Monday, August 9, 2010

Keynesian Economics Finally Discredited?

Dave Price, writing at Dean's World, opines

Tim Cavanaugh has a devastating cite from just-retired Obama economic adviser Christina Romer:

The generally precise Romer spells out the difference for us: Using this approach, the estimated multiplier for monetary policy is 0.823 and the estimated multiplier for fiscal policy is -0.233.

You don’t say. Gee, that would have been nice to know a few trillion dollars ago.

Democrat Party water-carriers like Paul Krugman love Keynesian economics, with its assumed large fiscal multiplier, because it meshes so perfectly with leftism’s general preferences: more government, bigger government, more public-sector employees, higher pay for those employees — and, naturally, higher taxes to go with all that. Their continued insistence we need to spend (and tax!) more, more, more even as unemployment goes higher and deficits mushroomm is growing ever less credible with each additional “unexpected” signal of economic failure.

If there’s one positive to come out of the Great Recession, it should be the end of Keynesian economics as a serious policy choice. The notion you can grow the economy via North Korea-style command economics should have been long-dead even before Romer’s 1992 paper, but Obama’s miserable failure may finally drive a stake through this productivity-sucking, economy-killing meme.

Let me put this simply — and contradict a too-widely-held assumption of macroeconomics:


Keynesian economics, coupled with our modern welfare state, has been a disaster. And if the only thing that comes out of this "Great Recssion" is the discrediting of Keynesian economic theory, than it will be a postive thing indeed.

On a related note, if you missed it, you can read Paul Krugman's defense of his beloved Keynsianism and his attack ad hominem attacks on Paul Ryan for articulating a conservative economic plan here.

And on another related note, do see this exceptional short video explaining the fallacy of the Broken Window Theory - a theory related directly to Keynesianism as well as, more generally, the Democrat's seemingly innate desire to tax and spend.

(H/T American Digest


OBloodyHell said...

> Obama’s miserable failure may finally drive a stake through this productivity-sucking, economy-killing meme.

You're kidding, right?

200-odd million dead couldn't drive a stake through the heart of Marxism.

Case after case of totalitarian results from in "institution" of Communism couldn't drive a stake through it.

You really believe a mere "economic bad time" is going to kill Keynesianism?

VERY Naive.

"Karl Marx is to economists what Khalil Gibran is to philosophers. In the
real world there is no Marxist program, but inside the human brain he tickles
the mood centers."
- Alexis A. Gilliland, 'Long Shot for Rosinante' -

Keynesianism holds a similar place in the brains of Lefties. They'll give up Keynes when his penis slips from their cold, dead lips...

GW said...

You are of course correct for the hard lefties. My hope is that there is now enough of a historical record that the majority of economists will think otherwise and that will give enough ammunition to the non-hard left to sure keynes never gets another shot in our country.

Anonymous said...

ummmmm.....the most prosperous era in North America was the 50s and 60s when Keynesian economics dominated....things started going into the crapper when Friedman's ideas started to I'd say you need to work on your reasoning skills.