Why all the hate for Keynesian Economics?

[Saragossa]

I was reading this article about Libertarianism and it mentioned the majority of young people in America don't believe Keynesian principles work (i.e. increasing government spending will not increase overall spending). This really confused me, maybe it's because I'm not American, but I never saw Keynesian economics as A. associated with the left wing or B. at all disputable.

Can someone explain to me how anyone can actually disagree with it? I've always thought it was like disagreeing with it was like disagreeing with the link between smoking and lung cancer (although, that said, I heard that done a week ago)

[PapaJacky]

Gilded age, little Govt. spending, economy boomed.

Of course, some want to revert to those days.

[Ostroeuropa]

The main issue is digging and filling ditches and the broken window fallacy.

The government will tax people to employ people to do things.
Those things may not be the same things (in fact almost certainly wont be) that the people would have spent their cash on given the choice.
"Breaking windows helps the economy"

[Saragossa]

But if the economy is doing badly enough people just won't spend at all, defeating the purpose of tax cuts

[Norsklow]

How do we pay for it?
With Keynes alive it was plain.
Reduce consumption in good times, put in old sock, in bad times,open the old sock, spend the money.


Unfortunately, his latest practitioners are very much remiss when it comes to putting the money in the old sock BEFORE getting it out in the bad times.
Instead, they say' get out your credit-card' and we end up with Greece. NoThnx.

[Ostroeuropa]

But if the economy is doing badly enough people just won't spend at all, defeating the purpose of tax cuts

That's only the case for those who can afford to save. The working class ALWAYS spend.

[Ostroeuropa]

How do we pay for it?
With Keynes alive it was plain.
Reduce consumption in good times, put in old sock, in bad times,open the old sock, spend the money.


Unfortunately, his latest practitioners are very much remiss when it comes to putting the money in the old sock BEFORE getting it out in the bad times.
Instead, they say' get out your credit-card' and we end up with Greece. NoThnx.

this too, and for good reason.
Politicians figured out that saving doesn't make them popular, but spending does.
"Eh, the successors will pick up the bill."

[Cetacea]

Also a fallacy the problem is distribution of tax burden

what should be happening is tax cuts for the poor/middle class who spend their money on necessities like food, housing and clothes (i.e. consumer products that need to be produced by workers) rather than tax cuts for the rich who won't spend it during hard times

[Norsklow]

How do we pay for it?
With Keynes alive it was plain.
Reduce consumption in good times, put in old sock, in bad times,open the old sock, spend the money.


Unfortunately, his latest practitioners are very much remiss when it comes to putting the money in the old sock BEFORE getting it out in the bad times.
Instead, they say' get out your credit-card' and we end up with Greece. NoThnx.

this too, and for good reason.
Politicians figured out that saving doesn't make them popular, but spending does.
"Eh, the successors will pick up the bill."

Which is the reason why I set my face in stone against the whole charade.
It would work - but not when modern politicians get to call the shots.

[Saragossa]

That's only the case for those who can afford to save. The working class ALWAYS spend.

Still, if you cut taxes you'll be "using" revenue less efficiently then if you spent it yourself, as long as someone is saving. Plus that's only really America and a couple of other countries. In China, for instance, people save on average like 60% of their income

[Ostroeuropa]

Also a fallacy the problem is distribution of tax burden

what should be happening is tax cuts for the poor/middle class who spend their money on necessities like food, housing and clothes (i.e. consumer products that need to be produced by workers) rather than tax cuts for the rich who won't spend it during hard times

This. When the working class spend money, it goes to the middle class.
When the middle class spend money, it goes to the rich.
They get taxed, and it goes to the government.
Who gives it to the working class.

I call it trickle up economics.

[Ostroeuropa]

That's only the case for those who can afford to save. The working class ALWAYS spend.

Still, if you cut taxes you'll be "using" revenue less efficiently then if you spent it yourself, as long as someone is saving. Plus that's only really America and a couple of other countries. In China, for instance, people save on average like 60% of their income

Not so, see, that money IS gonna come to the government eventually.
It's just that it'll come from the rich, and in the mean time the poor/middles bought crap with it.

[Norsklow]

Also a fallacy the problem is distribution of tax burden

what should be happening is tax cuts for the poor/middle class who spend their money on necessities like food, housing and clothes (i.e. consumer products that need to be produced by workers) rather than tax cuts for the rich who won't spend it during hard times

This. When the working class spend money, it goes to the middle class.
When the middle class spend money, it goes to the rich.
They get taxed, and it goes to the government.
Who gives it to the working class.

I call it trickle up economics.

nice one!

In conclusion: NO TAXCUTS!

[Saragossa]

How do we pay for it?
With Keynes alive it was plain.
Reduce consumption in good times, put in old sock, in bad times,open the old sock, spend the money.


Unfortunately, his latest practitioners are very much remiss when it comes to putting the money in the old sock BEFORE getting it out in the bad times.
Instead, they say' get out your credit-card' and we end up with Greece. NoThnx.

this too, and for good reason.
Politicians figured out that saving doesn't make them popular, but spending does.
"Eh, the successors will pick up the bill."

That's only a problem if you can't pay it back. Most countries can afford to borrow more, it's just places like Greece, which produces nothing

[Norsklow]

this too, and for good reason.
Politicians figured out that saving doesn't make them popular, but spending does.
"Eh, the successors will pick up the bill."

That's only a problem if you can't pay it back. Most countries can afford to borrow more, it's just places like Greece, which produces nothing

Kindly keep me informed when a neoKeynesian country manages to pay off its entire debt.

[Dongolia]

Those people are mainly proponents of Hayek i.e. leave everyone to their own device (thus the appeal for Libertarians). Keynes principals are certainly disputably in whether they actually work to stimulate the economy but obviously some narrowly defined subset of them may not be. Thus it's not in dispute that increased government spending doesn't increase total spending, ceterus paribus (although some might argue that government spending "crowds out" private spending).

I highly, highly recommend this video (Fight of the Century: Keynes vs. Hayek Round Two) if you're interested in macroeconomic policy. You may be reluctant to follow a youtube link (or watch a video about economics), and normally I'd agree with you, but maybe you'll reconsider if I tell you that it's in rap form.

http://www.youtube.com/watch?v=GTQnarzmTOc

[Forsher]

Those people are mainly proponents of Hayek i.e. leave everyone to their own device (thus the appeal for Libertarians). Keynes principals are certainly disputably in whether they actually work to stimulate the economy but obviously some narrowly defined subset of them may not be. Thus it's not in dispute that increased government spending doesn't increase total spending, ceterus paribus (although some might argue that government spending "crowds out" private spending).

I highly, highly recommend this video (Fight of the Century: Keynes vs. Hayek Round Two) if you're interested in macroeconomic policy. You may be reluctant to follow a youtube link (or watch a video about economics), and normally I'd agree with you, but maybe you'll reconsider if I tell you that it's in rap form.

http://www.youtube.com/watch?v=GTQnarzmTOc

I would have watched it, then you said it was a rap. Mind you, I was forced to watch a video on economics set to Friday so... No, I was a captive audience here I am not, sorry.

That's only a problem if you can't pay it back. Most countries can afford to borrow more, it's just places like Greece, which produces nothing

Kindly keep me informed when a neoKeynesian country manages to pay off its entire debt.

That would suggest that they are:

• Paying it off.
• Don't need to pay it off.
• Can't pay it off and are in trouble.

That's only the case for those who can afford to save. The working class ALWAYS spend.

Still, if you cut taxes you'll be "using" revenue less efficiently then if you spent it yourself, as long as someone is saving. Plus that's only really America and a couple of other countries. In China, for instance, people save on average like 60% of their income

We, as in to the extent that we use economics of any sort (we don't bother with labels), assume that people save when they are able to save. High cost of living means that one won't be saving as there's nothing to save. On the other hand, in a spend now culture saving is further discouraged. Also, real interest rates may be too low to bother saving.

[Forster Keys]

If I want some stimulation I don't rely on the invisible hand.

[Cetacea]

Those people are mainly proponents of Hayek i.e. leave everyone to their own device (thus the appeal for Libertarians). Keynes principals are certainly disputably in whether they actually work to stimulate the economy but obviously some narrowly defined subset of them may not be. Thus it's not in dispute that increased government spending doesn't increase total spending, ceterus paribus (although some might argue that government spending "crowds out" private spending).

I highly, highly recommend this video (Fight of the Century: Keynes vs. Hayek Round Two) if you're interested in macroeconomic policy. You may be reluctant to follow a youtube link (or watch a video about economics), and normally I'd agree with you, but maybe you'll reconsider if I tell you that it's in rap form.

http://www.youtube.com/watch?v=GTQnarzmTOc

I would have watched it, then you said it was a rap. Mind you, I was forced to watch a video on economics set to Friday so... No, I was a captive audience here I am not, sorry..

It was actually kind of good. melodic rap by two white guys who did a good job comparing Keynes and Hayek. I liked it...

[Meowfoundland]

If I want some stimulation I don't rely on the invisible hand.

It comes at the most inopportune times. One time, I was in economics class and, well, so did I.

[Dongolia]

If I want some stimulation I don't rely on the invisible hand.

Indeed. For stimulation I rely on Ex-prime minister Rudd's hand(outs).

I would have watched it, then you said it was a rap. Mind you, I was forced to watch a video on economics set to Friday so... No, I was a captive audience here I am not, sorry..

It was actually kind of good. melodic rap by two white guys who did a good job comparing Keynes and Hayek. I liked it...

Thanks. Here's another one that explains (and makes fun of) quantitative easing (i.e. what central banks do when they can't drop interest rates anymore). Unfortunately no rapping, but the hosts are animated bears and the voices are computer generated!

http://www.youtube.com/watch?v=PTUY16CkS-k

[Trotskylvania]

That's only a problem if you can't pay it back. Most countries can afford to borrow more, it's just places like Greece, which produces nothing

Kindly keep me informed when a neoKeynesian country manages to pay off its entire debt.

Why would you want to?

Government debt plays a vital role in foreign exchange, and establishing the credit of a nation and its currency. Retiring securities early simply creates wasteful drags on an economy. What successful governments do, like the US did before the Republican Party decided to starve the beast, is continually deficit spend as a means of investment in infrastructure and human capital, and to build credit. They simply borrow at a rate that is less than the growth of the economy, so the debt to GDP ratio decreases during times of normalcy. They increase deficit spending during times of recession.

For example, Lyndon Baines Johnson, the creator of the Great Society welfare state, and also someone funding a war in Vietnam, engaged in considerable deficit spending during his time in office. Yet, the debt to GDP ratio decreased considerably by the time he left, thanks to robust economic growth.

Incidentally, this is something that every capitalist firm does. You can't run a business on cash alone and expect to be competitive. Credit is necessary, and that means borrowing. As long as you can pay your creditors back, and don't end up underwater, you're fine. It's the same with nation-states.

[Mr Bananagrabber]

I was reading this article about Libertarianism and it mentioned the majority of young people in America don't believe Keynesian principles work (i.e. increasing government spending will not increase overall spending). This really confused me, maybe it's because I'm not American, but I never saw Keynesian economics as A. associated with the left wing or B. at all disputable.

Well some people don't think that the assumptions of rigid nominal wages and prices are well founded. They have a model where markets clear and so the resource constraint binds. If the government purchases a good then necessarily somebody else who would have bought it now can't; so total spending doesn't increase. Also in that model an increase in nominal spending won't translate into an increase in real production anyway. Even if it does through some friction, it's not optimal.

Then even if you accept the sticky wage/price framework, it's still not clear whether the government can significantly increase nominal spending. Even if they can, it's not clear that you should ever use fiscal policy since monetary policy is much more potent. Fiscal stimulus is only considered by some people now because the Fed Funds rate is stuck at the zero lower bound and so they see monetary policy as being "out of ammunition", but that's also heavily disputed.

Can someone explain to me how anyone can actually disagree with it? I've always thought it was like disagreeing with it was like disagreeing with the link between smoking and lung cancer (although, that said, I heard that done a week ago)

The more or less standard macroeconomic model is the New Keynesian model, though it's much closer to the RBC model than anything Keynes ever did. Fiscal policy is certainly not viewed as the standard approach to business cycles. As I said above, it's only getting mentioned now because of the ZLB, and it's extremely contentious.

[Dongolia]

Business on cash alone and expect to be competitive. Credit is necessary, and that means borrowing. As long as you can pay your creditors back, and don't end up underwater, you're fine. It's the same with nation-states.

And the great thing about nation-states is that they can print their own money, so if they were ever in danger of default they can just increase their inflation rate by printing more money to pay off their creditors instead (unless they stupidly gave away control over their monetary policy to some sort of central union thingy). Probably wouldn't reflect too well on your credit rating though ...

[Thesan]

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