Some economic discussions - 1

I've had little time lately to strike the right mood and have the right time to write at the same time. However, had quite a few good and / or interesting discussions on mails, chats, and Facebook. So I thought, it would be a good idea to preserve and share those (perhaps not so well) articulated ideas for future reference. So, would share these as and when possible.

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Some months ago (between Sep 2013 to Dec 2013), had a small conversation in bits and pieces with a post-graduate participant (PGP, hereafter). Since I found that full of interesting snippets of observations related to economic thought and philosophy, sharing an edited version here. It is edited for neither grammatical nor spelling mistakes but only to create a consistent flow of communication.

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PGP: Hello sir. In CD classes there was a discussion that a govt stimulus on infrastructure etc. is better than QE. But I was reading this article:

http://www.fee.org/the_freeman/detail/keynesians-sleepy-down-a-red-bull#axzz2gNjPQLgS

{Link leads to an article titled “Keynesians: Sleepy? Down a Red Bull: The Freeman : Foundation for Economic Education”}

So does it mean that govt intervention in any form (QE or stimulus) is unwarranted and that markets should be left to their own devices in case of a recession? Would the economy emerge stronger in such a case?

Sid: Ok... first of all, never believe any thing or any policy prescription in macroeco.

The thing is that in Micro, all the major issues are settled with a single conclusion. However, in macro, it is hugely political and ideological.

so none of the arguments can be taken at the face value or without contextual considerations

This article is written from a typical Friedman_ian angle.

meaning pushing the envelope of monetary policy as being the only effective tool.

Although I agree that fiscal stimulus in the manner it has been adopted by the US is not going to solve anything but further balloon-up the economy...

there would have been two alternative ways....

one is given by this article itself - monetary measures of cheap money, inducing business to invest, and break the vicious circle of low-production

whereas the other fiscal side argument is conveniently ignored (perhaps due to apparent ideological bias)

that is - to simplify the medicare system, simplify and reduce the government expenditure

and spend that money + some small fresh borrowing on

infrastructure rejuvenation, defense spending, and on the industries where USA has a greater competitive advantage

In my understanding, both the measures would be effective

but given the situation in USA, the fiscal austerity + infra measure would be more suitable.

PGP: but sir again, the problem is about certain industries/companies being favored for receiving the stimulus money. For example, the too big to fail concept.

Why should banks that made bad investments be bailed out? Why not let them die and allow the financial system to detoxify?

Would that have been better in the long run?

Sid: Indeed. In fact, saving the inefficient companies was the second mistake. The first one was to let them balloon up so much by actively ignoring their fudged-up performance parameters...

and the US has been doing that due to their misplaced belief of the principle of laissez-faire, which means the least interference

The US has been a corporate-lobby driven system for long now.... they have maligned and abused the system of free markets by succumbing to the corporate tyranny. for example, watch Thank you for smoking and Bowling for columbine

PGP: but corporatism isn't free market right ? I guess that is one thing that brings bad name to capitalism these days. People think what happens in US is a true free market economy.

Sid: exactly! The problem is that misunderstanding on one hand...

and on the other, the active leftist propaganda that makes the two look the same...

PGP: yeah .. I remember Arundhati Roy's essays that very nicely mix up these two concepts

Sid: If you really want to see such propaganda, you should see authors like her... or even Ashutosh varshney. anyways.... I've stopped wasting time on these guys...

the problem is that they have decided (even without understanding first) that capital, capitalism, free-markets are all evil

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PGP: Thought you might like to see this: A rap battle between Keynes and Hayak mirroring their divergent opinions on economics. It’s nicely done. Do see the second part of the rap given in the sidebar suggestions.

http://www.youtube.com/watch?v=d0nERTFo-Sk

To me, Hayek's arguments appeared to make more sense. Of course, this is very perfunctory ... and the video is probably made by an Austrian, but still

Sid: Among the influential economic philosophies of 20th centuries, typically Keynes gets the most attention - that is primarily because he is wrongly appropriated by Leftists to proclaim that government control is good.

Keynes' essentially was a crisis-time measure and even when he suggests government intervention, it is not to scuttle the private activity. I personally like Milton Friedman the most - for his clarity of thought and vocal opposition of leftist propaganda. However, I would agree the most to Hayek's philosophy.

A recent claim to everything is laid by Paul Krugman but I think he lacks originality and is mostly a phony political ideologue.

BTW, Thanks for this rap video

PGP: I recently read an article by Krugman where he said that the American government was not spending enough to get the economy out of recession and that there was no need to worry about deficits at this time. "More spending is what the doctor ordered" ... his words. Probably soft-pedaling Democrat's socialist agenda

Sid: exactly... and that is why Krugman seems like a quack (or a commie agent) to me!