[ECONOMICS] The Lunacy of Keynesian Economics Revisited
Everyone, including Keynesians, understand that a single individual can't live beyond their means. Those who use up their assets today will be poor and starve tomorrow. So why do Keynesians believe that a government can spend beyond its means?
The tawdry secret here is that a government has victims that it can pass the consequences on to. The victims are the clients, citizens or subjects of the state.
If a government wants to increase its spending, it may do so by raising taxes: then it still has a balanced budget, but the risk is that the citizens don't like it and will vote the ruling party out of business in the next election. Another method is to borrow money, but borrowed money will still have to be paid back, so it just pushes tax increases into the future.
The only way to underbalance the government budget is to erode the value of money by printing new money. And this affects the citizens in the form of price increases. The state may be temporarily richer with this method, but the citizens are getting poorer.
It's also obvious to everyone that an individual must first produce something to be able to consume it. It's equally obvious that the way to get rich isn't to consume everything they produce but to save a part of it and invest the savings capital. For example, if a farmer wants to survive beyond the year, he can't grind all the grain into flour without the saving seeds for next year's sowing. If he wants a larger sowing next year, he must save more seed than last year. What applies to an individual here, is also true for the economy as a whole; The more savings, the greater the investment and the economic growth. If people stopped saving and consumed everything they own, the economy would instead shrink, and we would finally be forced to starve.
But Keynes has succeeded in deceiving mankind (especially the politicians) that the causal relationship is the opposite: that saving is harmful and that the driving force in economy is the consumption. The more we consume, the richer we become! The less seed a farmer put aside for next year's harvest, the more bread there will be next year!
If individuals followed the recommendations of Keynes and lived each day as it were the last, the economy would certainly flourish this last day. Just imagine how crowded the restaurants would be and all the tip money the waiters would receive. In the morning we would all starve. But when the consequences in the long run of Keynes theories was pointed out to him, he responded with one of history's most cynical comments: "In the long run we are all dead."
To further understand the absurdity of Keynesian theory please have a listen to these clips:
assumes facts not in evidence. what youre saying is classical economic theory is correct, if you presume that monetarist theory is correct.
The evidence backs this. Expanding the money supply resulted in higher prices every where, every time. One may say that the contemporary US is an exception. That is because US dollars are used as international reserve. Other countries buy dollars to back their economy. As the fear of economic trouble grows, they buy more dollars. This way US could double its money supply exporting inflation all over the world. That's OK. Those dollars will come back sooner than latter.
bitcoin?
As to the only excption being the USD in modern times, there are a lot of countries in modern times where increasing the money supply has not increased prices.
Its tough to go outside the modern era, because this is the first time we've really had no distinction between commodity money and fiat tokens.
Seems every government think they can do what they want, take what they want and have no come back where as us normal people have to suffer and do without.
Democratic governments are particularly attracted to Keynesianism. The politicians who spend the most are remembered as the better ones. Those who have the burden of paying up the debts are usually remembered as the bad guys.
There all looking after themselfs
lol full blown crazy
they believe you can take water from the deep end of the pool and poor it into the shallow end of the pool and somehow the overall level of the water has increased LOL smh
It's not that the politicians are fooled by Keynesian policy, it's that they "pass on" the lie.
Politicians collect rent on the "redistribution" of wealth. They collect kickback, they receive political capital from the people they sucker, and they are able to reward friends and build political alliances by creating new empires.
For a politician to tell the truth would be for him to give up his cut of the policy shakedown.
Associated terms:
"Bootleggers and Baptists", rent-seeking, growth complex
the keynesians seem to believe that we need to party as hard as we can tonight, as long as we don't miss our scheduled suicide tomorrow morning.
Interesting perspective. I also believe that spending more than we have is very dangerous, although borrowing for cash-flow reasons may be useful.
Tip top text
What a pleasure to see this so well
laid out!
cheers mate, it means a lot coming from you!
I, too, think Keynesian economics is not just wrong, but dangerous. But I like playing devil's advocate too much, so here it goes.
By printing money, government can create the illusion of more wealth. This will lead people not only to consume more, but invest more and produce more. The catch is that the actual increase in wealth is much lower than the perceived increase in wealth. Thus there is this 'danger zone', that equals to (perceived wealth – actual wealth) – if this illusory resources are demanded, the bubble busts.
Now, bear with me, if this 'danger zone' is kept low compared to actual wealth, by keeping the offer of fiat money just slightly elevated, the risk of it being demanded should be minimal. Couldn't it be feasible, then, to collect some benefits of an artificially heated economy (a slow, steady bubble), without necessarily falling into a bust?
For a long time I've been wondering what Keynes meant by: “in the long run we're all dead”. To be honest, I do think the worst interpretation possible is the real one, but I might be wrong. Maybe he wasn't saying that future generations will pay our tab. Maybe he's saying the model can be sustained as long as there is an economy. The extra perceived wealth won't be a significant burden to those living then because they will be amidst the breakdown of civilization (assuming, of course, the 'extra perceived wealth' did not cause the breakdown of civilization).
If this was conceivable, than the theft caused by inflation could actually cause an increase of wealth in the long run. So, in consequences, even if not in principles, it would be a good act.
Take that. I'd love to see you destroy my impromptu flimsy arguments.
If you print just a little more money in order to create an impression of prosperity, the effects of this will very soon vanish. You wouldn't have all generations living a slightly better life (even if only in their impressions). You'd have a small time with this perception, followed by a small bust. The only way you can push the bust forward is to continue to print money. You describe actually what has been the orthodoxy for some time now: the pursue of a 2% inflation.
You can, indeed, have an everlasting 2% inflation. This doesn't mean there will be no booms and busts. You'll have endless booms and busts. We're seeing this right now. The thing is if the inflation is not big enough, it does not generates de perception of wealth. It can only generate this perception if it is relevant. It does not have to be big enough to pump the whole economy up, a single sector will do the job. 2% is not enough to pump the economy, so governments pump some sectors.
The chosen sectors will get the bonus taken away from the society as a whole. These sectors will inflate. People will come to them, seeking the extra revenue and when the bust come, they will suffer. The problem gets bigger: people struggle to get into the bubbles. People will go into colleges and study 2, 3, 4, 6 years to master a profession because of a bubble, and then the bust.
We've seen this in Brazil recently. Hundreds of thousands went to work in automobile and construction industries artificially inflated. Now they are unemployed, with expensive and hard obtained useless degrees.
This disaster calls for an action. Government comes to rescue. With the same old plan: let's take from these and give to those, let's print money and give it to our friends, let's inflate the next bubble. Here comes the slippery slope.
There is still another problem: taking the rewards away from some actions will cause the people to avoid them. Inflation reduces the incentive to work and save. Thus we will have less work and less savings. This diminution of work and saving will reduce the perception of wealth. This will call for more inflation. Less savings would reduce the production of capital goods and the spending of the inflated money would increase the production of consumption goods, leading the society to capital consumption, which is the most certain way to destroy civilization.
Let's say, finally, that Keynes would be successful for a day, a month, a year or a generation. The next day, month, year or generation would follow the lead. The snowball will grow up until the collapse.
Of course, if people were expecting the world to end in a year or two, we could have this period of Keynesianism. But it would be unnecessary, for people would do it anyway.
Well, I'd argue that even a low, 2% inflation, would have an effect on the economy. Maybe one company got the loan it needed to keep his doors open - it doesn't have to be something big, in fact it cannot be big. It might be that governments (specially democracies with its urge to seek immediate results) find that too little, but if a 2% inflation could lead to a 0,1% extra economic growth, this would mean a 10% increase in economic output after a century, which is not nothing (okay, with a ludicrous 700% inflation).
Maybe the bubble on specific sectors has more to do with the immediateness intrinsic to democratic regimes than with actual Keynesian economics?
Maybe if it weren't for it, it could be possible to have an everlasting steady bubble instead of a series of bubble bursts?
But I cannot argue with one of your closing arguments: inflation takes away the rewards of saving and choosing investiments wisely. An increase of consumption goods instead of capital goods could indeed be disastrous.
To that, I must throw in the towel. I'll take back my flimsy arguments. Thanks for the trouble of knocking them out.