Guest Post: Why Krugman and the Keynesians Are Lackeys for the Neofeudal Debtocracy

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

If you set out to design a system that would implode with devastating consequences, it would be the Keynesian Cargo Cult's neofeudal financialization debtocracy.

 

The heart and soul of the Keynesian Cargo Cult is the dogma that the cure for all economic ailments is more aggregate demand, i.e. consumption. The Keynesians' fanatic faith in boosting consumption would be merely childishly naive if it didn't directly support a parasitic neofeudal debt-serfdom. Sadly, Krugman and his fellow cultists' single-minded parroting of "aggregate demand" makes them well-paid lackeys and toadies for an extractive neofeudal-neocolonial debtocracy.
 
 
If you are unfamiliar with the neofeudal, neocolonial model of financialization, please review:
 
Debt = Serfdom (April 2, 2013)
Crisis and Opportunity (February 1, 2013)
 
Like all cargo cults, Keynesians maintain a magical-thinking belief in the power of wanting more stuff. But in so doing, they embrace and support the mystification that protects the power structure that is dooming the nation and its economy to stagnation and eventual collapse (call it "reset" if you prefer).
 
By focusing on increasing demand and consumption by any means, the Keynesian Cultists miss the key dynamics of sustainable growth and fail utterly and completely to acknowledge the corrupt and exploitive nature of our cartel-state crony-capitalism economy.
 
Has their naivete blinded them to the power structure of the neofeudal-neocolonial debtocracy? It seems unlikely, and so that leaves a less savory motivation: co-option.They're raking in big bucks as apologists for cartel-state crony-capitalism, and as a result they don't dare question the power structure, much less hazard a critique of the hands that feed them.
 
The Krugman-Keynesian Cargo Cult is incapable of distinguishing between productive investment and profligate spending. Keynesian cultists focus on an incredibly blunt and misleading indicator of gross domestic product: GDP. Burn down a house and rebuild it, pay people to dig a hole and fill it, build bridges to nowhere, buy costly weapons systems the military doesn't even want, purchase boatloads of particle board furniture from China that's headed for the landfill: it's all equally wonderful to the Keynesian apologists because it boosts GDP.
 
Incredible as it seems to GDP-worshippers, there is a difference between productive investment and squandering money. A productive investment generates a multiplier effect: most importantly, it increases productivity which then creates value, surplus and wealth.
 
There is no multiplier in building McMansions in the middle of nowhere, bridges to nowhere, particle board shelving from China or a university degree in film studies, etc. Housing is consumption, a bridge to nowhere is consumption, particle board shelving is consumption, and a $180,000 bachelor's degree in a field of study with near-zero economic premium in the real economy is also consumption.
 
The Keynesian Cultists and their fellow apologists/neofeudal apparatchiks attempt to mystify this consumption by labeling it "investment." The misdirection may fool craven politicos seeking to buy votes, but the real world is not fooled.
 
Value, surplus and wealth can only be created by increasing productivity. If an investment doesn't increase productivity, it is either malinvestment, misallocation of scarce capital or consumption.
 
How does buying particle board shelving from China improve productivity in America? It does not. Does dumping trillions of borrowed dollars into cartels like sickcare, Big Pharma, higher education or the military-industrial complex increase productivity? No, it actively lowers it by diverting national income to the most corrupt, inefficient and least productive sectors of the economy.
 
The Keynesians are also blind to the dynamic of improving household income. It their magical-thinking universe, buying particle board shelving from China (yippee, aggregate demand!) is supposed to magically turn lead (wasteful consumption) into gold (higher wages). Wages can only increase as productivity increases. Any other apparent increase is simply a subsidy that shifts money from a more productive sector to a less productive sector.
 
This is how you end up with a healthcare system that is 50% fraud, paper-shuffling, and inefficiency. We know America's sickcare is 50% waste, fraud and paper-shuffling because our competitors provide their citizens healthcare for half of what we spend per person.
 
The Keynesians' inability to distinguish between consumption and investment that increases productivity is fatal.
 
The Cargo Cult is also blind to the metric that matters: debt and the ability to service debt. As financialization creates an unproductive nation of debt-serfs who depend on debt to fund their consumption, household income declines. This leaves households less able to service higher debt.
 
But since aggregate demand (i.e. financialization) is dependent on ever-expanding debt, the system falls apart once households cannot increase their debt loads. ( The Global Status Quo Strategy: Do More of What Has Failed Spectacularly)
 
In response, the Status Quo increases government borrowing and spending (either directly, or for subsidies to favored cartels like the mortgage industry) to fill the gap left by debt-serfs unable (or unwilling) to borrow more for shelving from China, etc.
 
The problem with borrowing money for unproductive consumption is the cheap shelving breaks and is hauled to the dump but the interest payment remains--in the case of government borrowing, essentially forever. Unproductive spending of cash is wasteful, as that scarce capital could have been invested in productive assets.
 
But spending borrowed money on unproductive consumption--McMansions, degrees in critical studies, duplicative medical tests, marginal-utility meds and weapons systems--is truly insane, for the cost of that consumption continues to rise over time as interest is paid, until the debt is retired (paid off) or renounced (defaulted). All that interest is diverting income that could have been invested in higher productivity.
 
The Keynesian Cultists are also blind to the enormous opportunity cost of funding consumption with debt. Over time, servicing debt bleeds the economy dry as productivity, wages and investment stagnate.
 
If you set out to design a system that would implode with devastating consequences, it would be the Keynesian Cargo Cult's neofeudal financialization debtocracy. All the incentives favor increasing debt, misallocation of capital and mindless consumption, and all the disincentives weaken investments in productivity and the creative destruction of malinvestments and subsidies to favored cartels.
 
Why do the Keynesian Cargo Cultists continue dancing around the campfire waving dead chickens and worshipping aggregate demand? Toadies, lackeys and apologists are always well-paid to support the party line. Aggregate demand, aggregate demand, brawk!

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lolmao500's picture

Shut up peasants! Don't you question the King! OFF WITH YOUR HEADS!

ParkAveFlasher's picture

Debt is wealth, liquidity is prosperity, equity is a liability, value is disposable, production is consumption, up is down, left is right, this dog meows.

Now here is your saltless potato and your iPhone, serf.  Start twiddling.

Beam Me Up Scotty's picture

How much future demand can you pull into the present without impacting demand in the future?  How many cars can one buy before you don't need another car?  Or homes?  Pulling future demand for durable goods into the present just means there will be fewer buyers of said durable goods in the future.  Unless you start making those goods of less quality, which they are.  But that is just another sign of inflation.  If your car costs the same but lasts half as long, that means its cost really doubled.

Quit messing with the free market.  When people need something, they will buy it. 

Pladizow's picture

Yes, a plantation is the business model!

nope-1004's picture

Keynesians have proved over the last decade that "Economics" is not a science, but a theory.  Trying out different theories during times of market weakness and human hardship is not what I call professional.  First ask the question WHY the weakness appeared, then the solution becomes simple.

The notion that you can solve a debt cirsis by piling more debt onto the existing debt seems completely naive.

 

Boris Alatovkrap's picture

Boris is have "Theory of Aggregate Demand". All together, everyone is demand break face of Dr. Krugman and ancillary activity is result in economic boom!

KickIce's picture

That might be the theory of aggresive demand.

You mean to tell me the bankers aren't are friends and they're not doing this for us common folk?

 

Boris Alatovkrap's picture

Boris is have theory of bankster and conspiracy theory...

Bankster is not friend, is not collude, but is cut of same cloth. What can attribute to sheer greed, do not as need to attribute to conspiratorial complexity.

El Viejo's picture

Gimme a big tax break and I'll spend it on something. I promise.

KickIce's picture

Agreed, punch is much to kind for these bastards.

redpill's picture

To them it's not even a theory, it's a religion.

tarsubil's picture

And you are spoiling the ceremony, heretic!

Ignatius's picture

That cunt Clinton -- I think it was at Davos a few years ago -- was talking about how we needed to increase world credit (debt) by 100 trillion over the coming decade, to get the economy going.  Criminal.

This debt ponzi has a powerful and vocal constituency.

SHRAGS's picture
http://www.weforum.org/news/over-us-100-trillion-additional-credit-neede... Over US$ 100 Trillion Additional Credit Needed to Support Global Growth

New York, USA, 18 January 2011 – Credit levels will need to double over the next 10 years, growing by US$ 103 trillion, to support consensus-projected economic growth. This doubling of credit could be achieved without increasing the risk of major crisis, finds More Credit with Fewer Crises: Responsibly Meeting the World’s Growing Demand for Credit, a report released by the World Economic Forum in collaboration with McKinsey & Company. The study develops a detailed global credit model using historical credit volumes and forecasting potential credit demand to 2020 across 79 countries, representing 99% of world credit volume. The study applies a sustainability methodology to the projected credit demand, using newly developed metrics to answer the following two questions: Will credit growth be sufficient to meet demand? Is there a risk of future credit crises and, if so, where?

 

The report finds that meeting credit demand will be challenging. Globally, financial protectionism may constrain cross-border financing, a key to the provision of sufficient credit in the next decade, as global imbalances persist. In addition, the regions will experience varying issues: Asia will face the challenge of meeting the high credit demand growth of US$ 40 trillion with less developed financial systems and capital markets. In the European Union, a further US$ 13 trillion of credit in the form of bank lending will be needed. To supply this, banks will require additional capital that, after retained earnings, could lead to a capital shortfall of US$ 2 trillion. Analysis shows that the US would continue to need to draw on global savings, potentially by up to US$ 3.8 trillion in 2020, in order to fund its credit needs, unless there is a marked increase in US domestic savings rates.

 

“Leaders in the private and public sectors must take decisive actions to avoid contributing to credit hotspots and coldspots, while still meeting the US$ 100 trillion of credit demanded to sustain economic growth over the next 10 years,” said GianCarlo Bruno, Director, Financial Services Industries, World Economic Forum.

 

espite widespread deleveraging, a number of “hotspots” – i.e. segments where credit levels grow in excess of sustainable levels – will persist, while new ones emerge. By 2020, these will include retail credit segments in countries representing almost half of the global GDP. By contrast, government credit hotspots are projected for a much smaller set of countries, between them representing 13-14% of world GDP. In wholesale credit, Asia and Western Europe will be the main drivers of hotspots in 2020

 

The report finds that the large projection in credit demand can be safely met, but financial institutions, regulators and policy-makers need more robust indicators of unsustainable lending, contagion risk and credit shortages – and better mechanisms to ensure credit promotes development.

 

“This report is a timely contribution to the discussion of what’s needed to secure stable and sustainable credit for the world economy in the years ahead. Given the huge financing needs of both developed and developing markets, it’s a crucial issue for policy-makers and the financial industry to tackle globally,” said Deven Sharma, President, Standard & Poor’s.

 

“The banking system has a critical role in supporting future economic growth and this report highlights ways in which it can do so with reduced risk of crises. In particular, there is a pressing need for continued development of capital markets in developing economies to support their continued economic success,” said Charles Roxburgh, Director of McKinsey Global Institute.

 

The report concludes with eight recommendations that financial institutions, regulators and policy-makers can follow today to ensure sustainable credit levels for the future:

 

1. Integrate the concepts of sustainable credit into the regulatory agenda
2. Create standardized government accounting practices to increase transparency and accurately assess sovereign finances
3. Encourage responsible borrowing through financial education
4. Encourage financing of local “coldspots” through targeted mechanisms
5. Task a single agency with monitoring global credit levels and system-wide credit sustainability
6. Align banks’ risk appetite with sustainable credit criteria
7. Drive innovation by financial institutions, developing new mechanisms that can safely meet future global credit needs
8. Establish goals for efficient and deep capital markets by 2020 in developing economies

 

The findings and recommendations of the report will be discussed by experts from the industry, policy-makers, regulators and academics at the World Economic Forum Annual Meeting 2011 in Davos-Klosters, Switzerland.

 

This report was developed by the World Economic Forum in collaboration with McKinsey & Company.

 

Notes to Editors
For more information about the Annual Meeting 2011 http://wef.ch/Davos2011
View the best pictures from the Annual Meeting on Flickr at http://wef.ch/pix
Watch live webcasts of the sessions on Livestream http://wef.ch/live
Watch the sessions on demand on YouTube http://wef.ch/youtube or http://wef.ch/youku
Ask a world leader on YouTube http://wef.ch/davosdebates
Become a fan of the Forum on Facebook at http://wef.ch/facebook
Follow the Forum on Twitter at http://wef.ch/twitter and http://wef.ch/livetweet
Read the Forum Blog at http://wef.ch/blog
Read Forum reports on Scribd at http://wef.ch/scribd
Follow the meeting on the iPhone http://wef.ch/iPhone
Upcoming Forum events at http://wef.ch/events
Subscribe to Forum News Releases at http://wef.ch/news
For more information about the Annual Meeting, please visit our website at http://www.weforum.org

Ignatius's picture

Thanks.  I was working from memory and you posted the link!

steelhead23's picture

Chas. is right, if a bit didactic.  Look, foolishly spending money into the economy does have an effect on GDP and the like (Keynes was right).  The issue is that if the economy is to absorb the debt service costs of such stimulation, then it makes far more sense to carefully spend the money where it would be the most economically productive.  And, given the ongoing financial crisis, that debt burden is already unmanagable and Molly Ivins' first rule of holes is that if you are already in one - stop digging.  Chas. is also right that the neo-Keynesians are either blind or coopted by the rentiers because they wholly miss the power dynamic of an increasingly indebted populace.  They should read more Dickens.  But, I suppose they can be excused for their myopia because this difference in power is a political issue - and as we all know, economics has nothing whatsoever to do with politics.  Why, yes indeed, being a plantation owner is a pretty good gig.

 

MillionDollarBonus_'s picture

Sorry guys, you are entitled to your own opinions, but you are not entitled to your own facts. It is a scientific fact that aggregate demand is the single best predictor of GDP. When aggregate demand goes up, GDP goes up. This is theory has been tested and verified for 100 years.

Dr. Engali's picture

LOL ....It's also a scientific fact that I just dumped a Krugman in the toilet.

Boris Alatovkrap's picture

You are to be so lucky! Must is have hard-to-find high volume flush toilet (or very durable rubber plunger)!

DaddyO's picture

Dr Engali must be a distant relative of Boris, his actions and your name bear much in common...

DaddyO

AnAnonymous's picture

And it is also a scientific fact that the 'american' middle class has led the world to prosperity, not depletion of resources.

Signed: an American.

McMolotov's picture

If the "American middle class" outsmarted the entire rest of the world and essentially stole the world's resources, how intelligent does that make the rest of the world?

According to people like you, Americans are incredibly stupid, and I actually agree with that. But then the rest of the world must obviously be filled with mega-dumb motherfuckers who got conned by those very same stupid Americans, right?

Every post of yours reeks of the nationalistic equivalent of penis envy, dude. Give it a rest.

TeamDepends's picture

What he means is that post WWII our middle class became the greatest economic engine the world has ever seen.  This, of course, was not acceptable to TPTB so they de-industrialized us, flouridated us, installed communism etc. etc.

Boris Alatovkrap's picture

Grand conspiracy of communist agenda is contaminate and deplete bodily fluid of capitalist. All Russian school child is receive secret training and prepare for day.

Boris Alatovkrap's picture

When food fraud rampant, is either horse or floating pig.

Boris Alatovkrap's picture

Dear Mr American:

My resource is deplete.

Signed, Boris (not Amerikan)

Schmuck Raker's picture

Good one, MDB.

"Aggregate Demand" [giggling]

ebworthen's picture

MDB - who does the measuring and calculations to come up with your "facts"?

Hold your hands apart to show me how big the last fish you caught was.

KickIce's picture

I think there's plenty of demand, just no money to pay for it.  Giving money to millionares helps how?  Oh yeah, it gives them the opportunity to accumulate even more real assets - all with 1s and 0s.

Edit / and zh has shown on more than one occasion they are not loaning this money out.

Keynesian Mess's picture

"It is a scientific fact that aggregate demand is the single best predictor of GDP. When aggregate demand goes up, GDP goes up."

 

"Trust me, you ignorant serf, you really need another BMW."

"But I can't afford the 14 that I already have and I can only drive one at a time."

"No problem, we'll lower the interest rate to zero, eliminate the down payment and defer your first payment for a year."

"But I can't afford the 14 that I already have and I can only drive one at a time."

"OK, OK, we'll send over the helicopter and drop $100,00 in your back yard."

"But I can't afford the 14 that I already have and I can only drive one at a time."

"What are you, an idiot?  Don't you know what will happen to GDP if you don't buy another one?"

"But I can't afford the 14 that I already have and I can only drive one at a time."

"You have been found unpatriotic!  Off to that newly-built prison with you!  Al least its construction to house the likes of you was part of GDP."

DeadFred's picture

Why do cabs have two sun visors? One is to display the taxi license and the other is to display the driver's PhD in comparative literature. There is no clear answer to whether a degree in film studies has a multiplier or not, it's the job of the market to determine that. The problem is when the government with their monopoly on the use of force determines which investments are good or not, based at least in part on how well those investments benefit the government leaders. Krugman and the oher Keynsians could be ignored if their words weren't ultimately back by .GOV's guns. If you don't want your money supporting some connected solar panel company or a TBTF bank or Obama phones ultimately guys with guns and the authorization to use them will come to your door and tell you that what you want doesn't really matter.

Vashta Nerada's picture

You have hit the nail on the head.  Modern Keynesianism is now the government either borrowing or just taking your money to spend it in a belief that aggregate demand will magically bring back the bubble. 

Boris Alatovkrap's picture

Anyone is can explain economic theory because everyone is live it, but it is master who can explain ration of chocolate as increase when is actually diminish.

Clark Bent's picture

Your mistake is that you presume that all this gyration by our "leaders" is aimed at improving the economy, or wages, jobs, whatever. This is pabulum for the naive, our government pretends in offical dialogue that these are what it wants, but their actions reveal this is a lie. Sorry, but concepts like patriotism or affection for fellow citizens or liberty are all long gone. The government's sole project is to increase its control and influence. The money it is consuming is to provide largesse to their various insider constituencies; e.g. unions, banks, demographics, the dependent, foreigners brought in to vote, etc. The game is to get sufficient support to maintain hegemony and avoid exposure. Obviously the desires of ordinary citizens for a stable currency, higher wages, safety, etc. are of no real interest to the government ruling class. You can detect by its actions that Leviathan here is not significantly different from the government of Egypt, or Venezuela. Freedom is over and so is the belief in self-governance. The ruling class is even now trying to recreate the language to control our thinking about its legitimacy. Since they no longer can make any real pretense of governing by consent, the question they are answering is upon what basis are they at all legitimate to harass others to fund their depredations? Santa Claus, mixed with speech codes is all they have come up with so far. The drones and surveillance is for the next phase. Then of course come the camps, first for containment, then to eliminate the resistors. This is not the devil's first rodeo you understand.  

ATM's picture

Modern Keynesians are not stupid. They are government Apparatchik. Krugman and the rest are tools used to confuse some, brainwash others and stiffle the rest. They aren't just confused somehow or wrong, they are dangerous, explicit and thoughtful.

They are working the plan.

Fuckers like him are the enemy. 

Stabile Eyes it's picture

to DeadFred

 

Rather have money going to renewable sun energy potential and fuels cells than people who blow up Americans and those people who blow up Americans ARE FUCKING ON MINE and EVERY AMERICANS TAX MONEY

 

 

RafterManFMJ's picture

Beam Me Up you sound like a man that thinks more than 3 months into the future; sadly this disqualifies you from all government and CEO jobs in Amerika.

AnAnonymous's picture

And 'americanism' is the best thing to have ever happened to humanity...

JOYFUL's picture

This weeks lesson was sarcasm?

Vince Clortho's picture

He's a one-trick pony.  Each post assigns the middle class as the cause of most or all the problems on the planet.

TPTB_r_TBTF's picture

oh cool!

 

if the problem is the middle class,

then the problem will soon be solved...

Clark Bent's picture

Hello...paging The Fourth Stooge-ing. We have citizen-citizenism alert. 

TrumpXVI's picture

You forgot, "Savings is poverty".

nasdaq99's picture

quote from beppe grillos 1998 youtube video:

 

"They print all this money.  And then they LEND it to us.  And then they CHARGE US INTEREST on it.  And then they tax the hell out of to pay the interest.  Well, sho's money is it?  Doesn't it belong to us?  Why are they charging us interest on our own money?   The country is the country.  But the government is just a legal entity."

Doubleguns's picture

Let them eat SNAP cards.

B2u's picture

but, but, but...didn't Krugman win something....???

Sudden Debt's picture

so did Obarry... what does that tell ya?

Svendblaaskaeg's picture

so did Manbearpig and Pauchy..

q99x2's picture

They know better than the common thief what they are doing. Normal people haven't figured out a way to arrest them yet. But they will.