Keynesian Economics

[DejaVu]

What is Keynesian Economics?
Wednesday, 07/1/2009

What your college econ class might have missed.

Keynesian Economics refers to a set of theories designed to explain the determination of overall output and employment in an economy. The British economist John Maynard Keynes (after whom the set of ideas is named) provided the basis for these ideas in his 1936 book, The General Theory of Employment, Interest and Money.  Before the advent of his work, the prevailing point of view among economists and policy makers was that recessions in a private capitalist economy were  essentially self-correcting. They argued that if there were more goods and services in the economy than could be sold, prices and wages would fall and restore balance. Keynes’s insight was that  for a host of reasons this need not be (and often was not) the case.   He suggested that fluctuations in output and employment were the consequence of changes in aggregate demand, and that it was possible for an economy to be trapped in an sustained period where private investment and consumption remained very low even with falling prices.

Keynes provided several reasons as to why the actions of individuals and firms could yield outcomes in which the economy operated below its potential output and growth. Inherent institutional features of the system made prices adjust too slowly downwards;  businesses and households maintained pessimistic expectations, thereby holding back investment and consumption; individuals wanted to keep their assets in the most liquid of forms, thereby preventing long term investments from occurring, and so on. In establishing these relationships, Keynes enabled the creation of the field of macroeconomics. But it was in the arena of policy and the role of the state in managing the economy that his ideas had the most public impact. In order to counter the tendencies that prolonged recessions and created depressions, Keynes proposed an active role for government intervention through monetary and fiscal policies to control the business cycle. When private spending was too low, governments could take up the slack and spend in order to maintain aggregate demand. Such policies greatly enabled the moderation of business cycles in the post-war period.

Keynes’s work and ideas continue to animate and inform the issues of today (see ND20 on a recent debate between Braintruster Jeff Madrick and Niall Ferguson). His theories have been updated and have led to further questions and debates,  but there is no doubting that they have been among the  most influential ideas in the social sciences in the last one hundred years.

Continued: http://www.newdeal20.org/2009/07/01/keynesian-economics-894/


Government intervention...Keynesian economics...it is good or is it bad? This is something "we the people" need to understand.

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The Keynesians Were Wrong Again

We won't see a return to growth without incentives for job-creating investment.

From the beginning, our representatives in Washington have approached this economic downturn with old-fashioned, Keynesian economics. Keynesianism—named after the British economist John Maynard Keynes—is the theory that you fight an economic downturn by pumping money into the economy to "encourage demand" and "create jobs." The result of our recent Keynesian stimulus bills? The longest recession since World War II—21 months and counting—with no clear end in sight. Borrowing close to a trillion dollars out of the private economy to increase government spending by close to a trillion dollars does nothing to increase incentives for investment and entrepreneurship.

The record speaks for itself: In February 2008, President George W. Bush cut a deal with congressional Democrats to pass a $152 billion Keynesian stimulus bill based on countering the recession with increased deficits. The centerpiece was a tax rebate of up to $600 per person, which had no significant effect on economic incentives, as reductions in tax rates do.

Learning nothing from this Keynesian failure, which he vigorously supported from the U.S. Senate, President Barack Obama came back in February 2009 to support a $787 billion, purely Keynesian stimulus bill.

Even the tax-cut portion of that bill, which Mr. Obama is still wildly touting to the public, was purely Keynesian. The centerpiece was a $400-per-worker tax credit, which, again, has no significant effect on economic incentives. While Mr. Obama is proclaiming that this delivered on his campaign promise to cut taxes for 95% of Americans, the tax credit disappears after next year.

The Obama administration is claiming success, not because of recovery, but because of the slowdown in economic decline. Last month, just 216,000 jobs were lost, and the economy declined by only 1% in the second quarter. Based on his rhetoric, Mr. Obama expects credit for anyone who still has a job.

The fallacies of Keynesian economics were exposed decades ago by Friedrich Hayek and Milton Friedman. Keynesian thinking was then discredited in practice in the 1970s, when the Keynesians could neither explain nor cure the double-digit inflation, interest rates, and unemployment that resulted from their policies. Ronald Reagan's decision to dump Keynesianism in favor of supply-side policies—which emphasize incentives for investment—produced a 25-year economic boom. That boom ended as the Bush administration abandoned every component of Reaganomics one by one, culminating in Treasury Secretary Henry Paulson's throwback Keynesian stimulus in early 2008.

Mr. Obama showed up in early 2009 with the dismissive certitude that none of this history ever happened, and suddenly national economic policy was back in the 1930s. Instead of the change voters thought they were getting, Mr. Obama quintupled down on Mr. Bush's 2008 Keynesianism.

The result is the continuation of the economic policy disaster we have suffered since the end of 2007. Mr. Obama promised that his stimulus would prevent unemployment from climbing over 8%. It jumped to 9.7% last month. Some 14.9 million Americans are unemployed, another 9.1 million are stuck in part-time jobs and can't find full-time work, and another 2.3 million looked for work in the past year and never found it. That's a total of 26.3 million unemployed or underemployed, for a total jobless rate of 16.8%. Personal income is also down $427 billion from its peak in May 2008.

Rejecting Keynesianism in favor of fiscal restraint, France and Germany saw economic growth return in the second quarter this year. India, Brazil and even communist China are enjoying growth as well. Canada enjoyed job growth last month.

U.S. economic recovery and a permanent reduction in unemployment will only come from private, job-creating investment. Nothing in the Obama economic recovery program, or in the Bush 2008 program, helps with that.

Producing long-term economic growth will require a fundamental change in economic policies—lower, not higher, tax rates; reliable, low-cost energy supplies, not higher energy costs through cap and trade; and not unreliable alternative energy surviving only on costly taxpayer subsidies.

Continued here: http://online.wsj.com/article/SB10001424052970203440104574400580004827114.html

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Clive Crook of the Financial Times - the absurdity of Keynesian “economics” exposed.

In some ways this is another “how can people not see….” post - accept I think I know why people can not see the absurdity of Keynesian economics, they are utterly brainwashed into it. Not just by formal education (both school and university - so the more “educated” in economics they are the worse, in some ways, they may be), but also by the media (including the entertainment media) which constantly claims such absurdities as spending is good and saving is bad (and that investment is good - without seeing any link between saving and investment), and that unemployment and rising prices are alternatives. This is not a comment on the intelligence of the elite, they may well be highly intelligent (much more intelligent, on average, than nonestablishment people), but they have been picked out when young (because of their ability to absorb what they are taught - and because of their interest in policy) and “educated” in doctrines that are not just false, but are (in various respects) the opposite of the truth.

All the absurdities of Keynesian “economics” were on display in today’s Clive Crook article in the Financial Times (even if I did links - I still would not link to this, it almost made me explode with rage and grief).

Supposedly in a “special case” (itself nothing more the consequence of Keynesian monetary expansion and wild government spending - i.e. “monetary and fiscal stimulus”) rising productivity (people working more effectively) is bad, wage flexibility (i.e. a free market in labour) leads to higher (not lower) unemployment, less regulations are bad as well (especially in the labour market) and on and on. Work and saving bad, innovation bad (shades of Barack Obama blaming higher unemployment on ATM machines and computers generally), everything that political economy said was good is bad and everything that political economy said was bad (lazyness, spendthriftness, lack of innovation, waste….) is good.

And we are supposed to applaud - as people do when a modern physicist shows how the universe does not accord with the old fuddy duddy notions of human logic. As if economics was physics and Keynes sat in the place of Einstein, producing a “new economics” to match the “new physics” (in reality the subjects are totally different).

These “paradoxies” are, of course, just absurdities (like saying that A is not A, or that I am am you), Clive Crook’s article exposes Keynesian “economics” to be either a pack of lies or the ravings of a lunatic.

Yet Mr Crook does not see this - on the contrary, he does not even use the word “Keynesian”. To him these absurdities are just what economics is - explained by wonderful “studies” by Paul Krugman (a winning of the so called “Nobel Prize” in economics - and as fitting a winner as Barack Obama was as the winner of the Nobel Peace Prize) and by Mr Crook’s own fellow writer at the Financial TImes - Martin Wolfe (a man who “explained” how in this “special case” lazyness and lack of innovation are good things - because higher productivity, working more effectively, is a bad thing).

How does one reach a mind that can lay out (quite openly and directly) the most blatent absurdities - and yet not see that they are absurd? Instead seeing them as clever pieces of economics?

I do not think one can reach such a mind - it is too far gone. Too saturated in absurdites that it can only react to the failure of print-and-spend by demanding more print-and-spend and by denouncing anything that actually makes sense (like higher productivity or alllowing labour, and other, markets to clear - by allowing prices, and wages, to adjust to supply and demand).

And Mr Crook does not just speak for himself - he is typical of the academic, media, political and (yes) business establishment. The establishment (the elite) is rotten to the core - these people can not be saved (their minds are too corrupted) and their power makes them a clear and present danger to the survival of civilization.

The sakes are as high as that.

What should be done to remove the influence of these people? I do not know - I wish I did know, but I do not.

Source: http://www.countingcats.com/?p=10112

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Keynesian Economics, Exposed; Godwin’s Law, Broken

Via my Year One blogging buddy, Pejman Yousefzadeh, comes this happy fun story about America’s good credit:

Moody’s Investor Service, the credit rating agency, will fire a warning shot at the US on Monday, saying that unless the country gets public finances into better shape than the Obama administration projects there would be “downward pressure” on its triple A credit rating.

Examining the administration’s outlook for the federal budget deficit, the agency said: “If such a trajectory were to materialise, there would at some point be downward pressure on the triple A rating of the federal government.”

If you had a time machine and it was good for only one trip, would you go back and give contraceptives to Hitler’s parents — or to the parents of John Maynard Keynes?

Obviously, I’m being facetious, but only by half.

Hitler discredited fascism, by launching wars of aggression and sending millions of Jews, Gypsies, gays, and the handicapped to the gas chambers. And, minus the extent that he started all those wars and killed all those people — well, good for Hitler.

Again, obviously, I’m being facetious.

But I’m not being facetious at all when I tell you that Keynes legitimized fascism, by giving decent, liberal democracies license to tax and spend and borrow in the name of political expedience.

Look, whatever Keynes may have gotten right — I suppose he could wipe his own bottom unassisted — what he got wrong is precisely what bedevils us today. And Keynes, the fascistic bastard, I think got it wrong on purpose.

Let me explain.

Continued here: http://pajamasmedia.com/vodkapundit/2010/03/15/keynesian-economics-exposed/

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Keynesian Economics Is A Failure

Keynesian exuberance for the powers of stimulating demand or the 'consumer' has been in vogue since the 1930s. It is sheer nonsense which is taught in every school across the globe. Keynesian economics is little more than intellectual pablum used by those in power or by a technocratic and largely illiterate elite to increase their power; enhance government; print money and otherwise destroy normal economic relationships. Keynes' theory, so believed by professors is in practice a disaster

Keynes was a left wing wall flower and a member of the deranged Bloomsbury group of inter-World War British pacifists. He was an arrogant theorist who truly believed in the magical elixir of large government and in the technocratic dream of controlling billions of personal, business and economic decisions, to programmatically construct a perfect world order. Keynes gave intellect and jargon filled cover and rationale to politicians and demagogues who would cite his book, 'The General Theory of Employment, Interest and Money', to justify state interventionism.

 According to this theory which has failed in practice every time it has been tried, governments can stimulate an economy through granting consumers, workers and businesses sums of borrowed money. This is termed a 'stimulus'. This debt or current deficit financing stimulus, is then paid back or retired, when the economy strengthened by consumer spending and business investment, produces a surplus of tax revenues. The stimulus is needed, so argued Keynes, to overcome business cycles, downturns and unexpected events which would decrease jobs, increase unemployment and impact state revenues. By macro and micro-managing economic and production processes, the state, so thought Keynes, would avoid cyclical variations and ensure that the lowest level of unemployment could be maintained. Government power was thus indispensable to full employment and income equality.

Continued here: http://www.articledashboard.com/Article/Keynesian-economics-is-a-failure/643935

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Dr. Ron Paul discusses Austrian vs. Keynesian economics on Morning Joe 05/15/2009
http://www.youtube.com/watch?v=Gf3NxGM5IkU&feature=related

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The Keynesian Fraud

August 9, 2011

Keynesian economics is a fraud.  It has neither theoretical coherence nor empirical support.  It was adopted out of desperation in the 1930s.

Many contemporary economists of the time protested that the fundamentals of the theory were incorrect.  Economists had rejected some of its premises more than a century before John Maynard Keynes was born.  For a sampling of some of the reactions, see The Critics of Keynesian Economics.

This article will explore the following topics:

    How Keynesianism Was Accepted
    The Case Against Keynesianism
    How Politics Complicates Economics
    Why There Will Be No Political Solution

Why Did Keynesian Economics Dominate?

Keynesian economics represented a major shift in economic thinking.  To understand how it dominated, some commentary on paradigm shifts is useful.

Thomas Kuhn described how knowledge advances in the physical sciences.  His work popularized the term "paradigm shift."  He asserted that more than just a crisis and "proof" was needed for a new paradigm to be accepted:

Continued: http://www.americanthinker.com/2011/08/the_keynesian_fraud.html

[DejaVu]

What is Keynesian Economics?