The Keynesian Crises Continue Unabated

Keynes did little if anything more
than use new terms for old ideas.
~ Murray Rothbard
Writing for the F. A. Hayek Institute of Canada, Shawn Fraser tells us that the Keynesian macro-economic model has always failed. John Maynard Keynes, it seems, had a background in academia and government bureaucracy and during his lifetime, was associated with avid socialists while favoring Bolshevik extremists.  Worse, he lost almost all of his wealth in the 1929 Stock Market Crash because he didn't understand economics well enough to comprehend what was happening or what would follow that event. As an aside, supply-side Austrian School economists Friedrich Hayek and Ludwig von Mises predicted the crash well in advance because interest rates had become  far too low.

The Keynesian model fails because it is designed to gain economic stimulation by providing nothing of value and it fails because it requires government bureaucrats, with no skin in the game, to make up rules that would affect decisions about how and when to interfere with natural transaction-based activity that would eventually serve to right economic downturns. Favorite government tactical tricks include:
  • Borrowing through government bond issues or directly from international sources (China).
  • Expanding the fiat money supply (we now call printing money "Quantitative Easing").
  • Increasing federal purchase activity (Obama used this gimmick to pay off political debt).
  • Putting money into the hands of taxpayers (through expanded social programs, giveaways and loans).
  • Manipulating interest rates as a stimulation or discouragement of economic activity (this is the Federal Reserve's contribution).
Since there were never treasury funds to spend, these actions resulted in either deficit spending (increasing national debt) or new currency in circulation, which naturally decreases the value of the dollar and  pushes up inflation - but does not increase business activity to the point where adequate jobs are created and new income streams occur. Recovery is a pipe-dream and dependence on the government dole is accomplished. The fallacy here is easy to understand. Government does not contribute to productive economic activity because it must access taxpayer funding first before re-inserting funds back into the economy. This action simply amounts to a redistribution of wealth.

This is not an accident or and unintended consequence.  Remember that Keynes (rhymes with "brains") was first a socialist and laissez-faire (leave it alone) capitalism is not an acceptable end result. He has been compared to Joseph Stalin, Adolf Hitler and Mao Zedong and was then declared to be the most destructive of the four because of the economic harm that he has wrought upon the world.  He ruined the British pound and brought socialsim to the empire before he set upon the United States and then the world to solve the Great Depression  - and he managed to shut us down until 1941 when the war began for the United States. But the harm was done and our hard roll into socialism is just about complete with the second term of the Obama regime.

Ex-ENRON adviser and New York Times columnist Paul Krugman believes that the United States did not spend enough stimulus money during the nine years of the Great Depression, else Keynesian policy would have worked. He extends that argument to the current economic failures of the Obama regime. Irrefutable logic, indeed, when it says "in all situations - we just spent too little!"

Henry Morganthau, FDR's SecTreas told the House Ways and Means Committee in May of 1939: 
"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong ... somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises ... I say after eight years of this Administration we have just as much unemployment as when we started ... and an enormous debt to boot."
Economist Henry Hazlett made a detailed review of Keynes' most famous treatise on "The General Theory of Employment, Interest, and Money" and rightfully concluded that the work was not that of J.F Keynes; his general conclusion identified Keynesian theory as a recycling of old, 18th century Mercantilist economic ideas.
"I have been unable to find in it a single important doctrine that is both true and original. What is original in the book is not true; and what is true is not original. In fact, as we shall find, even much that is fallacious in the book is not original, but can be found in a score of previous writers." 
Keynesian  economic socialism is rapidly driving functioning national economies into default and bankruptcy - beginning first with Greece, to be followed shortly by the weakest countries in the European Union until finally all of the EU countries are consumed.  North African nations, particularly Libya and Egypt, with new governments as a result of the "Arab Spring," are technically bankrupt already.  America, with its own problems, can no longer be the world's policeman and banker.  We can and should introduce the world to John Galt.

We need economic growth not spending growth and we need to return to the Federalism scheme that our forefathers adopted at the birth of this nation. Government rules, regulations, agencies and confiscatory taxes  need to be rescinded and control needs to be returned to local governments and the states. Unfortunately, the ruling class will never give up power and the dependency class now looks to government for its daily bread.  The catchy phrase "We are all Keynesian's now" will change to "We are all Socialists and Marxists now."

  • Gadfly:
    Now THIS post is about the MOST comprehensive AND concise explanation of the economic debacle we're all hip-deep in...and the tides (foundation?) continue to rise.

    How ANYONE with a functionuing brain can EVER believe that MORE spending is the way out of ANY debt situation in utterly unfathomable.
    ANY person running a basic HOUSEHOLD knows better than that.

    Maybe we really DO need someone in the White House who actually had to WORK for part of their life!
    THEY would understand.

    Excellent post and great commentary.

    Stay safe out there.