Keynesianism and the Current Crisis
I had heard about this major poopie by the Obama administration but had never seen it for myself till now. And it’s just as hilarious as it sounded.
So the two blue lines are the project unemployment rates with and without the proposed stimulus. Without the stimulus, the unemployment rate would go up to a jaw-dropping 8.8%, and with the stimulus it would only go up to 7%. Thank god for our wise economist overlords. Without them we would suffer unspeakable horrors of which the mere thought of has kept grown men up in the night shaking in fear.
Uh yeah, whoops, so the actual rate went to 10.1%. As Daniel Kuehn points out, there are two conclusions we can derive from this.
“1. To argue that forecasters in December 2008 did not get it right, or
2. To defend forecasters in December 2008 as presenting a viable counterfactual.”
In other words:
1) The forecasters did poor forecasting. The economic situation was actually far worse than they believed it to be. This is the argument Keynesians make after the fact, because it is the only viable route for anyone trying to maintain their beliefs. (I don’t really hold this against them, every ideology has a way to defend itself in seemingly dreadful circumstances)
2) The forecasters did correct forecasting. It is Keynesianism that is incorrect and fiscal stimuli are actually counterproductive.
While Kuehn chastises Steve Horwitz for leaving his options a little open-ended and not being perfectly clear as to which of the options he is arguing for (in the lecture Horwitz gives here), I think what Horwitz does is perfectly reasonable. After all, both are possibilities and both should be pointed out as just that, possibilities. #1 could be true, #2 could be true, or perhaps both could be true. These are simply things we cannot empirically prove.
Regardless, Bob Murphy has a typical hilarious commentary regarding Keynesianism and the current crisis here:
In this lecture, he points out the following graph in response to those that Keynesians who assert point #1 above, along with the coexisting argument that more really should have just been done from the monetary side.
Yup, Bernanke just didn’t do enough!