Category Archives: Keynesian Economics

Poverty in America

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I was listening to the opening segment of Dave Ramsey’s radio program this morning when I heard him describe some criticism he has been receiving. These critics claim Ramsey is a fraud, hates poor people and is a tool of the “moneyed” people, whatever that is.

Their position is that capitalism is the root of the country’s ills, that capitalism purposely keeps people in poverty so that “moneyed” people can control everything. It was reminiscent of the union and socialist talking points that I’ve seen over the years.

My observations over the last forty plus years as an adult is contrary to those talking points. The Poverty Line didn’t exist when I was growing up. That was a creation of Lyndon Johnson’s War on Poverty. Since that time, the government has spent trillions, yes that’s right, trillions with a T, on poverty and it still exists in higher levels than before.

Why is this so?

To a very large extent, in my opinion, it is cultural. The history of this country, until the middle of the 20th Century, was based on entrepreneurship. People worked to acquire assets and capital that was, in turn, used to bootstrap a business, an enterprise, a homestead, a dream that lead to prosperity and increased wealth. Many, many were successful. Just look at the winners of the 19th and 20th centuries. They were, are numerous.

Many also failed.

Some, who chose to be homesteader, failed due to disease and weather. The drought and subsequent dust storms of the 1930s is one example. The blizzards covering the northern prairie states in the late 19th century ruined ranches large and small.

Some of those who failed, tried again and succeeded. The farmers who lost their farms in the Dust Bowl, migrated to California and other states and were known as “Okies,” migrant workers moving from one agricultural job to another.

Others, quit. With FDR’s New Deal, some realized they didn’t have to support themselves, others, the government, would do that and that realization was the beginning of America’s welfare state, a  shift in American Culture which fed today’s welfare state.

But, even today, those in poverty need not remain there. The tools exist to allow anyone, with sufficient motivation, to rise out of poverty and to succeed. The obvious tool is education. When I was young and in school, we were taught basics: reading and comprehension, writing and grammar including composition—writing clearly, arithmetic and math, history, geography and natural sciences. But most of all, we were taught how to teach ourselves.

As bad as our current education policies are, it is still possible for an individual to rise above their economic level and succeed—but now without work and personal investment. That is where our dependency culture is failing us.

When I was in school, we had a number of students whose parents were on “relief.” I personally knew some of them. I played with their children, visited them at their home, rode the same bus to school, I knew them and their entire family intimately. The differences between their families and mine were unbelievable to one who had not known both of us.

My family was average for that time and place. My father worked as a coal miner and part-time farmer (I did more farm work when in school than did he), my mother was an elementary school teach as was my older married sister. We also owned a small farm and raised most of our food. We weren’t rich, nor had a lot of money, but we did have something else—a desire to succeed. I was raised in that culture.

The other family was raised in a different culture. My school friends never took school work home. Their parents, outside of a small garden, had no income other than relief payments from the government. When their allotment of relief ended, they would find some job and keep it long enough to qualify for relief once again. It was a cyclic existence. If their children brought school work home, it was destroyed or if the parent found any school textbooks, those text books were sold for whatever value could be received. Their culture determined that education was a hindrance to life—on relief…welfare as we call it now.

That dependency culture has grown over the decades. It need not continue. The tools to fight it still exists—education, learning how to learn, teaching oneself new skills, skills that can lead to a job, the basis of economic freedom. The path is there.

How does this work? Basically, get a job. Acquire, through education, self-education, work, skills that youj will be paid a wage or salary for exercising those skills. Learn more skills, gain expertise, and find a better paying job, or create a new business with those skills. Then, as your business grows, with your hard work and enterprise, you hire employees who have skills you need. The cycle continues.

The critics scoff at this idea. “All the wealth is controlled by a few! No one new can join them.” That is the basis of Keynesian Economics: wealth cannot be created nor destroyed.” Wealth must be controlled for the betterment of all. Wealth must be taken from those who have it, and given to those who do not.

Later versions of Keynesian Theory were based on the Zero-sum game theory. Nothing, wealth, can be added nor removed from a system, just manipulated internally. Poverty is created because the wealthy have acquired all the wealth—a view of economics is easily refuted.

In the 19th and early 20th Century, our currency was based on gold and silver standards. Gold backed the currency. On the face of each bill was the statement, “Redeemable in gold/silver.” Our currency was not Federal Reserve notes, backed by the federal government, but Silver and Gold Certificates redeemable by the appropriate metal. If you didn’t have sufficient gold, or silver, you mined more. Wealth, actual wealth in silver and gold in this case, grew. The economy grew, people gained jobs, saved, and created new jobs. Poverty was diminished.

We no longer have a currency based on gold or silver. Our economy has outgrown the available quantities of gold and silver. We do have a currency based on work. We have the tools available to anyone with the will to use them. Poverty will not cease in America due to the dependency culture. But, we need not feed that culture. Poverty is not a lack of money, wealth, it is a cultural affliction.

Those who are mired in it, can escape. All it takes is the will to do so, and by doing so, escape the trap of dependency created by progressive, socialistic economic thought and policies.

 

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Repost: "Did Franklin Roosevelt’s New Deal Lift the United States Out of the Depression?"

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I do a lot of reading. Most of it is fiction I admit, but not all.  A couple of years ago, I read a book by Thomas Woods titled, “33 Questions about American History You’re Not Supposed to Ask.” After I finished, I wrote several reviews on segments discussed in the book.  One of those was about the myth that FDR saved America from the Great Depression.  To my Father, this myth was gospel.  My studies of that portion of history when I was in college lead me to believe otherwise.  Woods affirmed my opinions.

Here is that  review again.  With Obama in the White House, it’s pertinent to review the mistakes and errors of the past. This was originally posted on May 21, 2009.

I’ve posted previously about some of the historical myths debunked in this book. For the previous posting, go HERE. This time, I’d like to address the myth: “Did Franklin Roosevelt’s New Deal Lift the United States Out of the Depression?”

This is a myth long perpetrated by democrats, liberals, statists and the unions. The depression began in 1929 with the famous stock market crash. The root cause was the indebtedness of some key corporations (sound familiar?). When they could no longer service their debt and declared bankruptcy, that action triggered other bankruptcies when those debts went unpaid. The fact was that for some time, credit had been extended far in excess to the assets used for collateral for that debt. (Ring any bells? Can we say “sub-prime” mortgages and the credit extended to those who wouldn’t have qualified for those mortgages without the arm-twisting of the financial industry by Congress? Fanny Mae? Freddy Mack?)

The popular thinking of the time was Keynesian Economics and that theory was adopted by Herbert Hoover. The gist of the theory was that there was insufficient spending and cash in the economy (just like the current stimulus bills passed by our democrat congress.) The remedy chosen by Hoover was wage supports. Needless to say, this didn’t work and the depression deepened and Roosevelt was elected.

For you history buffs, there was another depression in 1920 just after WW1 with a crash just as severe as the one in 1929. However, that time there was no government interference and the economy recovered in less than a year.

When Roosevelt entered office, he continued all the programs created by Hoover but changed their names. Roosevelt and congress enacted two new programs, the National Industrial Recovery Act and the National Recovery Administration. The purpose of these two acts was wage and price controls. An idea copied from Benito’s Mussolini’s Fascist government.
This was the beginning of the “New Deal”. The New Deal wasn’t a single piece of legislation but a series of acts creating new bureaucracies, regulations, additional central control of industry and the economy that collectively were the components of the New Deal.

The basic premise of the New Deal was that government could control the economy better than natural capitalistic economic forces. As an aside, if you review all the depressions that have occurred in American history, you find that governmental meddling either caused the depression or delayed the recovery of that depression.

From Woods…

If the word fascism seems over the top, consider that NRA head Hugh Johnson (who once referred to the administration he led as a “Holy Thing…the Greatest Social Advance Since the Days of Jesus Christ [1]” gave Secretary of Labor Frances Perkins a copy of Rallaello Viglione’s The Corporate State, a book that looked sympathetically on Mussolini’s policies in Italy.[2]

The National Industrial Recovery Act and the National Recovery Administration were later declared unconstitutional, fortunately for us. Post-analysis found that the policies enacted by the NRA during it’s short life deepened the depression and weaken the economy by blocking the free enterprise forces that would have created a better business environment and would have lead to the end of the depression. In short, the early components of the New Deal stopped the recovery from the depression and actually caused the depression to continue and get worse!

Again, from Woods…

Each New Deal program had its negative effests, but the collective effect was also substantial. Ohio University economists Richard Vedeer and Lowell Gallaway summed it up: “The Great Depression was very significantly prolonged in both its duration and its magnitude by the impact of the New Deal programs. The impact of all these multitudinous measures—industrial, agricultural, financial, monetary and other—upon a bewildered industrial and financial community was extraordinarily heavy. We must add the effect of continuing disquieting utterances by the President. He had castigated the bankers in his inaugural speech. He had made a slurring comparison of bankers in a speech in the summer of 1934.” That the private sector could survive and even show early signs of recovery “in the midst of so great a disorder is an amazing demonstration of the vitality of private enterprise.

Re-read that last paragraph of the events of Roosevelt first year in office and compare it with the actions and works of Barack Obama since his inauguration in 2009. You would think they both had the same speech writer.

The New Deals admirers assure us that FDR’s massive spending projects provided jobs and economic stimulus. True, government make-work projects benefit those who get the jobs. But we need to take the analysis further than this single obvious step. When considering the likely outcome of some economic policy, we cannot focus only on the short-term effects on its alleged beneficiaries. It is necessary to think about the long-term effect on the entire economy.

… 

These programs did not simply divert jobs from some people to others, or capital from some projects to others, in a zero-sum game. They destroyed wealth and made society worse off. In the private sector, resources must be employed in line with consumer preferences if entrepreneurs wsh to see a profit. If they do not employ resources according to consumer desires, they make losses and must either change their business plans or see the rest of their capital slip out of their hands.

Every action of the New Deal was aimed to hinder free enterprise and those engaged in free enterprise. The purpose was to create agencies of central control to force economic trends in the direction they thought would benefit them and their acolytes. Free enterprise and capitalism is the mortal enemy of those who favor state control, the statists, socialists, Marxists who cannot abide a free and open economy and personal liberty.

The Myth:
Franklin Roosevelt lifted the country out of the Depression and saved American capitalism from its own internal flaws. At the very least he gave people hope at a time of despair.

The Truth:
As a growing body of scholarship continues to show, the New Deal actually prolonged the Depression and crippled American capitalism.

In all honesty, the Depression did not end until the advent of World War 2 when much of the available work force was inducted into the Military services and took them out of the job pool. In fact, the Depression continued for a year after the end of the War as the returning veterans re-entered the job pool. But that is another story.

[1] On these conferences, see Shaffer, In Restraint of Trade; see also Eisner, From Warfare State to Welfare State, 128-33.

[2] For a critique of this system and its spiritual cousins, the medieval guilds, see Thomas E. Woods, Jr., The Church and the Market (Lanham, Md.: Lexington, 2005).

Creating Jobs and other Liberal Myths

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I have a list of editorial cartoons that I check each day.  Most are good, some are so-so, some I haven’t a clue to their point.  But usually, it’s very clear what they are trying to say.  Glenn McCoy below is a good example.
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Liberals continue to perpetuate the myth that government creates jobs.  Nothing could be further from the truth.  They point to the increase in governmental employment as if that was something to be proud of.  The truth is that each government employee is paid by money taken out of the private sector.  When there is less money in the private sector, there are few jobs.  Money has to go INTO the private sector to create jobs and the opposite is happening.

I glad those government employees aren’t in the unemployment line.  But I do resent it when it is at the cost of MY job.  I’d much rather see them employed in the private sector at my side.

Instead, they are an impediment to private sector job growth and employment.

The DrudgeReport headline at this time is: Vacation Time: Jobless Claims Up. Recently, earlier this week, another Obama administration talking head made the claim that unemployment payments helped the economy by putting money in circulation.  As best that I remember, he said, “The unemployed can’t afford to save so they have to spend their payments. That puts money into circulation.” 

This quote, among others, is from a liberal front man urging the government to lengthen unemployment payments another 99 weeks.  If I remember correctly, unemployment already can be stretched out to about three years and this money-grabber wants another 99 weeks added to that!

The fallacy is that putting money into circulation creates jobs and increases employment.  They continue to ignore that the funds for those added payments must come from somewhere.  In effect, the trail of the taxes that pays those additional unemployment payments takes money out of the economy.  At every step from the taxpayer’s check, through the IRS, through the bureaucracy, money is lost through waste and duplication.

I note that last weeks unemployment is once again above 400,000.  Who knows, once the previous week’s 399,000 figure is examined a bit more closely, it too will be above the 400,000 mark…just it did about about month ago.

Obama is on a road tour with his two Canadian built and purchased buses and at a stop a farmer complains about the amount of federal paperwork he must complete just to farm.  In response, Obama blames Washington apparently clueless that HE is Washington. He and his bureaucracy is the reason why this farmer is inundated with federal regulations.

Clueless.  I tried to find a better adjective to describe my opinion of Obama.  Arrogant? Yes. Uninformed? No, I can’t really say that.  Information is readily at hand nor can be be said to be ignorant for the same reason.  It isn’t ignorance when he refuses to even acknowledge facts that are contrary to his beliefs.

Obama’s approval ratings dropped below 40% this week. There’s been rumblings in the DNC about him among rumors of a primary challenge.

But perhaps the worse slap of all came from Maxine Waters and the Black Congressional Caucus who complained that Obama wasn’t helping Blacks enough and that the Caucus would drop their support if something wasn’t done.

When the BCC drops their support, you know Obama is in trouble at home.  At this point, ANYONE could beat him in the next election.  I can not imagine anyone who’d be worse.

Well…Ron Paul would come close.


Keynesian Economics

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Keynesian Economic Theory was the core of FDR’s failed plan to improve the US economy in the 1930s.

Keynes argued that the solution to the Great Depression was to stimulate the economy (“inducement to invest”) through some combination of two approaches: a reduction in interest rates and government investment in infrastructure. Investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment.[3] —Wikipedia

Part of Keynesian theory is that economics is a zero-sum environment. Wealth can neither be created nor destroyed. It can be moved from one sector, private or public, as controlled by government. Sounds familiar doesn’t it? It is the core of the democrat political agenda.

It doesn’t work.

This theory was thoroughly debunked in the 1970s, partly due to the failure of LBJ’s Great Society and his War on Poverty. Billions of dollars were spent, wasted, for no positive benefit. What LBJ did create was an entitled welfare class of millions that has grown until it now is a significant portion of our population. I call them the Parasite Class. Generations of families have subsisted under this welfare state. Everything is provided and there is no incentive for them to raise themselves to be self sufficient.

Keynesian theory is a keystone of democratic economic policy because it demands statist control of the economy. According to the theory, since wealth cannot be created—it is a fixed state, wealth must be controlled by the government and redistributed to those areas as needed. Doesn’t that sound familiar? Redistribution of wealth…

Classical Economic Theory operates bunder Say’s law.

A central tenet of the classical view, known as Say’s law, states that “supply creates its own demand“. — Wikipedia.

Keynes rejected Say’s Law but that law has been proven to be valid, while Keynesian Theory has not. The economic recovery in the 1980 driven by Reagan after the disastrous Carter Administration is a prime example of Say’s Law. Say’s Law says that wealth can be created by cutting taxes, eliminating regulation that constrains growth. The theory says that supply and demand will drive economic grown by producing goods and services that are needed and desired. We have some prime examples of this in Microsoft and Google.

The two main differences between Keynesian and Classical theories is that Keynesian is driven top-down or statist control, and the Classical is driven from the bottom up and that statist control prevents growth and the creation of wealth.

Look at our economy from 2006 when the democrats gained control of Congress and that of the Reagan years of the 1980s when Reagan’s Tax-cuts drove the economy through the end of the century.

Obama, Reid and Pelosi versus Ronald Reagan. Which do you prefer? For me, Reagan proved that less tax, less regulation, less government means growth. Obama and the dems have proven that more taxes, more spending, more regulation, bigger government, bigger unions stifles growth, stifles liberty and produces nothing but waste. What a situation. FDR created the New Deal, LBJ created the Great Society and neither worked, did nothing to improve the economy and instead of reducing poverty, increased poverty and the the welfare state.

Chuck Asay has some thoughts on this.