Skip to comments.Keynesian Economics and the Wizard of Oz (Cato Institute)
Posted on 03/14/2010 5:28:57 AM PDT by SonOfDarkSkies
When Dorothy and her friends finally reach Oz, they present themselves to the almighty Wizard, only to eventually discover that he is just an illusion maintained by a charlatan hiding behind a curtain. This seems eerily akin to to the state of Keynesian economics. It does not matter that Keynesianism isnt working for Obama. It does not matter that it didnt work for Bush, or for Japan in the 1990s, or for Hoover and Roosevelt in the 1930s. In the ultimate triumph of theory over reality, the Keynesians say all that matters is the macroeconomic model behind the curtain showing that more government spending leads to more jobs and growth. Consider the recent report from the Congressional Budget Office (CBO), which claimed that Obamas stimulus created at least one million jobs. As Brian Riedl of the Heritage Foundation noted:
CBOs calculations are not based on actually observing the economys recent performance. Rather, they used an economic model that was programmed to assume that stimulus spending automatically creates jobs thus guaranteeing their result. The problem here is obvious. Once CBO decided to assume that every dollar of government spending increased GDP , its conclusion that the stimulus saved jobs was pre-ordained.But surely this cant be true, you may be thinking. Our public servants in Washington would not make important policy decisions based on a model that automatically produces a certain result, would they? Peter Suderman of Reason pulls aside the curtain:
[T]hose reports rely on assumption-packed models that effectively predetermine their outcomes; what they say, in essence, is that the stimulus worked because we assume it did. Thats especially true when estimating government spendings productive effects, which is accomplished by plugging numbers into a formula that assumes that government spending produces a multiplier...
(Excerpt) Read more at cato-at-liberty.org ...
CBOs calculations are not based on actually observing the economys recent performance. Rather, they used an economic model that was programmed to assume that stimulus spending automatically creates jobs thus guaranteeing their result. The problem here is obvious. Once CBO decided to assume that every dollar of government spending increased GDP , its conclusion that the stimulus saved jobs was pre-ordained.
You get what you pay for. I find it strange that conservatives get all upset about what the current administration does on the one hand, while almost eagerly subsidizing it economically on the other.
Why complain? We’re getting what we’re paying for.
0bama is practicing Kenyan economics, and you know what a vibrant economy they have.
Yes, for Keynesian economics to work, the Government spends what it does not have, the recipients spend what they don’t have, mostly on credit and Banks lend out what they were given by the Government that the Government borrowed in the first place.
Now what could possibly go wrong with this approach?
“Fresh off the Turnip Truck, ehhh?”
Nope. Been here since 2004. Just getting tired of the bellyaching about the 0ne on the one hand, and the subsidizing of his policies on the other.
Own savings bonds? T-bills? GNMAs? Are they the underlying investment in your money market account or 401(k)? If the answer is yes, you’re subsidizing this just as surely as if you had scratched a check.
Keynesian economics is like being in a battle where the commanders keep redirecting ammo needed at the front lines to the target practice range so that those who are incompetent at shooting don't feel left out.
Their equation is purely linear and doesn't reflect the fact the economy grows when rates are reduced thereby producing higher revenues.
That is the problem with having an accounting model of the economy instead of an econometric one that incorporates a calculus-defined dynamism by its equations.
“According to your logic (and there is some truth to it), investing IN ANYTHING is subsidizing the ONE.”
Not really. The question is the how direct the nature of the investment is.
“even going to work is subsidizing him in your way of thinking.”
To a certain extent it is. But we all have to work, except if you’re with acorn of course. The question is to what extent you’re voluntarily subsidizing policies you don’t like. To use a silly example, no one forces you to buy beer and pay the associated beer tax. You can choose to brew your own. No one forces you to put money into a taxable savings account when a Roth remains available.
The time is NOW to hang every politician, regardless of party, from every lamp post in DC, and Harrisburg, and Sacremento, and Albany, and etc.
Alvin Hansen was known as the “American Keynes,” one of the most influential economists of his time. I have a copy of the textbook in which he expounded the doctrine.
I got it out recently and noted the part about “leakages” to the theory. The theory doesn’t work when a country is a heavy importer and when the country is deeply in debt. So much for that.
As the article points out, Keynesianism has a lousy track record. Keynes device was to write his theory in clear and convincing English and then provide obscure footnotes couched in dazzling calculus which nobody understood.
You are right that buying government debt is subsidising its policies. But failing to buy that debt will only drive up interest rates and/or cause the government to print money to buy it. I'm afraid the only action available to us is to vote the idiots out.
They'll spend our money whether we give it to them or not.
“You are right that buying government debt is subsidising its policies. But failing to buy that debt will only drive up interest rates and/or cause the government to print money to buy it. I’m afraid the only action available to us is to vote the idiots out. “
The problem with that is, you simply get a new and improved idiot. Neither party through their actions has shown any interest in reining in spending. You have to cut the supply. Getting conservatives to quit voluntarily subsidizing it is one part. Making it known that we have no intentions of paying the bill (repudiation) is another.
Bump for later reading