patrick.net

From the comments section in the link below.

Permit me to add another one. Another influence not considered by Keynes is technological advancement leading to endlessly rising (and accelerating) productivity and job destruction. Keynes didn't consider this influence because it never existed at the time he wrote. Right up until the 1990's, technological advancement appears to have created more jobs than it destroyed.

That's no longer the case. Automation and robotics have pushed modern economics onto a new playing field, one that is quite distinct from the Keynesian model.

This trend is being played out world-wide, not merely in the US. For example, modernization at Foxconn in China is on track to shed a million jobs by the end of 2014 - in just one company. Rising productivity through automation and robotics has already hit the manufacturing sector hard. Now it's poised to shed jobs in transportation within the next decade - what else can we expect from autonomous vehicles? Long-haul trucking and taxi jobs will be lost. IBM is pushing into the field of medicine, which is ripe for disruption owing to its 'cook book' approach to diagnosing and treating patients. Jobs will be shed there, too. Even in the military, advancing tech has reduced the need for soldiers on the battlefield and sailors aboard ships, and that trend hasn't reached its end point, either. There are no safe sectors; automation and robotics are coming of age, and they work more cheaply than humans.

What this means is that the old balance between owning capital and labor is falling apart. Labor's bargaining power is eroding rapidly as the glut of the unemployed surges. The result is a strong downward pressure on wages and the evisceration of the middle class, while wealth becomes more concentrated at the top.

And what does the Fed do?

The Fed injects monetary easing at the top of the socio-economic pyramid. It's still relying on 'trickle-down' to boost the total economy. But the offshoring of jobs and rising productivity due to advancing tech ensure that injections at the top do not benefit those at the bottom.
Without growth of demand among consumers, the economy is limping.

But monetary injections aren't stimulating demand; they can't, owing to these other trends. The best they can do is to fund faster adoption of capital improvements which will cause more jobs to be shed. Which justifies even more monetary injections... it's like an airplane whose attitude is too far nose-up to sustain flight. The pilot can advance the throttles as much as he likes. The plane is still going to fall out of the sky.

Meh, I know analogies like that have limited utility. But the point I'm making is that the Fed's interventions are only going to postpone (and worsen) the next correction.

I haven't even yet mentioned the problem with fraudulent practices that is endemic in the banking system right now. Monetary injections are encouraging fraud by giving the banks a way to unload fraudulent financial instruments at face value. The Fed's regulators seem to be oblivious that the Fed is accumulating vast piles of utter junk on their books while billionaires pocket the profits and scurry to generate still more fraudulent junk.

I admire Keynes, but his playbook doesn't begin to address the circumstances we now face. We're in uncharted territory. Our leaders at the Fed and elsewhere either have no clue (at best) or are colluding to enrich cronies (at worst). I don't know which camp Yellen falls into.

Keynesians like Krugman suggest sovereign debt financing of economic stimulus is the way forward, but debts must eventually be paid or renounced. Either will be painful when the day arrives.

We really do need a new economic paradigm. The old one is no longer working. Jobs offshoring and rapidly-advancing productivity due to advancing tech have shot off its legs.

http://www.pbs.org/newshour/businessdesk/2013/11/folly-of-the-fed-why-janet-yel.html