The Keynes Mutiny
“It is ideas, not vested interests, which are dangerous for good or evil.”
– John Maynard Keynes
We should always challenge the simplistic claims of the left–often echoed by the simplistic, stereotyped response of the right, which falls into the left’s trap–about the nature, origin, and “liberalism” (rather than radicalism) of its ideas.
Here’s a simple chart:
- Obama and the Obamites: We are true heirs of liberalism and it is good.
- The Opposition: You are true heirs of liberalism and it is bad.
Me and (hopefully) you: Wait just a moment there, Binky! You’re radicals pretending to be liberals and we can prove it. Centrists and real liberals should be supporting the opposition today against you.
Consider John Maynard Keynes, who the current left claims as the patron of its economic policies. Of course, there is some justification for this idea but I believe Keynes would have been horrified by contemporary Obama administration policy. True, Keynes advocated high government spending to stimulate economic growth. Let’s examine Keynes’ advice to President Franklin Delano Roosevelt to see how he might differ with disastrous current policies.
Remember what Roosevelt had been doing in his first months in office. His basic strategy was to restrict prices and slap on high levels of production controls, an approach neither side in today’s debate would advocate. So part of what Keynes was doing was to get Roosevelt to reduce the regulations restricting business that the president had imposed in his first months in office, another difference from Obama.
In his letter to Roosevelt of December 16, 1933, Keynes wrote: “The object of recovery is to increase the national output and put more men to work.” In other words, these two factors were the measure of success and Obama has failed on both fronts. Keynes wouldn’t be impressed by the blame-Bush tactic.
Keynes continues:
In the economic system of the modern world, output is primarily produced for sale; and the volume of output depends on the amount of purchasing power, compared with the prime cost of production, which is expected to come on the market. Broadly speaking, therefore, an increase of output depends on the amount of purchasing power, compared with the prime cost of production, which is expected to come on the market.
So Keynes argued that the key to success was to increase the public’s purchasing power and there were three ways to do so.
The first was pure persuasion: “Individuals must be induced to spend more out of their existing incomes.” Roosevelt had tried to do this by showing Americans that there was “nothing to fear but fear itself,” but the situation was too bad for mere words to work.
The second was in many ways the kind of policy that Republicans favor today:
The business world must be induced, either by increased confidence in the prospects or by a lower rate of interest, to create additional current incomes in the hands of their employees….
A better way to state this sentence would be to stress that if companies expanded, or hired additional workers, or produced more (thus paying other companies who could hire workers), then the economy would recover.
Note that Obama says this approach has never worked. But that is not what Keynes said! On the contrary, he explained that this would be phase two, “as the second wave of attack on the slump after the tide has been turned by the expenditures of public authority.”
There is no way out of the current economic mess without some form of protectionism and a subsequent major trade war, the results of which we do not wish to contemplate. The U.S. and the developed world will never be able to compete with the likes of China and India in a free globalized economy, unless, we have a lower standard of living than theirs. We are engaged in a race to the bottom. All economic theory is fine and good, but I don’t wish to end up working for a dollar a day in order to fit some economist’s views on “global competitiveness”.
We compete…very successfully…every day with ALLL comers. What are you afraid of? Review Econ. 101 before you do your Chicken Little dance.
What’s our : 1) national debt at today? 2) What’s our debt to GDP ratio today? 3) What’s our current account deficit today? 4) How many dollars have we “quantitatively eased” today?
Yeah, we can compete with the best of them. I guess you meant in the PIIGS league.
Standard liberal fare, jgets:
What’s our : 1) national debt at today? 2) What’s our debt to GDP ratio today? 3) What’s our current account deficit today? 4) How many dollars have we “quantitatively eased” today?
Yeah, we can compete with the best of them. I guess you meant in the PIIGS league.
All of which Obama is doing in order to hang us out to dry. Obama would have us in with the PIIGS, but standard conservative policies would have this country back on track pronto. Capitalism works when you let it happen and don’t make it pay socialism’s bills.
According to a US TREASURY website page, “HISTORY OF THE PUBLIC DEBT”, the public debt is $15,692,368,000, and your share and mine runs to $50,000 and change, and is growing by $5,000 a year. Mr. Geitner is kind enough to provide us with an official peek at the last 20 years of Public Debt.
GOOGLE: treasurydirect.gov govt/reports/pd/pd_debtposactrpt_0412.pdf
This is a very handy chart. The debt was $5 trillion in 2000; $8 trillion in 2006, after which time Nancy and Harry led the majority & wrote every spending bill for the next 6 years. Today the debt is $15.6 trillion, rapidly approaching $16 trillion.
Any guesses what it will be in 2016 or 2020.
I studied arithmetic in the 1950s when 2 + 2 was always 4. Today’s politicians tell us 2 + 2 is 10, but neglect to say that future generations will be born with debt chains around their little necks.
Winston_in_Oceaiana_ I ditto your comment
“This is a very handy chart. The debt was $5 trillion in 2000; $8 trillion in 2006, after which time Nancy and Harry led the majority & wrote every spending bill for the next 6 years. Today the debt is $15.6 trillion, rapidly approaching $16 trillion.”
It is important for the Republicans to maintain control of the House and either elect Romney or wrest control of the Senate to nullify Harry Reid who is a big problem. Reid has 4 more years in office.
Why would you say this? By what measure?
Productivity? We are by far the most productive nation on earth, China is no where close
GDP? China’s is just a little more than half our GDP with 4x the population (and we truly don’t know how manipulated it is)
Do you know how much China imports to the US and how much of our economy it represents? I would guess you don’t.
Do you know what percent of our debt China owns?http://www.businessinsider.com/who-owns-us-debt-2011-7#
There is a lot that goes into an economy, not just how cheap the labor is. Transportation, skill, education, environment, freedom, etc.
Stan O- Did you forget to include beauracracy and excessive regulation?
Well, being a Communist country, I presume China has a lot if “beauracracy and excessive regulation” except for the kind that actually protects workers.
They also have extreme financial issues that makes our “bubble” pale in comparision, or so I’ve heard.
Anybody recall “Back to the Future II”, where the US in the “future” was basically owned by Japan? It really looked that way at one time.
The danger is there, but it isn’t insumountable.
Why not? It worked so well with Smoot Hawley!
No collapse.
They’re just selling you the sizzle– ‘or the world will end!!”
What is never mentioned when talking about Keynesian economics is that the govt. is supposed to FIRST put aside funds during times of largess, and then spend those funds AFTER hard times hit.
Technically Keynesian economics has NEVER been practiced by anyone.
You mean you aren’t supposed to run a $trillion deficit during the good times? And, when a recession hits, raise taxes, implement ornerous business regulations, and run a $2 trillion deficit?
Ironically enough you could argue it once was, by none other than Ronald Reagan (shocked gasp). Remember Reagan cut taxes and domestic spending, but he upped the defense budget, which in Keynsian terms is still an increase in government spending to stimulate the economy, regardless of where it comes from. A lot of conservatives seem to forget this fact.
Kind of a muddy argument. The President has relatively little power over spending other than the authority to sign or veto bills. Reagan cut some deals with Democrats over spending cuts – most of which never materialized.
Defense spending is a little bit different animal than welfare payments. It generally goes to high-end firms and people and can stimulate other industries. That GPS and satellite radio in your car came from 80′s Defense research.
No, he did it because it needed to be done, NOT to “stimulate the economy”. He knew better.
No true conservative (that qualifier assumes a certain level of education, not merely vague patriotic ideas) says that all government spending is bad.
The problem comes when the government thinks that managing the economy is its responsibility, and so starts putting its grubby and very clumsy paws on the machine of commerce.
I suppose, in theory, it’s economically irrelevant what one deficit spends on when it comes to maintaining aggregate demand: maintaining public sector pensions an employment and or spending on private sector production an employment in either case will maintain effective demand. It certainly is not politically irrelevant, however, and the irony is that technocratic central banking (like technocratic Supreme Courts) ultimately becomes political: monetary policy ultimately becomes political fiscal policy by another name (quantitative easing, for example) when the automatic pump priming stabilizers fail. Looking at European and American spending increases over the last four years certainly belies the complaints over austerity. Of course, this means borrowing from the future (or taking from the dead) to maintain current aggregate demand in light of debt loads that can no longer be supported, in other words, treading water with no hopes of making it to shore. As I recall, debt default, restructuring the bond contract as apposed to the social contract, was also an element in Keynes for getting back on dry land, especially in his treatment and disdain for forced German reparations after WW1 and their economic consequences. I certainly haven’t seen the Obama administration (or the Germans and French) advocating debt defaults, but that certainly is the logical outcome of the present course. Of course, if you deficit spend on General Motors and big Wall Street banks rather than “shovel ready” NASA, that means no going to the moon by default–apparently a political economic decision Romney also agrees with.
In reality is not perpetual extension of debt maturity an even more extreme level of default?
I would be interested in Barry Rubin’s assessment of Peter Gourevitch’s book on the deployment of demand-stimulus in many countries during the 1930s. I cited it here, as part of a piece on the stigmatizing of economic determinism by social democrats such as Gunnar Myrdal. See http://clarespark.com/2009/10/10/ralph-bunche-and-the-jewish-problem/.
Keynes was smart, but he never thought strategically. After all, he fathered the greatest excuse for governments to spend money at the expense of its citizens. This was opening that socialists and commies needed to justify high taxation and spending on various government programs. Whatever logic that Keynes used – and no one cannot say he was not a logical man – is utterly forgotten to the illogic that Leftists cling on to, which is that governments should spend money and citizens should be taxed to fund it.
Besides, the Left probably remembers more about Keynes’ homosexual trysts than anything regarding his actual economic policies.
“Besides, the Left probably remembers more about Keynes’ homosexual trysts than anything regarding his actual economic policies.”
Frankly, I doubt it. I hadn’t heard of Keynes’ sexual proclivities until long after I’d heard of his economic ideas; I remember being quite astonished by learning that he wore silk panties under his outwardly normal clothing.
I think the idea of government spending money on social programs was far more sexually exciting to the Left in those days – and today – than anything Keynes did in his private life. Remember, in the 1930s the leftists weren’t champions of the homosexual community the way they are today; I expect they found homosexuals every bit as repugnant as the most socially conservative do today.
I’m not sure when Keynes’ homosexuality became known. I can only assume it happened long after his ideas had been embraced when it would have been much harder to dismiss him and his ideas….
When I took econ 101, there was only one textbook, Samuelson’s Economics, and it was all Keynes, with some bones thrown to Friedman, Gailbraith, and Marx(!).
Me and (hopefully) you: Wait just a moment there, Binky! You’re radicals pretending to be liberals and we can prove it. Centrists and real liberals should be supporting the opposition today against you.
Depends on whether by “should” you mean “ought to” or a pretentious synonym for “would.” I myself should say “centrists and real liberals would be supporting the opposition today against you.”
A close study of the period between the world wars helps to understand the Great Depression. Dan Blatt’s book is a recreation from archives in a month-to month account. The US was the world’s creditor, while Europe was broken economically at the end of WWI. The treaty punished Germany with unpayable reparations, and France prevented Germany from recovery by invading the coal/steel producing region. Trade wars ensued, and the US passed the Smoot/Hawley tariff, which essentially cut off exports and imports with Europe. All of Europe and the US suffered for years after trade ceased in the 1930′s. When Germany eventually imploded due to people starving, along came Hitler, who built a military and began assault. Due to his invasions, in 1939 the tariffs came down and the US unemployment rose for the first time since 1932. For a detailed account of Germany during the era, “When Money Dies”, written by a Scottish economist/historian in the 1970′s, is enlightening.
Henry Morgenthau, Roosevelt’s teasury secretary, stated in his diary that year that “We have spent all this money and have nothing to show for it except debt.” (Another book worth reading is “New Deal or Fair Deal?”)
Note Keynes said the objective was to put more MEN to work, not to hire useless femi-firmative action obese Hitlery Qunton-types in black pantsuits who add nothing to business innovation. The problem is feminism which with its divorce, birth control, abortion baby murder has destroyed western economy and society.
While I agree with part I of your statement, the fact is that in many ways women today come across as more capable. Something has happened to the culture, to make the women more driven than the men. The feminists at the end won thorugh the school system and the media more than through the EEOC.
And don’t forget liberals always have amenesia when it comes to the second part of Keynes’s ideas on massive government spending to get out of recessions. His idea was to run a defecit and then pay off the defecit as the economy improved with the new tax revenues. Keynes was never in favor of giant structural defecits. He would be aghast at what is being said and done in his name these days.
Buying and selling have certainly become convoluted.
And compromised as a function of the degree to which “government” has interfered in their operation, similar to the realms of medicine and education.
Arguments go round and round as to whether FDR level of insertion actually slowed economic recovery, just as federal interference and attempts to tweak here and there are having all kinds unintended consequences today.
I believe in markets, win, lose, rise, fall. Government should tend to the tasks of government and keep its hands off.
Milton Friedman is my guy, with a dose of Ayn Rand’s philosophical meanderings on the trader and the human spirit.
“Underlying most arguments against the free market is a lack of belief in
freedom itself.”
~Milton Friedman
“When you see that trading is done, not by consent, but by compulsion —
when you see that in order to produce, you need to obtain permission
from men who produce nothing — when you see money flowing to those who
deal, not in goods, but in favors — when you see that men get richer by
graft and pull than by work, and your laws don’t protect you against
them, but protect them against you — when you see corruption being
rewarded and honesty becoming a self-sacrifice — you may know that your
society is doomed.”
~Ayn Rand
Having seen the experience of the Weimar Republic, Keynes would never have countenanced deficit spending by going deeper into debt to foreign countries (China in our case).
Keynes considered public spending as a temporary measure to boost demand for goods and services from the private sector, so as to get the private sector moving again. But the leftists in the FDR Administration, like Henry Wallace, considered all this new public spending as a down payment on democratic socialism.
Keynes also believed that the public spending should be drawn down as the economy recovers. As we know, that has never happened, except after a war when defense spending dropped. Domestic spending has never dropped.
Liberals call any type of pork, entitlements, or other spending “Keynesian”–to the point that the meaning of the term has been debased out of all recognition. I doubt that even one liberal in fifty ever read Keynes’ original books.
And one more point. Having seen what happened to the Weimar Republic, Keynes would never have supported deliberately inflating the currency to make our debts easier to pay off in inflated dollars, as Paul Krugman now advocates today.
Keynes was not an inflationist by any means. He absolutely opposed debasing the currency.
When liberals like Krugman have nothing to offer beyond deliberate debasement of our currency, you know their time is over.
Search: “Keynes Lenin debauch currency”.
Keynes, at least, was aware of the horrific impact of monetizing the debt. Obama and the Fed support Lenin’s positive view apparently.
Of course the resulting inflation impacts the poor much more than the wealthy. Anyone relying on interest, transfer payments, or a fixed income is screwed. Fatcats relying on the largesse of the federal government through crony capialism will make out like bandits, as will the politicians to whom they funnel kickbacks. Which is all that matters these days.
No chart showing up in Chrome. Just a big white blank space.
The important question is where does money value come from. We have more money today than when we lived in the caves. Where did it come from? The money supply is used to purchase things and investments in the market and to pay off debts when it goes into the pockets of the creditors. The value of the money flow is always equal to the value of the goods and services purchased by the spenders. Capitalism creates more money and more money value by figuring out how to produce more goods and services of better quality and for less money, including products like steam boats, autos, airplanes, cell phones and computers that never existed before. The difference between the cost of production and the value of the goods in the market to the consumer is called profit, This profit increases the value of the money flowing through the market. Profit increases the money supply and this is why capitalism, the pursuit of profit, works to make everyone richer as the money supply grows. Socialism, one way distribution of a limited pie of fixed assets by the elite (fuedalism essentially) has no objective or expectation that the value of the pie can be increased, all historical evidence to the contrary notwithstanding, so that such self-fulfilling operation never makes any country that tries it any richer than they were, but to the contrary always makes them poorer for obvious reasons of the human tendency towards exploitation and greed that I won’t take the time to go into.
So what destroys money? One way transfers without the production or transfer of any market wealth destroy money and money value, like bankruptcy, theft, fraud, payment of foreign debt (with the money that flowed outward now lost domestically) interest payments on debt, taxation, printing of fiat money by governments (causing inflation), taxes (driving the cost of production and sales prices upward) welfare, entitlement transfers, taxation, hoarding by the rich, Mississippi bubble types of mass delusion which bid up the price of fixed assets and, sad to state, charity where nothing is received or requested in return. Overpayment for foreign goods where the money is lost domestically, can all be counted, though the foreign countries doing the production do become richer. These types of loss of money value and quantity are practically the sole cause of depressions, recessions and loss of production and employment (which further destroys the value of the money supply) as Keynes well knew.
The answer then is not using governement borrowed money to subsidize one way transfers and pay off government debt which produces nothing and forces no wealth production through the market. All new government money needs to be used in a recession exclusively to produce a profit in competition with the private sector with the active employees (not elitists) owning the capital enterprise financed by the government. And no experimental green production like solar panels or windmills, and no stealing from bond holders to give established businesses to Democratic unions. And don’t give the new borrowed and printed fiat money to the state governments to pay off debts and beef up their state pensions, or to foreign governments and scam artists for whatever.
If government made a real profit in competition with the other private profit centers, then we would have real reduction of costs of production and real growth in the supply of money value, 100% employment and everyone would be getting authentically wealthier, with no permanent and irreversible growth of unpayable debts now owed by everone, that can only lead to default, war and the collapse of western civilization. It happened before (500 AD, 1789 AD in France, 1917 in Russia, etc.). Truth be told, if we stay on the road we are going down now, this will certainly happen again. At that point, then God help us all.
I noticed early on that Obama and the then Democratic Congress couldn’t even do Keynesianism right.
I think Obama’s moves aren’t related to any specific economic theory but performed out of the small minded and shortsighted vision of an individual who neither understands nor cares about American economic recovery.
Recall, Obama is the guy who wants our energy costs to “necessarily skyrocket” as he rewards contributors and cash bundlers in a series of economic boondoggles.
I’m supposed to be more concerned about what Mitt Romney did with his own money than…
What Barack Obama is doing with mine
The people to whom you refer are not liberal. They’re leftists.
And one can be a radical right-winger and/or a radical capitalist. The word “radical” has no inherent directionality to it.
The purpose of devaluing the currency is to grab that value for themselves and their purposes, and to deny that value to the people who earned and saved and invested. It’s a scam, a fraud. And it only worked so long as people believed intuitively that a mark or a dollar or a rupee or a dinar or a euro was worth the same from day to day, week to week, year to year, decade to decade. That’s why inflation almost always shows a geometric increase. Indeed, many reporters stopped reporting the simple rate of increase and now report the acceleration of increase… which is to say the acceleration of decrease in the value of the unit of currency.
Cold Case Posse – Obama’s Birth Certificate Investigation – Sheriff Joe Arpaio – Full Version
http://www.youtube.com/watch?v=8muZ1Pe9OAo&feature=related
keynes was flat wrong. why not just mention it. anyone saying they follow keynes would jump into this bucket.
von mises clearly show government tickering in monetary policy always ends badly. increasing supply by printing money or keeping interest rates artificially low to encourage banks to increase money supply in the form of credit is Inflation. The higher prices are the result of this.
gold standard is the only thing that works. keynes and his minions keep trying to think a better mouse trap can be built.
There isn’t enough gold in the world to support every currency in the world.
The idea of a federal reserve or central bank is that economic technocrats will keep a finger on the pulse of an economy, that is, it’s productivity, and adjust the supply of money up or down as needed to keep pace with productivity, thus maintaining the value of the currency. That is, ensure the inflation rate is always at zero or as close as possible. Unfortunately, in the real world, everything that can be corrupted in service to political ends, will be corrupted. That’s exactly what has happened. Until the day we replace the technocrats with a master computer that would be, of necessity, incorruptible we will always have debt and currency problems–or until we change our political system in a very fundamental way.
According to a pro-Hoover analysis, he was constrained by the gold standard and so raised taxes on the rich (possibly triggering the Great Depression). I don’t know if there are simple answers.
BTW, Alan Greenspan is on record as favoring the glod standard.
gold
Maybe Hoover should have just left things alone so they could work themselves out. Unfortunately, politicians (or maybe its the public) think they have to get involved in every problem that arises in society and find a solution. “Don’t just stand there, do something.” Well, sometimes doing nothing is best. Alternatively, he should have reduced spending rather than raising taxes.
The essential problem with liberals is that they don’t accept the idea that no system created by humans is going to be perfect–that the system will have a downside as well as an upside. No matter how beneficial free market capitalism is, they detest the business cycle and have forever tried to manipulate the economy in order to erase it. Failing that, they seek to replace free market capitalism with socialism–total control–which we know from experience is a complete failure. The appropriate solution to the business cycle is–hands off!
So I see BR has rather enlightening information on domestic issues also. Great article.
Keynes advocated COUNTER-CYCLICAL fiscal policy, so the debt taken on to pay for the deficits during a depression would have been paid back by surpluses during the following boom.
My critique of this particular policy focuses on the use of debt rather than printed currency. First, fiscal debt increases the fiscal money supply in the future; the counter-cyclical surplus during the boom offsets this increase with its own decrease in the fiscal money supply. By not increasing the current fiscal money supply, the policy runs the risk of not increasing the monetary value of demand, precisely when loans are not forthcoming. Second, borrowing from domestic sources diverts those funds from other uses, notably investment in businesses seeking to expand. This was, in my estimation, the cause of the massive unemployment and our current Great Depression following the $700 billion and then trillions of dollars of new federal debt. Third, borrowing from foreign sources constitutes an export of a debt product which is inevitably balanced with imports of real goods. That is, China lends us money to buy goods from them, creating employment there and unemployment here.
All three ill effects could have been avoided and could be reversed by printing United States Notes and by the ending the issuance of Treasuries.
Seems ok to me