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Thread: Why Keynesian Stimulus Fails

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    Veteran Member BombJack Arcade Champion, Bubbels Champion Daktoria's Avatar
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    Why Keynesian Stimulus Fails

    Keynesian economics depends on aggregate demand, but the very problem of economic stagnation is referring to aggregates in the first place. By focusing on aggregates, society gets caught up in a bystander problem. Individuals hold back, banking on someone else in society (from the mere mass of society) coming up with a good idea.

    The problem is when this goes on too long, the very notion of coming up with good ideas gets deterred. People get accustomed to getting ahead in life by being yes-men suck-ups, so they don't know how to come up with good ideas. Eventually, this gets so bad that it doesn't matter how much money you throw at the problem. It will never get solved. Instead, people will have geared their minds towards a vicious cycle of absorbing resources, and failing on purpose to make an excuse to absorb more resources. That is people learn from experience instead of thinking before they act, so they will deliberately do everything wrong on purpose before doing what's right just so they can keep on experiencing.

    Heck, it can get so bad that when people are confronted with doing what's right, they'll just stop doing altogether because they know it's the end of the road, but they don't want the free ride to end. Instead, they'll expect desperate people in desperate straits to do or die, remembering that dead men tell no tales, so negligence won't be reported and can just be swept under the rug.

    The bottomline is Keynesian Stimulus fails because it's psychologically unsound. Over the short run, yes, you would expect stimulus spending to make resources available so people can take advantage of them, but over the long run, people just won't have good ideas to take advantage of resources with.
    Last edited by Daktoria; 27th October 2012 at 06:36 AM.

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    Well, how do you say this when Keynesian stimulus has worked when it's been tried, and austerity has failed every time?
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    Veteran Member BombJack Arcade Champion, Bubbels Champion Daktoria's Avatar
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    Quote Originally Posted by Shanty View Post
    Well, how do you say this when Keynesian stimulus has worked when it's been tried, and austerity has failed every time?
    When has Keynesian stimulus worked?

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    Quote Originally Posted by Daktoria View Post
    When has Keynesian stimulus worked?
    Here is a simplified wikipedia version of it. I hope it entices you to further read into the mechanism used because it closely resembles what is being attempted today. But on a much much larger scale with much much more dire consequences in case of failure. Happy hunting.

    Panic of 1907 - Wikipedia, the free encyclopedia
    Last edited by res; 28th October 2012 at 11:59 AM.

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    Quote Originally Posted by Daktoria View Post
    When has Keynesian stimulus worked?
    The 1930s, 1940s. 2009. etc.

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    Senior Member septimine's Avatar
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    Keynesianism works for a time, but long term you end up needing to continue to pump money in to stay in place. The system works by propping up systems that should fail, leading to less efficiency in the markets, thus eventually the system fails because it becomes too inefficient to work.

    We've propped up the auto industry, we're propping up the banks. What happens when we do that is that structural changes that need to happen in those industries DO NOT HAPPEN. So then money and other assets that could be put to better use elsewhere stay in failing industries. If the auto industry restructured, a lot of engineers might choose other industries as would a lot of other potential business owners and accountants and so on. Instead the money sits, the people sit, and more and more money will be needed as the market becomes less efficient when companies are propped up rather than being allowed to fail.

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    Quote Originally Posted by res View Post
    Here is a simplified wikipedia version of it. I hope it entices you to further read into the mechanism used because it closely resembles what is being attempted today. But on a much much larger scale with much much more dire consequences in case of failure. Happy hunting.

    Panic of 1907 - Wikipedia, the free encyclopedia
    J.P. Morgan intervening was Keynesian policy?

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    Quote Originally Posted by Shanty View Post
    The 1930s, 1940s. 2009. etc.
    I don't see how an economic policy that lead to millions of men flinging bullets at each other, and tens of millions dying, is a success.

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    Junior Member Claudius the God's Avatar
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    Somewhere in your analysis of Keynes you stopped reading him and interjected your own personal views. Aggregate demand is simply an equation describing the economy. It is a simple one and not really something economists have disagreements on. The issue is not in the overall equation but in how you make the sum total increase or decrease. If you do nothing and demand drops, then the economy slows down. If you think doing nothing is the proper way to run a national economic policy then vote for Romney. He is your man. If you think the government (fiscal and monetary policy) have a responsibility to actually do something about the economy, vote for Obama. But whichever side you fall on, your analysis of Keynes is completely wrong. I would bet you have absolutely no background in economics at all and took this stuff directly from a Mizes site or from some Rand Paul piece you read. I could be wrong but I doubt it.

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    Junior Member Claudius the God's Avatar
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    You seem to think that Keynesian stimulus is a continuous thing irrespective of the situation. Keynes never said that nor did he advocate it. In fact, he said to do it only when necessary and then to pay it off as soon as the economy turned. I should mention that what right wingers now think it is has been corrupted by years of supply side laffer curve nonsense that left our economy in shambles. Once the right wing decided not to tax themselves for the government they demanded and then do it every single year no matter what the situation, you have our current situation. Years of reckless and wrong headed tax policy combined with massive spending on war, defense and tax cuts eventually puts you in deep debt. This is not Keynes at work. It is voodoo economics at work.

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