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Keynesianism in the Conservative Camp

Written by Gary North on May 25, 2012

The Tea Party has a big problem. It not only has to convince the public that wealth-redistribution is morally wrong and produces bad results. It must persuade those inside the camp. Their name is legion.

I found this out on my own website. I run a website where people can get questions answered. The heart of the site are the two dozen Q&A forums. Here is what happened yesterday.

Someone posted a video of a LKeftist millionaire entrepreneur with a Ph.D. in philosophy. He told us that raising taxes on the rich will not reduce jobs. He is an economic idiot, even though he is a smart businessmen. There are lots of them.

What disturbed me was the reply.

This was posted yesterday, in response to a video talk by a rich Keynesian entrepreneur who says tax cuts will not create jobs. He had a defender.

It is consumers who create demand and therefore jobs. The rich are globalists. They don’t give a rip about the neighborhood or your town or your county. Why should they? “To whom much is given, much is required.” Doesn’t work that way in reality. Creating jobs in China or Mexico does nothing for main street USA where you live. Your neighbor is out of work. He is on unemployment. He ain’t spending. Your Lowe’s store closes. Fewer jobs. More crime. Despair. Divorces. Suicides. If I were hugely wealthy, I would not even live in this country. I’d start a business in NZ and own an estate there.

I am aware of the fact that Keynesianism is the default setting for virtually all Americans who have been through the public school system. I am beginning to think that it is the default setting for almost everyone in the West.

The site member begins with straight Keynesianism: “It is consumers who create demand and therefore jobs. The rich are globalists.” This is the very heart of Keynes’s economics. He began his analysis with the consumer. He assumed that the consumer had come out of nowhere, ready to consume, yet for some reason he was unable to consume. Keynes blamed the refusal of capitalists to invest, to employ unemployed people. He called on the government to borrow money and hire people. Everything centered on increasing demand.

This is what is called demand-side economics. All Keynesianism is demand-side economics.

Keynesianism offers very bad economic analysis. The correct approach is to begin with the producer. This is supply-side economics. All free market economics begins with supply-side principles.

There is no consumption without production. It is not the free market’s fault that some people refuse to work at prevailing wages. That was where Keynes was wrong. There is government interference with pricing. Prices are not allowed to fall and clear the market: match supply and demand.

Consumption must begin with production. There are no free lunches.

When someone buys something from me, he benefits me as a seller. When I buy something from another person, my purchase benefits him. But the central fact is not my purchase. It is rather the production that gave me the money to make the purchase.

Consumption begins with production. There are no free lunches.

(If you want my complete answer to Keynesian economics, click the link.)

Continue Reading on www.garynorth.com

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26 thoughts on “Keynesianism in the Conservative Camp

  1. Keynesian "thinking" is symmetrical in three dimensions: Narrow, shallow and short term.

  2. ProundPatriotToo says:

    I will drink to that. Amen.

  3. AD Roberts says:

    It is not logic that drives these people. It is hate and laziness. They hate anyone who succeeds. And it is true that a great many of them are cheating slime balls, like Jerry Jones (who stole his oil information from a college roommate.) But many others just work hard and push the envelope as far as they can. It still is the best source of jobs.

    As to the laziness, have you ever dealt with a government employee. There are a very few who go out of the way to do their job. But most are trying to find a way to "take another break".

    One thing for sure. When the economy and the government collapse, there will be only two ways to survive. 1. Rob and steal. (That would be the Keynesian way) and 2. Work as hard as you can. (With a big gun on your hip)

  4. No doubt your readers who receive social security and medicare will not digest this blog post accordingly…

  5. When you think about it, Keynesianism is more driven by “greed” than the free market is. The free market (supply side) – crony-capitalism aside – provides no expectation of something for nothing. Since demand side does, Keynesianism is a perfect fit for politicians.

  6. c powers says:

    This sounds a little like the age old question, Which came first the chicken or the egg? Both Production and Demand need to be present for the system to work properly and stay in balance. The problem is when government intervenes in the natural process, which I assume is what Keynes advocated. Humans seem compelled to defy nature and the law with a lot of God awful consequences….wanting our cake and eating it too!

  7. c powers says:

    Tisk, tisk, that is assuming a lot!

  8. The problem of poverty can not be corrected by wealth distribution, in fact the solution the left pushes makes the problem worse.
    BUT, there is a real problem with "wealth" that is not seen by right or left. Wealth isn't a possession it's a contract enforced by government that "wealth" needs to pay for but doesn't, the burden's on "income" and the tax trickles down most oppressively on the poor.

    The Solution:
    1. Abolish all taxes on labor which are nothing more than a cleaver form of involuntary servitude. (slavery)
    2. Require all taxes contributing to the price of everything be listed.
    3. Return those taxes and the sales tax paid by the poor (anyone with insufficient assets to care for themselves and family) to them in the form of interest boosting credits on their assets.
    4. Prohibit government from providing any welfare services and give those who do a tax credit for doing so.
    5. Tax assets proportionally to their social cost so economic forces regulate the economy not government bureaucracies staffed by upper management people from the very industries they supposedly regulate.

    Taxes placed on "rich" corporations or individuals are not paid by "them" the burden is assigned by "them" onto workers, consumers or investors, causing reduced wages, higher prices or a lower rate of return on assets. Then when government tax and redistribute wealth schemes run out of money, corrupt politicians crank up the printing presses to inflate the deficit, raising interest, an inflation tax that falls most heavily on the poor.

    I hit submit comment and got no response so I'll do it again.

  9. Your are making very disparaging and condescending assumptions about people. Most of us had relatives who fought the NAZI totalitarians in WWII. Now this same mentality runs our government and controls the US Senate, they are called democrats!! And they are becoming almost as hated as those whom are relatives fought against to preserve liberty and freedom. Now the philosophical clones of those Third Reich demons run our own government! November can't come fast enough in order get rid of these monsters. Not even Goebbels was a better liar!!!

  10. Delmar Jackson says:

    Henry Ford raised his employees wages to $5 a day, twice the prevailing wage. His competitors said he was crazy. Ford replied, he wanted his emplyees to be able to buy the cars they were making.
    In Australia, the minimum wage is $15 an hour. Emplyers do not hire cheaper and younger unassimilating 3rd world immigrants like we do in America, they hire Australians.
    in Germany, the government did not give away all their companies secrets to China just so they could export goods, and as a result kept their manufacturing base and now export more goods than everyone in Europe.
    Assking workers in a western country to work at the prevailing GLOBAL wage will not end well, for the emplyees that can not compete and for the Global buisness owners that think there will be a safe place to hide themselves and their money once the world is on fire.

  11. You parrot the current mantra out of DC that social security is an "entitlement". This is how Washington and the corporate owned media soften up Americans, who paid into SS through payroll deductions their entire working lives, prior to cutting those payments. That SS is a massive Ponzi scheme that has run out of chain does not change the fact that it was funded by the productivity of American workers. SS payments are not "welfare checks".

  12. How riht you are. SS receivers have worked and paid into it all their working lives and have earned it. They are gettimg nothing free. And even after retiring they are still paying taxes = on their houses, food, clothes, cars, utilities, = everything they own or buy. Illegals get free welfae checks, tax exempt, free housing, free health care, free education, and have never paid a cent for it. The same for the unemployed. Obama's aunt and uncle are examples.
    The working people are getting 'screwed'.

  13. if you build it they will come

  14. Those of us in the Tea Party need to speak out more amongst ourselves when we hear stuff like this. Or when we have members who are all for lower taxes, so long as it doesn't affect their own social security payments etc. Or members who WILL NOT become active within the GOP (or even the Democrat party!) to get inside, learn the ropes, find and support good candidates and run for office themselves. Just standing on the sidelines yelling at existing politicians is a really p***-poor substitute for becoming a good Citizen.

  15. Regarding having minimum wage requirements by law, all that tends to do is stop employers from offering jobs, and makes it harder for guys just starting out to….just start out.
    On the other hand, the Henry Ford example is great, in which he paid MORE than the prevailing wage–perhaps you should have stopped there in giving examples!

  16. Sam Damon says:

    Dear Pinhead, The idea is to save those programs for those who currently depend on them and phase them out over time but the Statists wont even admit there is a problem.

  17. Lauren Wolcott says:

    Years ago I did an analysis, based on interest rates, of how much money I would have at retirement if I could invest the money I was paying in to social security. As I remember, I used 2 return rates, 5% and 10%, neither of which are excessive in the investment field, and the amount I would have at 5% was $500,000, and 10% was $1 million. I should run this again sometime and verify what I remember.

    I would invite anyone knowledgeable to do this and see what the result is. If I am right, then I think the person above who said "No doubt your readers who receive social security and medicare will not digest this blog post accordingly.." is not knowledgeable, or those social security recipients who think that way are not knowledgeable. Having said that, I also recognize that the world is full of thieves, and that includes rich people who would steal from social security funds in a blink. That would not only be government people, but would include "short sellers" and "naked short sellers" who like to manipulate the market. I would like to see that market method made illegal.

  18. When someone tells me the rich should pay more, I always ask: 'What happens when the rich run out of money?' If you tax them enough, they will eventually run out of money.

    I have also been known to ask this: "You ever work for a poor person?" I have not myself. I worked for one that built a $1 million home and paid cash, earned it in a year I might add. Another was a multimillionaire and owned a private plane and lots of other toys. He retired at about 55. I have never worked for a poor person.

    This from a person that is disabled and gets a check each month. Weird huh?

  19. http://www.cafepress.com/babblebomb
    “Keynesian Orcanomics ate my Savings”
    (bumpersticker showing an orca)
    Getting the message out with humor?

  20. John Hart says:

    The SS obligation needs to be monetized, privatized and invested in productive assets. What we have now is a form of slavery with young slaves working to support old slaves. The elite have set up the system to discourage saving and so everyone has to borrow in order to grow. Boom, bust cycles in the economy bankrupt all but a few and the fat cats at the top end up owning it all.

  21. There's another group of very bad people. http://www.policemisconduct.net/

  22. Re: John Hart,
    Sir,
    The solution is called "The Constitution of The United States". Ecceliastes says "There is nothing new under the sun". Therefore, Keynesian economics did not simply appear as some stroke of genuis. Our well-educated founding fathers saw down the pages of history and placed lawful barriers between government and the citizen for whom the government was created. The biggest problem, therefore, is that FDR refused to obey Constitutional law and as an ardent admirer of Keynes, replaced the U.S. Constitution with artful, theories which history had already proven were failed from the beginning…

  23. The proposed Solution is in harmony with the principles of the Constitution. Government welfare is government religion. Vice squads, the DEA and ATF are government morals police. Constitutional limits have been breached in so many places the country makes the Titanic look sound. We are sailing into an economic quagmire full speed ahead because the Constitution isn't being followed. Saying the "Constitution" is the solution doesn't tell us how to phase out all the unconstitutional programs. What I was proposing was a principled way to do it.

    In order for a society to survive it's government must be limited to:
    PROVIDE Currency and free markets.
    PROTECT Property, human rights are the individual's property, not something granted by government.
    PROMOTE Welfare by giving people credit for doing so, NOT by tax and spend programs.

    Three independent non overlapping functions, performed by three independent branches of government.
    The LEGISLATURE to make the laws.
    The EXECUTIVE to carry out the laws.
    The JUDICIAL to balance the laws.

    Obama is subverting all three branches and the "living constitution" Democrats believe in has no real meaning.

  24. AlfromFl says:

    While one can ponder the producer vs the consumer start point, but what I don't get is; How can one keep spending, especially when borrowing the money, to get the economy going? I understand the concept of cutting taxes or other means to provide capital so that a business is started, which then creates jobs that provide money for consumers etc. I understand that increasing taxes takes money away from those who would spend (consumers) or create new products and jobs (producers) so eventually you reach the point where increasing taxes will result in less revenue. But we're heading for a moment when all of the revenue (to pick an extreme) will go toward the interest on the debt – then what?. I understand supply slde theory and one can argue the merits but I don't see the logic in Keynesian theory (unless the gov't has a ton of money in the bank which they never do).

  25. hmora4358 says:

    You are absolutely right, GWjr.

  26. Keynesianism – Government can spend it way to prosperity , this is like standing in a bucket an trying to lift yourself up by the handle. In the article it says "It is consumers who create demand and therefore jobs". This would be true if all Americans worked in the private sector, the trouble is 55 percent of Americas works for government. These government jobs do not create wealth, government consumes wealth, and these people do not pay taxes, after all their salary and fabulous benefits. Now when I say 55% works for government, 40 % work directly and 15% indirectly, those who build ships, planes, rebuild roads, etc. This country has not had a free Adam Smith economy since 1972, this was the year , mothers starting staying in the workforce after having a baby. Congress passed over 400 laws empowering women(1964 thru 2010) 0 laws for men. Companies and corporations were force to hire under AFFIRMATIVE ACTION and QUOTES, and since women were given minority status by the Civil Rights Bill of 1964. A white male is the only non- minority in the United States. Women starting buying their own vehicles in 1972, now that women were buying their own cars, they all had to go into DEBT, debt = bondage. By 1974 because of her debt, women starting murdering their unborn babies.