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KEYNESIAN ECONOMICS, THE CANCER IN AMERICA
By JOHN SHANNON
AuthorHouseCopyright © 2012 John Shannon
All right reserved.
Chapter OneWHAT IS ECONOMICS?
Economics is the study of the production, distribution, consumption, and recycling (disposition) of goods and services. Humans have unlimited wants. There are scarce resources compared to the unlimited wants. If we lived in a world where everybody had everything they wanted, economics would be irrelevant. This is not the case. The world we live in has a finite amount of resources, which are: land and minerals, labor, capital, and entrepreneurial ability. Even abundant resources are scarce in relation to their needs and wants. Economics is what I call the "Theory of Everything". Not to be confused with Stephen Hawking "Theory of Everything". I call economics the "Theory of Everything" because it is totally what everybody does, every day, and all the time. Music can be listened to for an hour, baseball can be played for two hours, a movie can be watched for three hours, etc. etc., but economics cannot be avoided from the minute you wake until the time the Sandman visits your eyelids. Every day, humans try to satisfy the unlimited wants that they have.
Economics is the study of how scarce resources are allocated by people to people. Economics is the study of wealth. Economics is the study of how humans in their lives go about the business of life, earning and enjoying the fruits of their labor. Economics is the study of the activities with or without money that involve exchange transactions among people. Economics is the study of resource allocation. Economics is the study of man's daily pursuits. There is no more important subject in the world to anyone that is not on their deathbed than economics.
Let me add all these things together and make one clear definition: Economics is the most important subject and study of the pursuit by humans of how humans and society end up choosing with or without money to allocate scarce productive resources which could have alternative uses, to produce various goods and services and how to distribute them for consumption now and in the future, among various people and groups in society and how these goods are recycled or disposed of.
In my early textbooks, economics was described as the study of production and consumption of scarce resources. Today the textbooks have added distribution to the definition. I have added disposal and recycling to that definition to make the sentence: Economics is the study of the production, distribution, consumption, and recycling of scarce resources.
Why do we study economics?
There are many reasons to study economics, and an understanding of economics is essential to be a well-informed voter. If a person has no knowledge of economics and a politician running for office promises to print money to solve poverty, to raise taxes to promote growth, and to implement rent control to lower rents, that person may get elected to office by an economically illiterate populace, as in the case of Sen. Kennedy. In a republic such as the United States of America, where every person has a vote, an economically intelligent people can promote prosperity with the correct choices at the ballot box, just as easy as an economically illiterate people can promote financial and economic chaos with the choices at the ballot box ... as is the case today in America.
I consider America today mostly an economically ignorant nation, because I believe economics is so important. It should be taught every day and every year in school from first grade through college, along with math, science, English, history, etc.
Another reason to study economics is so the American people will realize the scarcity of resources and allocate, distribute, consume, and recycle resources in the best, most efficient manner possible.
Another reason to study economics is to gather economic information for the benefit of consumers, businesses, and government to understand how the economy is performing, enabling, through the free markets, those entities to make better decisions in the marketplace that will improve the efficiency of the economy.
Stated differently in a quote from John Maynard Keynes (The economist who blessed us with Keynesian Economics) "The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood, indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist."
This statement by Keynes is probably the only statement I have agreed with him on. Although he was probably referring to Adam Smith's "The Wealth of Nations", I believe today he would be looking in the mirror and seeing himself instead of thinking he was looking at a picture of Adam Smith.
Let us return to "Scarcity". Scarcity is the most important part of economics because resources are scarce, so we must economize. Do you want to go on a cruise or a camping trip for summer vacation? You may want the cruise, but may settle for the less expensive camping trip. Do you want a new Mustang convertible or used Hyundai? Is your evening out going to be spent at 'One Hung Low' Chinese restaurant or McDonald's? Is the Home Depot Corp going to buy back company stock or by a new businesses? Is the Federal Government going to give Social Security recipients a yearly pay increase, or is Nancy Pelosi going to spend the money on Congressional junkets to exotic foreign countries?
We all make choices every day ... consumers, businesses, and governments.
We constantly make very small to very large financial decisions every day because of the scarcity of resources. In fact most people are unaware that virtually all of their decisions throughout the day are economically based on scarcity of resources. The people with the least amount of concern for the economics of scarcity would be the English royal family and President Obama and most other members of the federal government.
Most economic textbooks deal with economic analysis and economic policy. In a free market economy, as the United States enjoyed for about 200 years, economic analysis made up the majority of economic thinking. Economic policy was a small part of economic thinking. The markets dictated economic policy. Today, since the 1960's, economic policy has taken over economic thinking, just as it is in all Communist countries. In Communist countries, economic analysis is used very little, just enough to support the massive economic policy. On the contrary, America's greatness occurred because economic policy was used very little, just enough to support economic analysis. The same can be said regarding positive versus normative economics. Positive analysis or positive economics relates to a positive economic statement, i.e. 'If the price of oil goes up, consumers will use less gasoline and heating oil.' Normative policy or normative economics relates to a subjective economic statement, i.e. 'We should not let the price of oil go up because it will cause consumers to pay more for gasoline and heating oil.'
The fact of the matter is when positive analysis economics is replaced with normative policy economics, the economy stagnates and inflation occurs. Because the economic heavy hand of illiterate Wizards of Oz in Government cannot replace the invisible hand of free markets John Maynard Keynes may not have known it, but he was talking about himself in that last quote.
Chapter TwoKEYNESIAN ECONOMICS
Let me start with making a simple description of Keynesian Economics in its totality.
The government, through fiscal and monetary policy, should greatly expand its size through spending, taxing, borrowing money, and printing money during the recessions or slow growth periods to stimulate the economy until the economy expands and spending, taxes, borrowing, and printing money can be withdrawn to its original size.
If one could implode all the Keynesian textbooks and writings of all the Keynesian economists into one sentence that would be it. They do, however, make the argument for this policy based on the falsehood that markets do not work and their Keynesian policies should be used.
Although I contend that free markets are not working properly because of the Keynesian Economics, not without Keynesian Economics.
Here is my reasoning.
In 1936, John Maynard Keynes wrote the book "The General Theory of Employment, Interest, and Money". This book is the economic bible of the Keynesian Economists and Keynes is the Messiah. Since then John Kenneth Galbraith of the 1960's, economic advisor to President Kennedy and others, Paul Samuelson of MIT, and today a proliferation of liberal Keynesian economists are teaching colleges, advising our presidents, giving financial advice in the news media, and directing our monetary policy at the Federal Reserve.
Let us examine their statement that markets don't work.
First of all, in 1936 when Keynesian Economics exploded on the scene and claimed its usefulness to get the American economy out of the depression of 1930 to 1939, the Keynesians had already been working their black magic since 1900. Federal income tax and other government, Woodrow Wilson and Teddy Roosevelt policies, the Federal Reserve (a Keynesian tool) was created before the depression in 1913, which pumped money and credit into the economy during the 1920s and slammed on the brakes in 1929, raising interest rates and creating the depression. The depression of the 1930s was not the result of free markets, it was a result of government policy and the failure of government policy. A government in bed with a few big banks, just as it is today, regulating interest rates and other fiscal policies then, such as the selling of newly created treasury bills in 1929, sucking money out of the economy, caused the crash and the ensuing depression.
In my opinion, Keynesian Economics started in 1900, 30 years before Keynes wrote the book in 1936. It was just given Keynes name, and he was the most outspoken and notable proponent of the relatively new school of economic thought.
A note must also be made that, yes there were always business cycles with recessions, but they were always short lived. It wasn't until government became a large player in the economy, which is the heart of Keynesian Economics, that recessions, depressions, and financial crisis have been occurring with more frequency and more devastation.
The war in Europe got the US out of the depression of the 1930s. The American export of goods to Europe, because of the war, got the American factories humming and people back to work, not the 10 years of Keynesian Economics spending of the federal government. In fact that prolonged it. John Maynard Keynes himself, on his deathbed, said to Henry Clay in England that he hoped the guiding hand of Adam Smith's free markets could finally get the economy expanding. Literally doubting his own economic philosophy.
The most dangerous part of Keynesian Economics is its 99% Road to Communism. Keynesianism, which is 95% of the economists in government, college, news media, Wall Street and textbooks today, are all in agreement that the federal government should grow in size and spending during a recession or slow down. Okay, that may make sense to someone, but as soon as the economy picks up and jobs are created, sales increase, profits are up, and taxes start flowing into the government treasury at all levels of federal, state, and local governments, complacency sets in. As the economy expands, there is more money for government to spend and steal. The populace pay less attention to government hanky-panky when they have hot food, good sex, dancing shoes, and a warm bathroom, more so than when they are out of work. The complacency of the people, coupled with the vast sums of taxes during a boom create an ever expanding government sector. In short, government never shrinks in size.
Reading John Maynard Keynes and knowing what he said on his deathbed, I do not believe he was a communist. I believe he was genuinely concerned with the suffering during the Great Depression and both tried to solve the problem and did not really understand the cause. I do believe however, that many of the economists of today that picked up the Keynesian banner and ran with it are definitely communists, or they are ignorant in economics ... but, of course, brilliant in liberal arts.
The government sector in America since 1776 has grown during wars and shrunk after wars. The exception is since Keynesian Economics was introduced, the government (federal, state and local, but mostly federal), has been growing and growing in size and power. Producing decay and devastation in its wake. This is totally because of Keynesian Economics. The Socialists and Communists are very happy with Keynesian Economics. The Nancy Pelosi's and Barack Obama's are very happy with Keynesian Economics. The cronie capitalists and lobbyists are very happy with Keynesian Economics. The bankers and financiers are very, very happy with Keynesian Economics.
I would like to add something taken from a textbook by liberal professor Paul Samuelson of MIT, showing his (their) idealistic nonsense and total disregard for realism, coupled with his (their) blind stupidity on his (their) path to poverty and communism, thinking they are traveling on the yellow brick road. He (they) are searching for the Wizard of Oz and Utopia. Only you and I know what the real Wizard of Oz is like, and Utopia doesn't exist.
The following was written in 1970 by Professor Paul Samuelson:
When Scarcity Ends
Indeed we do not face squarely the philosophical issue if we make an era of altruism wait on the disappearance of scarcity. There is no great virtue in paying lip service to unselfishness after there is superabundance. The test of sincerity of belief in a cause is how much you will sacrifice for it. Galbraith was premature in proclaiming the end of scarcity at mid-twentieth century. But actually John Maynard Keynes had anticipated Galbraith by almost 30 years.
In 1930, Keynes made the following prophecy with respect to the future.
"Suppose that a hundred years hence we are, all of us, eight times better off than we are today. Assuming no important wars and no important increase in population. The economic problem may be solved. This means that the economic problem is not, if we look into the future, the permanent problem of the human race.
Why, you may ask, is this so startling? It is startling because if instead of looking into the future, we look into the past, we find that economic problems, the struggle for subsistence, always has been hitherto the primary, most pressing problem of the human race. Not only of the human race, but the whole of the biological kingdom from the beginnings of life, and its primitive forms.
Thus we have been expressly evolved by nature with all of our impulses and deepest instincts for the purpose of solving the economic problem. If the economic problem is solved, mankind will be deprived of its traditional purpose. I think with dread of the readjustment of habits and instincts of the ordinary man, bred into him for countless generations, which he may be asked to discard within a few decades.
To use the language of today, must we not expect the general nervous breakdown? Thus, for the first time since his creation, man will be faced with his real, his permanent problem, how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.
There are changes in other spheres to which we must expect to come. When the accumulation of wealth is no longer of highest social importance, there will be great changes in the code of morality. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for 200 years. By which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. The love of money as a possession, as distinguished from the love of money as a means to the enjoyments and realities of life, will be recognized for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which hands over with a shudder to the specialists in mental disease.
But beware! The time for all this is not yet. For at least another hundred years we must pretend to ourselves and to everyone that fair is foul and foul is fair. For foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still.
In making preparations for our destiny, let us not overestimate the importance of the economic problem. It should be a matter for specialists like dentistry. If economists could manage to get themselves thought of as humble competent people, on a level with dentists, that would be splendid."
Excerpted from KEYNESIAN ECONOMICS, THE CANCER IN AMERICA by JOHN SHANNON Copyright © 2012 by John Shannon. Excerpted by permission of AuthorHouse. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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