Keynesian vs. Austrian Economics - The Infographic
There has been an unsettled debate among economists for a century now of whether government intervention is beneficial to an economy. The heart of this debate lies between Keynesian and Austrian economists (though there are other schools as well).
In order to get a full understanding of the two schools of economic thought, we offer the following via The Austrian Insider...
And some responses to popular criticisms:
- “Animal Spirits is misrepresented” – I just personally thought explaining that further would be too much text. If anyone would like to get a full explination of what Keynes meant by this term, read this Wikipedia article on Animal Spirits
- “This is biased towards the Austrian School” – Well I am obviously an Austrian economist, so there is only so much I can argue with that point. That said, I HONESTLY tried to represent Keynes properly and would love to hear from any Keynesians what can be changed to help represent them properly.
- “Malthus was not an economist” - He may be more of a philosopher, but many consider him an influence of Keynes.
- “Ron Paul is not an economist” - Just because he is a doctor and politician by profession does not mean he is not a well known Austrian Economist. He has many books on the subject, is a senior fellow of the Mises Institute, and has personally got many individuals to research Austrianism further
- “It should not be total utils, but marginal utility on that graph” – It is supposed to represent the marginal utility graph, I just didn’t label it. The graph should show total utility marginally decreases with each dollar increase. The printable version has the entire chart labeled.
- “Praxeology is not the right term to describe the whole organizational pattern of the social order. It refers only to the logical implications of human action that can be known through deduction.” - Well put. Just hard to figure out how to graphically represent that...
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If you ever want to make a Keynesian mad just tell them gold is money and watch them have a fit.
Perhaps "lack of counterparty risk" should be added to the common definition of money.
Money: a unit of account, a store of value, and a medium of exchange with lack of counterparty risk.
Poaster, I nominate you for the Nobell Prize in witch doctery.
You've actually nailed it. And you honestly should be honored for the observation.
I am personally going to add it to my diatribes and co-worker explanations.
Kudos.
Ordinary Chinese were and are essentially 'Austrian', with families earning $5,000 and saving $2,000 of it being common.
Ordinary Americans and Brits were essentially Keynesian (think Gordon Brown's economic policy) until 2007. Then many seeing the foreclosures got wise to the banksters and the mortgage scam, but it was too late... They had nothing left to save. The system is rigged to bill you and bankrupt you as soon as you get anywhere near being able to save. Plus, you're addicted to consuming up to and beyond the limits of your income.
Ordinary Canadians are still sold out Keynesian.
The article misrepresents Keynesian theory (less so the practice) on many scores. In theory governments are supposed to run surplusses during booms and deficits during busts in an effort to smooth out the business cycle, which itself is destructive of physical and social capital. [Like Joeseph with the seven fat and the seven lean years]. The same is true of something like the pork cycle (small swings in supply/demand cause huge swings in price which in turn cause huge fluctuations in the number of pig farmers exacerbating and setting up the following cycle), which we smooth out by using futures markets.
Why is it the task of government spending to even out the cycle? Because the government spends money during busts (to keep people alive and prevent revolution, so called income stabilizers) anyways, and are also the only party which can discourage booms.
The article also confounds savings and investments (investment is spending, and thus also a type of consumption, albeit in the hope that it will pay itself back). Savings and government deficits are an accouting identity since banks buy government bonds as assets to balance the savings they hold as liabilities. It is true that not everybody can save at the same time (in a modern economy) without slowing the economy down. However this is of course a symptom of underlying imbalances (why else would everybody want to save at the same time?).
Since there is no effort at an honest comparison, no insight emerges. It is especially the comparison of current government practice with Austrian theory that is misleading. Like comparing the theory and the practice of Christian love or of Islamic faith.
The article misrepresents Keynesian theory (less so the practice) on many scores. In theory governments are supposed to run surplusses during booms and deficits during busts in an effort to smooth out the business cycle, which itself is destructive of physical and social capital.
It is true Keynes argued for running surplusses during booms. Don't know for sure, but I suspect that clause was inserted to sell the idea of deficit spending.
The idea that government can smooth out business cycles by redirecting capital is a fraud of the highest order.
Keynesianism believes fundamentally in central banking and its issuance of money as debt, along with the control of interest rates. Austrianism, on the contrary, believes in the market production of money (and thus competition between rival forms of money), as well as the market discovery of interest rates.
These distinctions alone are sufficient to determine the morality of each system, Keynesianism being utterly immoral (as statism itself is), while Austrianism (being non-statist) is inherently moral.
You also couldn't be more wrong, Itinerant, in your belief that "investment is spending" and thus a "type of consumption," as savings are invested with the expectation of a positive return — principal plus "interest" — while spending only hopes for commensurate satisfaction from that which (e.g., food) is consumed (i.e., expended).
To put it another way, savings are delayed consumption, the hope being that their investment will result in a greater ability to consume (genuine wealth production) in the future. This is why Keynesianism, in its war on savings, is inimical to the health and wellbeing of society and instead only serves the parasitic few.
If savings writ large hinder the economy, then The State cannot maintain a surplus in the good times. If government savings are derived from taxation, that is quite literally every person in the economy maintaining a collective savings account. Read the first quote of the infographic. This is one such fallacy about classical, let alone neo-Keynesian economics, that is glaringly obvious.
There is nothing misleading about this infographic. People just don't want to give up on Keynesianism, because to do so is an explicit admission that The State is not panacea, but rather, a disease. Surrendering power for the sake of reality is not an option.
First they make fake money then they make up BS ideas to confuse people. They are both absolutely true.
Savings drive spending - You dont buy a car on the first paycheck.
Spending drives production - Buying a car creates more demand.
Production drives savings - Work = paycheck
Why is this so like republican democrat? Its not two sides instead its a circle. Spending drives the economy in the short term. Saving drives it in the long term. We spend so much on interest that there is no money left in the budget for saving. Uh Oh!
Musical chairs. As long as there's a debt-is-money system with usury attached... theories don't matter.
If the music stops and there's no chair to put your ass in... only then do you truly understand economics and markets.
Saving also acts as a barrier to Mal-investment. People who are saving must wait to make the big purchase. This promotes wiser spending from buyers(less impulse buys). For producers savings spread the profit incentive of production across time. Businesses have to think longer term in order to extract maximum profits. Both together moderate boom bust cycles. Instead of ten factories running full blast for year only to collapse - One is built one that runs ten years. This is a 10x better return on materials and machinery. Savings are really important to quench the burning stoopid!
We as a country have gone off the rails. Everything is based on credit now. I hear this described as pulling demand forward. NO. Demand is not pulled forward using credit. Demand is destroyed by credit. When you charge your lifestyle on Visa.. at some point the interest on all the past purchases will equal income. When this happens demand is annihilated. How long does it take to pay off a CC using the recommended minimum payments? The population maxed out their individual CC"S in 2008. If you take away all the govvy/FED games real demand is still dead. That is how it will stay until the debt is cleared.
I remember back in 2007 when I was so worried we might go into a recession. Now just look at us. WW III, leaking nuke plants, and the mother of busts. bwahahaha
It's a shite state of affairs, but after all this time/stress- I'm as calm as a hindu cow.
It's not just 'this country' (no matter where you are), humans have a tendency toward expediency and instant gratification- hope springs eternal and all that shit... tomorrow will be better than today- but it never seems to turn out that way, does it?
It's the end of the world as we know it/
And I feel fine/
-Berry, Buck, Mills & Stipe
humans have a tendency toward expediency and instant gratification- hope springs eternal and all that shit...
Individuals such as those exhibit high time preference.
tomorrow will be better than today- but it never seems to turn out that way, does it?
For those with high time preference it doesn't work but for those with low time preference, some skills and a bit of luck tomorrow can certainly turn out better than today.
Respectfully, I think you have that backwards- those who want rewards (in 30-60-90 days) are the ones who make your world work, Billy.
Those with low time preference are, for lack of a better word- leeches.
Then again, who am I to argue with the bard of Avon?
First, we kill all the lawyers.
That's pretty fucking unambiguous. Your bard wrote that.
There is no way to make a Keynesian more mad than he already is (ie completely and totally insane).
Had to link this vid-
https://www.youtube.com/watch?v=g-kP2a2qfSY
Straightforward comparison of Delusional Economics vs. Reality Economics...
They can both go straight to hell, honestly.
That's useful.
As Tyler said, there are other schools. I myself am from that of Dr. Hjalmar Schacht.
Its time to stop accepting pre made answers. Everything we are told is total BS. The economy is broken? No its not.
Plenty of people want a job.
Plenty of people want new stuff.
We didnt run out of trees, coal, silicon, or steel either.
We have buyers workers and materials.... the economy is fine. The US population however getting wiped out by parasites. Humans are insane that is the core problem. The big dogs at Goldman schmucks are too crazy to understand that the world they are destoying is the one they live in. Meanwhile the little guy is so caught up in worshiping himself on FrackBook that he doesnt have time notice he has become a slave. I wouldnt get too worked up about it though ...some level headed scientist will create an AI soon. All our problems will soon be solved by thinking machines! If it hates us it will kill us. It it loves us then we get to spend forever in a zoo for our own safety.
The US population however getting wiped out by parasites.
The Austrian School shows that central planners do in fact act as parasites on a healthy economy.
Humans are insane that is the core problem.
People aren't insane. They've simply been lied to so often that they no longer trust even their own instincts. You know as well as I do that taking control of your own destiny as much as possible is the only way to improve your life. It isn't easy with all the parasites but you've got to make plans and carry through. Slow and steady wins the race.
Your respose was so positive that I just want to sit here and remember what it was like to look forward to tomorrow. If you havent seen this exploration of Destiny & free will please enjoy.
https://youtu.be/22VVuQI4kgc
A man with a plan beats a man with no plan at least half the time.
The most common economic parasite is the banker who by fraud increases his ownership of resources by limitlessly devaluing the currency available to the common man and then takes from him as collateral on loans needed to maintain survival what he could not get by producing any good or performing any service.
https://www.youtube.com/watch?v=s-8GIEQjqW8
That quote from Keynes, wherein he claims that personal savings (effort, return on investment) for an individual will never add to income, and the follow up that "consumption" is the key is exactly the reason we have the problems that we do.
The Collectivists (Keynesians here) have conducted a war against the individual for over a hundred years using the false concepts of "common good", "social contract", and accusations of "selfishness". And when they seized power they created a system in which their self fulfilling prophecy was true. Effort is punished, savings is useless, the individual matters not one bit.
The problems that we have are due entirely to central control by "authority" and would vanish as if by magic the day after that control ends. We must all agree to end this slavery once and for all.
Pisses me off to no end when those fuckers talk about savings (me hanging on to my cash) as if it's a bad thing.
Fuck you you fucking cocksuckers. If I want to sit on my cash instead of buy useless crap, that's what I'll do.
They industrial revolution has been turned into a Heron's Fountain. Good while it lasts (for those on the getting in) but when it stops, man, it stops. And doesn't start again.
https://www.youtube.com/watch?v=AK3w_K8uPvE
I thought Keynes and von Mises are both proved useless twats after 90+ years of the fed and 7+ years of Obummer.
What I'm waiting for is the bland and cloying Reese's Peanut Butter Cup of the two. C'mon Rand Paul, give us something really stupid, yet ideologically pleasing to idiots!
Stick with comic books, please. Economics is too hard for you...
You must be a Ron Paul follower. I'm sorry for your loss.
For you, I'm with Batman...
I'll take the bait.
Keynes' theories became useless to the ruling class because his theories haven't worked as promised.
Mises' theories are useless to the ruling class because he proved that central planning doesn't work.
I am here with with you
https://www.youtube.com/watch?v=Zx3m4e45bTo
depends on what you see as a ruling class
look it in terms of which kind of ruling class is favoured, even subsidized
applied Keynesianism favours fiat central banks and fractional banking banks, first, politicians overspending second, and war business third
applied Keynesianism focuses on getting jobs, regardless of profitability, consumption over investment, fixing things instead of letting them fix themselves organically
since politicians are part of the ruling class anyway, even if only as puppets, the reason to favour applied (Neo-) Keynesianism are on the part of:
weapons and ammo producers first, and financial masters of the universe second
take Neo-Keynesianism away and the ruling class contains less MIC and megabanks
It's called "centralized economy" and it was tried before on large scale (but unsuccessfully) in your neighborhood...
Uh no, this protoge of Von Mises won a Nobel prize, and predicted the Great Depression. https://mises.org/profile/friedrich-hayek
It's not hard to predict a fire going out, a star dying or exponential growth rate won't sustain.
How many papers I gotta publish for a participation prize?
You want the ONE PRIZE , Call the Event or Day.
(Edit: sorry y'all, I should have read farther down the thread. It all reminds me of The Foundation Trilogy, by Asimov, which I have not read in many years. Predict the future by gathering the results of the past.))
Predict the future by gathering the results of the past.
Past performance is a damned good indicator of future performance...although it is not a guarantee.
If I drop an object greater than the density of te surrounding atmosphere, then it will generally fall to the floor. In fact I have not yet had one float up to the heavens above, other than Helium Balloons. But that violates the stipulation made that the object be denser than the surrounding atmosphere.
Now it can happen, I guess. There are those damned Quantum uncertainties to contend with. (Writing of FAT TAIL RISK and all o' that...) But I would not bet on it. You can if you want. I will even give you substantial odds as I collect your cash..
Those who fail to learn the lessons from History are doomed to repeat them...You know? Cicero?
BUT YOU KNOW THAT.
This was written for the bozo clown who junked ya.
What are you doing posting here??? Get out there and buy moar stawks dude!!
Growth is from net energy. If you don't have that, it doesn't matter how much you save or spend. Join the 21st century.
A tweet length economic treatise? That ought to go down well with those exhibiting an exceptionally high time preference.
Cancer patients must have hit the jackpot then! Huzzah for cancer!
Economics is bullshit. If it was science, it would make accurate predictions. That is the definition of science. You evolve a theory, make a prediction that only comes true if your theory is correct, if it comes true BOOM proof your theory is right.
Economists predictions NEVER come true.
A world famous economist once said, economists predictions make astrologers look good.
Austrian economic doesn't attempt to make recommendations or predictions. It only seeks to explain exhibited economic interactions. It's up to you as an individual to make your way in the world.
I fully agree.
Economic theories be they right or wrong are always used by the powerful to accumulate or maintain wealth.
Allowing Governments to practice economics is the same as giving your Gold to that snake oil salesman to safekeep.
Every prediction economist make are ways to attract capital to a scheme which will in the end steal as much as possible.
If the predictons seems going great, then it is only because, not enough money has been attracted to pay for the special effects created to support the predictions. It will go on until enough money has been attracted.
Economics is bullshit. If it was science, it would make accurate predictions.
Austrians would agree. They argue that no amount of data gathering can make the future predictable with reliable certainty; market economies are far too complex.
A market consists of individuals who act according to their self interests in ways that cannot be known ahead of time. All that can be known with certainty is that humans act according to what they perceive improves their present situation. That doesn't mean they are always rational.
Malthus - "there must therefore be a considerable class of persons who have both the will and power to consume more material wealth than they produce.
Correct ... they are called the elderly and retirees - all of us are headed for that reality and that is why we save.
The problem with Keynesians is that they forget we live, age, die, etc. I will not be able to produce in my late years so I save ... and the Keynesian steals my savings and claims to do it for the good of us all. Thieves.
Keynes vs Austrianism is a false dialectic.
Here is a much better analysis that comprehends money properly.
http://www.sovereignmoney.eu/notes-on-huerta-de-soto-and-neo-austrian-sc...
Austrianism is a-priori theorizing that cherry picks history. Keynes is stop gap theory for making private credit systems work during failure prone "instability periods."
There are no Keynes or Austrian monks alive who can refute Huber. They don't exist; even their luminary De-Soto has been dismantled.
Can you point out where DeSoto was dismantled? I genuinely ask as I've read his book on Money, Bank Credit, & Economy Cycles which I found to be a great read.