Tag Archives: keynesian economics

Paul Krugman was a False Prophet

Some claim that President Obama sacrificed restoring the economy to get Obamacare through Congress. Others claim that he didn’t sacrifice anything, that he really did not know what to do, and that Obamacare was simply a diversion. Neither have defined this time as it will eventually appear in the history books.

It wasn’t that he didn’t know what to do. It was the he believed so much the theory perpetrated by liberal economists like Paul Krugman that it was the Republicans who got it wrong in the Great Depression. They held back FDR from going BIG and from the ensuing undisputed greatness he would have achieved. The President believed these heathen prophets when they told him to spend trillions and then to hold tight and watch the miracle happen.

A diversion, perhaps….this magical incantation needed time to stew. Give the people bread in the Coliseum. They will be happy with the spectacle, You will be revered in History as the first President to have provided universal coverage, and in the mean time, these sorcerers of classical Keynesian economics will have the time to do what their earlier brethren were kept from accomplishing in history, prove Keynes RIGHT! A pithy seduction indeed….

It just so happens that their concoction was wrong. No stimulus, not even one several trillions large that would indebt America’s grandchildren and their grandchildren, could spend America’s way out of our credit collapse. It was a counterfeit messiah.

The President fervently thought his advisors had it right and that all that was needed was time. We see it all the time on American Idol and X Factor, these singers that come on stage believing to their depths that they can sing. And when the judges simply say no, these would be idols’ faces sink into the shock of disbelief.

QE1 was the initial song. QE2 was the singer begging to have a second shot at glory because he just knows he can do better. Now we have QE3. Its purpose is not to continue the classical effort. No that false dream is long over. Its sole goal now is to hold course until America fights its own way out of our depression in spite of our now $16 trillion-dollar debt. Its purpose is to take over the bread-feeding role and to appease the American public that all is ok through this election cycle. Its job is to somehow hold the West together until another crisis hopefully shocks us out of our stagnation.

So, not surprisingly, the President was caught off guard during the first debate by the weight of this reality. No matter….by round two, both actors were in fighting form and the hopes of America were restored. On to the election…

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Filed under American Governance, American Politics, Economic Crisis, U.S. Monetary Policy

Keynesian Economics will not Put the Pit Bull Teeth Back into America’s Bite

A business philosophy shared with me long ago suggests that one should never enter an enclosed back yard with a vicious pit bull unless you intend to kill it. If you are going to jump over the fence and face the neck ripper, go over it wielding a bat and swing it wildly, smashing the pit bull until it lays lifeless in its own pool of blood. Otherwise it will rip you to shreds.

If China had re-entered the world stage in 1979 claiming it was going to assert a strategy to overtake America and Europe, gut their real GDP engines, indebting their people to transfer historic levels of real GDP infrastructure to China, and most importantly (because the West’s elite drive political policy and military actions), entering a final pit bull smashing phase (this phase has not yet occurred) that leaves the West’s elite scrambling to protect their wealth from an epic class struggle of debt defaults, wealth redistribution, and financial collapse, the pit bull elite of EurAmerica would have financially ripped the neck of this immense country of wonderful people before they had a chance to implement such an ingenious strategy.

So if one believes like I do that China has proven the masterful central planner above all on Earth, it would be illogical for China to have entered into EurAmerica’s backyard too early. China’s GDP was much too weak to implement any semblance of a world hegemonic strategy that could directly confront the West. She would need to suckle on the teat of her Western nursemaid until strong enough to leave the nest and assert her own world power.

Now that China is strong enough, now that she has enough world hegemonic relationships in place, now that her nursemaid has entered menopause, China’s strategy will increasingly become apparent. Yet she still has no need to enter the backyard with EurAmerica’s pit bull even if she no longer fears its ferocity. China realizes there is no benefit to directly confront EurAmerica yet for the pit bull is old, in foul health and it has lost its teeth to cause any real damage to China’s continuing rise to world hegemony.

Certainly, if one believes that China lucked into such a meteoric rise as the leading economic force in the world, then attributing any intelligence of design to her strategy for doing so would seem conspriratory at best. Yet the results speak for themselves. FDI in China is unprecedented in any other point in the world’s history. It is the greatest gold rush, the most inflated bubble, has caused the deepest competitor indebtedness, and was the least bloody international coupe in history.

I do not disparage China for having the world class skill, patience and confidence to assist EurAmerican businessmen and politicians to shake down their citizens. China offered access of cheap drugs to a culture that had already chosen the addictive personality of consumerism. EurAmerica did not have to accept them but now that we did, we will have to suffer the withdrawal symptoms of our cultural weakness as we now attempt to rehabilitate ourselves.

In the midst of our economic turmoil, there are those that continue to espouse Keynesian principles to spur America out of our economic malaise. Our political leadership wishes to take QE to an even greater level of spending as a potential jobs solution. Keynesian principles suggest that in an absence of consumer demand, government can create artificial demand that will then spur additional consumer demand, increasing money velocity that can reverse the direction of collapsing money supply and right the course of capitalism.

For the principles to work, demand must be perceived as great enough and sustained enough for creditors to offer consumers new credit. In addition, the consumer’s potential income must be large enough to meet the obligations of the consumer’s past debt plus create additional debt capacity that can provide additional spending to spur the new business cycle. The amount required for Keynesian principles to take hold would be orders of magnitude greater than the politics of our day or the world creditors and credit agencies would allow given the historic consumer debt, housing overhang, and government deficits including national through local caused by an international extraction of equity to the East.

Additionally, this large amount of stimulus spending that is intended to spur on the local economy is diluted by the amounts that redirect to foreign economies. Our government cannot isolate stimulus and thus the amount of spending needed for America’s jumpstart would have to be multiplied for the effects of international leakage. America has long since gutted the tools of domestic Keynesian stimulus by allowing the tansferring of 40,000 factories to China alone.
We do not have the economic manufacturing base that supports money multiplying factor to implement Keynesian principles through governmental central planning in this country. The dollars we spend flow like a sieve into the world economy which also is in desperate need of stimulus. To attempt Keynesian principles in America today therefore would also be attempting to jumpstart the western world on our own.

I favor through my job voucher plan (www.jobvoucherplan.com), a distributive, domestic, Keynesian approach of sorts, one that attempts to direct as much of the catalyst into the domestic economy as possible while putting all able Americans back to work. Yet it combines Keynesian stimulus with a redistribution of current social welfare for that purpose and a redirection of the American economy to a modern mercantilism.

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Filed under American Governance, Full Employment, Job Voucher Plan