KRUGMAN & KEYNES ARE WRONG -- Fiscal Stimulus Never Works As Intended
Outstanding Krugman-Delong takedown from economist Eric Falkenstein.
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By Eric Falkenstein
Nobel prize winner Paul Krugman may say it's econ 101 to have the federal government spend more in recessions, and I agree, but it's also wrong. The highly rigorous yet ultimately naively simplistic macro models have not been useful in rectifying this incorrect intuition, which remains dominant. Gone are the days like in 1920, when during a nasty recession, the federal government cut expenditure by half from 1920 to 1922, and the economy rebounded nicely. Historically, whenever we are in a recession, economists generally call for more fiscal spending, all the better if it is deficit financed. Yet as Milton Friedman noted, "The fascinating thing to me is that the widespread faith in the potency of fiscal policy … rests on no evidence whatsoever." Evidence no, theory, yes (currently, unemployment is 9.7%)
You can create neat models where you have consumers maximizing their utility over time, and producers maximizing profits, and if you made some very heroic assumptions, you can anthropomorphize this situation as one single individual, supposedly represents millions of people acting this way. Add some assumptions about time series shocks to productivity and tastes, and you can then calibrate the interesting variables(output, investment), and say "I have a viable model of the macro-economy".
This always seemed a bit strained, but it highlights a lot of models I see, where one evaluates a model based on it being able to generate output with similar 'moments': means, variances, covariances. Correlation does not imply causation, but it's dirty little secret that probably 90+% of actual science in practice involves mere correlations with ex post theorizing. I remember most of my fellow grad-school classmates thought these models were rather naive, as if anthropomorphizing the economy as a single person explains growth rates and business cycles, but over time, yet those who stayed with the program got sucked in like the way individuals are absorbed into the Borg collective, and the rest of us, most of us, decided to chuck macro entirely.
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Read the rest (there's MUCH more) >>
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Related reading:
Holy Generational War -- Kids Fight Back Against the National Debt...
A Victory For Sanity & Reason, A Big Fat Loss For Keynes & Krugman...
Gallup Poll: Federal Debt Now Considered #1 Threat To U.S....
STIMULUS DEBATE -- Krugman & Delong Vs. Niall Ferguson...
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Jun 14, 2010 at 2:08 PM
Reader Comments (20)
http://belowthebeltway.com/2009/10/11/the-great-recession-of-1920-21-and-what-it-can-teach-us-today/
http://www.businessinsider.com/america-needs--to-step-up-and-answer-questions-about-its-deficit-20109-6#ixzz0qqy69FyV
http://www.hedgeyeblog.com/2010/05/20/early-look-friedrich-vs-the-fiats/
http://www.youtube.com/watch?v=v60oNUoHBYM&feature=player_embedded
I THINK IT IS TIME TO REWATCH SCHINDLER'S LIST...BOB ETHERIDGE SHOULD GO READ HIS CONGRESSIONAL ETHICS RULES, THERE MUST BE SOMETHING ON NOT ASSAULTING THE MEDIA.
http://www.youtube.com/watch?v=QXI5P_FT7iA
It's like an open secret, there just isn't one...
"The American President told me in confidence that he is a Muslim," said Egyptian Foreign Minister Ahmed Aboul Gheit on Nile TV. That could explain why Obama has instructed that the term "Islamic extremism" no longer be used in official government documents and statements.
http://israelmatzav.blogspot.com/2010/06/egyptian-foreign-minister-obama-told-me.html
THIS IS SOMETHING WE ALREADY KNEW...
http://www.youtube.com/watch?v=bMUgNg7aD8M
DB...Yes, I know...if Sarah Palin were to have dropped such a bomb it would be all over this site because then it would be news. It is Obama saying it so....SSSSSHHHHHHHHH.
http://www.youtube.com/watch?v=tYfsosZpSkA
Here is one for your readers DB...
http://www.youtube.com/watch?v=GCsagAMyTYk
http://www.youtube.com/watch?v=2CjyhubgNTc
if it was said on television in egypt, then it's recorded somewhere...find that tape and i'll post it...otherwise i'm not going to do a story on obama's religion...there's no proof without that tape and even then it could have been the egyptian foreign minister stretching the truth...
for obama to be a practicing muslim all these years, he would have prayed outside the home...is there any record that he did so...i doubt obama is religious at all...probably an atheist...
http://www.youtube.com/watch?v=TRNZceAhisw
http://www.youtube.com/watch?v=ekQ_Ja02gTY
http://www.youtube.com/watch?v=DO_jlXjgxN8
I'm sure he did.
He also told Israel's Benjamin Netanyahu in confidence that he's Jewish, and he told Russia's Dmitry Medvedev that he's really Orthodox Christian and he told India's Pratibha Patil that he's really a faithful Hindu and he told Haiti's René Préval that he devoutly practices voodoo.
BECAUSE THE FUCKING ASSWIPE IS A *P-A-T-H-O-L-O-G-I-C-A-L* LIAR !!!!!!!!
. Hell, he even told al and he told