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The Commanding Heights Of Keynesian Nonsense

Economics / Economic Theory Apr 25, 2013 - 04:28 PM GMT

By: Andrew_McKillop

Economics

KRUGMAN'S BLUES
American singer Loudon Wainwright III has a song with this line: "I read the New York Times, it's where I get the news. Paul Krugman's on the op-ed page, that's where I get the blues".

Every era needs its gurus and sages, we are told. Keynes was in fact only an elite-approved guru right at the end of his life, but managed to do a lot of damage before quitting this world, leaving us the IMF as well as the already long-dead Bretton Woods agreement.


Friedrich Hayek is ritually set up as the Zombie Economist (the term used by Krugman himself), and knocked down for crimes against politically-correct, such as not approving of QE and saying a long time ago that QE-type economics leads to ruin. Making things complex for persons who want their sages garbed in all-white robes, Krugman derides Thatcher's spend-and-spend "experiment" in economic freedom and two years of balanced budgets in 11 years of economic anarchy, paid for by North Sea oil revenues and nothing else, by saying Thatcher was "Hayek-influenced".
 
The new-new true Keynesian gurus, like Krugman, apply a thick coating of Teflon to their one-liners and policy advice, for example by castigating the IMF, the ECB, and the European Union's Finance ministers council, which made up the infamous Troika which took Cyprus apart. And is set to do the same in other easy-pickings smaller Eurozone countries. Troika Keynesianism was somehow not baked with the right cake mix, with the wrong flavour. This was Keynesian handouts for the banks, and austerity for the masses which Keynes supposedly did not want, but that is a lot less than sure.

CLARITY AND WIT
Like their mentor Keynes, the new-new Keynseians such as Krugman are said by their acolytes and admirers to "explain things with clarity and wit". They even have "moral sensibility", shown by their shocked outrage at anti-austerity protests (not yet riots, but they are coming) in Europe's latest victim country. The incredible hypocrisy of the new-new Keynesians is that the IMF and ECB are in most ways doing exactly what Keynes said central banks should do. Print and forget. The dollop of austerity which is added is probably a Thatcherian hangover, a petit bourgeois lower middle class urge to see beggars in the street, and feel extra specially self-righteous as a direct result. In the Great Game you need plenty of Born Losers, dont you?

Krugman's most recent tirade against the IMF and ECB, and members of the Council of Finance ministers of the EU, who are now a self-elected Hit Squad roaming across Europe looking for bank accounts to confiscate "for the good of everybody", is that this is economic suicide. What Krugman calls "Eurodämmerung." But as Keynes openly said, private savings are dangerous and anti-social. Holders of personal savings must be punished, which the Troika did!

The new-new Keynesians are very close to government, and can therefore openly chide governments on a cozy dont-take-any- notice basis, in the TV studios, for a nice speaking fee. Krugman has for example several times said in his so-sincere interviews that European governments with massive and incredible budget deficits  are not doing the right thing - but: "It's not really the budget deficit that concerns you". The deficit is OK, Krugman says with clarity and wit! Deficits and sovereign debt really dont matter at all because inflation is dangerously low, economic growth doesnt exist, and real interest rates are zero. This is logic which "reaches back to the British economist John Maynard Keynes", the unwashed public who never heard of Keynes, are informed by the TV talkshow host. Then we get back to the fun economics!

NOT A LEFTIE
Talking about Keynes takes us back to a real Time Before. Before the Internet and Paul Krugman, for starters. What happened in the 1920s and 1930s does not seem of "prima facie concern" to today's world where well over 95% of persons living now were not alive, then. Persons who were alive in the 1920s and 1930s and still alive today are very, very old. The mental cobwebs are thick.

Lord Keynes, like his name might suggest was in no way a Marxist. Things like the "labor theory of value" did not exist for Keynes, and he fully believed (like Mrs Thatcher) in a magic thing called "the market", known today for what it is -  the pinwheel and slot machine casino of illusions. Keynes found the bourgeoisie far more enticing than the working class. A flutter on "the market" was something the burgeoisie did before taking tea or champagne, depending whether they had pulled the right slot machine handle, or not. Keynes however invented, more precisely re-invented Deficit financing

Deficit financing goes back a very long way. Way before Krugman or Keynes. All major wars since the dawn of time, or at least since the invention of money have needed Deficit financing. FDR-version Keynesian economics was used in the United States less to fund welfare programs, and more to pay for World War II, the military-industrial complex, the space program, the wars in Vietnam, Afghanistan and Iraq. In the 1930s a critique by Keynes, of Hitler, was that the Third Reich used relatively little deficit financing, and operated a crony capitalist corporate-and-State "economic miracle", basically aimed at weapons production. Hitler was however very concerned about reducing unemployment and did so. Problems such as business and labor regulations were literally swept aside, there was no need for Hitler to playact "perpetual reform", because decrees came down hard from the Reichstag.

As we know, Hitler was not exactly a Leftie, either. Keynes found Hitler to be an uncharming member of the lower classes, not particularly respectful of "the market". Keynes, in the 1930s, therefore designed his own "rational economic policy", based on homely logic.When times are tough and the private sector pulls back, governments must beg, borrow, print or steal money to stimulate demand by "the market" - the private banks, brokers and traders - making up at least 5% - 10% of the population. Later on (maybe an awful lot later on) some of this will "trickle down" to the plebs, Inchallah.

THE NEW KEYNESIAN LESSON
Keynes' pompous and posturing theoretical writings seem to say that when (or if) growth returns, we should pay down the previous borrowing, but of course "timing is crucial". This is in fact heavily ambiguous, and the new-new Keynesians make a banquet out of the ambiguity. Borrowing could go on for a long time, and paying it down could be pushed forward "sine die", until God makes a signal - that means "the market", where the traders working the pinball machines will for strange reasons suddenly jerk up the interest payable on sovereign debt. Why they do this is a mysterious thing.

God's signal is very generously interpreted. Larry Summers, formerly Obama's chief economic advisor has on primetime TV shown that "Fiscal Policy in a Depressed Economy" means that paying down US debt should start a very long time away from us, far in the future. IMF managing director Christine Lagarde and her European finance minister friends have "loosened fiscal targets" for troubled economies in Europe gving Portugal and Italy an immediate additional 7 years to pay back bailout loans. The IMF has been stern, but not Lord Stern with British Chancellor George Osborne, saying he is "playing with fire" by pursuing austerity too aggressively. The right level of austerity only has the right number of beggars in the street, the right number of millions of unemployed. Lord Stern has recently gone on record saying that all oil, gas and coal producers will become bankrupt in the foreseeable future - because the global warming crisis makes new and massive "fiscal climate measures" obligatory, such as carbon permits priced at hundreds of dollars per tonne CO2, driving the fossil fuels out of business.

Intellectually, the so-called "debate" is so tawdry and farcical that hysteria always wins. Europe is presented as having a bourgeois and wealthy North and unemployed working class Club Med South, which is being ruthlessly squeezed like a lemon. Supposed champions of the Needy South include French President François Hollande, "who once taught economics in a secondary school" and has stepped forward to carry the Krugman-Keynes' argument to its "obvious" conclusion. This would be a joyful coming together, throwing off the wrong kind of austerity, keeping the good austerity, printing more money, and spending more money. What could be nicer? What could be more unlikely?

As economic conditions continue to worsen in Europe and disintegration becomes more likely, new forces from the right and left will take matters into their own hands. This will be the fault of the new-new Keynesians as much as anybody else. Neither austerity nor deficit financing would have been the right policy mix - a long way back in time.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2013 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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