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Drunks and Keynesians

by Jason Scheurer 26 Nov 2013, 2:37 PM PDT 

I have known my fair share of drunks in my day, real hardcore addicts who continue to believe they have their problem handled as their world crumbles around them. It is painful to watch and even harder to live through because despite all good intentions, there typically is a need to hit rock bottom before any true recovery can begin. Much like these addicts, our debt economy is always on the lookout for its next fix of “cheap money”, rather than the hard work of getting fiscally sober. “More booze for the punch bowl”, cry the masses, because sobering up is uncomfortable--and who would want to choose difficult when easy is so much easier? Much of contemporary economic thought (the last 80 years) has unfortunately been focused around the work of noted British economist John Maynard Keynes (1883-1946). His fundamental belief, that the state must intervene to deal with the “Boom and Bust” cycles, has polluted the collective minds of millions of people who thought they were gaining some advanced knowledge during their academic careers. Instead it has brainwashed generations into supporting false Utopian concepts that fail to include human nature into the equation. Keynes' “12 step program” won’t cure the cycles but will instead exacerbate the highs and lows. Human emotional response is, in fact, the Achilles' heel of many of his assumptions. Keynes’ theories dominate college level economic courses across the world for two simple reasons: to give governments the “academic” reason they need for their continued tinkering with the monetary system and to justify their unchecked spending policies. These misguided policies, more often than not, create short-term gain and long-term pain. You cannot borrow your way to prosperity but that never stops a politician, with the help of a central bank, from trying. The false belief that deficit spending is a legitimate tool for long-term prosperity permeates multiple levels of society. It is a Matrix world, where the continued failure is always blamed on “not spending enough”, rather than the failure of the underlying theory. This is not about borrowing for a legitimate reason, such as expanding much needed capacity or creating efficiencies; that’s what we call an investment. It is the difference between bridges across rivers that cut travel, time, and energy-use vs. bridges to nowhere. Our Utopian friends believe, for example, that all higher education is worth the time, money, and effort. Great in theory, but why do we now find many of our youth drowning in college debts, living at home, and working at jobs that don’t even require a degree? A recent McKinsey survey found that almost half the recent college graduates are working lower-end jobs. So, aside from maybe being able to quote Chaucer, this pursuit of higher education has left far too many with loans that will drain them of precious funds needed to be financially stable. And being financially stable was the end-goal of said education. Chaucer once famously said, “Love is blind”, but it is the modern Keynesians among us that are truly blind.

  . 65% of the population makes less than $40.S. Record prices for art. not the poor and middle class. Most governments by their very nature do not save money for a rainy day or future “Bust” times (energy producing countries like Libya. is Keynesianism working for the bottom 90%? While the stock market is hitting all time highs and the elected officials talk of things getting better. say. governmental behavior. Keynesian solutions increase the wealth of the top 10%. Approximately one in five households is on food stamps. Census Bureau and the Social Security Administration have recently put out some startling statistics to consider:      39. and Saudi Arabia being exceptions).Deficit spending advocated by Keynes didn’t work for Roosevelt. or more specifically.000. The U. “In the long run this whole thing is going to blow up in our faces and we’ll have no one to blame but ourselves”. but mark my words. rather than true organic growth. Keynes is famous for his. would be exposed as being nothing more than fancy wealth transfer schemes. of course! The solution is always more debt. and Median household incomes have fallen for five years in a row. masking its failure by inflating financial assets at the expense of the common man. from thin air--just like we are now doing by monetizing. which then benefits those who don’t really need it at the expense of those who do. Keynes’ fatal flaw was that he couldn’t account for human behavior. and stocks are symptomatic of how Keynesian “cheap money” flows into the hands of the wealthy. it just endangers the public in the long run. and it won’t work for Obama. it hasn’t worked for the Japanese after over 20 years of trying. primarily due to asset inflation and debt refinancing. Rewarding the borrowers and punishing the savers distorts the invisible hand of the market from finding true price discovery. This Utopian “good on paper” solution cannot exist in the real world because we are dealing with emotional responses. Deficit spending does do one thing very well: it causes the misallocation of resources. Creating new bubbles does not enrich a nation. billions in Keynesian juice is pumped into the system. You decide. Human emotions are not static and therefore can not be consistently predictable. Norway. the “We didn’t spend enough. The debts will be larger and the standard of living will largely be lower. when water boils at sea level. Unfortunately. Years from now. it will be important to remember these Keynesian “solutions” and how their damaging results did not cure the underlying problems but instead prolonged them. diamonds. as the average American stagnates and the economy limps along. high-end real estate. if fully comprehended by the public. Home ownership is at an 18-year low. but unfortunately what he really should have said was. These policies. the powers that be have continued to follow this false theory at the expense of the overall financial health of the nation. responses that cannot be mathematically quantified to the same degree of. “In the long run we are all dead. So where does the money for stimulus come from? More debt.6% of the population makes less than $20. be it direct borrowing. or when that fails.” excuses will persist.000 a year.” quote.