Posts Tagged ‘Keynes’
Ghosts of econs past, present and future

Ghosts of economists past, present and yet to come (again) sing along in the spirit of Christmas on this video:

It’s a great video that gets the big question right – is more consumption or production the path to prosperity? I know that sounds stupid, but economists tends to obsess over the former and pay lip service to the latter.This distorted thinking flows through to government policy, resulting in the current debt induced macro mess.

While it’s a shame much of the profession did not watch such a witty clip in first year, it would profit from an even greater emphasis on production. Having your savings squandered by someone else on more “toys” is not a path to prosperity. It matters little if our bankers bonuses go on ferraris,  yachts or more homes. They will not generate a sufficient future income stream to reward the saver.

It’s productive investment which is the key. Or more precisely, attempted active productive investment. Look around, are your savings being invested in income producing assets which will fund your future comfort? Or are they being squandered on government white elephants and crony capitalist excesses?

But this is all too long and serious for an excellent video clip. Watch it, have a laugh and possibly even learn something

Hat tip Steve Kates


Destroy Money to Destroy the Moneyed Class

Hat tip: Jesses Cafe Americain

It is worth reading the quote and surrounding material

Ayn Rand, Atlas Shrugged: Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper… Click here for more.

Jesse also mentions that apparently some rather large customers are pulling their silver bullion out of storage in the Comex vaults.

Ayn Rand is not to everyones taste, but her views on the effect of destroying money seem to have the support of heavy weights  from other areas of the political spectrum:

Lenin reportedly said:

Lenin: The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.

Keynes reportedly agreed with Lenin:

Vox Popoli, Lenin, inflation and the destruction of capitalism: Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, Governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity (or fairness) of the existing distribution of wealth.

As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of Society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

While there are some questions about the authenticity of the Lenin quote, it is notable that the Soviets never rejected it.

Keynesians are so wrong

Peter Smith demolishes the basis on which Keynesian policies are often deemed a success:

National Accounts

“If government spends a dollar; this will always be shown as contributing to GDP in the period it is spent. And, it would be shown this way even if the whole dollar were spent on imports and did not, in fact, contribute to GDP”.

“The fact that government expenditure is shown dollar for dollar as contributing to economic growth is therefore meaningless. It is a truism because of the way the accounts are constructed. It doesn’t show that stimulus spending works at all; it simply reflects the way the national accounts are put together.”

Macroeconomic models

“However complex the model, it will be based on the textbook macroeconomic identity that aggregate private consumption spending plus private investment spending plus government spending plus exports minus imports equals production. It will also have within it a positive relationship between an increase in production and an increase in employment.

If you impose on these models an increase in government spending they will inevitably show an increase in production and employment. It is important to understand that whether total employment rises or falls, the models will still show that an increase in government expenditure will have contributed to employment growth.”

Keynesian conclusions

“If the government spends taxpayers’ money to build, say, a school library, at a reasonable cost, this will be shown dollar for dollar as contributing to GDP. If the same library were built at an inflated cost, this would be shown dollar for dollar as contributing to GDP. If the same library were then immediately demolished at government expense even more would be added to GDP. And this is not the end of the matter. If government takes resources away from the private sector to build a school library, this will be recorded, and probably written up, as the economy being saved from a decline in private sector activity by government spending.”

The quotes do not do justice to the article, Time to Topple Keynesian Economics, which is commendably short. Read it and Why Keynesians and Krugman are Wrong.