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Thread: Japan has fallen victim to the Keynesian Scam

  1. #1

    Japan has fallen victim to the Keynesian Scam

    http://www.cnbc.com/id/101937458

    This has been discussed many times regarding American policy, but here is a look at how others fare with Keynes.

    Their economy shrank 6.8% in the 2nd quarter. I wonder if they will move into 3 lost decades territory?

  2. #2

    Re: Japan has fallen victim to the Keynesian Scam

    Keynesian Theory was being pushed big time back in the late 70's and early 80's when I was in college. It sounds great - the long run is a series of short runs, and if you maximize the short runs, you maximize the long run. I think I got that right.

    In any event, it ignores investment, and the notion that sacrificing a short term profit can provide even greater long term profits.

    Reagan's tax changes spurred investment and tremendous economic growth. Liberal leaning economists don't seem to recognize that tax policy and economic policy work together, and are not mutually exclusive. If you want to raise tax revenue, the best way to do that is through economic growth, not by raising tax rates. The US proved this in the mid 80's, and Ireland proved this again in the last decade. The fact that both countries went on drunken spending sprees is another topic.

  3. #3

    Re: Japan has fallen victim to the Keynesian Scam

    Quote Originally Posted by finance85
    Keynesian Theory was being pushed big time back in the late 70's and early 80's when I was in college. It sounds great - the long run is a series of short runs, and if you maximize the short runs, you maximize the long run. I think I got that right.

    In any event, it ignores investment, and the notion that sacrificing a short term profit can provide even greater long term profits.

    Reagan's tax changes spurred investment and tremendous economic growth. Liberal leaning economists don't seem to recognize that tax policy and economic policy work together, and are not mutually exclusive. If you want to raise tax revenue, the best way to do that is through economic growth, not by raising tax rates. The US proved this in the mid 80's, and Ireland proved this again in the last decade. The fact that both countries went on drunken spending sprees is another topic.
    Reagan's tax cuts get far too much credit for the economic growth of the 1980's in my opinion. The Federal Reserve took prime from 21.50% right before Reagan took office down to down to 7.50% in 1986. That is some rate cutting that doesn't get far enough credit for its role in the economic comeback of the 80's. Imagine if the Fed could have cut rates like that during the last crash.

  4. #4

    Re: Japan has fallen victim to the Keynesian Scam

    And Reagan signed into law the largest peacetime tax increase as a percentage of GDP in American history. And continued to sign tax increase for the remainder of his presidency. And he STILL managed to triple the deficit.

    By the end of his reign a middle-income family of four was paying higher taxes overall than when he was elected. Reagan couldn't get elected as a proverbial dog-catcher in today's GOP.
    "The transition from democracy to tyranny is most easily brought about by a popular leader who knows how to exploit the class antagonism between the rich and the poor within the democratic state, and who succeeds in building up a bodyguard of a private army of his own. The people who have hailed him first as the champion of freedom are soon enslaved."

    -From Things Plato Never Said

  5. #5
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    Re: Japan has fallen victim to the Keynesian Scam

    Quote Originally Posted by tarheelbybirth
    And Reagan signed into law the largest peacetime tax increase as a percentage of GDP in American history. And continued to sign tax increase for the remainder of his presidency. And he STILL managed to triple the deficit.

    By the end of his reign a middle-income family of four was paying higher taxes overall than when he was elected. Reagan couldn't get elected as a proverbial dog-catcher in today's GOP.

    Right after the largest Tax cut in history....you left that out...

    You are out of your ever loving mind.

  6. #6

    Re: Japan has fallen victim to the Keynesian Scam

    Quote Originally Posted by tarheelbybirth
    And Reagan signed into law the largest peacetime tax increase as a percentage of GDP in American history. And continued to sign tax increase for the remainder of his presidency. And he STILL managed to triple the deficit.

    By the end of his reign a middle-income family of four was paying higher taxes overall than when he was elected. Reagan couldn't get elected as a proverbial dog-catcher in today's GOP.
    Um, $79B in 1981 to $152.5B in 1989 isn't tripling the deficit.

    In 1981, there were 16 tax brackets ranging from 0% to 70%, with the middle 6 brackets ranging from 24% to 49%.

    In 1989, there were 3 tax brackets ranging from 0% to 28%, with the middle bracket at 15%.

    I'm not sure how you can justify your claims.

    The only thing I can fault Reagan on is that he let the Dems increase federal spending too much. Oh, he also let Ollie North run a little bit wild, but Ollie was pretty effective.

    GDP growth by year from 1981 to 1989 - 9.69%, 3.79%, 11.39%, 9.26%, 7.37%, 4.86%, 7.57%, 7.76%, 6.48%

  7. #7

    Re: Japan has fallen victim to the Keynesian Scam

    Quote Originally Posted by finance85
    Liberal leaning economists don't seem to recognize that tax policy and economic policy work together, and are not mutually exclusive.
    It's simpler than that. Lib economists don't seem to recognize that people are not static. They change their behaviors when situations/laws/policies/spending/taxes/etc change. Lib economists think people will simply accept any changes they make without making changes of their own.

    They think they're the smartest people in the world, but seem to forget that not one person in the world knows how to make a pencil.
    Just a puppy kicking, children starving, grandma shoving, kitten throwing, evil, vile, nasty, disgusting, racist, sexist, bigot.....or so I've been told. :)

  8. #8

    Re: Japan has fallen victim to the Keynesian Scam

    In 2009, when we had our ill fated stimulus, I read that Japan, over the previous 20 years, had the equivalent of 19 of our stimulus programs (adjusted for size of GNP). Of course, the result was the same as it always is - perpetual economic funk.

  9. #9

    Re: Japan has fallen victim to the Keynesian Scam

    Reagan's tax cuts get far too much credit for the economic growth of the 1980's in my opinion. The Federal Reserve took prime from 21.50% right before Reagan took office down to down to 7.50% in 1986. That is some rate cutting that doesn't get far enough credit for its role in the economic comeback of the 80's. Imagine if the Fed could have cut rates like that during the last crash.
    I largely agree with you, but for different reasons.
    Volcker's rate increases were the correct medicine for double digit inflation.
    High rates eliminate dross.
    It paved the way for a leaner, more efficient, and more productive firms to acquire capital over those that were less fit.
    Rates normalized as inflation was reduced, they weren't being cut to be 'stimulative'.

    Loose monetary policy in the end fails because it enables less efficient firms to acquire and waste capital.

    Paul Volcker sent Greenspan a note the first time he raised interest rates, and it said simply: 'now you're a real central banker'

  10. #10

    Re: Japan has fallen victim to the Keynesian Scam

    Quote Originally Posted by tarheelbybirth
    And Reagan signed into law the largest peacetime tax increase as a percentage of GDP in American history. And continued to sign tax increase for the remainder of his presidency. And he STILL managed to triple the deficit.

    By the end of his reign a middle-income family of four was paying higher taxes overall than when he was elected. Reagan couldn't get elected as a proverbial dog-catcher in today's GOP.
    Probably because they were making a lot more money b/c the economy was not in the dumper like it was under Carter. I know that was the case for me.

    But I suggest you look at your tax returns from then and compare the tax rates to say the Clinton era which were way out of sight compared to Reagan or anything thereafter.

  11. #11

    Re: Japan has fallen victim to the Keynesian Scam

    Quote Originally Posted by Bill From Tampa
    Quote Originally Posted by tarheelbybirth
    And Reagan signed into law the largest peacetime tax increase as a percentage of GDP in American history. And continued to sign tax increase for the remainder of his presidency. And he STILL managed to triple the deficit.

    By the end of his reign a middle-income family of four was paying higher taxes overall than when he was elected. Reagan couldn't get elected as a proverbial dog-catcher in today's GOP.
    Probably because they were making a lot more money b/c the economy was not in the dumper like it was under Carter. I know that was the case for me.

    But I suggest you look at your tax returns from then and compare the tax rates to say the Clinton era which were way out of sight compared to Reagan or anything thereafter.
    Somehow my comment didn't get included in this post.
    I simply intended to point out that payroll tax rates were increased during the Reagan years. People frequently conflate and confuse federal tax burden with federal income taxes.

  12. #12

    Re: Japan has fallen victim to the Keynesian Scam

    Quote Originally Posted by Seminole97
    Reagan's tax cuts get far too much credit for the economic growth of the 1980's in my opinion. The Federal Reserve took prime from 21.50% right before Reagan took office down to down to 7.50% in 1986. That is some rate cutting that doesn't get far enough credit for its role in the economic comeback of the 80's. Imagine if the Fed could have cut rates like that during the last crash.
    I largely agree with you, but for different reasons.
    Volcker's rate increases were the correct medicine for double digit inflation.
    High rates eliminate dross.
    It paved the way for a leaner, more efficient, and more productive firms to acquire capital over those that were less fit.
    Rates normalized as inflation was reduced, they weren't being cut to be 'stimulative'.

    Loose monetary policy in the end fails because it enables less efficient firms to acquire and waste capital.

    Paul Volcker sent Greenspan a note the first time he raised interest rates, and it said simply: 'now you're a real central banker'
    I am aware of why rates were high. Perhaps I should have clarified that I wasn't arguing the Fed used the rate cuts to stimulate, but that it had that effect. We agree that loose monetary policy in the long run is a very bad idea.

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