Keynesian Economics is Destroying the World

It’s Keynesian Economics Stupid

It is economists and the prevailing economic theory espoused by Keynes that is responsible for the massive debts that are crippling western economies. Early Economists managed to sell their ideas to politicians in the early 1900’s to some degree.But it was Keynes who sold the idea of deficit spending to governments so they could try to smooth out the business cycle and maintain a permanent boom.

Protect Your Nest Egg from Keynesian Economics

If you don’t understand how our governments got into this mess you will see your retirement nest egg take yet another hit. Isn’t three major hits in 11 years enough!  Until governments turn their back on keynesian economics and trying to mange every aspect of the economy you should consider putting your money where someonelese has to take the risk and pay you for your money. You may not see 20% returns but at the end of a simple term deposit they are obliged by law to pay you the interest agreed to. That is not paper profits like you get in the post, that is a real transfer of money into your deposit account, don’t forget that. And as long as the people have faith in paper money  and inflation doesn’t take hold, your money should be relatively safe.

Keynesian Economist with Simple Indicators infiltrate into Government

Until the early 1900’s there was no real attempt to manage the economy by governments. Economists were beginning to emerge and trying to get a foothold for their ideas based on maths and science using what is now macroeconomic theory where classical or Austrian economics based on microeconomics prevailed until then.

Economists were viewed with suspicion by politicians for some time but the boom and bust cycles caused so much pain to politicians that they were looking for a way to break the nexus or keep the masses happy as more and more people could vote them out of office.

Banking appears to be the first foothold for economists. The FED was formed by private agreement initially, more to help keep the banks stay liquid and to prevent bank failures during economic downturns. It must have been a small step from manipulating the banking system to protect the bankers, to manipulating the economy to protect the politicians.

Although Congress was responsible for the economy they eventually handed control of the money supply and hence the economy to the FED, a body unaccountable to voters even to this day. How can it be that one man Bernanke can decide the value of money through interest rate manipulation? A visiting alien from another planet would say we are crazy to invest so much power into one man. Handing over that responsibility though great way to get politicians out from under if things went wrong and it has worked for a hundred years.

Keynes Gave Politicians a Golden Goose with Deficit Spending

Economists didn’t get any real power and influence in government though until Maynard Keynes popped up and convinced governments they could use deficit spending to replace private sector spending during economic downturns and keep the economy going until the private sector took over once again. The real selling point was governments could borrow the money rather than tax the people. So on the surface voters only saw the immediate benefits and not the long term consequences of increasing government debt.

Keynes was the “Great Persuader” and was able to convince governments to embrace his flawed economic theories using simple macroeconomic indicators. Taking a complex thing like an economy and reducing it to a series of economic indicators was a master stroke for keynesian economics to become the de facto economic theory. Once the politicians realised they could use simple charts to sell government deficit spending to protect their positions, they employed economist in droves to produce even more charts and economic models.

How can any economy work when the indicators are constantly changing? How can business have confidence to invest?

As with all things political expediency and economists wanting more power in government, found a way to manipulate economic indicators to suit the political ends of their political masters in a very short time. Who still believes the Inflation Index when economists are known to manipulate it with such things as not including volatile products like petrol. Or substitute hamburger meat for steak when the price of beef skyrockets for some reason. And who can believe unemployment figures that don’t take into account those unemployed who give up searching for work or don’t include those people working less than a few hours a week.

GDP – The Great Hoax

And since when did GDP include spending through a government stimulus. If GDP is 2% in real terms if you accept the flawed and grossly manipulate calculations, governments will claim a growth of 3% of they borrow and spend an amount equivalent to 1% of GDP. Do they think we are we really that stupid?

Keynesian Economics uses macroeconomics to create all these impresive looking indicators – full of sound and fury signifying nothing! Thank you Shakespeare. It’s all about aggregates and averages. Let me give you an example.

In Australia we have a mining boom in the west and retail bust in the east, partly due to the government’s failure to maintain the currency relative to all the other countries manipulating theirs. If the GDP of the mining sector is 6% (Boom)  and the GDP of the Retail sector is -1% (Bust) then our government is claiming all is well because Australia’s GDP is 3.5%, even though people are losing their jobs in the east and shops are closing. This is the problem with governments managing the economy using macroeconomics. It is impossible to do it. They call it a two-speed economy. yet another simplistic explanation for the voters. All economies have infinite speeds. A factory sets up and employs people here, elsewhere another closes and makes their workers redundant. This can be happening at a thousand locations at once even in Australia.

Australian Carbon Tax will Promote Economic Growth 🙂

In Australia we are about to introduce a carbon tax which will take several billion dollars out of the economy and hand it to public servants to redistribute to their favourite green projects. Government handout by any other name. Our Treasury department has “modelled” the effect of this carbon tax and produced a paper for our political masters that tells us the economy will grow under such a tax. This will be the first tax in the history of the world to increase economic prosperity and employement (real jobs not government created ones) if it works.

How any economy can grow taking capital out of the economy and redistributing it is beyond me. They claim they want to create a market for a green economy. Markets evolve, you cannot establish them by government decree or because treasury modelling says it can be done. There are far too many unknowns. In any case up to 95% of businesses fail in the first 5 years. Are we to spend several billion of tax-payers money on trying to create a green jobs industry in the face of such incredible odds of success?

In private industry business would die if they cannot attract new investors who need to see a likely profit, and their assets purchased and used by the next entrepreneur. When governments are involved the bureaucrats are not there for profit but for their career. If their political masters want to continue supporting a lost cause green project, they will just pump in more money until told to stop. They are just doing their job and trying to get ahead but the concequences are unseen (See Bastiat below). Just look at our submarine industry to see the billions wasted as proof of that.

It seems great in theory but as Bastiat says in What is Seen and What is Not Seen,

“In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

The immediate effect of a debt-finance stimulus is to appear to create new wealth and move the economy along and this is seen. Everyone is happy. There is a special case where this may well fix the problem if the boom-bust cycle is a small one. But no-one knows and that is the problem. This time around it is not the case. Many people, mostly Keynesians like Nobel Prize winner Krugmann believe the stimulus was not large enough in the first place, despite “Helicopter Ben” Bernanke at the FED supporting it with quantitative easing (printing money).

Stimulus money is spent by government (they call it investing which is fraud) and that money therefore is not invested by business. It is true that some debt is good debt such as debt used to build a bridge. But much of the debt is used to finance welfare programs and unemployment benefits that do not produce a return on investment.

US Government Was Not Designed to Manage the Economy

In the US from my reading the Government was never set up to manage the economy. In the UK and Australia we have a two party system where there is an opposition and a government and they are better designed to handle the economy although they have still screwed it up. The Government gets the right to manage the country whilst in office, and the opposition’s job is to try and keep the bastards honest. In the US it seems Congress is full of independent legislators who are supposed to represent their states first as in a Republic. Unfortunately party politics has taken over to create a democracy instead and so in effect there is an opposition party to the party in power. Americans talk of wanting consensus and being above party politics. That is as it should be. But if you truly believe in small government, low taxes, self-responsibility then why should you compromise? The US government is not designed to manage the economy in my view. It’s role was designed to maintain secure borders and internal order and have minimal involvement in the day to day activities of its citizens so individuals could go about their business in private.

Now both private citizen and businessman have to watch the stock market, the FED and Congress, the EPA and a host of government agencies to see what they have to protect themselves from next. Each of these entities have an army of economists all trained in Keynesian economics ready to control yet another part of the lives of the citizens. At what point will it stop. Maybe the Tea party will bring some sanity into the mix.

We need to get the Government out of the Economy. It has to get back to protecting the lives and rights of the citizens to conduct business and sell their labour, products or services in an open and fair market. We need to make economists in government an endangered species. We need to teach people to save for that rainy day when a boom moves to a bust cycle and have them prepared for it. Then we will see business confidence return and the economy will grow like crazy.

 

 

 

 

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