In Times of Crises, Keynesianism is Not More Effective than Numerology

The modern systematic approach of the Karl Popper’s golden rule is that as for a theory to be valid, it must make, if necessary, to be disproved by the observed facts. According to this golden rule of Popper, if practice contradicts a theory, it always shows the success regardless the difficulty it faces, because its supporters are able to regulate their argument at all times without having to throw away the theory under consideration, then it deals with a theory that cannot be falsified and therefore is unempirical, more like the prophecies of numerology.

perperzona numbersIn economics there are many perfect examples of this kind of theory. Created by John Maynard Keynes at the time of the Great Depression of the 1930s, there could be seen in public spending a method to remove an economy out of recession or depression, but this confidence in public spending as the leading force of growth is not supported by fact, which is quite the opposing. As an example, with the policy of Obama’s famous stimulus package, eight hundred billion dollars spent since 2009 in the U.S. economy through public spending of all kinds, and in this order, declared by Obama himself, to lower unemployment below 8% of the bar and put the economy on the path of sustained growth. However, three years later, the unemployment in the United States remained above 8% over the predictions. In terms of growth of the eleven economic recoveries recorded in the U.S. over the past 60 years, the Obama turns out to be the weakest, the most uncertain and the slowest of all.

When one refers to these results more than inadequate, the guides of Keynesianism will not shift either. They claim that while the economic situation would have been worse if there had been no stimulus package and when they are told that the purpose of Obama’s plan was not to soften the effects of the recession but to overcome it, then they proceed an entirely new argument, namely, that to overcome the recession, eight hundred billion dollars is not enough, he would spend another few hundred billion more. Consequently, bothered by facts, the supporters of careless spending modify their arguments appropriately depending on circumstances. Finally, short of recent success, they released an old joker out of pocket: they appeal to the New Deal launched by Roosevelt in 1933, with the massive spending that has driven, and supposed to, according to them, have thrown the United States in the Great Depression.

Except that the New Deal was not the big success, because it did not prevent the American economy from sinking in 1937 in a depression. The Dow Jones fall by 49% between March 1937 and March 1938, industrial output reduced its size by 40% between August 1937 and January 1938, and the unemployment has risen from 14% to 19%, while in Europe, without a New Deal, the unemployment rate was 12% in 1938. Therefore in 1938, Roosevelt was forced to change course and to reduce or eliminate some taxes and has introduced a package of incentives to the private sector. The persistent upturn starts at that time and not, as it is usually believed, with major expenditures in 1933. The supporters of public spending also claim to have the solution to the problems of countries like those of southern Europe, who are struggling with unsound sovereign debt.

For the Keynesian disobedient, whether to address the deficit accounts of the state there were increasing of taxes, but without taking anyway expenses, including the public administration, in order not harm economic growth. Again, their theory is contradicted by the facts and if carefully examined there could be noticed that the most effective plans are those who have included cuts in public spending without tax increases. A team from the International Monetary Fund reached a similar conclusion that the cuts in public spending and structural reforms which include lower payroll taxes and the liberalization of the labor market are the only ways to reduce long-term sovereign debt of a country.

In fact, if government’s spending actually allowed stimulating the economy pr preserving it from the recession there is the question why the countries, such as Greece and Italy are in trouble as they are currently going through. Without a doubt, the answer has been already given in the previous lines.

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