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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Price Controls make Scarce things Scarcer

Posted by PITHOCRATES - October 23rd, 2011

Week in Review

If there’s anything that tells us not to take mainstream economists or the United Nations or the International Monetary Fund or other global organizations seriously it’s this (see Economists Call for Crop-Trading Limits to Curb Volatility by Alan Bjerga posted 10/10/2011 on Bloomberg Businessweek).

Hundreds of economists including scholars from Oxford University and the University of California, Berkeley, are asking the Group of 20 nations to impose limits on speculative positions in food commodities to curb volatility in crop prices…

Research sponsored by the United Nations, International Monetary Fund and other global organizations suggest speculation in crop futures by index funds and large banks may cause price spikes that can put grocery costs out of reach for poorer people. Global regulation of speculators has been a goal of French President Nicolas Sarkozy during his term as leader of the G-20 this year.

What’s the common thread in all these organizations?  They’re all Keynesian tax and spend big world government.  And, surprise, surprise, they want more control over the world’s economies.

Have we learned nothing from the Nixon’s price controls of the Seventies?  Price controls make scarce things scarcer.  Did rent control make more low-income housing available?  No.  Did price controls make gasoline more available?  No.  Why?  Because market prices match supply to demand.  And when you mess with the market price mechanism, you mess with supply and demand.  Resulting in shortages.  Such as low-income housing and gasoline during the Seventies.

Messing with prices doesn’t make scarce things less scarce.  So why do it?  Because that’s what Keynesian tax and spend big world government does.  It’s not about the economy.  It’s about power.  Their power.  And they want more.

The 2008 spike in gasoline prices is an example of this pricing mechanism.  The run up that peaked in July 2008 was due to a fall in OPEC production, not speculation (see Federal Reserve Bank of Dallas Clearly Explains Why Speculation Didn’t Drive Oil Prices in 2008 by Kay McDonald posted 10/14/2011 on big agriculture picture).  The high gas prices in 2008 just made sure that a scarce resource was available for those who really needed it.  People drove less over the summer.  Which made a scarce resource available for those who really needed it.  The result?  No gas shortages.  And no gas lines.  Like in the Seventies.

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LESSONS LEARNED #65: “The only thing the market is inefficient at is funneling money to anti-business politicians.” -Old Pithy

Posted by PITHOCRATES - May 12th, 2011

Microsoft Learns the hard way about the Costs of Lobbying

Once upon a time Microsoft had no lobbyists.  Microsoft grew to dominate the PC operating system with no help from the government.  Bill Gates became the richest man in the world with no help from the government.  And how did that go over with the government?  Not well.

Because of complaints by Microsoft’s competitors, the U.S. Justice Department began antitrust proceedings against Microsoft.  The complaint?  Microsoft was giving away something for free that others wanted to sell.  A web browser program.  Internet Explorer (IE), to be specific.  The competitors said that Microsoft had an unfair advantage when they bundled IE with their operating system.  Because why would people pay for something that they can get for free?  Consumers never complained about getting something free.  Just other corporations trying to make consumers pay for something that they could get free from Microsoft.  So the Justice Department went after Microsoft so consumers could no longer get something for free.  In other words, the antitrust case against Microsoft was to raise prices.  Which is kind of the opposite reason for an antitrust case.

Government may not know how to create or expand business activity.  But they sure know how to hurt a business.  Microsoft still bundles IE with their operating system.  But they learned a very important lesson.  And, today, Microsoft spends millions of dollars on lobbyists.  To lobby politicians for nothing in particular.  But to pay tribute.

There was no Health Care Cost Crisis before World War II

Once upon a time people paid their doctor’s bill.  Really.  They’d see their doctors.  The doctor would bill them.  And they would pay.  Of course, that was a long time ago in a mystical place.  The United States.  Before World War II.  Yeah, I know.  Crazy talk.  Paying your doctor’s bill.  But some crazy sons of bitches really did. 

Of course, back then, medicine wasn’t socialized yet.  Market forces controlled medical costs.  How, you may ask?  Simple.  The people ‘buying’ the medical services paid the bill.  Medical services were just another service provided by licensed professionals.  Like a plumber.   And though plumbers are expensive, they are affordable.  Because if they weren’t affordable, there wouldn’t be a market for their plumbing services.  As it was for doctors.  Before World War II.  Doctor services were affordable.  Because if they weren’t, there wouldn’t be a market for their medical services.  And it worked like this until World War II.  When health care became a benefit.  And benefit administrators came between buyers and sellers of medical services.

Let’s do a little experiment.  Let’s say you work for a company that is putting together a company picnic.  The company is paying the tab for all 20 employees attending.  And you get a company credit card to buy the food with no restrictions given.  What are you going to buy?  Hotdogs and hamburgers?  Or filet mignon?  Now, later in the summer, you’re having a family BBQ.  There’ll be 20 people in all.  But this time you’re paying the entire bill.  What are you going to buy?  Hotdogs and hamburgers?  Or filet mignon?  Chances are that you’ll be eating different food at these events.

The Price Mechanism doesn’t work if someone else Pays our Bills

Do you see how having someone else pay for your benefits affects your purchasing decisions?  You’ll be enjoying filet mignon on the company’s dime.  But you’ll be satisfied with hotdogs and hamburgers on your dime.  This is the problem in post World War II health care.  There are no market forces anymore in health care.  Someone else is paying for your benefits.  So you don’t care what the costs are.  So you’ll never object to getting the filet mignon of health care benefits.  Even if you’re a single guy.  And your employer is paying for insurance that includes breast and cervix exams.  If you were paying the full cost of your health insurance bill, though, you probably would not pay for breast and cervix exams.  Sure, they’re nice.  But as a guy you would probably never use these benefits.  So you probably wouldn’t pay for them.

This is a big reason why health care costs are so out of control today.  There are no market forces in play to control costs.  Other people pay for our benefits.  So we never ask, “Can I afford this?”  Which everyone does before hiring a plumber.  Dr. Gratzer, a physician and senior fellow at the Manhattan Institute, wrote that Americans pay only twelve cents for every dollar of health care services they receive.  Which means 88% of the American health care is already socialized medicine.  In other words, other people pay for 88% of an American’s health care.  And when other people are paying, how often do you ask, “How much does this cost?”

This is why health care costs are out of control.  Elsewhere in the economy prices serve as a mechanism to adjust supply and demand.  Not in health care.  No one knows the prices in health care.  Because no one asks.  And the further we go in this direction the worse it’s going to get.  Yet that is exactly the direction some in government want to take health care.  Why?

Politicians Matter more than the Cost of Health Care

Because the market is efficient.  It works very well when left alone.  Just ask Bill Gates.  Or anyone who saw a doctor before World War II.  The market works.  But it has one drawback.  It doesn’t need government.  And for those who are looking for a career in politics, that’s a problem.

Microsoft wasn’t harming any consumers.  They were hurting other businesses that couldn’t make consumers spend more money.  So the politicians stepped in.  To show they mattered.  And cared.  Also, Microsoft was obscenely wealthy.  A little lobbying on their part could fill a few campaign war chests.  And provide a nice vacation or two.  They just needed to see the light.  How things worked in Washington.

But becoming a senator or a representative needs more than a fat war chest.  You need people to vote for you.  And a good way to do that is to get as many people dependent on government as possible.  Either as patients in a new national health care system.  Or as employees in a vast new bureaucracy for the new national health care system.  Which is why they’re not turning to the free market to fix the cost problems in their health care system.  Like they are in the UK and Canada.  They don’t want to fix the cost problems.  They want the dependency created by a new national health care system.  They can worry about costs later.  After they’ve taken over one-sixth of the U.S. economy.

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