Keynesian economics trumps Supply Side

Sept. 24, 2009

Rightardia comment: Hyman Minsky is another economist who is also 'hot' at this time. Hyman Minsky was one of those amazing men who didn't buy into convention and peered into the dark corners of capitalism such as poverty. He predicted the Great Depression could happen again.

"A contrarian amid the conformity of postwar America, an expert in the then-unfashionable subfields of finance and crisis, Minsky was one economist who saw what was coming. He predicted, decades ago, almost exactly the kind of meltdown that recently hammered the global economy."

The big loser is Supply-side economics that is a school of macroeconomicincome tax and capital gains tax rates, thus allowing for greater flexibility by reducing regulation. Consumers will then benefit from a greater supply of goods and services at lower prices. thought that argues that economic growth can be most effectively created using incentives for people to produce (supply) goods and services, such as adjusting tax rates.

A study by Moody's Economy.com also proved that programs that direct aid families like food stamps and unemployment insurance were more stimulative than tax cuts. Cuts in the income tax, corporate tax rates and capital gains, GOP favorties, are the basis of Supply-side economics.

Republicans use this theory to justify selective tax cuts for the affluent. Republican politicians believe this top down approach to economics will stimulate the economy. Supply-side economic were a spectacular failure during the Bush administration and also during the Reagan era. Reaganomics fractured the middle class.


Other critiques of supply-side economics dismiss the entire project as a Trojan horse for reducing marginal tax rates on upper income brackets. These critiques are found in Samuel Bowles' work, which argues that real productivity fell under supply-side taxation regimes on a unit-worker basis.

Nobel laureate economist Paul Krugman of Princeton called supply-side economics "Peddling Prosperity" and dismissed it as being unworthy of serious economists in a 1994 book written for the general audience. 

The sudden present-day prominence of John Maynard Keynes, an economist who passed away 60 years ago and whose theories have been mercilessly ridiculed by conservatives for at least three decades, calls to mind the famous 1981 Rolling Stone magazine cover story on the Doors' Jim Morrison: "He's Hot, He's Sexy, and He's Dead."

We've witnessed quite the turnaround. From at least the 1970s on, Keynes' star was in eclipse, while Milton Friedman and the free market theorists of the Chicago School of Economics seized the commanding heights of economic discourse. To even mention Keynes was to be dismissed as hopelessly out of touch with state-of-the-art theory. Hadn't you heard? The government governs best when it governs least!

But global economic crises that obliterate the notion that markets are intrinsically self-correcting and efficient have a way of shaking things up. As the University of Chicago's Robert Lucas (who most explicitly does not fall in the pro-Keynes camp) said last October, "Well I guess everyone is a Keynesian in a foxhole ..." Meaning, basically: When shit happens, people want help.

Since Keynes is the most illustrious proponent of the idea that government should help get economies back on track when they ride off the rails, his reputation is on the serious upswing.

Few people are better situated to comment or explain Keynes' current fashionableness than Lord Robert Skidelsky, author of the newly published "Keynes: The Return of the Master" -- which comes complete with the possibly overdone sub-headline: "Why, Sixty Years After His Death, John Maynard Keynes is the Most Important Economic Thinker for America."

See the rest of the story at Salon.com

See the rightardia article on Hyman Minsky http://rightardia.blogspot.com/2009/09/quote-of-month_20.html



Get 30 days of free traffic analysis simply by going to Web-Stat: http://www.web-stat.com/?id=2955

Subscribe to the Rightardia feed: feeds.feedburner.com/blogspot/IGiu

Netcraft rank: 8774 http://toolbar.netcraft.com/site_report?url=http://rightardia.blogspot.com