The debate over Keynesian economics rages on. The political class, buttressed by their “rented economists,” argues that Keynesian intervention is necessary. When promised outcomes do not develop, it is claimed that the remedial dosages were too small. More spending will correct matters.
Increasingly, the efficacy of Keynesian Economics is doubted. Common sense, rather than sophisticated formulas and models, is all that is required to see through the false claims and reasoning. Mish provides his view of Keynesianism and “stagflation:”
Stagflation is one of those muddled terms that people debate over. The definition I prefer is inflation and recession at the same time. Using that definition, Brazil and parts of Asia are in stagflation now.
Recall that Keynesian theory stated recession and inflation at the same time were impossible. The 1970′s proved that theory to be rubbish.
Keynesianism should have died in the 70′s, totally discredited, but somehow it survived in academia where its nonsensical ideas still haunt us to this day.
Mish’s observations are correct, but the last one begs for explanation. Why would something so obviously wrong be maintained and expanded?
Quite simply, Keynesianism benefits the ruling class. It does not matter whether Keynesianism works. It is the basis for government controlling the economy and your life. Keynesianism is the source of government growth and power. It provides the motivation and impetus to disregard the Constitution. Keynesianism has made every perceived fault or inequality in life a reason for political action. Keynesianism is an elitist’s dream.
Keynesian economics is wrong in theory and has no empirical support. It slowly impoverishes nations by transferring wealth to the political class from the productive class. It increases the power of government at the expense of citizens. It is evil disguised as necessity and “science.”
Keynesianism, not campaign contributions, is the mother’s milk of politics. Its acceptance was “bought” via an elaborate government bribe system. Grants, the tenure system and Washington employment are all tools used to corrupt young economists. Rewards go to those economists who advocate active and interventionist government. Keynesianism is the tool of Statists.
Reduction is government’s size and power cannot be achieved without an outright rejection of Keynesian economics. That is why the political class defend it so strongly.
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Monty
I think this posting together with the points made in comments(by readers and yourself) is very important for “the general public “that to me:seems confused at best!even here in s africa!
So I would suggest that you repost/highlight or even repeat these points elsewhere(perhaps A thinker?)
But in this specific manner
I find that when arguing with economists of any stripe today:keynes above all else
Creates confusion in arguments and peoples minds on these BASIC POINTS that are in this particular posting!
[...] ended in the early 1980s. Yet it has not because government power and control is dependent upon perpetuating the myth that government needs to manage the [...]
Thank goodness that there are acute minds who debunk Keynes and reveal why the political elites such as Senator Shumer and his band of merry con artists embrace Keynesianism. I wish someone (“Let George do it.”), would compile a litany of common sense questions which have answers that are so obvious that the answers could be given by the reader or listener. For example, Rep. Allen West appeared in a meeting with his constituents on C-Span a few nights ago. He asked a rhetorical question which was answered spontaneously by his audience. “What made America great–entrepreneurial spirit or big government?”
Such a litany repeated many times, which is the nature of a litany, would serve to penetrate the conventional wisdom that big government, tax and spend, big deficits, and huge debts are just peachy. A large portion of our electorate is inattentive to economics and politics perhaps because of the daily grind, escapist pursuits during free time, short attention spans, lassitude, or indifference. Until our citizens recover their sense of civic responsibilities as exemplified in the era of the Lincoln-Douglass debates, then pithy sound bites must be deployed to capture their attention. Nefarious propaganda must be rebutted with short, cogent truths. As time goes by, and as economic suffering becomes more intense and personal, perhaps our attention spans will lengthen to tolerate longer explanations of the truth. Perhaps as economic pain deepens, we will seek to hear the truths of a time gone by and request plaintively “Play it again Sam.”
If you are going to quote Keynes then please can you describe his ideas a little bit better. There are 2 sides to the Keynesian spending you are talking about, true government should take over spending when the private sector withdraws (e.g. during a recession). However, this should be done in a cyclical way and spending should be withdraw during a recovery, in other words balancing the books. As much to blame for our current circumstance is the Greenspan put, but I don’t see that as the root of all Evils here.
Keynes was actually a successful investor as well as an economist. His ideas are bound up with the cyclical nature of finance not social spending for the sake of social spending. Blame the current current governments and a central banks for the mess we are in, not the policies that successfully pulled many economies out of depression 80 years ago, which are now misquoted by both Keynesians and non-Keynesians.
It is virtually impossible to define Keynes in light of what his disciples have done. What Keynes might have done to rein in the young bucks is moot, he died too early.
I disagree that Keynesian economics got us out of the Great Depression. It did not. We did not recover until World War II ended and that was accompanied by massive spending cutbacks, quite the opposite of what his theory would say. I also disagree that Keynes would not have approved of social spending for its own sake. He would have been one of the leading proponents of the welfare state.
Keynes was a brilliant man. Too bad he didn’t devote proper time to economics. His political charisma enabled him to sell something to the politicians that most of the economic establishment initially thought unworthy.
I notice you didn’t try and argue against the fact that Keynes argued for counter cyclical spending. This has nothing to do with the spend in good times and also in bad that takes place today. http://en.wikipedia.org/wiki/Keynesian_economics.
Keynes argues that the goverment pick up the baton of spending once everyone else pulls back and the opposite once recovery starts
Stuart,
What Keynes said and what his epigones say and practice are entirely different. I agree with you on that.
However, the reaction to Keynes radical re-writing economics was not received well by established economists of the time (and prior). Henry Hazlitt compiled a book based on early criticisms of Keynes. One review can be found here. Buchanan and Wagner in “Democracy in Deficit” recognized what the political establishment would do with his ideas. Even so-called Keynesians (like the Romers) question the validity of the multiplier. Without a multiplier of more than one, what is the point? There is no there there if the multiplier is one or less.
Monty
Its important to distinguish between what Keynes actually said and what politicians use as justification for a different course of action. Maybe it would be of benefit to attack the misuse of his theories rather than the mans ideas.
I agreed with you on the misstating of his theories by politicions or at least the convenience of ignoring parts of what he said when decisions are politically difficult to “sell” to the populace.
However, an alternative question to pose is who would become the investor of last resort in the economy as a whole if the government were to step aside? Or do you advocate that no one should fill this role? I guess you have to choose your poison in the current environment, the Japanese style Keynesian approach or the depression era Hayek (1840′s, 1890′s, 1930′s) approach. Do you administer some morphine to the patients or remove the pain killers? BTW, what are your thoughts on repairing the crumbling infrastructure in the US?
Why have an investor of last resort? If there were no meddler of first resort, there would be no problem. Ebbs and flows in business are common occurrences. Recessions and Depressions are not. They are monetary phenomenon, caused by government interventions.
I am of the Hayekian or Misesian school regarding government and its role in the economy. Keynes was an elite Socialist who believed that the masses had to be managed. He was what you would call today a “One-Worlder” or a “Tri-lateralist.” He did not see wisdom in people, only in the elite.
Your analogy regarding morphine is incorrect, I believe. To improve it, I suggest that you use heroin. As I understand the two drugs, morphine dulls the senses and pain while heroin returns the “high.” That is more akin to what government does and intends.
Your question regarding the infrastructure is an interesting one. What happened to it? Did it suddenly become ill and deteriorate? No, it is a classic public ownership problem where vote-getting spending crowds out maintenance. Ribbon-cutting events are only held at “monuments” like new buildings, never at sewer repairs. That is why our public lands are in such disrepair. The crumbling infrastructure is not the problem, government is.