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Bailout of Keynesian Economics and Government

February 4th, 2009 by Mike N · 7 Comments · Politics

The Monday Jan 2nd Detroit Free Press’s Nation and World section has an article by AP writer Martin Crutsinger titled “Frugal living bad for the economy.” Frugal means managing one’s money wisely. That headline then suggests that profligate spending would be good for the economy. But isn’t that just what our media pundits and politicos said was the cause of the crises? Irresponsible citizens and bankers and lenders spending foolishly? Foolish spending was bad for the economy before and now that people are wiser well, that’s bad for the economy also? They want to have their cake and eat it too.

If you think that logic was bad, how about this total disconnect from reality:

“Economists call it the “paradox of thrift.” What’s good for individuals — spending less, saving more — is bad for the economy if everyone does it.”

You may have to read that again. What’s good for individuals–all of them–is bad for the economy. In other words, the economy is something apart from and superior to all the individuals who comprise it. The economists are reifying the concept economy, treating it as an entity, a particular concrete to which the good of individuals must be sacrificed.

This I submit is how the mind of a cargo cultist (Keynesian) works: there are all these people doing all kinds of things and somehow wealth/jobs is produced; when the wealth/jobs stops coming we see people doing different things and this is bad; one of those things is spending less money so we must get those people to spend more money again and the wealth/jobs will return. That this is the mindset of our leaders is truly frightening.

But in fact, this isn’t even about the economy. Consider the sub-title of the article: “Americans start saving just as U.S. needs them to spend.” Substitute the words ‘the government’ for ‘U.S.’ and you will have the truth. It’s about saving their own hides over which our government panics. As supporting evidence consider the original $700 billion that congress couldn’t wait to give to Hank Paulson. It was pure hush money for the mortgage and lending companies. There is no way the banks and other lenders were going to be hauled before a House or Senate hearing and raked over the coals like the auto execs were. The American public would have learned that the lenders were just doing Congress’s bidding. This could not be permitted and wasn’t. This was a bailout of government and Keynesian economics.

Contrary to Keynesian economics, it is not consumption that spurs production. It is production that creates wealth, which money represents, and must come first. Man must produce the things he needs to survive and to do so he needs to be free from the coercion of other men, thus the need for rights respecting governments. Having produced these things he can trade them with others thereby spreading wealth. But he must produce them first. He cannot wave a fist full of money in the air hoping that food, clothing and shelter will plop down on him from above. Nor can he throw money on the ground expecting a factory with jobs will sprout up. Life doesn’t work that way.

If President Obama doesn’t want to go down in history as the overseer of America’s second Great Depression, he needs to discover that man’s mind–not money–is the creator of wealth and to function it needs freedom, not controls, and the only system that can provide it is not socialism but capitalism.

7 Comments so far ↓

  • EdMcGon

    Mike, at the risk of nitpicking your post, which was very good, production doesn’t exist in a vacuum. Without consumption, then manufacturers can’t sell.

    In addition, production must make something which people WANT to consume. When people save their money instead of spending it on unneeded items, it limits what producers can make, because people don’t WANT to consume.

    Mind you, I’m not supporting the Keynesian view. I am merely pointing out that both production and consumption are required.

  • Mike N

    Ed:

    “I am merely pointing out that both production and consumption are required.”

    Very true. I didn’t mean to imply that production could exist without consumption. My main point is that production must come first. Successful Businessmen look around them to see what kind of needs can be satisfied for a profit. They then produce that thing for those who have something to offer in return (economic demand). If there is no money, the consumers will offer something else like their labor. The point is that every person is both a producer and a consumer. Keynesian economics treats them as two different groups who are antagonistic to each other rather than as a trading relationship for mutual benifit between all men.

    Every year, the G8 nations give billions to aid Africa. All that money does not create new wealth or produce goods and services. Africa stays poor because demand does not stimulate production if producers are not allowed to function. Production requires man’s mind to be free to produce first, then production follows, then trade. Keynesian economics pretends that man’s mind is irrelevant and only money stimulates production.

    Hope I have clarified things.

  • Jim May

    Very true. I didn’t mean to imply that production could exist without consumption.

    Then let me do that. Production can quite easily exist without consumption. Take the production of fruitcake, for example 🙂

    The error here lies in the failure to distinguish between *final* and *efficient* causation.

    Efficient causation is the mechanism that results in an effect. The efficient causation of the forward motion of a car, for example, is the gasoline exploding in the engine, along with the design features of that engine that result in forward motion. Take away efficient causation, and you stop dead, period.

    Final causation pertains only to the purpose of volitional beings; it is *why* something is done. For the car example, the *final* causation of the trip is the destination; the latter is why you are driving. If your destination were to vanish from the face of the earth, your car would not stop — it keeps right on going. There just isn’t any point to the trip anymore.

    The Keynesian solution to a broken-down car, thusly, is to create more “destinations”. Ironically, the end-result of their programs is “make-driving” programs that involve the government driving perfectly good cars to various dead-end places and abandoning them there, in order to “stimulate” freeway traffic.

  • Mike N

    Jim:
    Thanks for the explanation of ‘efficient’ and ‘final’ causation, and fruitcakes. Heh.

    I do think your anology of Keynesian cars is a good one and I may use it in the future.

  • EdMcGon

    Mike and Jim, two very good comments. *thumbs up*

  • Kyle Haight

    I think of the production/consumption relationship a little differently. You start with a final cause, which is the desire to consume something. That desire leads you to produce — implementing an efficient cause. After you have obtained the effect, you may then satisfy the desire through the act of consumption.

    The Keynesians not only confuse the final and efficient causes, they conflate the desire to consume with the act of consumption.

  • Mike N

    Kyle:
    “…they conflate the desire to consume with the act of consumption.”

    So very true. We are seeing that today in the pronouncements of media pundits and political leaders who claim that the auto companies are not making the kind of cars the public wants. They hold up polls showing that the public prefers cars with great mileage, no emissions, powerful, safe and good looking. But preferences have nothing to do with economic demand. The auto companies have been trying to make the cars the public is willing to pay for, like SUVs, vans, minivans, pickup trucks, jeeps, some luxury cars, mid-size and small cars. But the government wants to sacrifice what the public is willing to payfor to what the government wants people to drive, and all in the name of “the public wants it.” Every administration sisnce FDR has confused ‘wants’ with ‘willing to pay for.’ Obama’s is just more of the same. No change.