Monday, September 13, 2010

The king has no clothes, or the Keynesians are about to be proved wickedly wrong.

The Keynesians are running scared, chief among them, President Barak Obama.  The economy is not turning around like it should be.

For those who are unfamiliar with the term, Keynesian Economic theory has been the backbone of the government’s plan to “make things better” in the economy for about a hundred years.  The problem is, the theory has never been especially accurate, or useful at predicting what’s going to happen in the next few years in the economy.  Neither has it been especially useful at designing public policy to “stimulate” the economy when things slow down into a recession or depression.

In fact, if we look with cold, dispassionate logic, it’s been a horrendous failure.  In the past, the Keynesians have explained this away with much hand waving and loud protestations that, we just didn’t spend quite enough tax money to REALLY stimulate the economy “properly”.  Of course, this time, our fearless leaders have spent more money than anyone has ever spent in the history of the universe to "stimulate" the economy.  If it doesn’t work this time, the theory is just wrong.  Here’s a link that shows just how much we have spent in the last 19 months:

By the way, Bush wasn't much better, so don't think I'm just bashing Mr. Obama.

For our purposes, the Keynesians think that if private sector spending goes down for whatever reason, the government can compensate for that by spending tax money or borrowed money, and get the economic engines churning again.

But what if they are just plain old wrong?  Is there some other economic model that does a better job of predicting what the economy will do in the next few years?  Is there some other theory that would give us and our government leaders a more effective toolbox to shorten recessions and stave off depressions?

I’m glad you asked.  There is such a theory.  It is called the Austrian School of Economics, as championed by the Mises Institute.  The genesis of the Austrian School of Economics reads like a thriller novel, including stolen academic papers, hidden by the Nazis because they were so unfavorable to socialism.  Here’s a small quote about two of the founders, Hayek and Mises:

“In the late 1930s, after suffering from the worldwide depression, Austria was threatened by a Nazi takeover. Hayek had already left for London in 1931 at Mises's urging, and in 1934, Mises himself moved to Geneva to teach and write at the International Institute for Graduate Studies, later emigrating to the United States. Knowing Mises as the sworn enemy of national socialism, the Nazis confiscated Mises's papers from his apartment and hid them for the duration of the war. Ironically, it was Mises's ideas, filtered through the work of Roepke and the statesmanship of Ludwig Erhard, that led to Germany's postwar economic reforms and rebuilt the country. Then, in 1992, Austrian archivists discovered Mises's stolen Vienna papers in a reopened archive in Moscow.”

Here’s the link to the full story about how this alternate school of economic theory got its start, with a strong foundation in the followers of St. Thomas Aquinas.

Now fast forward 80 years.  Barak Obama is a dyed-in-the-wool Keynesian.  He has decided to borrow and spend our way out of this recession, no matter what.  He is going to do it like no Keynesian has ever done it before.  Unfortunately, he is dreadfully wrong and will cause almost measureless pain and suffering because of his flawed ideology.  This will affect you and your kids and grandkids, and badly.   Unless you are on the short list of people getting truckloads of free money from the government.  I just thought you’d like to know who is responsible.

Despite being actively suppressed, ignored for decades and scoffed at by the mainstream media, Austrian Economics is making a big come back.  You may even hear about them on the TV box.  But remember, you heard it here first.

If you want to get more educated about how the economy actually works, the Mises Institute has a lot of resources:

I would encourage everyone to become educated in these matters to minimize the future economic hardships in their own households.

Finest regards,


No comments:

Blog Archive