Guest Post: Brilliant Discovery In Economics, US Economy Works On Keynesian Policies

Tyler Durden's picture

via mickeyman from The World Complex blog.


This paper shows the kind of brilliant research that gets done now that economic commentary is only pursued by Ph.D.s.

In this paper, Johansen and Simonsen (2011) come to the surprising conclusion that (spoiler alert!) the US economy operates on Keynesian principles; which differs significantly from its official policy of creating credit whenever a problem appears.

The principal evidence offered in support of the author's conclusions is the following chart, showing that both the value of the Dow Jones Industrial Average (DJIA) and the amount of public debt have increased logarithmically since the late 18th century. And since correlation implies causation, the rise of the DJIA must be due to the increasing public debt.

Now that we understand how the economy works, it becomes clear how we move forward. Raise public debt. Boost the DJIA! The trickle down effects on the economy shall enrich us all.

Notice how public debt jumps at particular intervals--especially around 1812, 1860, 1914, 1940, and steadily after about 1965. These increases in debt relate to wars, proving the Keynesian adage that war is good for the economy.

Of course there might be a few other variables that increased over the same time, which might also contribute to that rising DJIA. Population increased, as did infrastructure construction and economic activity. Might these factors have influenced the DJIA? Most of that economic activity had nothing to do with wars, but did have a lot do with increasing the American standard of living. Probably the most important factor is the increased availability of cheap energy.

Looking at the chart again, I worry a bit about that last increase in the DJIA just before the end of the chart. Looks like it's about 5x more expensive than the historical trend. Quick! Somebody borrow more money!

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St. Deluise's picture

i'm detecting a little sarcasm here

spiral_eyes's picture

In this case, correlation does imply causation.

The debt-acquisition is a driver of price inflation. That's why there's such a strong correlation. 

The problem in this paper is they mistake inflation for growth. They wouldn't be the first Keynesians to do that.

WSP's picture

Good points all.

Spiral_Eyes, you wrote "the problem in this paper is they mistake inflation for growth". 

This is the BIG LIE that most people don't get.  It seems that in the global fiat ponzi scheme, most "Growth" is really just inflation.  My big question is do "they" (the Keynesians) "mistake inflation for growth" or do they deliberately create "inflation" to masquarade as growth because they know the sheeple are stupid and don't know any better.  The reason I point this out is it NEVER CEASES TO AMAZE ME how my friends and neighbors will say "I made money' on this or that (real estate, stocks, etc) and never consider that the only money they made was inflation ---- in real terms in many cases they lost money, but they are none the wiser.

In the end, I don't think most investment managers and other promoters of the fiat ponzi scheme are as stupid as we think they are.  I think they know that most growth is just inflation, but since they are parasites that "feed" of of the illusion, it is not in their interests to tell the truth.  Besides, given that investing really is nothing more than trying to minimize the debasement of your hard earning labor (savings), what choice do we really have.  We are forced to invest in the ponzi scheme to keep the real value of our labor (savings), then, we have to pay taxes on the inflated values.  The net, net is a brilliant "scheme" by the keynesian's to silently loot your labor (savings) and grow big government.


Buckaroo Banzai's picture

Debt is wealth!
Freedom is slavery!
War is peace!
Up is down!
Black is white!

DaveyJones's picture

and above all, stupidity is vision

AnAnonymous's picture

i'm detecting a little sarcasm here

Or the usual bit of US cheap propaganda?

Hard to see how the increase in public debt is the trademark of Keynesianism.

Expansionists have always been balancing their debt against the future gains they predict from expanding. Nothing new here. Socialization of losses is an expansionist feature so what?

Why label that keynesianism when it existed 2000 years (at least) before Keynes was even born?

Ah, oh, yes, rhetorical question. It is the US world order and self indiction, taking responsibility for one's actions is out of question.

It is never the US, always something alien, as Ben Bernanke who learned his economics in Zimbabwe....

Such is the US world order. Expecting something else than the usual is foolish.

tarsubil's picture

Hi Bing Bing, I'll have the City Beef.

mayhem_korner's picture

Hard to see how the increase in public debt is the trademark of Keynesianism.

Expansionists have always been balancing their debt against the future gains they predict from expanding.

Umm...increase in public debt is the hallmark of Keynesianism.  Only Keynesians believe that debt from fiscal stimulus will return a gain.  (Sorry, the multiplier is a ruse.  If it weren't, a single dollar would metastacize into a prosperous nation over time).  So the returns from the Keynesian experiment of public stimulus are always negative, the residual of which is...wait for it...increased public debt.

And after each failed round, the PhD zealots come out of their [Berkeley] holes to proclaim that the stimulus would have worked if it was just a "little bigger."

AnAnonymous's picture

Sure, it is not like powers like Rome used the same trick.

No. It is the hallmark of expansionists who always cast their debt against the future gains (supposedly) made available through a successful expansion scheme.

midtowng's picture

It would be a HUGE mistake to confuse present-day economics with what Keynes actually believed.

reader2010's picture

This research paper is worse than the worst ass wipe. 

Stack Trace's picture

You ever try to wipe your ass with gold? It is kind of nice. Better than reading this paper.

jumblies's picture

if you used silver you'd be nicely disinfected

ElvisDog's picture

This may be an example of writing a paper with your professor's intellectual leanings in mind. Grades in economics classes are largely subjective. Your professor (as 99.99% of them are) is an avowed Keynesian. The way to get a sympathetic reading from him/her (God forbid if Christine Romer is your professor) is to write a paper that aligns with the professor's own views. Yes, it would be more intellectually honest to write a paper that states "Keynesian economics is crap", but that's not going to get you that "A".

Manthong's picture

I guess we're going to get that Dow 20K after all and a lot of youngsters will get free overseas travel.

Happy days are here again.

..and a healthy dose of Krugmanian creative destruction will help things along.

Weisbrot's picture



thats dow 20k with 6x forward earnings

loaf of bead $5-$12

gasoline  $12- $20

poverty level is below $120k


Krugmans has written so many things that when applied at "other times" he can be correct

mayhem_korner's picture

Krugmanian creative destruction

LOL Brilliant!  Better get one of those Tyler TMs for that one!

caerus's picture

keynes was a douche

xtop23's picture

 Johansen and Simonsen .....sigh.

 Hey fellas? Somewhere in Antarctica it's freezing cold.

 By your rationale, the thing they MOST need in this entire fucked up world IS......../drum roll

 Yes !!! You guessed it !!!!



Peter K's picture

How probable is it that Johansen and Simonsen are actually nom de plume's  for Bernanke and Krugman? Just wondering.......:) 

Spirit Of Truth's picture

No....these are young interns for Bernanke & Krugman commonly referred to as their 'butt buddies'.

Seriously.  Psychiatry could make a study of economists to better understand 'delusional personality disorder'.  Studied econ for 10 years and the more I learned the more I realized that what's underway in the sheltered walls of ecoomic academia is a profound example of groupthink and extraordinary popular delusion formation.  What's funny is that for a good portion of the faculty, if you take them aside and ask, "Do you seriously believe what you're teaching?", they'll say no.  They realize the whole approach is to start with false premises and assumptions and then formulate models and theories that result in conclusions that were desired in the first place.  There is no objective attempt to explain and predict how markets historically behave, it's rather an effort to rationalize what's already underway.  Meanwhile, reality is on the opposite page:

Bear's picture

I don't get it ... Keynes didn't publish until 1930 ... Oh, our debt has gone up 1000X since then

kurzdump's picture

Give them a few more weeks (probably months) and they will discover that Friedrich August von Hayek was right.

whoisjohngalt11's picture

i am seeing a possibility of a confluence in October ( maybe a black Monday ) type of system failure , due to EU. imploding , Housing further implosion and mortgage implosion , Obama Fail on stimulus /tax bill , China taking its toys and going home, whatever is left of that. Seems like the Perfect storm looming, i started feeling that this spring, yes i am an Igenious ( sarcasm intended)  . Oh and BTW even the Progressives ain't buying Bamster anymore ...

Maybe i am wrong ,maybe i need more coffee BRB

kurzdump's picture

Greece will default in October. Most banks and investors are already prepared for that. It will result in a lot of troubles anyway. The Eurocrats will take advantage of the chaos to establish a European economic government and launch the Euro-Bonds. Nothing else to be afraid of.

ElvisDog's picture

To paraphrase Stalin "How many divisions does the IMF/ECB have?". No way they can hold things together under the hypothetical European economic government. There would be instant chaos due to the fact that the interests of the Greek people do not align with those of Germany which don't align with those of France and so on and so on. It's only slightly less absurd than proposing an economic government between Israel and Palestine.

WSP's picture

Excellent link, whoisjohngalt11.  I particularly like:

"Even more stunning, this report continues, are revelations being brought to light by the New York Times Magazine that Geithner, along with the director of the White House National Economic Council Larry Summers, formed an “unholy troika” with the banking behemoth Goldman Sachs to literally steal the entire US economic system away from Obama and the American people for the sole purpose of looting it for the benefit of a few elite bankers, politicians and other such parasites."

"The power vacuum created in the White House allowing these banksters to take over was exacerbated by Summers who upon joining the Obama team declared “there’s no adult in charge” thus allowing him and Geithner to be “insubordinate” to Obama and hijack the American economy for themselves and their cronies."

"To the damage wrought upon the American economy by Geithner and his “allies” is called nothing short of “catastrophic” as tens of millions have been thrown out of their homes, tens of millions more are jobless, and the poverty level has reached heights not seen since the days of Great Depression during the 1930’s."

"To any relief being seen coming for the American people before their nation is totally destroyed by these monsters it appears unlikely as the veil of oppression keeping them check shows no signs of loosening."

from the link you posted:

Could not have said it better and that is EXACTLY what has been done!  Hmmm, wonder why U.S. financial media never do real journalism and post the truth----oh wait, that's right, because they are propaganda/marketing departments of the banksters!

ElvisDog's picture

That EU Times article is amazing. Geithner wasn't invited to the meeting and showed up anyway? They should have asked him for his invite, pretended to look over a sheet of paper on a clipboard, and then informed Geithner that his name wasn't on the list.

Island_Dweller's picture

I already knew this; Pete Stark explained this to me long ago....

Burnsy's picture

This passes for academic research? Jesus. Even a drop-out like me (couldn't stand more than one semester of "advanced" economics) knows this is complete drivel.

Interestingly, where I come from (Norway), this would probably be among the better papers coming out of the ivory towers. You see, the government also sponsors a lot of research that's even worse than this (since the universities are all funded by the state and nobody seems to care what they do at these wonderful institutions). Way worse. For example "interdiciplinary gender research."

Like this invaluable piece:

"Masculinities and the Phenomenology of Men’s Orgasms" i Men and Masculinities Volume 10 Number 1 July 2007 71-84 © 2007 Sage Publications.

The contents of this government funded masterpiece?

"This article looks into the art of male sexuality. Its starting point is the traditional biological focus on male sexuality, which has narrowed the understanding of male sexuality. Through readings of authors such as D. H. Lawrence, Catherine Millet, Susan Bordo, and others, the author seeks to lay out a cultural understanding of sexuality on the basis of positions of masculinity within culture. He also discusses possibilities of a male sexual ethics based on the penis as a bridge from me to you."





valuetrader's picture

hahaha. this is a good one. but maybe more interesting than the crap published by the economists.

ElvisDog's picture

How do I get one of those Norwegian University jobs? I would produce the comprehensive work on male sexuality including extensive field research.

bill40's picture

I hate to break this to these two bloody geniuses that trickle down and debt creation via private banks is pure Freidmanite BS.

Keynes would state that as long as there is excess capacity in the economy, ie mass unemployment, it is safe to print.

The QE funny money is lent to banks at virtually 0% and it then chases the highest (ie riskiest) return it can. In this way banks should be able to trade their way out of trouble.


It's all going great isn't it?

StychoKiller's picture


The official financial policy of the federal government is
hereafter to be referred to as:

"Spend, Transcend, Extend, Attend, Lend, Condescend, Rend, Amend, Pretend".
Or it may alternately be referred to by its acronym:



jmc8888's picture

This one is simple.  Economists fall for sophistry like Charlie Sheen falls for hookers, cocaine, and offers to be roasted on comedy central.

They are basically saying all debt is equal.  It isn't.  Fraudulent debt is not the same as productive debt.  Debt for bullshit isn't the same as productive debt. 

Productive debt is debt incurred for something tangible that has a return that benefits society at large from and individual, business owner, so on and so forth.

Debt for bullshit is when phd economists say stimulus for anything will boost other numbers and thus in some downstream effect have a benefit. 

But you see it isn't JUST that simple.  It's also the mechanism for it.  Under monetary standards, you either have no credit creation, like Austrians want (or tied to the increase in 'money' like precious metals), and thus you are limited in doing based on what monies can be raised...which also creates an unecessary middle man, and an assumption that all available capital is watching every plan.

Or you have something akin or exactly Keyneisan which is to create debt, build the project, then that debt is paid back and the money floats around the system creating inflation.   Now if enough wealth is created it is muted.  If it does not, then it ripples around the economy destructively.

Additionally it can create a problem where that money is misallocated into other ventures like sub-prime loans because you keep creating debt, keep getting paid back (until it breaks) where you keep issuing more debt.

But does it have to be like this?  Do we need to go with either approaches of Keynesian or Austrian?


First the main thing is...what is the purpose...what is actually created?

We can go with federal credit emission.  American Credit System.  The money isn't borrowed from a bank.  It is created.  This creation isn't done for political favors (it's not done on the small scale), it's done for actual tangible productive works.  BIG PROJECTS. Everything else is either paid for through taxes(excise/income)/tariffs.  There are still loans from private banks, but it is not the way we fund gov't. 

Thus when the federal credit is paid back, which it is on anything that can have a direct return, that credit is constantly pulled from the system, muting the inflationary effects while the tangible nature of the work, and thus its positive benefits to the individual, and to private businesses remains. 

But the key to it all, and the author of the articles don't make the distinction in pure PHD fashion, is that something REAL, and NEEDED is created with the debt or credit emission.

It isn't just create debt and all is well. 

They are trying to sell every baseball card is a 1912 Honus Wagner. 

A relative Field of Keynesian Dreams....create debt...and the prosperity will come.

No what we currently have are the crappy checklist cards being created, hell actually worse than that...we have these idiots taking the promo cards advertising a giveaway if you mail it in, as a baseball card, which happens to be as valuable as a 1912 Honus Wagner.  So load up on promo cards and you'll be rich.

We don't need Austrian middlemen and limitation

We don't need Keynesian middlemen, indebtedness, inflation, and misallocation...and a bunch of promo cards.

What we need is the realization that the money we spend has to actually be doing something we NEED.  We need as much of it as we need to do the things we need to do WHEN we need them done.  There doesn't have to be someone profiting off this base foundation.  Let the profit come from what is built on top of it as people decide what it is best to invest their time and capital into. 

When you focus on meeting these needs, any monetary ideology falls short because of artificial limitations and misallocations.

There are plenty of NEEDS out there with tremendous benefits to everyone.  Water projects, space projects, energy projects, infrastructure projects, so on and so forth.  Mag lev, fusion, fusion arc, NAWAPA, space, desalinization, land bridges, etc, etc.

We need productively spent credit emission...NOT...unproductively created indebtedness (especially to pay off fraud).  We also don't need people to sell their souls to create a middleman in between needed projects and limit those to which profit can be had and/or what capital is available at any given time.  Usually the same big individuals over and over again.  Credit needs to be available for what it legitimately needs to be available or it's a constraint to economic activity.

The credit emission funds the project that create the new commons from which the private businesses can build around.

An example...with fusion, energy becomes part of the commons.  The cheapest energy is yet ahead, if we fund it's creation and development, through federal credit emission.  This stuff isn't very hard to comprehend.

Want another? Fund desalinization so that you can pull water from the ocean and green deserts. And/Or fund Nawapa so you can create new waterways in some parts where they never existed, greening areas, and creating opportunity for farming (and it's downstream businesses) but also for the ability to channel water from flood areas to drought areas minimizing the affect of the natural weather variations across regions year by year...decade by decade.  That means projects such as these not only create opportunity, but stabilize already established businesses.

Not all debt is created equal, just like not all baseball cards are 1912 Honus Wagner's.

The things we do must be productive.  That is what counts above all. 


Hman's picture

Wao, genius .. only a PHD could figure this out ...., however, and in all fairness, Keynesian economic were in play since Rothschild took-over banking in the 1700's in England.

ssoniindia's picture

Why S&P downgraded  the US

• U.S. Tax revenue: $2,170,000,000,000

• Federal budget:    $3,820,000,000,000

• New debt:             $1,650,000,000,000

• National debt:     $14,271,000,000,000

• Recent budget cut:    $38,500,000,000

Let's remove 8 zeros and pretend it's a household budget:

• Annual family income:                                        $21,700

• Money the family spent:                                     $38,200

• New debt on the family credit card:                     $16,500

• Outstanding balance on the family credit card: $142,710

• Total family budget cuts:                                         $385

Would you give this family an AAA credit rating? 

Weisbrot's picture


Quick -

gimme a multi billion dollar line of credit so I can never pay you Tuesday for some goodies today -

Ponzi Rules apply



paulie's picture

"now that economic commentary is only pursued by Ph.D.s"

Let me quote Sheldon Cooper here: sarcasm ?




paulie's picture

We can discuss the inadequacy of Keynesian politics but I am putting the stress once again on the fact that what Obama is doing is nowhere near what Keynes had in mind.

And the difference lies in the destination. Obama's QE end up paying bankster's six figures bonuses instead of fostering investments in industries and production thus helping out the real economy.



gwar5's picture

Like finding life on Mars, if you're a Keynesian. Until Mars attacks.

As long as debt is considered wealth x10 in a debt driven fractional reserve fiat monetary system, with the designated driver of debt-wealth an unbridled government welfare state, we'll continue to have absurd statements by giddy honorary Econ PhDs, such as our current Vice President.

"The more we spend, the richer we are! No, really!" -- Joe Biden, 2009

AnAnonymous's picture

The more we spend, the richer we are! No, really!" -- Joe Biden, 2009


Yes, absolutely if you follow the path of the US.

Sending abroad USD and getting wealth in return is grwoing richer.

The others are getting poorer in the process though.

So yes, the more the US has spent (in nominal USD), the richer the US has got.

Hard for US citizens to admit as victimology is high in the US and they want to be the victims on the scheme they have engineered and known as the US world order.

But hey, more likely to find the victims elsewhere than in the US.

gwar5's picture

Don't be bitter, the Euro has the same system. The game started in Europe and you gave it to us.  The US Fed is even owned by a gaggle of European banks. And everytime our Fed prints, it steals from American savers too. We're all holding central bank notes which are going bad.

Cracks are appearing in Europe first, where the Welfare State started. EU is the first to run out of debt serfs to service the fiat public debt-wealth of the CBs.  Couldn't import enough ME Jihadi's to pick up the slack and neither was the global warming hoax and energy taxes enough to boost the Ponzi. 

A gold standard would limit the welfare state and the public debt-wealth that the CBs covet.


AnAnonymous's picture

What has this answer to do with my comment?

My comment was about the nature of the game and yours, as a US typical citizen move, is about diluting responsibility of playing the game.

US cheap propaganda.

Thought criminal's picture

This guy definitely deserves a nobel prize for economics. /s

lamont cranston's picture

With economists like these, who needs enemies?

css1971's picture

So... basically these guys get PhDs for discovering that the creation of credit creates inflation and debt at the same time? Or, did they even discover that?


Can I get one too please?


Lets put it this way. The field I worked in required a little bit more work for a doctorate.


"Department of Physics, Norwegian University of Science and Technology"


ok. someone hasn't educated them on the nature of money as they grew up... Naturally they had to publish a paper to tell the world the way it works.