Keynes: Economist of the Dictators

I don't know much about economics, but I do know that a politburo full of eggheads can crash the economic ship just like us simpletons in the free market can. Only the egghead crashes are much more spectacular.

Economics is the dismal science, so I hope this post is not too dismal. 

Ducky asked me about liquidity traps in one of his posts last week, and this this the response.  It's Keynes versus the Misesian free marketeers.  I've included lots of links for those who want to explore these pressing but timeless issues further.


Keynesianism is a cold, mechanistic theory sprung from an era when strongman dictatorships were admired for making the trains run on time

"[T]he Krugman/Keynesian viewpoint is based on an extremely mechanistic interpretation of human action. People within a market setting do not purchase goods they believe will meet their individual needs; no, they spend, as though the spending itself is the ultimate end of an economy." (The Deepening Depression)

To the Keynesian statists, we are merely cogs in the machine

Paul Krugman and the rest of the big government, spend spend spend, more stimulus crowd are Keynesians. They believe that if government just spends enough, it can stimulate a down economy. They also believe in the fiction, the fatal conceit, that government central planners can flatten the hills and fill in the valleys of the free market economy.

What modern-day Keynesians tend to forget is that Keynes’s recommendation for governments to spend more in times of economic crises was predicated on the assumption that government would bank up cash during the good times. As we are all now painfully aware, that didn’t happen.  They Keynesians were wrong, again, and the Austrian School has been vindicated, again.

After all, this Keynesian nonsense has had many trial runs, and it has failed every single time. And there are specific reasons: government spending drains reserve capital, nationalizations prop up inefficiencies, and money creation distorts reality and forestalls recovery.

It doesn't take a fortune-teller to discern that this hokum will not work to accomplish its stated aims. All it does is prop up the state and its friends at our expense. (Jeffrey Tucker - The Austrians were Right)

Governments worldwide spent like there was no tomorrow during the good times, so there is no reserve to draw from.  Keynesian stimulus must be funded by putting ourselves further in hock to Communist China. Do any of you know anyone who has borrowed his way to prosperity?   

Liquidity Traps and Other Keynesian Fictions

When Keynesian schemes collapse, as is happening now on a global scale, statists like Krugman resort to that shiniest of glittery baubles, the liquidity trap.
 

Liquidity Trap:  A theoretical fiction created to explain away the failures of Keynesianism.  The point at which you cannot induce people to borrow and spend, even if you give money away. 

The only reason they get by with such nonsense is because the average citizen has little understanding of economics.  There's a lot of "Pay no attention to that man behind the curtain!" in central-planned statist macroeconomics.

Swedish economist Richard Johnsson writes a short but dense riposte to this nonsense, The Liquidity Trap Myth.

William Anderson provides a less-scholarly, more layman-friendly explanation in his short article,  The Deepening Depression 

 Contra Krugman:  The Austrian School

Murray Rothbard delivered many a withering critique of Keynesianism.  Here are two good ones.  I have to point out that his critique of Reaganomics was principally due to the fact that Milton Friedman's supply-side theories were founded in Keynesianism, government manipulation of people and markets.

Rothbard – Keynesian Myths
Rothbard – Keynesianism Redux

 

Supply Side is Suspect as Well

Finally, Richard Ebeling delivers a critique of Supply Side economics.  He also explains why the Laffer Curve may be a wonderful visual aid used to explain a general concept, but it is not a viable mathematical model.

Supply Side economics is based upon Keynesian principles, and therefore Austrians see it as just another means for statists to chain We The People to the mill wheel of government, albeit in a perhaps more efficient fashion.

I know this may be confusing to those who haven't delved into the dismal science, but it's important to understand it, because this is what future arguments will be revolving around as the slow-motion global economic collapse continues.

See also:   Reason – How Long Will it Take for Keynesianism to Die?

To Form a More Libertarian Union

There are some encouraging signs emerging from the conservative ranks. Neoconservative foreign policy is dead, concludes Foreign Policy magazine. That may be overly optimistic, but it's safe to say it is on life support, with GOP armchair generals losing their taste for sending others off to war.

A second sign of new life in the GOP was the near-death of the immoral people-starving, money-wasting Ethanol program.

Cutting our foreign entanglements and ending wasteful government programs takes us towards a more libertarian nation, and that's a good thing.  Let us decide things at the state and local levels.  What suits us here in Colorado would rankle the nanny statists of Massachusetts and Chicago.

Getting the federal government out of our lives would also blessedly take much of the politics out of it as well:

"We need independence not just in politics but from politics," they write. "Contrary to the myths perpetuated by liberals and conservatives alike, the winning and losing of elections is not transformative of what matters most."

The things that truly matter in life (our families, friends, churches, communities, teams, relationships, and culture) do not stem from state capitols or Washington, D.C. (Heather Wilhelm – Hipsters Against the Political Machine)

This is key. As it stands now, everyday Americans must be invested in politics because politics and government has infested every last corner of the average American’s life. If you like to smoke, shoot guns, engage in homosexual activity, go to church, or perform other controversial activities, you’ve got to keep your ear to the ground and protect your interests by contributing to a criminal gang disguised as a political party.

This is what has driven me towards libertarianism. Unlike liberalism and conservatism, libertarianism does not condone or prohibit any particular human activity, so long as that activity does not interfere with the rights of others.

Getting the federal government out of our personal lives and back within the bounds of its constitutional mandate would save us trillions and just as important, take the air out of the interminable political arguments that waste our time.

The Left - Right Libertarian Link

When arguing with liberals such as a Truth 101, or a Jerry Critter or even a Jersey McJones, I become frustrated because I see that underneath the arguments, we share some fundamental goals, like a prosperous and free America.  It is the means we disagree on.

Roderick Long is a left-libertarian and he laments, as I do, our failure to bring those from the left into the libertarian fold.


His article, How to Reach the Left, is a masterpiece. It gives great insight into just what left-libertarianism looks like.  It is far from the loony left that haunts the Democrat party.  He disdains that crowd as the "Aristocratic Left," and is quite hostile to it...

These are left-wingers who have a particular vision of an idyllic society and are prepared to hammer into place anyone whose preferences or behavior don't align with the vision; in effect they see other people as their property.

More importantly, I think he has staked out some libertarian common ground where liberty lovers on the left and right could unite, if each group could drop some preconceived notions.

His argument rests upon the premise that we do not have a truly free market, and I agree with him on that...

Consider, for example, the recent debate in the United States over healthcare, in which the choice between our prevailing corporatist system of healthcare and a somewhat more socialistic one was presented as a choice between a free market and socialism — so that opponents of prevailing corporatism were tricked into supporting socialism as the antidote, and opponents of socialism were tricked into supporting the prevailing corporatism as the antidote.

it is true that free markets penalize irrational business decisions; but it will be difficult to convince people of this if [...] they continue to labor under the conflationist delusion that current economic conditions are a reasonable approximation to a free market. 

How do you like your tyranny?  Democrat or Republican?

Long’s thesis identifies the source of our contention:  The left's attempts to protect people from the tyranny of big business ends up making us slaves of the state.  The right thinks it is arguing for free markets, but the result is corporate fascism.  False freedom for the people, a gilded cage (to protect them from predators) for businessmen and bankers

Here's an Example:

So when conservative lawmakers strip away regulations on risky loans without repealing deposit insurance, what they are "deregulating" is not a purely private business, but rather a business that enjoys government-granted privileges — which is not the sort of deregulation that libertarians favor.

Libertarians favor taking away the government-granted privileges as well.  Doing otherwise creates a moral hazard.

The Problem of Corporations

I see some problems with big corporations, and I share some of the left’s unease with them.  Here is a left-libertarian critique of the corporation in a nutshell:

The problem with the corporate form is that it grants to private business a distinctive governmental feature — legal personhood, and the accompanying privilege of limited liability — without the correlative burden of democratic accountability; granting such a status, van Eeghen argues, constitutes an un-libertarian surrender of individual responsibility, and confers the benefits of ownership without its corresponding costs, thus enabling corporations to concentrate power and externalize risk in ways to which libertarians should object. (Mises Daily)

Piet-Hein van Eeghen readily acknowledges the benefits of corporations, but his critique makes sense.  For the pro-corporation argument, see  In Defense of the Corporation - Stephan Kinsella

Mo Bigger Government is Not the Answer

The answer to corporate behemoths can’t be to make government even bigger.  Too often government becomes the teammate of corporations instead of being the referee.  This spurs corporations to ever greater heights of irresponsibility, thanks to the government-provided safety net.

We need look no further than wall street, where whizz kids wrecked our economy and nobody went to jail because nobody broke any laws. Financial chieftains can crash an investment firm and destroy billions in wealth, paying no price whatsoever.  If that is not an invitation to irresponsibility, I don't know what is.

Making corporate heads, board members and officers financially liable for the actions of the corporation would go a long way towards snuffing the wild speculation and reckless gambling that continues to endanger our nation.  Knowing you will have to eat your losses engenders prudence.

Can left and right agree that exposing the big behemoths and the pseudo-capitalists to the vagaries of the free marketplace would be a good starting point?

Why the Attacks on the Koch Brothers?

Why the Attacks on the Koch Brothers?

The simple answer is, pop your head up and you’re going to get hammered. The right has been going after international billionaire megalomanic and currency crasher George Soros, so the left had to find someone on the right to do the same to.

As usual, the left's aim is cockeyed...
The Koch brothers are not on the “right.” They are pro-gay rights, anti-drug war, anti-war, anti-Patriot Act libertarians. They’ve even gone so far as to fund suspect activities like the ACLU and ballet! For more information on these patriotic Americans, go here, and here. For a particularly funny and (and true) take on the lefty attacks, go read epistemicfail’s righteous rant. It will take you less than five minutes, you’ll learn something, and you’ll split your sides laughing.

The “Anonymous” attacks on the Koch’s belies the fact that these shadowy WikiLeaks confreres of the internet are not info-anarchists, but just lefty nihilists wanting to burn it all down, man.

American Left:  Unhinged, Unbalanced, Unencumbered by Reality

The attacks on these men are not surprising. Modern-day progressivism is an incoherent, personality-based movement of various caliginous interests and agitation groups, loosely gathered, each to protect his or her own particular ideological or financial turf.

They shout “science!” and talk about free thinking, but demand we all bow down when Reverend Al Gore, International Church of Gaia, declares the earth will catch fire if we (not he) don’t all start driving electric cars and living in Gilligan’s Island huts. They demand we perform the very unscientific act of accepting their self-serving models and theories as dogma, lest they anathematize us as stupid hicks not worthy of even debating.

This is why the Koch's Threaten the Left:

Crony capitalism is much easier than competing in an open market. But it erodes our overall standard of living and stifles entrepreneurs by rewarding the politically favored rather than those who provide what consumers want. (Why Koch Industries is Speaking Out)

The Koch brothers have become the latest villain in the progressive narrative

The most effective lefty attacks are those that point out that the Koch brothers fund conservative causes. Although they are libertarian, they’ve got to plant the flag somewhere, and conservatism holds the firmest, highest ground right now. Would these critics expect libertarians to make common cause with politically correct, doctrinaire progressives who cheer the growth of the state?

Conservatives are not such a bad fit, since they share the goal of rolling back the size of the federal government. Yes, Democrats share Koch values on gay marriage, but the left’s belief in the supremacy of the state blows the whole deal. No, conservatives are a better, but not perfect fit. They want to roll back government power and restore personal liberty. And by the way, states continue to decide the gay marriage question on their own, abortion is still legal, and more and more republicans are blowing on their burned fingers, vowing to avoid touching the hot stove of foreign intervention again.

Libertarianism is an existential threat to Progressivism

Going after the Koch’s is stabbing at the heart of the anti-government beast. Modern-day conservatism is hard to defend and wholly complicit in bringing about our current fiscal calamity; libertarianism is not. It has a cachet right now borne of it’s inherent logic. It resonates with our founding principles and it is just the jolt conservatism needed to shock it back into some semblance of logical coherence and consistency.

Libertarianism has contributed greatly to the intellectual ferment on the right. Paloecons battle neocons, with moderates preaching a middle way while fiscal conservatives call for a truce on moral issues. Many religious conservatives don’t like libertarians, but it’s all in play, which is why the conservative cause is attracting interest (and votes) from those in the middle. For this reason I say the right will continue to surge, and the left will continue it embarrassing shrivel.

The Koch Brothers' Agenda is Clear--The Left's is Not

We know what the Koch brothers stand for because they state it clearly in person and through the organizations they openly fund, like CATO and Reason. The Koch’s stand for liberty and personal responsibility. For this reason they oppose an ever more overweening state that leaves the US Constitution getting smaller and smaller in the rear view mirror.

What does Soros and the left want? What are their guiding principles? What is their end-game?

Libertarian Nation

Libertarian Nation?  We’re not quite there yet…

* 10% Self-identify as libertarian

* 23 % responded to questions about the role of government in a way that categorizes them as libertarian

A survey conducted by Zogby for the Cato Institute has put the libertarian vote at around 15 percent. Loosen the wording, and the pool expands. When the Zogby survey asked voters if they would describe themselves as fiscally conservative and socially liberal, also known as libertarian, the number rose to 44 percent. When it simply asked if they were fiscally conservative and socially liberal, a full 59 percent responded yes. (http://nymag.com/news/politics/70282/)

Libertarian Me

I have turned libertarian over the past few years. There are many strains, but I tend more towards the Hayek/founding fathers variety. That makes me an “impure” medium-core libertarian, although I’m an avid fan of anarcho-capitalist and modern-day libertarian patriarch Murray Rothbard. The man is brilliant and his logic is unassailable, but I still believe in a state as envisioned by the founders.


Christian Me

Social conservatives consider us turncoats and libertines, especially those of us who are conservative Christians. I make my moral decisions based upon my Christian beliefs, but I make political ones based upon our nation’s secular bible, The US Constitution. This leads me to personally oppose gay marriage, but to also declare that the state should not interfere. I also believe, based on the same constitution, that the state may not punish churches that refuse to conduct same-sex ceremonies.

“Libertarianism gets marginalized in American politics because it doesn’t fit into the two-party paradigm. Libertarians want less state intrusion into the market, which aligns them with Republicans, but also less interference in social choices, which aligns them with Democrats. As Massachusetts governor William Weld put it in 1992, I want the government out of your pocketbook and your bedroom.” (http://nymag.com/news/politics/70282/)

The author goes on to note that “libertarianism is more internally consistent than the Democratic or Republican platforms,” which is what makes it so appealing to rational minded individuals. Tyranny is tyranny, regardless of which party wields it. If I oppose liberal democrats hijacking the power of the state in the name of social justice, how can I support George Bush’s Office of Faith Base Initiatives?

“At least the highwayman would take your money and leave you alone.  The government takes your money, then stands around and tells you what to do with it” -- Douglas French, President, Mises Institute

You may be more libertarian than you think.  Christopher Beam has written a pretty good article about libertarianism today entitled, The Trouble With Liberty.  He takes a skeptical view, but he's fairly even-handed, taking only a few gentle cheap shots.  If you're curious about libertarianism and the tea party tie-in, you should go read the whole article.

If you're hungry for more, here are my favorite libertarian links.  There are many, many more than these, but these best accord with my "brand" of libertarianism.

The CATO Institute is America's preeminent libertarian think tank.  CATO@Liberty is their blog.

Reason Magazine is my favorite libertarian publication.  Full of fun and interesting stuff updated daily, with writers such as Drew Carey, Penn and Teller, John Stossel and David Harsanyi.

The flagship of Austrian School Economics is The Ludwig von Mises Institute.  It's not just wonky economics, so don't be scared off.  Fresh articles on freedom and liberty daily, as well as classic writing from the past that are relevant to today's topics.

For a principled criticism of Austrian School Economics, you can read Professor Bryan Caplan's paper, Why I am Not an Austrian Economist