Arguments against the Keynesian Multiplier: It doesn’t exist

( – promoted by Rob “EaBo Clipper” Eno)

The next time you argue economics with a liberal Democrat bring up this article.

Cross posted at red.ma.altercate.net

http://www.forbes.com/sites/re…

The scientific method is how we come to better understand how the world works. It is as true in economics as it is in physics or any other science. Develop a new theory and run an experiment to see if it explains and predicts better than existing theory. If it doesn’t, back to the drawing board. If it does, validate the finding with additional experiments.

This last step-validation through replication-is vitally important. Sometimes experiments produce unlikely outcomes. If you flip a perfectly fair coin, it will come up heads five times in a row about three percent of the time. Without replication, you have no way of knowing whether the outcome was unlikely happenstance or whether you’re dealing with a magic coin. And you wouldn’t wager on the outcome of future coin flips without knowing whether the phenomenon you observed was real, or just a statistical fluke.

When it comes to the “evidence” demonstrating the magic of the Keynesian Multiplier, what we see, in fact, is merely careful curation of statistical flukes on a grand scale over decades. Economist Ryan Murphy, who runs a project called govtmultiplier.com that attempts to catalog scholarly measurements of the Keynesian Multiplier, has categorized and analyzed 128 papers on the subject. Only four papers even attempt to include this kind of statistical test, and none of these validate the original results, meaning simply that none of them prove the Keynesian Multiplier actually leads to more dollar-for-dollar economic growth. And this is after these models are ginned up to make their theory look as good as possible. If attempts to employ macroeconomics purport to be science, they must boldly make predictions about the future, not rummage around for convenient data from the past. But no peddler of the Keynesian Multiplier has been able to make demonstrable predictions borne out by the test of time.

But that hasn’t stopped proponents of Keynesianism from pushing for policies that burden us with more debt and higher taxes. And why should it? Talk, after all, is cheap.

About Karl Marx

Left wing libertarian conservative.