Fiscal Multipliers Debunked?

Economics Economics Questions
1

I recently encountered a series of youtube videos which claimed to find errors in the logic and algebra underpinning Keynesian economics.

Excuse me for being sceptical, but I think its strange that it has taken 75 yrs to find these flaws. Surely if they existed, it would be well known by now? Below is a link to one of these videos. Has the author found a previously unknown flaw? Or is this well-known? Or has the author, in fact, got it completely wrong?

Pt. 2: Fiscal Multiplier Destroyed: Keynes’ Deception
http://www.youtube.com/watch?v=encPMexUm8w

If you are interested, here is the full list of videos:

The Maynard Keynes
http://www.youtube.com/watch?v=pA67E8jMq84&NR=1

Pt. 1: Fiscal Multiplier Debunked and Destroyed
http://www.youtube.com/watch?v=4Vnus-Kw5Is&NR=1

Pt. 3: Fiscal Multiplier Destroyed: The Other Multiplier
http://www.youtube.com/watch?v=sZDIZ1U7gEk

Pt. 4: Fiscal Multiplier Destroyed: The Chain Reaction
http://www.youtube.com/watch?v=y1AVThNZuR4

Pt. 5: Consumption Function & Keynesian Cross Destroyed
http://www.youtube.com/watch?v=2bmsYNnS2MA

Pt. 6: Government Spending Multiplier Destroyed
http://www.youtube.com/watch?v=hHa-HE7Olq0

Pt 7: Tax Cut Multiplier Destroyed
http://www.youtube.com/watch?v=1oUMjJKQkkQ

Pt 8: Balanced Budget Multiplier Swindle - Keynesian Asymmetries
http://www.youtube.com/watch?v=VZL_1L9r-T4

Pt 9: Keynesian Logic - Apples, Oranges, Asses
http://www.youtube.com/watch?v=XErrpJHaExA

Pt 10: Keynesian Asymmetry and “Other Multiplier” Revisited
http://www.youtube.com/watch?v=684WIoQP6XQ

2

But I didn’t get it wrong.

Keynes though, worked hard to get it wrong. He took a simple math problem, converted it into a complicated word problem, and messed it up. The question is whether it was fraud to promote socialism, or incompetence.

Keynes said income Y, equals consumption C, plus investment I. Say that Y = 10, C = 9, I = 1.

Y = C + I

10 = 9 + 1

Add a $1 increment to I:

Y = 9 + 1 + 1 = 11

The added increment doesn’t get multiplied as he said it would.

From Y = C + I, you can derive Y = k I, where k = 1/(1-b) = Y/I, Keynes’ “multiplier”.

But if you try to add $1 to I in Y = kI

Y = kI + $1

you can’t do it, because multiplication comes before addtion.

Y = 10 x 1 + 1 = 11, the same as with Y = C + I + $1

Yet Keynes said that 10 x 1 + 1 = 20

It’s 3 Stooges math.

Just how he got away with 3 Stooges math is very interesting.

But basically, Keynes’ “multiplier” is not a multiplier. It’s a ratio.

And “multiplying” an added increment of spending, involves illegally putting addition before multiplication in the order of operation.

Also, the marginal propensity to consume determines how income is allocated to spending, but is irrelevant to the effect of spending on income. And Keynes’ “multiplier” is supposed to tell us the effect of spending on income and employment.

I have more about this in:

Pt 19: Keynesian Illegal Math Order of Operations, Fiscal Multiplier Debunked

Pt 20: Keynes’ Three Card Monte, Equation Asymmetry, Fiscal Multiplier Debunked

And I have now condensed most of it non-video form at:

http://tugwit.blogspot.com/

3

But if you try to add $1 to I in Y = kI

Y = kI + $1

Wait, if you add $1 to I then it becomes (I + $1), say Inew.

Then you have Y= kInew = k (I + $1) = kI + $k.

I am not sure whether you misspoke in the previous post, but you say “add $1 to I.” If you add something to a variable, this becomes the new value of the variable. Then, when you multiply, you distribute.

What you’re saying is akin to this:

F=ma

Let’s increase m by 1 kg.

But if you try to add 1kg to m in F=ma

F = ma + 1

And that’s where you go wrong. If you increase m by one, the new formula is F = (m + 1) *a

Which, in turn, distributes.

Am I misunderstanding you?

4

The difference is that F = ma is a “stand-alone” equation, Y = kI isn’t. You can’t use Y = kI by itself without falling for Keynes’ deception.

Y = kI is derived from Y = C + I, so Y = kI and Y = C + I must give the same answer when you do something to them. And Y = C + I is the “primary” equation. If you want to find the real result, go to the “primary” equation.

Y = C + I

10 = 9 + 1

Y = kI, k = Y/I

10 = 10 x 1

Y = 9 + 1 + 1 = 11

Y = 10 x 1 + 1 = 11, not 20

To get 20, you have to put additition before multiplication, and that’s illegal.

Take a look at parts 1 and 2 of Fiscal Multiplier Debunked at http://tugwit.blogspot.com/

5

Let’s assume for the moment that the math doesn’t work out. From the logical perspective, however, it makes sense. One round of spending triggers others down the line. This doesn’t mean that private spending doesn’t do the same, or, that even if it didn’t, we should actually use governement fiscal multipliers, but still - spending does lead to spending given a certain propensity to consume.

6

Assume the math doesn’t work? It’s Three Stooges math. Illegal addition before multiplication. It absolutely doesn’t work.

And look at Pt 2 Fiscal Multiplier Debunked on http://tugwit.blogspot.com/

The “multipliers” for net tax, tax cuts, balanced budget, and proportional tax are all bullshit. Keynesian fraud or incompetence.

So our central planning morons in DC are basing fiscal policy on Keynesian fraud or incompetence.

And the result is $16 TRILLION of national debt … that the “multiplier” was suppose to pay for. From tax and government spending we’re supposed to get free national income that we would not otherwise get. The “multiplier” is their excuse for spending and wasting money like clueless morons.

And the result is a disaster.

Yes, I spend $1 and it gets spent again and again. And if the morons tax it from me and spend it there’s no gain whatsoever. But Keynesians claim that there is not only a gain, but a “multiplied” gain. That the morons are heroes and I’m a villain.

And people will waste any amount of other people’s money, and tax is other people’s money. So the morons waste it, as you can see every day in the news.

The fiscal “multiplier” is a scam, promising multiplied free lunch, in exchange for letting politicians waste our money.

7

From tax and government spending we’re supposed to get free national income that we would not otherwise get

Well, not quite. As I remember being taught in my AP Macro class, the government multiplier most times crowds out the private multiplier. What this means is that economists know that government spending during times of a “healthy” economy do not create a multiplier effect.

8

The Keynesian balanced budget “multiplier” says that if government spending and tax are each increased $1, we get a free $1 increase in national income that we would not otherwise get. There’s no restriction on whether the economy is good or bad. And it’s nonsense.

There is no Keynesian fiscal multiplier, government or private, good times or bad. It’s mathematical nonsense.

9

we get a free $1 increase in national income that we would not otherwise get

I don’t think they claim that. At least my econ class was taught that the private sector has its own multiplier.

10

They do claim that. Look up the balanced budget multiplier.

Regardless of what your econ class was taught, the Keynesian fiscal multiplier is nonsense. There isn’t one for government or private spending. Keynes invented something that doesn’t exist. It’s Three Stooges math.

11

I have been replacing some of the videos with shorter simpler versions. These 5 pretty much sum up the scam. They are less than 5 minutes each.

Keynes’ Big Con, Fiscal Multiplier Debunked

[This one alone blows the entire scam.]

Fiscal Multiplier Debunked (Government Spending Multiplier: 1/(1-b) )

[By introducing a tax variable, Keynesians made the scam even more stupid.]

Tax Cut Multiplier Debunked

[Debunking the claim that govt spending is better for the economy than tax cuts.]

Balanced Budget Multiplier Debunked

[If they couldn’t get deficit spending, Keynesians found a way to claim free income just from tax and spend. This is why our morons in DC think we can’t cut federal spending. That we will miss out on the free income.]

Proportional Tax Multiplier Debunked: 1/(1-b(1-t))

[An algebra trick to get rid of the telltale -bT. Krugman uses this “multiplier”.]

The fiscal “multiplier” is really an excellent fraud. The CBO uses it. Christina Romer used a “multiplier” of about 1.57 to predict the number of jobs created by the 2009 ARRA. That explains why her projections bombed, though she said she bombed because the recession was deeper than she thought. Hah! There’s a big push on food stamps because of a claimed “multiplier” of 1.73. These guys are just hallucinating.

The biggest economic and financial fraud in history. Debt crises in Europe and the US. Because macroeconomists are either running a govt spending scam, or are to damn dumb to figure out what Keynes did.

12

Have you tried to contact any “official” economists with this? Try, for example, Bryan Caplan. He’s very accessible both on Twitter and by email.

13

I think economists must have a mafia with “omerta”, and “never speak ill of another economist”, or this Keynesian “multiplier” nonsense would have been gone long ago. But I see that the guy is interested in irrationality, so I’ll send him an e-mail. Thanks.

14

There’s definitely a lot wrong with the Keynesian model, but I don’t think there is anything wrong with the math itself within the model. The problem with your logic is that, in the model, output and income are the same. When Y is increased, either by increasing G or I, it is also increased in the consumption equation (C=mpc(Y-T)). As consumption goes up, output goes up even more than the original input, which causes income to increase again, increasing consumption even more, and so on. Whether this works in practice, in the real world, is definitely up for debate, but within the Keynesian model itself, there is no debate.

15

  1. My logic?
    Y = C + I
    let b = mpc
    C = bY, I = (1-b)Y
    k = 1/(1-b), Y = kI
    k = ΔY/ΔI, ΔY = ΔC + ΔI
    That’s all Keynes’ logic.

  2. You don’t think there’s anything wrong with Three Stooges math … illegal addition before multiplication?

  3. Show me how you get Keynes’ “multiplier” from “C=mpc(Y-T)”.

16

Have you talked to an actual economists about this stuff? If yes, what have they said? If no, then why not?

17

Do I have to talk to economists about algebra? Algebra is algebra.

I e-mailed one economist that Wheylous suggested, but I haven’t heard anything back. But what would you expect to hear from folks who are either frauds, or too dumb to figure out what Keynes did?

18

“Do I have to talk to economists about algebra? Algebra is algebra.”

I understand where you are coming from, but this isn’t just a question about algebra, it’s also about economics, as you are probably well aware of. I find it funny, if something so obvious has been ignored by the whole economic community for almost a hundred years. I’m interested to hear, what Mr. Caplan replies. Would you like to post his reply to this thread?

19

I think I would have to have Caplan’s permission to post his reply. If I get a reply (which I’m sort of doubting) I’ll ask him.

The problem is that Keynes made macroeconomists “accessories after the fact”. They’re in a bind. They must choose between being either 1) Frauds 2) Dumbshits.

Everything based on Keynes’ bogus “multiplier” goes down. All equations, graphs, academic papers, book chapters, econ projections. Everything.

Do you think they are going to walk into class tomorrow and say: “All that stuff I’ve been teaching you is bullshit. Here’s your tuition back.”

Yes, it is a matter of economics. It’s the biggest economic and financial fraud in history.

If you look at the 1930’s, progressives and socialists were making a big push, and ruining the economy (quite similar to what is going on now). It hadn’t yet become clear, that Russia was actually a central planning disaster, instead of the Utopia that progressives and intellectuals were claiming it was. And FDR was ruining the American economy with New Deal central planning (which actually began under Hoover). The real research into that didn’t start until the 1960’s. Up until then all you heard was the progressives’ version of FDR, and the criminally stupid claim that the death, destruction, and waste of WW2 proved that deficit spending works. The Depression ended when the New Deal ended.

You’ve probably heard the Progressives’ “Never let a crisis go to waste.”

Keynes hung around with Fabian socialists (who advocated creeping socialism). And I think the SOB used the crisis of the Great Depression, to invent macroeconomics, based on Three Stooges math, to make it appear that central planning, instead of being a well-known econ disaster, is actually required to save the economy.

In “Pt 4, Fiscal Multiplier Debunked” (Tugwit.blogspot.com) I have some suggestions about how this stuff all slid by (with the help of a bunch of Keynesian frauds). It’s similar to the response of “professionals” to Marilyn vos Savant’s “Monty Hall Problem”, which is reference number 4.

20

But you’re skipping a step. You have to do this in two steps for it to make sense. First I goes up, which increases Y. But C depends on Y so when Y goes up C has to go up. This is not debateable within the model, it is simply the definiton of consumption according to Keynes. But C going up again increases Y. In order to account for this you have to solve for the new Y.

Let’s say Y is initially 100 (we’ll say C=75 and I=25), and b is .75.

Y=C+I = bY+I = .75(100) +25 = 100.

Now if we add 10 to I we have a new equation for Y.

Y=bY + I (but now I is 35)

Y= .75Y + 35

.25Y=35

Y=140

So adding 10 to I adds 40 to total output. I know you probably worked hard to try to prove Keynes wrong and I commend you for that, but in this case I don’t see it.