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Breaking the Secret Code of Macroeconomics Lingo (Part II: Keynesians) August 30, 2012 12:00 AM | Tagged as Keynesian, macroeconomics

 Keynesian Principles

 

John Maynard Keynes was a British economist in the first half of the 20th century. Franklin D. Roosevelt made him famous by using his principles during the Great Depression. His greatest treatise is The General Theory of Employment, Interest and Money (1936).

 

Keynesians believe government can restore economic health after a recession by increasing government spending and by either tax hikes to pay for the spending or temporary tax reductions of many kinds, such as payroll taxes which put money in the pockets of consumers.  This spending idea therefore focuses on demand in the economy, not supply.

 

Keynesians believe that $1 of federal spending will create about $1.50 of economic activity. This is the famous Keynesian multiplier. The more we spend, the quicker the recovery from a recession. If our spending doesn’t fix the economy, we didn’t spend enough. See the Biz Bucks Blog: “The Blip President”, Aug. 6, 2012.

 

Static Scoring

 

The Congressional Budget Office (CBO) is supposed to be a non-partisan resource to “score” the economic effect of proposed law making.  The CBO is famously Keynesian. The models they use are based on “static” scoring. This means if a tax rate produces a given revenue for the federal fisc, then increasing the tax rate will correspondingly increase that revenue. This is clearly true for the lowest tax rates. Raising low tax rates increase the inflow to government.  In Keynesian models, this effect is essentially linear. Meaning if tax rates were increased to 100%, the inflow to the government would rise to record levels.  The ratio between tax rates and tax revenues remains static, or unchanging, in Keynesian models.

 

Wall Street Investment Bankers and Other Notable Keynesians

 

With some exceptions, many economists that reside at universities on the both the east and west coast are Keynesians.  Keynesians are, therefore, nicknamed “salt-water economists” because they reside close to either the Atlantic or the Pacific.

 

Notable Keynesians are Austin Goolsbee, Paul Krugman, Larry Summers, Alan Blinder, the CBO, and most Wall Street investment-bank economists. Why Wall Street? These large investment banks are at the public trough and need to have “love-ins” with the government.  Some have called this the Political-Financial Complex. They are essentially on the same team and promote the same agenda.  CEOs of these large banks have become Secretary of Treasury. Google “Paulson”. These large banks are ardent capitalists when they make money, but ardent socialists when they don’t. Google “Wall Street Bailouts”.


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