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Desperate Keynesians: No Economic Recovery

Written by Gary North on May 31, 2013

The New York Times is the flagship of Keynesian liberalism. It sets the tone for the American Establishment.

An article on the world’s economy admits that the Keynesian cures for recession — deficits and central bank inflation — have not worked in the United States, Great Britain, and Europe. Only in Japan, and only through massive deficits and massive central bank inflation, and only for two months has there been economic growth above 3%.

What’s wrong? The Keynesian mojo is not working.

First, the author denies that governments are running deficits. The United States government has run an annual deficit over $1 trillion every year since 2009, but this is not enough, we are told. Not worth talking about. Chicken feed. Chump change.

Because governments are not taking steps to revive economies, like increasing spending or cutting taxes, the traditional concern of central bankers that economic growth will cause too much inflation has been supplanted by the fear that growth is not fast enough to prevent deflation, or falling prices.

Second, the central banks’ responses have been too little, too late. This includes the Federal Reserve. He does not mention that the FED’s monetary base has grown from $900 billion to $3.2 trillion.


It’s not enough. It’s nowhere near enough.

Still, for all the daring, some critics argue that the Fed is not trying hard enough. “It’s as if we went to the biggest fire we’ve ever seen and we poured more water on it than we’ve ever poured, and the fire isn’t completely out,” said Joseph E. Gagnon, a former Fed economist now at the Peterson Institute for International Economics. “Well, we should try more water.”

As for the Bank of England, it has also done far too little. Yes, the author admits, the Bank of England has purchased $569 billion in government bonds. This is equal to 20% of the British economy. Results? “An anemic recovery.” It has only 0.5% economic growth.

What’s a Keynesian to do?

“I’m not sure why we’re not getting more response,” said Donald L. Kohn, a former Federal Reserve vice chairman who is now at the Brookings Institution. “Maybe we’ve made some progress in identifying some of the causes, but it’s not fully satisfying why we have negative real interest rates everywhere in the industrial world and so little growth.”

The Keynesians are at the end of their rope, pushing on a string. The commercial banks are piling up excess reserves in their central banks. They will not lend into the economy, i.e., inflate. Businesses will not borrow. Except in Japan, the West seems to have reached “peak debt.” For the Keynesian, this is the end game. This is where their recommended policies fail. The specter of price deflation looms.

Falling prices can freeze economic activity as buyers wait for still-lower prices, a cycle that is hard to reverse. Japan, the only major economy to fall into such a pattern in modern times, has struggled to escape for almost two decades.

In a related story, we learn that consumer prices are still falling in Japan — the Keynesians’ nightmare, though of course not nightmarish from the consumers’ point of view.

Keynesianism has produced this. Blame-shifting is futile. They have been in charge for 60 years. Now what?

They don’t know.

Continue Reading on www.nytimes.com

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11 thoughts on “Desperate Keynesians: No Economic Recovery

  1. The man in the video says deflation is not Japan's problem ("with more efficiency, prices SHOULD go down!"), but heck what does he know?

  2. Charlotte Juett says:

    The Austrians know very well what is happening and are prepared for the debacle that will follow the utter failure of Keynesism.

  3. Kbreedlove50 says:

    60 years of doing the same thing and expecting a different outcome. Sounds like insanity.

  4. Keynesianism is “too big to fail” – at least in the eyes of politicians and their sycophant economic advisors. Austrian school economics is the nemesis of big-government control freaks. They can’t allow that!

  5. WhiteFalcon says:

    What is wrong with Keynesian economics? It doesn't work. That is what is wrong with it. It has never worked and never will work. Its creator was simply wrong. It is an unworkable theory, period. Commieonazicrats can't get this through their heads because they can't think rationally at all. They like the idea of Keynesian economics because it gives them power. They won't let a little thing like the fact that it doesn't work get into their way. They will just keep trying and failing. Aren't they intelligent? Idiots are far more intelligent than they.

  6. stangerinmyownland says:

    I agree, the spenders get to keep on spending and now have a "rational" basis to go further into debt to satisfy the urge of the moment instead of building for the future. To be fair, Keynes never anticipated the welfare state and the effect of being in a Keynesian 'spend' cycle all of the time, in stead of just during the economic slump periods.

  7. Actually, Keynesianism was working in the US, to great effect, until conservative austerity measures fucked it up.

    You remember the sequester? That thing that's still going on? Yeah, it killed jobs. Way to go. Congratulations.

    Conservative "Reaganomics" and "trickle-down" economics are the policies that utterly failed. We've seen 6 Waltons (owners of Walmart) amass more wealth than the bottom 30% of all America (that was back in 2011 – it's gotten worse since). The top 1% of America owns 40% of the nation's wealth. They're not "trickling" it down. They're keeping it, storing it, and doing absolutely nothing with it. Reaganomics failed. Trickle-down failed.

    Conservatives failed. Well…they succeeded in destroying America's income equality, but they failed at everything else.

  8. Sounds like conservative status-quo.

  9. Seymour Kleerly says:

    You must be an America hating, Commie, Godless Liberal. Sure what you say is obviously true, but we Conservatives don't want to hear it. Got it! Now move to Russia or iran you twit!

  10. Once again, F. A. Hayek and Ludwig Von Mises were right and Keynes was and still is wrong. After 60 years with a brief interlude under Reagan, it is time for Keynesianism to fade away, once and for all….

  11. Shane….It is obvious that you have never studied macro or micro economics to any great degree but only listen to the "boilerplate" arguments by left leaning professors. You also do not seem to have much of a grasp of human nature forgetting that the centralized, command and control as espoused by Keynes was tried. A variant was used in the old Soviet Union whereas the take of the common man was "they pretend to pay us and we pretend to work". As was mentioned earlier, Keynes probably never expected the growth of the Welfare state and the constant need to print money in order to sustain it. Sustaining this insanity can only work for so long before you have to pay the piper. Even the NY TImes get's it now…..