Sunday, January 27, 2008

Will Keynesianism ever die?

There is a bad tendency in Politics for long disproven ideas to remain fermenting. Latest in that set is the Economic Stimulus package. Where is the money going to come from? Yours and my tax or by inflating the economy. The Economics Profession moved away from Keynesian theories in the 80s after the whole episode of Stagflation, but Keynesian ideas are still prevalent in government. Of course, it is a populist move to give people money back or just cheques. Its called redistribution. A modern day Robin Hood. Why does the government want to do it? Cause of ideas rooted in Keynesianism that consumption is the most important aspect of national income. how does it work? Through the multiplier of course silly!! That wonderful 1/(1-b) in the equation. Stimulate people to consume more and there will be more income as a consequence. After all these years, the simple law of unintended consequences seems to evade even Harvard educated politicians. Just because you anticipate certain results does not imply you will get the same results. I wonder if these ideas will ever die out or become unpopular?

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