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Bye-Bye Keynes?
Real Clear Politics ^ | December 19, 2011 | Robert Samuelson

Posted on 12/19/2011 7:45:36 PM PST by neverdem

"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist." -- John Maynard Keynes, 1936

WASHINGTON -- The eclipse of Keynesian economics proceeds. When Keynes wrote "The General Theory of Employment, Interest and Money" in the mid-1930s, governments in most wealthy nations were relatively small and their debts modest. Deficit spending and pump priming were plausible responses to economic slumps. Now, huge governments are often saddled with massive debts. Standard Keynesian remedies for downturns -- spend more and tax less -- presume the willingness of bond markets to finance the resulting deficits...

--snip--

"Given low interest rates and the still-weak U.S. economy, it will be tempting for the U.S. government to continue running deficits and issuing additional debt. At some point, however, investors will recognize this behavior for the Ponzi scheme it is. ... If history is any guide, this scenario will develop not gradually but abruptly. Previously gullible investors will wake up one morning and conclude that the situation is beyond salvation. They will scramble to get out. Interest rates in the United States will shoot up. The dollar will fall. The United States will suffer the kind of crisis that Europe experienced in 2010, but magnified."

Governments have ceded power to bond markets by decades of shortsighted behavior. The political bias is to favor short-term stimulus (by lowering taxes and raising spending), which is popular, and to ignore long-term deficits (by cutting spending and raising taxes), which is unpopular. Debt has risen to hazardous levels, undermining Keynesian economics as taught in standard texts.

Were Keynes alive now, he would almost certainly acknowledge the limits of Keynesian policies. High debt complicates the analysis and subverts the solutions. What might have worked in the 1930s offers no panacea today.

(Excerpt) Read more at realclearpolitics.com ...


TOPICS: Business/Economy; Culture/Society; Editorial; Politics/Elections
KEYWORDS: johnmaynardkeynes; keynes
It hardly worked in the 1930s. Look up unemployment in the late 1930s.
1 posted on 12/19/2011 7:45:39 PM PST by neverdem
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To: neverdem

True-we had a recession from 1937 to 1938.
The reasons: a contraction in the money supply but other reasons as well.


2 posted on 12/19/2011 7:48:47 PM PST by Maine Mariner
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To: Maine Mariner

The Great Depression didn’t really end until FDR did.


3 posted on 12/19/2011 8:03:18 PM PST by GeronL (The Right to Life came before the Right to Pursue Happiness)
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To: GeronL

Well, the economy started to grow a few months before September 1, 1939.


4 posted on 12/19/2011 8:05:34 PM PST by Maine Mariner
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To: neverdem

Thomas Sowell has written persuasive essays regarding how the New Deal *prolonged* the Great Depression.

IOW, it didn’t work then either.


5 posted on 12/19/2011 8:12:06 PM PST by ChildOfThe60s ( If you can remember the 60s....you weren't really there)
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To: neverdem

John Maynard Keynes ping for later


6 posted on 12/19/2011 8:20:45 PM PST by Alex Murphy (http://www.freerepublic.com/focus/religion/2703506/posts?page=518#518)
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To: neverdem
I noted last week that there was an article on one of the leftist websites that was titled “Keynes proven Right” or something along those lines.

They actually still advocate big spending and massive debt to get us out of tough economic times, in spite of over whelming evidence to the contrary.

There is all the evidence it failed in the early 20th century, the late 20th century, in the early 21st century, in Europe, and especially in Japan.

Yet the left still deosn’t learn!!!

7 posted on 12/19/2011 9:56:17 PM PST by Carbonsteel
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To: neverdem
Considering this, some economists urge more "stimulus." In a paper, Christina Romer -- former head of President Obama's Council of Economic Advisers -- argued that scholarly studies support the administration's view that its $787 billion stimulus in 2009 cushioned the recession. Another big stimulus "would be very helpful ... to really create a lot of jobs."

I recall Ms. Romer defending her Keynesian-based economic failures once by saying (I'm paraphrasing)..."It's accepted economic theory, it's in all our textbooks, and it's what we teach our freshmen students."

There you have it. Since the Keynesian nonsense is in the textbooks that she and her contemporaries write, it must be gospel.

And, I have never met a liberal that did not believe to the very core that going into debt to do public works projects would get any economy roaring in no time.

Every last one of them cites the Hoover Dam and most will talk of the magic "multiplier effects".

.

8 posted on 12/19/2011 10:20:36 PM PST by Seaplaner (Never give in. Never give in. Never...except to convictions of honour and good sense. W. Churchill)
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To: neverdem
Why would Mr Samuelson or anybody else still be taking Keynesian economic models seriously?

"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist." -- John Maynard Keynes, 1936

Now that quote is ironic!

9 posted on 12/19/2011 11:10:35 PM PST by AndyTheBear
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To: neverdem
Governments have ceded power to bond markets by decades of shortsighted behavior. The political bias is to favor short-term stimulus (by lowering taxes and raising spending), which is popular, and to ignore long-term deficits (by cutting spending and raising taxes), which is unpopular. Debt has risen to hazardous levels, undermining Keynesian economics as taught in standard texts.

"The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy."

Milton Friedman

10 posted on 12/19/2011 11:41:44 PM PST by Lmo56 (If ya wanna run with the big dawgs - ya gotta learn to piss in the tall grass ...)
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To: AndyTheBear
Why would Mr Samuelson or anybody else still be taking Keynesian economic models seriously?

Because that's all that they know, even though it's obvious they have their doubts! They feel compelled to do something. Hence Obama's stimulus was justified as being targetted, timely and temporary, even though it was hardly timely and the targets were gov't programs, especially unions.

11 posted on 12/19/2011 11:55:38 PM PST by neverdem (Xin loi minh oi)
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To: AndyTheBear
Keynes vs. Hayek #1
12 posted on 12/20/2011 12:41:46 AM PST by fella ("As it was before Noah, so shall it be again.")
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To: fella
Keynes vs. Hayek #2
13 posted on 12/20/2011 12:45:13 AM PST by fella ("As it was before Noah, so shall it be again.")
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To: fella
And Hayek's "Road to Serfdom"
14 posted on 12/20/2011 12:48:11 AM PST by fella ("As it was before Noah, so shall it be again.")
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To: neverdem

He’ll be back


15 posted on 12/20/2011 1:25:22 AM PST by cowtowney
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To: neverdem

I wrote this to Jim Robinson on another post and I believe it is appropriate here:

This election will play out the century long battle between the economic theories of Friedrich August von Hayek and John Maynard Keynes. We who know the truth, know that Keynesian economics is a failed economic theory. We know because it has played a big role in the undermining of America’s economic prosperity throughout the century. It certainly was so with FDR’s inept application of it to bring America out of the Depression. It is the lie, that those who promote it, that says that if they could pump out enough money through government run projects and programs, people who received the benefits of these projects would spend the money and the economy would come roaring back to life. If spending has not brought the economy back, then more spending is needed. The idea that Central Planners can bring the economy back to life is a false hope that only serves the Big Government bureaucrats. Keynesian economics only benefits the Big Government bureaucrats and they will lie about it to preserve their Big Government.

Increasing government spending only directs resources away from those best equipped to create new wealth: The rich who have created wealth before and ironically who they demonize because they are the rich. This false hope, that spending will bring economic success, only leads to disaster. It is also a tool by America’s enemies to cause disaster to America’s status as a world power.

Our truth that we need to make perfectly clear to the electorate is that only markets, free of government involvement find the answers to create new wealth.


16 posted on 12/20/2011 1:59:15 AM PST by jonrick46 (2012 can't come soon enough.)
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To: Nailbiter

bflr


17 posted on 12/20/2011 2:06:43 AM PST by Nailbiter
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To: neverdem

Two points
1. If Government spending were the answer to our economic woes, our $15 Trillion debt would have produced paradise.
2. Government borrowing sucks money out of the private economy, rakes off some bureaucratic overhead and interest, then pours the remainder back into the private economy. Spending to stimulate the economy is like trying to fill a pool by dipping water out of one end and pouring it back into the pool at the other end.


18 posted on 12/20/2011 2:28:13 AM PST by csmusaret (The only borders Obama has closed is a bookstore.)
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To: neverdem

btt


19 posted on 12/20/2011 2:39:11 AM PST by KSCITYBOY
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To: Seaplaner
Hoover Dam

Spending is great if it's spent on a true investment. Building Hoover Dam is an example of huge government sized spending that has an actual return on investment. In most cases though government spending is the most wasteful kind of spending there is and has a negative return on investment. I don't think Keynes ever argued for destroying wealth. His ideas were hijacked by the left to justify envy driven confiscation and destruction of other people's money.

20 posted on 12/20/2011 3:42:02 AM PST by Reeses (TV gives men a window into what women want, and it isn't pretty.)
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To: neverdem

“If history is any guide, this scenario will develop not gradually but abruptly.”

But we can put some bounds on it. I’m sure, Gingrich, as a historian, knows that governments must default when the debt to GDP ratio gets between 90% and 120%. We are at about 74% now and adding about 10% a year. Growth is stagnant. So the crisis could hit the US in middle to late 2013, just as the fist budget is passed after the election, and definitely by 2016.


21 posted on 12/20/2011 4:52:36 AM PST by MontaniSemperLiberi (Moutaineers are Always Free)
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To: neverdem

Progressives love to spend money and will continue to laud Keynesian economics. (Hopefully, they will not have access to the levers of power, anymore, very soon.)

IMHO


22 posted on 12/20/2011 5:25:16 AM PST by ripley
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To: Reeses
You are correct in that Hoover Dam did provide important benefits; I view early NASA as a sort of equivalent.

That said, I always thought that Keynes believed in a kind of bottom up econ model, where if people were put to work (even on borrowed money) they would stimulate a demand for goods and services that would put others to work. (Sounds so nice, doesn't it?) The lefties' welfare philosophy follows the same model. I have heard liberals say that each person on welfare creates another job (some even say more).

Corrections invited (or I could even look it up).

23 posted on 12/20/2011 9:16:40 AM PST by Seaplaner (Never give in. Never give in. Never...except to convictions of honour and good sense. W. Churchill)
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