Keynes vs. Hayek debate is still alive

Here is an enlightening article about the two theoretical approaches to the economic crises, pioneered by John Maynard Keynes and Friedrich von Hayek. The author claims that the Hayek's approach has been discredited, and that the Keynesian stimulus is the only salvation to the World economy. (In case you have no time to read the whole article, I provide a few relevant quotes below.)

It is worth however noting that the Keynes vs not-Keynes division among the American economists passes precisely along the Republican-Democrat divide. This seems consistent, since the Democrats support more socialist society with a greater role of the government in regulating markets. But in Europe, which is essentially the Democratic ideal of the welfare state, the view seems to be just the opposite - the European Union response to the escalating debt crisis consists of imposing more and more austerity measures in Greece, Spain, Ireland, Italy etc.

This is probably the result of the different economic backgrounds, resulting in the drift of the two continents towards the middle ground, which humorously could be described as the difference between "Continental" and "English-speaking" approach.

The quotes: according to Hayek "the “crisis” results from over-investment relative to the supply of savings, made possible by excessive credit expansion. Banks lend at lower interest rates than genuine savers would have demanded, making all kinds of investment projects temporarily profitable.

But, because these investments do not reflect the real preferences of agents for future over current consumption, the savings necessary to complete them are not available. They can be kept going for a time by monetary injections from the central bank. But market participants eventually realize that there are not enough savings to complete all the investment projects. At that point, boom turns to bust."

The Keynes's position is just the opposite: "under-investment relative to the supply of saving – that is, too little consumption or aggregate demand to maintain a full-employment level of investment – which is bound to lead to a collapse of profit expectations."

Consequently the two economists offered different recipes for dealing with economic crises: "Whereas for Hayek recovery requires the liquidation of excessive investments and an increase in consumer saving, for Keynes it consists in reducing the propensity to save and increasing consumption in order to sustain companies’ profit expectations. Hayek demands more austerity, Keynes more spending."

The last recession is commonly blamed on the sub-prime mortgage crisis: the sharp drop in the price of real estate assets made these assents cheaper than the amount of money previously borrowed to purchase them. This explanations seems to be taken directly from the Hayek's book. Ironically, the stimulus approaches (i.e. more spending) adopted by both George W. Bush and Barack Obama, are the prescriptions taken from Keynes.

One more political failure by the West

Germany has called for a United Nations Security Council meeting to discuss the situation in Syria. Although no more is in the offing than a tough condemning resolution, China and Russia has already threatened to veto it.

Let us note that:
1. The crackdown on Syrian opposition has been going for several months already, and more than a thousand people have been killed. Yet, the ambassadors of all major Western countries are still not recalled from Damascus, and President Obama only now, after the massacre of 80 people in Hama, realized “the true character of the Syrian regime.”

2. The Muslim Brotherhood, on the other hand, has not remained silent: "Syria is witnessing a war of sectarian cleansing. The regime has linked its open annihilation with the crescent of Ramadan. It is a war on the identity and beliefs of the Syrian nation ... on Arab Muslim Syria."

Conclusion? In Syria the West has lost both moral ground and political influence in the "Arab Street". The Muslim Brotherhood gained.

For good or for bad, nuclear energy is the future

Yukiya Amano, the head of the International Atomic Energy Agency, made it clear that the number of nuclear reactors in the World is likely to increase in the nearest future.

This statement is valuable for two reasons:
1. IAEA's head is probably the most informed person in the World in regard to the developments involving the nuclear energy.

2. He is neither a political leader, nor representative of the nuclear industry, nor environmentalist, and as such can afford to be more objective than anyone else. This is even more underscored by the fact that Mr. Amano is Japanese, who probably finds it hard to be dispassionate about teh recent Fukushima accident.

Conditional morality

We now know more about the Oslo massacre - even though the murderer was a crazy man acting alone, there are many legitimate questions to ask about those who encourage the right-wing extremism and about the availability of guns. Both these factors contributed to the possibility of this tragedy.

Yet, there is one more factor that is not likely to be discussed much, even though it should be. Especially in the light of the revelations that the gunman himself described his actions as "gruesome but necessary".


Indeed, modern society accepts murder... if the murder is "justified". This is true as in popular culture, as well as in politics. All of us have seen many movies where a lone hero massacres scores of people out of revenge or simply because they are deemed "bad guys". While the hero's arch-enemy in these movies is usually a murderer himself (which still hardly justifies the extra-judicial justice), on the way to this arch-enemy the hero massacres dozens of nameless guards, soldiers, policemen, storm-troopers etc. (Storm troopers are particularly faceless, and therefore their murder is particularly easy.)

In our political life we accept murder, if the murdered people are terrorists, mercenaries, soldiers serving dictator etc., even though sometimes these people have no choice not to be on the side of our enemies (particularly soldiers). We also accept murder, if it is committed by rebels, freedom fighters or if it is done in the name of "resistance" (which are all just euphemisms for terrorism.) Many young people admire Che Guevara, even though he was nothing but a "professional revolutionary" - a person who committed murders for the sake of his political ideals.

But when we justify murder in the name of what seems "right" to us, we have to face the fact that someone will eventually commit the murder in the name of what seems "right" to him/her. And the Norwegian murderer's statement that his actions were "gruesome but necessary" means precisely that - he thinks that he is "right". Like many of our contemporaries he forgot that what makes the murder a crime is not the fact that it is illegal and punished by law, but the fact that it is morally wrong - always wrong! 

Murder is always wrong! And when Norwegian government minister met with Hamas leader, despite Hamas's refusal to accept the international demand for renouncing violence, or when it supported a statehood bid by the Palestinian authority that is now allied with Hamas - the Norwegian government sent a wrong message: The murder is acceptable, if the murderer believes that his goal is noble.

Theatre of political absurd: how to cut a thing into halves?

This article in Haaretz (authored by Yossi Sarid) comes with the following statement:  "The right wing has been in power for 35 years, with short intervals, but the left keeps running our lives from its fortified strongholds - the justice system, the media, academia."

Rational point of view:
Perhaps, there is too much of a scientist in me, but this made me laugh no less that the recent article about the "anti-witchcraft unit" in the Saudi Arabia. Indeed, how do you define left and right? The physically reasonable way is to cut the thing in the middle (center), which in politics would mean cutting between the two major parties, in the case of Israel between Likud (right) and Kadima (left). All the other movements than can be ranked according to their distance from the center.

If we adopt such a definition, it is easy to see that, contrary to the statement quoted above, left-wing governments spent significant time in power in the last 35 years.

Radical point of view:
It is unfortunately more often than not that people use a different definition of right and left: rather than compare their position to the existing spectrum of the opinions, they make an assumption that their position is the balanced one, and classify all other points of view in respect to theirs. Although this is a legitimate procedure, it naturally produces very subjective results, which look absurd in the eyes of the majority. In particular, a person, who objectively belongs to the extremely left part of a political spectrum, will see everyone else as right-wing and consequently come up with a ridiculous statement, which provoked this post.

The moment of truth comes when an intelligent person finds that majority of people hold the views that are significantly to the right (or left) of his/hers. In this case a liberal person adjusts his/her position or at least accepts that his/her views are rather extreme. However, more often people choose to insist that their views are the only correct ones, and try to force these views on everybody else. This has nothing to do with being liberal, but rather reflects communist/fascist tendencies. (Note: I use here the terms "communist" and "fascist" in general sense - as the terms for non-liberal/intolerant ideologies in the left and right respectively.)

"Tent city" protests in Tel Aviv

There is an ongoing protest in Tel Aviv about the housing prices.

Here are my comments:
1. The protest demonstrates the ignorance of the most protesters, as well as of the politicians involved, about the mechanisms behind the market economy. While the government may restrict the prices, this will likely result in the reduced offer on the housing market, i.e. in the shortage of the available housing.

2. In the case of the politicians supporting the protesters this ignorance is most likely deliberate. Particularly, particularly, this seems to be the case in regard to the members of the Meretz and Hadash party, who hold advanced University degrees. Given that they are among the smallest parties, their bet is a) either to bring down the government in a hope that the next government will be formed by Kadima which will allow Meretz and Hadash to become part of the ruling coalition, or b) playing to the feelings the most extreme/uncompromising of their supporters to ensure the party's re-election (at the moment Hadash and Meretz hold respectively 4 and 3 seats in 120-member Knesset.)

3. It is ironic that protests expand from Tel Aviv to Ben-Gurion University in Beer Sheva, since the housing in Beer Sheva is known to be quite cheap. This may be an indication of the fact that the protests reflect the political aspirations of the student union leaders, rather than those of the students themselves.

4. The support from the Spain's M15 movement is also not something that the protesters should be proud of. Indeed, the protests in Spain were triggered by the government attempts to introduce austerity measures in order to prevent a Greece-like economical crisis. It is also worth remembering that economically unjustified availability of the housing is believed to be the reason for the recent World economic recession.

Added:  
Here is a relevant reference to a basic economics textbook:
Gregory Mankiw, "The Principles of Economics". In particular in Chapter 6: "Supply, Demand and government policies", there is a relevant example on p.125: "Rent control in New York City".

Forgotten Freud

Wall Street Journal comes with this article on the dream-interpretation: http://online.wsj.com/article/SB10001424052702303678704576439831114438292.html?mod=WSJEUROPE_hpp_editorsPicks_2

I agree that the dream-interpretation is an interesting subject. However, I am astonished that the article neglects the pioneers of this field, first of which is, of course, Sigmund Freud. Indeed, the article goes only as far as to say "With imagery and symbolism, dreams can reveal important insights that we might not consciously notice otherwise, experts say. Dreams are "a different mode of thought," says Deirdre Barrett, a psychologist, professor at Harvard Medical School and author of the book "The Committee of Sleep." "
But the article really does not go further than discussing what is contained in his "The Interpretation of Dreams" or "The Introductory Lectures to Psychoanalysis" (Which are a very easy and interesting to read books as well.)

It is sad that more than a hundred years after Freud's discoveries, and after the sexual revolution, the mankind still denies this scientist the credit for opening a new field and getting many things correct.