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View Diary: Killing Sacred Liberal Cows, or What Economists Think About the Economy (105 comments)

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  •  That really isn't what Keynes wrote (1+ / 0-)
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    gzodik

    You're making a legitimate argument there -- that there are efficiency benefits of government and that we can make collective investments that pay off -- but isn't a Keynesian argument per se.

    Keynes' main idea is that a complete economy is constrained in certain ways.  "Classical" (i.e., pre-Keynesian) econ looks at individual actors, like consumers or firms, and assumes that what one unit does won't effect other units.  But Keynes pointed out that if you spend money, you pay it off to somebody else, and if you borrow money to build something, somebody else gave you that money, so that if over the economy as a whole, the aggregate affects of these decisions can cause economic activity to expand or contract, and make the economy behave in non-intuitive ways, like change price levels, or create depressions.

    21st century conservatives like to ignore these effects, since they have an ideological allergy to government taking decision making power away from firms, and particularly, away from the rich.  So they either claim that the government can't competently take advantage of these effects (Hayak, some Friedman) or that somehow, these effects don't really exist.

    21st century Neo-Keynesians like Baker or Krugman point out that ideology be damned, Keynesian style models actually describe what the real world is doing, and if you care whether your models have predictive value, you have to use the approach that actually predicts accurately.  Which Neo-Keynesian models have done beautifully over the last decade.

    But folks like Krugman and Baker still think that people typically act like people who try to "maximize" the benefits to themselves given the constraints they see locally.  Which is the core of what classical economics analyzes.

    [I]t is totally not true that Mitt Romney strapped Paul Ryan to the top of a car and drove him to Canada. Stop spreading rumors! -- Gail Collins

    by mbayrob on Thu Nov 15, 2012 at 04:12:33 PM PST

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