Like the postmodern movement, the rise of Keynesian theory in academia in the past century has led to government institutions wielding more power than they merit. The general public doesn’t really understand this recent interpretation of economics, so they are encouraged to trust a group of economic “experts” to sort it out for them.
The common sense that has sustained economies, and in cases exploded economies during times like the Industrial revolution, has gone out the window in favor of these radical ideas that now shape public discourse.
With Keynesian economics dictating financial policy, “experts” can grow their team and wield more power.
Citizens are persuaded to hand over more power to governments and central banks because they are affected by high debt, stagnant growth and wages, and standard of living downgrades. Citizens are convinced that more intervention is the solution to those problems. They don’t realize that the previous intervening economic policies are the root cause of these problems and are ignorantly attributing it to policy makers not having done enough the first time around.
That’s why governments and central banks love Keynesian theory — it keeps them in power and persuades the public to give them more power to solve the issues they created themselves.
Let’s use as a case study the current Canadian Department of Finance to illustrate what I mean.
This past Tuesday, Minister of Finance Bill Morneau released a report that gives the impression that “Canada is doing great!” therefore more intervention is justified (highly debatable given the recent Ipsos poll).
Strangely, if his report said that Canada wasn’t doing so great, the solution they propose would be still more government intervention because not enough was being done.
The Trudeau government is dedicating about a third of the windfall it’s expecting from Canada’s surprisingly strong economy towards investments, tax relief and new spending on social programs to support children and the working poor.
The Canadian Press
Published Tuesday, October 24, 2017
“Windfall” is an interesting choice of words. The government doesn’t produce anything, therefore any “windfall” is a consequence of increased tax revenue.
The “windfall” as a result of increased tax revenue can easily be attributed to inflation more than an increase in production and exports. Wise to the fact that classical economists would realize this, Keynesian policy makers attempt to incorporate inflation into the CPI (consumer price index). However, because the policy makers are constantly fudging the CPI, they are instead using the GDP as its tool of persuasion to back up their Keynesian decisions.
Over time, the public has been acclimated to hear the language of business mixed in with Keynesian policy. Because they hear that GDP has grown, and consistently hear spending in the same sentence, it must follow that spending was the cause of that growth.
This ignores the fact that GDP incorporates housing (almost two-thirds of the GDP) and the low-interest rates set by the Keynesians at the central banks. With skyrocketing house prices, the current GDP numbers and the unexpected “windfall” may have had nothing to do with growth but all about artificially inflated home prices resulting in a greater intake of property and sales taxes.
The takeaway is that these so-called investments may have not led to the “windfall”, but the low-interest environment begot more low-interest borrowing from the government to stimulate the current market bubbles even more. The economy never grew, but inflation did. Note how the rest of Morneau’s statement doesn’t mention CPI and inflation.
Keynesian economists have normalized inflation as a daily fact of life. People expect prices to always go up, and never down. A rising cost of living is the norm, and that type of thinking feeds into itself to create bubbles in markets. It innately persuades everyone to “buy now or be priced out forever”. That leads to a higher willingness to engage in more borrowing and spending than saving and production.
That’s all you need to know that Keynesian economics is a giant Ponzi scheme. If production were to exceed consumption, prices would go down by classical laws of supply and demand. The constant rise of the cost of living in the past several decades indicates that we are not actually growing by producing more, but shrinking by producing less (via induced laziness led by false assumptions of infinitely growing asset classes) and diminishing our accumulated wealth via inflation.
Instead, the governing Liberals will press ahead with their deficit-spending approach, with a focus on lowering the debt-to-GDP ratio, a measure of Ottawa’s debt burden.
Morneau also announced Tuesday that the government will introduce an enhancement to child-benefit payments so they start rising with the cost of living two years earlier than initially promised — at a cost to government of $5.6 billion over five years.
He credited the government’s child-benefit program for helping lift the economy.
“Now, with a little more wind in our sails, we’re doubling down on a plan with proven results,” he said in his speech.
“Proven results” is an interesting choice of words.
Remember when only one parent had to work to support a family? If you take the last 50 years to try to prove that deficit spending has worked, I would think the finance minister would have a tough time.
If it’s as easy as overestimating the goal and thus over-delivering at the end to convince everyone of a job well done (the oldest trick in office politics), then they should have forecast budget spending at $1 trillion, claim spending only $10 billion, praise themselves of a $990 billion windfall, then claim “more wind in our sails” with “proven results” to justify more spending.
Besides, it didn’t matter whether the GDP increased or decreased, the next step would have still been to double down on spending. Morneau did what all politicians do: give the most persuasive spin given the current circumstances.
It’s going to be rough when the Keynesian Ponzi scheme unravels. At some point in time the exponentially growing debt will leave a visible mark.
The deficit-spending mania, the issuance of more debt just to pay off interest is obfuscating the reality that the economy hasn’t grown at all. All classical means of growing the economy via production and savings are being sucked away to finance the interest of the growing debt.
People falling further behind in the growing wealth divide and are quick to blame capitalism. They are not ready to blame the policy makers and central banks for transforming capitalism into this giant Ponzi scheme that not only increases the size and power of these institutions, but pads their wallets too.
It’s a really bad game of hot potato played around the world. At some point in time, both parents and the children of all families will need to work to support themselves to finance all the new debt. Then there will be a point where the average household can’t even do that.
The dominoes start to fall. One nation defaults on its debt, then the country holding the bag of useless, defaulted debt collapses and defaults on its liabilities. And so on.
That point seems to be approaching very quickly, with all the inflated bubbles desperately trying to hide that reality.
It’s why Toronto gets conflicting headlines such as:
and the stark difference between the Ipsos poll and Morneau’s “Canada is doing great!” statement.
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