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Guest Post: Santa Keynes and the Hayekian Grinch

Tyler Durden's picture




 

Authored by Peter Foster, originally posted at Financial Post,

Keynesianism has extended ­downturn, despite recent praise

We are now approaching the fourth Christmas of the great debate between the benign supporters of Santa Keynes and the walnut-hearted acolytes of the Hayekian Grinch. Or at least that’s how Keynesians seem to see it.

Prominent statist fans of John Maynard Keynes such as Nobel laureates Paul Krugman and George Stiglitz, and Keynes’ biographer Lord Robert Skidelsky, tend to be moralists who castigate their opponents as flinty-eyed masochists rather than level-headed students of immutable laws. Their indignant question is “Would you have us do nothing?” The response from supporters of Friedrich Hayek and his “Austrian” free-market economics is: “Yes, since what you are doing is making things worse. Moreover, it’s your policies that cause crises in the first place.”

Keynesians don’t just fail to grasp Austrian economics — which emphasizes that diverting tax dollars or government borrowing to Santa’s workshop to produce what people don’t want (such as holes in the ground, pyramids or windmills) will have painful long-term consequences — they condemn it on the basis that Austrians rejoice in suffering.

Then again, who doesn’t want to believe in Santa? (Naughty or nice doesn’t come into it. Just get those elves working). And who could support the mean green character who wanted to drain all the fun from Whoville?

The latest champion of Keynes as both economically benign and more “moral” is Peter Berezin, the managing editor of the Bank Credit Analyst. In the December edition, Mr. Berezin produces a long piece, Hayek vs. Keynes: Weighing the Evidence, in which he suggests that Keynes is winning the battle hands down.

The claim is moot, to say the least.

Keynesianism is essentially a refutation of the Invisible Hand-driven natural order identified by Adam Smith. Smith would have spotted Keynes as a “man of system” who mistook the economy for a machine and economic actors for chess pieces. The Austrians are Smith’s politically unpopular heirs.

Regurgitating murky history, Mr. Berezin writes “The apparent success of Roosevelt’s New Deal policies, and the fact that massive government spending on the war effort did end the Depression, seemed to validate the views of Keynes.”

Seemed indeed.

In fact, it was FDR’s New Deal policies — which, like those of Obama, demonized “the rich,” promoted Big Government, and created uncertainty — that helped make the Depression “Great.” Meanwhile, how can war create real growth or “cure” unemployment except by forcing people into uniform?

Mr. Berezin acknowledges the collapse of Keynesianism amid the stagflation of the 1970s, but claims that its revival since the 2008 crisis has been successful — or at least hasn’t (yet) produced the disasters suggested by the Austrians.

His argument for Keynesian triumph is that stimulus really did create jobs. Nobody denies, however, that government can create short-term employment. The question is sustainable jobs. Meanwhile claims of a significant impact from government spending clash sharply with studies by the likes of the Fraser Institute’s Niels Veldhuis and Stanford University’s John Taylor.

Mr. Berezin claims that “Friedrich Hayek’s latter-day disciples” (whom he doesn’t identify) made three predictions about the government response to 2008: “soaring” interest rates, “runaway” inflation, and that fiscal austerity would “boost growth.”

These claims represent undeniable truths blown up into straw men. Other things being equal, increased government borrowing will raise interest rates and money printing will boost inflation. Fiscal austerity is obviously not a short-term growth booster so much as the inevitable consequence of overspending.

Mr. Berezin typically appears to imagine that austerity is merely an — undesirable — option. Thus, the fact that economies whose feckless governments have been forced to cut spending have “done worse” economically is cited as a flaw in the Austrian view rather than a natural consequence of the Keynesian pretensions of spending yourself rich.

Mr. Berezin exonerates President Obama for getting his employment projections wrong by suggesting that the “vicious downward spiral” of the economy in late 2008 had been underestimated. But this surely confirms that economists have no idea how to read cycles or project anything but straight lines, let alone calculate “multipliers.”

His government job-creation calculations — in particular the notion that Obama’s US$787-billion of fiscal stimulus produced three million jobs — are pure macromancy. More important, what are the longer-term adverse implications of that US$787-billion of borrowed and/or printed money, not to mention Ben Bernanke’s ongoing efforts to find new ways to drop more cash from the proverbial helicopter? And where do the 1.7 million real jobs created by the quite unexpected U.S. shale gas and tight oil booms fit into those figures? Oh, that’s right. They didn’t come from government.

Keynesianism has two insuperable flaws. The first is the belief that government spending can be a viable substitute for the private variety. It promotes the view that spending is spending and jobs are jobs. The most obvious current refutation of this notion is provided in the almost universal trend to “stimulate” growth by subsidizing alternative energy and other “technologies of the future.” One much-quoted Spanish study found that each green job “stimulated” by government expenditure cost two jobs elsewhere.

The second Keynesian flaw is that Keynes believed governments would run surpluses when times were good to compensate for those downturn-fighting deficits. Nobel economist James Buchanan pointed out that Keynes was naive not to see that his policies would promote a one-way pendulum of expenditure that inevitably led into fiscal crisis, with which the world continues to struggle.

Far from being a success, Keynesian policies have retarded recovery and extended the downturn, just as they did in the 1930s and the 1970s. They’re the “moral” policy present that keeps on taking, supported by those who claim that their opponents have hearts “two sizes too small.”

 

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Fri, 12/21/2012 - 19:18 | 3088681 nmewn
nmewn's picture

"Far from being a success, Keynesian policies have retarded recovery and extended the downturn, >>>just as they did in the 1930s and the 1970s.<<<

They’re the “moral” policy present that keeps on taking, supported by those who claim that their opponents have hearts “two sizes too small.”

lol...Walking in a Welfare Wonderland...

Fri, 12/21/2012 - 20:13 | 3088833 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1 nmewn

Nailed it.

The American people, especially the "low information voters" re-elected Obama and hence showed, beyond a doubt, the entitlement mentality of 51% of the voters.

***

Take from the productive, yeah, that's the way to success.

/sarc  <--- like I had to write that?

Fri, 12/21/2012 - 20:29 | 3088860 wee-weed up
wee-weed up's picture

"Take from the productive, yeah, that's the way to success."

Yep, and as Maggie Thatcher famously pointed out... that will end badly when you run out of other people's money.

Fri, 12/21/2012 - 21:13 | 3088964 nmewn
nmewn's picture

Not only low information...but really don't care about the information that is shared by those who mean them no harm.

Because they are fed by the beast, they don't care that they have become a slave to it...and I mean that in every sense of the word...they are so completely corrupted (or addicted) right & wrong, rationality, logic, compassion no longer have any meaning to them...the bonds that once tied me to them are now broken.

I don't know them and don't care to know them.

Sat, 12/22/2012 - 06:46 | 3089500 Tom_333
Tom_333's picture

Take a long look at the two alternatives. Their view of the world were formed under very different circumstances.Hayek was born in Austria-Hungary,the monarchy and lived to see that way of life abruptly ended,the postwar time,and the rise of a murderous corporativistic dictatorship.His view on these things were undoubtedly impacted by the consequences of this serial madness.It probably gave him a more cynical take on central planning and merits of such things as internment camps and forced labour.Keynes on the other hand lead a coddled elitistic life during the last part of the empire era and had every motivation to construct a framwork for keeping things going another 20-30 years .He had never the been given the opportunity of the first-hand experience of the end-result and most likely didn´t give a damn.

And there we are. After all economy is not really a science.At best it´s a retrospective econometric mathemathical discipline that can be made to yield any result if you manipulate the data and infer enough.

Now consider Bernaneke,Krugman and the obamaphone people.The land solidly in the Keynes camp for obvious reasons.I doubt that they really can envision anything else than unending prosperity,increasing handouts and "recovery".After all it´s just money.No biggie.I think it´s beyond their powers of understanding to grasp the fact that life can be very...very...different.A decade in a Chinese work camp would be good for them and show them that too much of central planning may not be such a good thing.But I doubt that their natural life span will alllow them such increased level of insight.However the progeny of the obamaphone people...there´s a much better chance for them.It will be so ironic - the biggest multihundred years U-turn.

Sat, 12/22/2012 - 14:15 | 3089789 FMR Bankster
FMR Bankster's picture

Math has nothing to do with economics. Once we start down that road we're lost. Why? By it's nature math attempts to level and arrive at collective answers to questions that are individual in nature. Just because two people each desire an apple we can't assume those desires are equal. I might care far more about that apple than you do. What type of apple and how it's grown may matter to me. I might pay more for it because these things matter to me. Math tosses all the apples and all the demand for apples together and assigns collective values to them.

Fri, 12/21/2012 - 20:14 | 3088815 falak pema
falak pema's picture

Keynesianism is essentially a refutation of the Invisible Hand-driven natural order identified by Adam Smith. Smith would have spotted Keynes as a “man of system” who mistook the economy for a machine and economic actors for chess pieces. The Austrians are Smith’s politically unpopular heirs....

Joan Robinson said it best : Oligarchy markets are the natural trend to all 'invisible hand orders'. Its all smoke and mirrors after that! 

And she defended state intervention like Keynes when private investment shyed out of market plays due to its own prior mal investment cycle by saying "its the role of government to prime the demand pump in depression straits".

Keeping in mind Keynes was against deficit spending at the other end of the cycle and all for private accumulation of savings to feed the next downturn. Moderation was the key.

This play is not moderation since 1981 supply side bonanza; its free for all NEOLIBERALISM; not Keynesian plays. Today the Keynesian plays are deemed necessary 'cos the private sector ZIRPed fiat over-liquidity ONLY feeds casino capitalism, NOT the real economy.

We are in THAT conundrum : ZIRP, malinvestment bubble and all private liquidity flowing to save the bonfire of fiat levitated pseudo paper wealth of WS assets. 

Too late now to talk of Hayek; Friedmanist supply side, deregulated monetarism, gone mad has dug the capitalist economy's grave.

One key aspect of the new construct is breaking down the crony, corrupt festering which goes on of NEOLIBERAL capitalism, still dominant inspite of 2008 burnout, showing the Oligarchs who still rule the roost have to have their oligarchy market structures destroyed. First things first, lets break down the 1% wealth pyramidal structure that is the prime mover of oligarchical markets. 

Fri, 12/21/2012 - 21:11 | 3088948 From Germany Wi...
From Germany With Love's picture

'This play is not moderation since 1981 supply side bonanza; its free for all NEOLIBERALISM; not Keynesian plays. Today the Keynesian plays are deemed necessary 'cos the private sector ZIRPed fiat over-liquidity ONLY feeds casino capitalism, NOT the real economy.'

Nah. Policy instead has been incoherent. All the economic theories are never more than rationales for politicians to pursue policies that serve their needs of getting reelected. And that's politics for ya.

Economic theories are simply not flexible enough to serve reelection needs. Ultimately, they get in the way.

Sat, 12/22/2012 - 00:23 | 3089280 newengland
newengland's picture

Counting fairies on the head of a pin. You are worse because you believe in this modern B$ called economics.Europe is burning, in ruins because so called experts believe in economic theory instead of the real economy: what sells, buys, and makes a living for ordinary people...not banksters, not career politicians, not precious eCONomist snake oil salesmen and women.

Sat, 12/22/2012 - 02:57 | 3089394 AnAnonymous
AnAnonymous's picture

Nah. Policy instead has been incoherent. All the economic theories are never more than rationales for politicians to pursue policies that serve their needs of getting reelected. And that's politics for ya.
____________________

And in 'american' nations, you do not get reelected or elected without pleasing the King class, the 'american' middle class.

Sat, 12/22/2012 - 03:06 | 3089401 akak
akak's picture

Nah. Chinese shitizens instead have been incontinent. All their sanitary theories (sic) are never more than rationales for Chinese shitizens to pursue toiletries that serve their needs of getting relieved on the roadside, like a pre-wokked dog. And that's insanitation for ya.
____________________

And in Chinese shitizen nations, you do not get your bowels reejected or ejected without pleasing the King ass, the Chinese shitizen roadside-dumping ass.

Sat, 12/22/2012 - 03:15 | 3089409 AnAnonymous
AnAnonymous's picture

Good stick of fantasy. Notice how 'americans' are compelled to take even more shelter in fantasy everytime.

So now this 'american' can not even take the comment of another 'american' and he has to travest it in order to pursue in his fantasy streak.

That is the way it works for 'americans', they do create the environment to justify their existence and ways of doing.

No discontinuity between an 'american' elite and its base, they are the same.

Sun, 12/23/2012 - 14:27 | 3091560 GMadScientist
GMadScientist's picture

I'm sure you and Bo are thick as thieves though.

 

Sat, 12/22/2012 - 00:19 | 3089277 newengland
newengland's picture

Counting fairies on the head of a pin. 

Sat, 12/22/2012 - 03:11 | 3089406 AnAnonymous
AnAnonymous's picture

This play is not moderation since 1981 supply side bonanza; its free for all NEOLIBERALISM; not Keynesian plays. Today the Keynesian plays are deemed necessary 'cos the private sector ZIRPed fiat over-liquidity ONLY feeds casino capitalism, NOT the real economy.
_____________________________

More fabled past.

There has been no change in 'american' ways since 1776, July, 4th. 'Americanism' has never been about moderation.
Keynesians, neo liberals all the others are 'americans' first and above everything. They act the same way their ancestors did.

'Americans' are used to running the world in mass disasters. So one can take reference points.

For example, by looking at the GD, that mass disaster that happened when the US ran out of Indian land to transfer.

'Americans' got out of this situation by increasing globalization, by expanding more.

Trouble is that this time globalization is nearing its end. Globalization is achieved. The few pockets that are left open to globalization are too small to give enough air for 'american' recovery. 'Americans' are dying for air. They are trapped under ice.

'Americans' know no other cure for all the ailments of 'americanism' than more 'americanism'

What is going to be the path to the recovery this time? Given that this time a physical limitation is the hurdle and that 'americans' have excelled in overcoming other people and not the environment...

Sat, 12/22/2012 - 15:09 | 3089408 akak
akak's picture

Lead-tainted playthings and slow-roasted kittens
Black cooking marmites and foul public shittins'
pro-China bigotry and middle class kings
These are a few of my favorite things

Crap-covered roadsides and crisp Szechuan puppies
Truncheons and sweat shops and Chink neo-yuppies
Rare tiger penis that makes big the shwing
These are a few of my mattering things

Dead female fetuses on toxic waste mountains
Resource depletion and shit-tainted fountains
Naked hypocrisy and trolling in spring
These are a few of my blobbing-up things

Citizenism and insanitation
The criminal rape of the Tibetan nation
Circular arguments that run 'round in rings
These are a few of my favorite things

When the dog woks
When the butt stinks
When I'm feeling sad
I simply remember my favorite thing:
That every 'American' is bad.

Sat, 12/22/2012 - 16:02 | 3089910 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Eloquent

what a world

Sat, 12/22/2012 - 03:17 | 3089411 AnAnonymous
AnAnonymous's picture

We are in THAT conundrum : ZIRP, malinvestment bubble and all private liquidity flowing to save the bonfire of fiat levitated pseudo paper wealth of WS assets.
_____________________

Malinvestment? The only way there is malinvestment in 'american' economics is when consumption is decreased.

So far, 'americans' have met the requirements, all those so called malinvestment acts led to consumption.

Sun, 12/23/2012 - 04:55 | 3091012 Just Ice
Just Ice's picture

hateful lowlife shitizen clearly suffers frontal lobe diarrheic deterioration bordering on disintegration

Sat, 12/22/2012 - 06:51 | 3089502 Tom_333
Tom_333's picture

And economy is not a science.It´s more a kind of...philosophy...

It´s utterly ironic that the discipline of "economy" fails to recognize that it´s all about the different teachers own interests.It´s all about money.And how do I get others to work for me (indirectly).What system gives me the best chance to profit,personally.

Fri, 12/21/2012 - 20:21 | 3088852 max2205
max2205's picture

We lost the country

Fri, 12/21/2012 - 21:15 | 3088975 CrockettAlmanac.com
CrockettAlmanac.com's picture

In trying to gain the world one loses oneself.

Sat, 12/22/2012 - 00:18 | 3089274 newengland
newengland's picture

You lost your bit of country. Good luck with that.

Fri, 12/21/2012 - 21:02 | 3088928 From Germany Wi...
From Germany With Love's picture

Krugman, like so many others, fails to recognize that this is a balance sheet crisis. We have reached a point where nobody knows who will economically survive what might be coming next, therefore confidence levels have dropped due to counter-party risk.

Both austerity as well as money printing are, for the time being and to some degree, means to wallpapering over this thing. What would really be required was removal of the risk that some counter-party has been successfully hiding enormous losses and is actually insolvent.

So what I would recommend, as a first step, is an Elliott-Ness-style (in contrast to those meaningless stress tests) auditing of bank finances. The ugly truth that has been hidden away needs to come to light.

Sat, 12/22/2012 - 06:56 | 3089506 Tom_333
Tom_333's picture

Very simple. Expand the balance sheet...Problem solved.

This will allow me to live out the rest of my time on earth under the same privileged standards as the first part.It´s not gonna blow for another forty years and what do I care then ?

Fri, 12/21/2012 - 22:00 | 3089094 asteroids
asteroids's picture

We need a modern day Volker. A man not afraid to come in, raise rates, and stop the rampant theft and distribution. Better to do it now before market forces do it.

Sat, 12/22/2012 - 00:15 | 3089269 newengland
newengland's picture

Sodomite Keynes is the Grinch, the child abuser and community hater. Interesting that CIA agent Nancy Lanza spent a few days in Bretton Woods - the location of the new world order Keynsian approach  - before the CT school massacre, and her son is blamed although no one saw him with a gun. Instead, witnesses saw men in 'cam trousers and dark tops' running away.

Do a bit of research on sodomite Keynes and those who used his failed economic theory to ruin Western Judeo-Christian values, so that Big Brother statists crypto-communist freaks could take control, serving the gnomes of Zurich, the money masters, and their Zionist agenda.

Zionists are not jews, christian or atheist. They are the AshkeNAZI, descended from Genghis Khan, a warring tribe  - and their dominance over Western banks, politics, media and academia is ruining the world.

George Soros is an excellent example of the type. He admits that his father put him with Nazis, and he joined the looting of jews in Nazi Germany. His excuse is that his father wanted him to live. Tsk. Bull$hit. Soros is an AshkeNAZI, and his Socialist Internationale chose Obama and Romney to run...run for their thieving New World Order AshkeNAZI freakery.

Sat, 12/22/2012 - 06:58 | 3089508 Tom_333
Tom_333's picture

And what are you going to do about that? Nothing I suspect.

 

Better alive than dead.Better alive rich than poor and dead? Maybe Soros came to the right conclusion.

Sun, 12/23/2012 - 14:33 | 3091567 GMadScientist
GMadScientist's picture

In his rich fantasy life, he's well armed and makes quick work of the 15 SS sent to his place, like those movies by that one Nazi with the speech impediment that was governor.

Sun, 12/23/2012 - 14:30 | 3091562 GMadScientist
GMadScientist's picture

Protect the sanctity of your vital essences!

Birchers are a hoot.

Sat, 12/22/2012 - 03:03 | 3089400 AnAnonymous
AnAnonymous's picture

Delaying the recovery? Another good one.

So far, 'americans' have found their way to recovery by increasing globalization, that is through expansion.

Today, the world is globalized. Globalization, that process that supported the ascension and the installation of 'americans' as world hegemons, something that never happened before, is nearing its end.

'Americans' true to themselves,trying to appeal by something they do not have in store.

Once again, unfortunately for them, it is no longer 1777 and there is something very difficult: bamboozle 'americans' about 'americanism'

The world today is 'american'

But, hey, as long as drivel making fosters consumption... Consuming is 'american' duty.

Sat, 12/22/2012 - 03:12 | 3089407 akak
akak's picture

Delaying the bowel movement? Another good one.  Make me laugh.

So far, Chinese shitizens have found their way to bowel relief by increasing roadside defecation, that is through expansion of roadside nightsoil mountains.

Today, the Chinse shitizen world is fecalized. Fecalization, that process that supported the ascension and the installation of Chinese shitizens as world hemorrhoids, something that never happened before, is nearing its crusty, unwashed end.

Chinese shitizens, true to themselves,trying to appeal by something they do not have in store --- toilet paper.

Once again, unfortunately for them, it is no longer 1277 and there is something very difficult: bamboozle Chinese Shitizens about the benefits of flush toiletism.

The turd world today is Chinese Shitizenistic, courtesy of its leading proponent, AnAnonymous.

But, hey, as long as diarrhea-making fosters condumption... Condumpting is Chinese shitizen doody.

Sun, 12/23/2012 - 06:57 | 3091057 HeadintheGame
HeadintheGame's picture

I can't imagine who votes up this foolish nonsense you post.  I live in China.  Small business thrives here far more easily than in the USSA. The only diarrhea making I can see that goes on is between your ears. 

 

Sat, 12/22/2012 - 07:03 | 3089510 Tom_333
Tom_333's picture

Them Chicomms know a thing or two about life that you don´t.Let´s hope the algobots can keep our world order floating for another 40 years or so.Them work camps don´t sound much fun.By the way - wassup with them FEMA regions and hospitality facilities them folks are building.Any good?

Sat, 12/22/2012 - 08:34 | 3089535 Winston Churchill
Winston Churchill's picture

First class facilities I hear, including on site crematoria.

Reminds me of something I read about.....................................................

Sun, 12/23/2012 - 14:44 | 3091590 GMadScientist
GMadScientist's picture

Like how to lose millions of lives through sheer hubris?

Sat, 12/22/2012 - 09:54 | 3089565 falak pema
falak pema's picture

what "business in power" america is now singing :

Why Libertarianism Fails - Business Insider

And this : Britain to become the 51st state of the US ! Yiles! 

British Government Might Not Last 2013 - Business Insider

Sat, 12/22/2012 - 19:25 | 3090292 dunce
dunce's picture

Keynes was a queer, but he did not have his head up his butt, it was occupied by another man.

Sun, 12/23/2012 - 14:41 | 3091585 GMadScientist
GMadScientist's picture

That's a long way to go to provide an alibi.

 

Sun, 12/23/2012 - 08:03 | 3091075 Monk
Monk's picture

The cause is not simply Keynesianism, as the current crisis involves incredible levels of financial speculation. The largest component, for example, is over $600 trillion (notional value) in unregulated derivatives. One writer belives that the amount is even larger: more than a quadrillion dollars.

 

Sun, 12/23/2012 - 08:11 | 3091081 Cult of Criminality
Cult of Criminality's picture

Keynes & Hayek

With hot chicks

http://www.youtube.com/watch?v=d0nERTFo-Sk

 

Fuck China....Disarm yourselves.Do not step in, to what I should do.

Sun, 12/23/2012 - 14:38 | 3091579 GMadScientist
GMadScientist's picture

Watch for the bartenders nametags....

"Ben" and "Tim"...lulz

Sun, 12/23/2012 - 12:02 | 3091367 highwaytoserfdom
highwaytoserfdom's picture

FICO , rating agency ponzi.  Usury class suh perceeds working class. The grounds keepers in academia provide a less destructive path than the economics, finance, accounting and especially jouranalist pablum of today.   Central planning failure of empire..  just susprised that there are goods on the shelves........    Soviet style empire faiure..  

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