Posted on 05/25/2017 7:04:40 PM PDT by Lorianne
Can we finally admit that eight years of following the Keynesian coloring-book have not just failed, but failed spectacularly? ___ What do we call a status quo in which "emergency measures" have become permanent props? A failure. The "emergency" responses to the Global Financial Meltdown of 2008-09 are, eight years on, permanent fixtures. Everyone knows what would happen if the deficit spending, money-printing, zero interest rates, shadow banking, asset purchases by central banks and all the rest of the Keynesian Cult's program stopped: the status quo falls apart.
Keynesianism Vs The Real World
Let’s start by reviewing the core contexts of the economy.
1. The dominant socio-economic structures since around 1500 AD are profit-maximizing capital (“the market”) and nation-states (“the government”).
2. The dominant economic theory for the past 80 years is Keynesianism, i.e. the notion that the state and central bank must aggressively manage private-sector consumption (demand) and lending via centrally planned and funded fiscal and monetary stimulus during downturns (recessions/depressions).
Simply put, the conventional view holds that there are two (and only two) solutions for whatever ails the economy: the market (profit-maximizing capital) or the government (nation-states and their central banks). Proponents of each blame all economic and social ills on the other one.
In the real world, the vast majority of Earth’s inhabitants operate in economies with both market and state-controlled dynamics in varying degrees.
The Keynesian world-view is doggedly simplistic. The economy is based on aggregate demand for more goods and services. People want more stuff and services, and as long as they have the means to buy more stuff and services, they will avidly do so (this urge is known as animal spirits).
The greatest single invention of all time in the Keynesian universe is credit, because credit enables people to borrow from their future earnings to consume more in the present. Credit thus expands aggregate demand for more goods and services, which is the whole purpose of existence in this world-view: buy more stuff.
But credit, aggregate demand for more stuff and animal spirits make for a volatile cocktail. The euphoria of those making scads of profit lending money to those euphorically buying more stuff with credit leads to standards of financial prudence being loosened. In effect, lenders and borrowers start seeing opportunities for profit and more consumption through the distorted lens of vodka goggles.
Lenders reckon that even marginal borrowers will earn more in the future and therefore are good credit risks, and borrowers reckon they’ll make more in the future (i.e. the house they just bought to flip will greatly increase their wealth), and so borrowing enormous sums is really an excellent idea—why not make more money/enjoy life more now?
But the real world isn’t actually changed by vodka goggles, and so marginal borrowers default on the loans they should never have been issued, and lenders start losing scads of money as the value of the collateral supporting the defaulted loans (used cars, swampland, McMansions, etc.) falls.
SNIP
I misread this as the “Kenyan Cult”, which I’m afraid isn’t going away soon...
It has to be, lest the failure of Keynesianism become evident to all.
To play devil’s advocate, and I say this as a neo-Classicist economist (well, what I remember from my study all those years ago at least), the last 8 years weren’t exactly Keyenesian. The last 8 years were graft and bribery pretending to be Keyenesian.
The Obama stimulus effort with the support of the DemonRATs in Congress, was a Keyenesian effort to stimulate the economy back to recovery. Such an effort was tried by FDR to bring America out of the Great Depression. All it did was drag out the Depression. World War II brought America back with great pain: The sacrifice of 419,000 deaths.
However, (and not to be flippant) those lives lost were exactly why the post-war years were...looking for the right word here...
The removal of a significant portion (20%) of the working age men from the labor force, caused real wages to grow, and thus the glut now, of the baby boomers and their progeny has the labor market saturated.
That is the unspoken truth of the end of the great depression.
I’ll tell you how to get the economy roaring... reinstate the tax deduction for interest paid on revolving credit.
Whether failure is evident is irrelevant to liberals. They will continue doubling down on their big government debt strategy.
I agree with Keynesian theory in one area though: it's worth borrowing to buy whatever we might need to defend ourselves and our families. That needs seems increasingly close to reality. I expect an ugly future sooner rather than later.
You caught exactly my inference when I mentioned “sacrifice.” WW II had it’s consequences both intended and not. The loss of these working age men from the labor force created the economic boom that pulled nations out of the Great Depression. Hitler thought he could do it by subtracting the Jewish population and gobbling up their real estate and possessions. It is my theory that it was his intentions to wipe out the Jews for economic purposes. The thought of that is revolting; just like the practice of abortion is today.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.