Thursday, May 17, 2012

Investopedia Unabshadly Comes Out in Favor of Keynesian Economics

Investopedia is a really good website to go to for the conventional economic view.  Being that, it is less than favorable to John Maynard Keynes and Keynesian economics in many of it's articles.  In many cases they state things he  supposedly got wrong or go as far as putting words in his mouth like, "the government can spend your money better than you"(note: he never suggested anything like that).  It's for that reason I had a good laugh when I read their article on Mercantilism which states(emphasis mine):

This approach assumes the wealth of a nation depends primarily on the possession of precious metals such as gold and silver. This type of system cannot be maintained forever, because the global economy would become stagnant if every country wanted to export and no one wanted to import. After a period of time, many people began to revolt against the idea of mercantilism and stressed the need for free trade. The continued pressure resulted in the implementation of laissez faire economics in the nineteenth century.
The emphasis part is exactly right.  It is impossible for every country to increase exports because those export must go to a country as an import.  If every country tries to do export and bans imports, then overall trade is reduced as nations stop importing.  The hilarious part is that this is one of the fundamental precepts of Keynesian economics.  This is almost exactly the Paradox of thrift.   It is impossible for every person to save money because that money they save must come from someone who is spending.  Your consumption is my Income.

The best part of this is how matter-of-fact it makes the point.  It offers no qualifications on the statement because mercantilism is so universally condemned.  It never occurred to me until recently that it's universally condemned for the opposite reason that market fundamentalists condemn Keynesian economics.

It's nice to see investopedia accept such an important keynesian concept.  Now, maybe a Keynesian wrote that article and would explain the apparent contradiction between the overall site and this particular article(probably not, but maybe).  Even so, I bet I could show that article to any market fundamentalist and they would not see anything wrong with that statement simply because it is used to promote "laissez faire".
Leave a Comment