Monday, November 24, 2008

Following the Policies of Economist John Maynard Keynes is Not Change We Can Believe In

I was chatting with a Libertarian friend of mine about President-elect Barrack Obama II and I said that all the change sounded like the ideas of Clement Attlee. Then we both giggled knowing that most of our Democrat friends wouldn't have any idea what we were talking about.

The ideas of economist John Maynard Keynes are very enticing that the government can stimulate economic growth by running a deficit increasing aggregate demand.
The theory depends significantly upon the multiplier effect and the government should direct the money to those having a high propensity to spend. So build a bridge, pay construction workers who need candles who will buy from the candlestick maker, who needs bread who will buy from the baker. It would all be great, but it has been tried, and failed.

For example:
- 1937, after five years of Franklin D. Roosevelt's New Deal industrial
production significantly contracted
- Richard Nixon observed in 1971 "We are all Keynesians now" and his
intervention included widespread price and wage controls. The results were negative
- Not being too quick on the uptake, President James Earl Carter Jr. used
Keynesian principles and managed to get stagflation, both a high unemployment rate and a high inflation rate
- Japan since 1990 has greatly expanded its public debt building
infrastructure to stimulate its economy with lousy results
- Unbelievably more recently in 2008, President George W. Bush joined
Congressional Democrats in a bipartisan $150 billion stimulus package; critics said it was Keynesian and would only have a positive short-term effect.

A definition of insanity is doing the same thing over and over and expecting a different result.

Following the policies of economist John Maynard Keynes is not change we can believe in.

1 Comments:

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December 10, 2008  

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