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keynesian economics

A macroeconomic theory based on the ideas of economist John Maynard Keynes

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Priming The Pump Doesn't Work

  • May 19, 2010
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-5

I am not an economist, so take my uneducated (but researched) opinion for what it is worth.  I have been hearing the term Keynesian Economics a lot in relation to the stimulus package and decided to do some investigation.  It seems that Keynesian Economics are basic Econ 101 material that basically relates to increasing government spending during a recession (or depression) to "prime the economic pump" and get the economy rolling again.  The only problem is that it has been tried and does not work.  Another school of thought is Austrian Economics, which says you pay debt and scale back during a recession to keep the books balanced.  This doesn't work either.  This is America...we need an American solution that will work.  But wait...don't we already have a model? 

Before I get to the model that works, let me examine my limited knowledge of Keynesian Economics.  I found a study that was done in 2004 (long before the current crisis) done by UCLA (hardly a Conservative Bastion).  This study indicated that FDR extended the Great Depression by seven years because of his spending programs.  Instead of "priming the pump" it appears we managed to pump the well dry and had to wait patiently for it to refill.  But we did Stimulus again under George Bush.  It did not work.  There was barely a hiccup in the economic outlook as a result of that stimulus (people used the checks frugally...paying down debt or saving for a rainy day).  The Japanese tried the Keynesian approach during the 1990s, with a number of stimulus packages that failed to ever get the economy back on track.  They floundered for years before finally weathering the storm.  Then Obama gave the idea another go.  Promising that Unemployment would remain below eight percent with the massive stimulus, we currently sit at the double-digit mark for unemployment, are facing a gathering storm of inflation and have nothing to show that the stimulus worked.

So I have to ask myself....why do we keep trying the same failed policies (both parties are to blame) when the methodology simply does not work.  Maybe in Keyne's time it was feasible.  But in today's complex non-Gold Standard, Internationally linked economy...it seems to fail miserably.  

I remember when Ronald Reagan took office.  We had double-digit interest rates and double-digit inflation combined with double-digit unemployment.  Basically, the same set of circumstances we will find ourselves in before the year is out.  Reagan took a different approach.  He cut taxes.  It worked.  Yes...he later raised taxes, but he also closed a lot of loopholes.  But Reagan wasn't the only one who tried that method.  Before Bush tried stimulus, he went the route of Reagan.  After 9/11 devastated our economy, Bush cut taxes.  Cutting taxes stimulated the economy, creating several years of growth before the markets went belly up.  The market issues had nothing to do with the tax cuts or economic recovery...they were deep rooted problems....but not tied to the aftermath of 9/11 or Bush's tax cuts.  Simply put, Bush's tax cuts, like Reagan's, stimulated the economy.  

It is too late to undo what we have done.  We can't cut taxes when we are already spending 43 cents of borrowed money on every dollar our government shells out.  That is insane.  We are on the wrong path and need to right this Ship of State before our economy is completely toasted.  We have a novice in office and his policies will wreak havoc on this economy unlike anything we have seen.  Obama likes to blame Bush and talk about the mess he inherited.  He took a mess and trebled it.  He has hastened the end of one of the strongest economies in history.  Keynesian Economics do not work.  It is a smoke-screen for government expansion which will be next to impossible to scale back.  

If you think this article is a "sky is falling" view of our economy, please mark your calendar to come back and re-read this article around November or December.  I may not be an economist, but I did stay at a Holiday Inn Express last night...er, I mean...I do know enough to understand you can't print money out of thin air and expect no inflation.  You can't continue borrowing money into numbers that can't even be pronounced.  Without fiscal restraint and a complete reversal of the reckless economic policies we are engaging in expect to be in this economic turmoil for a while.  Fifteen years if the Great Depression is any indication.
 

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May 22, 2010
The simplest way to say it all is... When you're in a pit, stop digging ;-) Keynesian may work, but that was before we had plastic cards & derivatives! Oh, I forgot to mention, it probably work IF the government concerned is not broke to begin with ;-)
May 22, 2010
I think Churchill put it best. When you are standing in a bucket, you cannot lift yourself by tugging on the handle.
May 22, 2010
Life would be so much easier if politicians are not greedy to begin with... or perhaps simply humans, to begin with :-)
 
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Keynesian economics (pronounced /ˈkeɪnziən/, also called Keynesianism and Keynesian theory) is a macroeconomic theory based on the ideas of 20th century British economist John Maynard Keynes. Keynesian economics argues that private sector decisions sometimes lead to inefficientmacroeconomic outcomes and therefore, advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.[1] The theories forming the basis of Keynesian economics were first presented in The General Theory of Employment, Interest and Money, published in 1936; the interpretations of Keynes are contentious, and several schools of thought claim his legacy.
Keynesian economics advocates a mixed economy—predominantly private sector, but with a large role of government and public sector—and served as the economic model during the latter part of the Great DepressionWorld War II, and the post-war economic expansion (1945–1973), though it lost some influence following the stagflation of the 1970s. The advent of the global financial crisis in 2007 has caused a resurgence in Keynesian thought. The former British Prime Minister Gordon Brown and other world leaders have used Keynesian ...
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