...against fictions and other tall tales

Saturday, 27 August 2011

Crescenzi watch: Inconsistent messages out of Pimco?

Tony Crescenzi of Pimco is at it again. For the second time since being given the privilege of replacing the now-retired Paul McCulley as the lead author of Pimco's Central Bank Focus (CBF) column, Crescenzi has written a piece that has the effect of undermining the current position of Pimco's two chief investment officers, Bill Gross and Mohamed El-Erian, both of whom have recently been calling upon the US federal government to do more to create jobs, update public infrastructure and invest in education. 

Entitled "Saying no to Keynes and Fiscal Folly", Crescenzi's August edition of CBF is half-filled with the usual nonsense equating Keynesian-inspired policy remedies with costly and wasteful government spending.

The problem with Crescenzi's contention that the application of Keynesian economics and its focus on stimulating aggregate demand through government expenditures result in a net cost to society is that it completely disregards the productivity-enhancing nature of public investment. As economists David Aschauer (1989) and Alicia Munnell (1990) have shown, public sector investment results in productive assets that tend to enhance private sector productivity in the long-run.

In other words, Crescenzi really needs to be more careful. As I mentioned in a previous post, Crescenzi's anti-Keynesian message is exactly the type of commentary that opponents of government intervention would use to attack the very proposals now being recommended by Gross and El-Erian to help prop up the US economy and mitigate against the possibility of another economic downturn.

So, all that being said, what really is the true legacy of Keynesian economics? I like to think that Michael Stewart captured it best when he designed the cover image for his classic text on Keynes, Keynes and After (London: Pelican, 1967): nothing less than three consecutive decades of persistently low unemployment.

Aschauer, D., 1989, "Is Public Expenditure Productive", Journal of Monetary Economics, Vol. 23, pp. 177-200.

Munnell, A., 1990, "Why has productivity declined? Productivity and Public Investment" New England Economic Review, Federal Reserve Bank of Boston, January/February issue, pp. 3-22.


  1. Very good caution. the two fed references are excellent pillars for policy options. WD again.

  2. Adventurous approach; but then I consider it a dare! Acid test for those that know JMK and those that flow through JMK. nod.

  3. Your cover reminded me of some Pre-Keynes (GT) texts not as popular as TM or GT. Keynes was an excellent pamphleteer. Can Lloyd George Do It? (1929, The Means to Prosperity (1933)and an article in Listener (21-11-34) entitled 'Poverty in Plenty' I think PIMCO, as you suggest, reflect an extremely democratic format by their diversity of opinions. But I would like it if Tony gave Keynes more of a chance.

  4. circut,
    now that jorge says both links are good, i can't decide which to read first. my instinct is to go with the oldest. thks for the reading list. i enjoyed the vickrey one from last week

  5. @B: Crescenzi just needs to read classic CBF columns. He should start with this one from Sept 2001. As relevant as ever if you ask me:


    Thanks for reminding me about JMK's pamphlets. I know some are in the Collected Works. I should investigate and locate copies.

    @Jorge and GC: agree with both comments. Nod.

    @LF: either one of the papers are good. Don't forget to pass'em around. As Jorge wrote, these works provide in them the seeds for recovery.

  6. At first I couldn't appreciate swells' recommendations, in the context of Tony Crescenzi's post. I scanned through them quickly, aware that the context of the writings is radically different: gold standard, etc... and then 'it dawned' that the pre-GT or TM and earlier advocate firstly an adjustment to monetary policy and then, under quite unique conditions, 'if necessary' a shift to public-X and other fiscal measures. The fact that monetary policy is invoked as first remedy could be a consideration that would appease TC's bias towards public-x and keynesian options. Of course, GT favors public-x as first recourse. The second interesting nuance is that Keynes cautions on the timing and logistics of all interventions especially public-x to ensure that the effect is not a sputter but a continuous flow of constructive investment. Obviously, it is no easy matter to establish the time-in and quantity, however, we are slightly more advanced than Keynes was-I think he didn't even have National Income Accounts at the time. Needless to say, late interventions will be over-costly and ineffective, early interventions may compel huge cost overruns and opportunity losses by having allocated good resources to less-than-efficient targets.

  7. @kp nod for the conduit station. It's working in a cloud with a pencil and fax. IMMUNE from all. Well, except for better part of our homes :)she's watching and the time zones

    @ELF, sorry @LF, mindslip-endearingly used for someone I knew. Absolutely brilliant. You liked Vickrey (h/t) good company when facing conventions. (h/t) also to your nod on Eisner.

    @circuit: FRB is the only non-academic 'conduit' that doesn't have a partisan label.
    The next few weeks will be decisive. The blogsphere and media, @many , abound with reprimands from all sides that Pres Obama and Chair Bernanke are procrastinators. Taunting rhetoric, but it's easy to armchair. Anyone consider Europe in that matrix, Japan in the same grid? The US is a constitutionally institutionalized decision maker and executor, and that is a complex format... So for the critics of the men, critique the system instead. But remember Churchill! (nod circuit) Have that civic courage that Messrs Mosler and Paul have demonstrated. Run for public office.

  8. @jorge. np tks.

    @anon LF for his nods to greats.

    @circuit:Eisner was really a great keynesian. The era was not appropriate for the prize. He was in Chicago but the wrong school. As Jorge elegantly says, he's in the FRB cloud!! Vickrey (both)would agree with your focus on unemployment as the major issue. This is their time. Real mensch. just a personal nod to both men. Their ideas can make a big difference.

    @jorge paraphrase Wilde: Cynics are people that know the price of everything and the value of nothing; Milton: They also serve who only stand and wait.?!.. I assume both would find Milton questionable?! and both would agree on the former but would be dismissive... great humanists. Not many are skilled, or have the resolve or the health to run for office. I think it a vocation. The times are tough and getting tougher. One hears the young grumbling, families cautious and seniors concerned.

  9. @Anon 8:25. Thanks the added insight regarding JMK's pamphlets. I must admit being somewhat unfamiliar with the details regarding the timing of fiscal policy. Any good references you might recommend? In reading your comment, I was reminded how little talk there is these days about the possibility of a "continuous flow of constructive investment", as you put it. According to the circuitist/chartalist framework that I adhere to, such a continuous flow of expenditure should be the norm. JMK's concept of the 'socialization of investment' is also relevant here.
    @Jorge, there's no room to be partisan. I see the system as it is. The organizational constraints are far too strong. Party politics changes things at the margins, or, at most, temporarily. Feed the ideas to the media and technocrats and the rest will follow. BB's speech last week had plenty of hints. If only Canadian policymakers would listen and realize the same case applies. I'd run for office. But there's work to be done to change people's beliefs. Nod to Churchill and other visionaries.
    @KP, I too nod to the Greats and the real mensches. Times are indeed tough. The level of unemployment is unacceptable. Your comment reminds me of a song by a Canadian folk singer. It says, "You want gold? Real gold? You'll find plenty on the unemployment line".

  10. Circuit...we haven't had a music break in weeks. How about the Canadian folk singer you refer to.

  11. KP, that's a good suggestion. I'll add it soon; I've already got a track chosen for the next break.

  12. anon wrote: "The fact that monetary policy is invoked as first remedy could be a consideration that would appease TC's bias towards public-x and keynesian options."

    it always bothered me that people associate keynes as only an advocate of fiscal policy; i suppose it's because the GT was focused on public-x, as anon writes. keynes was also an advocate of action on teh monetary front. for instance, in 1930 before the macmillan committee in the UK, keynes supported his "open market ops a outrance"

    anon is right that TC should recognize this facet of JMK

  13. @circuit TC is a defeatist, sorry (jorge lol) deficitist!. Stick to Gross & El-Erian.

    @anon 8:25 highlights an interesting feature of Keynes-the political sensitivity and perspicacity towards monetary policy, something that prior to Keynes,was a tit-for-tat second fiddle, as a friend would say. As far back as I know :JMK's early IC&F written in the early decade was definitive for a long time, and no ambivalence on its substance. It's about the impact of monetary policy on politics and how politics must adjust to the challenge and the rub. JMK is the supreme mandarin, probably the greatest political engineer of millenium's end and our first decade. No one gets close to tipping the spread; maybe Machiavelli (nod to circuit for your link to Classic Indeed). All JMK's work is a 'How to...get policy done". Best is EC of Mr. Churchill!!!

    @LF 21:38. (nod) JMK was a Treasury man, during the war and into 1919 was treas. rep at the conference. The man knew the ops of Treas and markets! as lefty says, but his role in the MMFI and later EAC was controversial [??] as far as I recall. No one raises this anymore. I think JMK could have played a more decisive role but he deferred, why i don't know. Maybe lefty knows. I would refer lefty to Howson & Winch...the history or compilation of the "30's UK EAC.

    I missed the Volcker dialogue. Closest to Keynes. They rule 1K & 2V. Keynes had incredible breadth of knowledge and experience. NO Thirds. Fourths come in the thousands.
    Suppertime. Cheers

  14. Yeah, I think you're right. I'll stick to Gross and El-Erian. Policymakers should too. No worries about missing the Volcker dialogue. Feel free to share any insight anytime. You guys all seem to know quite a bit about him and his time at the helm. BTW, I thought *I* knew a lot about Keynes. I was wrong. I'm afraid to say I never read Economic Consequences of Mr. Churchill. That's my plan for the weekend. AM or PM?

  15. Most of this world were babes or tods during the Depression. The other read is Means to Prosperity. I think Minsky liked them both. Logistics (am or pm)is best solved at suppertime.

  16. Minsky liked JMK in general. However @swells, i agree on his complacency as to action during his directorships at EAC. Recovering that facet is interesting.

  17. nod gc, swells on HM. Check Harrod (but caution) on the EAC period. H&W good. Keynes and Colin Clark was a painful display of who knows... It's opportune that the canadians (they're vg) are around, and each is excellent stand-alone; as a group The Canadian set (reminiscent of the Cambridge set)unmatched. They graft well with Wray.
    @mdm sympathize with your wish list, but FRB is a strong column. The type of dynamic, and disclosure as FRB's is rarely found in this format. The way the author induces the comments and the fondness and confidence of the readership to cut margins and explore 'tangents' makes it refreshing. FRB is a fine brand. When was the last time a column waltzed with pre-Keynes Keynes (nod swells)and contemporary fiscal consolidates.
    September will be a bad month.
    Feel the fatigue.