Posted on 11/02/2011 6:56:02 AM PDT by SeekAndFind
It is generally recognized that the conceptual underpinnings for so-called stimulus programs lie in the theory developed by John Maynard Keynes in the 1930s. That the practical results of these programs in recent years have been negligible, if not negative, while their costs have been high, may be sufficient grounds for avoiding them in the future.
But what if the theory itself is flawed? For many economists, flawed theory would be a greater concern—surely more hurtful to professional pride—than ineffectual results from programs based on a valid theory. Moreover, it would mean no amount of effort to improve the design of stimulus programs is likely to help.
Before addressing questions about the theory, let’s briefly recap the costs and results of the stimulus so far.
Total stimulus costs have been high, but reckoning them accurately isn’t easy. They include $787 billion in federal spending that was legislated and appropriated in 2009 with the “stimulus” label attached to it. In addition, a proper accounting of the cost should include several other programs and outlays that, while not carrying the “stimulus” label, were designed to boost domestic spending or preclude reductions in spending that were otherwise expected to occur. These other programs include the following: TARP funding to relieve the impaired asset values and weakened balance sheets of financial institutions ($700 billion); bailout funds provided to support the auto industry ($17 billion); extension of unemployment benefits to support income and spending by unemployed workers ($34 billion); and temporary subsidies for the “cash for clunkers” program ($3 billion).
These other measures should be included in a full reckoning of stimulus costs because of their shared common purpose: to boost aggregate demand, or avoid its further decline as a consequence of the Great Recession.
(Excerpt) Read more at weeklystandard.com ...
As many have pointed out, some gov’t spending (say the Interstate Road System in the 50s and 60s) is much more investment like than most (transfer payments to help local gov’t budgets).
Obama’s “stimulus” was not “investment” - it was a bailout to state and local Gov’ts with deep deficits.
Ferlater
What a silly lead. Keynes didn't "go wrong" in some portion of his theory. Keynes set out to provide politicians with a theoretical framework to take total control of the economy. Everything that went with that was wrong. Alternately his foundational book was, in fact, a student parody that got seized upon by the political class because of its justification for Experts' control of the economy. If it was that, and it reads as if it was, then when he received politicians' acclaim he decided not to cry "HaHa! I fooled you!" like some group of MIT engineering students who get a Paper of tech and sci gobbledygook printed in some prestigious journal, discretion getting thus the better part of valor. Mitigating against that take is the fact that Keynes was a Fabian Socialist who believed in gradual bureaucratic socialization of the economy and society rather than violent revolution.
I'm sure Mr. Wolf knows that it is flawed, just as most of us rationalists know it is flawed.
IMO, the theory was never assumed to be true, just that Keynes had an alternate agenda.
Growing the size and scope of government requires money, and lots of it, as well as lying.
This question was settled long ago.
“Still, it could be contended that, if the programs were better designed and better targeted in the future, results might justify the effort notwithstanding the recent record.”
Well, no, actually. The money has and always will be handed out for political benefit, not economic benefit. FDR spent far more WPA money in rich Republican districts that he needed to carry in the next election than he did in the wildly supportive Appalachian districts where people were literally starving. Obama did the same, giving to contributors instead of, say, building dams and power plants, which, BTW, pay for themselves. If Obama had instead invested in self-depreciating debt (things that pay for themselves) then, maybe the “stimulus” would have had a better effect. But Cash-for-clunkers had an administrative cost of roughly $21,000 per car. If you were one of the thousands of bureaucrats hired in the last two years, yes, it worked. But nothing they’ve done could have worked to stimulate the real economy.
Keynes theories on government stimulus should have been abandoned in the late 1970’s when stagflation occurred. According to Keynesian theory, inflation and unemployment are inversely related (Phillips Curve)and unemployment and inflation could not simultaneously increase. However, that is exactly what happened in the late 1970s with stagflation. The standard Keynesian remedy of increased government spending applied to stagflation caused the inflationary spiral of the late 1970s.
Hank Morgenthau, FDR’s Secretary of the Treasury, told Congress (1941) that it hadn’t worked. We have known it for a very long time.
I also remember vividly in the 70’s an article...Time? that stated that “The Last Keynesian has give up the Ghost”.
The Demos are over 70 years behind the times. In many ways, they are “The Last of the Victorians” and it is time to leave them behind.
For more on Keynes & his bunko economics, Keynes & The Keynesians.
For a closer look at the damage that Keynesian folly has wrought, Keynesian Harvest.
For a truly dramatic contrast to the Keynesian folly, consider how America with very, very limited Governmental involvement in the economy--other than providing sound money, common measures and respecting the sanctity of private contracts--prospered with a rapidly expanding economy from 1787 to 1857; and remember that the measure of our economic growth was in constant gold backed dollars, not the Fiat Currency of recent decades.
William Flax
For more on Keynes & his bunko economics, Keynes & The Keynesians.
For a closer look at the damage that Keynesian folly has wrought, Keynesian Harvest.
For a truly dramatic contrast to the Keynesian folly, consider how America with very, very limited Governmental involvement in the economy--other than providing sound money, common measures and respecting the sanctity of private contracts--prospered with a rapidly expanding economy from 1787 to 1857; and remember that the measure of our economic growth was in constant gold backed dollars, not the Fiat Currency of recent decades.
William Flax
Keynesianism is simply the “Broken Window Fallacy” writ large.
It’s simply a economic method of advancing socialism that takes advantage of the general populace’s lack of economic education.
Keynes has been repeatedly discredited.
Keyenes was wrong about a lot more things. But, yes, he was wrong here, too.
“some gov’t spending (say the Interstate Road System in the 50s and 60s) is much more investment like than most (transfer payments to help local gov’t budgets)”
Investment (or “investment”) is tricky, whether you’re the government or a Rothschild. You could split the atom or invent the internet, or perhaps shovel cash into the furnace of a bankrupt green “energy” company. There’s a lot to be said for “public goods,” but a few things:
1)they are not necessarily necessary; for instance, we had a transcontinental railroad before the Union Pacific, and could have built more privately; we have private roads and private schools and could have got by without government involvement, possibly, which we’ll never know;
2) just because you call them public does not mean they benefit everyone equally, in which case they might as well be called welath transfer programs;
3) they easily turn into boondoggles, wasting money and spreading corruption, cf. the railroads, again;
4) finally, there’s always the Broken Window Fallacy; when we gaze upon the pyramids we wonder at the wealth of the ancients, seldom pausing to wonder how much richer they might have been had they spent their money on things other than houses for rich corpses.
Permanent tax cuts stimulate, temporary government spending does not. It’s the temporary nature that makes this so.
Obama’s stimulus, which funneled monies extracted from the private sector (and worse, printed) to government employees largely, counted upon the government employees spending the money, and thereby increasing aggregate demand. But if you were a teacher, and you knew next year your job had to be funded once again, you’d be a fool to spend it wouldn’t you?
“when he received politicians’ acclaim he decided not to cry ‘HaHa! I fooled you!’...Mitigating against that take is the fact that Keynes was a Fabian Socialist who believed in gradual bureaucratic socialization of the economy and society rather than violent revolution.”
Methinks that if he was a socialist (and he was, except when he contradicted himself, which was often), he probably honestly believed what he wrote.
I’m not disagreeing with you, totally, but I think the pyramids as an example of the Broken Window fallacy is a bit of a stretch. The builders didn’t get paid, they were slaves, so they couldn’t contribute their salaries to the general economy, as the Broken Window fallacy depends on.
Of course, the “wealthy corpses” could have spent that wealth on other things, but since they owned/controlled every bit of capital anyway, what’s to “buy”?
That being said... the pyramids were an amazing human achievement.
There is a quote by Keynes stating that the best way to implement socialism was to inflate the currency to steal the wealth of the individual in such a way that not one man in a million would know what was happening.
I think he was deceptive, and his economics had an agenda.
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