John Maynard Keynes

Keynes’ Quackery

Two recent comments underscore the crisis in modern economies, a critical situation that is at the heart of the sluggish global economy and that could, if not corrected, lead to an ever uglier political environment. The blame for the mess we are in lies with John Maynard Keynes.

The head of the IMF, Chiristine Lagarde, recently warned that falling prices are threatening a fragile recovery: “with inflation running below many central banks’ targets, we see rising risk of deflation, which could prove disastrous for the recovery.” Her concern echoes that of the European Central Bank head, Mario Draghi, who spoke around the same time about deflation risk and declared that the ECB will remain “accommodative”.

Classical economists going back to Adam Smith have regarded the production of products and services as the “real economy” and money and credit as the “symbol economy.” In other words, money reflects what people are doing in the marketplace. Money and credit are tools of commerce. Keynes turned that thinking on its head, audaciously asserting that money and credit are the real drivers of the economy. Control money and you control the production of products and services. To classical economists this is like stating that the sun rises in the west and sets in the east. But thanks to the Great Depression, Keynes’ heresy became orthodoxy. Monetarism is a Keynesian offspring.

Keynes famously observed: “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of same defunct economist.” Unfortunately too many government officials and economist, while not pretending to be exempt from ideas, are today slaves of keynes’ misguided monetary notions. Hence the current orthodoxi: pump out enough money, and all will be well. The impact of high tax rates, regulations that hamper enterprise and gum up the flexibility of labor markets, and bloated public sectors, which absorb and waste resources that could be productively put to work for everyone’s benefit by businesspeople and investors, are down played or ignored.

What Keynes posited was the equivalent of saying that manipulating scales is the way to attack obesity. Money is a measure of value. Like  a clock or ruler, it has little or no intrinsic value. Its function is to facilitate commerce.

Completely alien to today’s finance ministers, central bankers and most economists is the idea that money works best when it has a stable value.

The “deflation” that worries so many of today’s economic worthies is actually a reflection of a still sluggish economic environment, which, in turn, is in no small part attributable to credit markets that have been warped by the suppression of interest rates. When the price of borrowing money is distorted, the financing of productive commerce is hindered.

Vibrant economies, not central banks, create real money, and wealth is abundantly created when tax rates are low, money is stable and regulations are reasonable.

John Maynard Keynes
John Maynard Keynes

Blowing Smoke

New York City, Chicago and other parts of the country are banning electronic cigarettes anywhere smoking is prohibited. The nanny state ninnies pushing this are doing a severe disservice to folks who are trying to stop smoking or want the pleasure of seeming to smoking or want the pleasure of seeming to smoke without doing it. These devices simulate smoking by vaporizing a liquid that may or may not contain nicotine, depending on the “smoker’s” preference. They aren’t traditional cigarettes, and the vapor isn’t smoke.

So why the moves to ban them? Because using e-cigarettes sort of looks like smoking, although anyone who isn’t blind can easily see that these aren’t the real deal. Prohibitionist also cry that there needs to be more scientific study, even though there isn’t a scintilla of evidence that e-cigs are as harmful as inhaling smoke. Until there is definitive proof of adverse consequences we should leave e-cigs alone. After all, they are ideal for smokers working to break the habit or trying to avoid going back to it. It’s a tool in the fight against cigarettes.

This mindless attack against e-cigarettes. This mindless attack against e-cigarettes is reminiscent of the assaults against smokeless tobacco. Masticating tobacco is repulsive and harmful, but, again, it’s small beer compared with cigarettes. However, such distinctions are lost on the growing ranks of behavioral dictators.

John Maynard Keynes
John Maynard Keynes

Source: Forbes Indonesia, February 2014.

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