Post #804: This was, unfortunately, entirely predictable if you’ve ever studied macroeconomics, and understand Keynesian theory.

Posted on September 3, 2020

Source: The Hill

I’ve been waiting to see this one, so I’m hopping on it as soon as it’s reported.  As above.  Go read the article, and see that the previous high in the trade deficit was in 2008.  During our last crisis.

Coincidence?  No.  As the night follows the day.  A predictable outcome based on standard Keynesian macroeconomic theory.

I don’t mean to keep harping on this, but if you think that President Trump’s trade policies made any sense, to anybody with a graduate degree in economics, you’re (almost entirely) mistaken.  I never even did macroeconomics professionally, and even I could see that fomenting trade wars was not a useful trade policy.  Great way to vent your anger, sure.  But nothing approaching the smart and detailed industrial policies of our Asian rivals.

It was just, well, dumb.  And if you’re surprised by that, then you’re surprised by that.  Because, probably, you’ve never looked at what a seemingly successful trade policy looks like.

And I know that your standard Republican probably spits at the word Keynesian, but that’s because nobody every bothers to look up what Keynes himself actually said.

So, a couple of quotes, to get oriented.

“Lenin is said to have declared that the best way to destroy the Capitalistic System was to debauch the currency. . . Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million can diagnose.”

I’m guessing your die-hard Republicans won’t recognize that as J.M. Keynes.

Well, how about this one, then?

We are all Keynesians now.

That’s typically attributed to Milton Friedman.  Who is as close to an icon of laissez-faire free-market economics as ever existed.

And Wikipedia has it just right, associating that quote with “the reluctant embrace in a time of financial crisis of Keynesian economics by individuals … who had formerly favored less interventionist policies.”

Anyway, this isn’t rocket science.  If the US government borrows a whole bunch of money, and puts that into people’s hands, they’ll buy stuff.  See Post #783.  Much of which will come from overseas.  Hence, record-setting balance-of-trade deficit.  Matched to record-setting Federal deficit.  Yep.  Cause-and-effect.

If you’re of a mind to ask why the Federal government put that money into people’s hands, the simple answer is, it’s the lesser of two evils.  The alternative being, likely, the next Great Depression. It’s like bailing out the S&Ls in the 1970s, or bailing out the banks in the 2008 crisis.

Beats the heck out of the alternative, which is a total economic meltdown.  Really, it’s cheaper than that alternative, all things considered.  It’s the efficient solution, once you’ve painted yourself into that corner.

That’s also a lesson of Keynesianism.  Before the Great Depression, some economists believed in Say’s Law.  That boils down to “there can never be a lack of aggregate demand”.  I.e., the economy can never fail due to people not having the ability and willingness to spend.

In the opinion of most, the Great Depression proved that Say’s Law was, well, nothing of the sort.  You can, in fact, have insufficient aggregate demand for goods and services, and have that lead to an economy-wide depression. Hence, when under fire, we’re all Keynesians now.

Next, can I talk about total employment in coal mining?  Because that’s another case of shooting fish in a barrel.