Keynesian Myth-Math

May 8, 2013

Sex Has Nothing To Do With Economics

By Don Kirk in Conservatism, Economics, Keynesian Myth-Math, Left-Liberalism

In the “kerfuffle” over linking John Maynard Keynes’s sexuality with his famous focus on short-term fiscal policies, Bruce Bartlett has a piece in The New York Times. In Mr. Bartlett’s view, the kerfuffle misses what is more important: Keynes’s recommended stimulus of aggregate demand by government spending is needed now more than ever, because the stagnant American economy is in Keynes’s “liquidity trap.”

Although Keynes is identified with the political Left, there have been a large number of Keynesians–such as Mr. Bartlett–who are from the political Right. Three of the top six Keynesian presidents were Republicans, and they would be vociferous in denying that they support Fabian socialism. Yet Keynesianism is the intellectual force behind Fabian socialism’s incremental attempt to institute socialism without a violent socialist revolution (found on page 375 of Keynes’s General Theory).

It does not matter what Keynes’s sexuality was, and it does not matter whether the call for fiscal stimulus comes from a socialist or a capitalist. What matters is that the RETURN on the taxpayer’s money in the stimulus is greater than the cost. There is no example of the dollar benefit from the many Keynesian stimuli attempted over the past decades being in excess of the dollar cost. Therefore, Keynesian fiscal stimuli are identified as “death spiral” economics, where every dollar spent on stimulus returns less than a dollar to the taxpayer.

Keynes’s Fabian socialism ‘toilet-flushes’ an economy, completely counter to its intent to stimulate an economy. Taxpayers receiving back only 95, 90, 80 cents back on every tax dollar spent in fiscal stimulus means the taxpayer is steadily going Keynesian broke.

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April 30, 2013

Two Perspectives But Same Conclusion

By Don Kirk in Economics, Keynesian Myth-Math

Social-Left and conservative-Right economists are embroiled over a major research paper out of Harvard which found that economic growth was negative for major countries with larger amounts of debt. Using numbers not available to the original authors and correcting for a slight Excel error (very slight!), these are charts of the comparative results.

The conclusion is the same. At around 90% of GDP, debt becomes a drag upon economic performance. The corrected data note the drag drops GDP to around 2% from the original report’s -1%, enabling social-Left economists to crow about the error and issue calls for more debt, while leaving conservative-Right economists arguing against more debt when it reaches 90% of GDP.

They both miss the point, don’t they. If the benefit from the debt (increased profit) is greater than the cost of the debt (the interest rate), then it does not matter how much debt one incurs so long as the growth in profit is sustainable. Similarly, if the cost is greater than the benefit, then it matters a great deal how much debt one has incurred, regardless of however small the amount might be, because the greater-cost-than-benefit debt is toilet-flushing the economy’s capital.

Bottom line: The 1.4T total ‘cost’ of the 2009 stimulus of 787 billions was greater than the ’benefit’ of approximately 900 billions (other research suggests less than 600 billions), so the huge 2009 stimulus actually became a drag upon the economy, the complete opposite of its intent. The U.S. is at now 105% debt to GDP and the debt load is steadily growing worse, putting us in the anemic gray bar of the graphs above.

It’s an old saw but very true: ‘One cannot borrow their way out of debt and one cannot spend their way into prosperity.’ Someone needs to re-tell the taxpayers and voters.

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April 29, 2013

Carmen, Carmen…

By Don Kirk in Free Markets Myth, Keynesian Myth-Math, Prosperity vs. Poverty, Socialism's "intellectual suicide"

Spanish unemployment. Past 25%, and still rising, after five years of both Leftist and Rightist governments promising they knew how to end the economic debacle. Well, they created the problem so one would think they know how to solve the problem, but if a country is going to base its economic policies according to ideology, then we shouldn’t be surprised when they fail.

Currently, yields on Spanish bonds trade at 4.16%. Debt is at 110% of GDP (more than the entire economy), which means the cost of the debt has to be financed out of annual economic growth.

Oops. Spanish GDP growth is 1.5%, on a good day and after drinking plenty of Spanada wine. So, 4.16 – 1.5 = -3.66. Conclusion? Spain is being toilet-flushed by more than 3% per year by ideological economics of Leftists and Rightists, both of which are utopian and laden with myths. Watch for Spanish youth to be migrating to Latin American economies to escape the toilet-flushing at home.

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March 15, 2013

Sea of Red

By Don Kirk in Free Markets Myth, Keynesian Myth-Math, Socialism's "intellectual suicide"

The sea of red is angry government worker unionists in Brussels protesting the austerity program in Europe which is reducing their jobs. The unionists honestly believe in John Maynard Keynes’s Fabian socialism, where increased government spending, not reduced government spending, will restore Europe to a path of economic growth.

This intellectual battle has been fought for more than a century, and clearly from the above picture, the battle rages. Unfortunately, the battle is over two myths—the ‘free market’ versus ‘government stimulus’—and neither myth is capable of building or restoring economic growth.

What the socialist unionists fail to understand is that government expenditures, at all times, are a cost to the economy. Government ‘stimulus’ often actually worsens an economy, although the stimulus does wonders for the salaries and careers for government unionists. What ‘free marketers’ fail to understand is that there is no such thing as a free market, and likely there never will be. It is impossible to create economic growth by adopting policies based upon utopian myths.

The key is economic liberties, which include both labor and business freedoms. If Europe, and especially the United States, paid more attention to raising their rankings in economic liberties, they would find their economies growing as a result.

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February 10, 2013

Gimmee, Gimmee Greed

By Don Kirk in Economics, Ethics, Keynesian Myth-Math, Socialism's "intellectual suicide"

In a famous psychology experiment measuring the ability of unchaperoned children to resist eating a tempting marshmallow, researchers discovered that the ability to ‘defer gratification’ correlates with better academic performance, more stable adult relationships, higher incomes, levels of happiness, longevity, just about everything positive in a person’s life. The inability to resist temptation is called ‘immediate gratification,’ and since just about every measure of life satisfaction and happiness is worse in children who demonstrate ‘immediate gratification,’ it measures emotional immaturity.

Capitalism is built on ‘defer gratification,’ while socialism is built on ‘immediate gratification.’ If the capitalist consumes now instead of saving for the future, she will never accumulate the capital surplus which grounds capitalism. No surplus, no building wealth. The socialist, however, encourages spending now, even borrowing against future income, in order to satisfy immediate needs. Famously, John Maynard Keynes, the world’s most influential Fabian socialism economist, quipped that borrowing now instead of saving for the future was the correct policy because “in the end, we’re all dead anyway.”

This cavalier greed in socialism is glaring in school district financing. Education in America is a socialist monopoly, the government-owned supply of a mandated service. School districts for the past several years have been using a borrowing vehicle known as ‘Capital Appreciation Bonds’ to finance building or renovating school structures. These particular bonds permit the school districts to borrow money now and not pay the interest or principal for many years in the future. Sounds like a future housing bubble.

Two problems. The eventual payer of the debt is the local property owner. They will be taxing their properties in the distant future for the money the school district borrowed today, but they have no tax increases until the bonds mature, which can be as long as thirty years. Hurray! Free money! Many property owners will be dead within thirty years, and many more will have simply moved away to another city. This is ‘immediate gratification’ in spades.

The second problem is, the math. By not paying the debt as it is incurred, the immediate gratification runs an unpaid clock. Compounding unseen–’unseen’ because payment is deferred while gratification is immediate–is the interest on the debt. When you add up the final cost, the total cost is as much as ten times the amount borrowed.

In real terms, according to yesterday’s article in The New York Times, the Poway School District in southern California will have to pay back $1,000,000,000 (one billion dollars) for the $100,000,000 (one hundred million dollars) it borrowed in Capital Appreciation Bonds. Another school district will pay back 350 million for the 35 million dollars it borrowed. The Orange County Register newspaper reports that local Placentia-Yorba Linda school district will pay back 13 times what it borrowed: $280 million for $22 million borrowed.

Wrong! The property owners will have to pay the billion dollars! The school district merely will send the bill to the property owners who live locally, thirty years from now. Ten times future cost for today’s money is certainly ’immediate gratification,’ and that is simply a measure of emotional immaturity…or it measures socialism’s “death spiral economics,” otherwise known as GREED.

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December 24, 2012

The Coming Collapse

By Don Kirk in Economics, Keynesian Myth-Math, Prosperity vs. Poverty

From Dr. John Taylor’s blog, Economics One, the new Congressional Budget Office chart of 213 years of U.S. government debt and Dr. Taylor’s restoring their original long-term forecast, conveniently left out of their recent projection. The ghost of Christmas future warns with a bony pointed finger.

The collapse of Greece, not incidentally, came when government debt reached 300% of GDP. The CBO projects that under present trends we reach 300% in 2050, which perhaps explains why their new charts leave out anything after 2045.

This chart predicts the collapse of the American economy in thirty-five years, yet we will continue to vote for Keynesian Republicans and Democrats until they have bankrupted us. The closer we come to 300% debt to GDP, the more the dollar will erode. As the dollar erodes, inflation will soar. As inflation soars, interest rates will rise. As interest rates rise, the economy will slow even more and the debt costs will accelerate. We call this economic theory ‘Keynesian Fabian socialism,’ otherwise known as “death spiral” economics.

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December 12, 2012

Thoma’s Doubting Thomas

By Don Kirk in Economics, Ethics, Free Markets Myth, Ideological Monism, Keynesian Myth-Math

In the Fiscal Times, eminent economist Mark Thoma argued that supply side economic theory (to have fiscal stimulus by cutting taxes) failed in the Great Recession, bolstering his opposing Keynesian theory of fiscal stimulus by raising demand (increase government spending). Mr. Thoma’s argument has a fatal flaw: he had to leave out a critical fact for his argument to succeed. My reply to Dr. Thoma:

“We appear to have the too common fact-filtering by an ideologue in this post. Supply-side economics is a two-handed policy mix, while Mr. Thoma only mentions one policy, fiscal stimulus by cutting taxes. He never even mentions the complementary policy in supply side economics of monetary restraint, so how does he conclude that supply side economics failed so long as Fed policy since 9/11 has been massively expansionary?

My criticism is not an argument for supply side economics, but rather, the criticism is directed at the fact-filtering analysis. Why would an economist deliberately leave out known policy prescriptions in his debunking of an economic theory unless the total facts worked to vitiate his argument? By fact-filtering, this economist is either engaged in ‘confirmation bias’ or he has discredited his discrediting.”

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October 22, 2012

Objective Facts vs Ideological Fiction?

By Don Kirk in Economics, Ideo/theologies, Keynesian Myth-Math, Socialism's "intellectual suicide"

This is Stanford University conservative economist Dr. John Taylor’s chart of eight U.S. economic recoveries over the past 130 years. He argues that the reason the current U.S. recovery is the worst in over a century is because of government policies.

Dr. Taylor’s conclusions are sharply disputed by Keynesian/Fabian socialism economists, notably Dr. Paul Krugman of Princeton University. In their democratic socialist view, the current recovery is so weak because when recessions include a financial collapse they always result in a deeper and longer-lasting recession.

But look at the chart. The two-year recovery from the financial collapse during the Great Depression is robust, in contrast to the weak two-year recovery after the financial collapse from the recent Great Recession. From the data, the Keynesian/Fabian socialist argument is false; the history of financial recessions do not account for the present long-lasting economic stagnation.

Please note, in addition, the chart does not make Dr. Taylor’s conservative argument that government policies are to blame. That is likely true, but the chart merely establishes that the democratic socialist argument—that the present weak recovery is to be expected by the history of past financial crises—lacks empirical grounds. Something other than a financial crisis recession is causing the weak recovery from the 2007-2009 Great Recession. Dr. Taylor needs a different chart to prove his point; otherwise he is simply making a conservative ideological argument to counter a Left-liberal ideological argument.

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September 30, 2012

Catabolic Catalonia

By Don Kirk in Economics, Foreign Affairs, Keynesian Myth-Math, Socialism's "intellectual suicide"

Catalonia National Day demonstration

This is a recent picture of one million–some said two million–Catalonians protesting in the streets for their independence from Spain. As Spain prepares to tap into well over €60 billion in bail-out money from the European Central Bank to re-capitalize its banks, the Catalonians are going to vote in late November on ceding from Spain and re-claiming sovereignty over their own country. The king of Spain is so upset that he made his first political speech in thirty years, making reference to the rise of Franco’s proto-Fascism during the last economic crisis in the 1930′s.

Spain is in deep economic trouble. It lied in recent years when it said its banks did not need to be re-capitalized, and like Greece, it lied about not needing bailouts from other European countries. Spain is already in a deep depression, not a recession, with unemployment well above 20%. The cost of interest on its debts is greater than the growth of income to pay the exploding costs, a perfect “death spiral” of Keynesian economics, where borrowing even more money in order to get out of debt is a policy prescription.

Among other reasons for wanting their independence, Catalonians are upset that the taxes and fees that they pay to Madrid are greater than the services they receive. A broke Spain is being subsidized by a more prosperous Catalonia. In good times, the subsidy is tolerable; in a full depression, it is not. The philosophy of freedom strikes again.

One thing in Catalonia’s favor for independence is that Spain as a modern nation-state is made up of three former, medieval kingdoms. If Catalonian nationalism succeeds in achieving independence–or restoration–perhaps the remainder of a broke and broken Spain will have no better option than to declare bankruptcy, bring back its own currency and devalue it immediately, and withdraw from the European experiment.

But then, the real problem in Spain is in adopting Keynes’s Fabian Socialism, so a smaller Spain does not solve the problem so long as it continues to borrow at interest rates greater than its rate of economic growth. Spain needs economic growth, not budget austerity, but if they valued the philosophy of freedom they would know that already.

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August 5, 2012

Oops. One Ideology is as Bad as the Other.

By Don Kirk in Free Markets Myth, Keynesian Myth-Math

Supply-side economist Arthur Laffer has an Op-Ed today in the Wall Street Journal with the above chart. He argues that the actual data from the nations which attempted to ‘stimulate’ their economies out of the 2007-2009 Great Recession with Keynesian counter-cyclical policies failed miserably, at a cost of mega-billions of taxpayers’ dollars lost. His analysis is drawing fierce criticisms from economists on both the Left and Right.

Keynesian economic policies are an attempt to implement Fabian socialism, popularly known as “democratic socialism.” Their counter-argument to Laffer’s is that without the hugely expensive ‘stimulus,’ the recession would have been even worse. Furthermore, several of the countries Laffer cites in the graph as being the most Keynesian did not ‘stimulate’ their economies into a deeper recession. Note, however, that the socialist counter-argument will never be able to offer actual data which supports their argument.

There are six U.S. Presidents who implemented Keynesian/Fabian policies during the past century; three were big-government Republicans and three were big-government Democrats. Lost in the contradictory theories is that not ever, not even once, have the Keynes/Fabian socialist policies ever worked to increase a ‘multiple’ of non-government employment, unless we ignore 400,000 dead and 1,000,000 crippled workers lost fighting in uniform during World War II.

We voters never learn. We continue to elect politicians who either believe in the myth-math of Keynesian/Fabian socialism, or in the myth of a ’free market.’ If Dr. Laffer presented more accurate, less biased data, his argument would be stronger.

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