Thursday, December 17, 2009


I should really know better than to read the suggestions by Amazon.. Today I noticed that they suggested that I pick up "The Keynes Solution: The Path to Global Prosperity" 

For those who are not familiar with economics, Keynes was unfortunately a very influential pseudo-economist whose rise to popularity rests upon two factors: 1. He told the powers that be that they are right to increase the size of government and to severely restrict liberty, and 2. He said that we can and in fact we must generate enormous debt in order to be prosperous.  Politicians like nothing better than being told that they need more power, and that they must spend money that they (and we) do not have in order to increase that power. 

Keynes must have been the basis for South Park's Underwear gnomes.. 

Step 1. Get underpants

Step 2. (well we are still working on step 2) 

Step 3. Be wealthy!

For Keynes the formula runs: 
Step 1. Increase government while generating enormous debt. 

Step 2. Wealth magically just appears

Step 3. Be prosperous.. 

There is just that little problem of Step 2..

So what made me cringe when I saw the Amazon recommendation is that no one who is familiar with economics, history, and logic can make the case that Keynesian "economic" theory leads to prosperity, particularly given that not on ly the US but virtually the entire world has been dutifully practicing Keynesian economics since before FDR was in power. After nearly a century of devout worship of Keynes, and holding everyone hostage at his alter, we should be free from any possibility of recession, much less the depression we are in now worldwide. The fact that the economy sucks is proof positive that Keynesian "economic" theory fails to accurately describe reality, and fails to provide a worthwhile guide for action. 

All of which ignores the moral aspects, where Keynes assumes that the people in power have not only the right but the duty to essentially own all other persons. 

Under sound economic theory the "Keynesian paradox" does not exist. This is the fact that we know it is smarter for the individual to save, but Keynes claims that this is harmful to the economy. We have been hearing about this "paradox" quite a bit lately on the "news," but none of these folks bothers to think about why this appears to be a paradox. It is a paradox ONLY if we assume axiomatically, that is without any thought, that Keynes is always right. Drop that assumption and the conclusion is clear: No paradox exists, Keynes is simply wrong!

But a brief explanation might help to make this more clear. When I save money, I don't stuff it under the mattress, I invest it. I either invest it in a bank in the form of a savings or checking account, or I invest it in other ways (stocks, bonds, precious metals, etc.). Now the banks don't stuff that money under their mattress either, they invest it to make a higher return than you will so that they can make a profit as well and thus stay in business. Or if you are buying stocks, bonds, etc. you are directly investing in a business which is producing (hopefully) goods that are desired by others. The banks are also investing in such businesses. Those  businesses then produce goods, which if desired will be purchased. Since we have been saving money, we are on good financial footing, and do not have the need to spend all of our time servicing some debt, so we can spend some on luxuries, or non-necessities, thus further advancing the economy. All with no debt.. 

Ultimately we must let reason and evidence rule the day. Either Keynes was right, and thus we are now experiencing incredible prosperity without even the possibility of any negative consequences, else we are in fact in a recession/depression and thus Keynes was simply wrong. Since governments have been closely following Keynesian theory, all other possibilities are excluded. 

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