Keynesian Economics is as Corrupt and Immoral as is Crony Capitalism

Posted by PITHOCRATES - May 5th, 2013

Week in Review

Before John Maynard Keynes came along the established economic thought was classical economics.  Those principles that made America the number one economic power in the world.  A sound money like the gold standard gave you.  Low tax rates to encourage economic risk taking.  Responsible government spending for only those things a federal government should be doing.  And only spending what that minimal federal tax revenue could pay for.  Little government intervention into the private sector economy.  And thrift.  People spending money very cautiously.  And saving as much as they possible could.  To save for the future.  While providing investment capital for businesses.

These policies made the United States the number one economic power in the world.  Laissez-faire capitalism.  Tried and proven for over a century in the U.S.  But then government got big in the beginning of the Twentieth Century.  The progressives came into the government.  And they needed a new way to lie to and deceive the American people.  And then came along John Maynard Keynes.  The answer to their dreams.  Whose Keynesian economics has destroyed nation after nation with his assault on classical economics.  And now debt crises from excessive government spending in the Twentieth Century have plagued Greece, Italy, Spain, Portugal, Ireland, the United Kingdom, Japan, the United States, and other nations that dared to embrace Keynesian economics.

President Obama’s economic recovery has been horrible because he embraces Keynesian economics.  He lied like a good Keynesian to the American people to pass his stimulus.  It did nothing.  As predicted by everyone that isn’t a Keynesian.  He continues to destroy the American economy with near zero interest rates.  Destroying our savings.  Creating stock market bubbles while the labor force participation rate falls to its lowest since the Seventies.  And caused the federal debt to soar to levels that we can never pay down.  Putting us on the road to Greece.  All because of the corrupt economic school of thought John Maynard Keynes gave us.  That governments everywhere are using to increase their size and power.  To elevate the government class into a new aristocracy.  That lives very well thanks to those people beneath them.  The working class.  That works longer while earning less.  Like the nobility and peasants of old.  And a little Orwellian.  As they built this upon a house of lies.  Beginning with changing the meaning of words (see Two Sides of the Same Debased Coin by Hunter Lewis posted 5/2/2013 on Ludwig von Mises Institute).

When we turn to Keynes’s economics, perhaps the most fantastic self-contradiction was that an alleged savings glut, too much supposed idle cash, could be cured by flooding the economy with more cash, newly printed by the government. Perhaps even more bizarrely, Keynes says that we should call this new cash “savings” because it represents “savings” just as genuine as “traditional savings.” That is, the money rolling off the government printing presses is in no way different from the money we earn and choose not to spend.

All this new “savings” enters the economy through the mechanism of low interest rates. At this point, Keynes further confounds his forerunners and elders by arguing that it is not high interest rates, as always thought, but rather low interest rates, that increase savings, even though we started by positing too much savings in the first place.

Keynes’s followers echo this even today. Greenspan, Bernanke, and Krugman have all written about a savings glut which is supposed to be at the root of our troubles, and have proposed more money and lower interest rates as a remedy, although they no longer call the new money “genuine savings.” They prefer quantitative easing and similar obscure euphemisms…

The General Theory does argue that interest rates could and should be brought to a zero level permanently (that’s pages 220–21 and 336)…

Keynesians hate savings.  They don’t want people saving their money.  They want them to spend every last dime.  And then borrow more money to spend when they run out of their own.  Because consumer spending is everything to them.  Spending is what drives economic activity.  And any money they save they don’t spend.  And drain out of the economy.  Which is why they want zero interest rates.  Or even negative interest rates.  To discourage people from saving.  For if you lose purchasing power when you put your money in the bank you might as well spend it now.  And generate economic activity.

This is, of course, a ‘live for the day and screw the future’ mentality.  For if people spend all of their money going out to dinner, buying new cars, going on more vacations, running up their credit cards, etc., that will create a lot of economic activity.  But when these people retire they will have to live like paupers.  Because they didn’t save for their retirement.  Even if someone loses their job and is out of work for a few months if they have no savings they will struggle to pay their mortgage or rent.  Struggle to put food on the table.  They will struggle to pay their utility bills.  And their credit card bills.  This is the problem of living as if your income stream will never end.  It sometimes does end.  And if you didn’t bank a rainy day fund you could find yourself suffering some extreme hardship as you can no longer afford to live like you once did.

Keynesians once called printed money ‘savings’.  Today they call tax cuts ‘spending’.  A little Orwellian doublespeak.  Change the meanings of words.  So they can fool the people into believing that the government printing money and depreciating the currency is the same thing as you working hard and saving for your retirement.  And not taking more of your hard-earned paycheck is irresponsible government spending.  The only government spending, incidentally, they find irresponsible.  This is a fundamental tenet of Keynesian economics.  Deceiving the people.  So politicians can continue to recklessly spend money they don’t have to buy votes for the next election.  And to reward their campaign contributors with the favors of crony capitalism.

These Romney advisors also, of course, believed in the fairy tale of borrow-and-spend stimulus. It is usually forgotten that Keynes assured us that each dollar of such stimulus would produce as much as twelve dollars of growth and not less than four dollars. Even the most ardent Keynesians have, of course, been unable to demonstrate as much as one dollar. How did Keynes know that you would get four dollars at least? He didn’t. He told the governor of the Bank of England, Norman Montague, that his ideas were “a mathematical certainty” but that was just a crude bluff.

What is empirically verifiable is that all debt, private or public, has been generating less and less growth for decades. In the ten years following 1959, the official figures say that you got 73 cents in growth for each dollar borrowed. By the time of the Crash of ’08, that was down to 19 cents. And I expect it was really negative by then and is deeply negative now.

Keynes lied.  But that lie sanctioned governments to expand into the private sector economy.  So they embraced the lie.  And continue the lie.  Because none of these politicians want to give up the good life and get a real job.  They like it the old fashioned way.  Before the Founding Fathers had to muck it up with their attacks on the nobility.  They like being part of the aristocracy.  To live better than any of the poor schmucks that work a 40-hour week.  They just want to take a percentage of that poor schmuck’s earnings for themselves.  Rub elbows with the beautiful people.  And laugh at the working class.

The idea that you can take a dollar from the taxpayer, run it through a costly bureaucracy that a portion of that dollar has to pay for and think you’re going to generate more than a dollar in economic activity is absurd.  By the time that dollar reenters the economy the government has skimmed so much off the top that any economic activity it generates is negligible.  Now compare that to how the taxpayer who earned that dollar spends it.  He or she spends a dollar out of that dollar.  Because they’re not putting it through a costly bureaucracy before they spend it.

Which begs this question.  If a wage earner gets more economic activity when spending that money why not let that wage earner keep more of his or her money to spend?  For each additional dollar they can keep they can generate another dollar of economic activity.  Not the 19 cents the government will be lucky to generate from it.  Ah, well, if they can keep their money they may just do something responsible with it.  Like save it.  Which Keynesians hate.  And the government won’t be able to skim at least 81 cents from each dollar if they don’t tax it away.  Which Keynesians hate even more.

The common theme [of Keynesian Economics] is that market prices don’t matter…

Is this, then, the essence of Keynesianism, its blind destruction of the price mechanism on which any economy depends, as Mises demonstrated? Yes. But there may be an even deeper essence…

For the Victorians, spending within your means and avoiding debt were not just financial principles. They were moral principles. Keynes, who was consciously rebelling against these same Victorians, described their “copybook morality” as “medieval [and] barbarous.” He told his own inner circle that “I remain, and always will remain an immoralist…”

So, in conclusion, when we strip down Keynesianism to its essence, the relationship to crony capitalism becomes even clearer. Crony capitalism represents both a corruption of capitalism and a corruption of morals. Keynesianism also represents both a corruption of economics and a corruption of morals. Crony capitalism and Keynesianism are just two sides of the same debased coin.

The price mechanism allocates scarce resources that have alternative uses.  Through the laws of supply and demand.  Guaranteeing that the people who most want a resource—and are willing to pay more for it than others—will get that resource.  While those who don’t want that resource as badly are not willing to pay the higher prices others are willing to pay.

This is capitalism.  This is what enables you to go out and buy the things you want.  Because the price mechanism has automatically allocated millions upon millions of resources in the economy to get them into the things people most want to buy.  Crony capitalism smashes this apart.  By distorting market forces.  With government fiat.  Which allocates those resources first to their close friends who, in return, favor their friends in government with generous campaign contributions.  Or gifts of gratitude.  While others must pay a higher price.  If they can even get these resources at all.  Which they might not be able to do if they don’t please someone in government who has power over these resources.

This is crony capitalism.  Corrupt.  And immoral.  Just as is Keynesian economics.  Unlike the classical economics that made this country the number one economic power in the world.  Thanks to the gold standard, low taxes, low government spending, little government intervention into the private sector economy and thrift.  Things that kept a government moral.  However hard they may try not to be.

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