Geithner on TV – Keynesian Economics Has Failed

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Johnny Oxygen's picture
Johnny Oxygen
Status: Diamond Member (Offline)
Joined: Sep 9 2009
Posts: 1443
Geithner on TV – Keynesian Economics Has Failed

http://www.financialsense.com/contributors/bruce-krasting/2011/07/11/gei...

 

"We don’t have the ability (because of the overhang in housing and the problems in the financial sector) toartificially engineer  a stronger recovery."

Imagine that! Geithner acknowledges what I (and many others) have felt all along. The structural issues in the economy trump the government’s ability to engineer a recovery.

Geithner might have put it differently. He could have really put it on the line. I would have preferred that he had said:

"Keynesian economics has not worked. At best, it has given us a small reprieve from the restructuring that must happen. Our government can’t fight the forces of economics any better than we can fight the forces of nature. Large stimulus measures will not bring the desired results. We have to suck it up and take some pain. We can’t go on spending money that we don’t have to fix a problem that can’t be fixed. If we tried, it would be just be a waste of time and precious financial resources. We can no longer afford to throw good money after bad."

SteveW's picture
SteveW
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Joined: Jan 21 2010
Posts: 490
Keynesian Economics

My sense is that Keynesian economics was only ever meant to smooth out the valleys of a so-called "normal" business cycle and the stimulus applied during dips necessitated increasing revenue during the peaks.

An over-leveraged, debt devastated (30+ years of consumer spending in excess of income) economy that has severe structural problems, particularly in housing, cannot be expected to respond to Keynesian stimulus. The problem is not that Keynesianism is a failure but that the economy is not a "normal" economy for which Keynes developed a solution.

It is particularly galling to hear Geithner complain about the overhang in housing and the problems in the financial sector when these were government generated problems. When it became clear that the housing collapse was being mediated by fraudulent financial products prudence would have impelled government to prosecute the fraud and use TARP (toxic amortization relief program) funds to assist the victims (moral hazard notwithstanding).

A road not taken simply leads to more problems. So just because government is the handmaiden of the financial sector don't blame that upon Keynes, for he probably never forsaw that in his worst nightmares.

 

A. M.'s picture
A. M.
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Joined: Oct 22 2008
Posts: 2368
Q/A

Where does that leave us, if it's openly acknowledged by our nations financial handlers?
The answer, now that the problem is identified, is what will determine our future.

Cheers,

Aaron

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