Keynes microeconomics was brilliant, his macroeconomics have never worked in the real world. | Keynes microeconomics was brilliant, his macroeconomics have never worked in the real world. It failed in Japan, Venezuela, China, Russia, North Korea, U.S. in every administration since WWII. Stopping it succeeded in China, Russia, and every country that gave up communism. |
~ Aristotle Sabouni
Created: 2012-09-01
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Keynes microeconomics was brilliant, his macroeconomics have never worked in the real world.
- Examples where it failed include: Japan, Venezuela, China, Russia, North Korea, U.S. in every administration since WWII
- Keynes idea that government can borrow and spend to stimulate growth relies on the ignorance of the people to recognize that increased spending will cost them in taxes/inflation, that government will trim back as the economy gets better (which never happens), and assumes that jobs are highly mutable (they’re not any more).
- Not all government spending is bad, it’s just usually worse than the alternatives: and the few successes are the broken window fallacy (looking at seen benefits, while ignoring larger unseen consequences)
The basics of Keynes can be summed up as:
- Keynes microeconomics was brilliant, his macroeconomics have never worked in the real world
- Examples where it failed include: Japan, Venezuela, China, Russia, North Korea, U.S. in every administration since WWII
- Keynes idea that government can borrow and spend to stimulate growth relies on the ignorance of the people to recognize that increased spending will cost them in taxes/inflation, that government will trim back as the economy gets better (which never happens), and assumes that jobs are highly mutable (they’re not any more).
- Not all government spending is bad, it’s just usually worse than the alternatives: and the few successes are the broken window fallacy (looking at seen benefits, while ignoring larger unseen consequences)
Keynes • [12 items]
| The Broken Window Fallacy
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| This is a fundamental concept of economics (and logic) about seen advantages versus unseen costs. Henry Hazlitt summed up the art of economics as not merely looking at the immediate consequences but the longer effects of any act or policy, and tracing those consequences not merely for one group but for all groups. In other words, break a window and the glazer might win -- but the shopkeeper and customers did not.
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| Dispersed Knowledge
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| In the battle between Keynes and Hayek, history has shows Keynes wrong and Hayek the winner. Keynes models broke with Stagflation, Post WWII economy, Japans Lost Decades, China and Russian growth by privatizing. Hayek won the noble prize for explaining why: Dispersed Knowledge. Leaders don't know more than everyone else combined, then the more decisions you make from the top, the less efficient those decisions will be.
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| Government spending
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| I'm not arguing government spending never produces anything good. In theory, they can invest in infrastructure and that will benefit the economy in the long term. Hoover dam meant cheap power, and helped enable Vegas and L.A. However, for each Hoover dam, there are dozens of government spending disasters. When averaged, you get far more downs than ups for your economy because: politics.
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| IPencil
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| The podcast on i pencil is an economics treatise by Lawrence W. Reed, founder of fee.org (circa 1958), explaining the complexity of making something as simple as a pencil in the modern world. (No one person knows it all, thus no one person/committee can optimize it). I’d heard parts of this, was very familiar with fee.org, so read I pencil in it’s entirety. It’s definitely worth a listen and/or read.
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| Keynes and the 2 day work week
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| Keynes said in 1930 that our grandkids would work 2 days a week and have a 5 day weekend. This is a typical flaw in thinking of the brightest minds on the left: (a) that people don't value work/being productive or get rewards from it (b) that people given more cash won't want to spend it on things and earn still more (some will trade more income for more free time: while others will not).
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| Keynesian failures
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| It would be great if Keynesianism worked. But history shows it has failed every time it has been tried. Examples: the new deal, the new new deal, post WWII boom (cutting military should have caused depression), 1970's Stagflation broke the models, Japan's lost decades (Abenomics), every Communist economy that failed, every one that opened up and grew (N. Korea, Russia, China, Vietnam). All went the opposite of Keynes predictions.
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| Keynesianism
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| Keynes microeconomics was brilliant, his macroeconomics have never worked in the real world. It failed in Japan, Venezuela, China, Russia, North Korea, U.S. in every administration since WWII. Stopping it succeeded in China, Russia, and every country that gave up communism.
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| New Keynesian
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| Keynes microeconomic models work. His macroeconomic model of models, didn't. Stagflation proved it. Instead of rethinking their premise, the Keynsians just made New Keynesian models, so they could stick with their discredited religion. Keynesians today are really New Keynesians, all the stubborn wrong-headedness, with new models that still don't work.
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| Tragedy of the commons
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| We often get dire warnings about Malthusian Catastrophes, Ehrlich's population bombs and how individuals can't be trusted to manage shared interests. We need government to protect us from ourselves. History shows the opposite: individuals form small governments for common interests better than big governments, unless big government stops them.
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| Treasury View
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| "government spending crowds out private investment", is widely accepted as at least partly true. Keynesians want perfect efficiency, and thus bubbles and bursts are examples of inefficiency, and an opportunity for government to step in and spend (stimulate/destimuate) to where politicians think perfection should have been. However, once a program starts, it will soon crowd out private investment, and prove the Treasury view correct.
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| Trickle Down Economics
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| Cutting taxes gives people more money to spend. Unless you literally burn cash, the only things you can do with money is give it away, spend it, or save/invest it: and all stimulate the economy (create jobs/growth).(Saving is passive investing). Thus only debate is the best way to stimulate the economy. Nobody informed and honest will deny that trickle down works. If they argue it doesn't, they discredit themselves.
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| Why can't Keynesianism work?
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| The idea is that during recessions markets overreact to fear and government spending can offset that loss. It asssumes (1) an information vacuum (2) we know where spending should be (3) they will cut spending into the recovery (4) they're replacing like jobs (5) equal efficiency between public and private sector. None of those things is true, so Keynesian promises have never been realized.
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Keynesianism • [2 items]
| Keynes
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| While his micro-economic theories worked, he had all of his Macro-economic theories that we could tax ourselves into prosperity proven wrong by history, and explained why by Hayek. Staglation (1970s) couldn't happen in his models. The left still believes that Keynesianism works. Real economists do not.
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| Keynes and the 2 day work week
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| Keynes said in 1930 that our grandkids would work 2 days a week and have a 5 day weekend. This is a typical flaw in thinking of the brightest minds on the left: (a) that people don't value work/being productive or get rewards from it (b) that people given more cash won't want to spend it on things and earn still more (some will trade more income for more free time: while others will not).
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I believe that after another 60 years of examples, pounding home why he was wrong, Keynes would have eventually realized that while his micro-theories were valid, but his macro-theories never worked in practice (and broke in the 1970's). Keynes was a reasonable man that admitted Hayek was brilliant. So it is likely he would have revised his views, and would no longer be a Keynesian (at least not as Keynesians today think of it).
Or in other words:
- in theory, theory and practice are the same thing
- in practice, they are not
- Keynes created theories.
- Hayek observed the real world, and human nature, and said that Keynes (and others models) couldn't work, unless you could model human behavior. Which you can't very well.
What is left of Keynes theories has become a mockery of what Keynes had ever believed or advocated: that spending results in magic multipliers (for each dollar you spend, you get many in return), and does so by ignoring that the dollar comes out of the economy (and that this has any de-stimulating effects by people/companies smart enough to see through the charade), or that companies have become more mobile than employees (they can offshore, and job training makes make-work job programs and stimulus way too specialized to have broad economic returns).
Thus simplest argument against Keynesianism is if Keynesianism worked, we wouldn't have recessions in the first place. Governments could manipulate money and spending to just make them disappear -- and of course, while governments can be credited with causing many recessions (or depressions), they can't be credited with stopping any of them.
So Keynes and Hayek would have eventually grown to have more similar views over time. And it probably would have looked more Hayekian than Keynesian.
🔗 More
Economics
The study of choice, scarcity, Social reactions to policies, and unseen consequences.
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Keynes
A microeconomist that got a few things right in the little picture, but got virtually everything wrong in the big picture.
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The Broken Window Fallacy
This is a fundamental concept of economics (and logic) about seen advantages versus unseen costs. There's no "win" here.
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Japan
As I studied Martial Arts for decades, I studied Japan and Japanese Culture. Beautiful and tragic at the same time.
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Income inequality
The left loves to point out the disappearing middle class (income inequality), and how we need them to fix it: all lies.
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Income inequality
The left loves to point out the disappearing middle class (income inequality), and how we need them to fix it: all lies.
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🔗 Links
Tags: Economics Keynes Broken Window Fallacy And other scams Japan Income inequality vanishing middle class and other scams
