Archive for ‘Keynesian’

May 27, 2009

What Part of ‘It Won’t Work’Is So Hard to Understand?

Dec. 8, 2008: It Won’t Work
Feb. 9, 2009: It Still Won’t Work
May 4, 2009: Hey, By The Way, Just In Case You Didn’t Notice, It Won’t Work
May 27, 2009: OK, Now I Will Speak Very Loudly So Maybe You’ll Understand: IT WON’T WORK!

Lather, Rinse, Repeat: IT WON’T WORK!

UPDATE: “Are the people of this country really that stupid??” Adrienne, did you ever hear of something called “the public education system”?

May 15, 2009

Demand-Side Dementia: Symptoms and Prognosis of the Keynesian Madness

I’ve written before about the Keynesian obsession with consumer “mood.” Keynesian economics focuses on consumer spending as the key factor in economics — consumption being the “demand side,” as opposed to the “supply side” of capital investment.

In a recession, the Keynesian naturally wants to put the consumer on the couch, shrink his head and figure out how to get him spending money again. Hence, Conor Clarke’s dispute with Martin Feldstein:

This is an argument based on Ricardian Equivalence — the theory that it doesn’t matter whether the government uses debt or taxation to finance its spending, since, if the government uses debt, the perfectly rational robot-people will lower their present spending in anticipation of higher future taxes. . . . That households “will recognize” the budget constraint and “will reduce” their present spending accordingly suggests a mechanism as predictable as night following day.

What’s going on here is Clarke’s criticism of Feldstein’s argument that Obama’s proposed tax increases, which wouldn’t become effective until 2011, will discourage consumer spending in the near term.

If what you’re doing is try to figure out the impact of policy on consumer decision-making, then Feldstein’s speculation — about the consumer reducing spending now because he comprehends that government deficits will require higher taxes in the future — is worthy of Clarke’s mockery of “rational robot-people.”

The problem with both Feldstein and Clarke’s approach, however, is the assumption that consumer behavior is:

  • (a) controlled by a “mood” independent of underlying economic reality; and
  • (b) more important than the behavior of investors.

In truth, it doesn’t matter whether consumers are rational or irrational. The consumer’s ability to spend money is limited by how much money he has to spend. He may have money saved, he may be earning money as wages, he may borrow money, and/or he may liquidate some of his assets. But one way or another, he must have money before he can spend money.

Surveys of consumer confidence are useful in near-term economic forecasting — for example, if what you’re trying to do is predict retail sales during the Christmas shopping season. Yet no matter how irrational consumers may be, their “confidence” is not entirely independent of their means.

More importantly, the demand-side obsession gets causality backward. Economic growth boosts consumer confidence, not the other way around. Discussion of the consumer “mood” is therefore irrelevant to the project at hand: Developing government policy to promote recovery in the wake of a massive market collapse.

In this situation Keynesian policy prescriptions are like sending a gunshot victim to group therapy where he can discuss his feelings about his sucking chest wound.

The Keynesians seem to believe that the economy is suffering from a self-esteem problem. This isn’t that kind of recession. We have sustained a traumatic wipeout of asset value, the result of which is a capital shortage, and you can’t make capitalism work without capital.

The policies of the Obama administration and Democrats in Congress are the exact opposite of what should be done to address this situation. Rather than enacting policies that would encourage capital formation and productive investment, they are siphoning capital out of the market via unprecedented levels of deficit spending.

Martin Feldstein and Conor Clarke are both wrong. The near-term impact of deficit spending and higher taxation on consumer “mood” is irrelevant to why the Keynesian formula won’t work. It won’t work because this huge increase in government spending — whether paid for by taxation, borrowing, or inflation — sucks money out of the private sector at a time when the private sector desperately needs an infusion of capital.

It Won’t Work. The Fundamentals Still Suck. Economics Is Not a Popularity Contest.

March 23, 2009

New book: MELTDOWN

Got an e-mail from Human Events with a special promotion of Profesor Thomas Woods’s new book: Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse. From the e-mail:

President Obama rammed through his new stimulus bill, warning of an irreversible recession if Congress failed to act.
But bestselling author Thomas E. Woods Jr. warns that Obama’s “stimulus package” will do far more damage to our economy than even the Republicans in Congress realize.
In his New York Times bestseller, Meltdown, Woods shows how this new bailout (just like last year’s bailout) will quickly drive our nation deeper into recession.

See? Another example of why I can’t score the big bucks as a writer. I made the mistake of boiling it down to three words: It Won’t Work.

Of course, for those of you who haven’t studied economics enough to know why it won’t work (hello, President Obama!) Professor Woods will certainly give you your money’s worth. He is also the author of the huge bestseller, The Politically Incorrect Guide to Amerian History.

February 4, 2009

Palin: ‘We don’t need no stinkin’ stimulus!’

Well, something like that:

Governor Sarah Palin again today expressed her serious concerns with President Obama’s proposed stimulus package. In a joint letter sent to Alaska’s congressional delegation, Governor Palin, House Speaker Mike Chenault and Senate President Gary Stevens cautioned that unrestrained spending, initiation of new programs that the states may be asked to continue after the federal stimulus is gone, and the borrowing of hundreds of billions of dollars to pay for it may result in serious economic problems in the future.
Governor Palin recently traveled to the nation’s capital to personally express her concerns with the stimulus package with business, economic and political leaders. The trip was not an effort to endorse or lobby for the current stimulus package now before Congress.
“I agree with the decision of Senator Murkowski and Congressman Young to vote NO on the package,” Governor Palin said.

Hmmm. “Libertarian Populism”? “It Won’t Work”? “The Bible vs. the Bailout”? Nah, she’d have to actually be able to “read and write” to know anything about that stuff. Certainly those “ordinary barbarians” at Conservatives4Palin don’t go in for any of that fancy high-falutin’ book learnin’ crap.