Keynesian claptrap

‘We support genuinely liberal policies based on “Austrian economics” in contrast to the Keynesian claptrap routinely espoused,’ Day explains.

This is a quote from Bob Day, Senator Elect from South Australia in today’s Australian.

He thinks of it as Austrian economics but it is much older and broader than that. It is the economics of the entire economics profession during the entire pre-Keynesian era prior to 1936 starting from about 1776. Today’s macro, as I am fond of pointing out, is a classical economic fallacy. Until 1936, the economics of Y=C+I+G was seen as an absurd fallacy, obviously and unmistakeable nonsense. Now it is universally taught at all levels of economics as the fundamental truth.

Here is the issue. Y=C+I+G means total output in the domestic economy is determined by the total of consumption (C), private investment (I) and government spending (G). And thus, so far as this model is concerned, an increase in government spending is absolutely and in every way equivalent to an increase in private investment. If a mining company develops a new mine, according to macro theory, it is identical in every way in its effect on output and employment as increased spending on school halls. This is the economics taught in every mainstream first year macro course in the world. Claptrap doesn’t even get near how idiotic it is nor how destructive.

Welcome Senator Bob Day.

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