Well it turns out John Maynard Keynes would have probably completely disagreed with the counter-cyclical policies we are currently seeing (reactions to free markets and deregulation leading to the over-regulations and over-muzzling of markets). I confess not having read Keynes’ A Treatise on Money (apart from several excerpts in our Macroeconomics class which I must have glazed over), but I now have it on my wishlist (it is currently out of print, so I do have a good excuse).
To quote Jerry O’Driscoll from ThinkMarkets:
In Keynes’ Treatise on Money (1930), Keynes analogizes (stimulus injections) to a family taking care of a sick child with doses of castor oil, a laxative. “It is as though different members of the family were to give successive doses to the child, each in ignorance of the doses given by the others. The child will be very ill. Bismuth [an antidiarrheal] will then be administered on the same principle.Scientists will announce that children are subject a diarrhoea-constipation cycle, due, they will add, to the weather, or failing that, to alternations of optimism and pessimism amongst members of the family.”
The parallels seem obvious, and so this book should certainly be enlightening. On the other hand, we have mentioned this principle in the past, referring it as the pendulum swinging too far one way and then too far back (once pundits stop seeing behavioral economics as a panacea they will start referring to it as wishy-washy and a waste). I would have loved to have a conversation in this respect with Keynes. Maybe through his book I can.
Full ThinkMarkets article here.
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