So what do you say to a person who spews this (regarding economics)?

[HughBeaumont]

Keynesian economics is centered on spending. He authored the circular flow model to explain that spending, not saving is the key to economic growth. Keynes preferred government investment in public works projects such as the New Deal. He realized that a heavy investment in infrastructure would create jobs. Other than the primary benefit of the jobs that the new deal created, he thought that there were secondary benefits to the economy as well. He preferred this method because he believed in the multiplier effect. Keynes formula for the multiplier effect is based on the marginal propensity to consume (MPC). The MPC is the amount of increased income that is spent on goods and services. For Example, if I get a raise of $100 a month and spend $70 of it, the MPC is .70. This $70 is spent and therefore it becomes income for the people that receive it in exchange for the sale of a good or service. This increase in income creates a chain as the people that received the initial 70$ spend .70(49$) and therefore it multiplies the effect of my initial $100 raise. Keynes argued that saving would inhibit the multiplier effect and therefore the more income you spend, the better the economy is for everyone.

Under this assumption, Keynes favored government spending on major projects because the government would spend one-hundred percent of its budget on the project. This led to an inefficient use of taxpayer dollars. If infrastructure projects were privately undertaken, the thriftiness of the entrepreneur would lead to a more efficient use of labor and resources. It is the motivation to save money and maximize profits that keeps things efficient. Free of bloated bureaucratic spending, privatization is almost universally more efficient than public works projects.

Keynes believed in the abolishment of the gold standard in favor of a fiat currency. This enables governments to print more money and artificially stimulate the economy. Generally, an increase in the money supply causes inflation. Inflation decreases the purchasing power of the country’s currency, leading to unstable markets and a higher cost of living. This higher cost of living can lead to an inflationary spiral. According to the online website Business Dictionary, an inflationary spiral is when “high cost living prompts demands for higher wages which push production cost up forcing firms to increase prices, which in turn trigger calls for fresh wage increases.” Without intervention, this cycle can break a countries economy and make its currency utterly worthless.

That is an exerpt from a macro paper I wrote sophomore year. My tenured econ professor gave me an A. Keynesian economics has been the rule since the new deal. The Chicago school econmists have not had enought of an effect. Read "The Road to Serfdom" by FA Hayak.

I don't even get how this person got an "A", since it just seems like blatant revisionism.

Didn't Hayek once praise the Pinochet regime as a "necessary evil"?

Dunning-Krugertarians make for good comedy.

[jmowreader]

1. This is good for a start

http://www.ritholtz.com/blog/2008/12/chicago-repudiation/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheBigPicture+(The+Big+Picture)

It's good that "Chicago school economists have not had enough of an effect" because the "effect" they have had has always been utter disaster.

[HughBeaumont]

4. This person is insisting, however, that they've had no effect EVER . . . .

. . . and that America is in the sorry economic state it's in because we've been employing Keynesian solutions since the New Deal . . . . even during 1981-2008.

Our greatest economic boom occurred when Keynesian economics was employed, and went to utter disaster when we abandoned demand-side for supply-side with the Republican/corporate takeover.

Not to mention he's an Austrian school fan, a joke rooted in pseudoscientific fraud.

[Armstead]

6. They see ANY government involvement as contamination

The only way they see their worldview would have an effect is if the government has no role in the economy.

[hfojvt]

2. yeah I don't see how it got an A either

But hey, I am just a graduate student, and not a "tenured professor".

Well, some tenured professors are marxists and some tenured professors are Chicago school.

A line like this, though, I would consider to be crap theory "Generally, an increase in the money supply causes inflation."

That may be monetarist theory, but this "sophomore" writes as if it is established fact.

This also strikes me as ludicrous, at best

"If infrastructure projects were privately undertaken, the thriftiness of the entrepreneur would lead to a more efficient use of labor and resources."

So take a city like Kansas City, and let's allow private industry to build, say, the water department. Is the private industry a monopoly? If so, then you have inefficiences in that. But if it's not, then you have divided territory (once again creating smaller monopolies) or you have redundancies of water lines and water sources and water purification.

Show me ONE historical example of a city that created its water supply that way.

You cannot do it, I bet, because not only is it not more efficient than the government doing it, it is ridiculously so.

Imagine again, allowing private enterprise to build the interstate highway 70 between St. Louis and Kansas City. So Ramjac corporation builds I-70, and their chief rival Cajmar corporation builds a parallel highway to compete with that, let's call it I-70*.

Does that look more efficient to you, having a double highway system?

Further, how does a private corporation acquire the necessary rights of way without eminent domain? Up up up go your costs as either Ramjac or Cajmar, or likely both, are gonna have to pay through the nose to get past either stubborn or perhaps just savvy land-owners in the path of their proposed highway.

Or maybe they can get around that by just going a few miles out of their way. Sure, THAT's more efficient, a detour here and a detour there and your trip from St. Louis to KC just got 30 miles longer.

By Grabthar's hammer, what a savings.

Oh, and government infrastructure, it's funded by government, but almost always built by private enterprise. You may have heard of this - the lowest bidder.

[HughBeaumont]

3. Another red flag is the whole "Gold Standard" thing . . . .

http://rationalwiki.org/wiki/Gold_standard_(economics)

The largest and most glaring problem in returning to the gold standard is that there is simply not enough gold in the world to cover the quantity of currency presently in existence. To put it another way, even if the US were somehow able to purchase the world's entire gold stocks (in itself an impossible proposition) there would still be nowhere near enough gold to cover the total value of dollars in existence. It is estimated that the total amount of gold that has been mined in the world is equal to about 142,000 metric tons. Assuming a price of $50,000 per kilogram (corresponding to around $1550 per troy ounce), that equals about $7.1 trillion; not enough to cover all circulating money and deposits in the United States, let alone the entire world. A return to the gold standard would require a massive devaluation of the US dollar, precisely the scenario that many gold bugs feel that the gold standard would prevent.

Furthermore, this calculation only applies to the US. If all the world's other counties were simultaneously trying to do the same thing then this problem would be exacerbated. In addition, if the US were to follow the policy of buying the world's gold as outlined above then a large number of the actual dollars would have ended up overseas and the US would have the metal. Presumably the US would then have to create more dollars for internal use which would hardly be a counter-inflationary policy.

snip

All of this being said, this does not mean that printing money (or Bushonomics) is always a good thing; quite the contrary. Printing money without a sound policy to manage the money supply can devastate an already-troubled economy if people hoard the new money rather than spending it, reducing the real value of a stagnant market. However, returning to the gold standard or a fixed exchange system does not prevent inflation (see the Mexican peso crisis of 1994 and the Icelandic financial crisis of 2009), undermining the very reason the gold bugs seek to reinstate the standard. All it means is that there will be a severe and debilitating crash in the currency when the government realizes it can no longer subsidize an artificially strong currency. A well-run mint would tie the production of "fresh" currency to run slightly ahead of growth in the economy, thus keeping the money supply in a close relation to the actual wealth of the nation.

Even gold can suffer problems with inflation. Gold rushes such as the California Gold Rush expanded the money supply and, when not matched with a simultaneous increase in economic output, caused inflation. The "Price Revolution" of the 16th century demonstrates a case of dramatic long-run inflation. During this period, western European nations used a bimetallic standard (gold and silver). The Price Revolution was the result of a huge influx of silver from central European mines starting during the late 15th century combined with a flood of new bullion from the Spanish treasure fleets and the demographic shift brought about by the Black Plague (i.e., depopulation). There are all sorts of other factors at play that affect inflation but aren't tied to the currency itself. An oil shock is going to drive prices up if your economy relies on oil, which is inflationary whether your currency is backed by gold or nothing at all. This is an example of cost-push inflation.

[hunter]

5. Gold and Silver are obsolete forms of money.

Gold and silver "standards," (and much current economic "theory&quot is based in superstition.

The guy who wrote the "A" paper is the same sort who would, in ancient times, sacrifice children to make it rain in times of drought.

Today these same sorts of people are still sacrificing children and calling it "austerity" or some other bullshit.

[jmowreader]

8. Bitcoin has two of the same problems gold does

First is the limited supply: there will never be more than 21 million Bitcoins, and there will never be more gold than already exists in the world. Gold DOES have the additional problem that there are a lot of uses for it besides sticking it in a vault and saying, "this is money," which further limits the amount you can dedicate to the task of pleasing the "gold standard! Fuck yeah!" crowd. Bitcoin by comparison has very few uses - you can get meth with it, you can buy a pizza at Teabagger Woodstock with it, you can have someone killed with it if you can log onto SilkRoad...

The other is where it comes from. Real money comes from one place: a government somewhere. The Republicans don't want to admit it, but the government does limit the amount of money they create. OTOH, if you want to come to Coeur d'Alene I can have you and your gold pan beside a stream full of placer gold in an hour and a half. My boss makes more money pulling gold out of Shoshone County creeks than he does at his day job...and he only goes prospecting eight times a year. BTC is pretty much the same thing - you can create BTC at home if you have a computer big enough to simulate a nuclear blast.

[jmowreader]

7. Or the road doesn't go where it needs to

No "thrifty entrepreneur" faced with the task of building a freeway from Seattle to Spokane would ever have run it through Moses Lake and Ellensburg. It's 222 miles straight line between Bellevue and Spokane, and 274 miles along the route I-90 actually takes.

This is one of the biggest reasons infrastructure must remain out of the hands of the private sector: Because government has no profit motive, government can serve the needs of the people regardless of the fiscal logic of doing it. If the Interstates were a private-sector project, I-40 would run from Memphis, Tenn., to Raleigh, N.C. The government version of I-40 runs from Barstow, Calif., to Wilmington, N.C.

[hfojvt]

9. that leaves Wenatchee out in the cold though

In some of that I think the government is following topography. Is the straight line easier if you go through the Wenatchee mountains?

And how will private enterprise make any money on infrastructure? Say hello to toll roads, making your trip longer.

And then there's my experience with a toll road. Planning a trip to Auburn and Carbondale (south of Topeka, Kansas). I-335 goes right by Auburn, a village of about 1200 people. In eastern Kansas, that is a fairly substantial town. I didn't see an exit marked on the map, but surely ANY interstate would have an exit for a town that large.

Nope, but not this toll road. No exit for Auburn, and then also, no exit for highway 56. Nope, take me all the way down to highway 68.

I was one unhappy customer. And the toll operater was "but it's expensive to build exits". Well, hot damn, the "free roads" have them. So with this toll road, I pay more and I get worse service. It's a win-win (for the corporation) and a lose-lose for the customer. No wonder I was practically the only car on the road.

[jmowreader]

10. Wenatchee gets screwed either way

The current I-90 route runs 30 miles south of Wenatchee; if they went straight across it'd be about 8 miles north.

[Dreamer Tatum]

11. I don't see what the problem is.

It's a harmless review of basic Keynesian thought with some muddled, oblique discussion of the crowding-out hypothesis.

So?

[HughBeaumont]

14. It's a playpen Austrian school interpretation of Keynes.

With a case for privatization being the more efficiently managed method of large scale projects and necessities.

That's what I have a problem with, since it's revisionist and over-faithful to corporations.

Later on in the conversation, he went on to say that Supply-side had little to no effect on the American economy since Reagan . . . more revisions because the answers made his "team" look bad.

[JaneyVee]

12. Umm, Keynes favored lower taxes

And increased infrastructure spending during economic downturns and higher taxes during economic upturns.

[Xolodno]

13. Wow...talk about some stupid shit....

I read the first paragraph and said "ok". Then he turned and went straight into allocation of resources...what does that have to do with MPC?

And this is where the stupid burns...the private sector does build infrastructure!!!! Government only awards the contracts....now if you want to say the contract awarding is messed up....well that's a separate issue. The entire argument is a fallacy. And the reason the private sector does not build infrastructure by itself, excluding the government...because it is inefficient for them to do so. Why on earth would a company build a road that a competitor might use? Better yet, how about competition in the electric market? Does 10 different power lines connected to your house and you using 10 different switches to decide which power company you want to use make sense? Or make it a more efficient use of resources?

And Keynes also wanted a world international reserve currency so no one nation would become the reserve currency and use its power over it (which was opposed by the US Government...which was about to become the world reserve currency)....oh and the reason Nixon took us off the Gold standard...it was about to collapse.

And the inflation bull shit....well...its bull shit. I could explain but have other things to do.