Get Your Hands on the Government Playbook

In this bubblicious world of trillion dollar deficits, sovereign bailouts, and fiscal stimulus measures of historical proportions, there is one economist whose theories and underlying philosophy underpin the foundation of modern macroeconomics.

His name is John Maynard Keynes, and his most famous work, The General Theory of Employment, Interest and Money (1936) has become the playbook from which politicians and central bankers are making their trillion dollar decisions.

Just about every politician knows the name Keynes. Most would consider themselves "Keynesian" in that they believe in government spending as a means to maintain economic stability. Few have actually read his book. And yet even fewer realize that Keynes was a major advocate of Soviet-style central planning.

1) A high rate of interest which encourages saving is bad for society. Consumption and borrowing must be promoted. In fact, high interest rates are to blame for why "the world after several millennia of steady individual saving, is so poor..."

2) Consequently, the government should make money cheap, controlling interest rates with a target level of zero. Further, the government should never deliberately increase rates as inflation will not set in "until unemployment has completely disappeared."

3) Even if inflation should happen to appear, it's likely due to the "arbitrary and inequitable distribution of wealth and incomes..." As such, the better solution to control prices and keep the boom going is to simply impose high income and death taxes in order to make a more economically just society.

4) If the boom starts to fade and low interest rates aren't doing the job, it is the role of the government to step in and 'invest' obscene amounts of money to stimulate growth. Only the government is capable of doing this, as "the duty of ordering the current volume of investment cannot safely be left in private hands."

5) As Keynes favored "a somewhat comprehensive socialization of investment," he recognized that such complex decisions of investing other people's money would be "above the heads of the vast mass of more or less illiterate voters."

6) Not to worry, though, these key decision makers of the state-run economy will have the right "moral position," so it's just a question of making sure that the right people are directing the economy.

7) In the event of a crisis, the answer is simple. A government should simply borrow and spend more. In a 1934 article for Redbook magazine entitled "Can America Spend Its Way into Recovery," Keynes opened with "Why, obviously!"

8) If the crisis doesn't abate after substantial spending an interest rate cuts, Keynes blames these continued problems on not following his advice closely enough: "[A]uthorities of the world have lacked the courage or conviction at each stage of the decline to apply the available remedies in sufficiently drastic doses."

I could go on, but I don't want to spoil the ending where the entire global financial system collapses as a result of following these ridiculous policies.

In terms of economic philosophy, very little separated Keynes from Lenin. Keynes even praised Lenin when he wrote, "Let us not belittle these magnificent experiments or refuse to learn from them... the Five Year Plan in Russia, the Corporative state in Italy..."

And yet, this is the man who is held up by world leaders as the architect for economic bliss. Politicians and central bankers are calling his plays almost verbatim-- enormous stimulus packages where volume and quantity are all that matter, quality counts for nothing; interest rates at zero; spending your way out of recession; borrowing your way out of debt...

It's absolutely mind-boggling how modern governments have built such an apparatus to control their economies and run them into the ground. Ironically, each time a crisis occurs, these regulatory agencies, central banks, and executive powers are granted even more authority. This only makes things worse.

Sure enough, in the "Seventh Quarterly Report" that President Obama's Council of Economic Advisors released on Friday (right before a long weekend, naturally), the numbers show that the administration's Keynesian stimulus spending has saved 2.4 million jobs at a cost of $666 billion. That's a total of $278,000 per job, all at taxpayer expense.

In the world of Keynes where debt does matter and inflation doesn't exist, this number is completely acceptable, right comrades? In the real world, it's further evidence of how horrific misallocations of capital are bankrupting the economy.

To Keynes, people who work hard to create value cannot be entrusted with their own money. It must be confiscated by politicians for them to invest with the utmost objectivity and expertise, all for the benefit of society as they define in their sole discretion. And if they falter, we must reward them with even more power to tax, print, borrow, and spend.

This is the underlying philosophy of the man whose ideas have driven global macroeconomics for the last 60+ years... and continue to create inflation, bubbles, and economic ruin.

If you want to read more on the subject, I highly recommend a book called Where Keynes Went Wrong by Hunter Lewis. It's available on Amazon in both print and Kindle edition.

SIMON BLACK, Editor, Sovereign Man: Confidential is an international entrepreneur and investor who travels the globe on the lookout for personal and economic opportunities to enrich his life and those of his subscribers. Sometimes this means a great investment, an exciting business venture, beautiful places, or new relationships. Prior to become an entrepreneur and investor, Simon, a West Point graduate, was an Army Intelligence Officer.

“I am a permanent traveler,” says Simon. “That means I have no home, and I am free to move about the world at my discretion. I believe that my capability to make money and enjoy a fulfilling lifestyle is not constrained by my geography. It’s not 1984 anymore.

“I’m a student of the world, and I believe that travel is the greatest teacher. My knowledge is practical and hopefully of significant use to you. Off the top of my head I could quote you the price of beachfront property in Croatia, where to bank in Dubai, the best place to store gold in Singapore, which cities in Mexico are the safest, which hospitals in Asia are the most cost effective, and how to find condo foreclosure listings in Panama.

“I believe that in order to achieve true freedom, you have to make money independently, control your time, and eliminate the mindset that you are subject to a corrupt government that is bent on degrading your personal liberty.”

That's also a bunch of hooey. You can no sooner count how many jobs Zero has "saved" than how many unicorns are on my ranch.

And yet even fewer realize that Keynes was a major advocate of Soviet-style central planning.

In fact, his is not an economic philosophy as much as it is a strategy of implementing Communism through other means.

Of course, all Communist strategies are that way. They can never tell you their intentions or they would be hooted out of town.

When that jobs saved hooey first started I heard an employer on a talk show. He said he had landed a small government contract and soon after he got a call from someone in the government who asked him how many employees he had hired to fulfill the contract. He said, “None.” He was then asked how many people he would have laid off had he not gotten the contract. Again, he said, “None.” He said the government employee kept cajoling him that surely without the contract he would have laid people off. Again, he said no. He said this went on for quite a while until finally, just to get rid of the person, he said maybe one.

He also said there was no telling what number the person really put down. That is how many, perhaps most, of these jobs “created or saved” are tallied.

To Keynes, people who work hard to create value cannot be entrusted with their own money. It must be confiscated by politicians for them to invest with the utmost objectivity and expertise, all for the benefit of society as they define in their sole discretion. And if they falter, we must reward them with even more power to tax, print, borrow, and spend.

Hmmm. I wonder why POLITICIANS take to this theory so quickly and let go of it so reluctantly? /sarc

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