Comments about ‘Robert J. Samuelson: Shrunken confidence in the power of economics’

The article should have been titled,"Shrunken confidence in the power of Keynesian (including supply-side) economics." Demand-side (Keynesian) and supply-side (so-called "trickle down") economics are two sides of the same Keynesian coin. Each theory claims to grow the economy by artificial stimulus. Both fail to grow the economy, and both succeed in growing debt and income disparities.

The Federal Reserve goal of stabilizing prices creates fatal side-effects that cause ordinary consumers needless suffering. The goal should not be to stabilize prices but to stabilize currency. Prices NEED to fall while the value of currency remains stable, thus resulting in the growth of purchasing power without the need to inflate wages. Deflation is a good thing, contrary to the deeply-held beliefs of popular economists such as Paul Krugman and Ben Bernanke, and even Milton Friedman.

And finally, it's also a good thing to see shrinking confidence in popular economics, because it's proven to be such a resounding failure.

Notice the three big factors, lack of demand (lack of demand for credit), Europe, the experts didn't see it coming so how do we know it's gone. The point is Samuelsons explanation does describe the reason banks and businesses have record profits, and hoards of cash and are sitting on all of it vs. the silly ideological explanation of..will my taxes go up by 3% and or will the govt. maybe, just maybe actually make me inspect the widget before I sell it (or not gough the card holder etc.).

Actually, people have lost confidence in conservative and libertarian economists, because they've been wrong very time. Last I checked, people have tremendous confidence in Nobel Laureate Paul Krugman, because he's been consistently right. And no, SEY, supply side theories aren't all that Keynesian. He did support tax cuts under some conditions; not the ones we're currently in. Focused stimulus efforts in times of demand-side recessions (which is what we're in) have a proven track record of success. This time too: nobody has been more critical of the paltry Obama stimulus than Krugman, and nobody has been more consistently right about the failures of austerity.

The type of economics that has lost favor during these years of recession is crony-capitalism. Crony-capitalism has done more to increase the gap between the haves and have-nots than any other single thing.

Crony-capitalism is the inevitable consequence of central banking and fractional reserve banking. The central banks decide who gets first dibs of their newly created fiat money before it trickles down to the rest of us. Those fortunate enough to have first access are usually government agencies and Wall Street high-rollers. They obtain large loans at nearly zero interest rates and invest in whatever the newest bubble is or will be. Central banking and fractional reserve banking are, of course, darlings of Keynesians.

The stimulus "solution" is a temporary one that seems to work sometimes. It will not always work, including now. Our economy is suffering from overstimulation and needs to recover from it before any more is tried. A stimulus advocated by Paul Krugman will probably kill the economy altogether. Let's see what happens in Europe when they try to do "whatever is necessary" to preserve the euro, which equates to "huge stimulus." I expect total failure.

This is an important and insightful editorial. People are acutely aware that the federal government is borrowing trillions. But the other side of the coin is that people and institutions that have trillions can't find productive ways to spend it or invest it, and are quite happy to loan in to the government for ridiculously low returns. In other words, the only thing higher than the demand for government debt is the supply of willing lenders.

Doesn't that reality speak to some fundamental imbalances in our economy? Why is it that some people and institutions have so much money that the only thing they can figure out to do with it is bit up the price of treasuries, so that they provide negative inflation-adjusted yields? These super-low yields can't be pinned on the government--it is the result of decision makers in our free market.

@ a bit of reality: your analysis of the situation is right on, but I have to disagree with your conclusion. Super-low yields are a direct result of Federal Reserve actions. You may say that's not government action, but it's the action taken by a government-appointed and approved board. That's about as close as you can get to being government without technically being so. The Federal Reserve banking system is NOT part of the free market! It's a monopoly established by law. They're able to do things that would be illegal in any other business, and it would certainly result in their bankruptcy in no time flat.

As long as any group or agency controls the money supply (which is what the Federal Reserve does), there is no free market. So to blame our economic problems on the free market is so far off the mark as to be nearly absurd.

It's all huey. There's no magic of the free market, it's all insider traded and gamed from the top at the banks. The financeers are busy showing us they don't need us anymore. How else can they make record profits while the rest of us languish in a recession. There's plenty of cheaper labor.

The banks probably get 80% of most households paychecks in the form of interests paid or insurances yet they needed the bailout? No, but a great way to steal even more fruit of labor.

@ SEY

You are only partly correct. It's true that the Fed controls short-term rates, but it doesn't control long-term rates. When the U.S. Treasury needs to borrow money, it creates bonds which it sells in completely free, open-market auctions. Yield rates are low because free-market players bid up the price of those treasuries when they are first issued, and trade already-existing securities for commensurately low yields.

If the Fed did something to lower the rates on Treasuries below what the market-determined yield curve, people would simply invest their money in something else (corporate bonds, real estate, gold, etc.). They don’t invest elsewhere because they have so much money and very few good options for productive investment.

@ a bit of reality: yes, I agree with what you're saying. At the same time, you should be able to see that the Fed is in control of the short-term rates that affect long-term rates. They don't exist in a vacuum from each other. The Fed has done everything it can to drive down rates because they assure us that doing so will help the recovery. They have made it a losing proposition to keep savings in banks because they want us to spend. After all, they say, consumer spending is what drives the economy. Why would they want to incentivize saving? What choice do private investors have other than to go to the stock market/casino or other high risk investments? They'd rather gain nothing than lose in that arena.

Let me state again, this is NOT a free market. As long as the Fed controls the money supply, there is no such thing as a free market.