The basics of Keynes can be summed up as:
- Keynes microeconomics was brilliant, his macroeconomics have never worked in the real world
- Examples where it failed include: Japan, Venezuela, China, Russia, North Korea, U.S. in every administration since WWII
- Keynes idea that government can borrow and spend to stimulate growth relies on the ignorance of the people to recognize that increased spending will cost them in taxes/inflation, that government will trim back as the economy gets better (which never happens), and assumes that jobs are highly mutable (they’re not any more).
- Not all government spending is bad, it’s just usually worse than the alternatives: and the few successes are the broken window fallacy (looking at seen benefits, while ignoring larger unseen consequences)
Dispersed Knowledge -
Government spending - I'm not arguing government spending never produces anything good. It does. In theory, you can do things like invest billions in infrastructure, and that will benefit the economy in the long term. Hoover dam meant cheap power, and helped enable Vegas and L.A. So a few public works programs, do help, eventually. However, for each Hoover dam, there are a dozen Solyndra's, or government spending disasters. When you average them all in, you get far more weighing down your economy than helps it up, because: politics. So net net? Government spending fails more than it succeeds, and even when it succeeds, it generally succeeds by less than it would have if it was done/managed privately with profit motives -- but there are a few exceptions to the rule.
Keynes - John Maynard Keynes was a microeconomist that got a few things right in the little picture, and got virtually everything wrong in the big picture. His macroeconomic theories have been long disproven. But since the collectivists prefers comforting lies to uncomfortable truths, they ignore Science and History and believe in unicorns and Keynesianism.
Keynes and the 2 day work week - Keynes said in 1930 that our grandkids would work 2 days a week and have a 5 day weekend. This is a typical flaw in thinking of the brightest minds on the left:
- (a) that people don't value work/being productive or get rewards from it
- (b) that people given more cash won't want to spend it on things and earn still more (some will trade more income for more free time: while many will not).
Keynesian failures -
New Keynesian - Keynes had micro and macro economic theories. While his micro economic theories/models were quite good and still work, his macro-theory (the model of models) is what most people who say they're Keynesians tend to be talking about. Those never worked. Hayek won the nobel prize in economics for showing why in the 1940's (Dispersed Knowledge). But Keynes' macro-economic theories broke completely in the 1970's with Stagflation: a concept which couldn't exist according to Keynes's original models.
Well, if you're proven wrong, but have a career being a specialist based on those wrong theories, what do you do? Rather than admitting their prophet was wrong, Keynesians just reworked the models (to allow an exception for stagflation) and called those new theories/models, "New Keynesianism". Their religion of Keynesianism was was too important to face contradicting reality, so they forked history. Thus pre-1970s and post 1980s Keynesianism is based on different models... but has the same flawed beliefs. We know that the new models have also never been accurate in any major prediction of trajectory in a recession or a recovery, so while they're not as glaringly wrong, the models still don't fit reality or actually work.
Numbers Covered by Obamacare -
The Broken Window Fallacy -
Tragedy of the commons -
Treasury View -
The Keynesian version is that in recessions/depressions everything has to be perfectly efficient and instantaneous. Since it isn't, they see any lags, overreactions and inefficiencies as opportunities for government to step in and spend (stimulate) to where "things should have been", to smooth out the downturns.
Nice theory. FDR tried it in the great depression (believing in his "brain trust"), and the results were extending the depression by a decade, and we have many more examples of the failures of planners to be more effective than the free market. So while it's a great theory, it has never actually worked in the real world. Keynes was a brilliant micro-economist, with delusions of being a macroeconomist, but his religion of collectivism (authoritarianism) got in the way of understanding human nature (how people and thus economies would react) or the nature of governments.
Trickle Down Economics -
Now there can be intelligent debates on what helps the economy more: spending, cutting, and whether cutting at the top or the bottom helps more. But liars (polemics, fools and the media), will perverts that debate on what helps more, into some fraud that cutting taxes at the top doesn't work at all.
Why can't Keynesianism work? -
I believe that after another 60 years of examples, pounding home why he was wrong, Keynes would have eventually realized that while his micro-theories were valid, but his macro-theories never worked in practice (and broke in the 1970's). Keynes was a reasonable man that admitted Hayek was brilliant. So it is likely he would have revised his views, and would no longer be a Keynesian (at least not as Keynesians today think of it).
Or in other words:
- in theory, theory and practice are the same thing
- in practice, they are not
- Keynes created theories.
- Hayek observed the real world, and human nature, and said that Keynes (and others models) couldn't work, unless you could model human behavior. Which you can't very well.
What is left of Keynes theories has become a mockery of what Keynes had ever believed or advocated: that spending results in magic multipliers (for each dollar you spend, you get many in return), and does so by ignoring that the dollar comes out of the economy (and that this has any de-stimulating effects by people/companies smart enough to see through the charade), or that companies have become more mobile than employees (they can offshore, and job training makes make-work job programs and stimulus way too specialized to have broad economic returns).
Thus simplest argument against Keynesianism is if Keynesianism worked, we wouldn't have recessions in the first place. Governments could manipulate money and spending to just make them disappear -- and of course, while governments can be credited with causing many recessions (or depressions), they can't be credited with stopping any of them.
So Keynes and Hayek would have eventually grown to have more similar views over time. And it probably would have looked more Hayekian than Keynesian.
Written 2012.09.01 Edited 2014.12.22