Keynesian failures

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Keynesian failures in the U.S.:

  • The new deal should have pulled us out of depression (according to Keynes), things got worse, and we had a second depression instead
  • So we had a new new deal, which should have pulled us out of depression (according to Keynes), things got worse
  • After WWII we cut government spending faster than any time in human history. Keynesians predicted utter ruin (Truman wanted a new new new deal to avoid it). But people who had experienced the war (and government processes in the army) just wanted to be left alone. So we cut spending, and we got... the post war economic boom, which included dramatic increases in GDP, economic output, employment, and quality of life.
  • Every administration that cut government & taxes (JFK, Reagan, Bush, Truman) was predicted to have doom and gloom by Keynesians, and we got economic upturns
  • Every administration that increased governments spending and reach got economic cooling (Johnson/Nixon, Carter, Obama)
  • Clinton got great economic upturns, but not in the first term (when raising taxes), only in the second term -- after Republicans took congress/senate and blocked further spending (which was predicted by Keynesians to be a coming disaster, but turned out extremely positive).
  • The opposite of Clinton happened with Obama’s multi-trillion dollar spending spree. It was supposed to pull us out of a minor recession, and it gave us a much bigger one and the slowest recovery we’ve had in 80 years, until Republicans got control of the purse, and slowed further spending, and then the economy recovered. Of course Keynesians just say how much worse it would have been if they hadn’t of spent. And then they ignore countries like Greece (which tried spending), versus successes like Iceland or Ireland which used austerity to pull out. But you can’t reason with religious zealots or Keynesians, but I repeat myself.

Global failures of Keynesianism:

  • Japan's lost decade alone should prove it - in the 70's and 80's they borrowed to stimulate their economy, and it worked... for a while. Then that debt-load helped push their economy into a recession, as new capitalist countries in the region (South Korean, Chinese and South Asian) came into market and made it harder to compete. Japan kept trying to spend their way out of recession in the late 80's, 90's, 00's, and now half way through the 10's, and their economy has been flat or declining. All attempts to “stimulate" their way out (Abenomics) have failed or made things worse.
  • Most countries that converted from Communism/Socialism (big government spending and high taxes) to Capitalism (lower size of government spending) saw their economies get explosive growth (Russia, China, India, Vietnam, East Germany).
  • Most countries that went the other way, saw them collapse (Cuba, Venezuela, Vietnam).
  • Pre and post cold war Russia and China show the contrast between big government spending (before), and letting the private sectors exist and take off (after), and how dramatic the differences are in growth and opportunity -- of course they have other problems like corruption that still holds them back a bit, but that's a different topic.
  • North Korea vs. South Korea is another perfect contrast of Keynesian command economy stimulating growth in the North, versus free markets letting income inequality and social injustice destroy the South. Where would you rather live?
  • People who don't know what they're talking about will quote the Scandavian miracle: countries like Sweden, Denmark, Norway, Finland. But what they ignore is they were growing faster BEFORE they put heavy social programs in place, or that they offset their high social spending with high personal or single sector taxes (Oil in Norway, timber Sweden, etc), while having extremely LOW business taxes/regulations (far lower and more competitive than us). And when you adjust for standards of living (tiny houses, fewer cars, cost of good, etc), they're far poorer than they look on paper.

If government spending (and centralized command economies) could create utopia, our world would look quite different. But in our world, command economies can create cities like East Berlin was, but not cities like New York, Hong Kong or Beijing.


📚 References