It's now clear that the federal government's massive stimulus spending has not achieved its objectives. Why hasn't it? It's important that we have answers to that question.
The stimulus was premised on the economic model known as Keynesianism: the intellectual legacy of the late English economist John Maynard Keynes. Keynesianism doesn't work, never has worked, and never will work. Without a clear understanding of why Keynesianism cannot work we will be forever doomed to pursuing the impossible.
There's no real mystery about why Keynesianism fails. There are numerous reasons why and they've been known for decades. Keynesians have an unrealistic and unsupportable view of how the economy works and how people make decisions.
Short-Run Focus
Keynesian policy advocates focus primarily on the short run -- with no regard for the future implications of current events -- and they assume that all economic decision-makers do the same. Consider the following quote by John Maynard Keynes: "But the long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean will be flat again."
After passage of the stimulus package, Lawrence Summers, Obama's chief economic advisor at the time, often said that the spending should be "timely, targeted, and temporary." Although those sound like desirable objectives, they illustrate the Keynesian focus on the short term. Sure it would be convenient if you could just spend a bunch of money and make the economy get well, but it's not that simple.
The implication of a Keynesian perspective is that you can hit the economy a few times with a cattle prod and get society back to full employment. Remember that so-called "cash-for-clunkers" program? Maybe it accelerated some new car sales by a month or two, but it had no lasting impact.
The "Chicago School" is the primary source of serious research and analysis related to the Keynesian model. Two Chicago School conclusions, in particular, make it clear where Keynesian policies run aground. The two theories are the "permanent income hypothesis" and the theory of "rational expectations."
The "permanent income hypothesis" was how Milton Friedman termed the findings of his research on the spending behavior of consumers. The MIT Dictionary of Economics defines the permanent income hypothesis as "The hypothesis that the consumption of the individual (or household) depends on his (or its) permanent income. Permanent income may be thought of as the income an individual expects to derive from his work and holdings of wealth during his lifetime."
Whether consumers and investors focus mostly on the short run or the long run is basically an "empirical question." A convincing theoretical case can be made either way. To find out which focus actually conforms closer to reality, you have to gather evidence.
Not Evidence-Based
Much of the difference between the two schools of thought can be explained by differences in their methodologies. Keynes was not known for his research or empirical efforts. Keynesianism is definitely not an evidence-based model of how the economy works. So far as I know, Keynes did no empirical studies. Friedman was a far more diligent researcher and data collector than was Keynes. Friedman fit the theory to the data, rather than vice versa.
The Keynesian disregard for evidence is reflected in their advocacy for more stimulus spending even in the face of the obvious failure of the what's already been spent. At a minimum, we are due an explanation of why it hasn't worked. (Don't expect that to be forthcoming, however).
Failure to Consider Incentives
Another of the Chicago School's broadsides against Keynesianism is the theory of "rational expectations." It's a theory for which the 1995 Nobel Prize for Economics was awarded to Robert Lucas of the University of Chicago. As economic theories go, it is relatively straightforward. It essentially states that "individuals use all the available and relevant information when taking a view about the future." (MIT Dictionary of Modern Economics) The rational expectations hypothesis is the simple assertion that individuals take into account their best guesses about the future when they make decisions. That seemingly simple concept has profound implications.
Letter to the Editor StumbleUpon| Digg| Reddit| Twitter| Facebook
Ron Ross Ph.D. is an economist who lives in Arcata, California. He is the author of The Unbeatable Market. Reach him at rossecon@gmail.com.
----Keynes, afterall, was just a front man for Fabian monopoly banksterism, much like Karl Marks.
Meanwhile the ultra rich, TAX FREE foundations that spawn and enable this corrupting, usury justifying nonsense ---NOW comprise our shadow (ie actual) government, and represent the ONLY organization planning the future.
---And EUGENISTS one and all -to a man.
Go away, you idiot. You are just spoiling a good magazine. Get yourself to a madhouse.
Put just economics policy questions on the board and ask Geithner, Bernacke and Obama: 'are you smarter than a fifth grader?'
Government is the problem. And don't worry about default - the banks that took taxpayer largesse would have the temerity to stick it to the taxpayers again by raising interest rates? I rather doubt it.
Keynes, himself, came to the conclusion that, HIS OWN THEORY didn't work. As far as I know, Keynes wasn't a Marxist, or a Communist, or Socialist, or a member of the American Democrat Party. But, I'm repeating myself. This bunch of effeminate elites. These Ivy League "Thinkers". They think that the only problem that Keynes faced, was that HE WASN'T THEM. This new breed of "The Best and The Brightest", think that THEY have all the answers. They've never HAD A JOB, never RUN A BUSINESS, never had to MAKE A PAYROLL or come up with the Money for EMPLOYEE BENEFITS. They've never done a HARD DAY'S WORK, in their lives. They just have all the answers. That even KEYNES, himself, acknowledged that you can't SPEND your way out of these situations, means NOTHING to these American ALPHAS. (Remember. They use Darwin's Theory Of Evolution, to validate their belief that THERE IS NO GOD. Even though DARWIN, himself, said that HE BELIEVED IN GOD, and that his conclusions did NOTHING to undermine people's beliefs in a CREATOR.) They have surmised that, KEYNES just didn't spend ENOUGH. And, as you can see by President Ivy League Affirmative Action's only trick, if allowed, he will SPEND us in to the THIRD WORLD. These people believe what they want to believe. The FACTS? Who needs the FACTS, when you've got a Majority in the Senate, of FELLOW TRAVELERS? Who needs the TRUTH, when you've got a Compliant MEDIA, willing to ATTACK or DEFEND, depending on your needs? Who needs The Law, when you can have a Bought and Paid For, Federal Judge? And, who needs the Constitution, when with just ONE MORE LIBERAL, you can just MAKE IT UP as you go along? Slipping WHATEVER YOU WANT, in there, right between the Right to an Abortion, and the Separation of Church and State? In fact, if you look closely? You can almost see the Right of the Federal Government, to FORCE everyone in the Country to PURCHASE whatever they tell you to. Can you see it? It's in there. Mark My Words.
Austrian School Economics vs. Keynesian Crap.
"Austrian economist Friedrich Hayek criticized Keynesian economic policies for what he called their fundamentally collectivist approach, arguing that such theories encourage centralized planning, which leads to malinvestment of capital, which is the cause of business cycles. Hayek claimed that what starts as temporary governmental fixes usually become permanent and expanding government programs, which stifle the private sector and civil society."
The Tea Party Rebellion Escalates.
Carpe Diem.
Von Mises Austrian fables and Keynesian fairy tales both wind up with the same end -- the little guy gets it in the end and winds up a serf to the people with the money. Perhaps the only thing about Von Mises' ideas that might be better is that corporatists and the monied tend to produce a few more jobs in their lust for global domination.
For a nicely done article on the failure of Von Mises you can go to:
http://distributistreview.com/.....-baptized/
If you look at the theory, and remove government intrusion, it works rather well. The problem is that government IS involved, and there is NO current working system that accounts for its influence on the markets. To get Hayek's system to work the government needs to GTFO, but they won't because career politicians have turned the government into a business that makes THEM money, and to hell with the rest of us.
Duuuuuhhhhh ! Little Distributionist Bullcrapper PropagandaBoy, Eddie.
Now The Rest Of The Story.
Read: The American Catholic. Thomas Woods and His Critics, The Austrian vs. Distributist Debate Among Catholics.
http://the-american-catholic.c.....catholics/
The tea Party Rebellion Escalates.
Dominus vobiscum, Asshat.
Then, Eddie The Distributist,
Read: The Road to Serfdom by the Austrian School Economist Friedrich von Hayek .
The Tea Party Rebellion Escalates.
Do Your Homework.
Ironically, the citizens of the USA can observe a perfect example of government failure at work and it is in the early stages of failure. It's call Obamacare. Before Obamacare passed the economy was staging a weak recovery, creating 65,000 jobs per month.
Since Obamacare passed job creation has dropped to 6,500 jobs per month. As the article points out correlation is not causation: http://www.heritage.org/Resear.....are-Passed Private-sector job creation initially recovered from the recession at a normal rate, leading to predictions last year of a "Recovery Summer." Since April 2010, however, net private-sector job creation has stalled. Within two months of the passage of Obamacare, the job market stopped improving. This suggests that businesses are not exaggerating when they tell pollsters that the new health care law is holding back hiring. The law significantly raises business costs and creates considerable uncertainty about the future. To encourage hiring, Congress should repeal Obamacare. Initially Solid Job Growth The economy is recovering at an unusually slow pace. Typically, employment grows strongly after a severe recession.[1] In the year and a half following the last comparable recession (1981"“1982), the unemployment rate fell by 3.3 percentage points.[2] Initially the economy appeared on track for a steady recovery. In August 2009, the White House projected the unemployment rate would fall to 8 percent by the end of 2011 and 7.5 percent by the end of 2012.[3] This would represent a recovery roughly one-third slower than after the 1981"“1982 recession.[4] Job creation data supported these forecasts. The economy went from losing 841,000 jobs in January 2009"”the recession's low point"”to gaining 229,000 jobs in April 2010.[5] By the spring of 2010, the Administration confidently predicted a "Recovery Summer."[6] Obamacare Discourages Hiring In March 2010, Congress passed President Obama's health care reform legislation. The bill had appeared in serious jeopardy, and after the upset special election victory of Senator Scott Brown (R"“MA), many analysts expected the bill to fail. Instead, it became law.
Excellent thoughts, Bill. I heard a Senator a day, or two ago, state that the plan was the 'total' repeal of the healthcare reform. This one, simple act would be a huge, economic shot in the arm and a correction this country is in dire need-before the other major targets are brought into focus, such as the ATF? Someone please explain to me why we need a national control of alcohol, tobacco and firearms.
A popular bumper sticker reads: "Alcohol, Tobacco, and Firearms should be a Convenience Store, not a Government Agency." The ONLY reason for Federal control of alcohol is tax revenue, pursuant to the 21st Amendment (which did more than repeal the 18th Amendment, it authorized the Federal Government to control and regulate alcohol. Frankly, the 21st Amendment should be repealed and consequently the 18th Amendment re-repealed. But that's my opinion.) Likewise, the reason for tobacco controls is revenue.
The only reason for a "Firearms" part of ATF is to control and suppress the rights of free citizens to arm themselves for their own protection. Gun Control does not even address the issue of crime, and this is provable empirically. Gun Control is population control and nothing else. It has ALWAYS been population control. Even in ancient Rome (I know, Rome had no guns) there was a version of this. It was prohibited for Roman citizens to carry bladed weapons within the walls of the city. Of course this stopped only those who chose to obey the law, and crime and violence were rampant in the streets. A Roman citizen was not safe walking the streets of Rome without an escort, and even the escort was in danger after dark.
In answer to your question, We the People need no such national control of alcohol, tobacco, and firearms and would be better off if this Agency were abolished. It is those in government who desperately desire such an agency to bolster their own power and limit the rights and freedoms of citizens. People who worry about the crime and violence levels in their own neighborhoods have precious little time to oversee what goes on in Washington. This is by design.
Got a t-shirt with that line on there. Pisses off all the liberals when I go to Seattle with it.
Honestly there are quite a few agencies and Departments (EPA, Education, Transportation, ATF) that have no constitutional basis to exist at a federal level. If the states want them they can go ahead and create them at their level, and use another state as a basis, but they should NOT exist at the federal level.
Excellent analysis and, although repealing Obamacare would do a lot to help the economy, there are other things he as done that also need to be undone. His minions have imposed a host of regulations, administratively, that suppress economic growth. Then there's the Frank - Dodd bill that imposes big obstacles and accomplishes nothing. Going back to the Bush era, Sarbanes-Oxley falls into the same category; big costs, little or no benefit. To get the really robust economic growth we need, all of these need to be undone. Then there' s the Humphrey-Hawkins Full Employment Act from the '60s that accomplishes the opposite of its name. It requires the Fed to consider the economy and unemployment in its decisions as well as inflation. This has led, in part, to the wild business cycles we have; it needs to be undone too.
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