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Guest Post: Misunderstanding Austerity, Stimulus and Demand

Tyler Durden's picture





 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Keynesian policy requires an expansionist Central State and Bank bent on imposing central planning on every level of the economy. Keynesians are natural partners with the neofeudal financial Aristocracy which benefits so enormously from Keynesian print-borrow-blow policies.

 
Here is the standard Keynesian cargo-cult analysis of our economic woes:
 
1. The problem is a lack of aggregate demand, i.e. people buying stuff and services.
2. As a result, the economy is running below capacity, i.e. economic output is below potential.
3. The solution is fiscal and monetary stimulus, i.e. the Central State borrowing and spending trillions on politically directed programs and the Federal Reserve printing and injecting trillions of "free money" dollars into the financial sector to boost borrowing and lending.
 
The cargo-cult program has failed for a number of fundamental reasons. Let's illuminate these reasons with a few thought experiments.
 
1. If we borrow or print $1 trillion and bury it in the ground, how much demand does it create? Answer: none, of course; it just sits there, utterly inactive. The Fed has printed around $2 trillion and made huge sums available to the financial sector at 0% interest. Most of the funds are sitting in the Fed as reserves, doing nothing except earning interest for the banks who borrowed it at 0%.
 
The velocity of this money is essentially zero: it goes nowhere and does nothing to stimulate demand. If we print $1 trillion and give it to the banks to lend to businesses and consumers, but nobody wants to borrow any money at any price, then it is a equivalent of burying the $1 trillion in a hole. The velocity of money is in a free-fall:
 
 
The Keynesians do not understand diminishing returns: the Fed could print another $1 trillion and that enormous sum wouldn't increase aggregate demand at all. Heck, make it $10 trillion; the mechanism is broken and increasing the sum of money available cannot fix it.
 
2. If we borrow and distribute $1 trillion to households who promptly buy $1 trillion of cheap junk from Asia, how much did that "increase in aggregate demand" do to boost the U.S. economy's capacity or output? Answer: very little. A relative handful of workers in the transport sector moved the goods from Long Beach Harbor to Walmarts and Targets around the nation, and the shippers and retail giants skimmed a thin margin of profit from the churn, but the capacity and output of the U.S. economy barely budged because the supply chain for this $1 trillion in "always low prices" low-quality junk lies elsewhere in the world.
 
If some sliver of the $1 trillion bought Apple products, then much of that money flows through the low-profit-margin Asian supply chain to Apple's Cupertino, CA headquarters. Corporate profits are nice for the top 5% who own the vast majority of stocks in the U.S., but once again they do little to boost capacity utilization.
 
How much of the Keynesian stimulus has trickled down to the employed bottom 90%? It looks like much of it flowed to the parasitic financial sector.
 
Keynesian policy requires an expansionist Central State and Bank bent on imposing central planning on every level of the economy. Keynesians are natural partners with the neofeudal financial Aristocracy which benefits so enormously from Keynesian print-borrow-blow policies.
 
Who handles all that Central State debt? The Wall Street broker-dealers, that's who. Who gets to borrow money at 0% interest from the Keynesian Central Bank? Wall Street banks, that's who (you and I don't get that perquisite). No wonder financial profits have soared under the Keynesian "stimulus" (The Keynesians have perfected an Orwellian lexicon).
 
 
Keynesians don't understand that their policies (deficit spending and low-interest easy money) create speculative debt bubbles. They also don't understand that post-bubble economies do not respond to more stimulus (diminishing returns again) because the economy is burdened by impaired debt and phantom collateral; it is a neofeudal debt-serf wasteland with few opportunities for business expansion.
 
No wonder small businesses are evaporating like ice cubes scattered on a Death Valley highway in July.
 
 
Employees are not faring any better under the Keynesian jackboot. Wage earners are earning less in the Keynesian regime:
 
 
Labor's share of the national income is in free-fall. Once again, the Keynesian policy is to inflate a speculative credit bubble and then after it bursts, "stimulate" the debt-serf economy by handing the financial sector $16 trillion in guarantees, backstops and subsidies and unlimited access to free money ay 0% interest.
 
 
3. With 28% of Americans pulling money out of their 401K retirement accounts to get by and Baby Boomers desperately working past retirement to rebuild their stripmined net worth, who is left to borrow the money the Keynesians gave the banks at 0% interest? Answer: very few. The top 10% are shedding debt, even though they own the majority of the nation's stocks and bonds.
 
 
The majority of companies and households that are getting loans are those refinancing existing debt to lower their monthly payments. Refinancing might add a thin sliver of demand from reduced interest payments, but those reaping the modest increase in disposable income might decide to save that cash rather than squander it, as the Keynesians hoped. Saving and spending wisely is--horrors!--austerity.
 

It's difficult to retire on Keynesian promises of the speculative-bubble-bogus-prosperity fleet returning any day now. The cargo cult's chants and dances are getting as tiresome as their grandiose policy failures.

 


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Thu, 01/17/2013 - 15:52 | Link to Comment francis_sawyer
francis_sawyer's picture

To Keynesians: How about we try this?... Stop stealing from people & see if the economy picks up...

~~~

Sincerely Yours, francis_sawyer

Thu, 01/17/2013 - 16:01 | Link to Comment pvzh
pvzh's picture

That is a novel idea /sarcasm off

Thu, 01/17/2013 - 16:17 | Link to Comment TruthInSunshine
TruthInSunshine's picture

Q & A session with Paul Krugman, Ph.D. -

 

Question from audience:  

Dear Dr. Krugman, how many licks does it take to get to the center of a Tootsie Roll Pop?

Answer from Dr. Paul Krugman:  

If the Tootsie Roll Pop represents "market failure," and "licks" represent the printing & distribution of fiat paper by central planners, it will quite literally require an infinite number of licks.

Question from audience:

Dear Dr. Krugman, what is the best, most efficient, and most direct mechanism to reduce the size and/or growth in the rate of increase of deficit spending and/or accumulated debt?

Answer from Dr. Paul Krugman:

The best, most efficient & most direct mechanism to to reduce the size and/or growth in the rate of increase of deficit spending and/or accumulated debt is to print and distribute more debt as quickly and in as great as volume as possible.

Moderator:

Thank you for attending this Q & A session with Nobel Laureate & Winner of the Alfred & Sally Sloan "Neo-Keynesian Unicornian & Unobtanium Futurist" Prize Winner, Dr. Paul Krugman, Ph.D.

Thu, 01/17/2013 - 16:22 | Link to Comment economics9698
economics9698's picture

"Keynesians don't understand that their policies (deficit spending and low-interest easy money) create speculative debt bubbles. They also don't understand that post-bubble economies do not respond to more stimulus (diminishing returns again) because the economy is burdened by impaired debt and phantom collateral; it is a neofeudal debt-serf wasteland with few opportunities for business expansion."

 

Bull shit.  The top 0.01% want bubbles and wealth inequality.  It's who they are and what they do.

Thu, 01/17/2013 - 16:26 | Link to Comment walküre
walküre's picture

And if they don't share and take care of the others, they will get chopped. It's who the others are and what they do.

The more things change the more they stay the same.

Thu, 01/17/2013 - 16:37 | Link to Comment economics9698
economics9698's picture

How many times have the peasants risen up and killed the king?


How many times has the king ripped off the peasants for decades?  

You do the math, which side has more fun? 

We may fast be approaching a Mussolini moment but it did not arrive without 100 years of theft by the Federal Reserve and politicians.

 

Thu, 01/17/2013 - 17:21 | Link to Comment walküre
walküre's picture

The cat was let out of the bag in 2008, the curtain pulled and the wizard exposed. That doesn't change no matter how rosy their propaganda might be. Banks, stock markets and the financial industry were regarded as near infalible institutions. How many people knew before SHTF that the banks are owned by a small group of elite families who have owned this gig for decades? Who had time or motivation to inquire what it is that the financial industry actually does on a daily basis and how they are able to pay billions in compensation to their staff and executives? Fractional reserve lending was not taught in my school and I doubt it's being taught anywhere today. But the information is out there and since the crash, many have tried to figure out what has happened and in their research have uncovered very simple truths about the entire system.

It's based on fraud, theft and propaganda. There is no light at the end of any tunnel for us because the premise of the entire system is wrong to begin with. Money doesn't even grow on trees, it gets merely created out of thin air.

When the broader population realizes that the elite is not productive and feeds of the productivity of the masses, then the masses will rise up eventually. Whether those leeches are sitting in Versailles or in a penthouse overlooking Central Park makes no difference. They're useless and parasitic. The paper wealth they've accumulated is by fraud. Some call it magic. Well, no.

There is only one solution to end the imbalances. The elite needs to erase at least half the debt (wealth) and allow all assets including productive labor to increase 100%. Then allow for very strict regulations on the distribution of loans and limits to compensation from banking activities. Unless such a reset (or similar) is allowed to happen, the system will fail and the masses will take what is righfully theirs.

Thu, 01/17/2013 - 18:14 | Link to Comment Wakanda
Wakanda's picture

The cat left the bag when high speed internet became available to the masses in the early 200Xs.  Us humans have yet to really understand what the explosion of information/disinformaion does to institutions that for centuries have depended upon secrecy.  9/11/2001 and the crash of 2008 might have been more successfully swept under the rug were it not for the internet.  These failures hang like rotting carcasses above today's institutions, still available for every joe six pack to consider and question.

The Second American Revolution, flowing through the pipes to a screen in front of you.

Thu, 01/17/2013 - 18:42 | Link to Comment e-recep
e-recep's picture

damn right. i for one didn't know that central bankers and certain capital owners belonged to some sort of a masonic cult, having a secret bond among each other or that all this central banking shit started out with the rothschild bank of england. heck, i didn't know about the fractional reserve lending crap either.

Fri, 01/18/2013 - 10:52 | Link to Comment TruthDetector
Thu, 01/17/2013 - 16:29 | Link to Comment lairdminor
lairdminor's picture

Fair enough, but most of the Keynsians (or perhaps "neo-Keynsians" is a better term) aren't in the 0.01%. They are the ones who propagate the Keynsian mythology (economics professors, newspaper columnists, etc.) and implement its idiocies (government and central bank bureaucrats). The 0.01% are undoubtedly urging them on behind the scenes, but those implementers and facilitators don't understand the ramifications of their policies.

Thu, 01/17/2013 - 16:41 | Link to Comment Nothing To See Here
Nothing To See Here's picture

+1 to you, but I would rather expose things like this :

The State wants science to support what it does, thus infects academia with keynesians and purges everyone else from teaching ranks. This is done through research financing, grants, controlled publications, influence peddling, etc.

Academia being turned into a monopolistic keynesian think-tank, the keynesian mythology spreads everywhere.

The 0,01% are merely the accidental beneficiaries of the results of keynesian methods, as desired by the State.

Thu, 01/17/2013 - 16:50 | Link to Comment economics9698
economics9698's picture

laird,

Some Keynesians understand, most I think are believers.  The vast majority like the government paycheck and will, to the best of their ability, pass on this gibberish to students and the public.  They like the hours and the fact that they do not have to work for a living.

This started in the 1900s when the Fed founders pushed into academia and the universities for propaganda points and papers.  The top 0.01%, Walberg, Morgan, Rothchild, Rockefeller, all set up the system of spoils for academia.

It is only because of a few hell raisers, myself included in that group, of Austrians who show the propaganda and lies to the public and students that the economics profession has any credibility at all. 

Most of the public condemn economist as snake oil salesmen and they are correct in this assessment.

I may not have a big audience but I expose these frauds whenever and wherever I can.

 

Thu, 01/17/2013 - 17:32 | Link to Comment Joe moneybags
Joe moneybags's picture

"It is only because of a few hell raisers, myself included in that group, of Austrians....."

I'm very impressed with your English, since it not your native tongue.

Thu, 01/17/2013 - 20:05 | Link to Comment scrappy
scrappy's picture

"I may not have a big audience but I expose these frauds whenever and wherever I can."

Me too.

 Mises, Marx, and Keynes is the false left/right paradigm of banker fascism. The Georgist school of political economy considers Mises, Marx, and Keynes to be the main schools of neo-classical economics...

https://libertyrevival.wordpress.com/documents/economic-conspiracy/

https://libertyrevival.wordpress.com/2011/01/09/ending-poverty-and-polit...

 

 

 

Thu, 01/17/2013 - 23:29 | Link to Comment economics9698
economics9698's picture

I left a message on your web site.

Thu, 01/17/2013 - 17:09 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Please, most engineers and scientists are no were near the fucking business pricks.  Probably for good reason.

Thu, 01/17/2013 - 20:53 | Link to Comment Xanadu_doo
Xanadu_doo's picture

hapless pawns.

but they should still hang with the rest, imho,

Thu, 01/17/2013 - 18:01 | Link to Comment sessinpo
sessinpo's picture

economics9698:   "Bull shit. The top 0.01% want bubbles and wealth inequality. It's who they are and what they do."

 

As devil's advocate, are you suggesting that if there weren't bubbles, the top 1% wouldn't have such a larger portion of wealth?  Explain and provide facts.

 

I would suggest the following. The wealthy are wealthy and have much more disposable income because you only need so much for basics to live your life. Let my explain this way.

Let's say, to cover living expenses for a person is $15K for minimal food, rent, utilities, etc. The person working for wages earning only $16k only has $1k left over.

However, the wealthy person that has various income (usually investment income) earns much more - let's say $50k (to keep it simple). That means the wealthier person has an additonal $35k as disposable income for additional investment or, if they choose, expenditures on goods such as cars, etc. The lower wealth person does not, only having $1k in this example.

 

My point is, regardless of bubbles or not, the top 1% already have an economic advantage. THEY DON'T NEED BUBBLES. Even if bubbles didn't exist, a billionaire would still be able to sit on their ass and collect interest income that all of us would be envious of, all without type of bubble.

 

Take the emotion and jealousy out of your post.

 

What I do have a problem with is that the wealthy also have power that makes the playing field uneven so that more of us in the lower income brackets aren't able to reach higher incomes and wealth. That is often corruption with the co-conspirator, government - fascism.

 

No matter what economic system you use, their has always been the top 1%. We could have a revolution and hang all the bankers and politicians but you know what? There will still be a top 1%. Think about it.

Thu, 01/17/2013 - 20:03 | Link to Comment economics9698
economics9698's picture

Thank you for the critique.

The banking elite have understood bubbles for centuries.  It’s basic banking 101.  If you have the central bank you expand the money supply, raising prices of whatever the hot thing of the day is, tulips, Nasdaq, housing, stocks, and then you deflate the bubble, because you can.

You make money (not the central bank but the private banks who know the con game) going up and down.

The classic example I use for students is the 1918-22 boom in food and farm prices for WWI monetary expansion.  The farmers out in the Midwest got all loaned up on expensive prices for their crops, got loans based on those prices, banks loaned up, and the Fed pulled the rug out from under them by contracting the money supply allowing assets to be gobbled up as a fraction of the cost.

Also the banks that made the loans went under and the favored banks in the east were able to grab more market share, the primary goal of the Fed.

Look at the link and change the years to 1918 to 24 or so.  What do you see?

These bankers have been doing this game for centuries.

 http://research.stlouisfed.org/fred2/graph/?s[1][id]=AMBNS

 

Thu, 01/17/2013 - 15:54 | Link to Comment PUD
PUD's picture

"Demand" or better, exponential demand, fueled by exponential money (debt) creation on a finite planet is a doomed philosophy. Period..end of story

Thu, 01/17/2013 - 15:54 | Link to Comment sotto
Thu, 01/17/2013 - 15:56 | Link to Comment IamtheREALmario
IamtheREALmario's picture

Yes, but what if the primary assumption is wrong? What if the Keynsians actually do understand the EXACT effects of their programs???? What then?

It changes the picture a little bit does it not?

Thu, 01/17/2013 - 16:03 | Link to Comment hooligan2009
hooligan2009's picture

NO

Thu, 01/17/2013 - 15:56 | Link to Comment Flakmeister
Flakmeister's picture

My fuck, did the "smartest guys in the room" really think that there was no limit to pulling forward demand through the alchemy of financialization????

Thu, 01/17/2013 - 16:13 | Link to Comment francis_sawyer
francis_sawyer's picture

It was all just a 'thought experiment' [by them] to draw folks like you out into the open [from being wallflowers] so that masses of other folks could celebrate your insight & worship you as their next hero... I've found that the LESS [to the point] you are & the MORE you beat around the bush, the more enhanced your 'GENIE' status becomes...

Thu, 01/17/2013 - 16:25 | Link to Comment negative rates
negative rates's picture

Or, the more you know you know, the more I know you know less. Yo!

Thu, 01/17/2013 - 16:28 | Link to Comment francis_sawyer
francis_sawyer's picture

Yo indeed!

Thu, 01/17/2013 - 15:57 | Link to Comment New_Meat
New_Meat's picture

"Most of the funds are sitting in the Fed as reserves, doing nothing except earning interest for the banks who borrowed it at 0%."

Still filling up those balance sheet black holes from 9/08 fiasco.  Many "bank holding companies" still on the .gov tit.  Not outta there yet.

- Ned

Thu, 01/17/2013 - 15:58 | Link to Comment Kreditanstalt
Kreditanstalt's picture

Gold, people! G-O-L-D.  Save in something in limited supply that they can't manipulate...

Thu, 01/17/2013 - 16:05 | Link to Comment bigdumbnugly
bigdumbnugly's picture

come again?

Thu, 01/17/2013 - 16:20 | Link to Comment nope-1004
nope-1004's picture

I think he meant "physically multiply" at will.

 

 

Thu, 01/17/2013 - 16:16 | Link to Comment Yardfarmer
Yardfarmer's picture

Ammo, People! A-M-M-O. Save in something in limited supply that they can't manipulate...(at least for the meantime)

Thu, 01/17/2013 - 16:32 | Link to Comment francis_sawyer
francis_sawyer's picture

Quick!... Buy at ALL TIME HIGH PRICES!

~~~

By the time the zombies make it out the compound, all you'll have to do is give them a butt on the head with your pistol... Save your GOOD ammo for the deer, bear, & wild hogs...

Thu, 01/17/2013 - 16:03 | Link to Comment cxl9
cxl9's picture

If you (the consumer) don't wish to borrow, then the government will borrow on your behalf. And your children's and your grandchildren's behalf, too. The government will find a way to push this printed money into the system one way or another. Maybe they just borrow another few trillion dollars and double every Federal employee's salary. That will push some inflation into the system, as those employees spend spend spend on products, services, and investments. That is essentially part of what they've been doing for the last five years, and it's why government employees are paid so much more than their counterparts in the private sector. Well, that, and because they are so much more important than us lowly peasants that pay taxes.

Thu, 01/17/2013 - 16:16 | Link to Comment MillionDollarBoner_
MillionDollarBoner_'s picture

Hey...that could work!!!

So, we turn up at the Govt employee's house to clean it on a Monday, at minimum wage...

Then we turn up at their offices on the Tuesday to find out what happened to our local services...and they tell us to "fuck off, you insignificant worm!"

Works for me ;o)

Thu, 01/17/2013 - 17:20 | Link to Comment Kreditanstalt
Kreditanstalt's picture

You should only use their "money" to pay for the essentials of life.  You sure as hell don't SAVE in dollars.  Save in gold.

As an officially "low income" individual, my gov't. entitlement checks per year amount to about equal to their own property taxes.  I spend very little of my savings per year, only on food, energy, very limited utilities (have woodstove heating) and misc. other small taxes.   No income tax, no "pay deductions" (no pay!).

You can do amazing things with some savings and frugality.

Thu, 01/17/2013 - 16:04 | Link to Comment Snakeeyes
Snakeeyes's picture

And the M1 Money Multiplier is also crashing. Cheers!

http://confoundedinterest.wordpress.com/2013/01/04/housing-angst-u6-unem...

Thu, 01/17/2013 - 16:08 | Link to Comment luckylongshot
luckylongshot's picture

Looks like fraud and a ponzi scheme, smells like fraud and a ponzi scheme and tastes like fraud and a ponzi scheme....so what is it?

Thu, 01/17/2013 - 16:18 | Link to Comment MillionDollarBoner_
MillionDollarBoner_'s picture

A duck?

Thu, 01/17/2013 - 16:43 | Link to Comment RopeADope
RopeADope's picture

RICO violations.

Thu, 01/17/2013 - 16:14 | Link to Comment LawsofPhysics
LawsofPhysics's picture

So, when you reward fraud and other forms of bad behavior, people eventually take their capital and go home.

Gee, who would have guessed?

End the Fucking Fed already.

Thu, 01/17/2013 - 16:18 | Link to Comment NidStyles
NidStyles's picture

The Government has no incentive to end it. They can just blame the Fed or frame the discussion to make it seem like the Fed is at fault while running more bonds off at the Treasury.

 

The problem is twofold, the Fed is guilt of behaving like criminals, and the Government is guilty of not following it's on made up rules. The laws of nature and economics will fix them both given time.

Thu, 01/17/2013 - 16:14 | Link to Comment NidStyles
NidStyles's picture

Demand should drive supply, unfortunately the Keynesians think that Supply can drive Demand. It works great for the governments involved because they never have to run out of Fiat bux, until they comes to pay back the debt that is. Not like they care, they will be out of office, or just act like a tyrant then.

Thu, 01/17/2013 - 16:20 | Link to Comment ebear
ebear's picture

The essence of Keynesian logic:

http://www.youtube.com/watch?v=yp_l5ntikaU

Thu, 01/17/2013 - 18:15 | Link to Comment shovelhead
shovelhead's picture

Ha,

Looks exactly like the Occupy crowd. Railing against income disparity by promoting the policies that created it in the first place, ie. putting the nose on the witch.

Thu, 01/17/2013 - 16:21 | Link to Comment Yardfarmer
Yardfarmer's picture

I always suspected that the pervasive failure of economic policy was somehow related to moral depravity.http://chasvoice.blogspot.com/2011/08/john-maynard-keynes-lavender-bolsh...

Thu, 01/17/2013 - 16:33 | Link to Comment economics9698
economics9698's picture

The game Krugman is playing is as the rodeo clown out in the arena with the sole intention of diverting the bull’s attention away from the cause of his upset, some cowboy sticking a set of spurs in the bull’s belly riding on his back.

 http://usa-wethepeople.com/2012/11/paul-krugman-wants-a-91-top-tax-rate/

Thu, 01/17/2013 - 16:23 | Link to Comment DR
DR's picture

Keynes was also a big advocate of public work projects as a form of fiscal stimulus. If we would have spend the trillion+ on upgrading US infrastructure instead of bailing out the bloated finance sector we would be way ahead of the current employment numbers and have a 1st infrastructure system to show for it.

Thu, 01/17/2013 - 16:27 | Link to Comment NidStyles
NidStyles's picture

He was also a 'public employee' his entire life.

Thu, 01/17/2013 - 18:31 | Link to Comment JR
JR's picture

Spending government money like it was “so much bilge,” journalist Albert Jay Nock described FDR’s New Deal spending during the Great Depression as “a nation-wide, State-managed mobilization of inane buffoonery and aimless commotion.”

Some of the haphazard jobs created by Roosevelt’s Civil Works Administration - the CWA had evolved into the Works Progress Administration by 1935 or into the “We Piddle Around” as some tagged the WPA – included hiring actors to give free shows (the nation’s actors’ union claimed 4,500 members  but the agency managed to hire 6,000) and, according to Lawrence W. Reed in Great Myths of the Great Depression, paid librarians to catalog archives,  “hired 100 Washington workers to patrol the streets with balloons to frighten starlings away from public buildings, put men on the public payroll to chase tumbleweeds on windy days,” and engaged workers to catalog the many ways of cooking spinach, among other things.

Also, “hundreds of WPA workers were used to collect campaign contributions for Democratic Party candidates.”

Says Reed, “By 1941, only 59 percent of the WPA budget went to paying workers anything at all; the rest was sucked up in administration and overhead.”

The WPA gave rise to the term ‘boondoggle,’” says Reed, “because it ‘produced’ a lot more than the 77,000 bridges and 116,000 buildings to which its advocates love to point as evidence of its efficacy.”

What people fail to realize, he writes, is that it was Roosevelt’s tinkering with the economy that prolonged the Depression….that it was ”the stupefying roster of wasteful spending” that diverted “valuable resources to politically motivated and economically counterproductive purposes.”

It’s a warning, he says, that we should heed today.

Thu, 01/17/2013 - 16:23 | Link to Comment Banjo
Banjo's picture

Keynes? This original post is way off base. BLAME YOURSELVES and the dumb stuff YOU believe.

1. Keynes was a proponent of deficit spending to be COUNTERcyclical. So do it only in a downturn. YOU believed in deficits don't matter and our dollar your problem. So you just kept on deficit spending ALL THE TIME. That is not Keynes pick his book on the general theory.

2. The original post hints at the problem... The top 20% has taken all the productivity gains over the past 40 years the rest have taken on enormous debts (generation that forgot the great depression)

NOW we are in a situation where even if you work you don't earn enough to lubricate the economy. (I believe Henry Ford worked this out ohhh about a hundred years ago) and you have to pay back your cruddy debt that has got you either depreciating baubles or overpriced housing

3. Corporations are ensuring they are the only ones that can play the game of wealth creation via OUTRAGEOUS intellectual property claims, that essentially enforce MONOPOLY and or create legislation that FORCES barriers to entry look to food production and small organic producers trying to sell but the mom and pop show can't hire lawyers to work through thousands of pages of regulation to be so called "compliant"

ALL I CAN SAY IS SUCK A TAIL PIPE IGNORANT DOUCHE BAGS you are so dumb you can't be intellectually honest with what is going on and simply resort to YOUR PRIMITIVE tribe, simplistic pigeon hole view of the world. That is for example polar opposites on DEM/REP Gay/Hetro Abortion/No abortion Guns/No Guns Commie/Capital

TRY PICKING UP A BOOK and get some nuances into the discussion. FFS

Thu, 01/17/2013 - 16:32 | Link to Comment Yardfarmer
Yardfarmer's picture

you make much less sense than you might imagine. i think there is something wrong with your liver. 

Thu, 01/17/2013 - 17:20 | Link to Comment Banjo
Banjo's picture

Because YOU are TV educated unquote. Of course I make NO SENSE. Your PRIMITIVE tools to understand and deal with the world only give you a diametrically opposed polar that YOU are capable of understanding the world.

You have NO counter to any points and make personal attacks regards liver damage aka alcoholism. Ok you got me I drink 2-3 bottles of whiskey every day that's why I sprout the CRAZY TALK I do.

Your going to suck this economic tail pipe HARD brother.

Thu, 01/17/2013 - 16:35 | Link to Comment DR
DR's picture

Good rebuttal.

The current economic policies are more akin to Trickle-down economics than to orthodox Keynesianism.

Thu, 01/17/2013 - 18:30 | Link to Comment blindman
blindman's picture

the current ... is nothing more than grand theft
fraud at the top. stealing and slavery is the current
thing and it will continue as long as men bend their
backs for others to ride. dr. king talked about it,
now it is the system, the money system. that is why
he was shot dead on a balcony in memphis.
we are left with a holiday, same with jesus, kill the
guy and give them a holiday.

Thu, 01/17/2013 - 16:56 | Link to Comment Fezter
Fezter's picture

Full-Time deficit spending to hire more government workers to create more demand...for more sevices from more government workers....we're saved...!!!!

Thu, 01/17/2013 - 16:56 | Link to Comment Fezter
Fezter's picture

Full-Time deficit spending to hire more government workers to create more demand...for more sevices from more government workers....we're saved...!!!!

Thu, 01/17/2013 - 16:56 | Link to Comment Fezter
Fezter's picture

Full-Time deficit spending to hire more government workers to create more demand...for more sevices from more government workers....we're saved...!!!!

Thu, 01/17/2013 - 16:56 | Link to Comment Fezter
Fezter's picture

Full-Time deficit spending to hire more government workers to create more demand...for more sevices from more government workers....we're saved...!!!!

Thu, 01/17/2013 - 17:00 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

Fezter...little problemo with the save button?  It's not like what you do in your sister's closet that requires multiple spanks - once will get it done here.

Thu, 01/17/2013 - 17:04 | Link to Comment Fezter
Fezter's picture

Sorry...I'm a little fidgety....time for my ritalin....

Thu, 01/17/2013 - 17:05 | Link to Comment NidStyles
NidStyles's picture

The problem is that it started out being what Keynes said, then it turned south because it failed the first time it was tried. We are seeing the results and MMT was a modification done to Keynesian theory that still made the same bad initial assumptions. Thusly it too was built on a bad concept and theoretical framework of how economies actually function.

 

They are both essentially the same failed idea.

Thu, 01/17/2013 - 18:27 | Link to Comment shovelhead
shovelhead's picture

Yup,

I did it all.

So what are you going to do about it, Mr. Intrnet Tuff Guy Smarty Pants?

Nothing. That's what.

Go kick your dog.

Thu, 01/17/2013 - 18:59 | Link to Comment e-recep
e-recep's picture

i cannot say that this banjo dude is not right.

Thu, 01/17/2013 - 16:25 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

An uptick in money velocity would uncork all of the latent inflation that Ben has been denying for the past __ years. 

Thu, 01/17/2013 - 17:38 | Link to Comment Dewey Cheatum Howe
Dewey Cheatum Howe's picture

More like a stock market bubble burst and resultant sunami of QE benny bucks in that bubble flooding onto the streets all at once. I like the analogy that someone told me about sweeping things under the rug. The rug is super lumpy now and we are seeing some of the dirt and debris coming out the sides from too much being swept under it. All we need is somone to jump or step on it and everything is going to come out all at once.

Thu, 01/17/2013 - 16:34 | Link to Comment Xibalba
Xibalba's picture

lemme guess...Jew Weisenthal (@thestalwart) disagrees?

Thu, 01/17/2013 - 16:44 | Link to Comment q99x2
q99x2's picture

Keynesian

How many of these critters are there that don't directly benefit from their policies? If there are very few then they know very well what they are doing. Who is going to stop them? That is the question.


Thu, 01/17/2013 - 17:23 | Link to Comment Kantbelieveit
Kantbelieveit's picture

So there is no Keynsian multiplier, right? That means that we couldn't afford producing billions of dollars of worthless war junk in WWII because it would bankrupt our economy while providing no practical benefits. Does it hurt to be so stupid?

Our roads and bridges are crumbling, but we can't put people to work rebuilding those. Our mentally ill people have nobody to look after them, but we can't hire those workers, because that would not be "productive." Our inner-city kids can't have more teachers or schools with roofs that don't leak, because that would be "wasteful spending."

Keynes was right, and Andrew Mellon was wrong. Get over it.

 

Thu, 01/17/2013 - 19:57 | Link to Comment Clowns on Acid
Clowns on Acid's picture

Wow...you are in denial.
The US is running a $1.7 deficit every year...where is that money being spent?
$50B on the Dept of Education - Complete and utter failure....and your answer is to spend more $$.
$50B on the Dept of Housing and Urban renewal - yet the inner cities are still crumbling and are crime zones...and your4 answer is ...spend more money.
The list goes on....it is not the amount spent it is the effectiveness of the spend...which of course is another conversation.

Thu, 01/17/2013 - 21:06 | Link to Comment Umh
Umh's picture

How about this wild and crazy idea: fix the roads and bridges when times are good instead of subsidizing all the social programs that create a never ending supply of clients.

Thu, 01/17/2013 - 17:26 | Link to Comment steelhead23
steelhead23's picture

Only read a few comments, but I would take it that most ZHers agree with Charles Hugh Smith, the author.  My problem with this post is that the bank bailouts were not Keynesian, and the concept of gifting money to citizens only marginally so.  A better Keynesian approach would be to expend sums on infrastructure improvements and repair, preferrably with domestic suppliers.  And the reason there is so much debt in the system is the result of neo-liberal anti-regulatory policies, not poor old JMK's General Theory.  The solution to the debt overhang is simple - bankruptcy.  Sadly, the U.S. Government is filled with fearful ninnies and the concept of a global financial collapse wholly unnerved them to the point that they handed trillions to the banksters rather than allowing them to go belly-up and then working to pick-up the pieces.  Mr. Smith is as wrong about JMK and his theories as Dr. Paul Krugman is about the destabilizing effects of excessive debt.  I suspect that if JMK were here, he would school them both.

Thu, 01/17/2013 - 17:43 | Link to Comment Kantbelieveit
Kantbelieveit's picture

It is a peculiar irony that the UK, the home of JMK, has wrecked its own economy by repudiating his theories. Cameron is presiding over a double-dip recession as he learns that the non-existent multiplier works in REVERSE too. His spending cuts are reducing tax income more than they are cutting outlays (surprise, surprise). If austerity were the remedy, the UK would be recovering now, but it is not. Had we followed the example of the Brits, we would be in another recession dip too.

Thu, 01/17/2013 - 17:57 | Link to Comment cape_royds
cape_royds's picture

Banjo got it right. Keynes was all about getting counter-cyclical.

That means when the economy is growing, interest rates and taxes should rise, with the government running big surpluses.

In Canada, for a couple of years under Chretien in the early 2000's, we actually got to see a bit of that kind of counter-cyclical action. Gov't actually started paying down debt.

Problem with Keynesianism is that it's too tempting to take only the stimulus, all the time. In practical politics, it's hard to do. In Canada, for example, the big-money lobby for tax cuts attacked the gov't for its surplus policy from the right wing. The Harper gov't has done nothing but run large and growing deficits.

Thu, 01/17/2013 - 18:24 | Link to Comment blindman
blindman's picture

more cow bell and crime scene tape is required.
thanks for writing Charles, you are good at it.
of curse and course someone coined the phrase the
"dismal science"( ".."The dismal science" is a derogatory alternative name for economics devised by the Victorian historian Thomas Carlyle in the 19th century."..) referring to economics. that must have been as a result of contemplating the cultural foundation, adopted into the money
system of the federal reserve, and all the destruction
and misery it can so quickly grind and bring from the
future to the conception and perception of
the present moment, like some diseased black magic sold as
freedom or sublime human will? legal tender and currency,
the freedom to dictate conformity to consensus, and the
" the virtue in toiling ". slavery by other means applied
to more than just agriculture, to a class of people. all
the people with few exceptions, the exempt systemically
essential few. like the nuclear bunkers, only seat 500.
sorry folks ....
.
http://en.wikipedia.org/wiki/The_dismal_science
.
Victorian era
http://en.wikipedia.org/wiki/Victorian_era
.
it is by the shadow activity of our leaders that
we define crime for the average man and by admiring
their exploits we attempt to frame and contain our
hideous, vacuous, natural soul as defined by man.
little eichmanns with a
collective destiny.
16 January 2013
Andrew Nagorski: Hitlerland - Little Eichmanns
http://jessescrossroadscafe.blogspot.com/2013/01/andrew-nagorski-hitlerl...
"...It was as though in those last minutes he was summing up the lesson that this long course in human wickedness had taught us: the lesson of the fearsome word-and-thought-defying banality of evil.”

Hannah Arendt" jca
.
and this is here ...and gone
... if you love this planet ...?
Shared: People with Rakim Brooks / Ethical Doctor
Thursday January 17 1:00pm
http://archive.wbai.org/#ankor2
.
and ..
Thursday January 17 12:00pm
same page
.
( i had to delete the link to glue huffing post as it
was sickening. fox and huff competing for hiring the
most flaming dingbats available, i fear for my species
when exposed to them/these professionals in communication
and media. listen to the g.null, Thursday January 17 12:00pm
link for the alex "get mad" sermon )
.
follow the links, or not, and we move on

Thu, 01/17/2013 - 18:01 | Link to Comment Encroaching Darkness
Encroaching Darkness's picture

The UK is having lots of problems, but repudiating JMK's theories has little to do with it. The endless dole, infinite MENA immigration, union mentality, enormous public sector, wild City financial manipulations - none of them are really relevant to a long-dead economist (unless you want to argue public-sector bloat and salaries as public works spending!); the problem is they've been living beyond their means, just like we have, and it's catching up to them, just like it's catching up to us.

Oh, also, per Nigel Farage, the endless red tape and complexity generated by the Brussels bureaucracy is slowing things down quite a bit, too.

Thu, 01/17/2013 - 18:34 | Link to Comment Kantbelieveit
Kantbelieveit's picture

It is obvious to anyone with half a brain that the correct solution to high unemployment, weak demand, and crumbling infrastructure is deficit spending to put the unemployed to work rebuilding the infrastructure and stimulating aggregate demand. This is not possible in the US because Tea Party troglodytes in the Congress believe that government finances are identical to family finances. They also believe that the Earth is 6,000 years old.

Thu, 01/17/2013 - 18:37 | Link to Comment akak
akak's picture

Oh yes, because government can magically create wealth along with fiat currency at the stroke of a pen (or a printing press).  Governmental power (i.e., institutionalized coercion) can do EVERYTHING!

Fucking brainwashed statist idiot.  Your kind needs to die.

Thu, 01/17/2013 - 18:48 | Link to Comment Kantbelieveit
Kantbelieveit's picture

Right, look at Somalia, a country without a functioning government. See how happy all the Libertarians are there. NO GUN CONTROL! Everyone has an AK. Here we have fire departments and government researchers who invent things like nuclear weapons, space travel, and the Internet. Who needs that stuff when we could all be FREE to grow our own vegetables and shoot each other? Oh, yes, a few of us would start corporations that would monopolize every industry, and they would treat us all fairly, because we wouldn't have a GUMMINT getting in the damn way.

Thu, 01/17/2013 - 19:52 | Link to Comment Clowns on Acid
Clowns on Acid's picture

Read the Constitution and Bill of Rights dipshit. Then go to Somalia in search of the same....

Thu, 01/17/2013 - 18:53 | Link to Comment blindman
blindman's picture

people magically create wealth out of resources
previously unrecognised as valuable all the time.
fiat currency is a curse if associated with interest
and usury, a crime family endeavor. government is
merely a recursive -restrictive control mechanism
employed by "people" to protect the resources in the
resource pool or environment; that becomes a true
ecologic science including man's effects and presence.
no?

Thu, 01/17/2013 - 19:16 | Link to Comment shovelhead
shovelhead's picture

C'mon akak,

You have to admit that a high speed rail from Bakersfield to Tokyo would make slightly more sense than propping up insolvent banks around the globe.

Kids ride free!

Thu, 01/17/2013 - 19:19 | Link to Comment shovelhead
shovelhead's picture

Dup.

Thu, 01/17/2013 - 19:21 | Link to Comment shovelhead
shovelhead's picture

Dup. again.

Rerouting everything to Utah is slowing ZH up.

Thu, 01/17/2013 - 19:05 | Link to Comment shovelhead
shovelhead's picture

Keynes may have been wrong about quite a few things, but to lay what is taking place today on his doorstep in toto is like saying a high school kid smoking a joint is responsible for thousands of drug overdose deaths.

Keynes + ideology + delusional wishful thinking = Neo-Keynsians ala Krugman.

Keynes being the small part of the equation.

Much the same as the crony incestual relationship between govt. and multi-nats excesses is disparaged as capitalism.

The latter is voluntary commerce and the other is not.

Thu, 01/17/2013 - 20:47 | Link to Comment Dad Was Right
Dad Was Right's picture

2. If we borrow and distribute $1 trillion to households who promptly buy $1 trillion of cheap junk from Asia, how much did that "increase in aggregate demand" do to boost the U.S. economy's capacity or output?

Borrowed from who? 

I'm no expert, but if the government distributed $1 trillion I, and millions more, would immediately pay off/pay down mortgages, credit cards and loans. The TBTF banks would be flush with cash and the population, now free from crushing debt might return to the consumerist habits thereby stimulating demand and job growth.

Ummm... better buy some gold with that cash too.  

(Edit...Jeez, the thought of all that cash made me forget to spell check)

Thu, 01/17/2013 - 20:43 | Link to Comment Dad Was Right
Dad Was Right's picture

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