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Permanent Keynesian Refutation Thread

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Luis Buenaventura Posted: Fri, Mar 13 2009 7:24 PM

I think it would be more productive to make a nice, long thread that posts point by point refutations of Keynesian methodology (for newcomers), if it starts falling down I'll bump it-this will save us the need of continuously re-writing the same thing. Also, please don't go off in wild tangents.

Thanks,

Luis Buenaventura

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http://en.wikipedia.org/wiki/The_Failure_of_the_New_Economics

http://www.mises.org/books/failureofneweconomics.pdf

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Haha, exactly, I was going to say that Hazlitt already did this.

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I know (actually been wanting to buy it), but for newcomers that don't want to spend the money buying a book, but would prefer to understand some basic refutations I found that it would be better to make a permanent thread on the aformentioned topic.

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The book is great, you should get it. I love it. It is online for free in pdf form.

In any case, what you need to know about Keynesian economics is this:

The idea that government fiscal stimulus can increase actual aggregate demand is false. That money needs to either be borrowed, taxed, or printed. If it's borrowed, that's less money that the private economy may borrow. If it is taxed, that is less money that the private economy has. If it is printed, that is less value per dollar that the private economy has.

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Cork replied on Tue, Mar 31 2009 11:23 PM

http://www.huppi.com/kangaroo/L-ausmain.htm

Look how original I am, everybody!  I linked to Steve Kangas.  And if you don't watch out, I'll link to my "secret weapon"--Mike Huben.  Both say that Keynesianism is gold, therefore it is.

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Twirlcan replied on Wed, Apr 15 2009 1:25 AM

Something I was thinking about Keynesian Economics is that it has been implemented and believed now for almost 70 years.  That was about the lifespan of institutional Marxism of the Soviet Union.

Right around 1988 Gorbachev and company had a meeting where they made plans about how to handle the burden on the Soviet Union and their client states when the capitalist west collapsed.  They felt this collapse was inivitable since that is what Marxist doctrin had been telling them for the past 70 years.

One year later their client states were all gone and three years later the Soviet Union was gone as well.

Now the leaders carrying the banner of Keynesian Economics are planning somewhere how to bail out something, how to stimulate the economy by printing money and how to stop piracy, terrorism, North Korea, China, Sudan, Chavez and prevent venereal disease in Africa because they actually believe they can do these things and be stronger because of them.

No one even remembers how communism started falling ...it just sort of happened. (really it was elections in Poland and Hungary that the communists thought they could win..but I had to look it up again just now)

I am wondering what seemingly small event will bring down the Keynesian system?

http://www.comebackalive.com/phpBB2 Travel, Adventure Travel, Arguments, Recipes.

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Twirlcan:

Something I was thinking about Keynesian Economics is that it has been implemented and believed now for almost 70 years.  That was about the lifespan of institutional Marxism of the Soviet Union.

Right around 1988 Gorbachev and company had a meeting where they made plans about how to handle the burden on the Soviet Union and their client states when the capitalist west collapsed.  They felt this collapse was inivitable since that is what Marxist doctrin had been telling them for the past 70 years.

One year later their client states were all gone and three years later the Soviet Union was gone as well.

Now the leaders carrying the banner of Keynesian Economics are planning somewhere how to bail out something, how to stimulate the economy by printing money and how to stop piracy, terrorism, North Korea, China, Sudan, Chavez and prevent venereal disease in Africa because they actually believe they can do these things and be stronger because of them.

No one even remembers how communism started falling ...it just sort of happened. (really it was elections in Poland and Hungary that the communists thought they could win..but I had to look it up again just now)

I am wondering what seemingly small event will bring down the Keynesian system?

I'm going to go with China starting to dump dollars in exchange for commodities.  Which it looks like they've already started doing.  Copper?

"Anticapitalist theories share in common an inability to take human nature as it is. Rather than analyzing man as a complex creature, anticapitalist theories tend to focus on what the theorist wishes man to be." - Isaac Morehouse

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Meistro replied on Wed, Apr 22 2009 11:12 AM

I am actually reading Failure of the "New Economics" as we speak.  It is a superb model of criticism and it's fascinating enough to keep my interest and complex enough to put me to sleep.  He just steam rolls over Keynes - exposing the confused and misleading thinking that Keynes' General Theory was built upon.

 

... just as the State has no money of its own, so it has no power of its own - Albert Jay Nock

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eliotn replied on Tue, May 5 2009 7:15 PM

Luis Buenaventura:

I think it would be more productive to make a nice, long thread that posts point by point refutations of Keynesian methodology (for newcomers), if it starts falling down I'll bump it-this will save us the need of continuously re-writing the same thing. Also, please don't go off in wild tangents.

Thanks,

Luis Buenaventura

I was just thinking of doing a blog on the subject, building up keynesian points from a more logical point of view, and tearing them down.

I am willing to start on this project over the summer.

Schools are labour camps.

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Thanks for this video! It helped me to understand alot.

 

But I want to know, whats so bad about tax rebates?  Sure I understand how it does not HELP, but why does it HURT?  Since goverment spending is said to not work, by giving tax rebates, the government will have less m oney to spend, and the consumer will have more money to do what it wants with.  Any help appreciated

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Tax rebates are meaningless without spending cuts.  Tax rebates do not reduce spending if the government borrows or prints the difference.

If people want a REAL rebate, cut government spending.  Handing back taxes is just a political ploy.

"When you're young you worry about people stealing your ideas, when you're old you worry that they won't." - David Friedman
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I am confused, how does government spending affect the efficiency of tax rebates?  If I get money back from a tax rebate and government spending stay the same (albeit high) wouldn't that be better than no tax rebate??

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TravisWadman:
If I get money back from a tax rebate and government spending stay the same (albeit high) wouldn't that be better than no tax rebate??

No travis, it is bad, very bad...

If the government does not reduce its spending and rebates you money, where does the shortfall come from?

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Personally, I think the best, most subtle & non-political way to "disprove" or dent Keynesianism, specifically for the economically ignorant, is to point to ye olde principle of scarcity & the obvious occurrence of technology, science, & information constantly refining in consistent leaps every 6 months (to give a nice, general chuck of time for perspective, even though it can be easily be every 6 weeks on smaller scales), which means very easily, we all could be wrong on many things, given a certain amount of time to pass (such as the case of philosophy once attempting to explain what physics does in describing the physical world, etc.). 

Keyenesianism is no different, & anyone who says otherwise, is either an idiot/ignorant, or has something to lose over it being disproven (as it has time & time again), such as their 'kaumpy' place in a newspaper site, or sales from selling over-priced books @ Wal-Mart, or embedded with DRM @ amazon.

The fact that at some point, someone is probably going to attempt to create an information-based or energy-backed currency (i.e. new things), also puts economic knowledge & information at risk, specifically since one cannot precisely design an economical ideology that fits with future circumstances & phenomena, which is the entire point economic knowledge is continually tested, developed, & argued for & against.  

Keyenesianism would only win in a vacuum, & even then, it's proponents would still have various inflated senses of worth over other "lesser" Keynesians who aren't "Keyenes" enough!  

Another thing to remind people is that history is not the past, despite the hammering done into anyone's head in public schools.  History is now, & if we aren't careful, we're going to miss it all before our eyes (as we are on the verge of missing the actual reasons for the incoming Blowback Period, which sounds less alarming than "Collapse" but just as correct in the effects of the 20th century's "voluntary embrace" of Keyesnianism, Socialism, etc.). 

In the long, Keyenesianism is dead, & quite ironically, it may take another 70 years for everyone on the globe to suffer under it "equally" for this to occur (hopefully, not).  It's not a surprise I'm typing this instead of sleeping, when I ponder such pessimism, but who knows, with the rate of technological progress, maybe Keyenesianis will eventually see no use for their "worse is better" economic ideology.

"Look at me, I'm quoting another user to show how wrong I think they are, out of arrogance of my own position. Wait, this is my own quote, oh shi-" ~ Nitroadict

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TravisWadman:

I am confused, how does government spending affect the efficiency of tax rebates?  If I get money back from a tax rebate and government spending stay the same (albeit high) wouldn't that be better than no tax rebate??

Where did the tax rebate money come from in the first place?  They either printed money out of thin air or from taxes.  So (1) drives inflation (purchasing power of money is lost, which is why dollar is worth about .03 compared to the 1913 dollar) (2) is money we would have had anyways but the government took it, then gave it back.

 

"Do not put out the fire of the spirit." 1The 5:19
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wilderness:
(1) drives inflation (purchasing power of money is lost, which is why dollar is worth about .03 compared to the 1913 dollar)

It is worth that much?  I thought it was lower than that now....

It sounds like the ocean, smells like fresh mountain air, and tastes like the union of peanut butter and chocolate. ~Liberty Student

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Harry Felker:

wilderness:
(1) drives inflation (purchasing power of money is lost, which is why dollar is worth about .03 compared to the 1913 dollar)

It is worth that much?  I thought it was lower than that now....

Could be lower, and I don't even know how these numbers are surmised.  All these recent bailouts, and fund bills such as the recent one in Congress named "War fund" that will also include billions of dollars going to the IMF so the IMF can redistribute the wealth (the Global New Deal Gordon Brown discussed) to third world countries.  I wouldn't doubt this money going to the IMF will be paid out as carbon credits to the Third World countries because it's following the same carbon credit cycle that is currently bubbling right now.  This is the most recent graph I have, but the numbers, I wouldn't doubt, are more like .0001 now.  There's always that original gold standard backed currency in circulation not the same bills but there is a lateral, historical base that is still present.  That money never disappears from what I understand even though that was printed decades upon decades ago.

I also noticed that graph states it's about 15 cents, yet, Ron P. and others say it's about .03 or .04 cents.  But as I mentioned you probably right the numbers are more like .0001 or something by now.

 

"Do not put out the fire of the spirit." 1The 5:19
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wilderness:
I also noticed that graph states it's about 15 cents, yet, Ron P. and others say it's about .03 or .04 cents.  But as I mentioned you probably right the numbers are more like .0001 or something by now.

Last I checked, it was $.04, that was pre Bush stimulus....

If we use gold prices without the congressional fixes (should be $2000+ by now) we are less than a penny...

When the chickens come to roost, $.0001 will be generous....

It sounds like the ocean, smells like fresh mountain air, and tastes like the union of peanut butter and chocolate. ~Liberty Student

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I found this in the review/comment section on Amazon for Hazlitts book-

 

6 of 55 people found the following review helpful:
1.0 out of 5 stars Hazlitt can barely understand prealgebra, October 17, 2005
By  Michael Emmett Brady "mandmbrady" (Bellflower, California ,United States) - See all my reviews

Hazlitt(H)attempts to critique the General Theory(GT;1936)by concentrating only on Keynes's literary exposition.H completely ignores the mathematical modeling carried out by Keynes in chapters 19 (and the appendix to chapter 19),20,and 21.These chapters explain the outline of Keynes's theory of effective demand presented to the readerby Keynes in chapters 2 and 3 of the GT.It is based on the D-Z model of expected results(expected profits and expected prices).H has a partial understanding only of the Y-Multiplier model of actual prices-profits contained in chapter 10.Two semesters of calculus are required to follow Keynes's exposition in chapters 19-21.One also needs to have read Part II,chapters 8-10,especially pp.86-102,of A C Pigou's 1933 book, The Theory of Unemployment,in order to understand the comparison-contrast that Keynes makes between his D-Z model and Pigou's model.H has absolutely no possibility of objectively critiquing the GT given his knowledge of sixth grade mathematics.The following is a summary of what H completely overlooks.The classical-neoclassical result that H seeks to defend is that w/p=mpl,where mpl is the aggregate marginal product of labor derived from an aggregated neoclassical production function and w/p is the real wage.This result means that no involuntary unemployment exists.Keynes generalized this optimality and equilibrium condition by showing that it is a special case of the following general optimality condition that is Keynes's general theory:w/p=mpl/(mpc+mpi),where mpc is the marginal propensity to spend on consumption goods,and mpi is the marginal propensity to spend on investment goods,which would be primarily capital goods and secondarily inventories or stocks of finished/unfinished unsold commodities.Only in the special case where mpc+mpi=1 will the Hazlitt result occur.If mpc+mpi<1,a set of multiple equilibria occurs.It will be impossible for labor to cut its money wage to reduce unemployment.In fact,the money wage must rise to maintain the equality.Involuntary unemployment will automatically exist if mpc+mpi<1.Hazlitt is completely lost when he attempts to cover the above chapters in his book.A much better book to read would be the recent book by the Austrian economist Roger Garrison.

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I think the discussion in the comments section is good.

Freedom of markets is positively correlated with the degree of evolution in any society...

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Selfish Bump.

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razerfish replied on Wed, Aug 12 2009 6:29 PM

What about when Keynesians point out that there was no inflation in Japan's recession years of the late 80's through the 90's while their government expanded the money supply like crazy.  Krugman calls it a liquidity trap and proof that we won't necessarily have hyperinflation.  Why didn't Japan have inflation with all that growth in money supply?  

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Question: I have not read Keynes General theory but I am told that it is confused and muddled. Does one need to read the General Theory in order to understand Hazlitt's criticisms?

'Men do not change, they unmask themselves' - Germaine de Stael

 

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Laughing Man:

Question: I have not read Keynes General theory but I am told that it is confused and muddled. Does one need to read the General Theory in order to understand Hazlitt's criticisms?

Yes, Keynes' GT is confusing. Hazlitt points this out in his intro. But don't worry - Hazlitt quotes extensively from the GT and even orders his chapters so they match up with Keynes' corresponding chapters.

Austrians do it a priori

Irish Liberty Forum 

 

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Define Keynesianism. 

Keynesian isn't just a pejorative term for all the economics you don't like. You can't refute something you haven't defined.

If you mean the conept of sticky wages, that will be impossible to disprove theoretically.  Sticky wages are an empirically based assumption and so would need to be countered with evidence. 

If you mean fiscal stimulus as a way to relieve falling aggregate demand, that has already been discredited by almost the entire economics community, despite what certain public figures would like to have you believe.  Most New Keynesians don't believe in fiscal stimulus.

The only other aspect of Keynesianism I can think of that still gets mentioned is the liquidity trap, which relates to barriers on monetary policy.  If anything, this idea should be championed here.

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WisR replied on Thu, Aug 13 2009 4:19 AM

Maybe because it's debt to GDP ratio went from something like 60% to 260%?  And because individaul savers financed all of the government borrowing?  

Remember, Keynsian spending can be funded by:

1) Taxes

2) Gov't Borrowing

3) Monetization

And the primary method Japan's gov't used was #2 above.  Then again, they also had a 'lost decade' and more years of stagnant growth (according to government numbers).  

Do you think American citizens can finance the massive expansion in government spending here?

=0

There are extreme qualitative differences between Japan's economy then and America's now.  A more apt comparison would be what happened in Argentina, where they didn't seem to have any kind of liquidity trap.

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Harry Felker:

wilderness:
I also noticed that graph states it's about 15 cents, yet, Ron P. and others say it's about .03 or .04 cents.  But as I mentioned you probably right the numbers are more like .0001 or something by now.

Last I checked, it was $.04, that was pre Bush stimulus....

If we use gold prices without the congressional fixes (should be $2000+ by now) we are less than a penny...

When the chickens come to roost, $.0001 will be generous....

Pardon my ignorance, but I have never heard of these fixes before. Could you elaborate?

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AnonLLF replied on Wed, Dec 16 2009 2:30 PM

I'm not sure it this point has been made or is somewhere in the links (I've read to read that book.I will get there eventually).

Keynesians claim saving is the cause of recessions.They also claim that consumption is the solution to recessions

Austrians know fractional reserve banking inflating the currency and the after effects of this are the cause of recessions.Austrians claim that in recession it's better people save than spend.

 

 

I don't really want to comment or read anything here.I have near zero in common with many of you.I may return periodically when there's something you need to know.

Near Mutualist/Libertarian Socialist.

 

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Manestor replied on Sat, Apr 10 2010 6:04 AM

I love this guy! So funny!

I honestly suspect him of being an under-cover austrian economist who infiltrated the mainstream camp in order to make them sound ridiculous.

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Manestor replied on Sat, Apr 10 2010 11:23 AM

Cork:

http://www.huppi.com/kangaroo/L-ausmain.htm

Look how original I am, everybody!  I linked to Steve Kangas.  And if you don't watch out, I'll link to my "secret weapon"--Mike Huben.  Both say that Keynesianism is gold, therefore it is.

 

 

I love this Steve Kangas guy! So funny!

I honestly suspect him of being an under-cover austrian economist who infiltrated the mainstream camp in order to make them sound ridiculous.

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Has anyone ever seen or read Paul Krugman's "Why Libertarianism Doesn't Work" A-Z articles?

Hell, has anyone ever refuted any of them yet? I saw a cheap refutation from CATO, but meh.

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William replied on Tue, May 18 2010 11:40 PM

@EternalMind

On this specific article:

http://krugman.blogs.nytimes.com/2010/05/14/why-libertarianism-doesnt-work-part-n/

For starters, he seems to suggest that libertarians would suggest better politicians as the answer.  I don't think this argument makes any sense from a libertarian standpoint, as they are more anti-politician solutions.

"I am not an ego along with other egos, but the sole ego: I am unique. Hence my wants too are unique, and my deeds; in short, everything about me is unique" Max Stirner
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Aquila replied on Mon, Jun 21 2010 9:29 AM

Wow, Krugman cites the actions of politicians as proof of the failure of libertarianism? The man is off his rocker. Libertarianism calls for the institution of a natural, non-coercive order of mankind. It does not require better politicians, it requires politicians to get out of the way and let men act free of interference the violent intermediary of the state.

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I think the essence of the Keynsian flaw is that the theory basically empowers government, therefore the statists embrace it and there is no requirement to show a "return", hence deficits continue to grow. Eventually all debts must be repaid.

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Is there any systematic walkthrough of the "general theory" in print or on the web that also thoroughly and systematically debunks it all?

Thanks! smiley

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Yes by Hazlitt. The Failure of the New Economics.

Freedom of markets is positively correlated with the degree of evolution in any society...

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z1235 replied on Fri, Jul 23 2010 1:50 PM

Link: The Failure of The New Economics 

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peter replied on Sat, Jul 24 2010 10:20 PM

good link

thanks for sharing

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Gero replied on Sat, Jul 24 2010 11:21 PM

Keynesianism was criticized at various points in Viception. Here is one point: “Keynesians emphasize spending. Austrians emphasize production. People earned money from previous production, their work. The Keynesian focus on total spending and total employment omits the production structure. The Keynesian belief in total spending as the basis for economic growth omits the role of capital investment which improves production which leads to higher living standards. If for a month most people in a city use the maximum credit on their credit cards to buy stuff, Keynesians easily confuse the temporary spending with economic growth because of their focus on total spending, not production, especially sustainable production. The Keynesian focus on totality leads to the devaluation of what is produced. An example is the Keynesian celebration of World War II spending that they claim ended the Great Depression for the United States. Keynesians focus little on if cars or tanks are produced as the long as total production rises. Excluding military production during World War II shows the U.S. civilian economy was still depressed. The Keynesian misdiagnosis of recession leads Keynesians to advocate government spending to support malinvestments which diverts resources from profitable businesses to unprofitable malinvestments continuing the unsustainable production structure. Malinvestment liquidation would lead to general falling prices allowing the factors of production, the resources used to make stuff, to adjust to sustainability. The Keynesian solution to recession will deepen and extend a recession possibly into a depression. Inflationary spending will stop the necessary fall in prices, stopping the production structure from correcting itself. The inflation will lead to more malinvestments that will have to be liquidated. An example is the U.S. housing bubble which was created from the inflation used to cushion the bursting U.S. dot-com bubble.”

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