serious it’s certainly not the one or the other.

PS: if there is a Keynesian third way it presumably dates from after Keynes and presumably has integrated something which did not come from Keynes – so whence did it come from? Might it, I don’t find this as a term known in the general public, per chance have integrated economically liberal ideas related to the use made of the term ‘open’ by Austrians?

ISTM that their claim is right in the strict sense, but you have to be careful not to overapply it and classify as “government dominated” an economy which is, in fact, merely government influenced or government regulated. Truly government dominated economies – i.e. command economies with five year plans etc. – really are accompanied by undemocratic government.

But central banks are not a slippery slope that inevitably leads to command economies – the continuum of degrees of governmental involvement in the economy is, in fact, neither sloping nor slippery, as the history of several countries proves quite clearly. Unfortunately, neo-Austrianism seems to consist mainly of arguing that rather modest forms of government influence are actually totalitarianism in disguise. (I have to admit that I haven’t read tRtS myself, so I don’t know if this common error is repetition of an error also made by the founders of the school.) There’s only so many times you can cry wolf at every passing rabbit before people stop taking you seriously.

Or, IOW, serfdom may indeed lie at the end of that road, but there’s some quite nice places in the middle and you can stop anywhere you like or even walk back the other way. And the other end of the same road is anarchic warlordism, which isn’t so nice either. Saying that anyone who wants to take one step along that road (in either direction) necessarily wants to rush to the endpoint is dishonest, unless you have some specific proof that that is what they do want (in which case you are obliged to present it and not merely insinuate).

P.S. Aren’t communications networks a natural monopoly because of the network effect? ISTM that they must be, at least, carefully regulated and it would be insane to do otherwise. Where would phones or the Internet be without government-developed and -enforced interoperability standards? Ownership seems like a red herring if you’ve already conceded the necessity of state control.

As regards the Third Way, Keynesian-welfare state social democracy was genuinely a Third Way, transcending the debate between old-style socialism and laissez-faire. What Blair offered was just a half-baked compromise between social democracy and market liberalism, a fact that has become more and more evident over time. The claim of a third way was pure spin.

Nope, I was not suggesting Europe is in a state of near serfdom, nor is Europe (after decades of predominantly Austrian influences) by any means social-democratic in your sense (which is an item that you and others (and I) decry often enough to take it for granted).

In Europe government dominated much about everything in the 70s and it was not a good place for it whatever you retrospectively may tell about it. The establishment ruled, and there was no penetrating the establishment – the origin of current enti-establishment right wing parties here – that connected to traditional US right wing – stems from that ‘checked’ society.

In the meantime, we did privatize what should be privatized (& unfortunately also a lot of things that should not have been). The power balance is healthier – and we did maintain levels of public services and social security that outperform those in any other continent.

The lithmus-test on ‘completely & utterly wrong’ is, John, whether you’d advocate nationalizing telecommunications industries. If yes, your social democracy is not mine. If no, you’ll just have to conceed something to the Austrians.

(and again, in a polemical way – no issue to slam them – no issue to slam Chavez as well despite a couple of things he did that needed doing; but in seriousness, these were intellectuals that had a couple of ideas, liberal ideas, and it’s just dishonest to accuse them of what actually went wrong after they were well and truely dead)

Whether you like it or not the third way already exists despite the dishonour of somebody like a Tony Blair being wrongly associated with it.

Chris, the strawman is yours – they weren’t no-government anarchists and dead enough for long enough not to be personally accountable for 21st century bubbles (the novelty can be disputed, I guess, but are you then committing yourself to saying orthodox Keynesianism was challenged by nothing – thát would be a blow to John’s book ;-)

Is there a good reason to believe that average magnitude of growth over course of the business cycle and volatility are necessarily inversely related? Could not faster growth with low unemployment lead to more frequent reversals while still producing higher growth on average? Maybe the simplest explanation of this piece of data is that decreasing volatility does not necessarily increase growth.

And if so, perhaps there should there be a section on What’s So Great About Moderation? By which I mean, the claim I remember advocates of neoliberalism making from the time of Reagan on is that their policies would create higher levels of growth and raise living standards overall. I don’t remember anyone saying: “Well, growth won’t be as high as in the days of high taxes and intrusive regulation, but it’ll be real smooth”. The last time it was possible to believe that neoliberalism would produce widespread prosperity was the late 90’s, when it seemed to come true for a minute. After the crash, it was clear that the Keynesian era had produced greater prosperity, but Bernacke looked back over the data and found that there had only been two brief recessions during the neoliberal period. All of a sudden, that had been the goal all along! This doesn’t look like a metric the neoliberal period met; it looks like one that was cherry-picked after the fact to flatter it.

But, I’m struck by this from JoB

It was in fact a central theme of the Von’s that a government-dominated economy necessarily & of itself led to undemocratic government. I think they were right up to a point

On inflation, this was supposed to be implicit in the contrast between the failure of the Keynesian Golden Age and the apparent success of monetary policy in the Great Moderation, discussed in the causes section (my previous post). I’ll look at spelling this out a bit more.

Another way of looking at the post WW II era:
1950s—great volatility, 3 recessions as Fed deals with problems of post WW II,
Korean War inflation.
1960s—stability and strong growth maybe partially because of success of 1950s anti-
inflation program. No need for Fed to tighten, no recession in 1967, just a
growth recession.
1970s—return of inflation and volatility as had four fed induced recessions to fight inflation.

1980s—Volcker anti-inflation success set stage for strong growth without inflation.
1990s recession mild because it was not fighting entrenched inflation.
1990s—weak growth, but still no need to fight inflation. But because of success of anti
inflation measures attitudes changed—high stock market PE and cheap or at
times free capital created tech bubble.
2000—end of bubble, but surprisingly mild recession. Still no problem with inflation.
cheap capital continued and flowed into housing bubble. Difference between
US & Japan is Japan had both bubbles concurrently, US sequentially.

See, I can build a good story about the great moderation around Fed policy and
inflation with little need for other factors like improved productivity, etc.
The combination of cheap capital and low inflation set stage for the two
bubbles and the over expansion of the financial sector in taking on a new level
of risk that set the state for the financial panic at the end of the expansion.

I built a very nice PE model that makes PE partially a function of time since
prior bear markets that does good job of explaining 1990s high PE.

I think you need to incorporate these two key points into your analysis.

That’s not much of an attempt at a novel insight, either. (Or did he write so long ago that it actually was?) There is a large middle ground between government having no control over an economy and government having total control, a middle ground which many wealthy, high-tech countries comfortably inhabit. Raising the specter of totalitarianism every time any government intervention, no matter how small, is proposed is a fundamentally dishonest tactic. “Government as the prime mover” is a blatant strawman.

(resubmitted removing the ‘offensive’ term)

To be honest, the point is not that clear. I have no issue with polemical stuff (as suggested by a Zombie-referring title) but then I’d expect some fun & games to go with. As this chapter goes, I think the only really deadly stuff except from the title is the seriousness. But, if wholly serious, then the standards are different.

For instance: yes, no economics cannot be depoliticized. So you don’t get easy caricature on a bunch of Austrians without also allowing easy cariciature on soc1al1sm. I disagree sincerely on most things with Hayek, but his point was not that economy should be left alone because it is an end in itself. His point was that government is very dangerous if it alone determines what has to be produced by the economy.

To dismiss everything Austrian in a polemical way is fair enough given what happens now – but to dismiss it seriously as entirely & utterly wrong in every principle is counterproductive (in an attempt to limit myself to more neutral words).

(& no, the Austrian element – however much of a waving red piece of cloth it may be to some of the wandering bulls over here – was not the main information element in my reaction)

To be honest, the point is not that clear. I have no issue with polemical stuff (as suggested by a Zombie-referring title) but then I’d expect some fun & games to go with. As this chapter goes, I think the only really deadly stuff except from the title is the seriousness. But, if wholly serious, then the standards are different.

For instance: yes, no economics cannot be depoliticized. So you don’t get easy caricature on a bunch of Austrians without also allowing easy cariciature on socialism. I disagree sincerely on most things with Hayek, but his point was not that economy should be left alone because it is an end in itself. His point was that government is very dangerous if it alone determines what has to be produced by the economy.

To dismiss everything Austrian in a polemical way is fair enough given what happens now – but to dismiss it seriously as entirely & utterly wrong in every principle is counterproductive (in an attempt to limit myself to more neutral words).

(& no, the Austrian element – however much of a waving red piece of cloth it may be to some of the wandering bulls over here – was not the main information element in my reaction)

The (zombie) tradition of all dead-tree media weighs like a nightmare on the brains of the living internet.