Category Archives: Economic theory and policy

Managed trade is not free trade

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I don’t think I am reading this chart wrong. It’s from The Australian in its front page story today: Free-trade rollback to hit jobs, pay. And there are all the benefits, such as the rise in real wages, which was an aggregate rise of 7.4 percent over a period of 34 years, that is, from 1986 through to the projected level in 2020. That is, around 0.2% per annum, which is a rounding error.

Let me just contrast this with Donald Trump today in Tokyo: Trump Slams Unfair Trade With Japan, Defends TPP Pullout.

President Donald Trump told a gathering of business leaders in Tokyo that Japan has an unfair advantage on trade and that he intends to fix that imbalance by making it easier to do business in the U.S.

“For the last many decades, Japan has been winning. You do know that,” he said Monday. “Right now our trade with Japan is not fair and it isn’t open.”

Trump laid out his complaints about how Japan treats the U.S. unfairly in his eyes, noting that few American cars are sold in Japan and making a plea for Japanese automakers to build more in the U.S.

“Try building your cars in the United States instead of shipping them over. That’s not too much to ask,” Trump said. “Is that rude to ask?”

As for the TPP, PDT added this.

“TPP was not the right idea,” Trump said on Monday. “I’m sure some of you in this room disagree, but ultimately I’ll be proven right.”

Trump said he envisions easing trade restrictions in another way, outside the TPP framework, but offered few details beyond saying that he personally had the power to speed business deals that had been hung up in the past.

He cited the Keystone and Dakota pipelines that he been held up under the Obama administration. “In my first week, I approved both,” Trump said.

Trump also took credit for recent record stock market highs and an addition 2 million workers in the workforce, saying: “I’ve reduced regulations terrifically if I do say so myself.”

Free trade is easy if you really want it. Just cut all trade barriers in your own home market and watch all the benefits roll in. What benefits are they? I will leave that to others.

A brutal reminder of macroeconomic incompetence

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The GFC was over with in 2009 and now we are at the end of 2017. So what are we to make of this, other than they have no clue what’s gone wrong:Brutal reminder of GFC still here, Treasury says, as retail stung by poor sales.

Treasury secretary John Fraser has slammed politicians for being out of touch with the struggles of everyday Australians and blamed “extraordinary political instability” for a lack of consistent policy settings that could push the economy forward.

Mr Fraser made his comments as retail figures released on Friday showed yet another month of downbeat results, with a fall in food, clothing and department store sales.

Rising energy prices and the weakest wage growth in Australian history are slugging consumers, driving anxiety among businesses in the lead-up to the crucial Christmas trading period.

In a speech at the Australian National University before the dismal data was [were] released, Mr Fraser said the country was still struggling with “the brutal reminder of the global financial crisis,” which took longer than expected to recover from and had led to a “perplexing weakness” in the economy.

The actual perplexing weakness is in the economic theories that have been used to analyse what’s gone wrong and then work out what to do to fix things.

The GFC was a worse-than-usual downturn that would have blown over in about a year, were it not for all of the Keynesian so-called “stimuli”. It is the fantastic amount of our national savings that have been blown by governments on building the education revolution, pink batts, the NBN, green energy and pretty well every other government spending program over the past decade. Obvious as the day is long, yet there is no one in Treasury who seems to understand why their road to recovery has been a road to ruin.

A Beginner’s Guide to the Blockchain economy

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And this from InstapunditInstapundit. Those last three named persons are all at RMIT.

SO JUST WHAT IS THIS BLOCKCHAIN THING, ANYWAY?: Jeff Tucker explains how Blockchain Technology could be the answer to a problem that has bedeviled property rights since antiquity – a problem that is the source of the cynical expression, “possession is nine tenths of the law.”

If that intrigues you, here’s Chris Berg, Jason Potts, and Sinclair Davidson with a beginner’s guide to the Blockchain Economy.

I also notice that to write “blockchain” I am being alerted to a spelling error. That will not continue for very long, I predict.

Say’s Law @ Zero Hedge

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I asked Dan Nivens, my new best friend, where he had come across what I had written and he sent me here, to Zero Hedge: Say’s Law And The Permanent Recession. There we find the following:

Steven Kates explains in his book Say’s Law and the Keynesian Revolution (subtitled How Economics Lost its Way), Keynes failed in his attempt to overturn Say’s Law. Kates shows beyond any dispute that Say and his fellow classical economists were well aware that there could be unemployed resources, and that Say’s Law was still valid in that case.

In the book I actually go much further. I outline just how wrong Keynes, and just about every economist since his time, has been about classical economic theory. There is virtually nothing discussed in the Zero Hedge post that is not found in my book and there’s plenty more that’s not mentioned. Any economic theory that does not specifically start from the entrepreneur is almost certainly deeply misleading and more than likely false. There are no market forces not embodied in individual decision making on the supply-side of the economy. It is the role of entrepreneurs to work out, in advance, what buyers would buy if it were supplied at prices that covered all production costs and then supply them. The role of buyers is merely to choose amongst the products available once entrepreneurs have put them up for sale. Their role is no greater than that. That is how a market system works.

But the second aspect of the Zero Hedge post I find significant is that it was “submitted by Robert Blumen via the Ludwig von Mises Institute”, meaning that it had come from an Austrian source. That is truly pleasing as far as it goes, but it is a major problem that only a minority among Austrian economists understand the major significance of the disappearance of Say’s Law. Hayek’s first foray into these issues was written in German in 1929 and published in English over two parts in 1931 and 1932. This is what these articles were about:

Chronic underconsumption is an idea most often associated with Keynes. But while the infamous English economist published his General Theory in 1936, Hayek’s 1929 article “The ‘Paradox’ of Savings” analyzes a similar theory advanced by two Americans a decade before. While the two authors have nearly vanished from history, the insights contained in Hayek’s nearly forgotten article are more necessary today than ever.

Unfortunately, it is also Hayek’s article that has vanished from history as well. Yet there he explained in great detail why demand deficiency as a theory of recession and unemployment is nonsensical. Because it is so deeply wedded to marginal utility, it is a problem for many Austrians to focus on supply-side theory to the extent that is required if a revolutionary shift in economic theory is to happen.

“In case you are not familiar with Kates . . .”

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The video is Economics for Independent Thinkers which discusses the way economics is discussed outside the mainstream. There are many many reason for watching the above video from end to end, but this especially works for me, starting at the 14:30 mark.

“The lesser known terms are mostly thanks to the Australian economist Steven Kates. In case you are not familiar with Kates, Kates wrote possibly the most thoroughly researched of the studies showing that there was a fairly strong consensus before the Keynesian Revolution about how the business cycle worked.”

And not only that, I explain in modern terms what that theory was. And as strange as you may find this, there is no other modern source where you can find classical theory explained.

The presentation was to The Heritage Foundation in Washington. This is the synopsis and I could not agree more with what he says:

Too many mainstream economists view the world as a collection of equilibrium models, without concern for when these models fail to explain real-world risks. In Economics for Independent Thinkers, author Daniel Nevins scours under appreciated corners of the economics and investment worlds for more realistic thinking. What results is a no-nonsense approach to economics that appreciates the importance of credit and banks in business cycles, and provides a different perspective on Keynesian stimulus and the consequences of government debt accumulation.

The speaker is Daniel Nevins.

Daniel Nevins, CFA, has invested professionally for thirty years, including more than a decade at both J.P. Morgan and SEI Investments. He is perhaps best known for his behavioral economics research, which was included in the curriculum for the Chartered Financial Analyst® program and earned him recognition as one of the founders of “goals-based investing.” He has an economics degree from the Wharton School of Business and a degree from the University of Pennsylvania’s engineering school.

And you know what? Till now I did not think it was possible but you never know the way things are going. We may yet rid ourselves of this Keynesian economic mess, but to do that we will need to understand economic theory before Keynes. Speaking of which, have I mentioned my introductory text before: Free Market Economics, now in its third edition?

Mill’s lost ‘supply-side’ perspective has now been found

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Here’s the subhead to an article on the editorial page of the AFR today with the title: Job creators don’t need subsidy.

The billions spent on industry support seems to make very little difference to new job creation.

This is the rediscovery of classical economic theory, and here let me quote John Stuart Mill:

“Demand for commodities is not demand for labour.”

Alas, the amount of unlearning that would have to happen for Mill’s point to be understood is an impossibility, but it is interesting that someone has noticed the actual facts on the ground even if they don’t understand why it’s true. As a wonderful example of someone who sees the point but doesn’t understand it, here is the abstract of a paper by an economist by name of Roy Grieve criticising my paper on Mill’s Fourth Proposition on Capital in which I have, for the first time in more than a century, explained what Mill and the classics meant:

Steven Kates has recently (2015a) attempted to explain and justify J S Mill’s paradoxical “fourth proposition on capital”, which states that “demand for commodities is not demand for labour”, a proposition which notoriously – over generations – has baffled many eminent commentators. Kates intends to resolve the puzzle by offering “a proper understanding of Say’s Law as it was understood by Mill and his contemporaries.” We conclude that Kates does indeed reveal the logic of Mill’s proposition, making it clear that from Mill’s lost “supply-side” perspective, it is in no way puzzling or paradoxical. However, at the same time it becomes evident that Mill’s whole position is undermined by his acceptance of the untenable belief that “demand is constituted by supply”, which leaves us with the clear understanding that his fourth proposition, despite Kates’s rationalisation and defence thereof, as well as certainly being paradoxical, is simply untrue.

I hadn’t even known the paper had been published until just now, but found it only because I was looking online for my own. But this is wonderful since he says five things I am extraordinarily happy to have said about what I wrote:

1) I really am the first economist in well over a century to understand Mill’s Fourth Proposition.

2) I do indeed “reveal the logic of Mill’s proposition”.

3) And what is shown by the Fourth Proposition on Capital is “Mill’s lost ‘supply-side’ perspective”.

4) Say’s Law is the central proposition of supply-side economic theory.

5) And what does Say’s Law teach: that “demand is constituted by supply”.

That Grieve thinks Mill’s Fourth Proposition is untrue only has him lining up with around 98% of modern economists. That it actually is true is demonstrated by the failure of every single peacetime stimulus package in history to increase the level of employment. There has never been an exception to this rule.

NZ the next Venezuela

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The stupidity of some people plumbs depths that are always hard to fathom: Jacinda Ardern: ‘Capitalism has failed New Zealanders’

New Zealand prime-minister-elect Jacinda Ardern has described capitalism as a “blatant failure” in the country, nominating poverty and homelessness as her priorities when she takes office.

Speaking in her first sit-down interview, on TV3’s The Nation, Ms Ardern said New Zealanders were not feeling the benefits of prosperity. Asked if capitalism had failed New Zealanders on low incomes, Ms Ardern was blunt: “If you have hundreds of thousands of children living in homes without enough to survive, that’s a blatant failure. What else could you describe it as?”

“When you have a market economy, it all comes down to whether or not you acknowledge where the market has failed and where intervention is required. Has it failed our people in recent times? Yes.

“Wages are not keeping up with inflation (and) and how can you claim you’ve been successful when you have growth at roughly 3 per cent, but you have the worst homelessness in the developed world?”

Such fantastic ignorance. From the comments, as always starting from the best and working down.

Doesn’t she realise that capitalism gave her a home, a culture and welfare. Capitalism gave her a car, electricity and water. Socialism gives you depression, greed and envy. Poor NZ, descending into an abyss.

“Capitalism is a blatant failure”..Well, goodbye New Zealand, you’ve really done it now.

Heaven help New Zealand if they are her first comments. Capitalism produced the clothes she wears and stopped her from dying from polio and other childhood diseases. Perhaps she should read Alexander Solzenitsyn.

After 9 prosperous years, sure, Capitalism is a failure. What a dope. Of course, socialism has worked everywhere, hasn’t it?

If capitalism is such a blatant failure, perhaps Jacinda could name one socialist or communist country that has done better? Didn’t think so.

The ACT Labour Party has been in office for 15 years. The voters of the ACT keep electing them because the Canberra Times and the ABC continue the narrative that all opposition politicians are hopelessly inept. How the all-knowing left-leaning journalists have determined this is not clear. Regardless, the voters clearly believe the Canberra Times and the ABC. Why am I telling you this?
The ACT Government, the most socialist government in Australia, in coalition with the Greens, claims to support the homeless and the poor. Yet the ACT has thousands of homeless, sleeping rough around the city (Civic), begging in the suburbs, sleeping in surrounding bush land, couch surfing. ACTEWAGL has dramatically increased Electricity prices, but this pales alongside their increase in Gas prices. We had a $1,300 Gas Bill this past quarter. Thankfully we could stretch to pay it. But in the coldest capital on the mainland, many families have turned off the electric and gas heating this winter. The ACT had at least one death from influenza this winter. Jacinda Ardern is politically naive to assert that the problems of homelessness and poverty are due to capitalism or conservative governments. Like the ACT Chief Minister Andrew Barr, she lacks real-world experience. Like Barr, she has never had a normal job after university student politics, having worked as a political staffer or adviser before gaining selection for a safe Labor seat. Never run a business, never been an employer, probably never balanced a budget.

Where does she think the money she is about to pour down a black hole of welfare, comes from? Oh man, this is going to be fun to watch.

The problem with Socialism is that you eventually run out of other people’s money.

“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” Winston Churchill.

God, who cares what this person thinks. Capitalism and democracy has been around for centuries, but Jacinda, barely out of wearing nappies, is a master of the universe?? No doubt she will be highly exalted by the ABC, Fairfax, Guardian, and the rest of the marxist media elite.

Sounds like two generations of debt coming up. Why does any Labor Government equal fiscal vandalism.

Ardern sounds like a really naive and idealistic socialist. She has claimed that she will reduce NZ’s carbon footprint. As one of the biggest contributors to the carbon footprint in NZ is agriculture, which also happens to be a major export earner, it might be time for farmers to sell up and move elsewhere. The damage that an idealistic socialist can do to a country has been demonstrated elsewhere, for example Venezuela.

Wait and see how much poverty you have in a couple of years after you’ve tried socialism.

God help Leninist New Zealand. All the good work of Keys about to go down the drain.

May as well tell us that gravity is a failure because a bridge fell down somewhere. Capitalism is reality and you either recognise it and deal with it or you go the way of Venezuela.

Capitalism a failure? A system that has created wealth and prosperity unlike anything since the dawn of civilisation? Sorry New Zealand but you’ve gone and stuffed it – this mob is going to destroy your economy.

Capitalism does work, the market works. As long as a suitable welfare system is there to support the vulnerable, the genuinely disabled and mentally ill – it is the best system.

Welcome to NZ a once brilliant country now going down the Socialist/ Marxist path of destruction just like Victoria.

Socialism is something you can do when someone else as has saved enough money. Communism is something you can do when you have enough guns. Jacinta is a socialist. She will soon spend NZ back where they came from 10 years ago. Then, like Kevin 07, no one will admit to voting out a perfectly competent government. Carry on KIWI.

Here we go again. The conservatives spend years being prudent, then the public thinks it might be a good idea to vote themselves some free stuff. Ghod help NZ.

Of course, Jacinda has lived in a successful socialist state to provide this comparison? Oh that’s right, there are no successful socialist states, they are just totalitarian.

And so it begins. In an effort to appease all the little people, the taxes will presumably go up on important things like housing and fuel, and those people will be worse off, even if they get a minimum wage increase. By the time NZ labor are booted out of office, id happily wager theyll be in debt.

The siren song of socialism is that it provides lotsa goodies paid for with other people’s money.

Oh NZ you are in for a world of pain!

And that was every comment so far with not a one left out. The only positive is that the NZ example will be a reminder here why socialists should never be elected.

Does this include classical economists

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Statement of the AEA Executive Committee
October 20, 2017

To: Members of the American Economic Association
From: Peter L. Rousseau, Secretary-Treasurer
Subject: Statement of the AEA Executive Committee

Many members of the economics community have expressed concern about offensive behavior within our profession that demeans individuals or groups of individuals. The American Economic Association strongly condemns misogyny, racism, homophobia, antisemitism and other behaviors that harm our profession.

AEA President Alvin E. Roth has charged an ad hoc committee on professional conduct to formulate a set of guidelines for economists to be considered by the Executive Committee. The ad hoc committee is charged with evaluating various aspects of professional conduct, including those which stifle diversity in Economics. It will submit a report in time for discussion in January. There will be a period for comment by the AEA membership on that report following its release.

The Association is also exploring the possibility of creating a website/message board designed to provide additional information and transparency to the job market for new Ph.D.s, and will be surveying departments to assess what information about their search processes might be shared.

And coincidentally, this also arrived at the same time from Human Progress. There we find:

Zakaria eloquently summarizes some of the problems with Western development professionals and their organisations. In particular, she says, their top-down approach to development, with its narrative of heroic humanitarians bestowing charity upon the world’s poorest women, is profoundly condescending. “Non-Western women are reduced to mute, passive subjects awaiting rescue,” Zakaria writes.

Patronizing attitudes aside, development professionals are also largely ineffective at alleviating poverty. The feel-good programs that give chickens to poor women, for example, don’t lead to any long-term economic gains.

These criticisms have been made before. New York University’s William Easterly has documented in great detail how the top-down “technocratic” approach to development often serves only to enrich “expert” development professionals and dictators in poor countries.

The natural rate of economic ignorance

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Having taught modern policy just this week, about inflation targeting and the natural rate of interest, and again while doing it wondering whether such gross stupidity can still persist when it has caused nothing but grief, it was nice to see this in The Australian today, by David Uren, that all is still wrong with the world and economics remains stuck in the same rut it’s been in for thirty years. This is from his article, Stubbornly low inflation tests even RBA’s patience:

When Philip Lowe took up the governorship of the Reserve Bank of Australia a year ago, financial markets were betting he would be cutting rates within six months. Today they are betting he’ll be raising them by May next year.

After Tuesday’s RBA board meeting, Lowe said there would be no change in rates, as he has after every meeting since his first as governor in October last year. . . .

It is as if the economy were stuck in first gear, and the Reserve Bank keeping its foot to the floor is neither making it go any faster nor lifting inflation. Central banking the world over is in ferment as top officials wrestle with the risks created by a decade of ultra-low rates and with their failure to generate the modest inflation required by their formal targets.

The inflation targeting framework that has governed the world of central banking for the past two decades, and that seemed to work so well at taming runaway inflation, is now struggling to deal with price rises chronically undershooting the mandated goals.

The Reserve Bank has been pursuing a target of keeping inflation between 2 per cent and 3 per cent since the early 1990s. The underlying rate of inflation (which strips out volatile movements such as petrol price jumps) has been below 2 per cent since the beginning of last year and the RBA’s projections suggest it doesn’t ­expect a ­return to the desired 2.5 per cent until the middle of the next decade. The same is true the world over, and it is leading central bankers to question whether their explanation of the economy and their impact on it is correct.

In a speech last week, US Federal ­Reserve chairwoman Janet Yellen pondered whether there was a “risk that our framework for understanding inflation dynamics could be misspecified in some fundamental way”. A week earlier, Bank of England governor Mark Carney had claimed globalisation was responsible for weak inflation but said he was not ready to ditch his bank’s inflation target.

The Bank for International Settlements, which is a kind of central bank to the world’s central banks, warns that the inflation targeting framework is fostering a dangerous build-up of risk. Head of its monetary and economic ­department Claudio Borio says central banks must “feel like they have stepped through a mirror”. Having spent their lives struggling to bring inflation down, they now toil to push it up. Where once they feared wage increases, now they urge them on.

Borio challenges the intellectual underpinnings of central banking. For the past century it has been assumed that there is a “natural” (or “neutral”) rate of ­interest that balances the needs of savers and investors. If a central bank sets its policy interest rate below this natural rate, it will ­encourage people to run down their savings and lift spending, pushing inflation higher. If the policy rate is higher than the natural rate, people will save more of their income to take advantage of the higher rates, spending less, and inflation will fall.

The theory runs that while central banks set the short-term rate of interest, long-term bond rates trend ­towards the “natural rate”. But this natural rate of interest is an economists’ hypothesis — it can’t be seen or measured, except by economists’ models. Borio calls it an “abstract, unobservable, model-dependent concept”.

Low interest rates are one of economic theory’s worst ideas ever, a notion once universally understood by all and now understood by none. Economic theory will have to relearn the lessons of the nineteenth century. It is quite quite astonishing to see these errors compound and the undoing of this mess won’t be pleasant. So to the article’s end:

The RBA slashed its cash rate from 4.75 per cent to 1.5 per cent between late 2011 and late last year, triggering a house price boom that pushed up household debts by an average of almost 7 per cent a year.

This week the International Monetary Fund said household debts much above 60 per cent of GDP were a threat to growth and financial stability. The RBA’s measure of the household balance sheet shows debts have soared from 120 per cent of GDP to 137 per cent since 2011, putting them among the highest in the world.

Lowe worries that a small shock could turn into a much lar­ger downturn as households seek to repair their balance sheets. The danger is that debts are already so high that any rise in rates would crunch household spending, while rates are still low enough to make further borrowing attractive. With no path forward, the Reserve Bank is stuck where it is.

As for the theory that explains it all, you could go to Keynes, not The General Theory where he abandoned it all, but to his very orthodox 1930 Treatise on Money where he discussed the natural rate of interest in just the way it had been discussed since the end of the nineteenth century. Or you could go to the last two chapters of my Free Market Economics, whether editions one, two or three, since it is the same message in each.

Economic theory reaching the bottom of the barrel

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Excerpts from a comment on Keynesian economics. Everything about this annoys me and is demonstrably wrong. The full comment is found at the end of this post

1) “Keynes’ mistake was not in his solution to a savings glut, since there is nothing wrong with the notion of using public works to absorb a savings glut”

2) “the distortions created by excessive government intervention are likely to do far more damage than they solve over time”

3) “neither Keynesian nor neoclassical synthesis are used by mainstream economists today”

4) “both were well and truly discredited by the new classical revolution sparked by the Lucas critique, Friedman, Schwartz and others”

5) “unfortunately, new classical economics failed to explain the real world which enabled new Keynesian economics to emerge.”

6) “there are also a few very dopey economists who go the other way and persist with discredited ideas from the right, such as the Austrian school.”

So my comment on this comment.

1) A “savings glut” is a misinterpretation of the effect on business confidence after a financial crisis. That everyone goes into a shell for a few months is hardly surprising, whose effects are compounded by a reluctance of those with money to lend to others since no one really knows who is and is not solvent.

2) I absolutely do go along with the concern about governments misdirecting resources but the qualifier at the end, “over time”, makes me very suspicious. The damage caused by the distortions are immediate although it may take a while before the effects of misdirected production begin to show up, and here we are talking about even 3-4 years.

3) If I was told that the phrase “aggregate demand” had been purged from economic theory I might just be willing to go along with the idea that Keynes is dead and gone. But once you recognise that the Keynesian innovation was “aggregate demand”, the notion that Keynesian economics is dead is absolute nonsense. Until that goes, macro will only cause harm and almost never do a single thing right, other than by chance.

4) “New classical” economics is so absurd that it never fails to astonish me that it ever gathered a following, other than it pretended to be the refutation of Keynesian theory. This is what it really is. Keynes set up a strawman version of classical theory in The General Theory which he said was based on the supposedly classical assumption that there could never be involuntary unemployment. No actual pre-Keynesian classical economist believed any such thing, but New Classicals actually do. They have attempted to refute Keynesian theory by actually promoting Keynes’s strawman as the real thing!

5) New Classical theory gave up all pretence of being able to understand an actual recession after the GFC. Since it said no such things could occur – that all unemployment was voluntary! – they had nothing in their kit bag to explain the situation or to devise policies to deal with a set of circumstances they argued could never actually occur.

6) Not an Austrian myself – “JSM Classical” – but you can get a lot more sense in Mises than from just about anyone since he actually incorporates the role of entrepreneurs in how economies work, as do all other Austrians. They discuss markets and relative price adjustments. They see an active role for competition. I have my differences, but most of Austrian theory is as sound as you can find in the modern world.

Economic theory is at such a low level of insight that it fills me with a kind of despair, since as it is currently structured, it is part of the process helping to push the freest and most prosperous civilisation in history over the cliff.

As for the comment in full, here it is in all its irrelevance.

Keynes believed there was a diminishing return to capital and so there was a risk of a savings glut and hence lower consumption. His prescription was for public works spending to absorb this savings glut and and so maintain production. Keynes never suggested redistribution of either wealth or income which is what your anecdote implies. Indeed, Keynes was very much opposed to governments running cyclical deficits on recurrent expenditure, which is why he suggested that any temporary increase in spending to address a savings glut should be managed through public works.

The common misunderstanding of Keynesian economics stems largely from the fact that John Hicks wrote a book to interpret the General Theory in terms of neoclassical economics. As a result, the view of Keynesian economics shared by most people today is of Hicks’ neoclassical synthesis rather than Keynesian.

Keynes’ mistake was not in his solution to a savings glut, since there is nothing wrong with the notion of using public works to absorb a savings glut. The problem is that such savings gluts are exceedingly rare and transient at best which means that they will almost inevitably be over before any government can respond. In fact, the distortions created by excessive government intervention are likely to do far more damage than they solve over time.

Of course, neither Keynesian nor neoclassical synthesis are used by mainstream economists today. Both were well and truly discredited by the new classical revolution sparked by the Lucas critique, Friedman, Schwartz and others.

Unfortunately, new classical economics failed to explain the real world which enabled new Keynesian economics to emerge. This new Keynesian economics had little foundation in economic theory and so the two branches merged to give us the new neoclassical synthesis which is the mainstream of modern economics.

Whilst there may be much in the new neoclassical synthesis that is wrong, there is nothing in the theory which supports the redistribution of ether wealth or income. What this means, is that many economists may believe in redistribution but the economics itself does not support this, at least as far as the mainstream is concerned.

Naturally there remain a number of heterodox economists out there who support outlandish ideologies, such as a few Marxists, Sraffians and New Keynsians etc. There are also a few very dopey economists who go the other way and persist with discredited ideas from the right, such as the Austrian school. However, orthodox economics, and this includes Keynes, new classical and the latest new neoclassical synthesis does not support redistribution.

Thus we may chuckle at such amusing anecdotes, but this does not represent the problem and never did.