Monday, November 24, 2008

J.M. Keynes - a la Neocon

John Maynard Keynes the economist who gets credit for the economic model which helped the world start to claw its way out of the last great swamp created by panicked Wall St. 'investors' has been newly-revivified to justify the neocon solution to the mess that's happening now. Problem is they're not reading Keynes, they're interpreting Keynes and we all have ample evidence of their powers of interpretation.

These are the same wizards of economy who espouse the 'Chicago School' of free markets - J.S. Mill and Adam Smith without the 'intelligent' or 'decent' parts. These are the same guys who clapped when the greatest market on earth dropped Keynes' slow-and-steady growth model for a wild west wahoo where a shyster could really make a buck. They're the guys who brought the Roaring 20's back to Wall Street. No wonder the past two decades have seen a wave of the greatest flim-flams and failures, and now, possibly, the biggest crash of all time. Having studied basic economics these mavens can't say they didn't think it could happen. They can't even say they didn't see it coming, they did, but by then even they couldn't stop it.

Here's the punchline - they aren't going to stop it this time either. For their Keyensian model isn't Keynsian at all and is just another waste of dwindling resources.

Keynes was all for government spending to get out of a depression. He was for massive public works projects and for support for the poor. But he wasn't big on bailing out private banks and businesses. The depression was caused by a round of self-generated bailouts which weren't enough to undo bank liquidity problems. Credit caused business failures and a round of unemployment, lack of credit, and diminished resources put the economy into a coma. Public spending - on infrastructure on America, on housing in Britain, on rearmament in Germany got economies started again. Massive public spending for World War 2 drove the economies into high gear and a developing consumer market after the war kept it there. Keynesian economics kept the lid on the high spots and supposedly revved up the low spots.

Increases in resource prices - particularly oil - in the 70's gave rise to an inflationary period that wasn't handled well. And 'new' economists - the Chicago School began to call for more relaxed market structures and lowered barriers to trade to minimize the cost of resources and raw materials. High production for a global free trade market would control the effects of demand on prices of goods. From the 1980's, as the world economy expanded, it seemed they were right, the bull market was eternal. The bull really was eternal, for the only thing missing was some inanity like 'prices will rise forever' - I think some real estate bozo actually said that! We know all too well that real estate, as it has been in other downturns, was the catalyst again this time.

So to-day we have our governments being 'Keynsian' and bailing out failing financial institutions. Now major industries are lining up for the free lunch. Next it will be smaller business. All demanding handouts, or selling crap to the public purse. Not that the government should be demanding value - liens and bluechip shares - that would be like socialism. The government would 'own' businesses - and we all know what a bad job government does managing business. So we'll settle for partial Keynes, a welfare Keynes, a hand-out that we hope will be a hand up. So far it seems the banks are sitting on their handouts, waiting for that 'run', when people want to get what they can. And that day may well come, for the banks are setting business up for it. And business is setting the people up for it.

They have done better, if not at least just as well to have blown 700 billion on economic stimulus to ordinary people. Most would have spent it at banks and business anyway - and solved the same cash flow problems naturally. As it is now, the ordinary people can't afford to drive the economy, and big government is in too much debt to do what needs to be done - take back the money supply and pass laws that might 'hurt' the debt-holders.

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