Do not think about, write about or deal with human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.
Wherein we see the liberal myths of government intervention being a good thing, benefitting everyone. All the government has to do is intervene and everything will be better. Just more examples of government magic.
by Tyler Cowen on August 19, 2016 at 3:58 am in Economics, History | Permalink
From Scott Sumner:
…what’s happened since 2009 involves not just one, but at least five new types of voodoo:
1. The claim that artificial attempts to force wages higher will boost employment, by boosting AD.
Just give everyone a raise and we’ll all be better off. This is one of the ridiculous beliefs that allows government to say giving government workers more money will make us all better off.
2. The claim that extended unemployment benefits—paying people not to work—will lead to more employment, by boosting AD.
Just stick money in anywhere and we’ll all be better off.
3. The claim that more government spending can actually reduce the budget deficit, by boosting AD and growth. Note that in the simple Keynesian model, even with no crowding out, monetary offset, etc., this is impossible.
Spend more money and get even more back.
4. More aggregate demand will lead to higher productivity. In the old Keynesian model, more AD boosted growth by increasing employment, not productivity.
This is a doozy. If more government spending, then higher productivity. The more government spending, the lower productivity.
5. Fiscal stimulus can boost AD when not at the zero bound, because . . . ?
More money available, more aggregate demand.
In all five cases there is almost no theoretical or empirical support for the new voodoo claims, and lots of evidence against. There were 5 attempts to push wages higher in the 1930s, and all 5 failed to spur recovery. Job creation sped up when the extended UI benefits ended at the beginning of 2014, contrary to the prediction of Keynesians. The austerity of 2013 failed to slow growth, contrary to the predictions of Keynesians. Britain had perhaps the biggest budget deficits of any major economy during the Great Recession, job growth has been robust, and yet productivity is now actually lower than in the 4th quarter of 2007.
These assumptions, being government assumptions are all wrong, yet form the basis of government intervention throughout the Western World. No wonder we’re all getting poorer.
Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Power Teaching: How to Find Someone to Teach Your Child when the Education System has Failed.”
Cui Bono–Cherchez les Contingencies