Keynesian Economics, Exposed; Godwin’s Law, Broken
Via my Year One blogging buddy, Pejman Yousefzadeh, comes this happy fun story about America’s good credit:
Moody’s Investor Service, the credit rating agency, will fire a warning shot at the US on Monday, saying that unless the country gets public finances into better shape than the Obama administration projects there would be “downward pressure” on its triple A credit rating.
Examining the administration’s outlook for the federal budget deficit, the agency said: “If such a trajectory were to materialise, there would at some point be downward pressure on the triple A rating of the federal government.”
If you had a time machine and it was good for only one trip, would you go back and give contraceptives to Hitler’s parents — or to the parents of John Maynard Keynes?
Obviously, I’m being facetious, but only by half.
Hitler discredited fascism, by launching wars of aggression and sending millions of Jews, Gypsies, gays, and the handicapped to the gas chambers. And, minus the extent that he started all those wars and killed all those people — well, good for Hitler.
Again, obviously, I’m being facetious.
But I’m not being facetious at all when I tell you that Keynes legitimized fascism, by giving decent, liberal democracies license to tax and spend and borrow in the name of political expedience.
Look, whatever Keynes may have gotten right — I suppose he could wipe his own bottom unassisted — what he got wrong is precisely what bedevils us today. And Keynes, the fascistic bastard, I think got it wrong on purpose.
Let me explain.
Quite famously, Keynes wrote, “In the long run we are all dead.” Which politicians of the Great Depression, and long thereafter, took to mean, “Right now I can buy votes with money borrowed from people who aren’t even born.” And Keynes enabled them. Keynesian theory held that governments should save money in the good times, so that they could spend it during lean times to “stimulate” the economy.
Gee, where have we heard that word before?
But let’s be frank here. That bit Keynes said about saving money must have been with a wink and a nod and a nudge, nudge — because popular democracies almost never save any money. And Keynes was too smart not to know it, and too conniving not to say it.
Of course, Keynesian theory also held that inflation and recession couldn’t coexist — but then Richard Nixon and Jimmy Carter and the 1970s came along and disproved all that. And yet, somehow, liberal governments still hold by Keynes.
But why?
Simple. What Keynes did was to give license to government today, to borrow from tomorrow — and the consequences be damned. And there’s nothing a politician likes to hear better than that he can buy votes from Paul, using Peter’s money, without Peter ever being the wiser. Because if you follow the Keynesian example, Peter hasn’t been born yet. Convenient, that. In olden times, politicians had to rob from people who could shout to high heaven that they’d been fleeced. But then the unborn don’t exactly turn out in huge numbers on election day.
And that’s where we are today — borrowing trillions from China and Japan in the expectation that our grandkids will someday, somehow, foot the bill.
France, Germany, China — these countries ignored Keynes during the recent Great Recession, and now they are all well on their merry ways to recovery.
The United States and Britain are still, tragically, under JMK’s sway — and it’s no coincidence that our two nations our about to go for a double dip in the pool of total suckiness.
Keynes got one thing right in his inglorious career. In the days after World War One, he argued that Weimar Germany would never be able to repay the debts it owed under the terms of the ruinous Versailles Treaty. And he was right. The German economy burned to the ground, and Hitler arose from its ashes.
And yet, by the theories of that same inglourious basterd, we have saddled ourselves — in the space of just one year! — with debts perhaps as great as those faced by the fragile Weimar Republic of 1920. What will come from our ashes? No one can say.
Had anyone listened 90 years ago, Keynes could have saved the world from Adolf Hitler. Had anyone listened just last year, we’d be spared the risk of becoming Weimar America.
So. You’ve got that time machine. Who gets the condom?
UPDATE: Honestly, this is nothing compared to what PJTV lets me get away with on Hair of the Dog — the only effective cure for the Sunday morning chat shows.
Let’s not forget as well that to Keynes, “savings” for the government was indistinguishable from “printing” – and to the extent there was difference, the latter was to be preferred.
John Maynard Keynes had infinite faith in the wisdom and virtue of those elites who attended the best schools. In the end, they will make it all work out well. They are wonderful and brilliant and deserve the trust of we lesser mortals. Keynes would also be bewildered if you were to disagree. A university education supposedly prepared one to become a member of the secular monastic order who has the obligation to altruistically serve the common folk.
Keynes, needless to add, lied to himself. The reality, according to Burton Folsom, Jr., is that his economic doctrines were used by politicians to tax the more affluent in order to bribe the far more numerous but less affluent voters. Both Franklin D. Roosevelt and Barack Obama spread the money around primarily to those areas promising the most votes.
That’s a question I’d like someone to pose to Megan McArdle.
Interesting, VP.
The answer to why they continue to believe a discredited theory is the same reason they continue to believe (and it is a belief as strong as any) in AGW. It fits in well with their statist policies. It gives them a (pseudo) scientific rational for doing what they do. If you question them, you are being “irrational”. So how well either Keynesian Economics or AGW stand up to reality is besides the point. To paraphrase Adam Savage, they deny your reality and substitute their own.
Not to defend Keynes, but I believe that he justified deficits only as a short term solution to economic downturns and only on the condition that governments re-balance their budgets in short order. Unfortunately, this became justification for fiscal debauchery by politicians which has become increasingly insane over the years. Greece and the other PIGS are reaching the end game, California soon.
Even if Keynes had never lived, some other “genius” among the British or American academic elite would have hatched similar theories.
Been there, said that, made a Star Trek reference.
http://snarkolepsy.blogspot.com/2009/02/wrath-of-keynes.html
Keynes, personally, didn’t have to concern himself about his posterity – he didn’t have any, being what the English call a “poofer.”
However, his book about the WWI peace treaty was a gem – especially how he caricatures Wilson.
Umm, can I vote for strangling Wilson in his crib?
Lloyd George, who approved
the Treaty of Versailles,
when urged to moderation:
‘What! I have got them
where the hair is short,
and I intend to squeeze
until the pips squeak.’
1920 Germany did not have
the manufacturing base to
produce enough wealth to
pay reparations.
2020 America does have the
_potential_ Hi-Tech base to
pay off its debts, if it will
develop it; Cut all the Red Tape
which ties down the entrepreneurs,
and get out of their way.
Or, we can allow the pip-squeak
in office to squeeze us dry and
cede world dominance to China -
after the war.
Where is the metioned recovery in Germany?
As far as i know we are still spending borrowed money for health, unemployment and pension.
I have no idea how the 22.000 Euro per capita debth can be payed back?
T.Fix Germany
Kiddie selfservatives sure say the darndest things, Dr. Bones!
(Aren’t you glad it’s on THEIR team?)
Healthy days.
Now, to say that high taxes and deficit spending are fascism — let alone nazism — is a gross exaggeration: tax+spending LEADS to fascism. The mechanism is well illustrated in the cartoon version of Hayek’s Road to Serfdom.
And fascism is not unavoidable: a Reagan or a Thatcher can reverse the process — at least temporarily.
France, Germany, China — these countries ignored Keynes during the recent Great Recession
To their credit, the Germans have ignored Keynes since 1945; hence the German miracle.
This post has been linked for the HOT5 Daily 3/16/2010, at The Unreligious Right
If John Maynard Keynes had never been born, Paul Krugman would have been forced to invent him.
In their time – when the relationship between his policies and fascism’s horrors wasn’t yet so apparent – Keynes’ theories might have been forgivable. I no longer worry about the implications of phlogiston, nor do Keynes’ discredited notions bother me.
The people I want a time machine for are the ones who keep trying to RE-legitimize the various facets of totalitarianism – fascism, socialism, collectivism, syndicalism, corporatism, marxism, communism – despite the fact that they’ve all been thoroughly discredited.
Here’s the thing: if John Maynard Keynes had never been born, Paul Krugman would have been forced to invent him.
In their time – when the relationship between his policies and fascism’s horrors wasn’t yet so apparent – Keynes’ theories might have been forgivable. I no longer worry about the implications of phlogiston, nor do Keynes’ discredited notions bother me.
The people I want a time machine for are the ones who keep trying to RE-legitimize the various facets of totalitarianism – fascism, socialism, collectivism, syndicalism, corporatism, marxism, communism – despite the fact that they’ve all been thoroughly discredited.
Here is a relevant quote from Herr H. himself:
“Inflation does not arise when money enters circulation, but only when the individual demands more money for the same service. Here we must intervene. That is what I had to explain to Schacht*, that the first cause of the stability of our currency is the concentration camp.”
source:
http://timesonline.typepad.com/oliver_kamm/2009/07/ecclestone-and-the-economic-history-of-the-third-reich.html
*Hjalmar Schacht was President of the Reichsbank and Minister of Economics in the Third Reich, but was kicked out before ww2 (source: wikipedia).
If I may use some sarcasm: Hitler understood Keynesian economics better than Keynes himself.
“To their credit, the Germans have ignored Keynes since 1945; hence the German miracle.”
the German miracle results more of taxation artifice, where enterprises tranferred 10% of their charges on the labor force, when german government and unions agreed to blocate its wages, when the german government makes the stiff rules of BCE equal for the eurozone, that inflaed the currencies of the PIIGS states, in order that the german merchandises can be bought by the whole eurozone, but the counterpart is that in Germany, because of the workers low wages, the inner market remains flat, there was no jobs creation… a guess this equilibrium will break soon, cuz enterprises and stores, that aren’t devoted to exportation, will need a bailing out too , and in the meanwhile, if the PIIGS states can’t buy anymore german stuff, this policy of exportation at all prices will be doomed too !
The german debt from the Versailles treaty was fully repaid by 1930, an artifice on the money changes from the coalition UK/US bankers made it possible in the years 1923-24
Also by 1914 Germany was the most powerful and industrialised country in Europe
Ironically, it was demonstrated back in 2004 that Keynesian policies hurt and destroy economy. And proven in the “think tank of conservative thought” – UCLA. But never let history and science stand in a liberal’s way. Because this time it is going to be different, right?… right?
http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx
Isn’t there a constitutional ammendment against involuntary servitude?
Well, isn’t there??
And what do you call it when the government takes 50% of what you earn, basically at gun point?
Slavery, that’s what.
“Keynes got one thing right in his inglorious career. In the days after World War One, he argued that Weimar Germany would never be able to repay the debts it owed under the terms of the ruinous Versailles Treaty. And he was right. The German economy burned to the ground, and Hitler arose from its ashes.”
This exactly the result being sought right now by the Ocommie administration. “Burn it down” is their philosophy. Then they think they can rebuild in their own image. What they don’t realize is that they are dead already. So what is the image they will try to rebuild in? The same as Stalin and Mao. They love the idea of a few elite ruling the masses of the ignorant.
They want to control everything people do, we see and hear of it everyday now. The result will be death and destruction, there can be no other result. Beware of the army of drones if they don’t get their way.
Let us pray that this time none of them escape their own death trap. Let the dead bury the dead.
Let all persons of good conscience separate themselves from this disaster in order to escape the firestorm.
Quit your G job and support the beast no longer.
I dunno, Steve. Blaming Keynes for an erroneous theory seems even more tenuous than blaming John Yoo and Jay Bybee for bad legal advice. It even smacks of those who blame Einstein, Oppenheimer and Fermi for Hiroshima and Nagasaki.
Had Keynes never existed then the profligate spenders of today would have found some other “philosophe” on whom to hang their rhetorical hat.
Does anybody really understand economics? In a world as complex as ours, the science of money is a contradiction in terms. Too many human variables. Too much influence at work. Too easy for greed to overcome morality. The only real economics is personal economics.
@23. Banned by Huffpo: – … what do you call it when the government takes 50% of what you earn, basically at gun point?
I believe you call it The Sixteenth Amendment to the Constitution of the United States. Interesting how that amendment’s questionable ratification followed the same sort of deceit and chicanery we’re seeing pursued by Pelosi and her ilk in their quest to saddle America with socialized medicine.
Fundamentally transforming a Republic is hard.
Nice analysis VodkaPundit!
Keynes, and his progeny Galbraith, Kruggman and others have occupied the field in the liberal media. Their false perscriptions for restoring economic equilibrium and growth are accepted as fact, even though there exists a very consistent pattern of failure when Keynesianism is appplied to solve recessions or depressions. Keynsian solutions inevitably exacerbate the problem. That these supposed wisemen and their media pals can’t understand this is a testament to their inability to get in touch with reality and sound economic policy. Ignorance wins out over fact.
The Austrian school out performs the Keynsians every time. If you want to problem solve listen to Hayeck, Friedman, and Laffer.
Keynes has been discredited more often than Paul (“Billions to Die of Starvation by 2000) Ehrlich. Yet it doesn’t matter. Guys like Ehrlich and the AGW crowd will always be fawned over and honored by the left because their eco-doom-mongering serves the underlying purpose of increasing government power and therefore their own power. Keynes locked this up on the economic front years ago. His prescription that economies could be constructively managed by politicians unleashed those same politicians to use the economy to build huge political bases made up of permanent client classes. I’m sure Kenyes wouldn’t mind because he (like all the Bloomsbury types) had utter contempt for common people and believed that only an Oxbridge-type intellectual class was fit to rule any society. If you want sound economic policy go to Hayeck. If you want to promote the destruction of society go to Keynes.
#26 Kentuckian – Economics is not really that hard. There are not really that many human variables. Human behavior is predictable, even the seemingly irrational sort, if you know enough about people.
The human element is what leads to unintended consequences. Believing that one can’t predict it is a path to failure. One must try. It is this element, however, that is often left out of economics. Oh, sometimes, they let in such stuff as has been demonstrated in statistics, but they often leave out the ‘art’ of economics, the human element.
Let’s look at the healthcare proposal and the “death panels”. If you give bureaucrats the authority, will they use it? Yes. Will it be politicized? Yes. Will they insist that certain things be covered that shouldn’t? You betcha! Because they are popular or PC. (See Massachusetts)
Will costs rise? Absolutely. (Again, see Ma) Will they eventually have to ration care? Indubitably. Will that mean committees (death panels) deciding who gets care and who doesn’t; who lives and who dies? Yes. So, we shall get “death panels”. Not necessarily right away, but it shall happen, when money gets tight. As certain as death panels and taxes.
Economics is both science AND art.
“1920 Germany did not have
the manufacturing base to
produce enough wealth to
pay reparations.
2020 America does have the
_potential_ Hi-Tech base to
pay off its debts, if it will
develop it; Cut all the Red Tape
which ties down the entrepreneurs,
and get out of their way.’
That simply is not possible. Oh, I agree that the United States more than has the potential to repay and control even this unbelievable debt ($14t in real debt, $70+t in liabilities over the next 25 years). But for this to happen would require a ‘fundamental change’ in our way of thinking. We’d have to unleash the engines of prosperity such as has not been seen in this glorious nation since before the 1st world war. Complete economic freedom for industry to make almost anything, anywhere, and at any price. And the freedom for a man (or woman) to work anywhere, anytime, and for any price. Jobs, products, and money would flow forth like the preverbial land of milk and honey. The last time this has been seen was after WWII when millions of American GIs came home from war, eager to work hard and make their dreams come true. A hundred thousand businesses came to life making everything imaginable, and innovations by the score. The government was largely asleep at the wheel, and when this happens we the people usually benefit. They were busy selling off war assets and trying to keep the shattered planet from imploding, while the true American entrepeneur was set loose like never before.
1) unleash business, zero out US corporate taxes (tax the hell out of foreign companies)
2) reduce payroll taxes to a flat 5%
3) reduce all income tax to a flat 15%, 0% below $15,000 per person.
4) disband all non-essential government agencies (HUD, DOT, EPA, ED, Interior, FCC). This alone will save a hundred billion.
5) freeze all spending at 1990 levels indefinetely. And scale back all foreign troop deployments, this includes Korea, Japan, and Europe. time to grow up world. You hate us anyway, so go to hell.
6) real campaign finance reform. Each person can give $1000 to any number of candidates. Period, once per year. US Citizens only, no corporations, no PACs. PACS cannot advertise for a specific candidate unless that candidate donates his money from his campaign. No hard money, no soft money. Just one source, we the people.
7) term limits, two terms for all. period.
8) repeal of the 17th amendment.
Have fun.
Sic semper tyrannis
Great post….don’t hold back on your opinions next time!
As usual, nice article Mr. VodkaPundit. I vote for the box of spermicidally-lubricated Trojans to go to the Keynes couple…
FalconSword, nice post. Oh, don’t get me wrong. I’ll win PowerBall, the girl of my dreams will fall madly in love with me, and I’ll win a lifetime supply of Appleton V/X before any of that happens, but nice idea nonetheless
There must be a huge vacuum somewhere on Earth. Nothing less could have sucked in something so asinine as Godwin’s so-called Law. On the face of it, it is false. If you really believe that, in accordance with Godwin, as discussion becomes more heated then phrases such as “and his ilk” become more common, just go look at a debate on a college sports web site.
Basically, I agree with the premise. However stating that China ignored Keynes and are on their merry way is silly. China is 100% pure stimulus and their GDP is a purely contrived number. Their bubbles are purely Keynesian.
Otherwise, fine
Who ever said we *really* came out of the first trough of a double-dip recession? False manipulation of the economy by government does not a recovery make. In fact, I’d bet a doughnut AND a Double Stuf Oreo that we’re still in that first trough, in a far worse situation than the powers that be will ever admit – papered over via TARP and Porkulus.
The bastardized Keynesian economics worshiped by the Federal Government is tantamount to stuffing a wad of Bubblicious into cracks in the face of the Teton Dam. Eventually you’re just gonna have to grab your ankles, though whether to kiss your butt goodbye or to prepare for a little more “government intervention” remains to be seen.
West Germany’s economic miracle (late 1940s to 1970s) was due to Ludwig Erhard, who was West Germany’s first Economics Minister and second Chancellor. Erhard had developed a version of free market economics coupled with some social protections, called social-market economics. He convinced the American authorities to let him apply this and started lifting wage and price controls in 1948. An almost immediate effect was the elimination of black markets and hoarding, and widespread production and hiring. There was some back-and-forth about the “unfairness” of unregulated prices and wages, but most Germans concentrated on rebuilding their lives, their industries, and their country.
Erhard’s slogan for his economic program was “prosperity for all”. It was visibly correct.
The German Mark (“Deutsche Mark”) was both symbol and confirmation of this economic success. It was sacrificed with sadness to the European Project, being replaced by the Euro.
Ludwig Erhard was a member of the Mont Pelerin Society, along with Hayek, von Mises, Popper, and others. It’s really too bad that the Anglo economists chose to go the Keynes and Galbraith route instead.
John Maynard Keynes and all who follow him are running maratons where they change the length of the mile each year to show how much better they are than Hamilton and all of those dead presidents. Right now their mile is down to about a hundred and fifty feet.
I suggest American “credits.” One credit would be pegged to exactly one gram of gold. Less than the pre-Keynes 1789-1932 dollar but functionally a fixed store of value.
Standardoze historical economic comparisons in to credits and it is immediately obvious that John Maynard Keynes sold a bill of goods that never worked. With standard unit exposes that America never recovered from the Great Depression’s New Deal.
I have to agree with Arkady, China has been stimulating its economy to maintain its industry and to keep its currency pegged to the dollar. China’s economy is a bubble waiting to burst. Nothing the Chinese central bankers have been doing make sense. We can’t trust the figures the Chinese government puts out. How reasonable is it that China has had any growth last year?
We had a run up in commodities last year, because China was playing the mercantilist. It was buying raw materials it did not need and transporting them to China.
The world economy has two great bubbles waiting to collapse: China and the PIIGS. China, when it get desperate, is likely to flood the market with US Treasury securities. That will spike Obama’s plans to expand the US government. Absent any means to fund the programs he has already put into place, he will monetize the debt. Along with the increases in taxes, due to ending the Bush Tax cuts, this will lead to a stagnant economy and high price inflation.
It is not yet known if France and Germany will bail out Portugal, Ireland, Italy, Greece and Spain. If it does, the Franc and Mark will be diminished. If they doesn’t bail the PIIGS out, then this means the end of the Euro.