Why Keynesian economics don't work

[Wiseacre]

I've seen it written around here that Reaganomics is wrong and that everyone knows that if the gov't gives money to the low income people, they'll spend it, thereby increasing demand which leads to more jobs. "Priming the pump" it's called, to get the money flowing and the economy moving. Sounds great, so why doesn't it work? Bush43 gave out a couple of tax rebate checks, neither of which helped. Japan tried 10 different stimulus packages, that didn't work. And of course Obama tried a couple of stimulus packages that didn't work too well either. So why weren't those efforts more successful?


I think it's mostly because people don't see the permanence of it. They don't need a check for a couple hundred bucks, they need a job. There needs to be reasons why people believe the future looks better financially, and indeed in every other way too. A stimulus program doesn't cut it, not by itself. You need a change of policy that is significant enough and logical enough to convince the public that we're on the right track. Have you sen the latest poll numbers, 69% think we're on the wrong track in this country. I think we need substance over smoke and mirrors.


Paul Krugman and others on the left think that we need to double down, more stimulus money to the low income people. Raise taxes on the rich to pay for it? But that's not really an increase in spending, but rather just a different group of people doing the spending. Saving money in a bank, or investing in a company has the same effect on a macrolevel because that money finds it's way into the system too. Borrow money internally within the gov't or with US citizens? Same deal, there's no real net increase in consumption if you take a dollar from here and give it to someone over there. How about printing more money? Then the value if your currency goes down and you eventually end up with inflation.


History tells us that increased gov't spending doesn't help your economy get out of a financial hole. That's why every other country in financial trouble is reducing their spending. Keynes' model was designed for a closed authoritarian economy, and maybe it would help in some circumstances. But I'm not seeing it for us, we'd be just adding more debt and getting nowhere.

 

[Defiant1]

I've seen it written around here that Reaganomics is wrong and that everyone knows that if the gov't gives money to the low income people, they'll spend it, thereby increasing demand which leads to more jobs. "Priming the pump" it's called, to get the money flowing and the economy moving. Sounds great, so why doesn't it work? Bush43 gave out a couple of tax rebate checks, neither of which helped. Japan tried 10 different stimulus packages, that didn't work. And of course Obama tried a couple of stimulus packages that didn't work too well either. So why weren't those efforts more successful?


I think it's mostly because people don't see the permanence of it. They don't need a check for a couple hundred bucks, they need a job. There needs to be reasons why people believe the future looks better financially, and indeed in every other way too. A stimulus program doesn't cut it, not by itself. You need a change of policy that is significant enough and logical enough to convince the public that we're on the right track. Have you sen the latest poll numbers, 69% think we're on the wrong track in this country. I think we need substance over smoke and mirrors.


Paul Krugman and others on the left think that we need to double down, more stimulus money to the low income people. Raise taxes on the rich to pay for it? But that's not really an increase in spending, but rather just a different group of people doing the spending. Saving money in a bank, or investing in a company has the same effect on a macrolevel because that money finds it's way into the system too. Borrow money internally within the gov't or with US citizens? Same deal, there's no real net increase in consumption if you take a dollar from here and give it to someone over there. How about printing more money? Then the value if your currency goes down and you eventually end up with inflation.


History tells us that increased gov't spending doesn't help your economy get out of a financial hole. That's why every other country in financial trouble is reducing their spending. Keynes' model was designed for a closed authoritarian economy, and maybe it would help in some circumstances. But I'm not seeing it for us, we'd be just adding more debt and getting nowhere.

It keeps the crack dealers and whores in business.

 

[xsited1]

 

[psikeyhackr]

The problem is we have a cash flow economy instead of a NET WORTH economy.

If everybody concentrated on NET WORTH instead of JOBS what would happen. Get a job and somebody gives you a good credit rating and trying to get you to go into debt for some BULLSHIT.

People concentrating on NET WORTH would not buy the bullshit.

So we have had 60 years of STUPID CONSUMERISM and not they want to know what is wrong. Keynes died in 1946. He never saw an economy like the 1960s. He probably never saw a television commercial. But NO, we are supposed to believe in the ideas of a man born in 1883. When did Keynes expect the Moon landing to occur?

Like his ideas can be applied to a global computerized economy. The first electronic computer, the ENIAC, was one year old when Keynes died. This repeated hearing of Adam Smith and John Maynard Keynes just shows how dumb economists are.

psik

 

[Modbert]

The OP doesn't seem to have much of an understanding of Keynesian economics. Keynesian economics actually believes there is such a thing as uncertainty and not that all risk can be given some sort of value. Keynes was also very skeptical of mathematical formulas if I recall correctly, and it was the harebrained math that help get us into the hole that was the 2008 Global recession/depression. One of the major problems with the philosophy of the Washington Consensus is they built their math around their ideas, and not the other way around.

Ideas such as the Efficient Market theory, The Great Moderation, the Dynamic Stochastic General Equilibrium, and Privatization of everything are ideas that were not valid and were certainly discredited completely after the 2008 crash. However, you'll certainly still see people go about talking about these ideas as if they are creditable. Especially when they make their living off selling these ideas.

As Upton Sinclair once said, "It is difficult to get a man to understand something when his salary depends on his not understanding it."

 

[Modbert]

Also, the OP is seemingly against tax increases and yet ignores how over 35% of the Stimulus was in fact tax cuts.

American Recovery and Reinvestment Act of 2009 - Wikipedia, the free encyclopedia

While Keynes was also a Liberal, he is in fact not a hardcore socialist or a socialist at all like some make him out to be. A great line I read that describes him is in Keynes: Return of the Master by Robert Skidelsky was that "he came to critique Capitalism, not bury it."

 

[Wiseacre]

The OP doesn't seem to have much of an understanding of Keynesian economics. Keynesian economics actually believes there is such a thing as uncertainty and not that all risk can be given some sort of value. Keynes was also very skeptical of mathematical formulas if I recall correctly, and it was the harebrained math that help get us into the hole that was the 2008 Global recession/depression. One of the major problems with the philosophy of the Washington Consensus is they built their math around their ideas, and not the other way around.

Ideas such as the Efficient Market theory, The Great Moderation, the Dynamic Stochastic General Equilibrium, and Privatization of everything are ideas that were not valid and were certainly discredited completely after the 2008 crash. However, you'll certainly still see people go about talking about these ideas as if they are creditable. Especially when they make their living off selling these ideas.

As Upton Sinclair once said, "It is difficult to get a man to understand something when his salary depends on his not understanding it."

Don't know what anything of what you said has to do with what I wrote in the OP, maybe you could dumb it down a little. Not being a smartass either, I'm not talking about what got us into the recession but the failures to get us out. Keynesian economics was the model Obama used, and while you could say we didn't drive off the cliff , we also didn't get the ordinary rebound either.

 

[Wiseacre]

Also, the OP is seemingly against tax increases and yet ignores how over 35% of the Stimulus was in fact tax cuts.

American Recovery and Reinvestment Act of 2009 - Wikipedia, the free encyclopedia

While Keynes was also a Liberal, he is in fact not a hardcore socialist or a socialist at all like some make him out to be. A great line I read that describes him is in Keynes: Return of the Master by Robert Skidelsky was that "he came to critique Capitalism, not bury it."

Never said anything about tax increases, maybe you should watch those assumptions. I do know that about a third of the Obama Stimulus was tax cuts, for the lower and middle classes. Was supposed to stimulate demand and growth, and we were supposed to get unemployment down to below 8%, you remember that? Another example of how Keynesian economics did not work.


FWIW, I think we should increase the $106,800 ceiling on FICA taxable income, and I think the tax code should be scrubbed to eliminate or reduce deductions, loopholes, breaks, and credits that are obsolete, ineffective, or otherwise undesirealbe. Most of these things benefit the wealthy, but in any case revenue would go up.

Other than that, I would continue the Bush tax custs until the economy is on solid footing and unemployment has dropped below 7% or so.

 

[rdean]

doesn't

 

[psikeyhackr]

Ideas such as the Efficient Market theory, The Great Moderation, the Dynamic Stochastic General Equilibrium, and Privatization of everything are ideas that were not valid and were certainly discredited completely after the 2008 crash.

Give pseudo-intellectuals some new knowledge and they will come up with more complicated ways of being stupid.

psik

 

[rdean]

Ideas such as the Efficient Market theory, The Great Moderation, the Dynamic Stochastic General Equilibrium, and Privatization of everything are ideas that were not valid and were certainly discredited completely after the 2008 crash.

Give pseudo-intellectuals some new knowledge and they will come up with more complicated ways of being stupid.

psik

Give right wingers a Bible and they have ALL the answers.

 

[william the wie]

psik is right but incomplete and if you want the biggest proof of failure of Keynesian economics look at Japan. Stimulus and currency manipulation gone mad to no effect over a 20 year time span.

Economic data is mostly a snapshot of how well society is doing with way too little attention being paid to non-income producing wealth and discounted future cashflows. Also I have yet to see anyone but N N Taleb who knows anything about probability say anything nice about the Keynesian approach to risk and uncertainty. However that is not the big problem.

Our current economic policy is Keynes dumbed down for politicians which is worse than nothing.

 

[pier34]

Keynes' model was designed for a closed authoritarian economy, and maybe it would help in some circumstances. But I'm not seeing it for us, we'd be just adding more debt and getting nowhere.

Keynesian works during bad time to stimulate the economy esp the private sectors. During good times, keynesian suggests to cut spending and run budget surplus. The problem with todays politics, they run spending like amuck during good times, hence, the deficit.

 

[Eric Cartman]

History tells us that increased gov't spending doesn't help your economy get out of a financial hole. That's why every other country in financial trouble is reducing their spending. Keynes' model was designed for a closed authoritarian economy, and maybe it would help in some circumstances. But I'm not seeing it for us, we'd be just adding more debt and getting nowhere.

We had 5 depressions before the government embraced Keynesian economics and none since.

Like the previous post states, Keynes didn't advocate deficit spending in good times. The examples of Keynesian economics 'failing' are cases where the spending wasn't initially enough and/or it came to slow.

I swear that talk radio and Fox News could convince people that the sky was red, 2+2=5 and that the moon was make of cheese... if it would further their agenda.

 

[PoliticalChic]

Also, the OP is seemingly against tax increases and yet ignores how over 35% of the Stimulus was in fact tax cuts.

American Recovery and Reinvestment Act of 2009 - Wikipedia, the free encyclopedia

While Keynes was also a Liberal, he is in fact not a hardcore socialist or a socialist at all like some make him out to be. A great line I read that describes him is in Keynes: Return of the Master by Robert Skidelsky was that "he came to critique Capitalism, not bury it."

Never said anything about tax increases, maybe you should watch those assumptions. I do know that about a third of the Obama Stimulus was tax cuts, for the lower and middle classes. Was supposed to stimulate demand and growth, and we were supposed to get unemployment down to below 8%, you remember that? Another example of how Keynesian economics did not work.


FWIW, I think we should increase the $106,800 ceiling on FICA taxable income, and I think the tax code should be scrubbed to eliminate or reduce deductions, loopholes, breaks, and credits that are obsolete, ineffective, or otherwise undesirealbe. Most of these things benefit the wealthy, but in any case revenue would go up.

Other than that, I would continue the Bush tax custs until the economy is on solid footing and unemployment has dropped below 7% or so.

What you wrote makes a great deal of sense, and is supported by historical data:

1. Federal spending went from 2.5 % in 1929 to 9 % in 1936: Washington’s portion of the economy increased by 360 % in just seven years- with no benefit to the economy.

2. Arthur Schlesinger, Jr., liberal New Deal historian wrote in The National Experience, in 1963, “Though the policies of the Hundred Days had ended despair, they had not produce recovery…” He also wrote honestly about the devastating crash of 1937- in the midst of the “second New Deal” and Roosevelt’s second term. “ The collapse in the months after September 1937 was actually more severe than it had been in the first nine months of the depression: national income fell 13 %, payrolls 35 %, durable goods production 50 %, profits 78% .

3. In 1935, the Brookings Institution (left-leaning) delivered a 900-page report on the New Deal and the National Recovery Administration, concluding that “ on the whole it retarded recovery.”

4. "America’s greatest depression fighter was Warren Gamaliel Harding. An Ohio senator when he was elected president in 1920, he followed Woodrow Wilson who got America into World War I, ...Harding inherited the mess, in particular the post-World War I depression – almost as severe, from peak to trough, as the Great Contraction from 1929 to 1933, that FDR inherited and prolonged. Richard K. Vedder and Lowell E. Gallaway, in their book Out of Work (1993), noted that the magnitude of the 1920 depression "exceeded that for the Great Depression of the following decade for several quarters." The estimated gross national product plunged 24% from $91.5 billion in 1920 to $69.6 billion in 1921. The number of unemployed people jumped from 2.1 million in 1920 to 4.9 million in 1921.

Compared to FDR, Harding had a much better understanding of how an economy works. Harding, wrote historian Robert K. Murray, in The Harding Era (1969), "always decried high taxes, government waste, and excessive governmental interference in the private sector of the economy. In February 1920, shortly after announcing his candidacy, he advocated a cut in government expenditures and stated that government ought to ‘strike the shackles from industry.’ ‘We need vastly more freedom than we do regulation,’ he said. Surprisingly, big business took very little notice of him at the time."

Federal spending was cut from $6.3 billion in 1920 to $5 billion in 1921 and $3.2 billion in 1922. Federal taxes were cut from $6.6 billion in 1920 to $5.5 billion in 1921 and $4 billion in 1922. Harding’s policies started a trend. The low point for federal taxes was reached in 1924. For federal spending, in 1925. The federal government paid off debt, which had been $24.2 billion in 1920, and it continued to decline until 1930."
America’s Greatest Depression*Fighter by Jim Powell
Not-So-Great Depression - Jim Powell - National Review Online

 

[editec]

The OP doesn't seem to have much of an understanding of Keynesian economics. Keynesian economics actually believes there is such a thing as uncertainty and not that all risk can be given some sort of value. Keynes was also very skeptical of mathematical formulas if I recall correctly, and it was the harebrained math that help get us into the hole that was the 2008 Global recession/depression. One of the major problems with the philosophy of the Washington Consensus is they built their math around their ideas, and not the other way around.

Ideas such as the Efficient Market theory, The Great Moderation, the Dynamic Stochastic General Equilibrium, and Privatization of everything are ideas that were not valid and were certainly discredited completely after the 2008 crash. However, you'll certainly still see people go about talking about these ideas as if they are creditable. Especially when they make their living off selling these ideas.

As Upton Sinclair once said, "It is difficult to get a man to understand something when his salary depends on his not understanding it."

Don't know what anything of what you said has to do with what I wrote in the OP, maybe you could dumb it down a little. Not being a smartass either, I'm not talking about what got us into the recession but the failures to get us out. Keynesian economics was the model Obama used, and while you could say we didn't drive off the cliff , we also didn't get the ordinary rebound either.

Neither Obama or Bush II's response to the meltdown could be described as Keynesian responses.

All they did was bail out the bastards who ripped off their own clients.

Keynes would never have approved that half-assed, socialism for the rich, capitalism for the poor policy.

 

[xsited1]

The OP doesn't seem to have much of an understanding of Keynesian economics. Keynesian economics actually believes there is such a thing as uncertainty and not that all risk can be given some sort of value. Keynes was also very skeptical of mathematical formulas if I recall correctly, and it was the harebrained math that help get us into the hole that was the 2008 Global recession/depression. One of the major problems with the philosophy of the Washington Consensus is they built their math around their ideas, and not the other way around.

Ideas such as the Efficient Market theory, The Great Moderation, the Dynamic Stochastic General Equilibrium, and Privatization of everything are ideas that were not valid and were certainly discredited completely after the 2008 crash. However, you'll certainly still see people go about talking about these ideas as if they are creditable. Especially when they make their living off selling these ideas.

As Upton Sinclair once said, "It is difficult to get a man to understand something when his salary depends on his not understanding it."

Are you a computer program that just quotes random stuff off the internet without any understanding at all? BTW, you might want to give credit to Quiggins next time.

 

[Wiseacre]

History tells us that increased gov't spending doesn't help your economy get out of a financial hole. That's why every other country in financial trouble is reducing their spending. Keynes' model was designed for a closed authoritarian economy, and maybe it would help in some circumstances. But I'm not seeing it for us, we'd be just adding more debt and getting nowhere.

We had 5 depressions before the government embraced Keynesian economics and none since.

Like the previous post states, Keynes didn't advocate deficit spending in good times. The examples of Keynesian economics 'failing' are cases where the spending wasn't initially enough and/or it came to slow.

I swear that talk radio and Fox News could convince people that the sky was red, 2+2=5 and that the moon was make of cheese... if it would further their agenda.

Why the cheap shot at FoxNews, what do they have to do with this conversation?

Do you have an example of Keynesian economics successfully recovering from a recession? Anywhere in the world?

 

[editec]

History tells us that increased gov't spending doesn't help your economy get out of a financial hole. That's why every other country in financial trouble is reducing their spending. Keynes' model was designed for a closed authoritarian economy, and maybe it would help in some circumstances. But I'm not seeing it for us, we'd be just adding more debt and getting nowhere.

We had 5 depressions before the government embraced Keynesian economics and none since.

Like the previous post states, Keynes didn't advocate deficit spending in good times. The examples of Keynesian economics 'failing' are cases where the spending wasn't initially enough and/or it came to slow.

I swear that talk radio and Fox News could convince people that the sky was red, 2+2=5 and that the moon was make of cheese... if it would further their agenda.

Why the cheap shot at FoxNews, what do they have to do with this conversation?

Do you have an example of Keynesian economics successfully recovering from a recession? Anywhere in the world?

Yeah, when Keyneian economics was fianlly used to rearm this nation for WWII.

What did we do there? We used money we did not have to go to war and by doing so we revitalized our moribund economy.

Now do you have an example of a society that used TICKLE DOWN ECONOMIC policies that did not result in economic bubbles followed by economic depressions?

There must be an example of that, but I can't think of one.

One uses supply side economic policies when ones supply side is short of capital. That is the best time and the ONLY time to put such policies in place.

One uses DEMAND SIDE policies when ones economy is fibrilating because the consumers are broke.

In BOTH CASES these policies are a STOP GAP measure to rejuvinate the economy.

But the real solution is always to see to it that the scales between SUPPLY SIDE and the DEMAND SIDE of the economy are in balance.

And that is EXACTLY what we have not been doing for about 40 years.

Hence the bubbles that blew up in investors faces, and hence the stead erosion of middle class purchasing power.

And now, now that we've ignored this problem for decades, the economy is so sick that I seriously doubt it's fixable.

 

[Modbert]

Are you a computer program that just quotes random stuff off the internet without any understanding at all? BTW, you might want to give credit to Quiggins next time.

Thank you for pointing out where the second paragraph came from since I forgot to. I have no problem whatsoever with giving credit to Quiggins since Zombie Economics was a fantastic read. Especially since I gave credit to another book in this thread.

As I talked about earlier in the thread, Keynes: Return of the Master was also a good read.

Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America by Matt Taibbi is also fantastic.

I can also recommend:

House of Cards: A Tale of Hubris and Wretched Excess on Wall Street by William D. Cohan

The Two Trillion Dollar Meltdown by Charles R. Morris

Lords of Finance: The Bankers Who Broke The World by Liaquat Ahamed

I also read Freakonomics but I was disappointed by it. The amount of hype surrounding it probably didn't help.