A Brief Refutation of Keynesianism

[studiodekadent]

Hoo boy, long time since I posted here...

Anyway, my post is going to be a brief refutation of Keynesianism. Keynesianism's central feature is the use of government Fiscal Policy to stabilize the business cycle (if Monetary Policy is being used, then you're dealing with neo-Keynesianism. I think my refutation covers both but some may disagree). This isn't the be-all-and-end-all of Keynesianism but it is the centrepiece of the ideology as taught in Macro 101.

Keynesianism is premised on the following assumption: in the long term, prices are perfectly flexible just like you'd expect. In the short term, however, prices are "sticky."

This is the founding premise of Keynesianism. It has two critical flaws.

First: Keynesianism does not define exactly how long the "long term" and "short term" are, in a quantitative sense. Rather, it defines the "short term" as "the period in which prices are sticky" and "long term" as "the period in which prices are flexible." These definitions contain zero empirical content! For how long will prices remain sticky? "In the short term!" And how long is that short term? "The period in which prices remain sticky."

So, Keynesianism defines some nebulous period of "sticky prices" into existence but never stipulates how long that will last. You might as well define "quidjibo" as "a pink unicorn from the planet Rigel-7" but that doesn't prove quidjibos (or Rigel-7, for that matter) is a real thing.

And the second critical flaw is that if there IS price stickiness, it does not exist within the capital/input goods market (and even prices of certain consumer goods change frequently too). Capital and commodities change their prices all the time, hence why we have stock market tickers and the like. Prices fluctuate and vary remarkably at the far-from-consumption stages of production and only get more stable as things get closer to sale (but even then, there are some consumer goods with very variable prices).

Ergo, Keynesianism rests on an assumption about temporal price-stickiness. This price-stickiness is both 1) presumed to exist with no empirical statement about how long it exists for, and 2) conflicts with the empirical evidence that prices vary wildly not just in the long term but also in the short term.

Therefore, the key assumption behind Keynesianism is false. Keynesianism should thus be discarded.

[Brant Gaede]

Keynesianism is not economic theory but an excuse for power grabbing by the intellectual-political elite. It's been reduced to the simplicity of more, more and more more (money).

--Brant

you can't kill what's already dead

this is not an endorsement of Austrian economics

this is not an endorsement of monetarianism

this is not an endorsement of any kind of government manufactured and imposed money

[studiodekadent]

"Economic theory" and "excuse for power grabbing by the intellectual-political elite" are not mutually exclusive categories. There are plenty of sincere Keynesians, however.

Do you have any actual commentary on the refutation or do you just wish to preach to the choir?

[Brant Gaede]

Prices are "sticky" because those are transaction prices. Short term merely means the length of time a price doesn't change. When it changes, that's long term. Everything else is arbitrary respecting the time involved. But this actually leaves the two terms tied together with time cut out. That means out with Keynesian theory as you have posited it to be.

--Brant

am I saying what you said?

[studiodekadent]

"Am I saying what you said?"

Pretty much.