Keynesianism: in its last days

The fall of the USSR:

The Soviet Union collapsed in December of 1991 and that was great news. The cold war was over! No more big spending on the military! (well, that is what was said then) Not only did the USSR go down but also the entire mythology of revolutionary violence as the method of social regeneration as well as Marxism as a respectable ideological system.

The Soviet Union was based on socialism and the irrational socialist economic calculation that Ludwig von Mises, in 1920, described in his article, “Economic Calculation in the Socialist Commonwealth.” He showed why socialist central planning can not work. The planning board can not rationally allocate capital according to its best use without the price feedbacks of the market. (an over simplification of the great man’s work but true) Mises’s argument was not taken seriously by the academic community because Socialism was so popular and after 15 years only one man even attempted to answer Mises. Mostly Mises was ignored — a sure sign that no one had an answer to his argument.

In the fullness of time it became clear that the Soviet economy was not the powerhouse that the academics had told us about for decades. Finally a socialist professor named Robert Heilbroner, author of the most popular textbook on the history of economic thought that has ever been written, wrote an article, “After Communism,” for the New Yorker (September 10, 1990) and admitted that throughout his entire career, he had always believed that Mises was wrong. He admitted: “Mises was right.” Paul Samuelson wrote the introductory textbook that sold more than any other in the history of college economics. And in 1989 as the USSR’s economy was collapsing  he wrote in his textbook that the Soviet Union’s central-planning system proves that central planning can work. Yet another example of the blindness of the academy to any evidence that goes against their world-view. Paul Samuelson was the first American to win a Nobel Prize in economics and was the creator of the “Keynesian synthesis”. He was the single most influential economist of the last century. He ignored all evidence that the Soviet System was failing and wrote in his textbook up to the very end that Soviet central planning was a viable economic model. Blindness!

Within days of the fall of the USSR, almost no academic was a Marxist any longer. The fad was over and they moved on to the fall-back position of Keynesianism. Paul Samuelson’s “Keynesian synthesis” has held sway ever since the fall of the Soviets. The Keynesians are in charge of the major academic institutions, are the main advisers in the federal government, write economic articles for the NYT and like media. The Keynesians are the dominate faction of the day.

The fall of the Keynesians:

The Keynesians are the overwhelmingly dominant faction within the Federal Reserve System. Their only major institutional opponents are the monetarists, and the monetarists are as committed to fiat money as the Keynesians are. Both schools of thought are dead set against a gold-coin standard. Both schools are in favor of continued government debasement of the currency and a gold standard would not be conducive to that goal.

The USA could not take advantage of the fall of the USSR because the US went with the Keynesians and the idea that endless deficit spending without any constraint would lead to the good life. But the country’s fiat-money economy is heading down the same road that killed off the Soviets. The  present value of the unfunded liabilities of the American welfare state now totals over $220 Trillion and may be increasing by 10 to 20 Trillion a year. The Keynesian USA is bankrupt. A crash is coming and you will not have to wait for long.

The welfare-warfare state will be dead. There will be no money to pay for it all, or rather, there will be plenty of money and it will all be worthless. The analysts with the best arguments are the economists from the Austrian School. Only the Austrians have made a systematic criticism of Keynesian theory and its policies for over 70 years. When it all goes down the tubes, the Austrians will be there to explain how the Keynesians, who were in charge the whole time, led us all to the coming unmitigated disaster.

The day is coming when the economist enablers of the total State will be shown as the charlatans that they are. Blessed be that day!


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