Its late so I dont really want to post a page. I can tell Overstand is an econ major, good. I learned alot more valuable information from that major than if I would have taken up Business Mngt or something by comparison. The references to interest rates and all that you quoted, specifically with IS-LM curves is the same jargon I learned in college. I am sure they went over various monetarist and keynesian principles with you as evidenced.
For the most part though Keynesism is drastically flawed. First, the “multiplier” which most of the earlier models is based on assumes that money continues percolating throughout the economy. This looks good on graphs and in statistical models, but as evidenced by our attempt at a “stimulus” it does not work when the actors in question sit on the money. I am not even getting into the relative values of money yet either. So Trillions of dollars were injected into an economy, by a keynesian multiplier this should have greatly increased aggregate output.
Secondly, with a fiat currency you ARE at the whim of the government completley. Even to play Devils advocate, as you say the Fed does a wonderful job at its dual mandate of full employment and stable prices (more or less a crock of shit). Suppose you have events such as our current situation. To illustrate a similar instance, look at the Weimar republic. Now, one can say that the German economists at the time were flawed in their thoughts on monetary supply impacting prices, but the PEOPLE had no say in the loss of their own purchasing power for a government bailout. This alone is antithetical to a free market and leads into my next point.
The arguments which keynes, krugman, most modern economic policy are based on are flawed like a house built on sand. The statistical “models” and such assume that all actors in all markets will act in predictable fashions, thus conclusions can be extrapolated far beyond any sort of valid observation. For remedying this, and further educating yourself in your own field i would recommend the following:
Murray Rothbards: Man Economy and State. Most of what you currently assume about interest rates, prices etc will be changed. Money does not set interest rates, people do as a time preference.
I dont really want to summarize all of Rothbards theories here but I can leave you with one easy to understand analogy.
A business has to allocate resources to make a profit, thus resources will be allocated in the most efficient manner based on a valuation structure. Firms will make profits that allocate well and satisfy current/future consumer needs, certain firms will make just enough to meet the margins, others that cannot allocate to meet consumer needs will go out of business.
The government, i say this loosely, does not operate with a necessity to profit. Thus, resources are not allocated to their most highly valued ends that come from such a profit motive. This leads to waste and erroneous use of resources. A prime example of this was the housing bubble pumped up by artificial liquidity from the Fed. This bubble was created to stem the fallout from another fed related bubble in the dot com era. Sound Currency that is not purely printed, would negate alot of the malinvestment. If the government makes a bad allocation, they issue more bonds, or print more dollars. There are long term consequences.
I hope that helps, but I do think whatever anyone thinks, they should at least read some Rothbard, Hayek, or Mises for a new perspective to bring to the table.
