The Keynesian Fallacy

The Keynesian fallacy is not that Keynesians believe that governments can stimulate. Of course governments armed with fiat money can stimulate. Look at Argentina! Look at Zimbabwe! Look at the Wiemar Republic! The Keynesian fallacy is that Keynesians believe that turning labor into goods is easy, so excess demand will mop up excess labor, resulting in the expected level of production.

Some of the conditions required to turn labor into goods are security of property rights, the rule of law, and freedom of trade.

Well that sounds like mere piety. Everyone is in favor of those things (though not necessarily for foreigners or with foreigners). In practice, however, these things mean that a well run business succeeds, and a poorly run business fails. If the government deems it a crisis when a poorly run business, run by pals of the government, fails, and intervenes with regulation to keep the zombie business running, then you don’t have freedom of trade, security of property, etc, you have socialism without a central plan. And your economy is going to go to hell in a handbasket. Zombie businesses are not capitalism, but crony capitalism.

Turning labor into goods is hard, and people whose chief asset is their place on the revolving door between the regulators and the regulated are not going to do it. Stimulus may raise profits and employment, but you are not in fact going to get production. The economy is running on habit and inertia, on people doing what they used to do because that is what used to be done, and over time, this gets more and more detached from doing anything very useful.

Finding stimulus unstimulating, governments then lie about inflation and GDP, at first lying a little, and then, eventually, like Argentina, lying a lot.

Looks to me that living standards in the US have been declining since 1972. Food, fuel, education, and house that is safe to raise children, goes up, but supposedly this is offset by the fact that you now have an internet connection that can download more porn than anyone could watch, and your car now has electric windows. Every so often growth declines to a new new normal, and statistics are adjusted so that we pretend the old normal is still in effect. Median male income has, notoriously, been falling, as has male employment. Creative measures of inflation, wherein everything you have to buy goes up, but it is supposedly offset by everything you don’t much care about going down, is not the only distortion. Increased female employment transfers unmeasured household production (such as children and a nice house) to measured production, thus male income is arguably a better indicator than GDP per head. Increased female employment leads to a statistical mismeasure, since they were probably working harder and producing more value back in the days before they had office jobs. If female employment goes up while age of marriage goes up, there is not necessarily more production. If male employment goes down, there is really, no kidding, less production. Comparing the past with the present leads to a lot of apples and oranges problems, and the government increasingly chooses whichever approach that makes the present look good, and the past look bad.