Guest Post: Why Keynesian Political Economy Is Theft

Tyler Durden's picture

Via Monty Pelerin's World blog,

The plague of our time is Keynesian economics. It has destroyed the economics profession and enabled the political class to obtain powers never intended.

Keynesian economics provided the intellectual cover for the criminal class we politely call “government” to plunder its citizenry. In the beginning, clear-thinking, independent economists (not dependent on government largess) expressed objections to this “new economics.” There was little new in Keynes’ work and many errors that had been debunked decades before Keynes was even born. Bastiat’s parable of the “broken window” in 1850 is probably the best-known refutation, although similar arguments preceded Bastiat by a century or more.

In the 1930s leaders were desperate and willing to try anything. Keynes General Theory was published in 1936, during the middle of the greatest depression the world had ever experienced. Politicians, more so than economists, welcomed his ideas as a new approach.

The Austrian economists  represented by Mises and Hayek saw the fallacies in this new approach immediately. Some of the Chicago School (Knight, Simons, Viner) did also. Ludwig von Mises, never one to mince words, described Keynesian economics in the following manner:

What he really did was to write an apology for the prevailing policies of governments.

Mises likely was one of the few who saw the full ramifications of what Keynesian economics would provide for government. Most early criticisms were in terms of the economic unsoundness of the theory.

To contrast the blatant differences between proper economics and Keynesian prescriptions, the following two prescriptions were offered early in this century:


It was proper that one of these men should have won the Nobel Prize in economics. It just happened to be the wrong one.


James Buchanan, Nobel Laureate

In 1977 James M. Buchanan and Richard E. Wagner wrote “Democracy In Deficit — The Political Legacy of Lord Keynes” (available online). It was the first comprehensive attempt to apply public-choice theory to macroeconomic theory and policy. According to Robert D. Tollison:

The central purpose of the book was to examine the simple precepts of Keynesian economics through the lens of public-choice theory. The basic discovery was that Keynesian economics had a bias toward deficits in terms of political self-interest.

From Buchanan and Wagner came this judgment regarding Keynesian economics:

The message of Keynesianism might be summarized as: What is folly in the conduct of a private family may be prudence in the conduct of the affairs of a great nation. (p. 3)

This fundamental confusion was responsible for the political acceptance of Keynesian economics. Politicians saw the potential for themselves in this new doctrine which advocated central control of the economy and fiscal irresponsibility as a necessary and patriotic thing. Giving them this gift was like providing matches and gasoline to an arsonist. (“I don’t want to spend money, but I have to otherwise the economy will tank.”)

Once government took control of the economy, they needed economists to provide the analysis and justifications for their new policies. Many in the economics profession were procured in similar fashion used with prostitutes. Money and power were heady incentives for a profession that had rightly been consigned to a section in their own ivory tower.

Justifying what government wanted to do and was doing was the only requisite. But, in order to qualify, it became necessary to convert to Keynesianism. Other branches of economics condemned government policies, at least on economic grounds.

Economists more than most understand incentives. When the payoffs increase, some men in any profession find it easy to modify ethics and integrity.

Buchanan and Wagner knew the damage that Keynesian economics had already inflicted and knew its potential was much greater. Thirty-seven years ago they commented: 

What happened? Why does Camelot lay in ruin? Viet Nam and Watergate cannot explain everything forever. Intellectual error of monumental proportion has been made, and not exclusively by the ordinary politicians. Error also lies squarely with the economists. (p. 4)

They answered their own question:

The academic scribbler of the past who must bear substantial responsibility is Lord Keynes himself, whose ideas were uncritically accepted by American establishment economists. The mounting historical evidence of the effects of these ideas cannot continue to be ignored. Keynesian economics has turned the politicians loose, it has destroyed the effective constraint on politicians’ ordinary appetites. Armed with the Keynesian message, politicians can spend and spend without the apparent necessity to tax. “Democracy in deficit” is descriptive, both of our economic plight and of the subject matter for this book. (p.4)

Now, thirty-five plus years later, one may judge the merit in this book. Prescience, while not limited to them alone, was amazing.

One must also marvel at the continuation and acceleration of the ruinous policies. Whether Buchanan and Wagner imagined things could go on for so long and to such an extent is not known. However, to appreciate these changes, this graph from Zerohedge shows the effects of Keynesianism and what it has done to governments around the world:

keynesian legacy

The deterioration in fiscal discipline was astounding and in line what they predicted.

As this false economic theology known as Keynesianism runs its course, the following conclusions are probable:

  • Regardless of whether this generation escapes or not, we have impoverished our children and grandchildren.
  • Politicians now control most of the economy, including what passes for acceptable economics.
  • No honest economist can work for government; nor would one want to.
  • The tipping point for reversing this condition has long past.
  • Politicians have no incentive to stop the process underway.
  • Markets (and perhaps societies and governments) will eventually collapse, ending this terrible period of economic madness.

When this flawed paradigm is finally exhausted, the world may enter a better place in terms of economics and limited government. Without this shift, poverty and misery will grow along with wars used as political diversions.

One can only hope that the world avoids an Economic Dark Age when the collapse occurs.

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Mr Poopra's picture

Imagine how much more dangerous a guy like Krugman could be if he were to actually believe what he says.

Pladizow's picture



“By 2005 or so, it will become clear that the internet’s impact on the economy has been no greater than the fax machines….” – Paul "The Hack" Krugman

“It is difficult to get a man to understand something, when his salary depends on him not understanding it.” - Upton Sinclair

Men stumble over the truth from time to time, but most pick themselves up and hurry off as if nothing happened.” Winston Churchill

“Although there are countless maladies that are forever causing the decline of kingdoms, princedoms, and republics, the following four (in my judgment) are the most serious: civil discord, a high death rate, sterility of the soil, and the debasement of coinage.The first three are so obvious that everybody recognizes the damage they cause; but the fourth one, which has to do with money, is noticed by only a few very thoughtful people, since it does not operate all at once and at a single blow, but gradually overthrows governments, and in a hidden, insidious way.” – Copernicus 1526




fonestar's picture

Is that Harland Sanders on the photo on the main page?  Fonestar was unaware he was an economist too?


Unpopular Truth's picture

Keynes has shown that democracy is wrong to stop on property rights (aka two wolves and a sheep voting what's for dinner).

As a society, we are just refusing to learn it.

A Nanny Moose's picture

RE: Copernicus. 2 out of 4 ain't bad (soil and currency).

Historical evidence has demonstrated exactly what not to do, for more than a thousand years. Yet we keep repeating the same mistakes over, and over.

Seasmoke's picture

I think he would be less. You may be able to show him the error of his ways. But being bought off and knowing full well what he is doing, outside of hanging for treason , he will not stop.

TBT or not TBT's picture

How would we tell the difference?

masaccio's picture

If Keynes is so fucking dangerous, how come the oligarchs got all the money instead of the government?


Seasmoke's picture

Because they own the government. 

GoinFawr's picture

good, you're almost there; all you need to do now is just follow it through and you'll come around to the point that mas was actually making.

Clint Liquor's picture

Keynesians are so fucking dangerous precisely because the Oligarchs end up with all the money, dumb-ass.

GoinFawr's picture

Hey, you on the big fact hunt, it doesn't follow that only oligarchs can 'own' a gov't

Try again

Graph's picture

Sea and Clint just departed from Peter Schiff's lemonade stand. Do not even try, they are drunk.

Squid-puppets a-go-go's picture

I reckon the Tylers would do well to keep tabs on these guys

one of the few to articulate the hard mechanics behind why continued QE will break down even without hyperinflation potentially taking hold.  If each new $1 of QE only generates , say 10 cents of GDP growth in china - and the interest rates are also 10% - well, then, the printing of additional money no longer prevents defaults

Carl Popper's picture

The point i get out of it is keep the government so small and so limited that its power cannot be used to enrich any particular group.

Also if it doesnt have any money to bestow on anyone then lobbyists disappear

Was that your point?

A Nanny Moose's picture

We started with exactly this. Look where it got us...

GoinFawr's picture


Keynesian policies: Free to those who can afford them. Very expensive for those who can't.

James_Cole's picture

The point i get out of it is keep the government so small and so limited that its power cannot be used to enrich any particular group.

The goal should not be the 'size' of government, a concept which is totally vague, but whether it is controlled by the citizens or not. 

Or visit a place like Somalia - bastion of limited government - and explain why their system is preferable. 

Cause' it's not about governments, it's about this:

 'He who controls the spice controls the universe.'

Flakmeister's picture


If you want "small effective government" you had better limit corporations to be "small and effective"....

The state is the apparatus through which power is projected....

Acet's picture

The point is that "small government" is at most an ideological strawman meant to keep people enganged in war with the puppets rather than going after the puppeteers.

The oligrachs control government and draw most of their wealth directly or indirectly from Government, hence they are the ones maintaining government large and overbearing. 

Any good strategist knows that you don't conquer a fortress by attacking the strongest, steepest, highest wall, instead you either starve them or find and attack the weak spots. Government has all the weapons and are accepted by most as the authorized yielders of force, so rather than attacking that, one goes after the oligarchs to take control of government and only after that can one start working on making government small.

asteroids's picture

It's theft from your kids and grandkids. They are born into debt serfdome. It's evil, corrupt, and immoral.

N2OJoe's picture

Somebody actually downvoted that?

Atomizer's picture

Paul Krugman- The aliens landed and stole the entire ponzi loot.

TBT or not TBT's picture

Stoopid aliens, we can just print more. Did they take the social security lock box too? Oh noeees.

A Nanny Moose's picture

They spent it on h00kerz n' blow at ManBearPig's beach house.

ebworthen's picture

I know; just look at that picture of him next to Ron Paul - which one would you trust with your money, your children?

lordylord's picture

President Paul!

Cabreado's picture

"The plague of our time is Keynesian economics."

No, the plague of our time is that we are incapable of recognizing in force that economic theory has nothing to do with it.

Ignatius's picture

The economics profession today is a creature of the banks.

pontificus's picture

Release the Kraaken!!!

nector_collecter's picture

Economic theories are only theories, the fact of the matter is , there has been  no trickle down effect, on the contary the billionairs have gained big time .The best way to rob a bank is to own one  and the best way to rule and ruin a country is to turn the middle class to serfs

Shad_ow's picture

Maybe but some have been tested and proven failures.  There are always people who think they can do it better.  They can't and usually know it.  They just use the failure to excuse theft.

RaceToTheBottom's picture

When faced with the FUCKING alternative that ALWAYS enriches the 1%, I say give the FUCKING alternatives a FUCKING chance.....

Kirk2NCC1701's picture

I believe we now have something new altogether:  Kenyan Economics.  Even Keynes would be shocked & awed.

RaceToTheBottom's picture

Most people do not know or recognize that Keynes would be shocked what is being shlock-ed in his name.

I don't agree with your and others boner that some community organizer has the balls or time in grade to affect the change you attribute to the Obama.  This was started long before the Obama.

There are bigger dicks in play....  It would be fruitful for you to recognize it

Stud Duck's picture

If every banker, college prfo read this post, had the epifinay tha it repesents, all would immediated go survivor!

Good read

Chuck Knoblauch's picture

Government spending is not inducing the private sector to spend in the United States. Why? Because of the damn one-side free trade policies (NAFTA) and slave labor in China and Mexico! Globalization did not exist during the Great Depression! QE is not working.

AdvancingTime's picture

During the "boom times" when asset values are going up lots of people think they are getting rich. In inflationary times government also does well as tax revenues grow. Not only does government get to spend the money they print, the side effects of inflation on taxes are good for government, though bad for their subjects.

By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. said John Maynard Keynes. As the central banks print like crazy to control interest rates on bonds they devalue the currency. Inflation, deflation, what is something worth? These are all very important questions going forward. More on this subject in the article below,


Umh's picture

Most people are either to busy with their life or just to dumb to see how inflation feeds the government.

Loophole's picture

Keynesianism is nothing but govt enforced wealth redistribution, that is, armed robbery.

Any idiot can see that.

The economics depts of most universities are filled with frauds and have been for decades-pushing this crap.

Grande Tetons's picture

Modern day idots have poor eyesight. 

Chuck Knoblauch's picture

QE will kill this economic theory, not your tax rate.

Flakmeister's picture

Peak oil will kill the economic system as we know it....

QE is merely a symptom....

Radical Marijuana's picture

Loophole, I liked the levels of irony in this quote:

Keiser Report: Round Tripping Financial Crisis (E557)

Published on Feb 1, 2014

Every time we get to tomorrow we've already spent it yesterday ...

At 14:49 minute mark is a direct quote of
one of the most Bizarro Mirror World
statements made by Ben Benanke:

"The problem with QE is that is works in practice, but it doesn't work in theory."

Stud Duck's picture

Emergency, everyby leave the city imediately!! Emergecy everybdy leave the city immediately!!! When one of the crazies get Homeland Securty idiot ot belevie they really have what it takes,then the whole thing crumbles.

Get your shit together, right now! Dont be one of those in thevac lines, get out now!

 yea, this little artucle explains why all that have any true economic.historical knowledge knows why, emergency, everybody leave the city immediately!!

Umh's picture

Give the booze to the female ducks.

ebworthen's picture

There are at least $17 TRILLION reasons (at the least) why this article is spot on.

Graph's picture

From 30-ies we have building legacy that we marvel about even today. Where these 17 trill did go?