The Modern Reality

I always agree with what Greg Mankiw has to say, though I invariably disagree with the importance of the information. Keynes stands as a defunct Economist, but Greg does not understand why Keynes fails; a simple Case of the specialization of labor, We insist on putting too much Capital behind every laborer so that Keynesianism fails. Government Spending will work when you hand out Picks and Shovels, and fails when you hand out Back-Hoes and Bobcats; not even Government able to support Swarm labor under such conditions. Such commentary, though, does not provide a lucid description of why Keynesianism will not Work.

The first error behind the Economy is not an element of Keynes, but of neo-conservative Bushism. I am talking about the Bush Tax Cuts, which promoted too high a level of Consumption in the first place, inciting too much Production capacity, and funding that over-capacity in the Down Payment stages. Consumers ran up personal debt while paying excessive Prices in comparison to Production capacity, racking up overly large Debt service charges alongside great inability to Pay, and choked the Credit system with bad Debt. Investors, buoyed by Taxes never paid, generated too much Production capital for unneeded Products; placing only minimal money into it, stretching long-term payment on mortgages even when Debt reduction was easy, solely to grab more Tax writeoffs. Economy policy according to Bush dictated huge Debt, ill-Covered by Collateral, and refusal to reduce the Debt even when capable because of potential loss of Tax reductions.

Bushism also reduced the effectiveness of Keynesian Spending by the artificial expansion of the economy, shrinking the size of Government Spending in relationship to the total economy. Government Spending, to meet the specifications of Keynes, must be about five times as large to possess the same Effect, as seen in Keynes’ Time. This is not due to the degree of Inflation, as that expansion of Keynesian Spending must be in real terms. Much can be said about Our current economy, but Everyone should realize there is already too much Cash in the system, and the Fed and Treasury are intent on pumping more Cash into the system. The entire Question becomes whether We will still have a viable Monetary system, when the necessary Losses are finally taken. lgl