Maggie's Farm

Having read Schumpeter, Keynes, Friedman AND Kindelberger (Economics Masters), I have to say Kindelberger, as a niche study, is amazing.

I am, by far, a believer in free and efficient markets. But efficient markets DON'T mean PERFECT markets, and this is the flaw of Keynes and Friedman. Even a perfectly free and efficient market would suffer from manias and panics, as people tend to behave with herd instincts.

As a result, contrarians tend to do very well over the "long haul" (call it 10-15 year spans), as they work counter-cyclical trades and benefit from moves in either direction.

The key to Kindelberger is Behavioral Economics, which focuses not on efficiency, rational behavior, and perfection, but on reality - the nature of individual behavior within a market system. This market system may be free or can have some market imperfections (all markets have certain imperfections, such as information dissemination being flawed), but either way people will follow their standard rules of behavior and follow the crowd - creating manias and panics.

Kindelberger is a must for anyone who wishes to understand where we are, and why it isn't a bad thing. The hope for the future isn't in complaining about crashing, or blaming the system. The hope is in understanding that even panics are overcome, eventually, by a return to good, solid behavior on the part of individuals.

Central Banks are essential for an economy that seeks to grow.
There is a reason gold rarely survives as a store of value over time - there are limits to how much there is. If an economy is growing, more gold is needed.
Since the amount of gold in the world is limited, there has to be another way to increase currency in circulation in order to support growth - hence the rise of fiat currencies.

The PROBLEM with fiat currencies is the flaw of poltical management - eventually all fiat currencies come under the political control of poorly informed managers (politicians), and it is assumed growth can be CREATED with more currency in circulation. Currency in circulation has to increase with economic growth, not vice versa.

As for social engineering, there are certain benefits to managing taxation to improve behaviors. For example, Sin Taxes increase government income while improving health, thus increasing productivity AND government income overall. There are limits to the benefits of social engineering, of course.

I happen to be a fan of tax refunds and benefits for alternative energy. Why? Because in a market economy that has it sight set on the future, some current losses have to be created in exchange for improved future growth and productivity. In a marketplace, you need choices, and if choices are not available or provided, then those providing the limited resources will play games with consumers - witness last summer's speculative bubble in oil, all driven by the oil companies. Alternative energy is more expensive than oil when oil is less than $100 a barrel, but equal to or less expensive when it is above $100. Still, it's clear oil is a limited resource and its price is becoming more volatile. Thus, having alternatives readily available is essential.
In addition, providing tax breaks for alternatives helps to reduce their cost, and over time they will begin to compete with oil. Solar and wind, today, are 1/4 of the cost that they were 30 years ago, primarily because of investment driven by government subsidy. The reduction in cost, and thus their efficiencies, are far greater than the subsidies in question.

I'm not a proponent of government control of the economy, but there are OCCASIONAL tweaks, few and far between, mind you, that are beneficial. But they have to be done intelligently and supporting a long term goal of increased productivity and efficiency.

Jobs programs based on infrastructure improvement? Needed, definitely, but not something that will boost either efficiency or productivity. It's just a transfer of cash, pure and simple.
Tax breaks for alternative energy? Within a very small and limited window - very efficient and will provide greater productivity.

Consider this...I visited the USVI this year. Sun every day, with high winds (winter is when the tradewinds blow steadily). There are several large, low buildings on the island of St. Croix which could generate massive amounts of solar electricity - so why don't they have a solar array on the roof? Or some windmills in the hills to take advantage of the tradewinds?
Primarily because USVI suffers from a massive subsidy illness - the US gov't provides TONS of money for the people to do nothing all day long. As a result, the fights in local gov't are over who gets the largesse from the mainland - not over where the money can go to be productive.
St. Croix could generate, and export, tons of electrical energy if it so chose. But it's also an oil exporter...so there are certain games being played based on THIS information...the market sometimes gets rigged even when it is "free".