The Approaching Tragedy of Keynesianism

Just a refresher course: We are currently firmly ensconced in the loving shadows of a relatively recent economic theory called Keynesianism. In a nutshell, Keynesianism is a tacit rejection of free market economics, instead relying on government (or other monetary overlords) to actively jump in and out of an economy to make sure “Good Things” happen. By “Good Things” we mean people spend to oblivion to make sure the economy is moving….(these are all my definitions, not Keynes’)

It can be seen as a competitor to Supply Side economics which, while more recent label than Keynesianism, is considered by some to be the engine that built the (formerly) best economies in history–with the help of a whole lotta cheap energy. Supply side economics has slowly had it’s tail handed to it over the last few decades…

…because free market supply-siders sold their soul to wealth accumulation short cuts, trading the basic principles we learned in Henry Ford’s factory for policies that looked like supply side, but weren’t. Flattening out the tax curve does not mean that extra money at the top end will automagically build a factory. People figured this out pretty quickly and the Keynesians made wild progress by calling supply-siders “trickle-downers”.

Of course this only ruined the party for a little while. Trickle-downers soon realized it was a whole lot easier to accumulate gobs of money in a command style stimulating economy. They kept their supply side tattoos for nostalgia, but settled in to the cheap money party just as easy as everyone else…more easy, even.

So instead of building factories whose workers can afford to buy the very products it produces–you take those jobs, move them to factories with the overhead of Mola Ram’s Temple of Doom. Then give your former workers a “service job” and a credit card and convince yourself that the “information economy” means something. A few Ivy Leaguer’s and sharp country boys get rich on finance charges and naked body scanner patents. And when things don’t look so good, just tweak the “seasonal adjustments”.

It’s demand-side genius until the credit is used up.

Boom, everything grinds to a halt, the Keynesian Cult starts chanting “Stim-u-lus…Stim-u-lus…” We all buy iPhone apps that flash “when things turn around…..” on the screen while any true wealth producing industry crashes and burns in bubbles of increasing frequency. A generation that has grown up under this hollowed out debt feuled economy doesn’t see how insane this is. The stock market will go up. It always has.

Meanwhile, the intoxicating smell of free money becomes irresistable to politicians. Keynesian money injections get you elected, especially when they are legitimate, named applications of the economic theory. But hey…doesn’t really matter what you call it as long as they’re building a shovel-ready bridge or a jetfighter in the district.

And before you get to anti-politician, remember this is a completely rational response on their part. We vote that way.

Then slowly but surely the overall market realigns itself around the characteristics of Keynesian policies. No matter what fancy pants economists say, there is always a market. We saw it as our focus on consumption allowed huge swaths of manufacturing to be moved overseas. We see this today as the labor market is being converted to a great cinderblock warehouse of entitlements, defense contracts, and transfer payments.

And unfortunately because the government is the Great Decider in this market, lots of rich and powerful entities will latch on to the government to ensure that “Good Things” are the kinds of things that make them even more rich and powerful. Expect to see huge accumulations of wealth and income disparity as the government decides more and more. The hilarious thing about this is that they’re plowing that wealth into the very dollar they’re exploiting.

Contemporary liberals will mistake the gas for the brake pedal and attempt to remedy this with even more government control. Contemporary conservatives will all apply at Haliburton and Goldman Sachs in the hope of working for government one day. The citizens of the U.S., now primarily consumers, will continue to hang Chinese-made flags out on the 4th of July until grandmom’s social security check bounces. Then everyone will get all mad, go to a tea party meeting, and vote radically the same in the next election. Because no matter the rhetoric, we’re all dedicated Keynesians now. Dedicated to the bitter end.