Friday, November 8, 2013

(Related update): Fairydustianism

Related update:  There's an interesting article over at the Mises Institute that discusses the Keynesian approach to economics.  If particularly emphasizes why it has such staying power as economic policy though it has failed virtually everytime and everywhere it's been employed.
The article, by Frostburg State University economics professor William L. Anderson, has this excellent summary:
In the past five years politicians have been pushing “button G” and all is not well. Yet, in this age of unrestrained government, the Keynesian promise of prosperity springing from massive government spending is attractive to politicians, economists, and public intellectuals. That it only makes things worse is irrelevant and beside the point. If the economy falters, politicians and academic economists blame capitalism, not Keynesianism, and they get away with it.
Coupled with the post below, you should be in good shape in terms of understanding both the attraction of Keynesianism to politicians, as well as why it doesn't work.

Original post:  Peter Ferrara had a blistering attack on Keynesian economics yesterday reprinted at the Heartland Institute's blog Somewhat Reasonable.  He correctly identifies Keynesian economics as the cornerstone of the Progressive worldview of wealth creation and economic prosperity.  And he also correctly notes that
The truth is that Keynesian economics is just plain silly, no matter how many academic eminences embrace it, because increasing government spending, deficits and debt does not increase “aggregate demand.”  That is because the money to finance that government spending, deficits and debt must come from somewhere.  So if you increase federal spending, deficits and debt by close to a trillion, as the Obama/Democrat so-called 2009 “stimulus” did, and finance that government spending, deficits and debt by borrowing an extra trillion dollars out of the private sector, the net increase in aggregate demand is no more than ZERO at best. [This is why the Wall Street Journal’s Steve Moore has rightly called Keynesian economics “magic fairy dust economics.”]
Ferrara covers a lot of ground in his educational piece; I recommend you check it out for yourself, here.