12 votes

The Keynesian Fiscal Multiplier is so fudging FRAUDULENT that it's brilliant.

All the credits for the homework done over Keynesian sources and references should go to the Tugwit the Terrible who has given us a simple, no non-sense method of debunking the fraud:

http://tugwit.blogspot.com/

Summary:

The Keynesian fiscal "multiplier" is academic and financial fraud, to falsely justify government spending.

In particular, it is used by Keynesians to justify further Three Stooges Math for:

- the Government Spending Multiplier
- the Tax Cut Multiplier
- the Balanced Budget Multiplier
- the Proportional (Income) Tax Multiplier

ALL of the above derive from their single fiscal "multiplier" FRAUDULENT math notion... ALONE.

Here's the complete derivation of the FRAUD, in its simplest expression, using their own definitions (read on):

Thus, with the following definitions:

Yt = total income
Yd = disposable income = (1-t)Yt = the non-tax fraction of total income
T = taxes = G = government spending

Disposable income Yd is the sum of:
C = consumption (including, a = autonomous consumption)
I = investment
NX = net exports

Further:
b = marginal propensity to consume
1-b = marginal propensity to save
1/(1-b) = their so-called fiscal “multiplier” aka "GSM" ... gov't spending multiplier

Notes:

i) b cannot retain a fixed value, without illegally placing addition first in the math order of operations

ii) Equations 3 through 9 really are only the same equation. Equations 3 through 9, plus 12 and 13, can be set equal to each other, and therefore must give the same result.

iii) When G increases $1 through tax T, Yd decreases $1, so Yt doesn’t change, let alone get “multiplied”.

Now, let's use Tugwit the Terrible's simple way of debunking it...

Three Stooges Math

First, let's start with Keynesians' proud conclusion...

Keynesians say if b = 0.8, and $1 is added to G in equation 12, the $1 gets "multiplied" by 5, resulting in a $5 increase in national income.

Which is an INSULT to your intelligence if you understand the definitions, along with the above preliminary notes (i) to (iii).

But let's pretend we're innocent and, surprised by the statement, we decide to give a closer look at the derivation...

The First Disguise

First, notice how, in equations 3 and 4, the name of the tax variable T, is now changed to G, government spending.

3) Yt = Yd + T

4) Yt = Yd + G

This is an example of Orwellian doublespeak/doublethink. After changing the name of the variable, they refuse to acknowledge that T = G.

This does two things:

1) It now appears that G adds to income without decreasing disposable income.
2) Since T has now “disappeared“, when we later see -T, or -bT, or -(1-b)T, there doesn’t appear to be anything to subtract them from.

For instance, let’s substitute Yt -T for Yd in equation 4:

4) Yt = Yd + G ... or: Yt = Yt - T + G

See what I mean? G - T = 0 isn’t nearly as obvious as T - T = 0.

Disguising tax is key to the scam.

The GDP Equation

In equations 6 and 7, now they make (1-b)Yd disappear, by disguising it as a+I+NX.

More of essentially useless variables to add to the confusion and distract the suckers.

That's when Keynesian arouse themselves by invoking "the GDP Equation":

In equation 6, disposable income is thus itemized into C+I+NX to make it what they call "the GDP equation".

6) Yt = C + I + NX + G

So G appears to add to total income without decreasing C, I, or NX.

Isn’t it interesting to see the GDP equation, with no mention of tax?

How convenient.

Is it not?

But there's more...

The Asinine Substitution

We substitute equation 2, for the only visible instance of disposable income in equation 7, and get equation 8:

2) Yt - T = Yd
7) Yt = bYd + a+I+NX + G
8) Yt = b(Yt -T) + a+I+NX + G

It’s legal (under the condition that b can remain constant) ... but ASININE.

Equation 7 is just a rearrangement and restatement of equation 2. We’re substituting an equation back into itself. And we’ve already seen the results of substituting equation 2 for Yd, in equations 3, 4, and 5.

Total income equals total income. Duh.

And if we add $1 to total income, total income increases $1. Duh, bis repetita. Nothing is multiplied.

The only difference here, is that the second instance of disposable income in (1-b)Yd is now hidden in a+I+NX in equations 7 and 8.

Do you see how the scam is working?

This is another example of Orwellian doublespeak/doublethink.

Having substituted Yt-T for Yd, some Keynesians then remove the label from Yt, to get Y-T, and never use the term Yd, to make it difficult to debunk their three stooges algebra.

But this scam is blown six ways to Sunday, already:

From equation 8 and on, it doesn't make any mathematical sense any longer...

NO WAY that adding $1 to government spending in equation 4, thus decreasing the disposable income, Yd, as much, and leaving Yt constant there, can somehow "magically" increase the latter, seen as the GDP in equation 12.

... if only because the variable G is caught BETWEEN PARENTHESES of the right hand side of equation 12 already, and the rewritings done using b, Yt, Yd in equation 8 were mathematically FRAUDULENT from that point and on, since b CANNOT remain constant as G increases in equation 7.

Q.E.D.:

The Keynesian Fiscal Multiplier is so fudging FRAUDULENT that it's brilliant.




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Gotta love it when the math proves

what we've all inherently known for some time.

Thnx Cyril!

Cyril's picture

Besides the Three Stooges Math debunking proper

Besides the Three Stooges Math debunking proper, Tugwit also made a good post on how/why, likely, the scam managed to be working for so long, not just with politicians, but also in academia, re: psychology, ignorance/disdain for math, etc:

http://tugwit.blogspot.com/2012/08/pt-4-fiscal-multiplier-de...

Many very good points made, IMO.

"Cyril" pronounced "see real". I code stuff.

http://Laissez-Faire.Me/Liberty

"To study and not think is a waste. To think and not study is dangerous." -- Confucius

Didn't a dictator once say:

Tell a big enough lie often enough, and most will believe it? (or something like that ..........)

But that man should play the tyrant over God, and find Him a better man than himself, is astonishing drama indeed!~~D. Sayers
Love won! Deliverance from Tyranny is on the way! Col. 2:13-15

www.dailypaul.com/280083/jesus-christ-vic

Cyril's picture

The quote is usually attributed to Joseph Goebbels

The quote is usually attributed to Joseph Goebbels, Reich propaganda minister of Hitler.

"Cyril" pronounced "see real". I code stuff.

http://Laissez-Faire.Me/Liberty

"To study and not think is a waste. To think and not study is dangerous." -- Confucius

Thanks, Cyril!

I knew it was associated with that particular regime, didn't recall it was the propaganda minister. Thank you!

But that man should play the tyrant over God, and find Him a better man than himself, is astonishing drama indeed!~~D. Sayers
Love won! Deliverance from Tyranny is on the way! Col. 2:13-15

www.dailypaul.com/280083/jesus-christ-vic

Cyril's picture

I figured that it may not become immediately apparent

I figured that it may not become immediately apparent, from the Keynesians' cooking of formulas, what actually underlies this complete fraud of theirs.

It is quite amazing they could devise such a deceptive way of tricking entire generations (at least two) of academia and politicians into such an absolutely non scientific, wishful and idiotic nonsense at best, although more likely utterly cynical and evil instead.

So let's break it down again in some more plain english, while referring to the same formulas.

Beyond the obscure and pedantic vocabulary, another good deal of the fraudulent scheme relies on the math making ambiguous denotations of the economic model they're supposed to articulate and to make deductions about.

Let's start with equation 1:

it's clearly total income = total income, without any notion of government intervention or even consumption whatsoever at this point.

We can notice how, in equation 2, they're eager to plunder as early as possible, as they can't help but introduce taxation upfront (i.e., the arbitrary taking of a fraction of the income for whatever purpose they'll deem necessary later on).

Of course, in equation 3, they can't really avoid accounting (so generously!) for the fact that, er... well... a part of the income is ALSO supposed to be utilized usefully... please?... if only for living, hence:

total income = disposable income + taxation

or

Yt = Yd + T

Now, we've already explained why the apparently useless renaming of T (tax) into G (government spending), in equation 4.

This starts getting really interesting from there, actually.

So, what is "disposable income"?

Well, at that point, we take it that's whatever remains (to live on) from the total income AFTER you've been stolen G, at gun point, for the sake of government spendings.

When you model things in maths, it's not enough to manipulate your algebra correctly:

you must ALSO stick to proper interpretations, which do not change, from one occurrence of a variable instance to another in another formula.

In other words: you must respect the "type" of the things you manipulate and move around thru math symbols.

Here, Yd, the disposable income, should be considered "fixed" as long as Yt and G are, themselves.

In equation 6, they maliciously bring some fog that'll help them deceive:

Yd is now decomposed in C + I + NX : the sum of the consumption, investment, and net exports.

In equation 7, it's not enough: C is further decomposed into the autonomous consumption, plus this b * Yd term.

At that point, it is clear that, for whichever G was decided to be taken out of Yt, and if a + I + NX is determined by "our living"/free will, then b * Yd must account for:

(b * Yd) + G = Yt - (a + I + NX)

That's just another form of equation 7, rewritten, that Keynesians conveniently ignore, of course.

While Tugwit the Terrible does a good job, IMO, to debunk the fraud simply enough, he didn't mention that form for equation 7, either.

Yet, I think it is useful as well, along with some common sense.

Indeed, for whatever total income you've managed to come up with, BY YOUR HONEST WORK (or fortune provided by nature and/or charity from other countries, why not) and for whichever taxation has been determined, it should be clear that:

if the total income, Yt, doesn't change, and NEITHER DO your living needs, distributed as Yd in a term on the left and (a + I + NX) on the right, but your taxes (G = T) increase, then there's no other way to maintain the equality WITHOUT affecting that so called "marginal propensity to consume", held by that factor b, also on the left - and all while the right hand side doesn't change.

Thus, b CANNOT be considered constant any longer, if G is to vary...

If G increases, b * Yd, for the same Yd, MUST BE smaller, that is: b MUST decrease, and thus isn't the same thing any longer. Where's the new definition for b, if it is to be variable or a function of something else, like... G?

Or... same remark about Yd, if it has to decrease because of an increase in G, for a fixed b?

Such definitions are NO WHERE to be found. Keynesian Fraud Flag. Three Stooges Math Flag.

From then on, everything of sound math falls apart, if one is careful enough to REMEMBER what the variables denote.

Or, if one is RECKLESS enough to forget what they denote, then yes, anybody can pretend that b doesn't vary, and neither Yd does, etc.

Hence, the illegal, deceptively maintained mix-up continued from equation 8 and on.

Giving the nature of things denotated by Yt, Yd, a, I, and NX, an increasing (or decreasing) G in equation 7 prevents you to further derive legal maths from it, by substituting (Yt - T) for Yd, and STILL claiming that you're using the same b until the end.

This just isn't the case.

From equation 8 and on, the sole purpose of such fraudulent formal manipulations is to drive the superstitious reader of this Keynesian nonsense to the stunning conclusion that equation 12 APPEARS to bring:

that, somehow, by increasing the G caught inside the parentheses, the resulting total income Yt on the left - by then also seen as the GDP - could increase by this oh so convenient "1 / (1 - b)" factor cooked for the occasion - from equations 8 to 11.

The scam just blows off.

In other words:

No way the mere increase of government spendings can create wealth !

DUH !

But hey, these frauds, parasites, crooks, liars, smokers of I don't know the hell what, STILL NEEDED to give a try at Three Stooges Maths to convince suckers that it does.

What is really MIND BOGGLING is that they ACTUALLY SUCCEEDED to have some people swallow it for so long.

:/

"Cyril" pronounced "see real". I code stuff.

http://Laissez-Faire.Me/Liberty

"To study and not think is a waste. To think and not study is dangerous." -- Confucius

bump...but

I have a hard enough time just explaining the concepts of redistribution of wealth and how taxation is theft.

It's a good find though and I will bookmark it for future reference. Every now and then I find somebody who has the capacity to understand that 'Keynes' and 'Keysian(ism)' have nothing to do with Obama's birth certificate.

WELL DUH

everyone knows that government spending adds to GDP... see its 50% from the tax payer PLUS 50% into taxes PLUS 50% from spending PLUS 50% in deficit spending...

look everything is fine yo... 50%+50%+50%+50% =100%

Tools of war are not always obvious. The worst weapon is an idea planted in the mind of man. Prejudices can kill, suspicion can destroy, and a thoughtless, frightened search for a scapegoat has an everlasting fallout all of its own.