Dan Mitchell on Why Keynesian Fiscal Stimulus is Bad Public Policy

I went to graduate school with this guy.  Good job Dan!  I think we should, as a matter of educational purpose, have a lot more of these sort of videos available on you tube.

Comments

[John V]

While I am very sympathetic to Mitchell's argument, I must say that he doesn't argue it very well at all.

As I watch such things, I try to view from the POV of someone who supports the being criticized.

And in that sense, Mitchell says things that any pro-Keynesian can easily pounce on to label Mitchell a hack or dishonest.

Granted, I don't think Mitchell is but it doesn't matter.

At about 4:15, Mitchell uses the word "Keynesian" to describe Hoover. He shouldn't do that. Keynes didn't write the General Theory until 1936. To avoid giving ammo to the Keynesians, he should have selected different wording.

Mitchell continues to show the dismal record of Hoover to see how "Keynesianism", so to speak, worked. Well, the economy was sinking badly anyway and monetary policy was a complete disaster. That second factor had more influence than anything else but Mitchell doesn't go there directly. Even if Keynesian policy was somehow valid, I think the monetary happenings of the time could and would totally wipe out any positive effect from any good policy. Also, notice the bars going perfect ascending and descending sequence in the Hoover graphs.

When Mitchell moves on to FDR, he shows the same graphs EXCEPT he doesn't show the unemployment graph as he did for Hoover because for FDR, unemployment started dropping (while still very high) and then spiked back up in 1938 or so. Also, the spending chart shows a dip in spending at the same time that unemployment shot back up.

Rather than avoid these things, Mitchell should have covered them. Any Keynesian will quickly pick up on this point. Then, the mere fact that a Keynesian can point this out will SEEM like a refutation of Mitchell even though it isn't since, I believe, it can be shown, that the drop in spending is not what caused the recession within the Depression in 1937 but rather monetary policy.

Then, he mentions that output didn't get back to 1929 levels until WW2. Well, a Keynesian could then point to that as full blown Keynesianism getting us out of the Depression even though there was quite a bit more to it than that.

Finally when talking about Bush, pointing to the increased spending is a bit disingenuous because the increased spending was not targeted in a Keynesian fashion. It was primarily on more military spending which I doubt is what the Keynesians have in mind.

So, if a non-Keynesian, non-economist libertarian like me can point out these flaws, imagine was a Keynesian economist would say.

Mitchell should have made his point a bit better.

[Andrew G.]

I agree with John V. This video would do little to persuade a Keynesian.

[liberty]

I agree with the above, and would add that there was absolutely no discussion of borrowing from overseas. I don't think it salvages the Keynesian argument but I do think that even a short simple video on the subject must discuss that, or it just looks like cherry picking the easy bits to argue against.

One point to John V., you say of military spending under Bush that you doubt this is "what the Keynesians have in mind" and yet you also say that Keynesians about WWII could "point to that as full blown Keynesianism getting us out of the Depression" ... is military spending Keynesian or not?

[John V]

liberty,

I understand it looks like a contradiction...but I'm not making a Pro-Keynesian argument. I'm simply pointing out low-hanging fruit that any Keynesian could use to discredit Mitchell...or at least give the impression of discrediting him.

Besides, I think a Keynesian would then say on that point you mention that there is simply no comparison between massively mobilizing the entire country for a world war and simply increasing military spending for Middle Eastern operations. The scale of the latter is much, much higher than the latter.

Either way, while I'm no economist, I think arguments about a pent up savings and demand have some merit in explaining the upswing after the war. There was a sort of "forced savings" as I understand it because people were simply not able to buy a lot of things during the war because of price and wage freezes and rationing that weren't lifted until after the war (along with much of the New Deal meddling). From what I understand, wages rose after the war because of the lifting of controls. Then men came home to those jobs and women went back home. Add in the fact that our manufacturing ability was full operational and in tact (unlike the rest of the industrialized world's) and you see the perfect storm for an economic resurgence of sorts.

How would Austrian School explain all this? I don't know. I don't doubt that it possibly could but I don't how to explain it myself.

Either way, the resurgence of economies here and in Europe in the 50s all seem to have something eerily in common along these lines. I also don't see it as something model and try and copy. I don't think it can be.

[Mick]

Keynesian thought existed before Keynes. What Hitler did was also Keynesian even though he came before the General Theory.