Keynesian Economics

Pro - thanks for the debate!Rebuttal Paragraph 1 “Einstein’s general theory…..usually holds true.” Einstein’s theory does not usually hold true – it always holds true, if not it simple becomes wrong. Someday physics may prove that Einstein wrong, just as Einstein did to Newton; but, until evidence disproves Einstein, Einstein’s theory is still a valid theory. This, in contrast to Mr. Keynes theory, which my opponent admits is wrong. I agree that Mr. Keynes could have written a long-run theory. The rub is he would have been forced to discard the lunacy of his short-run theory to make a viable long-run theory. My opponent emphasized that Keynes theory is not “always” true; meaning, it is wrong. Keynes gets the credit for 20 years of prosperity? So he should get credit for what happened after! Let’s examine the US housing market, which precipitated the US downfall. Fannie Mae and Freddie Mac are Government Sponsored Enterprises (GSEs). Fannie and Freddy buy mortgages from banks; that’s what they do. In 2008 Fannie’s and Freddie’s stated goal was a total of 56% of purchases to be low and moderate income borrowers (the poor – sound like Keynesian wealth redistribution?). They tried to do this by buying sub-prime loans. [2] Sub-prime loans only work as the price of housing continues to rise. Banks, which knew Freddie and Fannie would buy these bad loans, lowered the standards and gave money to people who could not pay the loans back without borrowing more or selling the house for a profit. President Bush and the Democratic Leaders tripped all over each other running to the press conferences to claim credit for the “record home ownership”. Then, the bubble burst, prices fell and people could no longer sell or get loans to pay a $500,000 dollar mortgage for a house worth $200,000. A classic example of what happens at the end of a Keynesian experiment. Solyndra was a huge success for a short time and proof the good ole sweet, ingenuity, and a double metric butt load of US Government cash can make anything viable for a little while. Keynesian ideas ultimately lead to failure. Paragraph 2 “When things are being bought and sold, things are easier to buy and sell” I agree because when things are not being bought and sold it is harder, if not impossible, to buy and sell things because things are not being bought and sold. This is not the cornerstone on which Keynes theory was built. This phenomenon known as “inflation.” What exactly is the thought here? Expansion drives business into greater competition and this makes prices go up? That is not how it works. So you are proposing that when consumers have greater choices about where they buy their “things” these “things” cost more? In reality, inflation has several causes; however, these include: A) Government prints more money making the money less valuable, B) increased government debt because the government now has to pay interest on that debt C) tax increases - for example, a fuel tax that drives production costs up and D) a rise in production costs for things like increased wages (what Keynes was referring to). [3] Inflationary causes A and B are tenants of Keynes’ theory. Inflationary cause C is the government raising revenue to do Keynesian spending. Inflationary cause D is irrelevant because when tried, it routinely drives unemployment up and wages don’t rise. The idea that fast moving money moving causes inflation is gibberish. Paragraph 3 Keynesianism isn’t anti saving? Really? Perhaps the thing Keynes is known best for is his “war against savings.” Keynes believed that consumption was the key to recovery and savings were the chains holding the economy down. [4] Lets ask Keynes. All of these examples from just chapter 16 of Keynes theory [5]1) Keynes states that savings is adverse to employment: the immediate effect of the saving would still be adverse to employment…… 2) Keynes states that savings is worse than consumption: The absurd, though almost universal, idea that an act of individual saving is just as good for effective demand as an act of individual consumption…. 3) Keynes states that when you save you screw someone else: The mere act of saving by one individual, ……, forces some other individual to transfer to him some article of wealth…… 4) Keynes states that when you save you “force” another to pay you: Every act of saving involves a “forced” inevitable transfer of wealth to him who saves…… 5) Keynes states that it would be better to dig holes for no reason rather than save: “To dig holes in the ground,” paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services. To declare that Keynes was not anti-saving is absurd. There are literally hundreds of more examples like these. Additional, at the end, you declare that government can control the business cycle. Hasn’t worked so far. Paragraph 4 Keynesianism is proven? Really? Based on Phillips? Really? Phillips “discovered” that the relationship between unemployment and wages were inversely related. Let us decipher that bit of economic intelligence. In layman’s terms: he figured out that when unemployment is low (i.e. everybody has a job) employers have to pay more for their workers ----- when unemployment is high (i.e. nobody has a job) employers can get people to work for less. Isn’t this obvious? Do we really need world class economists to tell us this? This is really weak “theoretical” evidence at best and ignores real world events. How about some history: the Japanese tried 10 stimulus packages and got the same result all 10 times while their debt went through the roof. Just to make sure, President’s Bush and Obama tried Keynesianism and verified the same failing result. Because Phillips came up with an obvious relationship does not mean a graph “proves” anything. I defer to Einstein, he defined insanity as, “doing the same thing over and over again and expecting different results.” [6] Paragraph 5 Judge Judy and the rap war? Wiki wiki wiki wiki, buda boom boom boom “ My name is Canes My theory brings Pain I needs some Money To pay my Honey We gots no Cash Up in our A$$ So give yo Stash And We’ll smoke Grass wiki wiki wiki wiki buda boom. Paragraph 6 Hold on - don't multipliers increase money? Wrong! Yes, I agree completely. I know exactly what Nancy Pelosi meant. What you fail understand is that she is one of the most disingenuous politicians on earth. She also told us that we would have to pass the health care bill so we would know what was in the health care build. I like that you can work it out in dollar terms – please do so in your rebuttal and show the math. Paragraph 7 We abolish governments? No reasonable person advocates this course of action but only a fool blindly trusts government. I will end with Will, Voegeli, and Thatcher: "By blackening the skies with crisscrossing dollars," Voegeli says, the welfare state encourages people "to believe an impossibility: that every household can be a net importer of the wealth redistributed by the government." But the welfare state's problem, today becoming vivid, is socialism's problem, as Margaret Thatcher defined it: Socialist governments "always run out of other people's money." [7] Just like governments using Keynesian principals – which also always run out of other people’s money. [1] http://en.wikipedia.org... [2] http://www.therealestatebloggers.com... [3] http://www.wisegeek.com... [4] http://www.investopedia.com... [5] http://www.marxists.org... [6] http://www.brainyquote.com... [7] http://www.washingtonpost.com...