Inside This Issue You Will Discover…

*** Eight Single Syllable Words
*** Pandora’s Box
*** Disorderly Disfunctioning
*** And More

Eight Single Syllable Words

“In the long run we are all dead.” – John Maynard Keynes

With those eight single syllable words John Maynard Keynes provided the rationale for direct government intervention in the economy.

The idea seemed a bit counterintuitive.  Namely, that during a period of economic stagnation the government should not save money; rather it should spend it.

Keynes believed that long term economic progress would improve.  In fact, in 1930, at the onset of the Great Depression, he “…predict[ed] that the standard of life in progressive countries one hundred years hence [would] be between four and eight times as high as today.”

But in the short run, he argued, the economy needed a little help from the government to stimulate demand.  By using public expenditures to pump money into the economy – Keynes theorized – unemployment would go down, and the boom and bust cycle could be avoided.

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He illustrated his method for stimulating a depressed economy as follows…

“If the Treasury were to fill old bottles with bank notes, bury them at suitable depths in disused coal mines which are then filled up with town rubbish, and leave them to private enterprise on the well-tried principles of laissez faire to dig them up again… there need be no more unemployment and, with the help of the repercussions, the real income of the community and its capital wealth also would probably become a great deal greater than it actually is…”

In short, when people run out of money to spend, the government should just give it to them so that they can keep spending.

Pandora’s Box

The academics loved the idea.  And the politicians loved it even more.  Now every crackpot, half-backed scheme to improve the world could be attempted with the passion of fraternity beer guzzling contest.

Where the money would come from was just a pesky technicality.  To Keynes credit, he did add that during times of economic prosperity, the government should reduce spending.  But no one seemed to hear that part.  And even if they did, it was too late…once Pandora’s Box had been opened the wants of man were too great for it to be closed.

The gift of government spending – first given by Keynes – is the order of the day.  The U.S. National Debt has exceeded $9.4 trillion.  And it’s currently increasing at an average of $1.7 billion per day. 

The Keynesian long run utopia of prosperity for all without serious fluctuations has produced the most colossal debt bubble the world has ever seen.  But not to worry…Vice President Dick Cheney told Paul O’Neil, when he was the Treasury Secretary, “…that deficits don’t matter.”

Disorderly Disfunctioning

Oil’s pushed above $100 per barrel.  Gold’s pushed above $1,000 per ounce.  And the United States is sliding deeper into recession.

True to Keynesian ideology, Forbes reported on Friday March 14th that…

“The Fed has…announced it is ‘monitoring market developments closely’ and will ‘continue to provide liquidity as necessary to promote the orderly functioning of the financial system’.”

This announcement came just after word that, if not for the coordinated efforts by the Federal Reserve and JPMorgan Chase & Co to bail them out, Bear Stearns investment bank would have gone belly up.

Then in a surprise announcement on Sunday, as reported by AP Economics Writer Jeannine Aversa…

“The central bank approved a cut to its lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created another lending facility for big investment banks to secure short-term loans.

“The steps are ‘“designed to bolster market liquidity and promote orderly market functioning,”’ the Fed said in a statement.”

In a world radiating in hyperbole, ‘orderly functioning’ is a glorious understatement.  We find disorderly disfunctioning to be more accurate.

Sincerely,

M.N. Gordon
Great Depression Online

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