Think Of The Homeless

There are over 30 million Americans who live on the streets of our nation. Can you consider giving something to a shelter near you? Your fellow human beings need socks because they walk everywhere. Food and shelter are great too, if they will take them. So please give.

Thursday, May 13, 2010

Reviews by Hubie Goode: President Obama, American History and Keynesian Economics Part 2

President Obama, American History
and Keynesian Economics

part 2

Black Tuesday, October 29, 1929. That was the day when all hell came home to roost and the market crashed. Between late October and mid November of that year the stock market lost more than 40% of its value. It was a drop of $30 billion in paper value. One of the big villains in this disaster was that prices for stocks were placed far, far above their true value. There was no economic justification for the price hike, just human illogic.

Stocks could be attained for as little as 10% on the margin with the rest being financed by stockbrokers with big loans to give out. When the market began to fall, the investors were required to put up additional investment despite there heavy mortgaging of the initial investment. With the height of credit debt adding to the fiasco, many could not afford the additional expenditure. Brokers were also carried away in the tide of financial ruin, as was the rest of the world eventually.

The idea that something to do with economics was a sure bet, a never fail, a world without limits died a quick and permanent death. Black Tuesday also gave birth to the over study of economics. Everyone wanted to know why it had happened, how could it have been avoided. Curiously, there was also included in this study the possible connection between economics and politics.

The pursuit of these questions brought little release and answer and the west moved into the dark, grey world of the Great Depression. Employment statistics went down while soup kitchens did a booming business keeping the unemployed alive. Few today would hardly believe the deep despondency that covered America in those days. Life was over. Period. The bright dream of the new America and the ascendancy of man was now a cruel joke. As the world moved into the 1930’s any bright words of encouragement, any “power of positive thinking” typ
e rhetoric, was now considered the equal of car salesmen chatter.

Eventually the dream of unlimited prosperity was now seen as a huge charade, a joke played on the public to line the pockets of those who knew better and had made off into the night. Yes, a lot like the name, Madoff; Bernard Madoff. Banks had been failing just before the crash at a rate of 2 or more a day. The nation was upset because they remembered the statements of the politicians, businessmen and economists who said the nation was moving along at a steady pace and there was nothing to worry about. Much faith in those who were experts in their fields was lost and most probably never has been regained. No one had any answers. And the 30’s rolled around with no improvement. From 1930 to 1932 the national income fell from $75 billion to $42 billion.

The nation then took vengeance on the political party in power, as is always the case, and nominated Herbert Hoover for President. The Democ
rats nominated Franklin D. Roosevelt, who promised a “New Deal”. The nation loved the concept, despite the overwhelming national attitudes, and declined Hoover’s “we’ll make it through” ideology for the preaching of HOPE and CHANGE. Roosevelt was elected in a landslide.

1933 brought little change however, and the nation was hugely dispirited by the high unemployment rate that continued to cripple the nation. The jobless millions were like an embolism in the nations circulation. Economists of the day however, refused to admit the problem of joblessness and wrung their hands over other causes and effects. The economic system of the day, and unemployment, was a paradox that could not be untangled by all the kings horses and all the kings men.

Then along came a man named John Maynard Keynes.

He had a new and plausible way of thinking about economics. He had
already made a fortune in world finance and was one of Britain’s most respected intellectuals. His solution was Keynesian Economics. It changed the world, and still effects us today.

Keynes, born in 1883, studied at Eton and then Cambridge. He so impressed his professors that he was offered a position in the economist college at an early age. He declined, however, and sought other outlets. By 1907 he was working for the government in the India office, where he wrote a treaties called: India Currency and Finance, which today is considered a masterpiece. He became editor of the Cambridge Economic Journal which he held for 33 years.

As he continued to work with foreign currencies, for say Spain, Germany and France among others, he was able to develop some high position theories on how to handle currencies of nations. He quickly became an important figure in the treasury of Britain. Many believe he had more to do with the winning of World War I than any other person in civilian life. During the 1919 peace conferences, when it was being wagered about that Germany should be forced to pay reparations for the damage that had been brought upon the world, Keynes disagreed publicly and warned that Germany had no way of making those reparations. Any forced action, held Keynes, would only lead to a resentment that would fuel greater German autarchy and militarism.

Rejected for his beliefs, he resigned from the peace conference and went about to write a book: The Economic Consequences of Peace. The book was such a big influence that by 1924, the treaty that had been set up in 1919 was already being undone. All this made Keynes quite famous and he was considered an economic genius.

Keynes had speculated on the stock market and made himself a multi-millionaire. His ability to make money for himself, a rarity for an economist, made him the “go to” guy. Keynes ideas deeply influenced the Roosevelt administration and he gained a great deal of notoriety in America, as he had done in Europe.

So what was Keynes magic bullet? You must first understand the economic thinking of the day. Variations in the economy between inflation and depression were considered inevitable. It was believed that factored into an economy were the automatic tools for bringing that economy out from a depression and also to ease it down from an inflation. It was believed that during a depression savings rates would rise, and interest rates would fall, thus industrial expansion would begin. Industry would expand and employ more workers, the economy would rise, as would investments. Interest rates would then rise, reducing savings, and causing a downturn in the economy. The cycle would continue to go round and round with the safety switch at the top and bottom of the business cycle.

Keynes argued however, that there was no guarantee that savings would increase during a down time and therefore bring down interest rates. For him, the trigger to make an economy rise again did not lie in savings and investment. His great trigger was Enterprise, which made an economy strong again. Business investment and enterprise, he said, was not and could not be a dependable thing. Expansion would top out at a certain point where it was no longer necessary to build larger and bigger industry due to the ceiling of demand upon a product. Business could not invest perpetually, and therefore an upward spiral was no guarantee.

In his book, The General Theory of Employment, Interest and Money; he states:

First, an economy in depression could remain there. There is nothing inherent in the mechanism of economics to pull it out. A nation can reach equilibrium with unemployment, even massive unemployment. Prosperity depends on investment. If business spending for capital equipment falls, a spiral of contradiction follows. Business investment must rise for expansion to follow. Investment is an unpredictable drive for an economy. Uncertainty lies at the core of capitalism, the threat is reaching the end. Reaching the point where business growing larger would only incur more needless cost, and this spells economic shrinkage.

(No need to mention the current state of affairs relating to the argument of illegal immigrants taking American jobs and using American resources to see how these statements of Keynes could be prophetic in their assertation.)

According to Keynes, the economy lives in the shadow of collapse. There had to be, for him, another catalyst for making the engines roll once again. As demonstrated in some of the ideas of Roosevelt’s New Deal, Keynes believed that the motor for getting things running again was Government investment. This was his golden panacea. His magic bullet, as it were.

Keynes felt that it was a government’s role to create FULL employment even if it had to create a mountain of unmanageable debt to make it happen. Borrow, borrow, borrow. The world was on the verge of a major financial problem due to America, and Keynes believed that the government had to make up the slack for lack of business investment.

It’s probable that Keynes was merely suggesting a temporary fix for an economy by instructing the investment in employment by the government. His vision was not necessarily meant to be a permanent state of existence. He could not have foreseen a permanent existence of government borrowing and deficit spending which was being suggested for all nations.

The world could have seen the workings of the New Deal as a temporary and expensive fix for poverty and unemployment, as they would have then noticed, if it had not been for the up can coming disaster that we all know now as World War II. Government spending rose like a red tide to $103 billion annually. The day for paying the bills was put on the back burner until after the war.

Keynes philosophy can be summed up as much: The Government has all the answers. Government guarantees stabilize banks. Protection satisfies labor unions. Regulation stabilizes transportation, travel, the media, housing, mortgages, pension funds, and retirement plans. Government is the final resource, it can create something out of nothing. Sound a bit “Orwellian” to you? The government is God.

Keynesian economics writes a check for the next generation that it cannot cash. The ideas are effective in the short term, but mortgage the future. “In the long term.”, said Keynes, “We are all dead.”

Where does all the money come from? Where can government borrowing continue to go to for larger and larger jobs of being the ultimate provider for the American public? Roosevelt’s administration felt there was NO problem due to the fact that the money was only owed to OURSELVES. This was true at first, of course, bonds were issued to finance the borrowing of the federal investment. In the 1940’s they were called war bonds. More and more bonds have been issued since then and now the red tide of staggering debt is undeniable.

There was a time once, when having a national debt was an embarrassment, but not anymore. And in the subsequent years since the Nixon administration “balancing the budget” has become little more than wishful thinking. The Gramm-Rudman act passed by Congress, which was to reduce the national debt each year until the government had a hold on things and the government could then become smaller, never came to pass. In fact, the government has funded its own deficit by dipping into social security to the point where there won’t be any social security for millions of Americans in just a few generations, if not before, considering the geometric rise in such things.

There is no safety net in Keynesian economics for digesting and handling a debt of trillions of dollars. It would take 100,000 years to count the trillions of dollars of debt at one dollar per second that the United States finds itself in today. Who will answer for the empty treasury that is looming in the future of America? With no retirement, no military pension, no civil service pension and a growing baby boomer nation of older people, what will America look like in just a few decades time? Not to mention where the money for government run health care is going to come from.

If our hopes for the future rely on increase in population, where will this population of earners come from? If we continue to abort our future for the comforts of today, both monetarily and yes, in the womb, who will pay for the sins of the fathers? Will there be a zero population growth, and thus no more ability to invest and borrow and take care of the aging public that can no longer afford to take care of itself?

All good questions Keynes never envisioned.

more on this next time

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