Adam Smith: "What is prudence in the conduct of every private family, can
scarce be folly in that of a great kingdom."
Keynes (in essence): What is folly in the conduct of a private family is prudence in the conduct of the affairs of a great nation.
Here is a good overview of how Canada performed well by doing the opposite of Keynes' prescriptions. The author (St. Louis Fed Vice President) seems to think that institutions, not economic doctrine, play the most important role. Some excerpts below:
Austrians of course do the same (e.g. their erroneous prediction of high inflation patched-up because the cash was "tied up in excess reserves").
If there's one thing economists should stay away from, it's pretending that their forecasts have an aura of "science." Too bad that it is through being a false prophet that economists make their money.
Keynes (in essence): What is folly in the conduct of a private family is prudence in the conduct of the affairs of a great nation.
Here is a good overview of how Canada performed well by doing the opposite of Keynes' prescriptions. The author (St. Louis Fed Vice President) seems to think that institutions, not economic doctrine, play the most important role. Some excerpts below:
"In 1993, Jean Chretien's Liberals were elected with a majority government and, with their February 1995 budget, embarked on a period of fiscal tightening."
 |
| US/Canada Government Debt as % of GDP |
"So, given those kinds of fiscal cutbacks, maybe you're thinking that we should have seen a contraction in aggregate economic activity in Canada. But that didn't happen."
 |
| US/Canada Real GDP (Index, 100 = 1995 Q1) |
"Maybe those Canadians cut spending when cyclical conditions were very favorable - we know that Keynesian economics only applies to periods of slack. [There was plenty of slack at the time in Canada, 9.8% unemployment in 1995.]
"But, not so fast. Maybe monetary policy is helping things along? [But that was also not the case.] There is actually a net exchange rate appreciation from 1995 to 2005 [and] it's more or less a wash [between monetary "tightness" in the U.S. and Canada as measured by the short-term overnight rates]."Krugman would (and does) give a lot of "but this was special because...." arguments after-the-fact (including for the U.S. sequester, the UK, Ireland, Abenomics, the Baltics, etc. etc.).
Austrians of course do the same (e.g. their erroneous prediction of high inflation patched-up because the cash was "tied up in excess reserves").
If there's one thing economists should stay away from, it's pretending that their forecasts have an aura of "science." Too bad that it is through being a false prophet that economists make their money.
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