The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.
The General Theory of Employment, Interest and Money (1936)
Ch. 24 “Concluding Notes” p. 383-384
How a 2-3% Change in Supply Chaged Oil Prices
This means that the way prices typically return to normal—through increasing supply or diminishing demand—doesn’t really happen in the oil market. So a two- or three-per-cent change in supply, which is about how much the shale boom and the Libyan rebound added to global daily production, can spark a huge move in price.
The U.K.’s “Mr. Austerity” Doubles Down
Osborne and his colleagues would like you to believe that it was the confidence fairy at work: that, after three years of austerity, the British public decided that the government’s policies were working and so, feeling more optimistic about the future, decided to go out and spend more. A more persuasive story is that Osborne, despite his ongoing commitment to austerity, managed to engineer a stimulus in the housing market, which got house prices—a key driving force in the modern British economy—rising again. In his 2013 budget, Osborne launched a “Help to Buy” scheme, which enabled home buyers to borrow up to ninety-five per cent of the cost of a home, with the government guaranteeing their mortgages. In a country that has long been plagued by boom-and-bust cycles in real estate, this was a cynical move, but it was also a clever one. Because the government’s financial commitment came in the form of loan guarantees, it didn’t have much impact on the budget deficit, and so the Iron Chancellor could claim that he hadn’t budged. And because mortgage rates were so low—less than two per cent, in some cases—the policy had a good chance of working. It did. By the end of last year, house prices were rising all across the country, and by this summer it was like old times, with the rate of inflation for houses hitting 12.4 per cent.
The wacky economics of Germany’s parallel universe
German economists roughly fall into two groups: those that have not read Keynes, and those that have not understood Keynes.
.. For example, German ordoliberals simply refuse to acknowledge the presence of a liquidity trap where the central bank becomes powerless in affecting market interest rates. Ludwig Erhard, Germany’s revered economics minister in the 1950s, once tried to explain the Great Depression in terms of cartels. It was an ordoliberal attempt to bring something into their mental framework for which they have no obvious explanations. Erhard’s successors repeated the mistake in the eurozone crisis, which they see as a story of fiscal indiscipline.
.. Through its dominance of the euro system, Germany is exporting ordoliberal ideology to the rest of the single currency bloc. It is hard to think of a doctrine that is more ill suited to a monetary union with such diverse legal traditions, political system and economic conditions than this one. And it is equally hard to see Germany ever giving up on this. As a result the economic costs of crisis resolution will be extremely large.