Keynesian economics was the end result of ideas put forth long ago by John Maynard Keynes. Mr. Keynes was an academic from England around the time of the early 20th century. His theory was that a central government could smooth out and perhaps eliminate recessions and economic depressions by expanding or contracting the supply of currency. He also saw no problem with running very large budget deficits during these challenging times.
These suggestions went against the thinking at the time that recessions were necessary flushing out of the results of bad decisions made in previous years. Keynesian economics, while not a direct contradiction to free market capitalism, certainly doesn't hold the same beliefs about letting the markets decide value.
But without a doubt, this new idea was a boon for politicians and the saving grace for the very big banks that sought to control the flow of currency. As we learned from the page about the secret meeting on Jekyll Island a century ago, the plan was always to keep a tight rein on international currency.
Keynesian economics is certainly the feel good approach to dealing with difficult situations. In their classic book, "How An Economy Grows And Why It Collapses" Peter and Andrew Schiff write, " Keynesianism was an instant hit with politicians. By promising to increase employment and boost growth without raising taxes or cutting government services, the policies advocated by Keynes were the economic equivalent of miracle weight loss programs that require no dieting or exercise. While irrational, such hopes are nevertheless soothing and are a definite attraction on the campaign trail."
Regular readers at books-empower.com know that miracle weight loss programs do not work. It takes diet and exercise. It takes accountability and responsibility. The last two traits are also vital in national economies.
In fact, Keynesian economics had taken what was really, very simple and made it confusing and overreaching. This has allowed the growth of government to continue.
Look at the recent debate about minimum wage laws. The sitting president has suggested a higher threshold. His own political party has already stated an intention to use this idea on the campaign trail. Again, basic economics is discounted in favor of showering money on voters. How to pay for this shower is not considered.
The neutral congressional budget office has announced that this proposal will eliminate 500,000 jobs. This is of course exactly logical. True economics tells us that by over-valuing low skill labor, we weaken the job opportunities for lower skilled workers.
But that doesn't matter. It is all about staying in power. By confusing the voters, this is achieved. By keeping people trapped in a welfare system, the cycle of election success is guaranteed. It's the polar extreme to Adam Smith economics.
Paul Krugman is a leading voice among the Keynesian economics group. He recently stated that raising the minimum wage would encourage more people to spend, thereby aiding the economy. As you can see, they are so bold now that they don't even have to cloud over a mirage anymore. They just tell us to spend. Even if it doesn't really build the fundamental base.
It is odd that this Keynesian economics voice now encourages higher minimum wages. Not too long ago he stated."So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment."
Such honesty doesn't encourage voters to buy into the mirage. So the message must be changed. The former speaker of the house of representatives cited a page signed by 600 "economists". This letter suggests that raising the minimum wage would have "little or no effect" on the employment of minimum wage workers. She doesn't mention that most of these 600 signers were academics with no experience in the actual business world.
The former chairperson of the federal reserve system, our nation's version of the central bank made some interesting comments in the minutes of past FED meetings. This advocate of Keynesian economics admitted, "We were seriously behind the curve in terms of economic growth and the financial situation." This was back in early 2008. He was similarly behind the curve when he stated there was no danger of a housing market collapse. Just before it collapsed.
He stated that Fannie Mae and Freddie Mac were "adequately capitalized" and "in no danger of failing." About sixty days later the taxpayers were forced to bail out both organizations.
Keynesian economics allows big banks to rake in profits. It allows politicians to buy elections and kick major challenges down the road. Politicians of both parties. Several years ago, the junior senator from Illinois very correctly called out George W. Bush for requesting that the debt ceiling be raised. This junior senator called it a " failure of leadership."
As the sitting president of the United States, he has continually called for that same allowable explosion in national debt. The Keynes philosophy keeps many members of congress obedient and reliable when votes are needed.
See no evil, hear no evil, speak no evil.
Or... we could "Teach Our Children Well" We could impress upon them, the urgency of seeking accurate information. We could encourage them to look past the political rhetoric and outright lies. We could advise them to look at what politicians and those who support and profit from their failed polices do, rather than what they say they will do if we just give them one more chance.
Keynesian economics promotes entitlement mentality. It traps generations into a belief in the need for governments to support them, rather than seeking to do it themselves. And it certainly keeps alive the goals of the men who set the idea of the federal reserve system into motion on Jekyll Island in 1913.
Look into the history of recessions and depressions since Keynesian economics took a foothold in America. The report card offers a failing grade.
Be sure to check out the resource library, located in the left margin. At the end of that page you'll find an incredible six part video series from Mike Maloney. It provides a fascinating look at how money really works and how the process is manipulated.