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Guest Post: How To Spot A Keynesian

Tyler Durden's picture




 

Via Gregory Cummings of the Ludwig von Mises Institute of Canada,

According to the great Doctor Gary North, the litmus test of Keynesianism is the attack on austerity. He writes:

Let’s say that you are reading an article on what the Greek government should or should not do. You read that the government’s proposed austerity measures will lead to a reduction of production. This will lower tax revenues. The government-debt-to-GDP ratio will increase. Austerity will therefore not solve Greece’s economic problems.

 

The article was written by a Keynesian.

In an opinion piece published by The Globe and Mail entitled “Europe must realize austerity doesn’t work,” Pierre Briancon is true to this Keynesian form:

The Greek economy has shrivelled to three quarters of what it was three years ago, before embarking on its successive turnaround-cum-bailout plans. Euro zone governments keep contributing religiously to their own recession by forcing ever higher degrees of pain on their sick economies.

 

Spain is slashing public spending and wonders why its gross domestic product is shrinking as well. Britain is slowly sinking under the mindless policies of austerity without perspective. Meanwhile, central bankers keep pushing for ever stricter fiscal discipline, under the eternal slogan of ideologues throughout centuries: “There’s no other way.”

First of all, the laughable notion of the unflinching central banker insistent on fiscal discipline makes about as much sense as Betty Crocker advocating hunger strikes.

Briancon continues:

Meanwhile it is left to the IMF’s economists to state the obvious. The record is clear. Austerity hasn’t worked. There’s little hope it will. Let’s first work on growth. Then we’ll be virtuous.

Austerity simply means less government spending. By “growth,” the author means an elevated GDP statistic brought about by more government spending. Keynesians believe that government spending is a panacea.

The money that government spends comes from a combination of taxation, borrowing and monetary inflation. In order to evaluate the impact of austerity it is necessary to reflect on these sources of government spending.

When less money is confiscated from taxpayers through taxation, private citizens retain more of their wealth. With increased coffers, individuals may then spend the fruits of their labour on additional capital or consumer goods. How does this shrivel the economy?

When less money is borrowed by the government, more money is available to be lent to private citizens instead. Individuals may then use these loans to invest in capital or purchase consumer goods. How does this shrink the economy?

In the insidious case of monetary inflation, money is created out of thin air and then spent by the government. According to John Maynard Keynes, monetary inflation performs the “miracle… of turning a stone into bread.”

But the truth of the matter is that there is no such thing as a free lunch. The phony prosperity of monetary inflation is entirely illusory. You cannot get something for nothing.

Dr. North sums up his Keynesian litmus test as follows:

So, whenever you see a criticism of austerity as fostering recession, you are reading a Keynesian. He may not call himself a Keynesian, but in this case, he is delusional.

 

Only Keynesianism teaches that reduced national government spending (“austerity”) in a nation whose national government spends 40% of its GDP (Greece) will produce a recession.

Keynesian economic pundits advance many fallacious arguments about government spending. Chief among them is the egregious notion that mortgaging your posterity with debt and deficits is somehow “virtuous.”

 

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Sun, 10/14/2012 - 15:35 | 2888106 Ghordius
Ghordius's picture

Austerity is like healthy living. Yes, please, but not today. Tomorrow is another day.

Sun, 10/14/2012 - 15:51 | 2888145 Thomas
Thomas's picture

Exactly. My simile is that saving is like dieting; there is no especially convenient time. Ya just gotta do it. Difference is that for Club Med, it's no longer a choice. 

Sun, 10/14/2012 - 16:07 | 2888180 knukles
knukles's picture

To a Keynesian,
Mathematics is an Inconvenient Truth

Sun, 10/14/2012 - 16:23 | 2888204 no taste
no taste's picture

A Keynesian is a person who believes that Escher's prints describe the real world.

http://en.wikipedia.org/wiki/File:Escher_Waterfall.jpg

http://howstupidare.blogspot.com/

Sun, 10/14/2012 - 20:17 | 2888881 Thomas
Thomas's picture

Who is doing all the junking?

Sun, 10/14/2012 - 16:23 | 2888205 dracos_ghost
dracos_ghost's picture

To a Keynesian(aka Whimpey of Popeye fame),

I'll gladly pay you Tuesday for bailing out the ruling elite today.

Sun, 10/14/2012 - 15:54 | 2888148 unununium
unununium's picture

How about austerity only for the insolvent.

Ah yes, that's also known as NO BAILOUTS.

Sun, 10/14/2012 - 16:08 | 2888182 LMAOLORI
LMAOLORI's picture

 

 

That's also known as Crony Capitalism

Banks See Home Loans as Gateway to Big Gains

http://dealbook.nytimes.com/2012/10/11/boom-in-mortgages-is-expected-to-benefit-banks-profits/?ref=business

Sun, 10/14/2012 - 16:37 | 2888226 knukles
knukles's picture

Are you sure we're not lost?
Didn't we pass by here a few minutes ago?

Sun, 10/14/2012 - 16:58 | 2888580 LMAOLORI
LMAOLORI's picture

 

 

We may never pass this way again

http://www.youtube.com/watch?v=Vd6zYQPCgsc

Just Kidding the Bernank is more like the movie Groundhog Day then that song

Bernanke Defends Stimulus

http://www.cnbc.com/id/49405717

Sun, 10/14/2012 - 16:18 | 2888196 shovelhead
shovelhead's picture

He he,

Ever notice that the heroin addict will always opt to risk dying from an overdose vs. dying from going cold turkey even though the risk of death by withdrawal is almost nil?

Dr. Keynes prefers happy addicts and dealers alike. He's the heroin dealers best friend.

It's the compassionate thing to do. The tricky part is finding someone to keep buying the heroin for the junkie.

Sun, 10/14/2012 - 17:08 | 2888604 Harbanger
Harbanger's picture

The problem for the addict is they're learning that Socialism does'nt work without keynesian economics.  Even without military spending ie. Europe,  that size of Govt. spending, employment and entitlements are simply unsustainable.  It took 100 yrs for the  experiment to come to cliffs edge.  So now we're going either full Statism which the addict wants, or we're going back to a responsible society with a social safety net.

Mon, 10/15/2012 - 14:00 | 2891403 DonGenaro
DonGenaro's picture

the problem with socialism is that every new generation of fools thinks that *they* can "do it right".

Sun, 10/14/2012 - 16:25 | 2888212 wolfidan
wolfidan's picture

Give us fresh cash, no austerity please.

Sun, 10/14/2012 - 19:44 | 2888827 Poor Grogman
Poor Grogman's picture

The unfortunate reality is that that Keynesianism is a theory that requires the use of fiat money, central banking, and fractional reserve lending.

The three pillars supporting your "enslavement".

Keynesianism describes how to best manage that system of enslavement, while maximizing debt buildup and empowering the state.

So it does "work" as a theory after all. One just has to realize that it was never designed to work in our favour.

Debt serfdom bitchezz..

Sun, 10/14/2012 - 15:37 | 2888112 Dexter Morgan
Dexter Morgan's picture

Keynesian Bitchezz!!

Sun, 10/14/2012 - 16:23 | 2888206 bank guy in Brussels
bank guy in Brussels's picture

The 'Keynesian-bashing' has become a ZH meme of mindless group bullying, lowest-common-denominator 'group think', but the truth should be said

The above Mises article is superficial shite, superficial rhetoric against mythical straw opponents, sowing confusion ... it is appealing to the naive, it is an author reaching for lowest common denominator with deceptive slogans

This is one of those pieces giving credence to the detailed articles recently coming out, pointing out how libertarians are being funded by billionaires, as a way to fool possible angry dissidents into supporting oligarchs and the raping of working class and common people

There are stupid Keynesians, sure, and lots of government waste and corruption ... but it is another stupid mug's game, another form of slavery to the rich, to claim that all government support for suffering people should be condemned ... with 'Keynesian' another catch-all negative label for supposedly stupid 'do-gooders'

Economic reality is a wee bit different than these armchair 'Mises institute' fantasies

The article above is quite misleading about

- what is Keynesianism

- what is actually 'austerity' as in destroying the pensions and minimal incomes of workers and the poor, versus the 'nobler' alleged goal of government economising - the article gives a misleading definition

- the important differing nature of a balance sheet recession (covered on ZH frequently, but which the article doesn't confront in its effort to spread deception)

- whether there is overall credit deleveraging in a society or just government re-leveraging or de-leveraging, a big important factor

- how countries like Greece are the victims of 3-sided fraud involving lenders outside of Greece as well as factors within Greece, plus how Greece is being ravaged by a dysfunctional currency

When food shelves in America go empty I wonder how quickly the Keynesian-bashers all piling on, might change their views about whether 'government should do something'

Much better and more accurate stuff in an article like below, actually facing economic reality, Ambrose Evans-Pritchard's latest, 'Euroland's debt strategy is an economic and moral disgrace'

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/960782...

Sun, 10/14/2012 - 16:30 | 2888221 Ghordius
Ghordius's picture

+1 well reasoned arguments. Note that the Canada Mises club is a bit... special

Thanks for the AEP article, though as usual it's a typical "Death to the EUR!" AEP's. Biased is no word for it.

Sun, 10/14/2012 - 16:52 | 2888570 css1971
css1971's picture

I've noticed the Canadian mises articles are crap too.

The last one was some muppet wittering on about free markets and government interference in the oil sands producers.

Sun, 10/14/2012 - 16:46 | 2888392 css1971
css1971's picture

They still haven't killed the banks...

Until the debt is defaulted upon this isn't getting any better.

The Keynesianism is the maintainenance of the bankers. I agree about the article though it's drivel.

Sun, 10/14/2012 - 18:04 | 2888627 TWSceptic
TWSceptic's picture

Anyone who calls Mises explanations 'fantasies' should not be taken serious. Just for entertainment I would like to see a debate between you and Tom Woods, he would destroy your keynesian BS arguments faster than you can say stimulus. There is no 'ok version' of keynesianism, your statist arguments are invalid.

Sun, 10/14/2012 - 18:34 | 2888736 Harbanger
Harbanger's picture

"The 'Keynesian-bashing' has become a ZH meme of mindless group bullying,"

Bullying?  :)  What a fag.  You better pray they can kick the can for another 100 years.  When the Keynesian induced crash happens, your neighbors will eat you alive.  To me, you're officially the Castrati in Brussels.

Sun, 10/14/2012 - 21:37 | 2889007 Terrorist
Terrorist's picture

Bank guy
Our financial system is an unsustainable house of cards.
Your focus on GDP growth is ignorant.
The present level of Global GDP was created by borrowing from future spending.
You wish to create some dream state of maintaining the status quo, so you can go on extracting fiat without producing anything.
You know nothing, AEP is an idiot.
Your post contains a bunch of double speak that does not directly refute one thing.
The only productive thing left for you to do to justify your existence is to give away your ill gotten gains to those suffering from the inevitable retrenchment.

Sun, 10/14/2012 - 16:25 | 2888117 Ghordius
Ghordius's picture

Ah, a nice sexist one: virtuous comes from vir = MAN
blame the female vote and it's byproducts
No patriarchy, no virtue. Plenty of feel-good, though.

Enjoy! ;-)

-------
Damn, nobody willing to play this game... :-(

Sun, 10/14/2012 - 16:39 | 2888231 knukles
knukles's picture

Is that why women weren't allowed on golf courses?

Sun, 10/14/2012 - 15:40 | 2888122 h0oS
h0oS's picture

Hmm, how about borrowing as much as possible, using that money to buy gold and silver, then dropping taxes to zero and defaulting on all loans. Then launch a new currency backed by your gold/silver reserves, that'll fixit in a jiffy.

Sun, 10/14/2012 - 15:45 | 2888134 Yen Cross
Yen Cross's picture

 

How To Spot A Keynesian:

                  He's the "brain-dead thespian", with a compost pile in his back yard!

Sun, 10/14/2012 - 15:49 | 2888138 LMAOLORI
Sun, 10/14/2012 - 15:50 | 2888141 icanhasbailout
icanhasbailout's picture

you can spot a Keynesian by the eagerness with which he spends money not his own

Sun, 10/14/2012 - 15:55 | 2888153 Skateboarder
Skateboarder's picture

"Can I borrow fifty bucks again?"

"What for? You already owe me fifty bucks!"

"Don't worry man, I got you next time. I'll pay back last time's fifty bucks when I come by to borrow another hundred next week."

Sun, 10/14/2012 - 15:55 | 2888154 Urban Redneck
Urban Redneck's picture

I thought that was how to spot a Kenyan

Sun, 10/14/2012 - 16:03 | 2888165 Yen Cross
Yen Cross's picture

I thought it was a Popeye/ Whimpy "skit"?

Sun, 10/14/2012 - 16:14 | 2888188 LMAOLORI
LMAOLORI's picture

 

 

This is how you spot a Kenyan lol Lord of the Rings: Obama’s wedding band allegedly carries word ‘Allah’

http://english.alarabiya.net/articles/2012/10/12/243401.html

Sun, 10/14/2012 - 16:22 | 2888200 Yen Cross
Yen Cross's picture

That's a little above my "pay grade".

Sun, 10/14/2012 - 16:40 | 2888238 knukles
knukles's picture

So what's his birth certificate say?

Sun, 10/14/2012 - 16:45 | 2888363 Yen Cross
Yen Cross's picture

lulz +1

Sun, 10/14/2012 - 16:48 | 2888483 LMAOLORI
LMAOLORI's picture

 

 

Paul Krugman already gave us that answer last week remember he said the president showed his birth certificate he just left out that it was photo shopped isn't that good enough for you - some of you are so hard to please :)

Sun, 10/14/2012 - 16:01 | 2888163 LMAOLORI
LMAOLORI's picture

 

 

icanhasbailout

Plus a thousand if I could that simple statement says it all

Sun, 10/14/2012 - 22:10 | 2889046 petolo
petolo's picture

How about the two farmers who bought and sold the same mule to each other, every time for more money. As the one farmer who was about to buy the mule back for a little more money, approached  the other,  he was told the mule had been sold to someone else. Upon hearing that the first farmer complained bitterly: why did you go and do that; we had a real good thing going.

Sun, 10/14/2012 - 15:52 | 2888146 hawk nation
hawk nation's picture

You cant fix stupid

Bring back natural selection and the kenesians vanish

Sun, 10/14/2012 - 15:53 | 2888149 new guy
new guy's picture

A fellow ZHer posted this comment a few monthes ago.

"Austerity is not a policy. Its what happens when your broke."

Nothing else need be said

Sun, 10/14/2012 - 15:53 | 2888150 Towhog
Towhog's picture

We have enjoyed exponential expansion due to credit expansion, fed printed deficit spending, and regular tax & borrow federal deficits which leave us at a precipice 75 percent higher than historical growrh would imply.
It is an illusion of sorts. Stopping any of the sources if the illusion will bring us to an unpleasant reality. If that flow should stop the apparent money supply will be consumed by the black hole of deleveraging at also an exponential rate. Due to fractional reserve lending in particular the deleveraging caused by austerity will be rapid and ugly.
That is where they have left us.
The magicians will create endless illusions trying to delay the world's ultimate day of reckoning. We will ride along until the end as the alternative is unbearable for civilization. We have passed the event horizon. Think in terms of collapse of the roman empire on a global scale.
Teach your children to be self sufficient!

Sun, 10/14/2012 - 15:58 | 2888158 Yen Cross
Yen Cross's picture

O/T , But here I sit looking for a gap to get filled. The October 7th aud/usd open. That is a 40+pip free fall.

Sun, 10/14/2012 - 16:20 | 2888199 GoldenTool
GoldenTool's picture

Why does everything always have to be black or white?  Both sides use bait and switch to try and "prove" arguments.  Inside the box is still inside the box.

 

operari sequitur esse

Sun, 10/14/2012 - 16:24 | 2888209 chistletoe
chistletoe's picture

slow news day, Tyler?

Sun, 10/14/2012 - 16:27 | 2888214 Yen Cross
Yen Cross's picture

This isn't required reading/ just saying

Sun, 10/14/2012 - 16:41 | 2888274 Tsunami Wave
Tsunami Wave's picture

Slow day for you to comment?

Sun, 10/14/2012 - 16:46 | 2888421 Yen Cross
Yen Cross's picture

 I can smell a storm a 'brewing".

Sun, 10/14/2012 - 16:29 | 2888216 bunkermeatheadp...
bunkermeatheadprogeny's picture

How to spot a Keynesian: His nose looks like the number 6.

Sun, 10/14/2012 - 16:33 | 2888223 XtraBullish
XtraBullish's picture

I like the VIX Nov 20 call for a move to $10.00 by November 15th - currently $1.38. I think that the hedgies will start buying insurance on the head-and-shoulders AAPL top by buying the VIX starting tonight.

Sun, 10/14/2012 - 16:40 | 2888232 El
El's picture

So how long do you think they are going to pretend it is working before admitting it  isn't?

Sun, 10/14/2012 - 16:43 | 2888300 knukles
knukles's picture

By Paul Krygman's way of thinking way the fuck after it's broke, gone, dead, no mas, nada, zilched out, it woulda worked if they'd just spent and printed more.

Sun, 10/14/2012 - 17:11 | 2888613 LMAOLORI
LMAOLORI's picture

 

 

It depends on what your definition of working is because it's working just fine for the bailed out banks if that's not what you meant then I think the answer is until Hell freezes over - we implode - or bernanke is given the boot. Didn't you get the memo?

Memo To Investors: Bernanke And Obama Are Your Business Partners

http://www.forbes.com/sites/jerrybowyer/2012/10/10/memo-to-investors-bernanke-and-obama-are-your-business-partners/

Sun, 10/14/2012 - 17:08 | 2888608 WeekendTrader
WeekendTrader's picture

Keynes wrote in an era in which currencies were somewhat connected to something non-printable, and in that context borrowing non-printable money constitutes a transfer, not an inflationary force. However, when deficit spending turns into a printing money exercise all bets are off.

Beating Keynes when politicians act in a way  which is barely tangentially related to what he prescribed makes no sense.

Rgds

WeekendTrader

Sun, 10/14/2012 - 17:22 | 2888632 Dr. Sandi
Dr. Sandi's picture

I tire of Good versus Keynes stories.

How about some cute puppy photos instead. Much healthier for the mental metabolism.

Sun, 10/14/2012 - 17:40 | 2888659 yogibear
yogibear's picture

After their grand scheme fails we need to burn their books and send the Keynesians to Austrian reprogramming camps.

The Austrians  may find it impossible to rehabilitate Krugman.

 

Sun, 10/14/2012 - 17:59 | 2888684 q99x2
q99x2's picture

There is no such thing as a free lunch but there is such a thing as a stolen lunch and when the SHTF I'm getting mine back from the banksters.

Sun, 10/14/2012 - 18:06 | 2888693 THE DORK OF CORK
THE DORK OF CORK's picture

Southern Euroland is more extreme.

They build highly intensive capital stuff and yet now have no money to use it.

They or their German masters prefer them to waste real diesel rather then metaphysical debt...............why

So that the French & Germans can make exactly the same investments.

This tram ran for 2 weeks in 2011 and then stopped for lack of symbolic tokens because of the debt build up.

es.wikipedia.org/wiki/Tranvía_de_Jaén

http://www.vialibre-ffe.com/noticias.asp?not=9164

I am afraid Europe is a absurdly corrupt entity.
It cannot be saved.

Both Hayak and keynes were hacks for the banks.......you just produce debt free money baby. 

It looked very busy in this video from spring 2011. (although it was probally free)
http://www.youtube.com/watch?v=gZmPh3b6yfM

The problem with Europe me thinks is that it ain’t using its existing capital stock too well
The Euro can only grow outwards through waste production as it is not really a currency , its a yield vehicle.

The central question of our times is why or to be more precise – who benefits ?

Sun, 10/14/2012 - 18:14 | 2888711 Herdee
Herdee's picture

15 trillion,is that the entire debt owed by the U.S. Government?If so,I'd say that the next inflationary cycle is not going to be any illusion.When your printing at a rate of 40 billion a month,inflation is a coming reality.Wash out the bad debt,get this fiscal cliff over with and let the horses out!Let'r dangle,fact of the matter is that it's only goddam money.

Sun, 10/14/2012 - 18:48 | 2888758 Yen Cross
Yen Cross's picture

16.2 Trillion (excluding entitlements)  60 Trillion, about sums it up.

Sun, 10/14/2012 - 20:27 | 2888798 spooz
spooz's picture

If the last 30 years of trickle-down low, low taxes are an example, it shrivels the economy by creating a balance sheet crisis, partially brought on by elites gaming the financial system instead of investing in capital or consumer goods, and increases inequality.

Some taxes, like the 3.8% capital gains tax passed as part of Obamacare, have little effect on average tax payers.  Why not make those who gamed the system pay it back?  I would rather the elite NOT retain as much of their wealth, seeing as they are the only ones doing so these days.

"When less money is confiscated from taxpayers through taxation, private citizens retain more of their wealth. With increased coffers, individuals may then spend the fruits of their labour on additional capital or consumer goods. How does this shrivel the economy?"

Sun, 10/14/2012 - 20:51 | 2888954 blindman
blindman's picture

what is "money"? what is credit?
what is authority and what is sovereignty?
where do these things come from and where
do they go, pray tell.

Sun, 10/14/2012 - 22:09 | 2889012 koncaswatch
koncaswatch's picture

My detailed knowledge about Keynes is limited to the JMK driven econ 101 classes; probably inadequate for ZH discussion. None the less, I seem to remember that Keynes’ lynch pin principle was that government be austere and save revenue (taxation) during “good times” and spend/borrow during “bad times”. No Keynesian driven government has ever “saved”; hence, we’ve never lived under Keynesian economies, nor have we lived under capitalism for that matter.

Sun, 10/14/2012 - 21:42 | 2889018 Bearish News
Bearish News's picture

Bought, they are. Know it, not all of them do.

Don't know wtf I wrote that in Yoda-speak, just seemed right.

Sun, 10/14/2012 - 23:16 | 2889114 koncaswatch
koncaswatch's picture

A possible interesting side note to the thread: The Daily Capitalist presents an article on a Chinese economist of the Austrian school http://dailycapitalist.com/2012/10/14/an-austrian-in-china. Wouldn't it be interesting to see the new Chinese regime dump its interventions (Keynes) and make the switch to a variation of an Austrian style free market; all while the West succumbs to its variance of Keynesian delusion.

Mon, 10/15/2012 - 10:53 | 2890438 paulie
paulie's picture

Is austerity working out for Spain and Greece ?
It's not. Too bad for the Friedmanists out there.

Funny thing is that the financial markets demand more and more stupid austerity from these countris but the the spread plunges only right after Super Mario Draghi prints.

Mon, 10/15/2012 - 11:04 | 2890490 paulie
paulie's picture

The US has a montruous debt which is not very virtuos according to the sick logic of this article.
Why is that no one is asking the US to put in place austerity measures ?
Or Japan for that matter which has a 220% debt to GDP ratio.

Reason is: both countries can print money.

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