Three questions for discussion: Keynesian economics.

In order:

  1. Did events of the last three years prove, once and for all, that Keynesian economics simply do not work?
  2. Did events of the last three years instead prove, once and for all, that it is futile to expect politicians to enact a truly Keynesian economic policy?
  3. Is there any kind of practical difference between 1. and 2.?


Moe Lane (crosspost)

PS: What?  Personally, I take the position that the answers, in order, are: sorta; pretty much, yeah; and no, not really.


  • Matthew says:

    1. Not really. At the time, orthodox Keynesians argued that the stimulus was poorly designed and would never work. A Keynesian stimulus is other than scattering money to corrupt politicians and hoping they’ll spend it wisely. A Keynesian stimulus is a focused capital improvement project. The Hoover Dam is the classic example.

    2. Absolutely. You need an idealist for a Keynesian project.

    3. Yes, actually. Modern politicians have learned that Keynesian economics provide excellent cover for graft on a grand scale. If ever we find an idealistic politician with the savvy to ensure that the stimulus money is spent properly, then we will finally have proof that Keynesian economics are flawed.

  • qixlqatl says:

    Matthew, isn’t an “idealistic politician” an oxymoron? Isn’t politics all about making the best deal you can when you compromise your principles, rather than sticking to your principles no matter what?

  • Matthew says:

    qixlqatl, I didn’t say it would be easy, just possible.

  • Jbird says:

    If Keynesian economics worked, shouldn’t W’s profligate budgets leading up to the current economic crises have precluded said economic crisis?

  • azr says:

    Mathew: A classic Keynes project is not a capital investment. Didn’t Keynes himself say he would have no problem paying people to dig holes, and then paying others to fill said holes?

    I only play an economist in my portfolio (which is up, neener neener) but the simplest version of Keynes thang is:


    Now (and leaving aside whether this is in fact good policy) would a HUMAN BEING UP FOR ELECTIONS ever not spend a surplus on bribing whatever particular special interest he/she is trying to woo? And would a HUMAN BEING UP FOR ELECTIONS ever not direct stimulus to his voters (instead of whatever it was that was more economically efficient)?

    Systems that ignore the human factor are laughable. Keynes may have been trying to do some good, but his system puts a lot of trust into politicians, which anybody who has any experience with life at all knows is a recipe for corruption.

    (Also, people who believe in aggregate demand seem to not understand human nature as well. You tell me a single person in this world who does not have an unlimited demand for all stuff at all times, and I will show you a liar).

    In America, you guys had no surplus to burn when you chose to spend money on the public sector union. How spending money earned by the productive class to stimulate the consumption of a class of people whose jobs produce little economic benefit was seen as sound policy, I will never know. (Thats a lie. They did it because they were scared the populace would get cranky and go after the political class of people, but we are suppose to be polite and not mention the giving of Dane-geld these days).

    I think the for your question 2, exactly, bulls eye. Even if the policy works in theory (which I don’t believe. Again, the fallacy of a shifting aggregated demand), the fact that a HUMAN BEING could not be expected to enact the policy invalidates it.

    This has gone on way to long and I apologize. I will say this though, to end. The problem isn’t lack of demand, it’s lack of supply. As in “I want to buy that car, but I don’t have enough money now, and I dont want to go into debt to buy it if I might lose my job.” There is a lack of a supply in confidence and money. Looting the rich doesn’t solve these problems. The answer is to enact policy that favours growth over security; the only way you will increase supply in money earned from working and confidence is to grow the economy (IE MORE PIE TO SHARE), not supply it with morphine.

    \rant over, shows himself the door.

  • Skip says:

    You have to understand, Moe, that all economic theories but especially Keynesian economics, are a magic system that require belief by the masses in order for them to work. So as long as people believe it works, it will. It’s sorta like the gods in D&D’s Forgotten Realms, they get their power from their followers. When you believe that a stimulus will work, you go out, and on average behave like it will, and then it does.

    However, once that belief is broken, they lose power. And you then have the sad spectacle of a priesthood of a particular economic school absolutely convinced that if they just make the invocations louder and bigger the magic will return.

  • qixlqatl says:

    +1, Skip. There are also the cynics who use those true believers, encouraging the bigger louder invocations so they can profit from it.

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