Which has been the most damaging single diagram in the entire history of the sciences? There is not even a contest? The graph is, without any doubt, the Keynesian-cross diagram invented by Paul Samuelson which has been depriving economists of the ability to make sense of economic events since first published in the first edition of his Economics text in 1948.
The idea for honouring this diagram has occurred to me with the publication by Mark Steyn of his just published book, “A Disgrace to the Profession” which he describes as “the story of the 21st century’s most famous graph and the damage it has done both to science and public policy”. Ah, but the present century is still young and although the harm the hockey stick has undoubtedly caused may well already be calculated in the billions, the harm Samuelson’s 45-degree diagram has done may be calculated in the trillions, and the damage it is doing is far far from over.
For those unfamiliar with the Keynesian-cross, it shows an upward sloping aggregate demand curve which reaches equilibrium where it crosses the 45-degree line at a level of national income well below the level of production that would employ everyone who wants a job. The answer, therefore, is an increase in public spending which pushes the line upwards and therefore pushes the equilibrium level of production along the horizontal axis to the right which then allows everyone to find a job.
The policy has, of course, never ever worked, but the trillions of dollars of public sector waste have drained our economies of astonishing levels of wealth that have kept our living standards well below their potential now for seventy years.
I have written my own book on the disgrace to the economics profession Free Market Economics which is now in its third edition. It takes apart Samuelson’s piece of beguiling illogic which has mesmerised the profession since it was first published. It is itself the very height of junk science, which has never on a single occasion given advice that has allowed an economy to raise its level of production and return an economy to full employment. It has, instead, led governments to pour their trillions into one wasteful project after another, of which green energy is only the latest, and while wildly expensive is for all that far from the most expensive example.
Economists who use any of these Keynesian diagrams starting with Samuelson’s are throwing sand in their own eyes. Profoundly shallow it is almost impossible to explain to someone who has been taken in by these graphs why they have been so badly misled. But there you are. No stimulus has ever worked but we still teach the diagrams that say public spending will bring our economies out of recession and give us strong and balanced growth. Do you believe that after what has gone on since 2009? Does anyone? A disgrace, but what is even more disgraceful is that the entire profession continues to accept a theory that has never worked. And there is the diagram that has corrupted the understanding of more individuals than any other diagram in human history.