Kayne-zee-uns say that goverment can stimulate the economy by breaking windows
But every dollar spent on repairing those broken windows could be spent elsewhere
Even though the whole point of Kayne-zee-unism is that spending is not going on in the private sector
Kayne-zee-uns say that goverment can stimulate the economy by breaking windows
But every dollar spent on repairing those broken windows could be spent elsewhere
No. It should be “But every pane of glass and ounce of putty is accumulated capital, both the glass and putty in the existing window and the glass and putty in the repairman’s shop. Depleting the capital stock makes an economy poorer, not richer.”
Even though the whole point of Kayne-zee-unism is that spending is not going on in the private sector
Which is Kayne-zee-uns missing the point. They are focusing on a symptom, not on the heart of the matter, which is malinvestment. Breaking windows to fix them is also malinvestment.
It’s not all about wealth. It’s about smoothing out the business cycles. Stimulus during recession accomplishes that.
The Keynesian theory, unlike Austrianism, allows for economic irrationality.
It’s not all about wealth. It’s about smoothing out the business cycles. Stimulus during recession accomplishes that.
Suddenly Hazlitt doesn’t seem so dumb anymore, hey? We have to move the goal posts to defend Keynez-ee-uns.
So you admit breaking windows reduces the national wealth. Glad we agree on that.
The only question is how to “smooth out” the business cycle. Can we agree on the following:
Austrians are right about the cause of business cycles, an increase in the money supply creating malinvestments. Since malinvestments are by defintion not able to support themselves [aka turn a profit] the folks working at a malinvesting business will get fired, because the business by its nature loses money. Thus, stimulus, meaning a free gift of money, is needed to keep these folks getting their paycheck. This smooths out the business cycle, meaning they get to keep their parasitic jobs as long as the stimulus money keeps coming in.
Since the business is still a malinvestment, the longer it survives in this zombie like manner, one of the walking dead preying on the living, the more it wastes scarce resources. Which means more impoverishment of the economy as a whole. So that it becomes more and more difficult for the now poorer economy to keep feeding this ravenous beast. The jobs being parasitic, meaning unproductive, they allow the workers to feed without being productive in return, depleting the nation’s wealth still further.
So Keynez-ee-uns want to smooth out the business cycle by wasting resources needed for recovery from the recession [which only happens by increasing production], and allowing parasites to feed off an economy already suffering from recession.
Not sure what your point is about irrationality. Is that why Hazlitt is wrong, not because of your first syllogysm? I don’t follow.
What does “smooth out the business cycle” even mean?
Where did Keynes advocate the destruction of capital (breaking windows)? I’m not saying he didn’t, it’s just that I am not aware of him having done so.
What does “smooth out the business cycle” even mean?
Essentially it stems from the idea that the economy endogenously generates booms and slumps, and that through proper government policy it is possible to dampen the peaks and lessen the troughs.
@ Consumeriat
Keynes never advocated destruction of capital as the best way to end a recession just like doctors don’t usually advocate chemotherapy at the first opportunity. He did say it would work and even encouraged it, I remember reading a passsage once where Keynes advocated destroying some city or other in a sort of hypothetical way (it may have been during wartime). I’m afraid that I cannot quote the passage and I only know the book I found it in: “the making of modern economics” by Mark Skousen. I’m sorry but that’s the most I can remember 
@Buzz
Your OP was dumb
Austrianism is generally unaffected by behavioral irrationality, nor does any amount of behavioral psych research get around the fundamental flaws in Keynesianism unless it shows that somehow someone becomes a god who can predict all market actions when he is elected into office. Short of that any number of Austrian criticisms still stand.
For instance, how it it that fiscal or monetary policy won’t distort the production structure when moving towards the recovery? Keynesianism is still a neo-classical school and therefore it still fails to take into account a non homogeneous capital structure.
if the problem with depressions is a lack of consumer spending, then why are the problems usually concentrated in capital goods industries?
"if the problem with depressions is a lack of consumer spending, then why are the problems usually concentrated in capital goods industries?
Sweet Melinda,
The peasants call her the goddess of gloom.
She speaks good English
And she invites you up into her room.
And you’re so kind,
And careful not to go to her too soon.
And she takes your voice
And leaves you howling at the moon.
@Dave: Nope. He’s still a poopy head:
I was just trying to attack Hazlitt, and not necessarily all Austrianism, but what the heck, here’s a critique; http://econlog.econlib.org/archives/2008/01/whats_wrong_wit_6.html
Wouldn’t that be a non-Austrian, i.e. empirical case against Keynesianism? Though I have no problem with empiricism. Keynesians hold that recessions, and depressions, are normally caused by falls in aggregate demand. Aggregate demand includes investment. And, in fact, investment is what keynesians have historically foucsed on as the intial fall in aggregate demand.
What? No. Behavioral irrationality theory says that business cycles are caused by humans being stupidly tentative. This implies it can be fixed by boosting demand.
Even though the whole point of Kayne-zee-unism is that spending is not going on in the private sector
Even if the $50 is never spent, the Keynesian case and the Hazlitt case become a wash. The Keynsian trades a window for the window’s replacement value in other goods. That does not increase wealth. The Hazlitt case just keeps the window, also no increase in wealth.
But if even 1 penny of the fifty dollars would ever be spent and invested, the Keynesian case falls behind because it lacks the productivity increase fueled by that investment.
What you quote from him is not talking about a recession, nor about Keynesianism [sp?]. It is a story that begins with some hooligan smashing a window, and the crowd saying that it’s good for the economy. In that context, everything he says is right.
My personal rebuttal of that Caplan critique runs as follows. There are always plenty of people who want to borrow money. The bankers tell them to line up outside the bank, in reverse order of riskiness and recklessness of their plans for the money if they get a loan. The least risky and most likely to succeed businesses are placed at the head of the line. They get as much money as they need, and whatever is left, if anything, goes to the riskier scheme. The ones who don’t get anything are the ones who stand thebest chance of losing the money, in the professional opinion of the banker.
But what if the bank gets a new supply of printed money, increased ten times over by fractional reserve banking? Who will get that money? Answer: All the people he kicked out yesterday for being harebrained lunatics. There’s no one else left to lend it to.
No. He says that the baker will spend it on a suit. This is missing the point. The point is that consumers are not spending.
What? How is that a refutation? The point is they would kick out the harebrained lunatics because they’d forecast that the business cycle would end with a bust.
“What? No. Behavioral irrationality theory says that business cycles are caused by humans being stupidly tentative. This implies it can be fixed by boosting demand.”
How does behavioral econ invalidate ABCT?
Why is it that if people are stupid boosting demand will fix the economy?
How does behavioral econ invalidate public choice theory and the inefficacy of any governmental or democratic system?
How does behavioral econ, which works within a neo-classical framework that doesn’t touch on capital theory get around the fact that fiscal and monetary policy affect the capital structure
If you cannot answer these questions then you:
A. Are wrong
B. Don’t understand the breadth of what you’re talking about
C. Both
D. Have another answer to most of these questions that are not based off of behavioral economics. If this is the case then I expect you to enlighten a forum of Austrians as to the answers since this is central to your claim that they are wrong.
Enjoy
It’s not about increasing wealth. It’s about stimulating the economy in a recession.
Never said it did.
By stupid I mean that they invest irrationality. Sometimes they’re bulls, sometimes they’re bears. Animal spirits. If you boost demand, you create jobs and smooth out the business cycle.
Never said it did. I’m talking about what’s the best policy, not whether government will implement it correctly. And I’m opposed to democracy.
You’ll have to elaborate there.