More evidence that Keynesian theory is junk science

Here’s the story: Economists Hilariously Over-Predicted Economic Growth Under Obama. What does an economist using modern macro know about how an economy works? To find out, continue below.

White house economists overestimated annual economic growth by about 80 percent on average for a six year stretch during Barack Obama’s presidency, according to Freedom Works economic consultant Stephen Moore.

Economists predicted growth between 3.2 to 4.6 percent for the years 2010 through 2015. Actual economic growth never hit above 2.6 percent.

“Why does anyone bother to listen to economists anymore?” Moore writes in The Washington Times. “Almost all of the economics profession … bought into the Keynesian idea that what would revive the economy after the Great Recession of 2008-09 was massive government spending ‘stimulus.’ The trillions of dollars of government borrowing here and abroad created a decade-long anemic recovery.”

Keynesian economic thought dominated Obama’s economic policy after the Great Recession, economics professor Richard McKenzie wrote for the Foundation of Economic Education in 2010.

The Keynesian/Obama approach to recovery meant the federal government would engage in deficit spending in order to stimulate the economy. The logic, McKenzie writes, was that deficit spending would go, directly or indirectly, into the pockets of Americans, giving them the ability and will to spend.

According to Keynesian thought, as money circulates in the economy, the government’s initial investment could multiply to a total economic benefit five or 10 times greater than the original stimulus, McKenzie wrote.

Moore blames this thread of thinking for stunting growth that could have been a more vibrant recovery.

“For much of America this has been a long recession, not a long recovery. We are suffering from a severe growth deficit,” Moore writes. “Nearly every policy during the Obama years was anti-growth … If Mr. Trump is able to to shift those policies into reverse — especially by getting tax rates down, not up — 3 to 4 percent growth is easily achievable.”

Have I mentioned that the the third edition of my Free Market Economics has now been published.

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15 Responses to More evidence that Keynesian theory is junk science

  1. Ray

    I agree that nearly every policy of the Obama years was anti-growth. The question is, will the Trump years prove any different?

    Tax cuts by themselves will not grow the US economy, not unless these are funded by spending cuts. Recall that even Reagan was forced to reverse three quarters of his tax cuts because he could not find savings in expenditures, partly due to the need to negotiate a budget with Congress and partly because of his expansion in defense spending.

    Clearly, cutting taxes reduces the distortions from high marginal tax rates, thereby increasing incentives for investment and innovation. However, high budget deficits provide a similar disincentive for investment by raising net financial inflows and hence providing upward pressure on the exchange rate which makes domestic manufacturing less competitive. In effect, tax cuts without spending cuts simply replace one set of distortions with another and leave the economy no better off.

    Reagan learned this the hard way and if anyone thinks that Trump will succeed where Reagan failed, then just look at the hash Republicans are making of Obamacare repeal in Congress.

    Sure “Keynesian” economics is little more than snake oil, but so is the opposite. Demand management does not work, nor does the supply side.

    There are simply no easy ways to manage the economy. Indeed, we should not try to manage the economy at all. The role of government should be to deliver essential services in the most neutral way possible. That means achieving equilibrium in markets by balancing the budget and reducing distortions. We should be wary of any ideology which suggests that there are easy ways to achieve growth whether this be from the left or the right.

  2. Tom

    White house economists overestimated annual economic growth by about 80 percent on average for a six year stretch during Barack Obama’s presidency…

    I’d suggest that’s because 80% of US economists are leftists and DNC voters.

    Actually that’s wrong. It’s more like 90%+.

    It’s astounding how political bias and rigid pre-conceptions that override logic and knowledge have made fools of people (especially 21st century academics) who have sold themselves to us as “experts”.

  3. RobK

    I’m with Ray on this one.

  4. alexnoaholdmate

    I don’t understand.

    Are you telling me that – after the costs of administration and bureaucratic oversight and inefficiency – putting thirty cents back in the economy for every dollar the government’s removed won’t magically increase growth?

    Because that’s some top-level bullshit right there.

    My economic advisors told me so.

    Barack out.

  5. struth

    Economist: noun…
    dishonest political hack who’s opinions are dressed up as some sort of scientific theory, meant to give the “economist” more perceived weight to his/her/it’s arguments.

    It also allows for endless talkfests and conventions that needed to be attended world wide, often at taxpayer expense, through their campus etc.
    It’s as if the internet was never invented.

    Look up “sham”.

  6. H B Bear

    Wishin’ and hopin’ …

    I doubt even Leftists believe in Keynesian economics any more. Rather just use it for an excuse to massively increase the size and role of the State.

  7. Rayvic

    Keynesian theory has never qualified as science.

  8. Norman Church

    Magic pudding economics will always be attractive to politicians and those on whom largesse is dispensed.

  9. .

    Ray

    Unfunded supply side policies are Keynesian. G-T implies tax cuts and greater spending. Notwithstanding, the Laffer curve exists. The debate is over the steepness of it and where it cuts in. Axiomatically, it has to exist.

  10. .

    True, but they were fighting a cold war against the USSR. I give him a pass.

  11. max

    “True, but they were fighting a cold war against the USSR.”

    The perpetual but basically phony war is kept alive by unremitting campaigns of hatred and fear against the shadowy foreign Enemy. The perpetual war system is then used by the ruling elite in each country to fasten totalitarian collectivist rule upon their subjects.

    https://www.lewrockwell.com/1970/01/murray-n-rothbard/orwell-vs-podhoretz/

  12. .

    I don’t think the USSR was a phoney bad guy.

    We won and we have a peace dividend.

  13. max

    most forbidden secret of the Cold War: that from the very beginning the West (especially the US) had built the industrial capacity and technological infrastructure of the Soviet military-industrial complex.

    powerful international interests in the United States and Western Europe created the Soviet military-industrial complex.

    https://www.lewrockwell.com/lrc-blog/none-dare-call-treason/

  14. .

    I want to know how the West built the invasion of Poland and the Berlin Wall.

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