The Failure of Keynesian Economics

I thought that I would review some of the economics theories that I learned in college. Sort of a refresher course. I used to argue with my professors all the time. Of course they were quite liberal, and while I was an ardent Supply-Sider, they were Keynesian. They gave me bad grades as a result, so I quit college. I wish I had just pretended to agree with them so I could make it through college. We can actually see the failure of Keynesian economics, and the successes of Supply-Side economics. In this thread I would like to focus on the former. Perhaps I will start a couple of other threads, one to talk about Supply-Side, another to compare and contrast the two.

Here is an article from 6 or 7 years ago. Given what has transpired in the last 4, would you say that Obama's use of Keynesian economics further demonstrates this economic system to be a failure?

 

Keynes was, of course, totally right, and the current shambles comes from economic illiterates trying to go back to the nineteen-twenties. Who will be their Hitler to bring back military Keynesianism?

 

Keynesian economics hasn't worked to temper the boom and bust cycle, either as a predictor, or to define an effective correction.

For those that believe we didn't use a big enough stimulus, how big did it need to be? Keynesian economics can't answer that question. Where should the money have been spent? Keynesian economics would have tried to extend an already overextended housing industry.

But we had a free market failure!!!!! Excuse me, the free market uses interest rates to identify the supply of money. That determines whether to grow or slow - where was the interest rate? Who controlled that rate?

If the economy overheated, and tanked, because we removed regulations - then the fix is to reinstate those specific regulations. Has the government, or the regulators done that?

The answer to both the above questions only makes sense when you put government manipulation into the mix.

Low interest rates allow the government to borrow huge amounts of money, and pay almost nothing for it.

Manipulating regulation assured the politicians of both parties got lots of nice campaign contributions, afterwards a high paying job on several board of directors, and / or as a lobbyist, or whatever.​

 

When Obama took office, the economy was tanking at a -7% real rate, losing 700,000+ jobs a month, unemployment was skyrocketing upward, and the stock markets were crashing in the worst recession in 80 years. The housing market was destroyed by the bubble in the 200s, and we were headed straight for a depression.

But now the economy has been growing steadily for more than two years, the private sector has created jobs every month for more than a year and a half, stock markets are up about 85% from their recession lows, and the unemployment rate has fallen from above 10% to 8.6%, and about 5 million private sector jobs have been added since Jan 2010.

What was the failure?

 

Be careful of thinking Keynesianism can be restricted, for example, to the 'bastardised' version. We can giggle at how the Phillips Curve was abused, but in reality the disaster was how that abuse encouraged the folly on monetarism

 

Only Keynesianism ever got capitalism out of its suicide-mission. It's a question of whether the State spends money usefully or on war production, that's all.

 

A difficult proposition for capitalists. Non-military expenditures are more effective, but they can empower the working classes. Nothing worse than uppity lower classes!

 

Yup - except, of course, victorious working people!

 

Too much to consider. The American Dream, Clause IV or good ole welfare will keep the plebs wondering aimlessly

 

First off, I don't find it surprising that the OP got bad grades from college teachers for disagreeing with their liberal ideologies. That is why the teachers are there in the first place right? Conform or dispose.

Secondly, the state doesn't have the ability to spend money usefully. Their structure and personal motives do not allow it. Spending other people's money on other people/things is the most inefficient way to use money.

And thirdly, debt is only good when its used to invest in something that will eventually make a profit. The government "invests" its money in more debt by creating programs that can't be funded. Again, they are masters at spending other people's money on other people.

 

what keynessians cant grasp is that the recession is actually the cure not the cause. Its the bubble thats the cause....if you dont want the recession ( the hangover) then dont drink the alcohol ( the bubble)

 

The interesting aspect of Keynesians is that they embrace behavioural economics and therefore the complexity of human behaviour. Its that complexity that folk have a problem with. They like to assume simplicity in order to ensure that their utopianism goes unchallenged

 

The purpose of any economic discipline is ex-ante, or at least ex-post understanding. Keynesian Economics avoids all that messiness by falling back on the unpredictable, thus always usable dodge "animal spirits".

Governments like Keynesian Economics because the answer to any problem is to throw money at it.

 

They have the hubris to claim to have an understanding of the complexity of human behavior and attempt solve for this behavior with math. The math problem is to complicated however and it is impossible to solve for.

Which is why Von Mises and praxeology will always be more successful.

 

On the theory that when things get (*)(*)(*)(*)ed up, it's better to let them get the most (*)(*)(*)(*)ed up they can be.

 

"Lets sneer at maths in order to ignore that our dogma is based on celebrating a nonsensical utopia" just doesn't work. The reason why Keynesianism has been so successful has been its ability to understand and react to capitalist phenomena.

 

Understand? Not enough to prevent the crash.
React - throwing money at a problem is a reaction.

The real question is did the actions taken in the name of Keynesian economics improve anything?

 

To blame Keynesianism for neo-liberalism really isn't cunning!

Keynesianism, like most schools of thought, appreciates the instabilities that exist within capitalism. I'll make it simple for the utopians: without Keynesianism, capitalism - as we know it- would no longer exist

 

But not why, and more importantly, not how to temper them. Not useful.

That is a statement, not a reason.

 

Completely wrong. The best sneer you could go for is "Keynesianism misses some of the lessons learnt in Marxist crisis theory".

 

Nice try, but you as always are incorrect.

Ok Reiver I will bite. What math equation will tell me exactly the reasons a person purchased a particular vehicle?

 

What on earth are you going on about? Maths is but a tool used within general economics. There's nothing specific to Keynesianism (except perhaps the bastardised version where the likes of IS/LM is used to ensure consistency with orthodox microeconomics)

 

You need to read my post - no sneer, that is your tactic.

I simply stated Keynesianism was completely ineffective at tempering (I didn't even require it stop) the crash.

Your proof that Keynesianism has any value?

 

Read it and demolished it. I did find that entertainment in how, to achieve any validity, you'd have to integrate Marxist analysis in your comment

 

Keynesians - Experts in the field of Scientism.