> Somehow Keynesianism—and monetarism—limped into the 1970s, saying you can manage domestic demand and supply, and therefore growth and employment, by adjusting taxes and spending and the money stock in a country, even though Mundell’s field-defining articles of the previous two decades had shown that capital movements will overwhelm all efforts at domestic authorities to fine-tune their way to a desired result.

On the one hand is an attractively reasoned theoretical argument as to why it can’t ever work. [0]

On the other side is the repeated, concrete experience that it does work.

[0] Although, even per the article, it doesn’t show that in the case of “a solitary global economic hegemon”, which might, even if it was otherwise completely correct, be a pretty important limitation to its applicability to late-20th and early-(as in so far)-21st Century US policy.

Please don't take HN threads on generic ideological tangents. This is a perfect example of what the HN guidelines ask you not to do:

https://news.ycombinator.com/newsguidelines.html

It was meant to be a fun example of focusing on reality instead of theory, not a political tangent. Anyway, apologies.

If Wikipedia editors were regularly getting merc'd by CIA-funded contras, we'd be talking about how Wikipedia only works in theory too.

But the cases where the leaders were murdered are not the ones which are cited as failures.

Not for lack of trying.

https://en.wikipedia.org/wiki/Assassination_attempts_on_Fide...

Like I said below, when the largest empire the world has ever seen makes it a policy to destroy any socialist leader (even the mildest of social democrats) that threaten their resources or hegemony, only the iron-fisted strongmen survive. What people cite as failures are a result of the intense external pressure which favors strongmen because democratic socialist movements get massacred.

What? Did they try to assassinate Olof Palme? Also why would only the dictators survive?

Northern European/Scandinavian countries got a pass for things that got Latin Americans slaughtered. I'll give you as many guesses as you need to figure out why.

Hint: resources or hegemony

| Also why would only the dictators survive?

Because they ruthlessly crush their political enemies and live in a state of constant paranoia?

It seems utterly weird that only dictators wouldn't let themselves be murdered.

I just explained why and it's still weird to you? You should ask yourself why so many democratically elected left-wing leaders find themselves murdered or exiled by the CIA.

https://en.wikipedia.org/wiki/United_States_involvement_in_r...

Are you suggesting that the reason socialism doesn't work is that the CIA regularly kills, well, who exactly? The proponents of socialism? Hardly, they'd be assassinating 24/7 without making a dent.

EDIT: To clarify, I'm not claiming that the CIA didn't murder socialist leaders. My point is that you can't look at all the failed socialist experiments and conclude that socialism would have succeeded if only the CIA hadn't murdered any socialist leaders.

Short story: in 1953 Jacobo Árbenz of Guatemala initiated a land reform program. Large uncultivated holdings were expropriated, the owners compensated as per the value they themselves declared on their tax forms, and redistributed to the landless peasantry. Previously, 2% of the population controlled 72% of the arable land (with the United Fruit Company alone owning 42% of arable land!), poverty was widespread, but at the same time much of the land was unused. Practices such as labour-as-rent meant that much of the population, especially indigenous persons, were effectively serfs in a feudal system. Health outcomes were also very poor.

After the reforms poverty was slashed, The government also created a line of credit for the newly landed farmers to get their things going: it dispensed $3,371,185 in loans during 1953. By July 1954 $3,049,092 had been paid back! An success almost without parallel in history.

Cutting to the chase, the US didn't like that, so they initiated one operation to boot him out and install a sympathetic dictator. It failed, so they tried again, and it succeeded. The new establishment proceeded to revert all those reforms, give back land to foreign hoarders. The US also placed death squads through the countryside to enforce the change, paving the way for decades of civil war.

Zimbabwe had the exact opposite experience. White farmers lost their land and then the Mugabe regime gave it to people who didn't farm on it. Food has to be imported and paid with loans denominated in a foreign currency. Zimbabwe can't print US dollars, so it obviously ended in hyperinflation.

Look, I don't want to defend or deny the many, many atrocities and crimes the US committed in the last 100 years, far from it. However, one year (or even five years) is much too short a timespan to judge whether a socialist reform is successful or not.

You seem unaware of the history of US foreign intervention.

https://en.wikipedia.org/wiki/United_States_involvement_in_r...

There's a very unfortunate reason only the strongmen last.

Oh no, I'm very much aware of it. What I'm saying is that your insinuation – that socialism only failed because the CIA murdered socialists – doesn't make sense, because socialism has been tried several times in different countries. It would only make sense if the CIA had exclusively murdered the competent socialist leaders, while leaving the incompetent socialist leaders alive to try out socialism in their countries. This would also require the CIA to have the foresight to know beforehand which leaders will turn out to be incompetent.

| This would also require the CIA to have the foresight to know beforehand which leaders will turn out to be incompetent.

First, as I said before, when the CIA targets socialist leaders, only the strongmen survive. It's my belief that strongmen are not great leaders, they're just the best at not getting killed. This is why people associate "socialist" with "authoritarian", because the crunchy, hippy Bernie Sanders types get shot and their supporters get thrown from helicopters.

Second, killing socialist leaders isn't the only thing the CIA does. Look up any CIA counter-revolution manual and part of their cointel is to do as much as possible to destabilize the politics and economy of the country. Any socialist leader (or even just mildly social democratic leader) has to contend with this in a way that a capitalist leader doesn't. Even under these circumstances, we still have relative success stories like Cuba, which while not great from a first world perspective is a much better place to be an average citizen than Haiti or Dominican Republic. Or Bolivia, which got coup'd but popular support was able to oust Añez and whose economic reforms have increased GDP per Capita by 50%.

You can't state something as definitive as "socialism doesn't work" when history includes the greatest empire the world has ever known doing everything in its power to crush it.

I suspect you are using the word “socialism” wherever it would be more honest and clearer to use “communism”. Firstly, your definition of socialism makes it a strawman or tautology - socialism is that which has failed.

Many other people in the world use the word socialism to also have positive meanings where society shares its wealth with everyone in that society.

Most every wealthy first world country has a significant taxation system that is inherently “socialist” IMHO. The individual is taxed, and the tax income is spent for the weal of all: on infrastructure, defence, social benefits, health benefits, etcetera. What word do you use for that concept?

I am from New Zealand, which is definitely not a failed state, where: “Total core Crown revenue for the 2018/19 financial year was $119.3 billion. Tax revenue [] totalled $86.5 billion in the 2018/19 financial year.” and “The three largest areas of total Crown expenditure for the 2018/19 financial year were: Social security and welfare: $34 billion, Health: $18.7 billion, Education: $15.3 billion”.

That is, in NZ, 3/4 of tax income was spent on “socialist” welfare state expenditures of education, health, and social services for the majority.

I know that is off-topic, but I just find how you frame your arguments to be severely biased.

>Somehow Keynesianism—and monetarism—limped into the 1970s, saying you can manage domestic demand and supply, and therefore growth and employment, by adjusting taxes and spending and the money stock in a country, even though Mundell’s field-defining articles of the previous two decades had shown that capital movements will overwhelm all efforts at domestic authorities to fine-tune their way to a desired result.

It's weird the way this article determinedly avoids considering the notion that a hypothetical country (let's our hypothetical country "China") could impose capital controls to avoid being overwhelmed by inflows and outflows of capital and manage effective domestic growth by adjusting taxes and spending.

This disproves Keynesianism, apparently.

It's like saying that it is impossible to build anything next to the sea because it will be destroyed by waves.

I'm not sure the latter part ("manage effective domestic growth by adjusting taxes and spending") is correct at all. China manages its economy via SOEs and targeted and massive credit, as well as financial repression (of which capital controls are a component).

China makes heavy use of Keynesian stimulus. It's why they bounced back from the 2008 crisis so quickly.

Capital controls come with huge costs, it's another form of import/export controls. Imagine being told the part you need to manufacture your car is 4x the normal price because of intense focus on capital controls, or worse, that you can't get it.

Yes, imagine being a business in a country under the US sanctions. Without ability to import cheaper foreign parts, what would happen? In a country large enough one would imagine it would lead to the appearance of the home industry that would provide a substitute. More expensive, and of lower quality, sure, but Rome was not built in a single day.

> Without ability to import cheaper foreign parts, what would happen?

We'd lose the economies of scale that come with being a major exporter to Europe and South America, for starters. Which would lead to an R&D disadvantage. Which would further widen the gap. Strategically protecting industries is very different from blanket sanctions / capital controls.

That's why I said "large enough country", that'd would allow to retain the scale somewhat. And if you look at the examples of Iran/EU trade and Russia/EU trade, perhaps the exports won't even go down that much, so perhaps doubling down on R&D to keep being competitive would even be feasible.

Imagine putting nuclear weapons on your lawn and pointing at your neighbour and being surprised that they decide not to trade with you.

Imagine being Thailand in 1997: the stock market plunges 75% in one day, GDP contracts ~10%, a wave of bankruptcies, poverty and inequality skyrocketing while the government has to go begging to the IMF, accepting any and all demands that they make, no matter how unpopular.

You're better off being China.

? That crisis was literally started by misguided attempts at currency controls (!) i.e. Thai pegging their currency to USD and unable to 'hold the wall against the sea' so it eventually came crashing in.

So yes, Thailand 1997 demonstrates very effectively one of the challenges with currency controls.

Currency controls come with a cost, that has to be considered.

Capital controls are controls what kind of capital can enter and exit the country and when - e.g. transaction taxes or exchange controls (limiting how much currency you can buy or sell).

Currency pegs are when the government tries to maintain a particular value against another currency. E.g. maintaining a $ peg by buying or selling US treasuries on the open market.

They are not the same thing at all.

Currency pegs should probably additionally be separated into two groups, as, well - "too high" (UK and Thailand) and "too low" (China).

The crisis could be characterized as an attempt to adhere to the impossible trinity: https://en.wikipedia.org/wiki/Impossible_trinity

When the government is buying and selling currency at some rate commensurate with capital coming in and out of the country -> it's a capital control.

Reacting to capital leaving the country uncontrolled is not a capital control.

It's a reaction to capital leaving the country uncontrolled.

Fixed exchange rate regimen != capital controls.

> Capital controls come with huge costs, it's another form of import/export controls. Imagine being told the part you need to manufacture your car is 4x the normal price because of intense focus on capital controls, or worse, that you can't get it.

Lack of capital controls can come with a bigger costs, for instance if your country is weakened through the loss of strategic industries (or failure to gain them) while your businesses followed market incentives. The difference is that many of those costs are billed irregularly, so it's easy to pretend they don't exist by focusing on regularly billed things (e.g. price of widget now).

I don't know why you got downvoted, but capital controls are very much the other side of the same coin.

My take is that we should aim for balanced international trade (not quotas, but balance), and that would require either capital controls or import/export controls at least to establish, and probably (but more flexibly) to maintain that order.

Paul Krugman tweeted this article that he wrote in 1999:

> Later Mundell would broaden this initial insight by proposing the concept of the “impossible trinity”; free capital movement, a fixed exchange rate, and an effective monetary policy. The point is that you can’t have it all: A country must pick two out of three. It can fix its exchange rate without emasculating its central bank, but only by maintaining controls on capital flows (like China today); it can leave capital movement free but retain monetary autonomy, but only by letting the exchange rate fluctuate (like Britain–or Canada); or it can choose to leave capital free and stabilize the currency, but only by abandoning any ability to adjust interest rates to fight inflation or recession (like Argentina today, or for that matter most of Europe).

* https://slate.com/business/1999/10/o-canada.html

* Via: https://slate.com/business/1999/10/o-canada.html

The Zeus of economics? I'd say the last 50 years of wage stagnation for the working class and the massive increases in wealth inequality might call some of his theories into question...

I think it was meant to convey the impact he had on economics, not as a vote of confidence for those contributions.

The trick with economics is to realize that 99% of all discussion is about a particular flavor of economics. It's almost always about theory and implementation, not principles and abstractions. Inevitably, there is also a significant political aspect that is often (but not always!) overlooked.

Even if there is a "raw" theory of economics that describes the "what" in a universally agreeable way it'll never tell us the "why" and "how" of it, let alone how politics should (or should not) be intertwined with the issues.

He also created some wild oil paintings.

https://media.gettyimages.com/photos/economist-robert-mundel...

Hopefully supply-side economics is the next to die. It didn’t work in the Reagan 80s, and it didn’t work in the 2010s in Kansas [0] Laffer and this guy that died are a total joke. Their theories exist to give political cover to politicians who aim to line the pockets of the rich.

[0]https://en.m.wikipedia.org/wiki/Kansas_experiment

> Laffer and this guy that died are a total joke

Laffer curves are empirically corroborated [1][2]. For most taxes, there is a point past which raising the tax rate starts decreasing revenue.

The problem was politicians defining a made-up number as that point and voters going along with it.

[1] https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.47...

[2] https://www.sciencedirect.com/science/article/abs/pii/S03043...

Agreed. Its not controversial that at a 100% tax rate, work would not be done, and at a 0% tax rate no tax will be collected.

The issue has always been using these points to extrapolate any policy you want because where you land on the curve or even the shape of said curve IS up for debate.

> [...] this guy that died are a total joke.

An article Krugman wrote in 1999:

> Later Mundell would broaden this initial insight by proposing the concept of the “impossible trinity”; free capital movement, a fixed exchange rate, and an effective monetary policy. The point is that you can’t have it all: A country must pick two out of three. It can fix its exchange rate without emasculating its central bank, but only by maintaining controls on capital flows (like China today); it can leave capital movement free but retain monetary autonomy, but only by letting the exchange rate fluctuate (like Britain–or Canada); or it can choose to leave capital free and stabilize the currency, but only by abandoning any ability to adjust interest rates to fight inflation or recession (like Argentina today, or for that matter most of Europe).

* https://slate.com/business/1999/10/o-canada.html

His theoretical work allowed the Euro to be developed (which may or may not have been a good idea).

>His theoretical work allowed the Euro to be developed (which may or may not have been a good idea).

It's pretty much one of the most dysfunctional currencies out there.

Krugman in 1998:

> Here's how the story has been told: a year or two or three after the introduction of the euro, a recession develops in part - but only part - of Europe. This creates a conflict of interest between countries with weak economies and populist governments - read Italy, or Spain, or anyway someone from Europe's slovenly south - and those with strong economies and a steely-eyed commitment to disciplined economic policy - read Germany. The weak economies want low interest rates, and wouldn't mind a bit of inflation; but Germany is dead set on maintaining price stability at all cost. Nor can Europe deal with "asymmetric shocks" the way the United States does, by transferring workers from depressed areas to prosperous ones: Europeans are reluctant to move even within their countries, let alone across the many language barriers. The result is a ferocious political argument, and perhaps a financial crisis, as markets start to discount the bonds of weaker European governments.

* https://web.mit.edu/krugman/www/euronote.html

Which is basically what happened in ~2010:

* https://www.nytimes.com/2011/01/16/magazine/16Europe-t.html

Germany being 'fiscally obstinate' is a continuing issue:

* https://www.irishtimes.com/opinion/paul-krugman-the-world-ha...

Europe is basically like the US was pre-Civil War, where people would say "these United States": not quite culturally whole, and pulling in all sorts of directions. Given the pull of (economic) gravity Germany has, everyone is kind of forced to follow their lead, even when it doesn't make much sense.

It's a conflict of interest but also in a different way than he says: deficit countries want to devalue their currencies to boost exports (and make imports more expensive), but they have no central bank to print money. Guess who benefits from that: surplus countries like Germany, which are perfectly content with having Greeks buy their exports in €.

> Guess who benefits from that: surplus countries like Germany, which are perfectly content with having Greeks buy their exports in €.

Supposedly lots of German banks were investing in Greece and Spain because returns there were good compared to the abysmal rates in Germany. So the ECB/IMF 'bail out' ended up being a bit of a rescue of the German banks:

> According to a study by the European School of Management and Technology only €9.7bn or less than 5% of the first two bailout programs went to the Greek fiscal budget, while most of the money went to French and German banks.[84] (In June 2010, France's and Germany's foreign claims vis-a-vis Greece were $57bn and $31bn respectively. German banks owned $60bn of Greek, Portuguese, Irish and Spanish government debt and $151bn of banks' debt of these countries.)[85] According to a leaked document, dated May 2010, the IMF was fully aware of the fact that the Greek bailout program was aimed at rescuing the private European banks – mainly from France and Germany. A number of IMF Executive Board members from India, Brazil, Argentina, Russia, and Switzerland criticized this in an internal memorandum, pointing out that Greek debt would be unsustainable. However their French, German and Dutch colleagues refused to reduce the Greek debt or to make (their) private banks pay.[86][87]

* https://en.wikipedia.org/wiki/European_debt_crisis

> His theoretical work allowed the Euro to be developed

I rest my case.

If only people had actually listened to what Mundell actually said / wrote:

> The four often cited criteria for a successful currency union are:[6]

> * Labor mobility across the region. […]

> * Openness with capital mobility and price and wage flexibility across the region. […]

> * A risk sharing system such as an automatic fiscal transfer mechanism to redistribute money to areas/sectors which have been adversely affected by the first two characteristics. […]

> * Participant countries have similar business cycles. When one country experiences a boom or recession, other countries in the union are likely to follow. This allows the shared central bank to promote growth in downturns and to contain inflation in booms. […]

* https://en.wikipedia.org/wiki/Optimum_currency_area

* https://www.jstor.org/stable/1812792?seq=1

In 2012 Krugman laid out three things that needed to be done to make the Euro work better:

* https://www.journals.uchicago.edu/doi/full/10.1086/669188#_i...

I don't have comment on the legacy of supply-side economics and and how successful e.g. Reagan's economic policy was, but it looks to me like we have more of a supply-side issue right now than demand-side.

We have shortages of semiconductors, congested ports, all of the supply issues with early COVID PPE, absurdly low housing supply in the most desirable places to live, and so on.

That’s not quite what “supply-side economics” means. From Wikipedia[1]

> Supply-side economics is a macroeconomic theory that postulates economic growth can be most effectively fostered by lowering taxes, decreasing regulation, and allowing free trade. According to supply-side economics, consumers will benefit from greater supplies of goods and services at lower prices, and employment will increase.

Cf. Demand-side economics[2]:

> Demand-side economics is a term used to describe the position that economic growth and full employment are most effectively created by high demand for products and services. According to demand-side economics, output is determined by effective demand. High consumer spending leads to business expansion, resulting in greater employment opportunities. Higher levels of employment create a multiplier effect that further stimulates aggregate demand, leading to greater economic growth.

> Proponents of demand-side economics argue that tax breaks for the wealthy produce little, if any, economic benefit because most of the additional money is not spent on goods or services but is reinvested in an economy with low demand (which makes speculative bubbles likely). Instead, they argue increased governmental spending will help to grow the economy by spurring additional employment opportunities. They cite the lessons of the Great Depression of the 1930s as evidence that increased governmental spending spurs growth.

[1]https://en.m.wikipedia.org/wiki/Supply-side_economics

[2]https://en.m.wikipedia.org/wiki/Demand-side_economics

Supply side economics works if everyone is poor and there isn't enough stuff for everyone, the assumption is that the supply side can never be saturated and there is always excess demand (think of a hedonic treadmill). It works fine in developing countries with a young population.

As soon as you have a developed nation with an aging population where everyone is scrambling to save for their own retirement, you get the exact opposite problem. People are deferring spending, which means deferring incomes, which means deferring jobs which means unemployment.

There is lots of money available to invest into businesses, in fact, people are investing too much, interest rates fall through the floor. Low interest rates allow unproductive companies to stay alive and when the long term debt cycle ends they all die at once. That's not good for your retirement.

When you expect to retire in 10 years, you want your savings to actually be able to buy things, by making sure there are people in the future willing to work for your money. That's why you invest your savings, to make sure companies exist that sell stuff to you in the future, but how are those companies supposed to survive the 10 years until you retire, if you never buy anything?

One has to love these fake dichotomies where both "sides" suck. Where's the school of thought advocating for demand commensurate with what people can actually use, and that aims to require only as much labor as required to fulfill that? Probably not getting any phone calls from the economic schemers in Washington.

In fact the problems of supply that you mention are a demonstration of the failure of supply side economics. The whole theory is based on the idea that if you give fiscal incentives to the supply side, you will have more supply. But what we see in reality is that more fiscal benefits were provided and the industries are not responding, according to the examples you gave.

Another example is the healthcare and Pharma industry: more incentives should result in more competition and lowered costs, but exactly the opposite is happening: consolidation and higher costs.

The "supply side" of "supply side economics" is a red herring. The theory has less to do with what actually affects the supply of goods at any given time and more with the theory that lowering taxes and decreasing regulation always necessarily results in more supply and lower prices even when it clearly doesn't.

The theory ignores everything else that affects supply and only focuses on complaining about taxes and regulation.

While this might be a tangent to your larger point, I personally struggle when arguing about housing in California, in particular. Yes, supply might be low and more aggressive construction could do wonders for more affordable pricing, I have no disagreement with that. (And as a low-income retail worker in SoCal, I would certainly welcome that relief!)

But at the same time, I see basic limits in our water supply, and less absolute constraints in the crowding around a handful of urban hubs, and wonder if more housing is truly a good idea, or if we might already be near the practical limits on capacity for the geography/hydrology and geometry we're working with.

we're not anywhere close to the natural limits, as we have plenty of technology and policy we could implement yet around resources like clean water, air, energy, and even space. the primary reason we don't is cost, both for externalities and for the remedies themselves.

the 50-year plan for LA (the city) from about 50 years ago was projecting something like 7-8 million residents being housed here by now with basically the same current infrastructure. instead, we've only grown from 3 to 4 million in that time, largely because of various restrictions on development (zoning, prop 13, etc.). note that LA city is ~470 sq mi, in contrast to NYC which is twice the population and ~300 sq mi.

Hmm, and not a mention of the US reaching peak conventional oil production around 1970, which pushed trade balance in the red, and was the main reason behind the stagflation and the end of the gold standard...

More a Typhon than a Zeus.

What a strange metaphor. Why Zeus?

Zeus is known for using violence to get whatever he wanted, and screwing anything that moved (despite being married)

A man whose 1960s ideas were ideal for the seventies and helped destroy our economic system in the 1990s while enabling the billionaire winner take all society of today.

Substantive critique is welcome, but please don't post rhetorical ideological drive-bys to HN. It leads to shallower, more repetitive, and nastier internet discussion—all of which is uninteresting.

https://news.ycombinator.com/newsguidelines.html

Honoring a man who never got anything right. A man whose predictions were never bore any material fruit, but justified everything billionaires were going to do anyway.

After the stimulus bills of 2020 one would think everyone is a Keynesian (maybe excluding Rand Paul, he probably voted against it).

The 2020 COVID relief wasn’t as much argued on Keynesian stimulus terms as, say, the 2009 ARRA stimulus, but more as disaster relief.

They just don't want to use the K word.

It goes both ways. The government closed businesses, but also gave them resources to stay in business. You can argue it was Keynesian, but you can also argue it wasn't.

However, pretty much everything Biden did, was Keynesian.

To clear some inevitable confusion, Zeus in this context is intended as a compliment. Bob Mundell is not a libertine with jealousy and anger issues.