View Full Version : Why We Bought into the Keynesian Con

01-27-2005, 02:04 PM
Why We Bought into the Keynesian Con

If one wants to know why we got onto the inflation-deflation roller coaster of Keynesian economics, this is the reason. Ideologically warped intellectuals, with grandiose dreams of ushering in a utopian economic order, succeeded in convincing the American people that their economy is dangerous if left alone. Adopting the rationality level of witch doctors, these cerebral parvenus taught two generations of pundits and politicians that all modern economies need the regulatory guidance of government's "benevolent" hand to smooth out the rough spots and continually "increase" the purchasing power of the consumer through inflation of the money supply so as to create a prolonged boom of prosperity.

What has taken place during the past 65 years is a prolonged boom all right -- the most ungodly and unrestrained inflationary spiral that America has ever seen throughout her entire history. Keynesians proclaim that their theories and policies cured us of the Depression of the 1930's and gave us all this beautiful "economic growth." But here's the rub. It's not genuine growth! It's a pseudo-stimulated growth created with excessive paper dollars.

Crashing addicts taking heroin to get rid of their withdrawl symptoms don't delude themselves into the fantasy that they are curing themselves and that everything will be all right the next morning. They know very well that what they are doing is simply consuming more of the very poison that jacked up their body's system in the first place, which can only bring about a deeper addiction and more severe complications later on. They continue their destructive habit because they are hooked, but they don't delude themselves with fantasies of physiological propriety. Keynesians lack even this semblance of rationality.

What we have done to our economy under the name of Keynesian economics is to inject the heroin of paper dollars into its bloodstream, and now we consider ourselves cured from the Depression of the 30's. This is what Keynesians teach in the schools. But the truth is we never did get out of the Depression genuinely, because we didn't produce our way out -- because we didn't have the wherewithal to let Say's Law of Markets operate. Instead, we rid ourselves of our economic malaise with nothing but a giant fix. We stimulated into being a huge economic boom of technological might and false prosperity on a foundation of collapsible paper money and massive debt.

When Keynesian liberals attribute our recovery from the Depression to Roosevelt and his supposedly ingenious New Deal policies, they are speaking the moronic nonsense that communist ideologues utilized to promote their Potemkin villages under Stalin. The New Deal did not cure the Great Depression. In 1939, after seven years of massive government intervention into the marketplace from a phalanx of ABC bureaucracies invented by Roosevelt's planners and a convoluted array of opportunist economic programs, we were as firmly and as deeply mired in the Depression as before.

"[I]n his first two full terms of eight years," writes biographer John T. Flynn, "President Roosevelt never produced any recovery whatever. When he was elected there were 11,586,000 persons unemployed. In 1939 -- seven years later -- when the war struck in Europe, there were still 11,369,000 persons unemployed. These figures are supplied by the American Federation of Labor. In 1932 when he was elected there were 4,155,000 households with 16,620,000 persons on relief. In 1939, seven years later, there were 4,327,000 households with 19,648,000 persons on relief. In the presence of these undisputed facts how can any sober-minded citizen suppose that Mr. Roosevelt brought recovery to the United States?" 3

It is difficult to believe scholars of any stature can continue to claim that Roosevelt and his New Deal legislators got us out of the Depression, for the "undisputed facts" certainly tell a totally different story. None of the policies put forth by these disgruntled collectivist schemers did anything but further confuse an already dismayed business world. In 1939, the country was still floundering deep in the throes of the Depression. Confidence in the economy had failed totally to materialize, for how could businessmen have any confidence to act and plan when they had no idea what the administration in Washington was going to do next. Roosevelt's pervasive interventions into the market to manipulate and suppress its forces through Mussolini style planning bureaucracies shut down the entrepreneurial risk takers that create productivity. Staffed with rabid collectivists like Rexford Tugwell and Alvin Hansen, his brain trust effectively destroyed any hope of recovery that only the free flow of prices, wages, interest rates, and profits could bring.

Roosevelt and his aides had no understanding of this need at all. As a result, every one of their suppressive controls and redistributive programs only made matters worse. The Federal Reserve's previous expansion of the money supply in excess of the growth of goods and services during the 20's was what created the collapse because such fiat money expansion cannot be continued indefinitely. But the severity of the collapse was compounded by FDR's moonshine economics following Hoover's disastrous price, wage, and tariff follies. The primary point to be learned from all this is that excessive monetary expansion and contraction brought on the Depression, which was then intensified by the failure of the government planners to realize that it was their pre-1929 policies that had caused the crash in the first place and their post-1929 policies that were extending it. 4

In end, it was World War II and its accompanying inflation that got us out of the Depression, not any of the New Deal fiascoes that welfare statists are so proud of. It was only after the war with Japan and Germany began that "recovery" took place. Roosevelt did nothing to aid recovery with his economic programs! What he did was what all statists do when their domestic programs are self-destructing -- he maneuvered his country into war, which requires millions of men and armaments to be paid for with massive fiscal deficits that are monetized by the Fed. It is this "monetary drug stimulant" that gave us the appearance of getting America moving in a healthy economic way again. Today's statist meddlers will, of course, attempt the same thing again. Our War on Terrorism will be monetized.

As for our situation today, we have quite simply never come down from that inflationary high generated by World War II. We have pumped massive doses of paper money into the economy for over six decades now at an arbitrary rate decided by federal bankers. Where it will all end is anybody's guess. How long it can be sustained without incurring either runaway inflation or another devastating depression is impossible to say with certainty.

We can say this, however: The distortions and malinvestments over the past 65 years (brought on by Keynesian theory) have become so grotesque that a severe protracted liquidation of the resultant massive debt must now take place before any kind of genuine health can be restored to our economy. Because the Fed is fighting this severe liquidation process at every step along the way, it will take many years to complete, and it will result in far more misery than if it were allowed to take its natural course.

What the grand pooh-bah Greenspan cannot bring himself to face is that our Keynesian "boom-bust" economy will never be improved as long as government (and its corruptible policy makers) try to control and manipulate the financial workings of the marketplace from behind their mahogany desks in Washington. To face this, Greenspan would have to admit that he and his fellow pooh-bahs are not only irrelevant, but actually the primary cause behind our present plight. The chance of such an admission tumbling forth from these bureaucrats is about as good as Bill Clinton making a guest appearance on O'Reilly's "No Spin Zone" to confess how sleazy his life has been.

The most important insight to be grasped from this 65-year Keynesian travesty is that there can never be a full-scale depression in any economy without a full-scale deflation of the money supply. But there is never any need for a full-scale deflation of the money supply unless there has first been a full-scale inflation of the money supply. Economies only crash AFTER they have been hyper-stimulated with fiat money inflation. In light of the fact that it is only the federal government and its fascist central banking monopoly that can create a full scale inflation, would it not be prudent to suggest that we get the government and the Federal Reserve out of the money creation business? If we want stability in our economy, providing power seeking bureaucrats and bankers with the means to arbitrarily inflate the dollar is hardly the way to bring it about.

01-27-2005, 02:24 PM
Haven't read your post, but I'm sure my 1978 "Economics, 7th edition" can explain it much better then you can.
And if memory serves me right JFK's economic policies were influenced my Galbraith, not Keynes.
You're beating a dead horse, citing the flaws in Keyne's theories....which worked in it's time....
It's 2005.....Keyne's is dead, even China has "given" up on Communism....you'll have to move to Cuba, to find an interested audience

01-27-2005, 02:55 PM
What an ignorant response from one who didn't even bother to read it.

Too scared I'll wager.

Your King Krugman still believes it, if you even know who the turd is.