Guest Post: Keynesians And Ponzians

Tyler Durden's picture

Originally posted at Monty Pelerin's World blog,

The economy cannot recover without a complete cleansing of the excesses that have built up over the last half century plus. This mantra has been repeated again and again on this website and elsewhere. It is not a unique idea. It is a foundational belief of Austrian economics and an integral part of Austrian Business Cycle theory.

Ludwig von Mises provided this fundamental observation:

Credit expansion can bring about a temporary boom. But such a fictitious prosperity must end in a general depression of trade, a slump.

There has likely never been a boom so great (and so fictitious) as the one that this country experienced for the last several decades. Its origins began with the hubris of government economists in the decade of the 1960s who believed that the economy could be managed like a piece of machinery. They believed that they had the tools (and wisdom) to eliminate business cycles by judiciously stepping on and letting off the gas at the correct times.

This incorrect belief is still fundamental to Keynesian economists, despite the impressive string of failures it has produced. Empirics notwithstanding, the belief is maintained. The misjudgments of practitioners, not the theory, are responsible.

The movement toward a social welfare state provided additional incentives for Keynesians. With its “costless” provision of increasing benefits to increasing numbers of people, the welfare state required that a boom be maintained lest the Ponzi scheme collapse prematurely. The Ponzians and Keynesians became natural comrades and allies.

Keynesianism promoted activist government. The welfare state was activist government taken to an extreme and required increasing amounts of money to survive. A symbiotic relationship was evident. The growth of one promoted the other and vice versa. The complementarity is apparent when one realizes that members of one of these cults generally belong to the other.

Whether this boom was the greatest in history might be debated. What cannot be debated is the fact that no other boom has been more dependent on government for its formation and maintenance. No boom in history has been created by easier money and bigger government interventions. Nor has any other been so desperately maintained by government.

As a result, this boom has been more artificial and damaging to the economy than any other. For decades the Fed and government interventions distorted interest rates and product prices. These incorrect price signals encouraged entrepreneurs to engage in behavior that should never have been undertaken. Massive mis-allocations of capital and labor are the result and they have built up over fifty years.

Markets are now trying to right these wrongs. Government is desperately trying to prevent the curative process. More stimulus and interventions may stem the tide for a while longer, but they also increase the distortions. Government efforts to stop markets are doomed to failure.  Markets will prevail. They always do. Regarding such efforts, Mises observed:

There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.

This quote is the bottom line. It summarizes what will be.  It describes what the last five years has been about — a battle between political desire and economic law. It is a battle of hope against reality.

Politicians foolishly believe they can bend the laws of nature. They are fools for trying. Sadly, the pain and suffering that will be incurred will be borne by the millions of citizens dependent on markets and the economy.

Do not forget the big picture. The inexorable theme that is playing out is captured in Mises’ second quote. Knowing the underlying and immutable laws of economics will ensure you don’t fall prey to the political propaganda spewed out daily from Washington, their media minions and Wall Street shills.

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otto skorzeny's picture

at least our cop overlords are making 6 figures- fear of losing a big govt salary makes it easier to turn the guns on the unwashed masses

booboo's picture

and the unwashed masses having nothing to live for except the natural will to live as free men will return fire.  

smacker's picture

"The economy cannot recover without a complete cleansing of the excesses that have built up over the last half century plus."


And the irony is that virtually every action taken has been to prevent this necessary cleansing. 

Manthong's picture

Sadly, it will not be propitious to be finally proven correct. 

Goldilocks's picture

Oracle: Everything that has a beginning, has an end. I see the end coming. I see the darkness spreading. I see death. And you are all that stands in his way.

Neo: Smith.

Oracle: Very soon he’s going to have the power to destroy this world. But I believe he won’t stop there, he can’t. He won’t stop until there’s nothing left at all.

Neo: What is he?

Oracle: He is you, your opposite, your negative, the result of the equation trying to balance itself out.

Neo: And if I can’t stop him.

Oracle: One way or another, Neo, this war is going to end. Tonight, the future of both worlds will be in your hands or in his.

Neo: The Architect told me that if I didn’t return to the source, Zion would be destroyed by midnight tonight.

Oracle: Please. You and I may not be able to see beyond our own choices, but that man can’t see past any choice.

Neo: Why not?

Oracle: He doesn’t understand them, he can’t. To him they are variables and equations. One at a time each must be solved and counted. That’s his purpose: to balance the equation.”

Neo: What’s your purpose?

Oracle: To unbalance it.

Neo: Why? What do you want?

Oracle: I want the same thing you want, Neo, and I’m willing to go as far as you are to get it.”

lasvegaspersona's picture

Some still believe that there is  a Keynesian motive here.  At this point all that is happening is funding a government that lost it's main revenue source, foreign purchases of treasuries. 

Dollar Bill Hiccup's picture


"Mr. Chairman, get to work!" -- Chuck Schumer

Excuse me while I go puke -- DB

AgAu_man's picture

"I come not to praise Rome, but to bury her." - Julius Caesar
"I come not to praise Caesar, but to bury him." - Mark Anthony

The subtlety, and depth of the implications are missed by most.
And hardly taught in any school.

Who would dare to be Caesar and (openly) threaten to bury The Empire? And not be finished off by the Elite?

Perhaps subtlety is the way to go, eh? Drive into bankruptcy that which otherwise cannot be destroyed, changed or repaired or repaid.

smacker's picture

I'm not the only one who suspects that some of the West's leaders and central bankers are on the opposition's payroll. In Obama's case, perhaps it's the local mosque.

de3de8's picture

What just dawned on me today when i saw "bouncy" singing the National Anthem is that the meaning of "home of the free" has now been changed forever as the decheeple like all the "free" they deserve and expect.

Black Markets's picture

It's "LAND of the free"


"home of the slave"

Err, I mean brave.

in4mayshun's picture

I'm starting to feel like ZH's contributors should be kept under a heading of the "BEATING A DEAD HORSE" section. By now, your average 3rd grader understands that there is too much debt, too much government, and too many criminals running the government, and yes, it will end badly.

Does this topic really require yet another diatribe by another blogger?

lunaticfringe's picture

+1000. I regret I can only hit the up arrpw once.

A Lunatic's picture

Yet here you are...............

AgAu_man's picture

That's one way of devaluing/debauching an otherwise top-shelf website: inundate it with drivel, one liners, and trash talk. When these are supported by Up arrows, it's easy to see what's going to happen.

And consider this: Look at the stats for any given article... The number of posts is 1-3% of the reads.

What does that tell you?

espirit's picture

The diatribe must continue until all understand the implications of the ponzi.

Viva la revolution!

smacker's picture

Speaking for myself, I find many of the essays published -- although as you say essentially covering similar ground but often nuanced -- nevertheless explain the author's views in ways that I could never hope to emulate, not least because of their subject knowledge. I also think it's important for there to be a stream of such articles to widen the message and I often send links to other folks to read. Sooner or later, the power elites will understand their mistakes.

Atomizer's picture

I don’t have time this evening to play on the interweb. Just wanted to drop a link so you can understand Central Planning in the sense of new taxpayer theft. The only green party movement is to ass rape you on something they have no control over. Fear is the incentive to collect new revenue streams. Concocting fake [save the planet] at the backing of taxpayer investments will fail again. They know very little about the sun, collecting fees is their specialty.

Energy from Space

PrintemDano's picture

Atomizer:  I regret that I have but one green arrow to give for your sanity.......well said sir...

Joebloinvestor's picture

It doesn't need a "cleansing", it needs an enema.

Actually, both.

PUD's picture

Debt driven boom bust cycles are no way to run a modern world. Austrian economics is just as delusional as keynesian economics. Both seek to maximize consumption with the prior opting for busts so that we can repeat the dysfunction and the latter praying to keep the cycle from happening through deception and false prosperity.

The problem for both is the system of debt money! Has either of them heard of compounding? The law of exponents?

What good is a perpetual cycle of boom busts? What good is artificial support of bubbles? One is a binge drinker the other a crack addict.

How about a rational re-evaluation of the entire monetary system including predatory capitalism, usury, interest, credit as money etc?

Matt's picture

I suspect you do not know what you are talking about. The Austrian school has always been about using gold as money, not debt. When one of his student's suggested going off the gold standard and having floating exchange rates, von Mises would not talk to him for three years after.

Please explain what you intend the meanings of the terms "predatory capitalism", and "usury",.

Tango in the Blight's picture


Austrians will get nowhere because politicians love cheap money. The only Austrian who got somewhere was one A. Hitler.

AgAu_man's picture

Ah, but the Fed printed money, supported the Brits, Russians and others, and fixed him!

Is that what they mean when they say "Don't fight the Fed."?

smacker's picture

Absolutely agree with you on this. I came to the conclusion myself several years ago that Keynesian economics was tailor made for the political elites.

What political slimeball would criticise an economic model that actually encouraged borrowing and spending?

Unknown Rider's picture

Never let a crisis go to waste; even if you have to force the crisis. Spend until the economy crashes. Suspend constitutional rights (ala Lincoln). Rebuild the perfect society out of the ashes (I have a dream). Less than 4 years left.

smacker's picture

It's the "I have a dream" subliminal message in Obama's style of speaking that gets him elected.

Exactly the same thing happened in the UK under Tony Blair. The pair of them are very similar in this respect. Blair would give a heart-wrenching speech, full of oblique emotional references to utopia and then zap off to ratchet up the politics of fear and sign the next anti-liberty law. A majority of people never spotted what his gameplan was until it was too late. The damage was done.

JohnGaltsChild's picture

Where has all the silver gone

Long time passing

Where has all the silver gone

Long time ago

Stuck on Zero's picture

Bernanke to the squid:  We will keep handing trillions in public money to Wall Street billionaires until this economy improves!


AgAu_man's picture

Correct: The Economy of the Rich & Powerful.

Any questions?

GeorgeHayduke's picture

Both the Ponzi scheme and the Keynesian scheme, as well as most all neo-liberal economic theories, rely on the infinite growth myth.

Face it, no matter what you want to call it all of this is really just colonial, crony capitalism that has played itself out. There is no fixing it because all of it has been based on an unsustainable myth. Time to move on to new ideas instead of recycling all of the old ideas that have been proven inadequate anyway. The problem is, these myths have become ingrained in the small minds of people who refuse to think beyond their sacred beliefs.

The only way any of this works its way out is  after a crash. Without it, it'll be a slow, bleed out death with huge concentrations of wealth in a few hands while the serfs argue over who's a Marxists, a Socialist, a Libertarian, a gold bug, etc...  Rest assured, many of the serfs will defend to the death their feudal lord's right to piss on them and treat them like crap, while hoping the will one day be feudal lords themselves. All the while the feudal lords will laugh at their subjects for being such dumbasses.

AgAu_man's picture

100% correct!

And there's a clinical condition for this: STOCKHOLM SYNDROME.

Sadly, it has infected some on this site also. Or maybe they're just Shills and Provocateurs.

Totentänzerlied's picture

"Rest assured, many of the serfs will defend to the death their feudal lord's right to piss on them and treat them like crap, while hoping the will one day be feudal lords themselves. All the while the feudal lords will laugh at their subjects for being such dumbasses."

we call that "European History: ca. 400AD - ca. 1850AD"

ramacers's picture

notice payment for booze in booze stores with credit cards? says it all.

Acet's picture

Once again the oh so fashionable "blame the welfare state" meme is brought out like the conveniente escape goat that it is, made ready and lined up for the killing by the MSM and it's owners (who, you can be sure, are not recipients of welfare) for the last couple of decades through the relentless publishing of stories portraying a tiny number of unethical welfare cheats as being the norm.

This of course has been done in preparation for this moment: when the last vestiges of our wealth are taken through the corruption and cronyism that has been the norm for the last few decades and the Average Joe finally notices the pain, it's convenient to have this excuse to distract and confuse the weak of mind from spotting who really has stolen the vast majority of our wealth.

So yeah, keep fixating on welfare (for the poor) while far, far, far larger amounts of OUR money have been given to a select minority, through things like massive bailouts, subsidies for large corporations, huge military (and other) contracts given in exchange for "taking care of me later" and a complete, total twisting of market rules and regulations to benefit a select few, stopping small and medium companies (the future of our economy) from being able to compete.

Do not look at the huge misallocation of resources, the direct support given to always the same select crowd, the huge amounts of state money spent on military hardware that doesn't work, the massive bailouts, the direct and indirect support given to certain companies - please look at those filthy people over there, they're stealing all our money with their demands for welfare and their cheating ways.

Yeah, right!

Totentänzerlied's picture

All part of the same paradigm. Without welfare, the whole thing implodes, quickly. Without pure fiat currency, no welfare.

Cable Guy's picture

Yawn.  We all keep seeing the same articles, and we believe it can't last, but the machine just keeps rolling along.  Should have bought BAC at $5 and I should back up the truck for FB right now.  I think the game will play out for years to come.  Still plenty of runway ahead.....

Westcoastliberal's picture

My guess based on decades of observation is that the entire societal framework underpinning our modern civilization at this point will crumble and cease to work at some point soon. The primer for this implosion will either be something external, such as a volcanic super caldera popping off, a solar event, etc. or the revelation of some mindblowing secrets or disinfo TPTB are keeping from us or feeding to us.  Something such as incontrivertable evidence (carried widely by MSM) that 911 was a false flag attack.

When this occurs it's anyone's bet as to how it will all work out (if it does), but you can bet that big red reset button is about to be pushed.  This toilet is beyond flushing; it will take Drano and a powerful plunger!

Anusocracy's picture

Government used to be a marginal benefit. A necessary evil.

Now, it has no net benefit, and people are seeing it for what it really is: evil.

Lord Of Finance's picture

Keynes was not just a socialist but also a Marxist. Don't let his or his agents claims that communism is a failure fool you. Keens always had sympathy for communism. He stated on occasions that it would be truely 'wonderful if someone can make it work.'


  They have made it work, or at least a healthy strain of it. Communist and devils agent Vlady Lenin, was a hypocritical fraud. He and Stalin consolodated power for themselves and used government control and regulation to enrich themselves and there comrades, while the russian people suffered. Yeah, everyone was employed under soviet tyranny. My wife is from Lithuania, and she said her father was 'employed' for most of his short life. He had the government handed duty of cleaning all the pigeon shit from the rooftops of the government buildings. He was a carpenter by trade, but there was no work, so he had 2 "choices" to fix his dilema. Clean off the bird turds or starve to death. He was payed for his "job" in squirrel turds. They let him extract the undigested nuts from the turds to feed his family. I am being faceitious of course, but my main point is that these neo-marxists in europe and in U.S. government will protect their comrades on wall st. to the best of their ability. Their banker comrades will take huge losses and go bankrupt if the free market is allowed to correct. They are neo-marxists. They have found a way to make "it" work for them, just as Stalin/Lenin, Mao se Tung, Ho Chi Min, Hugo Chaves, Castro and the multitudes of others have. Their system will never work for the people, because that was not the real intention. They sold that intention to the sheep.


   Now these neo-marxists have one of their own in the white house. Not that it mattered much because they had their agents advising many of our presidents on both sides of the political spectrum.


smacker's picture

Keynes was such an idiot and asshole that he must have been a commie. But do you have a reference for him being a Marxist? ...just asking.

Lord Of Finance's picture

keynes married a Russian with active ties to the soviet communist party. He served with Harry White at the IMF, who was a paid soviet agent. As for a reference, all you need to do is read Keynes' own letters and books. Read his 'consequences of peace' and see the similiar sentiments and tone that are in Marxs' 'communist manifesto'.


   Keynes was stealth. Keynes craved power and he new that, with the growing unpopularity of communism, it would have killed his chances of obtaining that power if he were to have been 'found out.' Many Marxists are secret agents. His philosophy is right in line with Marx. Keynes was famed for saying that communism would be wonderful if they found a way to make it work. Listen, if you have properly formed logic, you should be able to deduce that these socialists today are stealth marxists. I call them neo-marxists because it is an evolved mutation from the original cell. The only major difference is that they will not outlaw the practice of religion. With only that one exception , there is little of any difference.


  The Fabian socialists were a front for the communist agenda. Keynes was a proud Fabian socialist. He was proud to be an "apostle".  If you want a smoking gun, you won't get it. These scoundrels are devilishly clever by no accident. You need sound and proper logic to deduce the obvious.


Plus their are differences with each communist cell. Some cells disagree with other cells on certain agenda items. In other words, they may not all be on the same page, but they are reading the from same manual. American liberalism of the 1940-1960's was a front for the communists agenda. if you are unaware of this then you need to get aware so you can identify the enemy.

    "know your enemy, 1,000 battles, 1,000 victories"

  The inverse of this is also true:

     "Don't know your enemy? 1,000 battles, 1,000 defeats"


   A great scholarly read that puts the entire american liberal/neo-marxist/communist sympathizing agenda into its proper identity with brilliant analysis and stunning simplicity is Robert Borks, "Slouching towards Gomorahh". It is a look at the communist front group movement from the academic perspective and shows how through stealth, they move, infiltrate and attack.

  AND ALSO READ DAVID HOROWITS!!!!!!!!!!!!!!!!!!!!  Especially what he has written in the last 12 years. He used to a marxist and he knows the stealth marxist movement and agenda like nobody!


smacker's picture

Thanks muchly for that, I appreciate your views. Believe me, trust me, we are on the same page on this. I have been saying for years that "socialism is the evil that lives among us." And as you say, factions may squabble among themselves and they may be on different pages (which can fool many people into thinking they are different animals), but they're all reading the same book.

I need to do some more reading, thanks.

dunce's picture

The crash will come in my lifetime, i am 74, i do not believe that i will survive 10 more years, will not see the fruits of a recovery. My problems will be over, the people who voted for big govt. will suffer long and hard.

Lord Of Finance's picture

74 ehh! You have witnessed a lot of non-sense from these political scoundrels. I pray that you and everyone who is a member of this site live long enough to witness the greatest crash yet to come.

In the end, the people who voted for these vermon either by ballot or by ommission will regret what they did or did not do, but these policy makers will be the ones to suffer long and hard.

Colonial Intent's picture

"Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived ... the unearned increment on the land is reaped by the land monopolist in exact proportion, not to the service, but to the disservice done."

Shevva's picture

Here's the bit I don't get about these free money merchants, so their hair brained idea works and we get 10% growth do you think they would then use all the spare cash they had to pay down the debt that they had racked up in the first place?

Oh look flying pork.

dcb's picture

OK, zerohedge has started to get to the point where it will post any crap, no matter how stupid, if it's anti money printing. I'm anti money printing. the post isn't bad, but then the idiot says this:

"Markets are now trying to right these wrongs. Government is desperately trying to prevent the curative process"

hello, the markets and wall street are the folks screaming the loudest for more qe/ liquidity and any drop in the markets. the are the worst offenders of the bunch. the "markets"depend on their outsized bonuses, and ability to buy the political process on things like QE. it ensures they get outsize returns and can leverage up without worry.

OK, I'm anti money printing, but ZH used to have some kind of honest voice. this is propaganda.