The Perplexing Durability of Keynesian Economics

Townhall.com ^ | May 27, 2014 | Daniel J. Mitchell

[Kaslin]

Keynesian economics is a failure.

It didn’t work for Hoover and Roosevelt in the 1930s. It didn’t work for Japan in the 1990s. And it didn’t work for Bush or Obama in recent years.

No matter where’s it’s been tried, it’s been a flop.

So why, whenever there’s a downturn, do politicians resuscitate the idea that bigger government will “stimulate” the economy?

I’ve tried to answer that question.

Keynesian economics is the perpetual motion machine of the left. You build a model that assumes government spending is good for the economy and you assume that there are zero costs when the government diverts money from the private sector. …politicians love Keynesian theory because it tells them that their vice is a virtue. They’re not buying votes with other people’s money, they’re “stimulating” the economy!

I think there’s a lot of truth in that excerpt, but Sheldon Richman, writing forReason, offers a more complete analysis. He starts by identifying the quandary.

You can’t watch a news program without hearing pundits analyze economic conditions in orthodox Keynesian terms, even if they don’t realize that’s what they’re doing. …What accounts for this staying power?

He then gives his answer, which is the same as mine.

I’d have said it’s because Keynesianism gives intellectual cover for what politicians would want to do anyway: borrow, spend, and create money. They did these things before Lord Keynes published his The General Theory of Employment, Interest, and Money in 1936, and they wanted to continue doing those things even when trouble came of it.

Makes sense, right?

But then Sheldon digs deeper, citing the work of Professor Larry White of George Mason University, and suggests that Keynesianism is popular because it provides hope for an easy answer.

Lawrence H. White of George Mason University, offers a different reason for this staying power in his instructive 2012 book The Clash of Economic Ideas: The Great Policy Debates and Experiments of the Last Hundred Years: namely, that Keynes’s alleged solution to the Great Depression offered hope, apparently unlike its alternatives. …White also notes that “Milton Friedman, looking back in a 1996 interview, essentially agreed [that the alternatives to Keynesianism promised only a better distant future]. Academic economists had flocked to Keynes because he offered a faster way out of the depression, as contrasted to the ‘gloomy’ prescription of [F.A.] Hayek and [Lionel] Robbins that we must wait for the economy to self-correct.” …Note that the concern was not with what would put the economy on a long-term sustainable path, but rather with what would give the short-term appearance of improvement.

In other words, Keynesian economics is like a magical weight-loss pill. Some people simply want to believe it works.

Which is understandably more attractive than the gloomy notion the economyhas to go through a painful adjustment process.

But perhaps the best insight in Sheldon’s article is that painful adjustment processes wouldn’t be necessary if politicians didn’t make mistakes in the first place!

A related aspect of the Keynesian response to the Great Depression—this also carries on to the current day—is the stunning lack of interest in what causes hard times. Modern Keynesians such as Paul Krugman praise Keynes for not concerning himself with why the economy fell into depression in the first place. All that mattered was ending it. …White quotes Krugman, who faulted economists who “believed that the crucial thing was to explain the economy’s dynamics, to explain why booms are followed by busts.” …why would you want to get bogged down trying to understand what actually caused the mass unemployment? It’s not as though the cause could be expected to shed light on the remedy.

This is why it’s important to avoid unsustainable booms, such as thegovernment-caused housing bubble and easy-money policy from last decade.

Hayek, Robbins, and Mises, in contrast to Keynes, could explain the initial downturn in terms of the malinvestment induced by the central bank’s creation of money and its low-interest-rate policies during the 1920s. …you’d want to see the mistaken investments liquidated so that ever-scarce resources could be realigned according to consumer demand… And you’d want the harmful government policies that set the boom-bust cycle in motion to end.

Gee, what a radical notion. Instead of putting your hope in a gimmicky weight-loss pill, simply avoid getting too heavy in the first place.

For further information, here’s my video on Keynesian economics.

Keynesian Economics Is Wrong: Bigger Gov't Is Not Stimulus

P.S. Here’s some clever humor about Keynesian economics.

P.P.S. If you like humor, but also want some substance, here’s the famous video showing the Keynes v. Hayek rap contest, followed by the equally entertaining sequel, which features a boxing match between Keynes and Hayek. And even though it’s not the right time of year, this satirical commercial for Keynesian Christmas carols is right on the mark.

[Count of Monte Fisto]

Keynesian economics is a failure.

Not if the goal is to control wealth and the economy, prevent prosperity, and undermine the Middle-class.

[Buckeye McFrog]

So why, whenever there’s a downturn, do politicians resuscitate the idea that bigger government will “stimulate” the economy?

Do I have to spit out the obvious masturbation punchline?

[HiTech RedNeck]

It’s a kind of placebo, a kind of idol. It might be a short term vitamin and yet remain a long term bane.

[cdcdawg]

people like the idea of someone “running” the economy. It’s comforting to think that there are experts there to act as guardrails. This is how a majority views the economy.

[econjack]

So why, whenever there’s a downturn, do politicians resuscitate the idea that bigger government will “stimulate” the economy?

Really? Just ask yourself: Why do politicians think taking my money and using it to buy cell phones for deadbeats makes sense? Because it keeps them in office. How do you fix this persistent problem? Term limits.

[HiTech RedNeck]

Charity is voluntary and this isn’t.

[Red Badger]

Keynesian economics is a failure.

Keynesian economics is a OXYMORON...................

[econjack]

Charity is voluntary and this isn’t.

Exactly, but of course you have some idiots like Harry Reid who think Federal Income taxes are voluntary.

http://www.youtube.com/watch?v=R7mRSI8yWwg&feature=kp

Honest to God, he so studpid I wonder how he can fog a mirror without help.

[HiTech RedNeck]

By “letting Caesar do it” modern churches passed up on a lot of potential publicity for God.

[Paine in the Neck]

Keynesianism persists because it offers a smokescreen of impenetrable BS that supports what politicians want to do anyway - spend like there’s no tomorrow.

[T-Bird45]

The Keynesian du jour is Paul Krugman and he has Nobel Prize so he has to be a superior thinker with a larger brain than the economists quoted in the article or other common-sense economists like Walter Williams and Thomas Sowell.

Shouldn't really be needed but /S...

[punditwannabe]

I know it’s a stupid question but what exactly is it about being a politician that is so dang wonderful? Does it all boil down to being easier to get laid? But what about the women? They get to be bossy?

[HiTech RedNeck]

In modern times... huge ego trip.

In older days, there was more of a desire to do what was honorable.

[oldbrowser]

people like the idea of someone “running” the economy. It’s comforting to think that there are experts there to act as guardrails. This is how a majority views the economy.

The dependent class wants someone to tell them what to do and provide for them.
The independent class wants to do their own thinking and be left alone.

[ex-snook]

"So why, whenever there’s a downturn, do politicians resuscitate the idea that bigger government will “stimulate” the economy? "

What alternatives are available to politicians? They can't force business to hire. Waiting for the long term market to rally fulfills Keynes' admonition 'in the long run we will all be dead'.

Long lines of people looking for work or looking for food await an immediate solution. What is it?

[Sergio]

bkmk

[mjp]

I’d have said it’s because Keynesianism gives intellectual cover for what politicians would want to do anyway: borrow, spend, and create money.

Yes, libtard politicians want the government to be able to control the economy. They disagree with the understanding that free market economists had before Keynes, that to end unemployment, money wage rates have to fall.But this idea is in direct conflict with the beliefs of marxist exploitation theory, that lower wage rates are exploitative.So, to be good little marxists, they had to keep wage rates from falling by means of the nexus of inflation, government spending, large budget deficits, borrowing, and large government debt.

[cdcdawg]

“What alternatives are available to politicians?”

A good start would be confessing their sins in causing the problem in the first place.

[loveliberty2]

First, the so-called "progressives" had to prepare the children by eliminating the common-sense stories, poems, and real-life examples of the joys and benefits of individual freedom, self-reliance, opportunity, character and creativity which textbooks once contained.

Then, they peopled the teaching profession in high schools and colleges with other "progressive" regressive propagandists like themselves, all the while preparing generations for their ideology of dependency on big government planning and control.

The rest is history.