Tuesday, May 10, 2011

Falkenblog: "The 1970s were a profound empirical contradiction to the Keynesian model"

Good observations on economics from Falkenblog:

The economy is a complex, nonlinear, adaptive system where short run effects are often opposite of long run effects. Ultimately, people need to be involved in activities that generate more benefit than they they cost for they to be sustainable, and they must appear attractive to individuals given their other opportunities as they see them.[...] Economic freedom results in long term growth and so the key to macro policy is not from some chain rule but rather the wisdom of Smith, Bastiat, von Mises, Hayek, Friedman, Stigler, and the rest who found aggregate prosperity and economic freedom synonymous.

Increasing the money supply to fool employees into thinking they have more money than they do, hoping on a multiplier effect via such derivative compounding logic, is simply absurd. [...] If countries could simply print and spend to increase GDP, the 1970's would have been an era of great growth, instead of the disaster it was, which is why the 1970s--increasing inflation, increased government spending--is such a profound empirical contradiction to the Keynesian model.
And a comment from Taylor Conant:
Keynesians and all other pseudo-economists LOVE equations and accounting identities because it shields them from ever having to think in a logically consistent manner about what they're actually claiming they know or can do. They can set up some equation, A = B + C and say, "See, from this equation it's obvious that C necessarily = A-B! Therefore, we must tax!" and it's much too much for them to consider the possibility that the premise underlying their equation is faulty even if the equation itself is wonderfully balanced and tautological in its explanatory power.

Psychologically, I'd say these people all suffer a great deal of "internal imbalance" because equilibrium and staticism in equations and economic systems is their overriding goal. Change scares the shit out of these people. They hate the dynamism of the marketplace, where you can't just earn tenure and sit still, you have to constantly compete and prove your worthiness to others, over and over. That's why they like socialism, an economic/political system that tends to freeze its victims in technological and social space-time (see North Korea, Cuba, etc.)

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