Sunday, May 15, 2011

Guest Post: From Liberty at Stake, "Stuck on Keynesian, Stupid"

by Liberty at Stake

In my most recent post, “Barry’s Pyrrhic Victory Lap,” I explained why the Empty Suit known as Barack Hussein Obama running for re-election on newly manufactured national security credentials is an absurdity.

Now I shall explain why BHO may have no choice but to run on this absurdity - all the way to “Shellacking II,” scheduled for November 6, 2012.

The explanation is summarized by the following Lisa Benson cartoon, and this simple truth we are all living in real time – BHO’s economy sucks. And it will continue to suck as long as he remains in office, because BHO and the Progressives are stuck on Keynesian, stupid.

Before I explain in further detail, I offer to the reader a very clever YouTube video that is very educational on three points in a very entertaining format: (1) the assumptions underlying the macroeconomic theory of John Maynard Keynes, (2) the competing assumptions underlying the macroeconomic theory of Friedrich Hayek, and (3) the plain fact that policy makers have generally preferred Keynes’ ideas over Hayek’s ideas, despite a better record of performance from latter.


Keynesian economics is a top down, centrally managed, command driven, theory that assumes "experts" can direct capital where it is most needed in a complex market system. Hayek’s competing framework is a bottom-up model based on the idea that trusting individuals to make independent decisions in their own self interest produces the most good for the greatest number of people.

According the macro-economic theories of John Maynard Keynes, the $862 Billion stimulus package that was BHO’s first significant act should have had the US economy humming along beautifully by now. According to the theory, public “experts” pumping huge amounts of public cash into the private economy revitalizes the private economy - and BHO's stimulus was the biggest money pump in human history.

It didn’t work in the Great Depression of the 1930’s, it didn’t work for Japan in the 1990’s, and it’s not working now. The reason it never works is the false premise that government money pumped into the private economy is somehow “new” to the economy. A moment’s reflection exposes the fallacy of this premise. Governments only have two ways to raise revenue: (1) print new paper money, which is not actually new wealth, and is therefore inflationary (unless interest rates are artificially held down - which is the building stress fracture in US monetary policy right now), or (2) tax existing wealth out the private economy – which merely redistributes wealth from one set of private hands to another, with overhead built into the transfer to fund the government intervention itself.

Governments simply produce no new wealth, ever.

Hayek, on the other hand, based his macroeconomic theories on the far more subtle notion of spontaneous order. That is, for my purposes here, the complex system of exchange between self-interested consumers and producers does something truly magical – it actually creates new wealth in the economic system merely via the exercise of economic activity. Every time a producer supplies a valuable product or service to a consumer, the fair market value the consumer provides back in exchange is economic activity. When government policy encourages and rewards economic activity, over time it results in measurable economic growth, which is good to one degree or another for everyone.

If you are thinking at this moment “show me the proof” – congratulations, you are a sentient being. Prepare to begin the chartapalooza.

It turns out our 40th President – Ronald Reagan - implemented policies inspired by the Hayek school of thought. It also turns out Mr. Reagan “inherited” a deep recession very similar to the one Mr. Obama told us at the beginning of his term he would fix with his Keynesian Stimulus package.

The Wall Street Journal recently compared the growth in GDP during the two officially measured “recoveries,” and found Messrs. Keynes and Obama to be lagging Messrs., Hayek, and Reagan considerably. I took the Journal’s numbers, covering the first seven quarters of official “recovery,” and captured them in a very sophisticated charting system known as MS Excel.

Here’s the chart for quarters one through seven. I think I’ll bring this chart back, updated, each quarter moving forward. The trend will not change, trust me on that. (Click the image for the Wall Street Journal link):

And apparently, there is an inverse relationship between GDP growth and unemployment. Whoulda thunk it? The trend lines are the important part of the following data series, spanning the 21 months equating to the previously charted 7 quarters.

I’m not the only blogger who has been charting the economic wreckage the Keynesian impulses of BHO and the Progressives have inflicted upon the republic.

On April 12 Doug Ross posted eight very troubling measures of this wreckage. Under Progressive stewardship dating back to the 2006 mid terms, the republic is deeply worse off on ALL of these measures: unemployment rate, price of gasoline, national debt, budget deficits, housing values, stock market values, employment rate, and consumer price index (click the image for the link):

On May 9, Mr. Ross demonstrated when the government reports the economy stuck at 9% unemployment, Main Street actually feels 20% (or more):

On May 6, the Weekly Standard showed us how real wages are dropping for those still lucky enough to have a job. (Notice the positive curve slope for Reagan vs. the (charitably stated) flat curve slope for Obama so far):

So, who wants to debate the odds that the nation upon which the Empty Suit known as Barack Hussein Obama has visited all this wreckage will re-elect him?

(Editor's note: There are myriad talented and energetic up-and-coming conservative and libertarian bloggers yet due to time constraints most of us don't have the time to link or follow them as we wish we could. The blogger Liberty at Stake motto is, "The only good progressive is a failed progressive" and his material follows up on this truism. Please follow Liberty at Stake.)


  1. Amen. Why are progressives are stuck on Keynes, in the face of so much evidence?

    I believe it stems from a fundamental mistrust of the people, coupled with a strong need for control.

  2. Silver - That, and as Micheal Savage has so accurately identified... Liberalism is a mental disorder.

    Of course classical liberalism excluded.

  3. "Keynesian economics is a top down, centrally managed, command driven, theory that assumes "experts" can direct capital where it is most needed in a complex market system."

    First, no. That's stupid. That's not what Keynesian theory is about.

    Second, we do not operate under a Keynesian model.

    To say it's a mental disorder is adolescent bantor. It is an economic theory.

    Why don't you try reading about it - not some screwball, retarded Michael Weiner interpretation of it - but actual texts on the subject.


  4. JMJ - RIGHT!

    Like we're supposed to believe your, to use your own phraseology, retarded interpretation of facts.

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