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Questioning Keynes aka the Left's version of the Laffer curve is delusional crap

post #1 of 9
Thread Starter 
MoneCNN

Quote:
Europe isn't the only one spooked by its public finances. Earlier this month, the surge in U.S. government spending helped push the national debt for the first time to a scary $13 trillion, which represents about 90% of GDP. Despite a $787 billion stimulus package, unemployment continues to hover near 10%.

The problems illustrate the limits of one of Keynes' core percepts -- that stimulus government spending would pay for itself. But now we've seen that a government that spends more doesn't necessarily gain more in tax revenue.

"You can't solve a problem with just spending more money and acquiring bad debt," said Hunter Lewis, author of Where Keynes Went Wrong: And Why World Governments Keep Creating Inflation, Bubbles, and Busts.

Keynes has long been a source of debate among economists and other academics. Keynesian economics served as a model during the later part of the Great Depression, World War II and the post-war economic expansion. It lost some influence in the 1970s when both the inflation rate and unemployment rate soared, but many world leaders in the wake of the financial crisis in 2007 referred to Keynesian economics as the basis for government stimulus programs.

Spending to stimulate jobs

Political economy professor Allan Meltzer of Carnegie Mellon University says doctrines of the revered economist have often been misinterpreted. For one, Keynes was not a big proponent of long-term structural debt. He thought government debt should be temporary and used as a way to stimulate the economy. What's more, the mistake many governments make applying Keynesian economics these days is to target spending on consumption rather than investment, which in turn, could spur steady job growth.

So the left has lambasted the right for years because of their claims that the Laffer curve was unscientific, wrong and didn't do what was claimed. Well while the Laffer curve as a pure mathematical concept might not be as strictly linear as portrayed and might need a bit of complexity added to the simplistic way it is caricatured, however it has fared far better than Keynesian economic stimulus plans. It can be easily understood that people are going to stop being as productive, stop investing, and stop basically working when they are no longer working for themselves but instead are working for the government. The problem comes in claiming that all tax cuts can pay for themselves when the rate is within the person working for themselves and that relationship is strictly linear. So can we just plot a perfect mathematical return for dropping the rate from 33% to 28% and know exactly the rate of return in economic activity to have these cuts "pay for themselves" in terms of economic stimulus? It appears that the models are imperfect in this regard. There is an increase in economic activity, the amount of revenue does grow well beyond what it was initially and certainly beyond what it was with regard to an economic downturn, but the predictive power of the model is imperfect. It needs refinement, especially when segments of the population are off the tax rolls entirely or when the rates are especially low, the predictive power has to diminish.

That said the flip side of this equation which has been advocated for by various RINO's, that is loved by almost all leftists and that has been applied throughout most of the Westernized world and certainly by the Obama administration has been a catastrophic failure. While the Laffer curve and the tax cuts associated with it, has indeed generated some debt when spending has outstripped increases in revenue. But there have been jobs, and growth and a return to economic health. Keynesian economic stimulus has proved an absolute bust with regard to government spending providing multipliers that help improve economic activity. The debts taken on by Japan, the PIIGS of Europe and the U.S. are basically slave chains for future generations forged by bad policy. They've been sold by their parents into servitude due to buying into a bad belief system that says you can have something for nothing. Simply have the government spend a dollar and at some point through the magic of the multipliers, you end up with $1.50 or something similar depending upon where and how you spend the money.

This has proven flatly untrue. Anyone who continues to maintain this claim should be considered anti-science, anti-intellect and finally anti-logic. Japan has stimulated themselves to almost 200% of GDP with no positive results to show for it. The U.S. is quickly heading toward 100% of GDP with no economic gains. The PIIGS of Europe with all their attempts are bankrupt and destroying the Euro and possibly the entire E.U. with it. How many millions of people and trillions of wealth must be destroyed following this bad school of thought?

So staring with the midterms in the U.S. or with the next election in your respective home country, ask if the candidate is endorsing Keynesian solutions and if they are, treat them like the ignorant fools they are and hand your vote over to someone who will do more than sell you and your progeny into debt slavery.

"During times of universal deceit, telling the truth becomes a revolutionary act." -George Orwell

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"During times of universal deceit, telling the truth becomes a revolutionary act." -George Orwell

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post #2 of 9
The problem here is that trying to model large-scale economic effects mathematically is something of a fool's game. It is simply too complex. When you're dealing with a country of even a few tens of thousands of people (let alone hundreds of millions) and how exactly they will react to certain circumstances it is impossible to predict things with mathematical precision.

This is not to say that economics cannot make certain kinds of predictions about cause and effect and people's responses to certain things in general. It is on this basis which things like the Laffer curve have tried to do. What the Laffer curve is guilty of (or interpretations of it are guilty of) is assuming that this principle being discussed could be predicted with mathematical precision. The Laffer curve is a fine way to illustrate the principle but should not be taken, in my view, as a precise model of how things would unfold.

So economics can tell us things about some basic principles and basic behaviors, reactions, responses under certain types of circumstances.

The real problems with Keynesian economic theory is in some of its fundamental underlying (flawed) assumptions. First is that trying to gin up "aggregate demand" through government borrowing and spending will create actual economic growth. We consume out of previous production. Production comes first. Keynesian economic theory claims consumptions comes first. This is demonstrably false. There is another false underlying assumption which is that some how wealth and prosperity can in any way be created by government borrowing (or taxation), followed by centralized planning and spending. This is simply wrong. Wealth is created through voluntary exchanges. Finally, Keynesian economic theory is extremely short-sighted. It is premised on the idea that we can borrow from tomorrow's productivity to have things for today. This eventually runs out. I think we're beginning to see this now. Keynesianism is popular with politicians because it appears to given academic support for most of their schemes and, in particular, the ability to promise cost and pain free benefits to voters.

Keynesianism is the real "voo doo economics."

The state is nothing more than a criminal gang writ large.

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The state is nothing more than a criminal gang writ large.

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post #3 of 9
Quote:
Originally Posted by MJ1970 View Post

The problem here is that trying to model large-scale economic effects mathematically is something of a fool's game. It is simply too complex. When you're dealing with a country of even a few tens of thousands of people (let alone hundreds of millions) and how exactly they will react to certain circumstances it is impossible to predict things with mathematical precision.

This is not to say that economics cannot make certain kinds of predictions about cause and effect and people's responses to certain things in general. It is on this basis which things like the Laffer curve have tried to do. What the Laffer curve is guilty of (or interpretations of it are guilty of) is assuming that this principle being discussed could be predicted with mathematical precision. The Laffer curve is a fine way to illustrate the principle but should not be taken, in my view, as a precise model of how things would unfold.

So economics can tell us things about some basic principles and basic behaviors, reactions, responses under certain types of circumstances.

The real problems with Keynesian economic theory is in some of its fundamental underlying (flawed) assumptions. First is that trying to gin up "aggregate demand" through government borrowing and spending will create actual economic growth. We consume out of previous production. Production comes first. Keynesian economic theory claims consumptions comes first. This is demonstrably false. There is another false underlying assumption which is that some how wealth and prosperity can in any way be created by government borrowing (or taxation), followed by centralized planning and spending. This is simply wrong. Wealth is created through voluntary exchanges. Finally, Keynesian economic theory is extremely short-sighted. It is premised on the idea that we can borrow from tomorrow's productivity to have things for today. This eventually runs out. I think we're beginning to see this now. Keynesianism is popular with politicians because it appears to given academic support for most of their schemes and, in particular, the ability to promise cost and pain free benefits to voters.

Keynesianism is the real "voo doo economics."


Couldn't agree more. Keynesian theory has two problems in my view. First, that the government can create demand for goods and services, which helps the economy. The second is that demand comes before production. In reality, the opposite has been proven true.

The way to stimulate is to free up private capital, both for businesses and individuals. Business investment leads to increase employment, which leads to increased personal income. When coupled with personal tax cuts, this creates more demand. Demand is the last part of the equation, not the first.
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I can only please one person per day.  Today is not your day.  Tomorrow doesn't look good either.  
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post #4 of 9
Quote:
Originally Posted by SDW2001 View Post

Couldn't agree more. Keynesian theory has two problems in my view. First, that the government can create demand for goods and services, which helps the economy. The second is that demand comes before production. In reality, the opposite has been proven true.

The way to stimulate is to free up private capital, both for businesses and individuals. Business investment leads to increase employment, which leads to increased personal income. When coupled with personal tax cuts, this creates more demand. Demand is the last part of the equation, not the first.

I'm sorry to pick nits here, but I want to be precise about terminology. Consumption cannot come before production, but demand (i.e., the desire for something) can precede production. In fact it is demand (to consume some particular thing) should drive what production is done. But, yes, production comes first from an economic cycle/growth perspective. What you say about people's income is correct. Demand is made real (i.e., the capacity to consume) through their income, but only after production has occurred.

A simple way for people to understand this is to imagine themselves stranded on a deserted island. No (readily available) food, shelter, etc. What is the sequence of events?

1. You have a demand/desire for something (food, shelter, etc.)
2. You are unable to actually consume these things because they don't (yet) exist.
3. You make an effort to find pick, hunt, capture (produce) some food.
4. Now you can consume.
5. Goto #1.

This basic sequence is the way it works in the small and in the large. This is one of the basic building blocks or "Legos" of an economy.

The basic problem with Keynesian theory is that it just ignores (or assumes) #3 will happen.

The state is nothing more than a criminal gang writ large.

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The state is nothing more than a criminal gang writ large.

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post #5 of 9
Quote:
Originally Posted by MJ1970 View Post

I'm sorry to pick nits here, but I want to be precise about terminology. Consumption cannot come before production, but demand (i.e., the desire for something) can precede production. In fact it is demand (to consume some particular thing) should drive what production is done. But, yes, production comes first from an economic cycle/growth perspective. What you say about people's income is correct. Demand is made real (i.e., the capacity to consume) through their income, but only after production has occurred.

A simple way for people to understand this is to imagine themselves stranded on a deserted island. No (readily available) food, shelter, etc. What is the sequence of events?

1. You have a demand/desire for something (food, shelter, etc.)
2. You are unable to actually consume these things because they don't (yet) exist.
3. You make an effort to find pick, hunt, capture (produce) some food.
4. Now you can consume.
5. Goto #1.

This basic sequence is the way it works in the small and in the large. This is one of the basic building blocks or "Legos" of an economy.

The basic problem with Keynesian theory is that it just ignores (or assumes) #3 will happen.

You've been clear and I agree. I don't think I confused the two, but you're certainly correct.

The problem comes from the government trying to create demand directly. Or, in the case of this administration, I don't think the goal is even help the economy at all.
I can only please one person per day.  Today is not your day.  Tomorrow doesn't look good either.  
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post #6 of 9
Quote:
Originally Posted by SDW2001 View Post

The problem comes from the government trying to create demand directly. Or, in the case of this administration, I don't think the goal is even help the economy at all.

Absolutely agree.

The state is nothing more than a criminal gang writ large.

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The state is nothing more than a criminal gang writ large.

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post #7 of 9
Quote:
Originally Posted by MJ1970 View Post

Keynesianism is the real "voo doo economics."

Keynesian solutions are flawed simply because that type of economic theory assumes the Government has money. It does not. The government, technically, has no money. It acquires money from citizens through tax revenue; or in recent times, borrows money. But the fact that it has none of its own is clear. Therefore any assumption that private decisions could be better handled by public authorities is heavily predicated upon using private money that public governments acquire and is also flawed! Our government in the United States is predicated upon the individual private entity and his/her welfare, not the public entity or government. Therefore the individual should make the decisions, about money and all else, thus negating any Keynesian solutions.
post #8 of 9
Thread Starter 
Time to bang a bit more on this drum.

You know when the NY Times is willing to print it, then it must be a point of near revolt on the left.

Quote:
WASHINGTON — A rift has emerged within the Democratic Party between liberal economists, who generally view the 2009 stimulus package as a success and say that Keynesian economics should remain the heart of the party’s economic policy, and elected officials, who in growing numbers have shunned affiliation with the $787 billion effort and are expressing doubts about the effectiveness of fiscal intervention.

For decades, Keynesian policies, which call for government spending to make up for the shortfall in private-sector demand during an economic downturn, have been a central element of the Democratic tool kit and a principle of the party’s identity. But the unpopularity of the stimulus package signed into law by President Obama has left many Democrats in competitive races distancing themselves from such programs, raising questions about whether the party is beginning a more fundamental rethinking of its approach to the economy.

Is it true questioning of this terrible theory or is it the type of recanting people do when the broom is putting them out on their ass?

"During times of universal deceit, telling the truth becomes a revolutionary act." -George Orwell

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"During times of universal deceit, telling the truth becomes a revolutionary act." -George Orwell

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post #9 of 9
Quote:
Originally Posted by trumptman View Post

Is it true questioning of this terrible theory or is it the type of recanting people do when the broom is putting them out on their ass?

Most likely the latter.

I'm sure there are a few whose eyes might actually be opening. But then they'd stop being liberals now wouldn't they?

Keynesian economic thinking is so well loved by politicians because it plays to their secret desires and beliefs (delusions?) that the government can control and fix things as a big and complex as an economy. And this it should "do something." In short it plays into their subconscious god-complex.

The state is nothing more than a criminal gang writ large.

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The state is nothing more than a criminal gang writ large.

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