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Tuesday, April 17, 2012

The Progressive Masterminds And John Maynard Keynes

“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” — John Maynard Keynes.

John Maynard Keynes, June 5, 1883–April 26, 1946) was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments. He greatly refined earlier work on the causes of business cycles, and advocated the use of fiscal and monetary measures to mitigate the adverse effects of economic recessions and depressions. His ideas are the basis for the school of thought known as Keynesian economics, as well as its various offshoots.

In the 1930s, Keynes spearheaded a revolution in economic thinking, overturning the older ideas of neoclassical economics that held that free markets would in the short to medium term automatically provide full employment, as long as workers were flexible in their wage demands. Keynes instead argued that aggregate demand determined the overall level of economic activity, and that inadequate aggregate demand could lead to prolonged periods of high unemployment. Following the outbreak of World War II, Keynes's ideas concerning economic policy were adopted by leading Western economies. During the 1950s and 1960s, the success of Keynesian economics resulted in almost all capitalist governments adopting its policy recommendations.

Keynes's influence waned in the 1970s, partly as a result of problems that began to afflict the Anglo-American economies from the start of the decade, and partly because of critiques from Milton Friedman and other economists of the Austrian School such as F.A. Hayek and Ludwig von Mises who were pessimistic about the ability of governments to regulate the business cycle with fiscal policy. However, the advent of the global financial crisis in 2007 caused resurgence in Keynesian thought. Keynesian economics provided the theoretical underpinning for economic policies undertaken in response to the crisis by Presidents George W. Bush and Barack Obama of the United States, Prime Minister Gordon Brown of the United Kingdom, Prime Minister Kevin Rudd of Australia, and other global leaders.

Keynes is widely considered to be one of the founders of modern1101651231_400 macroeconomics, and to be the most influential economist of the 20th century In 1999, Time magazine included Keynes in their list of the 100 most important and influential people of the 20th century, commenting that: "His radical idea that governments should spend money they don't have may have saved capitalism." In addition to being an economist, Keynes was also a civil servant, a director of the Bank of England, a patron of the arts and an art collector, a part of the Bloomsbury Group of intellectuals, an advisor to several charitable trusts, a writer, a philosopher, a private investor, and a farmer.

GOP presidential candidate Ron Paul is a staunch believer in the Austrian School of Economics as much as the progressives and academic masterminds are in the Frankfurt School of socialism and Neo-Marxists thinking. I am not an economist, but I have read F.A. Hayek’s book The Road to Serfdom and he makes a lot more sense to me than most of mumble-jumble of the Keynesian masterminds. To put in the parlance of a simple person such as myself Keynesian economics is analogous to having a pizza shop and taking money out of the cash register and going outside to give the money to people to come into the shop and purchase your pizzas. Yes, your sales will skyrocket, but you will soon be out of business. You will not create revenue to cover your overhead let alone make a profit, but the people eating the free pizza will surely be happy.

You can thank John Maynard Keynes, one of TIME magazine's Most Important People of the 20th Century, for the politicians who believe we can spend our way out of bankruptcy and recession. His advice for fixing "this God-awful recession," as the vice president calls it, might be much like his prescription for curing The Great Depression: "fill old bottles with bank notes," bury them in the sand for enterprising beachgoers to dig up, then watch "the real income of the community, and its capital wealth" improve. Then again, even he might look at the president's failed stimulus spending and say, "Enough with the bottles already...time to cut taxes!"

It's true that Keynes was a liberal who advocated spending and budget deficits, but he wasn't a reckless ideologue bent on destroying capitalism. In fact, he called Marxian Socialism "illogical and dull" and decried its "powerful and enduring influence" on political thought and "the events of history." His philosophy was that a healthy economy is one where spending equals production, and that government should stimulate demand during a downturn in a business cycle to make recessions less severe. As long as we keep buying stuff, the theory goes, businesses will have a reason to keep producing and hiring, reversing the decline and salvaging our season on the shore. If consumers aren't spending enough, government should spend for them. In other words we should take money from one segment of the population and give to another segment so we can follow the example of the owner of the pizza shop. The only way government can get money is to take if from its citizens or create more fiat paper money, which makes the money you have less valuable — this is called inflation.

Take as an example the cost of gasoline today. In 1953 when I was in high school and had purchased my first car gasoline cost $0.20 per gallon (sans taxes). This was equal to two silver dimes. AT this time if you smelted those silver dimes and extracted the silver content and them exchanged it for currency you would receive 20 cents. If you adjust those two dimes for inflation (according to the U.S. Bureau of Labor Statistics CPI inflation calculator today’s value would be $1.72. This is a false presentation of the issue. If you took the same silver content from those two dimes and exchanged for today’s currency at your local gold and silver exchange you would receive about $2.30 in our current fiat currency. If we add $0.65 for our current fuel taxes (federal, state, and local) gasoline would cost $2.85 per gallon. This does not take into consideration the rise in the price of crude oil on the global market. In 1954 it was $3.00 per barrel ($25.77 today per the CPI index) Again this is a misleading figure as the true cost of crude oil today is over $100 per barrel. This has nothing to do with inflation, but is due to demand and political factors in the Middle East.

Unfortunately, Keynes' disciples don't share his disdain for Karl Marx. These class war-fighters hate that anyone profits off the sands — so they ignore the power of lower taxes to increase personal and business income, hence spending power and investment. Why? Because socialism has become fashionable, and our resident leftists need that tax revenue to transform all of America into a public beach. Consequently, on leftists' drive to Utopia, private enterprise takes a backseat to the fantasy of a world free of ambition and greed. So, if Keynes really "despised American Keynesians," as social ecologist and Presidential Medal of Freedom recipient Peter Drucker once told Forbes, it's because of people like Treasury Secretary Geithner who believe that "the challenges facing the American economy today are not primarily about the vibrancy or efficiency of the business community." Let the textbooks be rewritten: economics today has nothing to do with productivity.

Regardless of how Keynes felt about his American fans, their love for him has endured. Democrats in particular have taken the idea that he attached little relevance to how money is spent, or where it comes from, to the extreme in their campaign for government dependency. So we get White House advisor Valerie Jarrett stating, "People who receive that unemployment check go out and spend it and help stimulate the economy." Once again I refer to my analogy of the pizza shop. Moving money from one hand to another, with government taking a little bit in the exchange for “overhead and administrative costs” add nothing to the economy. Only productivity can do that.

Of course they're able to spend only half or less of what they otherwise would've earned in the job they lost, but we won't need so much money as we reach what conservative author Mark Levin calls "Ameritopia." We won't even need steady work if it's the paradise former House Speaker Nancy Pelosi describes, where no one is "job-locked."

That Democrats spend like drunken sailors on the boardwalk is well-established, but Keynes has fans in the GOP, too. The most famous is President Nixon, who admitted, "I am now a Keynesian in economics" before taking us off the gold standard in 1971.

So forget the bottles; free of what Keynes called the "gold cage," our money in the hands of today's Keynesians might as well be tied to the sand itself. They see individual wealth dispersed across the land like a beach. Through a macroeconomics lens, what is done with money resembles activity at any seaside resort: a hill here, a hole there, a little wavy between the umbrellas.

Keynes indeed extolled the virtues of shifting spending power to society's least wealthy consumers in order to maintain healthy demand for goods and services; however, I'm not sure he'd approve of shifting sand and jobs away from "bad" companies that provide coal and oil to proven markets to "good" companies like Solyndra and Abound Solar that provide shaky energy alternatives to an unproven and expensive market. He might have viewed this kind of meddling, simply to make a cleaner beach, as merely priming the pump for the next recession.

Only masterminds who spend their days gazing down from ivory tower windows believe that the way to improve a beachscape is to keep adding sand while leveling the beach with a bulldozer. That explains why 80% of academics are Democrats and why 100% of Democrats are Keynesians. Their faith in the wisdom of liberal academia is matched only by their faith in government. So, even when government spending far surpasses gross domestic product, they insist that only more sand can restore balance, and they bemoan the "diminished capacity" of anti-Keynesians like House Budget Committee Chairman Paul Ryan "to understand what drives economic growth."

Million-dollar Obama 2012 contributor Bill Maher once quipped, "Keynesian economists and climate scientists both know real things, but the stupid people who don't know things get an equal vote. Isn't that frustrating?" It might be frustrating, but Maher has it backwards. Paul R. Gregory at Forbes counters that "not one Nobel Prize has been awarded to an economist who advanced the Keynesian agenda," while seven have gone "to economists who cast serious doubt on Keynesian economics." Among them is the late Milton Friedman.

Friedman, consequentialist libertarian and, like Drucker, recipient of the Presidential Medal of Freedom, actually agreed with Keynes about the gold standard but not much else. An influential advisor to Nixon who wasn't quite influential enough, Friedman advocated for expanding the supply of currency at a fixed annual rate regardless of economic conditions. Nixon subsequently enlarged the public side of the beach more than any other Republican president until George W. Bush. Friedman confessed his flawed assumption about civil servants. "We do not regard a businessman as selflessly devoted to the public interest," he told the Western Economic Association in 1985. "We think of a businessman as in business to improve his own welfare, to serve his own interest. Why should we regard government officials differently?" The problem isn't that gold no longer restrains the money supply; it's that government knows no restraint.

Friedman is to conservatives and ambitious people everywhere what Keynes has become to utopian masterminds who resent the private side of the beach. Friedman has no fans among the liberal intelligentsia whose livelihoods depend upon government largesse through government and university paychecks, grants, and work with liberal non-profits. His Keynesian peers hated how he defended capitalism on television shows like Donahue; they criticized Friedman for being "the great popularizer of free-market doctrine." They especially hated how deftly he deconstructed arguments that capitalist greed makes society worse off by turning them inside-out to expose the ugly history of government-imposed misery and suffering worldwide.

Greedy government is the biggest threat facing society; its spending money comes from taxing productive activities, borrowing from the public (and other governments), and printing new money. Friedman said the view that government spending stimulates the economy assumes that the funds taken out of the public's hands "came simply from cash held in hoards by individuals — from under the mattress, as it were."

Where the money comes from is beside the point to big-government Keynesians, who look out across the economic landscape and dream of smoothing out the sands. They're smart and know "real things" — so when their stimulus policies fail, they blame ambition and greed because, no matter how much monetary sand they add, they can't control what beachgoers do with it. Some dig holes, some build castles, but 99% of us spread it around more or less evenly. This election year, we're told, 1% hoard sand, doing the equivalent of hiding cash under their mattresses. How un-American, according to Professor Obama, who told the United Auto Workers in February, "America's not just looking out for yourself, it's not just about greed, it's not just about trying to climb to the very top and keep everybody else down."

Geithner's right that our principal challenge has nothing to do with business vitality. It has little to do with economics at all, because modern Keynesianism is just a front for that most dangerous of philosophies that says government serves society best when it divests us of our bad habits.

“So Keynes would say to Obama: be bold. Take the fight deep into the heart of your opponents’ camp and propose massive tax cuts, both personal and corporate. Americans will use the windfall to start spending again. Small businesses will expand at a faster rate and will start hiring again. Big businesses will take heart at the prospect of more customers and will also take on labor.

Federal revenues will slump and the deficit will soar, but what is there to lose? If, as in Britain, you slash spending and raise taxes, you will only invite a double dip recession. If you cure the economy and put everyone back to work, there will be plenty of time to raise taxes later, when the going is good. Above all, you will radically change the terms of the political debate. And it will put the Republicans and the Tea Party in disarray, divided between those who want big tax cuts and those who want to pay off debt. If the president wants a second term, Keynes would argue, he has to be daring. Now is not the time, as Margaret Thatcher said to one-term president George H. W. Bush, “to go wobbly.”

Obama 2012 campaign advisor David Axlerod, expounding on the virtues of a beach free of the kind of ambition that leads to castle-building, recently clarified, "There are certain things that are pillars of a middle class life," like home-ownership, health insurance, and money for college and retirement. "That's all most people want," Obama had just told a crowd in Cedar Rapids, Iowa. "Folks don't have unrealistic ambitions."

If everyone contented him or herself with pillars instead of castles, Keynesians insist, life would be a perfect beach. To help us get there, they'll keep taxing those castles to redistribute the sand.

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