tag:blogger.com,1999:blog-27630973.post114700648132609892..comments2012-05-07T10:41:55.258+08:00Comments on Hyperwage Theory: Part 25 - Hyperwage Theory: The Reality of the Keynesian MultiplierStreet Strategisthttp://www.blogger.com/profile/02537286796604768923noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-27630973.post-20010247270535692642012-05-06T09:06:52.512+08:002012-05-06T09:06:52.512+08:00Huerta de Soto :
"Indeed the multiplier indi...Huerta de Soto :<br /><br />"Indeed the multiplier indicates that any increase in credit expansion will cause a rise in real national income equal to the reciprocal of the marginal propensity to save (one minus the marginal propensity to consume). Hence according to Keynesian logic, the less people save, the more real income will grow. ... Credit expansion will stimulate investment that will drive up the price of the factors of production and bring about a subsequent, more-than-proportional increase in the price of consumer goods and services. Even if gross income in money terms rises as a result of the injection of new money created by the banking system, the multiplier, owing to its mechanical and macroeconomic nature, is inadequate to depict the disruptive microeconomic effects credit expansion always exerts on the productive structure. Consequently the multiplier masks the widespread malinvestment of resources which in the long run impoverishes society as a whole (rather than enriching it, as Keynes alleges). We agree with Gottfried Haberler when he concludes that the multiplier ...<br /><br />"turns out to be not an empirical statement which tells us something about the real world, but a purely analytical statement about the consistent use of an arbitrarily chosen terminology — a statement which does not explain anything about reality. . . . Mr. Keynes’ central theoretical idea about the relationships between the propensity to consume and the multiplier, which is destined to give shape and strength to those observations, turns out to be not an empirical statement which tells us something interesting about the real world, but a barren algebraic relation which no appeal to facts can either confirm or disprove."<br /><br />Short-term unemployment can only be eliminated through “active” policies if workers and unions let themselves be deceived by the money illusion, and thus maintain nominal salaries constant in an inflationary atmosphere of soaring consumer prices. Experience has shown that the Keynesian remedy for unemployment (the reduction of real wages through increases in the general price level) has failed: workers have learned to demand raises which at least compensate them for decreases in the purchasing power of their money. Therefore the expansion of credit and effective demand, an action Keynesians supported, has gradually ceased to be a useful tool for generating employment. It has also entailed a cost: increasingly grave distortions of the productive structure. In fact a stage of deep depression combined with high inflation (stagflation) followed the crisis of the late seventies and was the empirical episode which most contributed to the invalidation of all Keynesian theory."<br /><br />Etienne Mantoux :<br /><br />"It is altogether reasonable to use a term such as the “multiplier” to express a fact patent to everyone; one may go on to regard the proportion of income devoted to consumption as an independent function; lastly, it is quite permissible to make a certain function, called the “multiplier,” depend by definition on a certain variable called the “propensity to consume.” It is another matter to turn this formal relationship into a causal relationship. The entire demonstration, it would seem, nevertheless rests on this function."Meng Huhttp://www.blogger.com/profile/10656881172906444719noreply@blogger.comtag:blogger.com,1999:blog-27630973.post-12954344339218896212012-05-06T09:06:28.880+08:002012-05-06T09:06:28.880+08:00That theory is actually flawed.
Hazlitt :
“Let u...That theory is actually flawed.<br /><br />Hazlitt :<br /><br />“Let us try to look at one probable origin of the concept. If a community’s income, by definition, is equal to what it consumes plus what it invests, and if that community spends nine-tenths of its income on consumption and invests one-tenth, then its income must be ten times as great as its investment. If it spends nineteen-twentieths on consumption and invests one-twentieth, then its income must be twenty times as great as its investment. If it spends ninety-nine-hundredths of its income on consumption and invests the remaining one-hundredth, then its income must be a hundred times its investment. And so ad infinitum.<br />These things are true simply because they are different ways of saying the same thing. The ordinary man in the street would understand this. But suppose you have a subtle man, trained in mathematics. He will then see that, given the fraction of the community’s income that goes into investment, the income itself can mathematically be called a “function” of that fraction. If investment is one-tenth of income, income will be ten times investment, etc. Then, by some wild leap, this “functional” and purely formal or terminological relationship is confused with a causal relationship. Next, the causal relationship is stood on its head and the amazing conclusion emerges that the greater the proportion of income spent, and the smaller the fraction that represents investment, the more this investment must “multiply” itself to create the total income!”<br /><br />“The final criticism of the multiplier that must be made is so basic that it almost makes all the others unnecessary. This is that the multiplier, and the whole unemployment that it is supposed to cure, is based on the tacit assumption of inflexible prices and inflexible wages. Once we assume flexibility in prices and wages, and full responsiveness to the forces of the market, the whole Keynesian system dissolves into thin air.”Meng Huhttp://www.blogger.com/profile/10656881172906444719noreply@blogger.comtag:blogger.com,1999:blog-27630973.post-91377033485189379912007-05-16T04:29:00.000+08:002007-05-16T04:29:00.000+08:00You use HK and Singapore as comparisons. They sta...You use HK and Singapore as comparisons. They started out poor, but eventually became rich. Do you really think they got that way by engaging in MLM-style mumbo-jumbo economics (what "Hyperwage" sounds like to me) ?<BR/><BR/>No, they became wealthy by figuring out how to stimulate production and other forms of wealth creation within their economies. That is the underlying *reality* of it all. All the fancy economic theories will not help if a society does not figure out how to increase production, and "Hyperwage"'s prescriptions and notions on how it will supposedly stimulate productivity do not necessarily follow. They are mainly based on pretty loose assumptions.Anonymousnoreply@blogger.com