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Fiscal Multipliers Debunked?

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ITGF posted on Thu, Jul 7 2011 9:31 AM

I recently encountered a series of youtube videos which claimed to find errors in the logic and algebra underpinning Keynesian economics.

Excuse me for being sceptical, but I think its strange that it has taken 75 yrs to find these flaws. Surely if they existed, it would be well known by now? Below is a link to one of these videos. Has the author found a previously unknown flaw? Or is this well-known? Or has the author, in fact, got it completely wrong?

Pt. 2: Fiscal Multiplier Destroyed: Keynes' Deception
http://www.youtube.com/watch?v=encPMexUm8w

If you are interested, here is the full list of videos:

The Maynard Keynes
http://www.youtube.com/watch?v=pA67E8jMq84&NR=1

Pt. 1: Fiscal Multiplier Debunked and Destroyed
http://www.youtube.com/watch?v=4Vnus-Kw5Is&NR=1

Pt. 3: Fiscal Multiplier Destroyed: The Other Multiplier
http://www.youtube.com/watch?v=sZDIZ1U7gEk

Pt. 4: Fiscal Multiplier Destroyed: The Chain Reaction
http://www.youtube.com/watch?v=y1AVThNZuR4

Pt. 5: Consumption Function & Keynesian Cross Destroyed
http://www.youtube.com/watch?v=2bmsYNnS2MA

Pt. 6: Government Spending Multiplier Destroyed
http://www.youtube.com/watch?v=hHa-HE7Olq0

Pt 7: Tax Cut Multiplier Destroyed
http://www.youtube.com/watch?v=1oUMjJKQkkQ

Pt 8: Balanced Budget Multiplier Swindle - Keynesian Asymmetries
http://www.youtube.com/watch?v=VZL_1L9r-T4

Pt 9: Keynesian Logic - Apples, Oranges, Asses
http://www.youtube.com/watch?v=XErrpJHaExA

Pt 10: Keynesian Asymmetry and "Other Multiplier" Revisited
http://www.youtube.com/watch?v=684WIoQP6XQ

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Loppu replied on Sat, Sep 29 2012 12:45 PM

Have you talked to an actual economists about this stuff? If yes, what have they said? If no, then why not?

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Tugwit replied on Sat, Sep 29 2012 1:36 PM

Do I have to talk to economists about algebra? Algebra is algebra.

I e-mailed one economist that Wheylous suggested, but I haven't heard anything back. But what would you expect to hear from folks who are either frauds, or too dumb to figure out what Keynes did?

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Loppu replied on Sat, Sep 29 2012 1:49 PM

"Do I have to talk to economists about algebra? Algebra is algebra."

I understand where you are coming from, but this isn't just a question about algebra, it's also about economics, as you are probably well aware of. I find it funny, if something so obvious has been ignored by the whole economic community for almost a hundred years. I'm interested to hear, what Mr. Caplan replies. Would you like to post his reply to this thread?

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Tugwit replied on Sat, Sep 29 2012 2:36 PM

I think I would have to have Caplan's permission to post his reply. If I get a reply (which I'm sort of doubting) I'll ask him.

The problem is that Keynes made macroeconomists "accessories after the fact". They're in a bind. They must choose between being either 1) Frauds 2) Dumbshits.

Everything based on Keynes' bogus "multiplier" goes down. All equations, graphs, academic papers, book chapters, econ projections. Everything. 

Do you think they are going to walk into class tomorrow and say: "All that stuff I've been teaching you is bullshit. Here's your tuition back." 

Yes, it is a matter of economics. It's the biggest economic and financial fraud in history.

If you look at the 1930's, progressives and socialists were making a big push, and ruining the economy (quite similar to what is going on now). It hadn't yet become clear, that Russia was actually a central planning disaster, instead of the Utopia that progressives and intellectuals were claiming it was. And FDR was ruining the American economy with New Deal central planning (which actually began under Hoover). The real research into that didn't start until the 1960's. Up until then all you heard was the progressives' version of FDR, and the criminally stupid claim that the death, destruction, and waste of WW2 proved that deficit spending works. The Depression ended when the New Deal ended.

You've probably heard the Progressives' "Never let a crisis go to waste."

Keynes hung around with Fabian socialists (who advocated creeping socialism). And I think the SOB used the crisis of the Great Depression, to invent macroeconomics, based on Three Stooges math, to make it appear that central planning, instead of being a well-known econ disaster, is actually required to save the economy.

In "Pt 4, Fiscal Multiplier Debunked" (Tugwit.blogspot.com) I have some suggestions about how this stuff all slid by (with the help of a bunch of Keynesian frauds). It's similar to the response of "professionals" to Marilyn vos Savant's "Monty Hall Problem", which is reference number 4.

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Tugwit:

 

1) My logic?
Y = C + I
let b = mpc
C = bY, I = (1-b)Y
k = 1/(1-b), Y = kI
k = ΔY/ΔI, ΔY = ΔC + ΔI
That’s all Keynes’ logic.
 
2) You don’t think there’s anything wrong with Three Stooges math … illegal addition before multiplication?
 
3) Show me how you get Keynes’ “multiplier” from “C=mpc(Y-T)”.
 

But you're skipping a step. You have to do this in two steps for it to make sense. First I goes up, which increases Y. But C depends on Y so when Y goes up C has to go up. This is not debateable within the model, it is simply the definiton of consumption according to Keynes. But C going up again increases Y. In order to account for this you have to solve for the new Y.

Let's say Y is initially 100 (we'll say C=75 and I=25), and b is .75.

Y=C+I = bY+I = .75(100) +25 = 100.

Now if we add 10 to I we have a new equation for Y.

Y=bY + I (but now I is 35)

Y= .75Y + 35

.25Y=35

Y=140

So adding 10 to I adds 40 to total output. I know you probably worked hard to try to prove Keynes wrong and I commend you for that, but in this case I don't see it.

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Tugwit replied on Sat, Sep 29 2012 6:43 PM

What you have just said is:

1) Y = C + I

100 = 75 + 25

2) Y = C + I

         75 + 25 + 10 = 110

3) Y = kI

100 = 4 X 25

4) Y= k I

    Y = 4 x 25 + 10 = 140

That's Three Stooges math.

Y = kI is derived from, and must give the same answer as, Y = C + I.

k = Y/I = (C +I)/I, so if you add 10 to I, you have to add to both the numerator and denominator. And you get a new k, which is no longer 100/25 but is now 110/35.

Now, show me how you get Keynes' "multiplier" from  “C=mpc(Y-T)”.

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"2) Y = C + I

         75 + 25 + 10 = 110"

No. This is where you are going wrong. When you add 10 to I, C is no longer 75 because C is tied to output. Think of it this way: I am starting with C = 75 = .75(100). Now I add 10 to I, which adds 10 to Y as well. Now the new value of C is .75(110) = 82.5. Now Y = 82.5 + 35 = 117.5. But now Y is even higher so C increases again to .75(117.5) = 88.125. Now Y = 88.125+35 = 123.125. Continue this process to infinity and you find out that adding 10 to I adds 30 to consumption. Keynesian models assume this happens all at once.

So it's not 110 = 75 + 25 +10, but actually 140 = 75 + 7.5 + 5.625 + ... + 25 + 10.

Income is tied to consumption. When income goes up, consumption has to go up and in yours it stays the same.

In my final result I have C = 105 = 140(.75). Everything checks out.

You have C = 75 = 110(.75), which is clearly not right. That's Three Stooges Math

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Tugwit replied on Sat, Sep 29 2012 9:06 PM

You are saying a bunch of Keynesian nonsense. You don't even show your math. You make up a long verbal story about Keynesian fantasy.

Here are the equations, with the marginal propensity to consume = 0.9 which Keynes used in his example:

1) Y = C + I

   10 = 9 + 1

          9 + 1 + 1 = 11

2) Y = k I

    10 = 10 x 1

            10 x 1 + 1 = 11

If you can't show me a series of equations, you're not doing math. You're just telling a Keynesian nonsense story.

 

You also apparently can't tell me how you get the "multiplier" from “C=mpc(Y-T)”.

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Wheylous replied on Sat, Sep 29 2012 11:02 PM

 

Everything based on Keynes' bogus "multiplier" goes down. All equations, graphs, academic papers, book chapters, econ projections. Everything. 

Do you think they are going to walk into class tomorrow and say: "All that stuff I've been teaching you is bullshit. Here's your tuition back."

Why don't the neoclassicals and Chicago school guys point it out?

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Tugwit replied on Sun, Sep 30 2012 8:13 AM

As Bunker Bear would say, maybe it's because they're too f***ing dumb to figure out what Keynes did :D

http://www.investopedia.com/articles/economics/09/milton-friedman.asp#axzz27xOoDYvf

"Friedman and the other economists at the Chicago school led attack after attack on concepts like the Keynesian multiplier and the damage of saving. Friedman took issue with the Keynesian multiplier because it gave any form of government spending - even debt spending - a superior rating over private investment."

If they would just go back to Keynes' "General Theory" multiplier chapter and actually look at what he said, what he did, and how he did it, they would find that it was bullshit. Very clever bullshit, but it's bullshit.
 
A guy named Richard Feynman pointed out, that if you want to solve a problem, don't start at point 17, or point 7, go back to point zero.
 
And I think there's the problem pointed out by The Amazing Randi, a magician who turned to debunking various frauds. Academics are not very good at debunking fraud, because they never think of fraud. And they think the other guys are playing fair.
 
And I'll bet if you look at their papers, they have probably used the Keynesian "multiplier" in them.
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An article by an unnamed author where all he said was

If they would just go back to Keynes' "General Theory" multiplier chapter and actually look at what he said, what he did, and how he did it, they would find that it was bullshit. Very clever bullshit, but it's bullshit.

Without any evidence?

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Tugwit replied on Sun, Sep 30 2012 10:49 AM

What do you mean "Without any evidence?" and "where all he said was"?

I have put my evidence in Parts 1 and 2 of "Fiscal Multiplier Debunked" on Tugwit.blogspot.com 

Including:

"If the fiscal “multiplier” value exceeds principle plus interest, why do we have $16 trillion national debt? Why would we need to borrow in the first place?"

I have shown that the fiscal "multiplier" uses Three Stooge math.

Why do they disguise T, and (1-b)Yd?

Why do they do that jackass stupid substitution of Yt - T for Yd?

The marginal propensity to consume, does not apply to Yt and T.

And that nonsense about government spending being better than tax cuts, the balanced budget "multiplier", and the proportional tax "multiplier", relies on those disguises and that stupid substitution. 

I have shown that there are 2 values for Keynes' "multiplier" and that Keynes used the wrong value for the effect of spending on income.

So don't tell me I didn't give any evidence. 

If they would just read Keynes chapter, they would find the evidence.

 

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Wheylous replied on Sun, Sep 30 2012 11:13 AM

I'm saying the article didn't have evidence

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Chris S replied on Sun, Sep 30 2012 11:27 AM

I'm simplifying C=mpc(Y-T) to just (mpc)(Y). In other words, assuming taxes are 0 just to keep it simple. In your example you have Y=11, C=9, and I=2. But, by definition, C=mpc(Y-T). T is 0, C=9, mpc=.9, and Y=11. So we get 9=.9(11). This is clearly false. Until you can reconcile that fact, you have no argument. 

 

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Tugwit replied on Sun, Sep 30 2012 11:36 AM

If they would just go back to Keynes' "General Theory" multiplier chapter and actually look at what he said, what he did, and how he did it, they would find that it was bullshit. Very clever bullshit, but it's bullshit.

The above is what I said. What the other guy said is in quotes.

And if the "multiplier" exceeds principle plus interest, we can't have any national debt. Wouldn't it make you a little suspicious that we have $16 Trillion in debt?

Wouldn't it make you a little suspicious, to see the marginal propensity to consume retroactively applied to total income and tax, when it applies only to disposable income?

Wouldn't it make you a little suspicious, to see how Keynesians made T, and (1-b)Yd, and -bT, "disappear"?

Are these Chicago guys just sitting around with their fingers up their noses?

 

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