We are hearing myths that not only represent wrongheaded economic thinking but that are also driving the US economy into a deep depression through reckless spending and resource destruction. The actions of Obama and the Beltway are political in nature, but they have the veneer of economic “theory.” If I can put the whole Keynesian set of fallacies into one statement, it would be this: the modern Keynesians believe that the economy operates like a perpetual motion machine. FULL ARTICLE
Source link: http://archive.mises.org/9671/is-the-economy-a-perpetual-motion-machine/
Is the Economy a Perpetual Motion Machine?
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Interesting observation. But the issue here is more endemic of mainstream economic theory than just a product of Keynes. Another word for “perpetual motion machine” would be “equilibrium”, which is the raison d’etre of classical economics. Mainstream theory assumes a steady state of perpetual production and consumption, and views any deviation from that as a “shock”. Austrian theory would probably say that the whole process is so dynamic as to make equilibrium a meaningless concept.
In this world where long debunked Keynesian and neo-Keynesian economic fallacies run rampant, it is enlightening to be provided with a sound free market analysis of the contemporary economic malaise. At the rate things are going, Americans will be bartering within the next 24-months.
The economy will recover in spite of what the government or Fed does. We currently seeing a bottom form in housing and the increase in durable goods orders indicate that inventories are starting to be replenished. Business cycles will continue and we will keep the current pattern of 4 to 1 up years over down years.
Of course, you can listen to Peter Schiff and you will make money 25% of the time. Then you could listen to Laffer and you would make money 75%. And the key here is if you listen to just one side, you will end up making 0! Both of these guys are not economist! They just take one side of the trade and stick with it so that at same point they will be right. Just like a weatherman that predicts a 50% chance of rain, he will never be wrong!
You really need to get out into the real world, look at consumers, investors, producers and technology to get a feel how they are interacting. Crunch the numbers and make a real prediction.
I think the analogy here is pretty strained. Saying a perpetual motion machine requires constant greasing means it’s not a perpetual motion machine. I don’t think Keynesians see it as such – I think they believe it requires constant fuel.
What you described as the Austrian view is a circular flow, but on an upward spiral.
I think more significant is that the Keynesian view does actually see the economy as a machine that can be tweaked and prodded into performing better. The Austrian view looks at the economy more as a dynamic ecosystem which constantly shifts equilibrium in response to varied inputs (much as Nick said above).
Speaking of myth, here is one that has been floating around: Mr. Greenspan was a loyal follower of Ayn Rand.
Now, the following link is about a comment from Greenspan in 1997 about the role of the central bank in the global economy:
http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=3629
To his credit, he is honest in explaining one of the rationales behind central banking: to allow the government to spend to its heart’s content. Interestingly, he seems to have spoken about today’s situation. Sadly, very few people (aside from those on this site) are aware of what Mr. Greenspan stood for.
Reading comments following this rediculous article in newsweek is more comfortable. Most people can identify the diference between saving and spending.
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