Here is part of my economics quiz I gave to college students showing what a fraud Keynesian economics is. Washington politicians practice and believed this nonsense. Bush, Paul Krugman, Obama, Pelosi, Kosmas, Greenspan, Bernanke, Frank, Dodd, Reid and the majority of economists in the United States believe in this voodoo economics crap that has led us to the point of economic collapse.
John Maynard Keynes. Politicians love his economic theories because they give politicians the green light to spend as much money as they can and feel morally justified doing so. It would be the same as if Budweiser told alcoholics drinking beer everyday is good for you and will make you live longer. Sounds great and might be a lot of fun for awhile but is a complete lie.
In this quiz I put to the test the Keynesian “multiplier” effect of government spending during a recession. According to the theory if the government spends $1 it will create somewhere around $4 of GDP growth.
I cut back the multiplier number for my students just a little to 3.5 to be fair to John Maynard Keynes and our Washington politicians. As you can see below according to Nancy and Barney our economy should be at $21.3 trillion but we seem to be at $14.6 trillion. Just a shortfall of 45% over that predicted by the Keynesian theory. In fact the growth rate for the last two years is 0.76% or not even 1%. And most of that is government spending and debt. Clearly Keynesian economics is not working and we need to scrap it forever into the abyss along with our politicians.
As I ask Scott don’t you wish all economics professors gave a quiz like this?
GDP (Y) Consumption (C) Savings (S) MPC MPS
2005 12379.5 (billions)8609.6 (billions) 3769.9 N/A N/A
3. 2006 13183.5 9148.2 4035.3 0.67 0.33
4. 2007 13795.6 9658.5 4137.1 0.83 0.17
5. 2008 14373.9 10095.1 4278.8 0.75 0.25
6. 2009 14178.0 9987.7 4190.3 -0.55 -0.45
7. 2010 14592.4 10353.5 4238.9 0.88 0.12
8. What is my multiplier if my MPC is = 0.72? Rounded 3.5 is the multiplier according to Keynes.
9. Congress passed the $152 billion Tax Rebates and Economic Stimulus Plan in May of 2008.
Using your multiplier what should the gain in GDP have been? $152 x 3.5 = $532 billion
10. Congress passed the $300 billion Housing and Economic Recovery Act in June of 2008.
Using your multiplier what should the gain in GDP have been? $1,050 billion
11. Congress passed the $700 billion Emergency Economic Stabilization Act of 2008 in November of that year.
Using your multiplier what should the gain in GDP have been? $2,450 billion
12. Congress passed the $825 billion American Recovery and Reinvestment Act of 2009 in February of that year.
Using your multiplier what should the gain in GDP have been? $2,887.5 billion
13. Add the economic gain to the GDP from the four major stimulus packages. $6,919.5 billion.
14. In 2008 the GDP was $14,373.9 (billions) and in 2010 it was $14,592.4.
What was the annual growth rate after spending billions? 0.76%. Not even a 1% growth rate using Keynesian economics.
15. According to the Keynesian model what should the GDP for 2010 have been? Add your summation from problem 13 to the 2008 GDP.
$21,293.4 billion verses a actual GDP of $14,592.4 billion
Bonus. What is your assessment of the Keynesian multiplier affect? It’s a fairy tale only politicians like Suzanne Kosmas, Alan Grayson, Barney Frank, Nancy Pelosi and Barrack Obama believe in. It doesn’t work.
July 8th, 2010 at 10:40 pm
USA-wethepeople.com » Blog Archive » Keynesian Economics Exposed ……
I found your entry interesting do I’ve added a Trackback to it on my weblog
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July 10th, 2010 at 9:48 am
Regardless of whether Keynesian economics is effective or not, I have two problems with your methodology:
1) The multiplier effect that you calculated is flawed in the fact that when the government spends money, people don’t instantaneously spend all the money in the economy. Purchases take time, so GDP should not have skyrocketed.
2) While it’s true that all that money has been allocated, very little of it has actually been received. As per recovery.gov, as of Mar. 31, only 62b dollars of the Obama Stimulus has been passed. For the housing, the 300B was allocated to insuring houses, but not necessarily spent. The bailout bought illiquid assets, so the bailout didn’t add spending on top of existing spending. The assets already had the value beforehand, it’s just the government bought it up (a financial transfer)
July 10th, 2010 at 5:17 pm
Lulu Wang are you serious? All the stimulus packages are from 2008 or February 2009. I know there is a “lag” effect but that has come and gone and then some. Give me a break! It’s been 25 month since the first one of these “Keynesian stimulus packages” hit the books. They are all a complete failure any way you look at them. Deficit, GDP or whatever. Failures.
What the government spent the money on according to Keynes doesn’t matter. Remember the broken window argument. According to Keynes you just had to spend the money and increase the “G” part of the GDP (Y) = C + I + G + NX. “G” is a part of that isn’t it? Just spend the money according to Keynes.
If all the money is not spent then what about the billions that have been spent? And why do people believe in fairy tales?
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