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John Maynard Keynes Archive

Friday

29

April 2011

0

COMMENTS

From Where Do These Magical Regulators Come?

Written by , Posted in Economics & the Economy

George Soros recently penned an interesting Op-ed in Politico, coinciding with an appearance at the Cato Institute (is there a libertarian equivalent to Holy Water, and was it burning?) for an event reflecting on the impact of F.A. Hayek (I think).

I actually found the Soros article rather interesting. In it he recounts his view of an ideological battle of sorts between Hayek and his colleague Karl Popper, under whom Soros studied. There were many things I found wrong with the piece, both in terms of facts and opinions, but I want to address only one here. Soros ultimately claims to find value in both views, but what I really keyed on was the presence of a bit of magical thinking common on the left. First, here’s a snippet of the conclusion to the Soros piece:

Because perfection is unattainable, it makes all the difference how close we come to understanding reality. Recognizing that the efficient market hypothesis and the theory of rational expectations are both a dead end would be a major step forward.

As I see it, the two sides in the current dispute have each got hold of one half of the truth. which they proclaim to be the whole truth.

…I recognize that the other side is half right in claiming that the government is wasteful and inefficient and ought to function better.

But I also continue to cling to the other half of the truth — namely that financial markets are inherently unstable and need to be regulated.

Earlier in the piece, he makes the case that perfect knowledge is not attainable, which inevitably leads to the “inherently unstable” nature of markets. This argument is internally inconsistent and fails on its own premise.

If financial markets are inherently unstable because perfection is unattainable, why would government regulators not be subject  to the same constraints? Are they not bound by the same inability to achieve perfect knowledge? It is a common fallacy of the statists to believe that regulators can magically rise above all the problems faced in the market, but this is not the case. In fact, they face even greater challenges because politics has been thrown into the mix.

As regulators have no greater ability to achieve perfect knowledge than market participants, how does placing more power in fewer hands improve the situation? It seems to me the more stable system is the one that sees less power in each individual hand, while spread out among many more decision-makers.

On a related note, EconStories.tv dropped round 2 of the Hayek vs. Keynes rap. I highly recommend checking it out:

Monday

6

December 2010

2

COMMENTS

The Keynesian Stimulus Fallacy Refuses to Go Away

Written by , Posted in Economics & the Economy

They say that doing the same thing over and over again while expecting different results is the definition of insanity. If that is the case, then Keynesian politicians are completely bonkers.

Given the disappointing nature of the recent employment numbers, as well the ongoing failure of government “stimulus” plans to spur economic growth, you’d expect sane leaders to consider changing course. Yet just recently we’ve seen comments from Nancy Pelosi and Sherrod Brown touting the great stimulative qualities of jobless benefits – essentially a government subsidy of unemployment. Nor is this the first time Pelosi has made such remarks.

Now the White House is reportedly demanding yet another round of unemployment subsidies, along with a conglomeration of gimmicky tax credits which do nothing to lower marginal tax rates, before it will agree not to raise taxes in the midst of a recession. They should be more focused in providing an environment where jobs are likely to be created, rather than turning what was originally intended to be a temporary cushion into a permanent entitlement.

These leaders are in desperate need of a lesson in the fallacies of Keynesian economics, and it just so happens that one is available in the form of this recent video by the Center for Freedom and Prosperity, narrated by Hiwa Alaghebandian of the American Enterprise Institute:

Originally posted at American Thinker.

Monday

22

February 2010

0

COMMENTS

Memo To Obama: Economists Do Not Agree

Written by , Posted in Economics & the Economy, Taxes

President Obama likes to assert that economists across the political spectrum agree that big government spending is necessary to fight off recession.  “Economists on the left and right,” he insisted early in 2009, “agree that the last thing the government should do during a recession is cut back on spending.”  Essentially, he’s saying that all economists are Keynesians.  This is simply false, as Harvard Professor Jeffrey Miron tells us today at the Daily Caller.

..That brings us to the second argument for higher spending: the Keynesian claim that spending stimulates the economy. If this is accurate, it might seem the U.S. should continue its high-spending ways until the recession is over.

But the Keynesian argument for spending is also problematic. To begin with, the Keynesian view implies that any spending—whether for vital infrastructure or bridges to nowhere—is equally good at stimulating the economy. This might be true in the short term (emphasis on might), but it cannot be true over the long haul, and many “temporary” programs last for decades. So stimulus spending should be for good projects, not “digging ditches,” yet the number of good projects is small given how much is already being spent.

More broadly, the Keynesian model of the economy relies on strong assumptions, so we should not embrace it without empirical confirmation. In fact, economists find weak or contradictory evidence that higher government spending spurs the economy.

Substantial research, however, does find that tax cuts stimulate the economy and that fiscal adjustments—attempts to reduce deficits by raising taxes or lowering expenditure—work better when they focus on tax cuts. This does not fit the Keynesian view, but it makes perfect sense given that high taxes and ill-justified spending make the economy less productive…

Recently, Obama again cited the entire spectrum of economists as supporters of his agenda: “Now, if you hear some of the critics, they’ll say, well, the Recovery Act, I don’t know if that’s really worked, because we still have high unemployment. But what they fail to understand is that every economist, from the left and the right, has said, because of the Recovery Act, what we’ve started to see is at least a couple of  million jobs that have either been created or would have been lost.

Economist Robert Barro explains in the Wall Street Journal what a load that is.

Monday

25

January 2010

0

COMMENTS