Monday, July 7, 2014

Using Monitary Inflation To Trick People Into Feeling Rich And Spending Money They No Longer Have: Fun With John Maynard Keynes

Fun with John Maynard Keynes Capitalism Left to It's Own Devices is Doomed to Collapse so Lets Have a Party! Lex Loeb, Contributor Network . John Kenneth Galbraith writings may be the best way to predict the future of our already Unionized economy. Central to the thesis of Keynesian economics is that government can go out and increase aggregate demand in an economy by spending borrowed money on economic investments for society as a whole. The Keynesian notion is that debt does not matter as interest rates and inflation will eradicate it if left to float on a giant pool of collective debt. The great Keynesian experiment is now over 70 years in the making with intermittent re-discovery of contradictory free market forces. The last thing that is going to work in a Keynesian financial world is debt repayment. Keynes legacy seems to be a lot of fun at big government spending parties that is only open by invitation. Kenneth Galbraith takes Karl Marx's position that free-market capitalism will eventually result in its own collapse and that it has to be replaced with a more rational system control by active thinking authoritarian elements. Adolf Hitler seemed to be the first authoritarian to adopt Keynesian principles as pointed out by Galbraith. Hitler borrowed tons of money on account of the German government and used the funds to rebuild the country virtually eliminating the pre world war unemployment of 25 % with full German employment. It is where Hitler invested these unlimited borrowed funds where Keynesian's and Neo-Keynesian's drop their appreciation of good old Adolf. The problem with big goverment borrowing and spending as a monetary tool to improve economic stability always comes down to how good the government is at choosing it's investments. Hitler invested in a war machine that boosted the economic fortunes of the German industrial capitalists who supported him attracting the admiration of American Industrialists like Henry Ford that is until it became clear that the German War Machine had to be defeated by complete devastation. Keynes influence took the train from Harvard Yard to Washington dc where he influenced the FDR new deal plan to its core but the deep economic rut of the great depression persisted until President Roosevelt was for forced counter the Keynesian Financed Hitler World conquest expansion. World war 2 spending almost immediately raised the US out of the depression. The WPA program and even major hydro-electric dam building programs of Roosevelt failed in large part to do what a war of desperation did. Britain failed with pre-Keynesian programs and continued to loose ground to the United States even after it adopted a purer Keynesian national program. The Idea that capitalism was destroying itself was happening again but now in combination with Keynesian principles put in practice. Canada was adopted Keynesian principles before the US did and it's economic progress has hardly proved to be much better although a most evidence says it has been a little worse. Mexican and Latin American Keynesian inflations have been a complete long running disaster. The thought by Keynesian's is that had it not been for inflationary policies in most of Latin America things there would have been a whole lot worse. There is no way to know this except by comparative analysis of which economies succeed and which fail nation by nation because there is no data for a free capitalist Argentina during the time period is is an authoritarian control freak controlled economy. The neo-Keynesian's have recently been having a party celebrating their predictions that relative free market capitalism that enjoyed so much success for over 30 years in the US has entered a period of self destruction as predicted by Karl Marx. The same people were warning of the same thing 30 years ago and each year to the present time. This time I rather wonder if they did not go beyond just observing the relatively free markets and that they might be attempting to undermine it? As the market crisis in a tiny part of the massive US mortgage markets started to crumble the Keynesian's were out in force in the national and international financial media and press playing John Maynard Keynes old role as protagonist predicting a complete collapse until people started believing it and started wholesale selling of financial assets in a huge world panic. The way I saw things unfold when they did in the market crisis and panic, I started seeing these neo-Keynesian's becoming instant media celebrities. The neo Keynesian's seem more Marxist inspired than John Maynard Keynes ever was as his "socialism" is considered to have prevented a slide to "communism", The problem is that the system that is collapsing as of 2008 is by and large a Keynesian system. The 3 trillion dollar deficit spending Bush war in Iraq and Afghanistan, according to Stieglitz, a neo-Keynesian is discounted as the wrong kind of Keynesian's! All the experience of world history tells us that there are War Economic booms that get the economy running and post war economic busts that undermine full employment. So what is Krugman and Stieglitz's problem with Bush Keynesian policy? The great American war on poverty was a welfare fiasco that spent nearly as much money in 2008 adjusted US dollars . The great public housing programs that built the inner city projects was twice as much borrowed money put to use to stimulate the US economy and it was a complete waste in the long run (long run had many project built and then destroyed in less than 20 years) The Government nationalization of passenger railways in the US turned into a monstrous waste. Keynesian economic stimulus formulas do not care if the government pays three trillion dollar to accomplish the end of being in debt or going to war in Vietnam under a democratic president or using the money to destroy hydro-electric dams based on unproven theories that dams kill salmon runs. The Bush three trillion dollar war is the same exact stimulus to the economy as a new president's spending the same amount of borrowed money on the fantasy of creating an ecotopia. It is really fascinating how the Noe-Keynesian's see the bush Keynesian's as in effective when the underlying mathematics of printing money and spending it on big government programs remains the same in both cases, There is a simple law of reflexivity in mathematics that say that if Bush caused the present panic and financial crisis he sure did use a lot of Keynesian economic stimulus during his 8 years in office to accomplish this. The reason I can say this with total assurance is that the housing projects built with huge tax and spend policies in previous generations under the alternative party's governance is that those housing projects were a wreck and a waste that yielded more Urban blight than they erased form the landscape. Surely they were better than blowing up stuff and killing people in Iraq and having dead and wounded coming back? Probably so and that I agree on but the war boom was real and the after effect of the war boom has not even been established yet because that war is not over. I am left to guess that the big plan is to prepare for the bust he foreseen when he stops the war? It happens to be a historic fact that war booms are followed by after war busts. Just go look at the long term historic economic charts. Keynesian effect of economic stimulus during war time and economic contraction afterwords probably goes back long before the Roman Empire. Keynes was fond of talking about the Carthaginian peace as no doubt he studied history more than I do. There are just too many historic examples of how the economic cycle behaves at war time to disregard the fact. The bigger fact is that we are still at war as I write this peace. The fear that the economy will flounder now is in advance that of the war actually coming to an end with the US withdrawing from Iraq but maybe not Afghanistan. The pre-supposition by investors that the easy credit of war time is about to expire is pre-mature. Bringing military troops home and turning them into excess militant union school teachers might not be the best idea if the government is worried about after war unemployment. This is how you can have lots of fun with the Neo-Keynesian prognosticators since the dynamics of the money supply being a debt paper currency are completely unlikely to change from the essentially Keynesian Bush war time economic miracle with some of the world's lowest unemployment rates during the same period of time. The fact that US unemployment rates were lower during the boom years of the Bush administration are well documented. Part of the documentation comes in the form of the huge wave of legal and illegal immigrants crossing the borders looking for and instantly finding jobs in America during the time period! That was cause for Keynesian celebration but all along the neo -Keynesian's were diligently building their case against Bush and waiting for a chance to introduce total fear to remove the Bush administration till they finally succeeded? Facts are facts and the Bush Economic boom was predictable with Keynesian theory . Supposing that his notion is to take the junk science of the environmental movement at face value that it surely will be wasted on new spotted owl programs, alternative energy programs like the ones that went bust in the 1970s or like ethanol when it made the cost of a loaf of bread $5 recently. It was just a year ago that the predominant science on hydro electric dams was that they were harmful to fish and billions were spent saving fish that did not need saving from the dams because the science turned out to be totally wrong. Looking at the original dam data going back to the origins of the building programs I quickly saw that dam building was accompanied by spikes in the fish population. Recent data from returning salmon totally wrecked the prior theory but had the government started its spending program before the new data to dismantle the dams then there would have been an even bigger negative return to the economy than the bush wars. The US economy is collapsing and government is indeed needed now . There are lots of problems such as multi billion dollar casinos half finished in contraction in Las Vegas that may be looking for government intervention. I suppose Las Vegas could become the next Amtrak? The question then comes if you have government nationalizing casinos, wall street, barber shops, walmart, general motors as a community investment for full employment then what happens is government runs these enterprises to as businesses instead of collecting taxes from them. Why not just borrow more money? 60 trillion in debt would be better at 120 or 140 trillion of debt because the net worth of the economy can only go up as a result of government spending. Europe has been saddled with much more Keynesian economic theory put in practice than the US over the years and their paper currencies turned out to be over rated in the recent world economic collapse of 2008 , at least initially. Data on Europe becoming uncompetitive with it's economics system vis a vis the USA goes back a lot longer than that. The Britain never recovered its full economy after the loss of its empire and in two very destructive world wars. Nationalizing industries in Britain made them uncompetitive for many years. Privatizing uncompetitive industries may not have worked any better there. The complaint about the Bush Administration is that they were not paying off enough of the national debt endangering the country then the panic and collapse happens and the critics immediately want to add more debt than ever. Some of the fix it measures were just stupid and done in the course of our leaders panicking along with the ordinary investors but those measures were intended in many cases just to be temporary. The neo Keynesian critics who became instant celebrities were calling for bigger national programs with much more permanent national debt. Ron Paul's friends who are more gold bug monetarists were also taking a drubbing as Gold became an over priced commodity in the sudden world wide panic deflation. People everywhere on earth were willing to give away their rights as free economic citizens to bigger fatter governments because they had lost 20 to 40 percent of their investments which really looked like an idiotic panic it was. The panic compounded the crisis to beget new waves of panic as the effect of losses and loans going bad became the world size vortex sucking in the cover of the economist magazine , home of many new celebrity neo-Keynesian's who objected to Bush war machine Keynesian's and want more socially oriented deficit spending by governments. That is OK but it really does turn out to be the same old thing. In conclusion: to blame the Bush administration for not raising taxes enough when their policies were as Keynesian as what the Neo-Keynesian's want is absurd because the neo-Keynesian's are calling for higher taxes, nationalization of failing obsolete industries including oil drilling and mining as part of a plan for both somehow saving the world against global warming and somehow making fossil fuels cheaper to consumers at the same time as I heard it in election rhetoric. Then they wanted to put whole successful industries out of business including coal mining where that would cause job loss and at the same time issue tax credits to build alien alternative unproven energy systems that might not have a pay back period for the implementation costs including the tax credits. In the 1970s the alternative energy tax credit ended in failure mostly because the price of non alternative energy fell making them completely infeasible from any economic standpoint. I was there I saw the commodity bubble come down just like this one we just experienced and then stable energy prices come on line for a good long time that will devastate the silly knee jerk feel good alternative energy plans or just make the US so completely inefficient when the rest of the world uses the bounty of cheap energy and we was our time and money being uncompetitive with the alternative. As it happens Keynes did that to Britain by nationalizing obsolete industries like coal and damage never went away because Britain stayed back wards mining coal with government profiting or taking losses form the operations instead being able to tax a private efficient coal mining industry that might or might not have other wise been possible. Economic feedbacks are the sort of thing that even super computers has trouble generating in simulated economic modeling. Keynesian economics has real costs. The first is inflation. the second is de valuation of a currency printed on paper. The third is the public obligation to pay back debt with taxes or with future devalued dollars. These factors can lead to longer term pain and agony in economies. Real estate investors see inflation and devaluation of currency as their friend. Loosing tax revenues because the government is the sole owner of an industry is another if it is actually profitable and if government takes over unprofitable industries like the high speed rails of Europe than it only causes more Keynesian long term deficit spending. Another factor is higher unemployment that is seen in high inflation economies as well deflationary economies. There are countries in Latin America with 60-80 unemployment rates. The highest unemployment was in the US great depression was only 25 % in comparisons. Not good but the 60-80 is in countries that borrow lots of foreign money. The beauty of the US economy it the way it borrows foreign money is a little different because even with huge deficits it has had almost full employment or more than full employment if you add in the illegal aliens. you go to the US treasury site called US National debt to the penny which I list at www.savingbonds.gov and you see that the treasury tells you how to lower the public debt two ways. You can send them a check or you can sell your savings bonds or notes back to them. The US treasury can not go broke with a system like that . See what I say about it in an other article. Countries like Mexico could never get away with this. The US treasury does because the dollar can become completely worthless but care has been used to prevent that from happening by a monetarist federal reserve. It is a pure Keynesian system as Keynes originally opposed Britain's post world war I attempt to value the pound at the pre war gold rate which caused total economic dislocation. The real present problem is not the treasury debt over load but fears that competition from low labor rate countries like China will spoil the US economy. I was angry when I heard that General Electric was shipping its most advanced technology to China to beat German competitor Siemens to a deal with a Chinese company with state ownership ties. They were shipping out the most high tech models for hospital MRI type machines. The trade off was higher profits for GE when they re-imported the machines from what were essentially their or our Chinese factories. That the Siemens machines could not compete with unless they went to china to make theirs too. Siemens probably followed GE? I am still not sure there should be a law against it but if the US wants to have high value trade goods to trade back to china it should sell the golden eggs and not the goose that lays them. Nevertheless what GE was doing with the Chinese ,assuming they are really our friends, is fine but it does reduce our competitiveness on the technological front with the Chinese as separate nationals but is no way GE or the US can compete with china labor rates otherwise. Chinese labor rates are due to rise the same way post war Japanese rates did to US parity. That leaves the mid east, Latin America and Africa for future low cost factories. The neo -keynesian protectionist anti NAFTA nonsense will only result in sustainable US competitiveness. The only way I can justify the neo Keynesian rhetoric and authoritarianism they propose we need is in thinking that they are power hungry and it is our job as economic serfs to help feed their passions because they are more ambitions that the rest of us. I really like to tell authoritarian control freaks to go to hell and eat it but for some reason they keep hatching new East German wonderlands where tall walls with armed guards have to be posted to keep all their happy people in. It is a law of economics that it is dangerous to tell a authoritarian control freak to go to hell and eat it. I think that is the difference between embedded keynesianism in all modern economies and hard core authoritarian Marxism it a big load of misguided good intentions. As the saying goes the road to hell is lined with those really good intentions and thank God for cliché's. . Close

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