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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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Tugwit replied on Fri, Aug 24 2012 2:32 PM

But I didn't get it wrong.

Keynes though, worked hard to get it wrong. He took a simple math problem, converted it into a complicated word problem, and messed it up. The question is whether it was fraud to promote socialism, or incompetence.

Keynes said income Y, equals consumption C, plus investment I. Say that Y = 10, C = 9, I = 1.

Y = C + I

10 = 9 + 1

Add a $1 increment to I:

Y = 9 + 1 + 1 = 11

The added increment doesn't get multiplied as he said it would.

From Y = C + I, you can derive Y = k I, where k = 1/(1-b) = Y/I, Keynes' "multiplier".

But if you try to add $1 to I in Y = kI

Y = kI + $1

you can't do it, because multiplication comes before addtion.

Y = 10 x 1 + 1 = 11, the same as with Y = C + I + $1

Yet Keynes said that 10 x 1 + 1 = 20

It's 3 Stooges math.

Just how he got away with 3 Stooges math is very interesting.

But basically, Keynes' "multiplier" is not a multiplier. It's a ratio.

And "multiplying" an added increment of spending, involves illegally putting addition before multiplication in the order of operation.

Also, the marginal propensity to consume determines how income is allocated to spending, but is irrelevant to the effect of spending on income. And Keynes' "multiplier" is supposed to tell us the effect of spending on income and employment.

I have more about this in:

 

Pt 19: Keynesian Illegal Math Order of Operations, Fiscal Multiplier Debunked
http://www.youtube.com/watch?v=WH8Lk1g8am8
 
Pt 20: Keynes' Three Card Monte, Equation Asymmetry, Fiscal Multiplier Debunked
http://www.youtube.com/watch?v=ZSNDWOMKWg0
 
And I have now condensed most of it non-video form at:
 
 
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But if you try to add $1 to I in Y = kI
 
Y = kI + $1
 
Wait, if you add $1 to I then it becomes (I + $1), say Inew.
 
Then you have Y= kInew = k (I + $1) = kI + $k.
 
I am not sure whether you misspoke in the previous post, but you say "add $1 to I." If you add something to a variable, this becomes the new value of the variable. Then, when you multiply, you distribute.
 
What you're saying is akin to this:
 
F=ma
 
Let's increase m by 1 kg.
 
But if you try to add 1kg to m in F=ma
 
F = ma + 1
 

And that's where you go wrong. If you increase m by one, the new formula is F = (m + 1) *a

Which, in turn, distributes.

Am I misunderstanding you?

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Tugwit replied on Sun, Aug 26 2012 8:40 AM

The difference is that F = ma is a "stand-alone" equation, Y = kI isn't. You can't use Y = kI by itself without falling for Keynes' deception.

Y = kI is derived from Y = C + I, so Y = kI and Y = C + I must give the same answer when you do something to them. And Y = C + I is the "primary" equation. If you want to find the real result, go to the "primary" equation.

Y = C + I

10 = 9 + 1

Y = kI, k = Y/I

10 = 10 x 1

Y = 9 + 1 + 1 = 11

Y = 10 x 1 + 1 = 11, not 20

To get 20, you have to put additition before multiplication, and that's illegal.

Take a look at parts 1 and 2 of Fiscal Multiplier Debunked at http://tugwit.blogspot.com/

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Wheylous replied on Sun, Aug 26 2012 11:18 AM

Let's assume for the moment that the math doesn't work out. From the logical perspective, however, it makes sense. One round of spending triggers others down the line. This doesn't mean that private spending doesn't do the same, or, that even if it didn't, we should actually use governement fiscal multipliers, but still - spending does lead to spending given a certain propensity to consume.

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Tugwit replied on Sun, Aug 26 2012 3:39 PM

Assume the math doesn't work? It's Three Stooges math. Illegal addition before multiplication. It absolutely doesn't work. 

And look at Pt 2 Fiscal Multiplier Debunked on http://tugwit.blogspot.com/

The "multipliers" for net tax, tax cuts, balanced budget, and proportional tax are all bullshit. Keynesian fraud or incompetence.

So our central planning morons in DC are basing fiscal policy on Keynesian fraud or incompetence.

And the result is $16 TRILLION of national debt ... that the "multiplier" was suppose to pay for. From tax and government spending we're supposed to get free national income that we would not otherwise get. The "multiplier" is their excuse for spending and wasting money like clueless morons.

And the result is a disaster.

Yes, I spend $1 and it gets spent again and again. And if the morons tax it from me and spend it there's no gain whatsoever. But Keynesians claim that there is not only a gain, but a "multiplied" gain. That the morons are heroes and I'm a villain.

And people will waste any amount of other people's money, and tax is other people's money. So the morons waste it, as you can see every day in the news.

The fiscal "multiplier" is a scam, promising multiplied free lunch, in exchange for letting politicians waste our money.

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From tax and government spending we're supposed to get free national income that we would not otherwise get

Well, not quite. As I remember being taught in my AP Macro class, the government multiplier most times crowds out the private multiplier. What this means is that economists know that government spending during times of a "healthy" economy do not create a multiplier effect.

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Tugwit replied on Mon, Aug 27 2012 3:58 PM

The Keynesian balanced budget "multiplier" says that if government spending and tax are each increased $1, we get a free $1 increase in national income that we would not otherwise get. There's no restriction on whether the economy is good or bad. And it's nonsense.

There is no Keynesian fiscal multiplier, government or private, good times or bad. It's mathematical nonsense.

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we get a free $1 increase in national income that we would not otherwise get

I don't think they claim that. At least my econ class was taught that the private sector has its own multiplier.

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Tugwit replied on Tue, Aug 28 2012 6:12 AM

They do claim that. Look up the balanced budget multiplier.

Regardless of what your econ class was taught, the Keynesian fiscal multiplier is nonsense. There isn't one for government or private spending. Keynes invented something that doesn't exist. It's Three Stooges math.

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Tugwit replied on Wed, Sep 26 2012 2:17 PM

I have been replacing some of the videos with shorter simpler versions. These 5 pretty much sum up the scam. They are less than 5 minutes each.

 

Keynes' Big Con, Fiscal Multiplier Debunked
http://youtu.be/22SBeaQ1bkk
[This one alone blows the entire scam.]
 
Fiscal Multiplier Debunked (Government Spending Multiplier: 1/(1-b) ) 
http://youtu.be/dA5vhqJ6AA8
[By introducing a tax variable, Keynesians made the scam even more stupid.]
 
Tax Cut Multiplier Debunked
http://youtu.be/LqO4guOSkhs
[Debunking the claim that govt spending is better for the economy than tax cuts.]
 
Balanced Budget Multiplier Debunked
http://youtu.be/0KSLPvIiJFo
[If they couldn't get deficit spending, Keynesians found a way to claim free income just from tax and spend. This is why our morons in DC think we can't cut federal spending. That we will miss out on the free income.]
 
Proportional Tax Multiplier Debunked: 1/(1-b(1-t))
http://youtu.be/RUmhdPfPT2k
[An algebra trick to get rid of the telltale -bT. Krugman uses this "multiplier".]
 
The fiscal "multiplier" is really an excellent fraud. The CBO uses it. Christina Romer used a "multiplier" of about 1.57 to predict the number of jobs created by the 2009 ARRA. That explains why her projections bombed, though she said she bombed because the recession was deeper than she thought. Hah! There's a big push on food stamps because of a claimed "multiplier" of 1.73. These guys are just hallucinating.
 
The biggest economic and financial fraud in history. Debt crises in Europe and the US. Because macroeconomists are either running a govt spending scam, or are to damn dumb to figure out what Keynes did.
 
 
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Have you tried to contact any "official" economists with this? Try, for example, Bryan Caplan. He's very accessible both on Twitter and by email.

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Tugwit replied on Thu, Sep 27 2012 1:31 PM

I think economists must have a mafia with "omerta", and "never speak ill of another economist", or this Keynesian "multiplier" nonsense would have been gone long ago. But I see that the guy is interested in irrationality, so I'll send him an e-mail. Thanks.

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There's definitely a lot wrong with the Keynesian model, but I don't think there is anything wrong with the math itself within the model. The problem with your logic is that, in the model, output and income are the same. When Y is increased, either by increasing G or I, it is also increased in the consumption equation (C=mpc(Y-T)). As consumption goes up, output goes up even more than the original input, which causes income to increase again, increasing consumption even more, and so on. Whether this works in practice, in the real world, is definitely up for debate, but within the Keynesian model itself, there is no debate.

 

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Tugwit replied on Sat, Sep 29 2012 12:10 PM

 

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)”.
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