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Eminentoes
The Madness of Lord Keynes
Enlightened experts haven’t saved us from their hubris.
After almost four years of stimulus-packages, deficit-spending, and quantitative easing, it now seems obvious that traditional “Keynesian” remedies to our current economic woes have failed to put America back on track. Nevertheless many economists and politicians continue to promote such measures as the primary means for overcoming our economic problems. How else can we explain former House Speakers claiming that unemployment benefits translate into growth, or Nobel Prize winners insisting that previous stimulus-packages were inadequate to do the job?
The reasons for this stubbornness are many. It reflects, for example, an almost-touching faith in particular technical arguments, such as claims that a dollar of state-spending creates more demand than a dollar of tax-cuts.
It’s arguable, however, that something else is also driving this state of affairs: the deeply-held belief that modern economies require an enlightened class of experts to manage them. Obviously it’s a position that helps rationalize the pre-eminence of anyone belonging to such a group. But it also owes much to John Maynard Keynes’s own views about the role of intellectual elites in contemporary societies: convictions that, over time, look ever more hubristic.
Keynes himself is often regarded as a rather rebellious figure. Like most of the Bloomsbury circle of British artists and writers with whom he was associated, Keynes was inclined for much of his life to regard traditional morality with a deeply jaundiced eye. Nor did Keynes hesitate to publicly mock government leaders with whom he disagreed. The book that first brought him fame, The Economic Consequences of the Peace (1919), not only trashed the Treaty of Versailles as morally and economically ruinous. It also portrayed politicians such as Britain’s Lloyd George (“ill-informed”), France’s George Clemenceau (“dry in soul, empty of hope”), and America’s Woodrow Wilson (“slow and unadaptable”) as men with feet of clay, veering between utopian idealism and Machiavellian cynicism.
Yet despite his iconoclastic reputation, Keynes was a quintessentially establishment man. For his entire life, Keynes moved easily among the Oxbridge-Whitehall elites that dominated Britain throughout the 1920s, '30s, and '40s. Nor was Keynes himself averse to government service. Among other things, this included time as a senior Treasury official, a Bank of England director, and leadership of Britain’s delegation to the 1944 Bretton Woods conference — all of which he did while working as an active Cambridge don.
It’s a pattern that contrasts with the path followed by Keynes’s free-market critics such as Friedrich Hayek and Wilhelm Röpke. Generally shunned by America and Europe’s political and academic insiders, they exerted influence primarily from the “outside”: not least through their writings capturing the imagination of decidedly non-establishment politicians such as Britain’s Margaret Thatcher and West Germany’s Ludwig Erhard.
The story of Keynes’s rise as the scholar shaping economic policy from “within” is more, however, than just the tale of one man’s meteoric career. It also heralded the surge of an army of activist-intellectuals into the ranks of governments before, during, and after World War II. The revolution in economics pioneered by Keynes effectively accompanied and rationalized an upheaval in the composition and activities of governments.
From this standpoint, it’s not hard to understand why New Dealers such as John Kenneth Galbraith were so giddy when they first read Keynes’s General Theory. Confident that Keynes and his followers had given them the conceptual tools to “run” the economy, scholars like Galbraith increasingly spent their careers shifting between tenured university posts, government advisory boards, international financial institutions, and political appointments — without, of course, spending any time whatsoever in the private sector.
In short, Keynes helped make possible the Jeffrey Sachs, Robert Reichs, Joseph Stiglitz’s, and Timothy Geithners of this world. Moreover, features of post-Keynesian economics — especially a penchant for econometrics and building abstract models that borders on physics-envy — fueled hopes that an expert-guided state could direct economic life without necessarily embracing socialism. A type of nexus consequently developed between postwar economists seeking influence (and jobs), and governments wanting studies that conferred scientific authority upon interventionist policies.
But as Röpke observed in the 1950s, these developments also reflected an understanding of the economy as a type of hydraulic machine, the functioning of which could be directed towards pre-determined ends by flipping levers such as interest-rates and public-sector spending levels. Not surprisingly, such views often went hand-in-hand with a certain disdain for — and ignorance of — the messier real world of business. As the American businessman and banker Russell Leffingwell observed of Keynes and his acolytes following Britain’s 1931 decision to abandon the gold standard:
The Treasury civil servants who to a greater or less extent follow him, have not the judgment of practical men. They are mathematical tripos men. They are civil servants. They are professors.…They are not bankers and they are not business men. The one thing that bankers and business men… know is that confidence is based on keeping one’s promises. That is something Keynes will never know.
To be fair to Keynes, he expressed doubts at the end of his life about what he had helped unleash. In 1946, Keynes told the British economist Sir Henry Clay, “I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago.”
Likewise Hayek records Keynes as criticizing that same year the monetary policies then being developed by some of Keynes’s most prominent disciples. “They are just fools,” Keynes reportedly insisted. “You know, my ideas were frightfully important in the 1930s.… But you can trust me, Hayek, my ideas have become dated.” Six weeks later, Keynes was dead.
Unfortunately for the rest of us, the dirigiste genie that Keynes helped foster is well and truly out of the bottle. Making matters worse is that it’s a type of madness that doesn’t immediately appear totally crazy, not least because it appeals to the planner inside all of us. Exorcising this demon requires more than just reassessing our expectations of economics and governments. It also involves our political-academic complex partaking of that most difficult of medicines to which all of us, but perhaps especially intellectuals, are inherently resistant: a generous dose of humility.
About the Author
Samuel Gregg is Research Director at the Acton Institute. He has authored several books including On Ordered Liberty, his prize-winning The Commercial Society, Wilhelm Röpke’s Political Economy, and, most recently, Becoming Europe: Economic Decline, Culture, and America’s Future.
Letter to the Editor View all comments (103) | Leave a comment
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arlo price| 12.19.11 @ 7:00AM
The obamagedon PIMP thugocracy chugs along......
"Yo girl, trust me, the chance of youse gettin' some sorta' VD is small, besides, I loves ya' and I gots enuff money's to take care of youse"
This current administration couldn't care less about a healthy economy and their fellow man. The basis for a secular progressive leftist liberal is ME ME ME. They are, as a general rule, ego-maniacal, short-sighted, of shallow intellect and unable to recognize, much less comprehend truth.
In short, they worship the golden calf.
Let's Roll
Timothy L. Pennell| 12.19.11 @ 11:16AM
They were given "Tools" to Ruin the Economy, not "RUN" it. You left out the "I".
Once again, we have a writer with the wrong Premise. They don't seek a FIX. They seek a Means to an End. And, that END is Socialism. It's Communism. It's a Command Economy, whereby Goods and Services are handed out to the Great Unwashed masses, by their BETTERS.
Just look at Thomas Friedman. LOOK AT HIM! Look at his Smug Face. Listen to his Smug Statements. His greatest desire, is to be an Apparatchik, determining who gets what, according to their WORTH to the Collective.
Look at Geithner. Look at Bernanke. Look at the SMUG MARXIST/MUSLIM SOB, in the White House. His Arrogance. His Demeanor. Look at him at the Podium. See him look out Above, and Beyond, the Nothings that sit before him. :Who are they, compared to ME?"
They already know that Keynes doesn't work, to fix an Economy. If anything, it was meant to be a ONE SHOT, in to the Situation. It's like Welfare. It was never meant to be GENERATIONAL. It was meant to be a Safety Net. But, the LEFT wanted more.
They are using Keynes to mask their true intent. To make every American a Ward of the State. They want us all, to be The Black Community. Totally helpless, without Government's help.
They seek to DESTROY the Middle Class, while accusing the other side of that, which they, themselves, are doing. You cannot have a Middle Class in a Worker's Paradise. You're either RICH or you're POOR. And, of course, I guess you can be VERY POOR. But, you cannot be Middle Class.
Why else would they scuttle the Canadian Pipeline, and the Thousands of Jobs that it will create? Why do they seek to Prevent us from harvesting our own Natural Resources, such as Oil and Gas and Coal, while TELLING US that they are for Energy Independence?
Because they're Lying to us. They Project what they seek, on to their opponents. And, all the while, we get Poorer, and their FRIENDS get Richer. "We Reward our Friends, and Punish our Enemies."
Understand?
Keynes was not a bad person. He was mistaken, is all. What we have here, TODAY, is a well oiled machine, set on Total Control over every aspect of everyones' lives. SIEG HEIL!
'ARBEIT MACHT FREI'
It happened once before. Not that long ago. It can happen again. Believe it.
"All that is required, for Evil to flourish, is for Good Men to stand by, and do nothing."
Indeed.
Purp| 12.19.11 @ 11:40AM
"All that is required, for Evil to flourish, is for Good Men to stand by, and do nothing." - but Dick Cheney no longer has any power ... evil has been thwarted.
Riff Raff| 12.19.11 @ 11:49AM
If evil were truly thwarted, you Purp would never be heard to speak again.
VonMisesJr| 12.19.11 @ 12:28PM
Riff Raff,
Perp is up early today. It is before noon.
I wouldn't let him bother you. He must have been an inner-city social promotion. Everyone knows "Perp" is short for perpetrator. Or perhaps perp is only for B&E and stealing old ladies handbags, and "Purp" may be defined as using government to steal for you under the guise of "social justice."
VMJr.
chuck| 12.19.11 @ 2:52PM
Von,
High school is out for the Holidays, that's why purp, aka purpleguy, is gracing us with his presence.
Riff Raff| 12.19.11 @ 3:13PM
Frankly, I don't think Purp is aquainted with "Grace."
VonMisesJr| 12.19.11 @ 3:28PM
It's Perp for "perp walk." He is out on parole.
Purp| 12.19.11 @ 6:29PM
All of you are jealous of my Xmas vacation aren't ya?
Brian Mc| 12.19.11 @ 7:15AM
The madness of Keynes notwithstanding; the real madness started in 1913 when the government started to ask, "What's in your wallet?" How did the government dupe the populace of the Republic into signing on? By assuring We the People that it would only apply to 2% at a 7% rate of income.
Now that the genie is out of the bottle the talk is NEVER of repealing the apostacy but, instead, the focus is always the percentages no matter what side of the aisle: we are slaves to our own electorate. Until the repeal of this monstrosity (to the very essence of our founding liberties) occurs the false battle will always assure voters that it's only going to effect their neighbor.
We will never right this ship until we eliminate this travesty to the Constitution.
chuck| 12.19.11 @ 8:56AM
I agree that the income tax needs to be repealed, along with the amendment that allowed it. However, Walter Williams had the best comment concerning taxes. He said that as long as 2/3 of the federal budget is unconstitutional, no means of taxation is fair.
The time has come to cut, slash, and burn the federal budget.
Ground Control| 12.19.11 @ 3:18PM
Straight to the point, Chuck. The real problem is 2/3 of the US Government's budget is flatly unconstitutional. Eliminate illegal spending and the need for taxation is lessened greatly, the suppression of the economy by government is lessened, and prosperity will return. This is the natural order of real economics, which existed long before Keynes put his tired thinking to it, and which requires little or no government to occur. Only the arrogance of politicians suppresses the prosperity of the People.
Brian Mc| 12.19.11 @ 4:54PM
I must amiably disagree. Cut off the fuel and the engine does not run. Over time it deteriorates and dissolves. Cut off the taxation and the bureaus, agencies, programs and departments wither away on the vine. The government ends up with what it can get and maintaining that which alone it was intended to maintain from the first.
Purp| 12.19.11 @ 11:42AM
No income tax in this day and age is not reality.
chuck| 12.19.11 @ 2:58PM
Texas, Florida, Tennessee, and several other states have no income tax, yet still find the revenue to fund the state's budget.
Why, oh intellectual giant, is it not reality?
Purp| 12.19.11 @ 6:30PM
Right, and their property taxes are astronomical or haven't you noticed that? They pay one way or another. You can't run a state or a national government on nothing.
John Navratil| 12.19.11 @ 6:44PM
Purp,
In Texas, property taxes are used to fund local and county governments. They are high - expect to pay about $3000 on you $150,000 house. While the state has other sources of revenue, it sales tax that the individual pays to the state (6% in Texas).
KennesawJack| 12.19.11 @ 9:14PM
Purp, by a simple logical progression that must mean that the property owners, AKA the productive class, provide the income to support the dependent class. You should be thrilled with the set-up.
TrueBlue| 12.19.11 @ 3:59PM
The only reason it isn't a reality is because the federal government spends so much money on programs it should not have in the first place. Remove the programs, kill the debt, then repeal the income tax. Yes, it WILL hurt for the short term, but the country will be better for it.
If the states want to have an income tax afterwards to cover their increased costs because they're no longer getting federal money that is the choice of the states. They can determine which social programs they want to keep and get rid of.
Purp| 12.19.11 @ 6:36PM
You couldn't even have the Armed Forces we have without the income tax, let alone the CIA, FBI and all those police state entities you so love. So you'd be cutting everything you DO like as well.
Moreover, there are certain functions that the States are NOT allowed to do - to name a few - Embassies around the world and foreign policy, immigration and border patrol, the Armed Forces and defense of the United States, minting of our currency, Congressional, Judicial and Executive pay for the 3 branches of government and many more. They all cost money - would you advocate the Marines hold bake sales to make themselves profitable? Should the President play Poker with the Chinese Premier for a 100 Billion per hand? Where's the money coming from otherwise? Income tax, that's where. Don't be irresponsible.
John Navratil| 12.19.11 @ 7:15PM
Purp,
Approximately 45% of the receipts to the U.S. government are from personal income taxes. Approximately 45% of expenditures are health/pension/welfare entitlements and 15% education. Defense is approximately 15% and everything else is approximately 25%. So, yes, we could do ALL those things without an income tax if we wished.
John Navratil| 12.19.11 @ 8:57PM
Purp,
I must recant. I've made two errors in the above.
(1) I discounted the expenditures for pension and health without considering the payroll tax on the income side.
(2) I conflated all government accounts with Federal government.
The income to the fed is 55% income tax + 35% payroll taxes, leaving only 10% of revenues to fund a military and all other non-entitlement spending of 40%. You can't touch payroll without touching Social Security and Medicare (though both need to be done). But you could cut income taxes in half and still fund these programs.
Steve| 12.19.11 @ 4:27PM
Purp
Since you favor the income tax, How much do you pay in federal income tax, what is your tax rate?
Purp| 12.19.11 @ 6:38PM
My tax rate is none of your business- suffice to say I make more than most of you on this site. I AM in the 2% of income earners, but since I have enough, I'm not selfish like many of you on this site. I am also Christian and my Christian teachings tell me to share with others, for I am not taking it with me, and be I a rich man, I will not go to heaven. Help the poor by gladly giving to the government programs that help the poor, infirm, young and elderly. What say you?
A.J.| 12.19.11 @ 7:25PM
And your full of shit, twurp, and of course being one of the top 2% earners you have the freedom to sit on your @ss and spend all day on message boards, Right? Genuine top 2% earners don't have the time or inclination to waste time posting BS on comment sites. What you do with your "vast fortune" is your business, just don't tell anybody what they do with theirs or who is being selfish because your not the arbitrator of who is or isn't because frankly its none of your f'ing business. Thats what I say!
VonMisesJr| 12.19.11 @ 7:44AM
Le Bon in "Psychology of Revolution" disects the French Revolution that was fueled by the Enlightenment Philosophers and their "Age of Reason." He concludes that socialism, and therefore Keynesian Economics is a "mystic" phenomenon and a religion. In my words, not Le Bon's, it goes back to the Garden of Eden where Eve's hubris led her to eat the forbidden fruit to make her like a G-d. Kant and Hegel flirted with the same in that Nietzsche's "Superman" could perfect man with the "intelligent few" and their superior intelligence and reason.
Le Bon, Von Mises, Hayek, Friedman and many smarter and more well spoken than Mr. Gregg and I could not convince the socialist of their errors. Marx reverted to ad hominem attack that persists to this day, and Le Bon and Coulter in "Demonic" (based on the Frenchman's work) explain the mob groupthink. We must never stop educating the young and open-minded, but realize that "true-believers" will not listen to reason or learn by repeated failed outcomes.
donserge| 12.19.11 @ 7:48AM
The ignorant populace is duped by the "intellectual elites" e.g. Harvard/Yale/Princeton types, who say that policies such as Keynes advocated do/did not work because these same elites have not yet been allowed to implement them. AND much of the ignorant populace agrees.
Lullabys, Legends and Lies| 12.19.11 @ 8:19AM
"How else can we explain former House Speakers claiming that unemployment benefits translate into growth"?
Oh that's an easy one, She's completely INSANE!!
chuck| 12.19.11 @ 9:00AM
Hell, if that really worked we could all quit working and go on unemployment.
Purp| 12.19.11 @ 11:44AM
It does - for every dollar spent on unemployment, the economy generates more than a dollar of growth. Go learn something. Spend a dollar on infrastructure, it returns even more to the economy - these are known facts - do your homework.
Lullabys, Legends and Lies| 12.19.11 @ 12:15PM
Purp, so the Science is settled then? If that's so, let's do what Chuck said, and let's all quit our jobs and go on unemployment then (hey, why work at all?), and according to your Economic Theories, the Economy will BOOOM!! Happy Days Are Here Again!! These aren't facts you have, just more Crazy Liberal Economics, and you have no idea what you're talking about!! Think things through, before you spout Liberal B.S.!! You're sounding like Nancy "Batshit Crazy" Pelosi!!
Purp| 12.19.11 @ 12:35PM
The point is to fill the gap left by losing a job and income, not to replace real work. How stupid you jump to that conclusion. If you could think things through instead of the knee-jerk right-wing talking point mantra spewing out of your mouth, you'd learn something.
And, YES, it is a proven fact that unemployment benefits circulate into the economy immediately (again, not to replace real work, but to fill the gap left by losing a job and income) ... Geesh, how ideological can you be?
VBMax| 12.19.11 @ 12:17PM
"these are known facts ", famous last words.
Howard| 12.19.11 @ 12:20PM
In that case everyone should be on unemployment. We borrow a dollar from China, pay it to an unemployed person, and magically the economy grows by two dollars. No need for work or production.
Purp| 12.19.11 @ 12:36PM
The point is to fill the gap left by losing a job and income, not to replace real work. How stupid you jump to that conclusion. If you could think things through instead of the knee-jerk right-wing talking point mantra spewing out of your mouth, you'd learn something.
And, YES, it is a proven fact that unemployment benefits circulate into the economy immediately (again, not to replace real work, but to fill the gap left by losing a job and income) ... Geesh, how ideological can you be?
Ground Control| 12.19.11 @ 1:46PM
It does not matter what the "point" is. What matters is that when you establish a principle, you can carry that principle on, logically. If unemployment compensation "stimulating" economic growth is an economic principle, as clearly you believe it is, then logically progressing that principle carries to the conclusion that more unemployment means more unemployment compensation and thus more economic stimulus. That this is a practical absurdity even you seem to understand which is why you pretend that this is progression is not logical. Again, you present no actual "facts", only opinion, only talking points from people not much brighter than you but much farther up the ladder.
Purp| 12.19.11 @ 6:53PM
Of course, you would take the logic of the argument to the absurd conclusion like the old canard about the "Irish eating their babies."
And, here is your proof for what infrastructure, unemployment benefits AND food stamps impact on the economy:
http://www.dailyfinance.com/20.....structure/
As you can clearly read from Moody's , $1.00 of either returns more than the $1.00 to the economy in economic activity, period.
And, if you really want a lot of details, you can read this from the Congressional Budget Office: http://www.cbo.gov/doc.cfm?index=601&type=0
Now, can we break through your belief system with actual facts for a change? BTW - it took me less than 5 minutes to find this information - why couldn't you?
AdamJ| 12.20.11 @ 12:12AM
Why do people (mostly media types) continue to listen to Mark Zandi and the folks at Moody's? Remember before we had that financial crisis and the good folks at Moody's and S&P continually gave AAA ratings to credit default swaps backed by sub-prime mortgages? Explain why he has any credibility again?
One economist's opinion does not equal scientific fact. Repeat after me: THERE IS NO MULTIPLIER. If there were, our economy would be cooking after the last 10 years of spending. Try again: THERE IS NO MULTIPLIER.
Indiana Alex| 12.19.11 @ 12:32PM
In this holiday season I am thankful for Purp posting daily reminders of the intellectual bankruptcy of the left.
So, if we all went on unemployment, wouldn't we be the richest country in the world?
Intellectual bankruptcy.
Purp| 12.19.11 @ 12:36PM
The point is to fill the gap left by losing a job and income, not to replace real work. How stupid you jump to that conclusion. If you could think things through instead of the knee-jerk right-wing talking point mantra spewing out of your mouth, you'd learn something.
And, YES, it is a proven fact that unemployment benefits circulate into the economy immediately (again, not to replace real work, but to fill the gap left by losing a job and income) ... Geesh, how ideological can you be?
Indiana Alex| 12.19.11 @ 12:55PM
Thanks again Purp,
Only the Intellectually Bankrupt would suggest that such nonsense is "proven fact".
As excellent an example of intellectual bankruptcy as we have seen this year.
Since the left cannot debate based on evidence, or the merrits of their grand delusions, they rely on "proven facts", which are of course never proven and, not facts, but a key tennent of Intellectual Bankruptcy is to consider a moronic assertion a "proven fact", and then suggest that the individual questioning the intellectual honesty of the assertion is simply a "denier" of "proven facts".
Such great fun!
WhiteBikerTrash| 12.19.11 @ 2:05PM
Perp, your theory misses points of application.
First, The dollar for unemployment has to come from somewhere. So removing it from the economy, equals -1
Second, The money goes to the final user through a system that takes a portion of that dollar to deliver the money to the final user, roughly 80% is lost in this system. So you need to remove 5 dollars from the economy to provide one dollar to the final user we are up to -5 dollars to provide 1 dollar.
Third, Now let's just say that you are correct and there is the Keynesian Multiplier Effect. .83 to .86 is the standard given by most. So out of the 5 dollars removed from the Economy you get 1.86 dollars of economic activity
Yeah, seems like a winner to me!!
VonMisesJr| 12.19.11 @ 2:12PM
Indiana Alex and WBT,
It is no use arguing with "Perp" the perpetrator. He has been rummaging his confused cranium for over an hour and he is even making less sense than when he awoke just before noon. He may even be inebriated by now.
VMJr.
Purp| 12.19.11 @ 6:55PM
And, here is your proof for what infrastructure, unemployment benefits AND food stamps impact on the economy:
http://www.dailyfinance.com/20.....structure/
As you can clearly read from Moody's , $1.00 of either returns more than the $1.00 to the economy in economic activity, period.
And, if you really want a lot of details, you can read this from the Congressional Budget Office: http://www.cbo.gov/doc.cfm?index=601&type=0
Guess YOU are the one asleep at the wheel Sunshine.
George S| 12.19.11 @ 7:29PM
A modest proposal, Purp:
Why don't you hire a person to come by your house every morning and dig a hole in your back yard. Then hire a second person to come by in the afternoon and fill the hole. You pay each person, for they do real work (digging holes is back breaking work, no?).
By your theory, and based on the CBO projections, the money you pay the hole digger/filler gets circulated into the economy. This then creates a little more than one dollar for every dollar you pay.
So, then... why don't you do it? What is the missing piece of this puzzle? I love to hear your public-education indoctrinated answer to this.
Purp| 12.19.11 @ 6:54PM
Your numbers are wrong. And, here is your proof for what infrastructure, unemployment benefits AND food stamps impact on the economy:
http://www.dailyfinance.com/20.....structure/
As you can clearly read from Moody's , $1.00 of either returns more than the $1.00 to the economy in economic activity, period.
And, if you really want a lot of details, you can read this from the Congressional Budget Office: http://www.cbo.gov/doc.cfm?index=601&type=0
Jim| 12.19.11 @ 12:58PM
Known by whom? And if there is the multplier effect, why are we still in a hole economically? Certainly, we've released HUGE amounts of "govt" money, and where is the stimulating effect to be found? In fact, if what you said is true, why not just give all of our money to the govt, and watch the economy GROW!! I don't know whether you've done any homework or not, but I know you didn't pass the test.
JA| 12.19.11 @ 8:24AM
economic "science" is a joke, a fraud, a hoax, on par with astrology. Not one economic hypothesis (that is what they are; they do not even rise to the level of 'theory"), NOT ONE, can be tested under controlled conditions. (Imagine getting on an airplane that was never tested). What economists call theories, real scientists or engineers call conjectures, hypotheses or speculation.
Economics: the ultimate "cargo cult" science (as defined by a real scientist, Richard Feynmann).
Ryan| 12.19.11 @ 11:09AM
Actually...sort of, now. MMORPG's (World of Warcraft, Everquest) actually offer a set of conditions that are rather convenient for economists to study, and offer a certain amount of control.
TrueBlue| 12.19.11 @ 4:11PM
True enough, can't spend more than you have to try and make money, no going into debt in MMOs. It's too bad a lot of people aren't able to translate that one simple fact into the real world.
VBMax| 12.19.11 @ 12:24PM
But there are basic laws in economics such as, you can't continue to spend more than you earn without eventually going bancrupt. Almost anyone can understand that except some Nobel prize recipients.
Sailfastlivslow| 12.19.11 @ 8:25AM
As a true believer/supported of free markets and capitalism, largely divoid of Gov control and regulation, I have from my reading, a new appreciation for Keynes .........If Keynesian fiscal and monetary measures on Taxation/Spending were mplemented as he intended:
1. Quickly
2. Into private sector (only)
3. Temporarily - tax/spend later retracted
I agree these measure could help to mitigate the adverse effects of economic recessions and depressions. However, history shows they are NEVER funded quickly, to private industry (only) and temporary. NEW taxation and spending becomes a permanent baseline in the next annual budget.....it goes to grow government and crony industry programs only (oil, green, unions, etc)........not broad spectrum private industry or shovel ready infrastructure projects.........with much of the tax payer money laundered back as Political contributions..... I'm sure big oil and big green industry have equal parts in that game.
Since the GOV has historically been unable to implement Keynesian measures as Keynes intended...... I humbly admit that I have been wrongfully labeling Keynes. Never the less, I can only assume our Founders understood the imminent failure of a few self serving Elitists, trying to control something so complex, in so
many unique States ...........as well as the inherent corruption that would ensue, So instead of a state
problem, it becomes a national problem. Hence ........The 10th Amendment states that any power not granted to the federal government belongs to the states or to the people...........
John Navratil| 12.19.11 @ 9:00AM
Sailfastlivslow,
One of my economics professors, a post-war Polish refugee, argued that the Chicago School has no problem with the deficit spending during the down period so long as there was a corresponding surplus during the up periods.
During the last downturn the Houston Mayor, Kathy Whitmire, used Houston's good bond rating to sell paper and invest in infrastructure (mostly street repair). In my opinion, it worked out well, and Houston receive value for dollar spent. (That was thirty years ago - Houston is broke today).
It was quick, limited, but most importantly it was targeted at projects the taxpayers found of value. No one was flinging sacks of cash at jelly beans.
chuck| 12.19.11 @ 9:10AM
The problem with using government resources to mitigate recessions is that economically, recessions are necessary, and although painful, healthy.
During period of growth, demand for products is high, thus prices rise. Higher demand for an item results in a shortage of that item, which pushes prices higher. During a recession, demand drops, so prices also drop. Recessions are a way for prices to reset to a natural level.
Unfortunately, government interference, through stimulus spending, printing extra money, bailouts, and the whole array of utter nonsense they employ, interferes with this process. Instead of allowing prices to reset to a natural market-driven level, they attempt to re-inflate a burst bubble. The housing industry is the perfect example.
Government needs to stay out of the economy, and allow the free market to work.
NeilBJ| 12.19.11 @ 10:46AM
I'm not so sure that recessions are necessary. If a a recesssion is defined as a large number of businesses failing more or less simultaneously, the question must be asked, "Why is this so?"
The Austrians have an answer for this and it is the manipulation of the interest rates. Artificially low rates encourage borrowing and simultaneously discourage savings. Borrowing means companies are investing in the future and lack of savings means people are spending in the present. This results in a misalocation of resources that sets the economy up for the next recession.
Investment for the future can only come from true savings. An artificial interest rate is a false signal that misdirects the allocation of resources.
chuck| 12.19.11 @ 11:32AM
I agree, interest rates should be driven by the free-market, not manipulated by the Fed. I take exception, though, at your definition of recession. Recession is a contraction of the economy, not a mass failure of businesses. Generally, businesses fail during recessions because of failure of management to plan for any downturn in demand of their products. Again, the housing market is the perfect example. Banks loaned as if housing prices would never fall, and builders continued to build even when the writing was on the wall that housing was slowing. Both banks and builders should have been allow to fail.
Purp| 12.19.11 @ 11:49AM
Nice theory, but people can't eat theory - so you just say f* you, you just have to bear the pain for the market to work efficiently? Government "interferes" to ameliorate the suffering - would you not help yourself if you were hurting? The Government is us, all of us.
Ground Control| 12.19.11 @ 2:18PM
Considering that most of human suffering throughout history has been caused by government, the notion that government will "ameliorate" suffering is a tad ridiculous.
Purp| 12.19.11 @ 6:59PM
That is one thing that is great about America - we take care of our people, poor, infirm, elderly and young. Who else will we turn to - the Corporate world that's only interested in profit? Family and Church can help but they cannot give us weekly checks to care for our families when we are unemployed or poor.
But, I'm going to guess you've never had to ask the government for help, and you think you never will. Let's hope you don't - but what if catastrophe strikes - you're on your own?
George S| 12.19.11 @ 7:36PM
From the Jamestown settlement to the New Deal -- about three and a quarter centuries of Americans being on their own. Just how did we ever do it?
arlo price| 12.19.11 @ 7:44PM
Just curious.....You say you're a Christian, do you believe in the Ten Commandents?
Ground Control| 12.20.11 @ 9:36AM
I've noticed that you "guess" a lot on these pages. And you are uniformly wrong in your "guesses." Clearly, you do not understand the basic elements of this discussion, as you use every logical fallacy known to Man. This latest fallacy is the "false dichotomy." According to you, the choice is between an omnipotent and omnipresent Federal government or no government at all. No one has put forth such an argument except you. It is the US Government that is wildly out of control and operates extra-legally. The US Government has assumed powers it does not legally have in order to buy votes with other people's money. Unemployment insurance is a STATE power, not a Federal one. Under the Feds, such power is completely corrupted and wastes money. I could go on disproving you idiotic claims, but what is the point? You are beyond learning anything and no doubt fancy yourself a genius, like the Bozo in the White House. Birds of a feather...
Purp| 12.19.11 @ 11:46AM
Very nice discussion.
Clint| 12.19.11 @ 8:51AM
Nobel Prize Winner Freidrich Hayek & Ludwig von Mises & Their Austrian School Economics Trump Obama's Failed Keynesian Economics.
Read Hayek's Famous: Road To Serfdom.
The Tea Party Rebellion Is Here And In Iowa.
chuck| 12.19.11 @ 9:11AM
Wow,
Something we can agree on, Clint!
VonMisesJr| 12.19.11 @ 10:11AM
Right on, right on, Clint.
"Road to Serfdom" is a little harder to read than Hayek's "Constitution of Liberty," since the latter is more friendly than some of the more technical books from www.mises.org.
For anyone who wants to smoke a socialist in a debate, Von Mises "Socialism" explodes Marxist theory in its inability to calculate prices under its proposed "One Wold Government" as well as other nonsense such as "material productive forces," as well as capital formation and innovation. It also helps to put fascism, syndicalism and other types of socialism in perspective.
George S| 12.19.11 @ 10:30AM
If Keynes didn't exist then we would not have liberal Democrats trying to control our economy? Give the guy a break, all he did was propose a theory that during a recession government can increase the money supply (deficit spend) to encourage aggregate demand and then to restrict the money supply during a recovery to prevent the economy from overloading. That's it. It is government that ran with his ideas as an excuse to control an economy -- and that control is based on political outcome and not economic.
It's not the idea, it's the implementation. The ancient Spartans gave Hitler the idea of exterminating the weak and undesirables. Yet history knew exactly where to place the blame.
Purp| 12.19.11 @ 12:37PM
Alexander Hamilton put controls on our economy and as one of the Founders, I'd say he knew more than you about it, don't you agree? If you know what Hamilton created, you couldn't disagree, could you?
Aces and Eights| 12.19.11 @ 3:09PM
Gee! What a revelation! I'll bet Hamilton would have embraced Obozo-Kaire too! Secretly, Hamilton was REALLY a Socialist and a Marxist! The foreseer of the Triumphs of Lenin and Mao!!! Golly! Who knew?!
George S| 12.19.11 @ 6:45PM
There are controls on the economy -- criminal and tort laws. If government can control the economy, they can control everything else. What's to stop them? Hamilton did understand the basic danger involved. As he wrote in Federalist 79: "a power over a man’s support is a power over his will."
Do you disagree?
John Navratil| 12.19.11 @ 1:26PM
George S,
Keynes also suggested that putting cash into bottles as burying them would boost the economy. The problem with inflating the money supply is that is rewards pre-existing debt holders who must now repay in inflated money and penalizes asset holders.
George S| 12.19.11 @ 6:53PM
John, I don't disagree. The free market has its own way of accomplishing what Keynes preached. During a recession, businesses discount their inventory (to stimulate aggregate demand) to convert it into cash. They pay off their debt holders and, at the same time, they lay off employees. When the economy rebounds, they hire the employees and, because they paid their debts, they still own the means of production. When the economy expands too quickly, businesses compete for capital, thus driving up the price of money and putting the breaks on an overheating economy. This is how (and why) Coolidge did nothing so as to let the post WWI depression take care of itself. Same thing happened less than 10 years later only Hoover stepped in by forcing businesses not to lay off employees, deficit spend and impose Smoot Hawley. FDR created the federal welfare state and make-work agencies to apply Keynes' theory. The rest is history and the same mistakes have been repeated by Obama.
NeilBJ| 12.19.11 @ 10:33AM
What is so frustrating to me is the delusion of the experts who think that creating money is equivalent to creating wealth. These very same "intelectuals" would not hestitate for a moment to advocate putting counterfeiters in jail, while simultaneously being blind to their own counterfeiting.
A joke I read on another blog makes the point. Ben Bernanke walks into a pizza parlor and orders a large pizza. The waiter asks if he would like it sliced into 8 pieces or 10. He says, "Ten pieces - I'm extra hungry today."
RICHARD| 12.19.11 @ 10:59AM
This is absolutely right on. Democrat Party socialism is attrractive because they get to run things. Period. Well, we SHOULD know from the bitter experience of fallen Communism that the economy and society in general is too complex for a political elite to understand it much less operate it.
aware| 12.19.11 @ 11:18AM
Recessions/depressions are corrections of previous periods of malinvestment. Malinvestment is the disease, recession/depression are the cures. Trying to "correct" the cure is insane and leads to many bad consequences, chief among them making a depression great.
Purp| 12.19.11 @ 11:39AM
"After almost four years of stimulus-packages, deficit-spending, and quantitative easing, it now seems obvious that traditional "Keynesian" remedies to our current economic woes have failed to put America back on track." - and the bubble economies of the Reagan to Bush II era were much better? Income inequality is at it's highest levels since the 1920's, with the upper 2% growing income 250%, while the rest of us stayed level in income. Is that because we all are lazy good-for-nothings, or the Elected and Connected have controlled where money flows?
The whole point of Keynesian Economics, which is a sorely missed point, is to avoid the type of recent economic crash that happened in 2008. Sure, capitalism and the "free hand" is at work too, but left on it's own, the boom and bust cycle creates far greater booms (which we all like) and far greater busts (which we all don't like). There is nothing steady about the free market and laissez-faire, so Keynesian doctrine comes along to iron out some of the highs and the lows to keep the economy on a more even keel. And, that lends a lot more certainty then keeping hands off the economy. Imagine what would have happened without George Bush's TARP Program or Barack Obama's Recovery Program? 25% Unemployment anyone?
I prefer an even keel, with certainty, and will give up the wild, wild financial west of the "invisible hand" so we can avoid the terrible low swings with high unemployment, low or no growth and people in the streets begging for help.
Howard| 12.19.11 @ 12:31PM
There is some validity in your statement. The presumption you seem to make is that "enlightened" politicians will do what is right. That there are no risks of persistent deficits, crony capitalism, distortions, corruption, or incompetence. A tall order.
TrueBlue| 12.19.11 @ 4:24PM
Just look at how much money all of those political elites (on BOTH sides of the aisle) make on a regular basis through insider trading that would get any of the rest of us thrown in jail. That alone provides proof that our "betters" in Congress are in it for themselves, and not to help anyone else. Keynes theory is a nice idea, but it only has the possibility of working if you assume that those "in charge" will only work for the betterment of all and not out of self-interest. This basic misunderstanding of human nature is the problem with his entire system.
Capitalism isn't perfect, it's just better than everything else. Government control only leads to one thing, the fall of the nation. The USSR and the EU are proof of that. Heck, even CHINA has figured it out and is loosening up control of their economy to keep from collapsing. They have a LOT of cronyism left over from the total government control though, which is why they still have a big problem with the general population while still being able to maintain the government.
If we continue on the path we're on now we'll end up like China, IF WE'RE LUCKY! We're so in debt though that collapse is more likely.
Indiana Alex| 12.19.11 @ 1:42PM
An excellent example of Intellectual Bankruptcy is making a projection based on policy prescriptions (i.e. Unemployment will stay under N if we pass a bill that spends Y), and when the policies once again fail, suggest that things "would have been much worse off", had prescribed action not been taken.
You should have added "it's a proven fact that unemployment would have been..." and then thrown in a few references to Fox News and Koch brothers.
Purp| 12.19.11 @ 2:28PM
Your point is?
chuck| 12.19.11 @ 3:04PM
The point is you're an ignorant ass.
chuck| 12.19.11 @ 3:06PM
Actually, let me be precise. You're a stupid ass. Ignorant implies that you have not learned, stupidity implies that you can not learn.
My apologies.
Riff Raff| 12.19.11 @ 3:04PM
His point is clear. Purp, you're an idiot. A puppet who repeats what he is told, without any ability to think.
VonMisesJr| 12.19.11 @ 3:10PM
Perp,
Clinton ending Glass-Steagall, implementing the CRA, Fannie and Freddie fixing credit scores to 700 for one mortgage transaction to get subprime mortgages approved, SEC overseeing CDO/CMO's, AIG selling underpriced CDS were all caused by the government or missed by SEC oversight.
Read "Reckless Endangerment" written by NYT liberals, either of Gasparino's books or listen to Mort Zuckerman (a liberal) and you will learn the truth.
But perhaps you do not wish to learn the truth? Or it is much more complicated than memorizing liberal media proaganda? Or perhaps you do know the truth and are a propagandist?
You are doing a great job of intriguing the readers with your moronic diatribes. Once they understand the issues, then they will be able to conclude on their own that your Keynesian "redistribution of wealth" is coming out of their middle class pockets to bailout the rich (from government to) Wall Street "fat cats" you OWS types say you hate, and bailout the subprime borrowers that are still in their homes being bailed out by mortage gimmicks and collecting food stamps.
Which are you? Tell us what you know about the subprime crises so the readers can check your scenario against my clearly stated facts.
VMJr.
VonMisesJr| 12.19.11 @ 5:00PM
Perp(etrator), where are you?
I am waiting for your expert analysis? This should be amusing.
VMJr.
Buddy| 12.19.11 @ 4:41PM
Purp, I know that it's useless to argue with you, but . . . . George W. Bush/Alan Greenspan followed deficit spending policies throughout the early 2000's. These policies clearly did not prevent the 2008 crash. (I think they caused the crash, but that's another discussion). The claim that government control somehow provides "stability" to the "irratic" laissez-faire economy is pure myth. The 19th century economy did suffer from periodic "panics," (probably caused by fractional reserve banking, but that's also another discussion). However, after the Wilson administration created the Federal Reserve and introduced significant federal control of the economy, we have seen even less stability: the severe recession of 1920 (which Harding ended by extreme cuts in government spending, an event strangely absent from Keynesian economics texts); the debacle of the 1930s; periodic "recessions" throughout the Post-WWII era, including the awful "stag-flation" of the late-1970s; and the crash of 2008 from which the economy has not yet recovered (maybe we should have elected Harding instead of Obama). Government control has not provided anymore "stability" than the "invisible hand" and has left us hopelessly in debt. The Wealth of Nations was published in the same year as America was born. We were never very consistent, the federal government mostly kept its hands off the economy for 133 years after that. We became the most prosperous country on earth by far. Maybe Adam Smith was on to something there.
George S| 12.19.11 @ 7:18PM
The income stagnation has nothing to do with laziness or The Connected directing the "flow of money". The reason incomes have stagnated is very simple: cost of complying with government.
Back in 1920, the government spent 10% of GDP. To get a job, you have to generate more revenue for your boss or company than you earn. Roughly speaking, when government consumes 10% GDP, that means you have to earn your salary plus 10% for your boss. Forgetting taxes and benefits and assuming a 30% return for overhead and profit, you would have had to earn $1.40 for every dollar your were paid back in the 1910's.
Today, government spending is 40% of GDP. Which means that you now must earn $1.80 for every dollar you make for your boss. Not including FICA, unemployment insurance, and corporate income taxes (which were negligible in the 1910's).
So where did your salary go? Your company had to spend it on lawyers, accountants, lobbyists and personnel to comply with all the cost involved with government compliance.
Why did the rich get richer? Think about it. They have to figure out a way of generating more revenue to cover the increase in compliance costs, for one thing. The other way they get rich: they get into the middle of government by aiding and abetting the politician's grab for power. You and I are left holding the bag.
AdamJ| 12.20.11 @ 12:21AM
Well said.
LarryK| 12.19.11 @ 1:17PM
Liberalism always produces the opposite of its stated intent. Quinn's first law.
IF Quinns_first_law = TRUE THEN
Keynesian = Liberalism
END IF
EOF
Tim the Enchanter| 12.19.11 @ 1:34PM
Thank you Mr. Gregg. I writer who finally "gets it." Humility- the one necessary virtue, from where all other virtues flow. A virtue in shorter supply in this day and age that in all previous history.
axbucxdu| 12.19.11 @ 1:38PM
The progs extolling Keynes would have us all turning Japanese.
cicero| 12.19.11 @ 2:11PM
The problem is not with Keynes and his theory, as that is rather simple and limited. The problem lies with the mania of government to control the economy for the benefit of those in it and their friends.
You cannot equate money with wealth, unless you control the printing press. The outcome is disaster for the middle class, but who cares about them, anyway.
The fact that the top 2% are receiving 250 times the income of the remainder is solely the function of government. Capitalism is a risk/reward system of commerce. When government removes the risk part for its friends (read bankers and government supported institutional execs), capitalism is not left to work. If it were only the private industries that paid the silly salaries, it is up to their shareholders and owners to regulate that. We don't have to patronize them. We have no choice with government
Take government back, and put it in the hands of the people again. Not an easy task, I'll admit, but no one said that keeping our limited republic was going to be easy. Then, shrink it back to pre-1928, and keep it there. Again, not easy. Oh, and by the way, nothing is too big to fail in a truly capitalistic society.
VonMisesJr| 12.19.11 @ 3:25PM
cicero,
The problem with Keynesian theory is it is WRONG. The theory of "demand side" economics is that supposedly too much demand causes inflation, while too little demand creates low GDP and high unemployment. So the stagflation of the late 1970's by definition could not happen.
And it is happening again NOW. The real unemployment rate (U3) if the government did not keep reducing the jobs universe (the denominator) is about 11.3%. Inflation if you look at food and energy (that the core inflation excludes) is probably in the 8-10% range. Check out the price of milk in one year or the cost of a Jeep over five years ($25K to $40K = 60%).
This is why the government fudges the statistics. If they told the truth, the people that were not adults in the late 70's would also figure out we already have stagflation and it is supposed to be impossible under Keynes theory. You cannot have too much demand and too little demand at the same time. Hence, you are not supposed to have high unemployment and high inflation simultaneously if the theory were correct!
VMJr.
axbucxdu| 12.19.11 @ 4:03PM
VMJr, Keynes' theory works alright, it's just that ole Maynard got the sign of his multiplier wrong: it's demonstrably negative, not positive.
VonMisesJr| 12.19.11 @ 4:57PM
Theory is still wrong, but you did make a good point. Friedman has a clip floating around about four ways to spend money.
1) Spend your money on yourself and you will be interested in quality and price
2) Spend your money on someone else (gift) and you will not care about the quality as much as the price
3) Spend someone else's money on yourself, in which case you will have a nice lunch
4) Spend someone else's money on other people in which case you don't give a whit about quality or price. That is government!
Good point you make since there is not only no concern for price versus quality in government, but a HUGE temptation to steal it.
Ground Control| 12.19.11 @ 2:14PM
In “Wag the Dog” Stanley Motss (played by Dustin Hoffman) says that he didn’t do it for the money, he did it for the CREDIT! Likewise, Keynesian economics is practiced today by politicians only interested in CREDIT! In a practical world, people who work, invent, create, engineer, get the credit for the work they do. The consequence of all such people working and getting credit for their own work is a healthy economy. But this leaves the arrogant, ego-centric politician out of the loop. So, he steps in anyway, using the power of government. Instead of a free market, government “regulates” and suppresses free enterprise, but the politician can claim credit for “creating the conditions” wherein economic prosperity is created. Thus the politician gets the credit, as they do in Socialist countries. Josef Stalin claimed great credit for feeding the people through government control, while millions of them starved to death in artificial famines created by government incompetence. Likewise another great socialist, Chairman Mao. That millions starved under socialized food production is ignored, so that the great leader can claim credit for something that isn’t happening. This is President Bozo’s motivation for “regulating” the economy. Funding failures like Solyndra is an attempt to gain credit for “creating the conditions” wherein success and economic prosperity flourish. Of course, this never works, but arrogant, ego-centric politicians like President Bozo, nevertheless claim credit for a success that never happens. This is what is behind the phony unemployment figures, figures that deliberately under-report the true numbers of unemployed people. The incompetent fools in government cannot legitimately claim credit for economic prosperity because they are incapable of fostering prosperity, but they do so anyway. Government cannot build, it only destroys, or at best leaves things alone to flourish independently. That politicians continue to follow the failures of Keynesian thinking is a tribute to their arrogance and ego, and it is nothing more.
Peppermint Tea| 12.19.11 @ 3:35PM
I'm not so sure Keynes was intelligent. Maybe he just liked playing people for suckers. His stated idea that you stimulate a repressed economy by filling bottle of paper money and burying them in abandoned miles under piles of trash is both idiotic and enlightening. Idiotic because, as stated above, the creation of money is not the creation of wealth; also, wealth was expended to retrieve the paper money.
Enlightening because Keynes used paper notes in his example--not gold or silver. Even Keynes knew that you should f*** around with real money.
cicero| 12.19.11 @ 5:00PM
Back to fundamentals time. The printing of money is not the same as the creation of wealth. Our government seems not to realize this simple fact. Keynes theory only works if you correctly guess the true value of the goods and services being produced, and adjust the money supply correctly. Our government has included banking services and transactions in our GDP. The moving of numbers back and forth between banks produces absolutely nothing, and add nothing to the wealth of the country.
When you add the inter-bank transfers to the mix, you add about 30% to the GDP. When you print money to accomodate that figure, you have inflated the currency to the point that a $3,000.00 car (1963), cost $45,000.00. This fine if you pay yourself $100,000,000.00 per year. If the money inflation reduces the value of your stash in half, you can still probably make it through. However, if your household income is $45,000.00, you are in trouble.
Cicero's 2d rule of economics: Show me a social pathololgy, and I will show you the government program that causes, or sustains it.
fundamentalist| 12.19.11 @ 6:01PM
The arguments that Fed monetary pumping or government spending wasn't enough contradict the well established principal of decreasing marginal returns. What stimuli have already been done would have produced the greatest effect. Any additional stimuli would produce increasingly smaller returns. That is what economics predicts and what we have experienced.
axbucxdu| 12.19.11 @ 6:23PM
It's worse fundie. c.f. Prof Fekete's Marginal Productivity of Debt from 2009. The productivity of debt has gone negative. While I don't quite buy his predictions of what would happen if/when debt contracts given the negative value, his arguments against further expansion are self-evident, excepting of course, to progs both near and far.
scythe| 12.19.11 @ 8:35PM
No where in this analysis is any mention of the fact that Keyes was also a homosexual. Not relevant? He obviously had "issues" with his sexual identity way long before it became a badge of "specialness" and a cudgel to intimidate. You have to wonder how his psychological orientation filtered through his world view and his mindset. Were he a devout Christian and an advocate of the free market, much would be made of his beliefs in an attempt to distort and destroy. I don't think a proper analysis can be made of the mess he created without an acknowledgment of the fact that he lived in different times as a man who closeted his other side from much of the world.
POST American| 12.19.11 @ 10:11PM
---------------------FINAL WORD-----------------------
"USURY, esp. INTER-national USURY,
and, MOST certainly, psychopathic fractional
reserve USURY is the ultimate instrument of control.
It's a deviant system, run by deviants,
upheld by deviants and promoting deviance.
NOTHING good, true or normal can EVER come of it.
--------------------------EVER!----------------------------
And so we are living in this, a deviant and
PSYCHOPATHIC system run by PSYCHOPATHS."
CUT TO THE CHASE
-----------------an ABOMINATION--------------------
The set up Keynes was emblematic of ALLL this.
---ANY questions?
Dan Mathewson| 12.20.11 @ 3:56PM
Just two questions: What, if any? If not, how much?