KEYNESIAN ECONOMICS 101


LEARN HOW WE CAN EMPLOY EVERYBODY BY REBUILDING OUR INFRASTRUCTURE WHILE REDUCING OUR DEBT RATIO MORE THAN 5%

Please join my on-line economics class by clicking on the first lecture below, after the dedication. You don’t have to register, pay a fee, keep a schedule, do homework, or pass an exam for credits, diplomas, or degrees. You don’t have to log-on, enter a user name, or remember a password. But if you study, you will discover the ONLY way out of this mess. Economics is too important to be left to the economists. And the most important and most controversial question in economics, dividing our government, our voters, and perhaps your family, is the theory of British economist John Maynard Keynes (1883-1946). Biography as extended by his student and colleague at the London School of Economics, British (and then American) economist Abba Ptachya Lerner (1903-1982). Biography Our current “Great Recession” brought us plummeting tax revenues, exploding recovery costs, a large federal budget deficit, and hysterical cries for less government spending NOW, exactly when we should be employing our idle resources to rebuild our decaying and obsolete infrastructure. With effort, anyone with an above-average IQ can understand Keynes. But that’s only half of us, so our half must out-vote the other. And that’s why I’m offering this free learning opportunity. Below is a short summary of Keynesian ecomomics that requires only a 12-year-old’s knowledge of algebra. and, since it is more difficult than the lectures, serves as an entrance examination of sorts. If you cannot follow the math, get help from a 12-year-old. THE KEYNESIAN CATECHISM Unemployment rate ≈ 9%. National Debt = ND ≈ $14.5T. Gross Domestic Product = GDP ≈ $14.8T. Debt Ratio = DR = ND / GDP ≈ 98.0%. What should Congress do? Just as World War II DEstruction ended our Great Depression, so will massive, nation-wide CONstruction end our Great Recession. With a stimulus large enough to employ everybody who can work (à la World War II), the newly employed will rebuild our infrastructure, spend their paychecks, boost GDP, and multiply tax revenue. The magic of stimulus is in the multiplier: M ≈ 2.5. If the stimulus = S dollars spread over five years, then average GDP growth = ΔGDP = Multiplier × Stimulus / 5 = M × S / 5. Since GDP growth increases tax revenue and, relative to GDP, our tax burden (for all levels of government) = TB ≈ 30%, therefore our five-year tax revenue growth = ΔTR = GDP growth × Tax Burden × 5 = ΔGDP × TB × 5 = (M × S / 5) × TB × 5. = M × S × TB. And our Infrastructure Purchase Discount = IPD = ΔTR/S = (M × S × TB) / S = M × TB ≈ 2.5 × 30% ≈ 75%, which ain’t bad. But if M = 3.0 (Yes, it’s possible!) and TB = 33% (as it should!), then IPD = M × TB = 3.0 × 33% = 99%!! and that comes with full employment, too! And if M ≈ 2.5 and S = $4T spread over 5 years then average GDP growth = ΔGDP, = M × S / 5 ≈ 2.5 × $4T /5 ≈ $10T / 5 ≈ $2T. And the average GDP growth rate = ΔGDP / GDP = $2T / $14.8T = 13.5% (as during WW II) and our Treasury bond rating goes to AAAA++++!!!! and our Treasury bond interest rate drops!!!! And 5-year tax revenue growth = ΔTR, = M × S × TB ≈ 2.5 × $4T × 0.3 ≈ $3T And the new (post-stimulus) ND = ND + S - ΔTR ≈ $14.5 + $4T - $3T ≈ $15.5T. And the new (post-stimulus) GDP = GDP + ΔGDP ≈ $14.8T + $2T ≈ $16.8T. And the new (post-stimulus) Debt Ratio (DR) = new ND / new GDP ≈ $15.5T / $16.8T ≈ 92.3%. And the Debt Ratio change = ΔDR, = the new (post-stimulus)DR - DR ≈ 92.3% - 98.0% ≈ -5.7%!! Although the ND increased, the DR decreased! So, with a stimulus of $4T, we can re-employ millions to rebuild our crumbling infrastructure and also reduce our debt ratio by over 5%! Just as World War II spending hired millions who traded their Victory bonds for cars and homes and turned old farms into new suburbs, so will rebuilding our infrastructure restore our prosperity. But what determines the value of the multiplier, M? My course answers your questions about Keynesian economics. I have tried to simplify the theory so that, by understanding the facts and logic, every citizen with an above-average IQ can cast an informed vote. Did I succeed? You tell me! I welcome your comments and questions. In any case, I did my best. Now,it’s your turn. Click on Lecture 1. in the list of lectures following the dedication below, Marvin Sussman, retired engineer ©2011 Marvin Sussman All Rights Reserved.

DEDICATION

This web site is dedicated to my fellow World War II 4th Cavalry Reconnaissance Squadron “A” troopers. My “Fighting Fourth” was a regular US Army unit with a history reaching back before the Civil War. Before entering World War II combat, all the commissioned officers were graduates of West Point or the Virginia Military Institute. The non-commissioned officers had all served five to 25 years in the mounted cavalry. These were men who devoted their lives to the defense of their nation. All the privates were wartime volunteers from every corner of the nation: Brooklyn Italians, Chicago Poles, Irish, and Jews, Carolina Appalachians, Minnesota Scandinavians, Dakota Sioux. For the D-Day assault on Normandy, in the wee hours of the morning, long before H-Hour, “A” troop cleared a fortified island lying off the Normandy coast, opening the way to the mainland. My sergeant, Harvey Olson, and Corporal Thomas Killoran, both of the 2nd platoon, were the first American soldiers to land on a French beach, swimming ashore with only flashlights to guide the landing craft. As a boy, Sergeant John Onken, of the 3rd platoon, came to America from Germany with his parents after World War I and retained a slight accent. Especially friendly toward Jewish troopers, John could not understand why Germany followed the Nazis. John Onken was the first American soldier to die on a French beach. In 11 months of combat, from Utah Beach to the heart of Germany, “A” troop, no more than 140 men at full strength (and never at full strength), suffered more than a hundred battle wounds and 36 deaths, including two captains and four lieutenants. President Franklin Delano Roosevelt awarded his Distinguished Unit Citation to the 4th Cavalry Reconnaissance Squadron for its “...gallantry and esprit de corps... above and beyond the call of duty...” during the “Battle of the Bulge”. These troopers saw their country in peril, and, in keeping with the highest traditions of the US Cavalry, they rode to its rescue, and did extraordinary deeds of valor. While honoring their service, may this web site also enhance the heritage they preserved.


LIST OF LECTURES



Lecture 1. FEDERAL GOVERNMENT & NATIONAL DEBT

Lecture 2. GROSS DOMESTIC PRODUCT

Lecture 3. THE ACCOUNTING MODEL OF GDP

Lecture 4. THE MONEY SUPPLY

Lecture 5. DEFICITS & THE DEBT RATIO

Lecture 6. THE LIMIT TO DEFICIT SPENDING

Lecture 7. EXPLAINING THE MULTIPLIER

Lecture 8. THE CONSUMPTION MODEL

Lecture 9. FINDING THE MULTIPLIER VALUE

Lecture 10. STIMULUS ON STEROIDS

Lecture 11. INDEBTEDNESS: THE STIMULUS EFFECT

Lecture 12. THE BREAK-EVEN MULTIPLIER

Lecture 13. DEPRESSION, WAR & POST-WAR

Lecture 14. RECENT DEBT HISTORY

Lecture 15. RECESSION & RECOVERY

Lecture 16. EVALUATION OF ARRA

Lecture 17. HONESTY vs DISHONESTY

Lecture 18. WEALTH vs POVERTY

Lecture 19. LIVING WITH DEBT

Lecture 20. DEFICIT SPENDING

Lecture 21. BUDGETS & INFRASTRUCTURE

Lecture 22. TAX RATES & SOCIAL SECURITY

Lecture 23. HEALTH CARE

Lecture 24. THE WAR ON DRUGS

Lecture 25. LIBERALS vs CONSERVATIVES

Lecture 26. JOBS, JOBS, JOBS




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