Skip to comments.Best Arguments Against Keynesian Economics (VANITY)?
Posted on 12/07/2010 3:46:49 PM PST by camerongood210
Could I trouble my fellow FReepers in answering this question? What is the best argument against Keynesian economics? I have just learned a family member has been brain-washed into believing this economic theory by his Econ professor and figured I would take a shot at converting him. I know the basic arguments but he is an ECON major and probably has some good rebuttals. That being the case, what do you guys think?
I’d say one of the best arguments is the years 2008-2010.
The Stimulus plan and todays unemployment rate isn’t good enough?
How about the Great Depression? It only got better after parts of the New Deal were thrown out.
Frederick Hayek and Thomas Sowell have done some of the best work arguing against Keynesian economic theory. I think William F. Buckley did some good debates with Galbraith in the 50’s or 60’s as well.
Unfortunately, he has a logical mind like me and simple answers like that won't suffice.
I was thinking about something along these lines:
First, get him to agree that a capitalist economy basically boils down to private sector jobs. Then ask if government spending creates or destroys private sector jobs.
Another point to make would be that the government produces nothing (except debt, I suppose). Also, government has no money other than what they loot from the private sector.
Just remember, you if you take out the “esi” and insert a “y” you are stuck with Kenyan...
Use your own home finaces as an example and your wifes’ credit card.
The antitdote this young man should propose is everyone in the class read "The Road to Serfdom" by Fredrick A. Hayek and then compare Hayek/Freidman/Smith to Obama and Keynes in a true Harvard Style debate. 1/2 the class gets the commie the other half the good guy. Have it in the auditorium and broadcast it on their College Radio and/or local govt TV channel(s).
But the Prof doesn't have the cohones to let that happen. Chances are he has never created a thing, a job, met a payroll.
Point out that the Keynesian economics of FDR’s New Deal was a complete failure. After seven years unemployment remained over 10%. World War II interupted the Depression. Depression ended with the death of FDR and Republican tax cuts in 1946.
Rather than give you any specific arguments, I’ll direct you to the work of Adam Smith, David Ricardo, J.S. Mill, J.B. Say, Frederic Bastiat, Alfred Marshall, Arthur Pigou, Ludwig Von Misses, F.A. Hayek, Joseph Schumpeter, Murray Rothbard, Frank Knight, Milton Friedman, and Henry Hazlitt.
If the root problem is dangerously high levels of debt, you can’t fix it by going deeper into debt .
It’s like paying off Mastercard using your Visa and calling it “deficit neutral” !
Keynes was a queer fellah who happened to be a genious in the field of economics. He is referred to as the father of economics. But you need to look at QE2, for example. He believed in increasing the money supply to level out the economy. But as you will soon see, when you increase the money supply with low unemployment is causes stagflation. You will soon see gas and other products increase in price.
I’m not an economist but am a returning MBA student. The kid is a liberal obviously. There are much smarter freepers here on this matter, but that’s my take.
Prov 22:7 The rich rules over the poor, And the borrower becomes the lender’s slave.
They think you can spend your way out of debt. ‘Nuff said.
“Use your own home finaces as an example and your wifes credit card.”
Better yet ... use your Amex to pay your MC, then tell the wife it doesn’t matter how you did it, the debt is off the books. When the MC bill comes, patiently explain how that works to the bank. If you have to, get a loan and pay off MC. You will then have paid off both debts and will only have to worry about the loan as a separate debt. Later.
The best argument is that governments will use Keynsian economics to justify doing what they always want to do, anyway, which is buy votes using other people’s money. They will borrow in good times and bad, all the while invoking the economic theories of Keynes. But they will never pay back what was borrowed.
If I can understand it, anyone should be able to.
The Iron Lady had the best argument:
""The problem with Socialism is that eventually you run out of other people's money..." ---Margaret Thatcher
Just ask “If pump priming with a trillion works, why not pump prime with a sextillion (the number of stars in the universe)?
“By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of
the wealth of their citizens.
By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes
many, it actually enriches some.
The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner
that not one man in a million can diagnose.”
-John Maynard Keynes Economic Consequences of the Peace, 1920-
John Maynard Keynes,
Homosexual and child molester.
Everytime I see “Keynesian” I think that O wants a “Kenyan” economy. I guess I’m not that far off.
Keynesian theory centers on increasing aggregate demand by increasing government spending. The monetarists are convinced that keynesians are deluded, so the money quantity theory is the solution. The equation MV=PQ is relevant. Monetarists are convinced that the velocity of money and the output levels are static, therefore increasing the money supply directly impacts the price level. This means that the Keynesian practice of tweaking the money supply based on discretionary interpretation of data to produce an indirect effect on the economy is dangerous. The conservative thinking manifested in the monetarist “hands off” approach is the evidence that Americans have freedom.
Control is an allusion. Economists are paralyzed by the thought of deflation they can’t control. Prices go down, and producers can’t afford to produce. Everything goes spiraling down, for awhile. Economists can’t control the process or the outcome, so they print money and inflate. If that were all there is to an economy, we would be doing much better now than we are, and the inflate, inflate, inflate philosophy would balance out between production, prices, jobs and incomes, problem solved. But that’s not reality, is it? It’s academia, the wonderful world of the Keynesian Ivy-League, where everything revolves around government and more government, control and more control, and it might be okay, if they weren’t wrong, but they are.
bump for later
Keynes wrote a lot of things about economics. What is usually referred to as “Keynesian economics” is stimulus, generally assumed to be deficit, spending by the government during downturns.
It is very important to remember that this spending is supposed to be, according to Keynes, offset by reducing spending during boom times. A lot of folks forget this part when bashing “Keynesian economics”.
The problem with “Keynesian economics” is that, while potentially reasonable in theory, it fails (and is never tried) in practice. Economic downturns are too short for government intervention. There aren’t enough “shovel ready” projects (especially once you get the EPA, et al, involved), so the spending actually ends up occurring too late. Also, when did government ever back off? [During the Reagan years, we ran up the debt to break the Soviet Union, which may have saved us money over the long run, but after that we never hit the brakes].
Please note that what I have written above are thoughts I would use when discussing Keynes with a liberal or other idiot. I think a lot less of Keynes’ theories than one might assume reading the above.
It's worth remembering that in 1801, when Jefferson became president, the US national debt was around $100 million, about 10 times annual federal revenues. This was literally "the cost of freedom," and would correspond today to a national debt around $30 trillion. Since our actual national debt is $13+ trillion, the government is in better financial shape today than it was in Jefferson's time. And at the time, Jefferson's number one priority was paying down the national debt. So, how did he do it? How does ANY wise government ever increase its revenues? Yes, that's right! JEFFERSON REDUCED GOVERNMENT SPENDING AND CUT TAXES. -- BroJoeKThank BroJoeK, and for that matter, thanks President Jefferson.
It has failed every time it has been tired.
Keynesians believed you couldn't have high inflation and high unemployment at the same time: there was a trade-off between the two and unemployment fell as the economy heated up and inflation became a problem.
During the 1970s, though, we had just that -- high inflation and high unemployment: stagflation.
So history proved Keynes and the Keynesians wrong.
Of course they went back to the drawing board and tried to rework their theories to develop a neo-Keynesian approach that borrowed heavily from other schools of thought.
Obama's stimulus package, though, has a "retro" look to it, as though his people hadn't really taken the critics into account.
It's a long read, but there's enough eye-opening material to keep you going. I read it a few times when in university.
What makes this book special: Hazlitt took on the General Theory itself. There's no wiggle room for those who would claim that The Failure 'attacks a straw man'.
Where does a government get money with which it can stimulate the economy? It borrows it from the private sector. That is like filling a swimming pool by dipping water out of one end and pouring it back into the other end.
Another example: If I took one dollar out of your left pocket and put 90 cents back in to your right pocket, would you feel stimulated?
Taking money out of the free market and having the government spend it does nothing more than introduce a whole new layer of inefficiencies.
First task is to understand both arguments. This is a fast paced intro to econ theory;
F. A. Hayek (The Road to Serfdom) is the student of Ludwig Von Mises, both of which are the authors of “Austrian” economics. Milton Friedman and Thomas Sowell followed. Austrian theory holds basic conservative principles, spend less than you take in, don’t over tax the economic engine, don’t dilute the money supply with devalued capital to pay for it all. This causes real economic growth, although at a slower pace than Keynes’ theory.
Diametrically opposed is John Maynard Keynes who claimed any spending would cause more spending, “priming the economic pump” so to speak. So Government spending, according to Keynes, even deficit spending would create economic growth.
The fault in the theory, IMHO, is that governments spend money inefficiently compared to having that same money in private hands where people, and banks, and investors have skin in the game. Governments don’t have a existential reason to spend that money wisely or efficiently, and in fact quite the opposite. Money spent for political purposes (ultimately in the interest of the politician in control of the government purse strings) is intrinsically inefficient.
Basically money in private hands creates real growth, while “stimulus” spending just creates the bubble that ultimately bursts.
You cannot ‘steer’ markets like Keynes wishes. The literally billions of value judgments that happen every second in a truly free market cannot be artificially reproduced without grave consequences, leading ultimately on what Ayn Rand referred to as “force on man”.
Hayek had a great quote;
“The curious task of economics is to prove to man how little he knows about what he imagines he can design”.
True Keynesian theory (which would call for a balanced budget over the business cycle would, at best, have the effect of leveling out the upward and downward swings in an economy. Even this is not without a cost and over many years a society would not be as wealthy under Keynesian theory as it would under a free market approach.
“The free market has an anti inefficiency mechanism by punishing the wasteful and inefficient, while politicians are regularly rewarded for the same conduct.
Taking money out of the free market and having the government spend it does nothing more than introduce a whole new layer of inefficiencies.”
Did the Keynesian TARP or the Stimulus package do any good?
No! In fact, it made the situation much, much worse. What else do you need to know.
We had a recession in the 1920’s where the government allowed the market to self-correct and it lasted 17 months. FDR took a recession and Keynes and turned it into the Great Depression — lasted 8 times longer than the 1920’s recession — unemployment on Pearl Harbor Day was 17%... Keynes is like trying to have your cake and eat it too and not gain any weight in the process.
Ask your family member if you can decide how his money is spent and that you will only charge him 30% fee to do so.
That is a micro-economic application of Keyneian economics.
A macro-economic example is having the government telling people how they are going to spend their money and charging 50% to do it.
Here’s the best argument against Keynesian economics. It is that Keynesian economics presumes that the government is generally or most of the time following a non-Keynesian policy of sound money and fiscal solvency. Under these conditions, Keynesian policies can be helpful in softening a downturn in the economy.
Everyone, including the Keynesians, nowadays accepts the sound money part. The fiscal solvency part is not currently part of the dialogue. It was a few years ago, under what was called Robert Barro’s rehabilitation of a point once made by David Ricardo. Also, in a little but powerful paper by Thomas Sargant and Neil Wallace. The point is this: when deficits threaten future tax increases and/or inflation, they do not stimulate the economy. I think the impotence of the stimulus package can cause the profession to reconsider their amused dismissal of the points made by Barro, et al.
So, Keynesianism works when it’s not much used, and is used only sparingly, from time to time. That is, the government puts out some stimulus, but this doesn’t raise any anxiety about future tax increases or inflation, because the government is in basically good financial shape.
When Keynesianism is used all the time, like under Bush, so that we have deficits even in good years, then there’s no way deficits can be used during a recession. Then, when you take Bush’s foolishness and multiply it by a factor of five, a la the Bailouts, the Stimulus and now the QE2, you actually depress the economy.
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