Gary North on Keynsian insanity

[grapejelly]

Re: Gary North on Keynsian insanity

We are in an unprecedented situation (in terms of world history), where productive capacity is well beyond meeting our physical needs (at least in the western world). Nobody needs more ipods or tvs or cars or etc to survive, or even to be happy (though, sadly, many people believe that they do).

I like the idea of saving and investing. But, if we all do that, just investing in more productive capacity won't solve anything. There's already plenty in China and India. Working for less than $1/hour, people their can easily produce any physical good we need. While it would be nice if some of that production were in places like the USA, ultimately, the location doesn't matter - what matters is that there is a glut of capacity.

No. The prices of goods are too high. If demand isn't there that means prices need to come down until demand is seen.

The real problem is that many folks don't want prices to fall. Especially of labor.

If you study the Great D, you quickly see how heroic efforts were to raise prices of everything.

That is government's role.

That made the Great D much worse because the economy was not allowed the organic and natural adjustments it was in the process of making.

Same as today. Government supports "stimulus" to raise the prices of everything possible. Instead, prices should be allowed to fall.

It seems to me that with fractional reserve lending, the money associated with credit creation doesn't come from somebody giving up consumption... or, at least, only the tiniest fraction comes from somebody giving up consumption and the rest is generated out of thin air. The consumption that is being given up is the consumption tomorrow, when the debt that was created must be paid, and the marginal drop in consumption associated with the reduced purchasing power of existing money which was diluted by adding the newly-created credit to the money supply.

The money that is created out of thin air removes purchasing power from the existing stock of money. Savers find their purchasing power has fallen by an equivalent amount as the amount of money created out of thin air.

This is rather simple if you think it through, no?

However, since this is a website devoted to the study of economics, I suggest to you that we take a somewhat more precise approach to our use of language, where economic theory is concerned. Since I fall into the camp that thinks Keynsian counter-cyclical fiscal policies are a good idea in general, but that the bozos who only indulge in the first half of the policy have created this mess and are leading us to ruin, some distinction is required in order to carry on a conversation. I'm open to a counter-proposal.

The problem is a matter of government trying socialist and populist approaches to bring prices higher than the market suggests prices should be. Government will fail, except to the extent of prolonging a crisis and making it much, much worse, and increasing the totalitarian scope of government in general so that we have fewer liberties.

[grapejelly]

Re: Gary North on Keynsian insanity

http://www.lewrockwell.com/higgs/higgs101.html

Robert Higgs has it exactly right

If workers want to work but cannot find an employer willing to hire them, it is because they are not willing to work at a wage rate that makes their employment worthwhile for the employer. Unemployment results when the wage rate is too high to "clear the market." The Keynesians concocted bizarre reasons – downwardly inflexible wage demands, a "liquidity trap" – to explain why the labor market was not clearing during the Great Depression and then continued to accept such reasoning long after the depression had faded into history. But when labor markets have not cleared, either during the 1930s or at other times, the causes can usually be found in government policies – such as the National Industrial Recovery Act of 1933, the National Labor Relations Act of 1935, and the Fair Labor Standards Act of 1938, among many others – that obstruct the labor market's normal operation.

and

Military Keynesianism has enough surface plausibility that it garnered a substantial following in certain quarters even before Keynes's General Theory gave it apparent intellectual respectability. In his 1944 book As We Go Marching, John T. Flynn noted as a fact "this devotion of the conservative elements to military might," and he emphasized that "militarism is the one great glamorous public-works project upon which a variety of elements in the community can be brought into agreement." He understood, however, that military public-works spending has far graver consequences than ordinary Keynesian pyramid building. "Inevitably, having surrendered to militarism as an economic device, we will do what other countries have done: we will keep alive the fears of our people of the aggressive ambitions of other countries and we will ourselves embark upon imperialistic enterprises of our own." Flynn deserves high marks as a prophet.

[Sapiens]

Re: Gary North on Keynsian insanity

If workers want to work but cannot find an employer willing to hire them, it is because they are not willing to work at a wage rate that makes their employment worthwhile for the employer

Not quite. Why can't the worker take a lower wage? Think to the basics...

He needs food, but the price of the food he needs has certain cost imbedded in it; what is that cost? Food is grown on land. So the farmer has certain costs, namely interest, and the medium-of-exchange is only issued as debt that is secured by land. Can you see and follow the chain reaction?

All comes down to Usury. Comprehend that and the World is yours.

[grapejelly]

Re: Gary North on Keynsian insanity

food costs are quite elastic. If workers' wages fall, food costs will fall too. And workers can substitute cheaper food for more expensive food.

It is quite obvious when you come right down to it, and study what is going on: all efforts towards stimulus are frankly focused on raising prices that want to fall. Preventing the market price from happening, and instead putting in an artificial gubmint-mandated higher price.

FDR in the Great D was very frank about it. All efforts as soon as he got into office were made to raise food prices, raise wages, raise all prices. He succeeded, but of course this did not end the Great D, it only made it last far longer.

The depressed economy continued through World War 2, but the war pulled millions of young men out of the labor force. And after the war, of course, the US was the last country standing and benefited hugely from its status as the wealthiest country with the reserve currency.

[Sapiens]

Re: Gary North on Keynsian insanity

food costs are quite elastic. If workers' wages fall, food costs will fall too. And workers can substitute cheaper food for more expensive food.

blah blah blah.... I do not know why I waste my time.

Now, tell me, how elastic is the food price. Is the farmer going to give his food away? If he does, how long can he farm if he is in debt?

Clear the stupid out of your head.

[Jay]

Re: Gary North on Keynsian insanity

blah blah blah.... I do not know why I waste my time.

Now, tell me, how elastic is the food price. Is the farmer going to give his food away? If he does, how long can he farm if he is in debt?

Clear the stupid out of your head.

Interesting discussion. If the cattle farmer goes bankrupt wouldn't this be a natural occurrence of capitalism and give the market the opportunity to find efficiencies in other ways? Beef becomes too expensive, so the cattle farmer goes under, but capital shifts into growing a cheaper foodstuff like soy, no? Isn't that elasticity? Usury is an overlay on the system, a tax if you will, but that doesn't necessarily mean that food costs aren't elastic. Usury only becomes an issue if it chokes off the entire system, which we are in a period of today. We now need a debt deflation. In fact, this over-indebtedness is a pattern throughout history in most capitalistic societies, which is a function of compound interest. But on the flip side, the risk of providing capital for new businesses needs to be rewarded, no? If not there will be no economy. Once the debt deflation ends, we are back to usury unless we want stone tools, or unless an entirely new monetary system is implemented.

[Sapiens]

Re: Gary North on Keynsian insanity

Interesting discussion. If the cattle farmer goes bankrupt wouldn't this be a natural occurrence of capitalism and give the market the opportunity to find efficiencies in other ways? Beef becomes too expensive, so the cattle farmer goes under, but capital shifts into growing a cheaper foodstuff like soy, no? Isn't that elasticity? Usury is an overlay on the system, a tax if you will, but that doesn't necessarily mean that food costs aren't elastic. Usury only becomes an issue if it chokes off the entire system, which we are in a period of today. We now need a debt deflation. In fact, this over-indebtedness is a pattern throughout history in most capitalistic societies, which is a function of compound interest. But on the flip side, the risk of providing capital for new businesses needs to be rewarded, no? If not there will be no economy. Once the debt deflation ends, we are back to usury unless we want stone tools, or unless an entirely new monetary system is implemented.

Read this if you don't mind the religious part:



http://muhammadfarms.com/Farmer_Dec4_2009.htm

Volume 12, Number
4                                    
December 4, 2008

The Farmer

------------------------------------------------------------------

Usury: The weapon of mass enslavement

By Dr. Ridgely Abdul Mu’min

As we continue to watch the drama of this financial crisis unfold before our eyes, many may
wonder if anybody knows what is going on. A study of history may help us understand how we got into
this situation and how we may fall victim again as long we are dependent on the international
bankers to run our financial system.

In the early 1920s Henry Ford brought to America’s attention a plan for world domination in a
four volume set of booklets published by him called "The International Jew". In these
booklets Ford quoted from a document or manual called "The Protocols of the Elders of
Zion". This document was first published in a Russian newspaper in 1903 and a portion
of protocol number 6 reads: "It is essential therefore for us at whatever cost to deprive
them of their land. …This object will be best attained by increasing the burdens upon landed
property – in loading lands with debt…we want is that industry should drain off from the land
both labor and capital and by means of speculation transfer into our hands all the money of the
world."

No one has stepped forward as the "Elders of Zion" and owned up to the document,
however we must look at history and see if "someone" has actually put such a plan in
motion. We also notice that this protocol is in line with the commandments given in the Bible to
Jacob’s children to use debt as a weapon to take over land of other nations. Let’s read Deut.
23:20; "Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not
lend upon usury: that the Lord thy God may bless thee in all that thou settest thine hand to in the
land whither thou goest to possess it." And Deut. 15:6 "For the
Lord thy God blesseth thee, as he promised thee: and thou shalt lend unto many nations, but
thou shalt not borrow; and thou shalt reign over many nations, but they shall not reign over
thee."

By definition, lending money with any level of interest charge for its use is usury. Therefore
these scriptures are a command to lend money out to "strangers" (foreigners), charge them
interest and make them put up their land for collateral. If the borrower can not pay then he becomes
the slave to the lender: Prov. 22:7 "The rich ruleth over the poor, and the borrower
is servant to the lender."

Even in the time of Pharaoh, according to the Bible, the Egyptians were taken off their land and
enslaved by one of Jacob’s children, Joseph: Genesis 47:20-23

"20 And Joseph bought all the land of Egypt for Pharaoh; for the Egyptians
sold every man his field, because the famine prevailed over them, so the land became Pharaoh’s.

21 And as for the people, he removed them to cities from one end of the borders of Egypt
even to the other end thereof.

22 Only the land of the priests bought he not; for the priests had a portion assigned them
by Pharaoh, and did eat their portion which Pharaoh gave them; wherefore they sold not their lands.

23 Then Joseph said unto the people, Behold, I have bought you this day and your land
for Pharaoh; lo, here is seed for you, and ye shall sow the land."

This policy of depriving the people of their land by loading the land with debt, then herding the
people into cities, has been successfully carried out in modern times, first to the Black people
after slavery and finally to the American people in general. From 1865 to 1910 Blacks had risen from
slavery, where they owned nothing, to acquiring over 16 million acres of land, mostly in the South.
To stem this tide, white merchants loaned seed and supplies at high interest rates (usury) to freed
Blacks. Land was held as collateral and payments were accepted in cotton only. Black farmers were
therefore forced to grow cotton to pay off their debts and had to reduce the production of food for
themselves and the growing black economy developing in small towns and cities in the South.
Increased debt loads plus a rash of lynching over the 30 year period from 1890 to 1920 effectively
drove millions of Blacks off of their land in the South into the ghettoes of the North to work for
the northern industrialists.

However, the Whites who took over the land needed labor which they no longer had or could depend
on. They were encouraged by the government to purchase labor saving equipment and chemicals, but had
to borrow money to move into this new industrialized agriculture. They were also encouraged to
borrow money to buy more land so they could more efficiently utilize the new technologies developed.
This depopulation of the countryside was not happening fast enough. So, in 1962 the Committee for
Economic Development produced what they called "An Adaptive Approach" in which they
stated: "Net migration out of agriculture has been going on for 40 years, and at a rapid rate.
Nevertheless, the movement of people from agriculture has not been fast enough..." This
"adaptive approach" recommended that "agricultural prices be substantially lowered".

Now the farmers were to receive less money for their products while trying to service the debt
on their equipment and land.

Urban America paid little attention to the black farmers in the South or the white farmers in the
Midwest as they cried out for help. However, as the farm land was being loaded with debt and the
children of farmers were being herded into the cities, policies were put in place to carry urban
America down to financial ruin by the same international bankers of whom Henry Ford warned.

In 1913 the US government gave over its right to print money to 12 private banks called the
"Federal Reserve System". Now these banks simply print money, lend it to the government
and other banks at interest. This paper money is not backed by any tangible asset, not gold, not
silver, nothing but "confidence". After the Fed creates this money the first time, they
loan it to other banks who immediately file this "loan" as a deposit and through the ‘net
capital rule’ or ‘fractional-reserve banking’ scheme are able to loan out at first 4, then
later 15, but after 1999, 30 times the value of their deposits held in reserve.

Banks and other financial institutions are allowed to lend money, that they create out of thin
air, then charge compound interest with a demand of real collateral (real estate) from the borrower.
And since outstanding loans are counted as assets on the accounting books of the banks, the stage
was set for the explosion of the level of financial "assets" and the fueling of the
housing bubble of the late 20^th century and early 21^st century.

The money lenders went to the colleges and gave out credit cards, addicting "Generation
X" to buying everything on credit. At the end of the 20^th century predatory lenders
tricked older people into mortgaging the equity in their homes to buy consumer goods. The result, by
2007 the private debt in the US had risen to $41.5 trillion and government debt to $11.4 trillion.

The investment bankers got the working class to invest their retirement money in the stock market
only to see their wealth destroyed by 50% in 2008 alone. Over the last seven years it is estimated
that Americans have lost $13 trillion in personal wealth, greatly increasing their debt to asset
ratio.

The Commodity Futures Modernization Act of 2000 allowed energy traders, including financial
giants, Goldman Sacks and Morgan Stanley, to set up energy exchanges operating outside of any
government regulations that could prevent excessive speculation. Since 2002 oil price speculation by
these same financial giants tripled the price of gasoline to the commuters who depended on their
vehicles to get to work and the truckers who had to burn fuel to make a living. The resulting
reduction in disposable income decreased consumer spending on other goods, dragged down the economy,
deflated housing values in the suburbs, leading to mortgage defaults which precipitated the crisis
in financial markets

In other words, the money lenders put a rope of debt around everybody’s neck then in 2008
kicked the chair from beneath the credit system. The money lenders are now banging on the door of
the Treasury Department demanding their "pound of flesh" before they will allow their
financial system to stabilize. However, it may be a lot tougher for this financial system, run by
the international bankers, to re-establish "confidence" among money lenders because they
broke the commandment of Deut. 23:20 and began to cheat each other and not just the
"strangers".

Henry Ford was not the first one to expose and attack the plans of the international bankers.
2000 years ago a man was born in Palestine named Isa, the Messiah, Son of Mary. However, he was not
accepted by his own Jewish nation as their Messiah. In fact he was turned over to the Roman
authorities at that time to be crucified. What did Isa (called Jesus today) do that so embittered
some of his fellow Jews towards him? According to Mathew 21:12 "And Jesus went into the
temple of God, and cast out all them that sold and bought in the temple, and overthrew the tables of
the moneychangers, and the seats of those that sold doves,…"

Now a moneychanger is not just a merchant but a person who exchanges money, as from one currency
to another. This trade of money changing grew into the modern banking system of Europe.

Therefore Jesus (Isa) was interfering with the "family business" by going against the
Old Testament commandments given to the Children of Jacob to loan money to foreign countries upon
usury which would eventually give the international bankers, superiority over the majority and make
the people a slave to the banking system. Let me give you an example. $100 loaned at 6% compound
interest for 100 years grows into the astronomical sum of $35,000. The present banking system has
been in business for centuries lending money at interest thereby accumulating the wealth of nations
in their vaults.

The holy book of the Muslims, the Holy Qur’an strictly forbids all forms of usury and the early
Christian Church, following the example of Jesus, also forbade usury until John Calvin, a Protestant
reformer, defended usury in the 1500s. Now you may have a better understanding of why the
international bankers hate Islam and why the Muslims have always loved Jesus (Isa, the Messiah, Son
of Mary).

The collapse of this highly leveraged system of legalized usury should give us an opportunity to
explore systems of banking without interest in other parts of the world and develop a financial
system that invests to empower the people, instead of loaning to enslave the people. In the meantime
while the dollar still has some value we should use those dollars to buy tangible productive assets,
like land and equipment, and not intangible financial instruments which we do not understand and
cannot trust. We offer to you the Three Year Economic Savings Program as a tool to help us do for
ourselves and develop a new economic paradigm based on the teachings of the Honorable Elijah
Muhammad under the leadership of the Honorable Minister Louis Farrakhan.

[Jay]

Re: Gary North on Keynsian insanity

Read this if you don't mind the religious part:

http://muhammadfarms.com/Farmer_Dec4_2009.htm

This article has anti-Semitic tones which I find distasteful. That is not religion, it is hate. You don't need to be Jewish to be a usurer. That being said, it brings up some very interesting ideas when you strip out the hatred. The question I have is what other monetary system can be implemented in a world where greed and corruption are basic human traits? I would suspect that attempts at implementation would be very difficult. (This is where you insert presidential assassination conspiracies.) And which fox rules the chicken coop?

Secondly, if everyone goes and buys a farm and holds hands and sings kumbayah none of us would be sitting at our desks surfing the internet. It just never comes to be, and a million other luxuries never are created either. Does this new implementable monetary system foster risk or keep humanity in the 18th century?

[whatnow]

Re: Gary North on Keynsian insanity

http://www.studien-von-zeitfragen.ne..._of_money.html

A problem that has plagued civilized men for millenia. I feel bad for this guy as he truly believes that government control of WHAT is money will solve many problems. Tis a shame that he hasn't realized that there is no distinction anymore as the private interests control the public domain.
So what to do?
Me? I think I'll just keep growing vegetables....

Constructions can be de-constructed. Qui bono?

[Sapiens]

Re: Gary North on Keynsian insanity

You don't need to be Jewish to be a usurer.

I agree.

The question I have is what other monetary system can be implemented in a world where greed and corruption are basic human traits? I would suspect that attempts at implementation would be very difficult.

Same here, I try to imagine "Beyond The Age of Usury"

Secondly, if everyone goes and buys a farm and holds hands and sings kumbayah none of us would be sitting at our desks surfing the internet. It just never comes to be, and a million other luxuries never are created either. Does this new implementable monetary system foster risk or keep humanity in the 18th century?

I have been very successful as an usurer, that is, before I understood what I was doing. Now, the crisis of conscience that plagues me is the question, what is Life about? Somehow the paradox lies that we tend to mix the spiritual aspect of our being with the physical constraints of material existence… Re your question, I do not know...

[Jay]

Re: Gary North on Keynsian insanity

I agree.



Same here, I try to imagine "Beyond The Age of Usury"




I have been very successful as an usurer, that is, before I understood what I was doing. Now, the crisis of conscience that plagues me is the question, what is Life about? Somehow the paradox lies that we tend to mix the spiritual aspect of our being with the physical constraints of material existence… Re your question, I do not know...

Sapiens, why did you get out of usury? Your posts point to a clear understanding of the dog-eat-dog aspects of our world, and, as you said, you would save your child's life over mine (as I would in kind). From your posts I get a sense of callousness about you, yet I am surprised that someone who can come off as callous would give up a usurers life and in fact be tormented by it. Why the paradox?

[Sapiens]

Re: Gary North on Keynsian insanity

Sapiens, why did you get out of usury? Your posts point to a clear understanding of the dog-eat-dog aspects of our world, and, as you said, you would save your child's life over mine (as I would in kind). From your posts I get a sense of callousness about you, yet I am surprised that someone who can come off as callous would give up a usurers life and in fact be tormented by it. Why the paradox?

Jay, the only way I could articulate it is that there is a void that material rewards cannot fill...

The knowledgeable Usurer makes many iterations of an excuse in order to quell his conscience and justify the misery he causes, for example, he tells himself that it is ok to practice usury if:

“Let him who wishes to be deceived, be deceived.”

Yet, the anxiety persists for the void is not filled notwithstanding the justification. Then there is the blind Usurer, who is dead in life, that is, he practices Usury for the sake of Usury and his need is never filled…

That’s the best I can do, for now, to answer your question.

[LargoWinch]

Re: Gary North on Keynsian insanity

GJ, that's it I found you're new avatar (great post as always):

[grapejelly]

Re: Gary North on Keynsian insanity

blah blah blah.... I do not know why I waste my time.

Now, tell me, how elastic is the food price. Is the farmer going to give his food away? If he does, how long can he farm if he is in debt?

Clear the stupid out of your head.

Why answer this way? It is unfriendly and snitty. Please stop.

Interesting discussion. If the cattle farmer goes bankrupt wouldn't this be a natural occurrence of capitalism and give the market the opportunity to find efficiencies in other ways? Beef becomes too expensive, so the cattle farmer goes under, but capital shifts into growing a cheaper foodstuff like soy, no? Isn't that elasticity?

Meat prices are quoted on the exchange virtually instantly with a large and liquid market.

Over the longer haul, fundamentals assert themselves and farmers pull meat off the market, breed fewer cattle, etc., until prices shoot up again.

The farmer may sell at a loss at times, if need be. The supermarket does the same.

The whole Keynsian bailout thing advocates massive government money spending in order to prop up prices of meat, labor, etc.

Usury is an overlay on the system, a tax if you will, but that doesn't necessarily mean that food costs aren't elastic. Usury only becomes an issue if it chokes off the entire system, which we are in a period of today. We now need a debt deflation. In fact, this over-indebtedness is a pattern throughout history in most capitalistic societies, which is a function of compound interest. But on the flip side, the risk of providing capital for new businesses needs to be rewarded, no? If not there will be no economy. Once the debt deflation ends, we are back to usury unless we want stone tools, or unless an entirely new monetary system is implemented.

Back to the original premise...the price of money. Government is trying to control the price of credit and money. Trying to lower it.

[ASH]

Re: Gary North on Keynsian insanity

The money that is created out of thin air removes purchasing power from the existing stock of money. Savers find their purchasing power has fallen by an equivalent amount as the amount of money created out of thin air.

The phrase "the marginal drop in consumption associated with the reduced purchasing power of existing money which was diluted by adding the newly-created credit to the money supply" was meant to address the effect upon the existing stock of money.

I'm willing to entertain some Keynsian ideas -- from a theoretical standpoint -- because I can imagine situations in which a one-for-one drop in purchasing power would not accompany the creation of money from thin air. For instance, if the velocity of money drops during an economic contraction, then adding to the stock of money would not result in an equivalent drop in purchasing power for savers at that time. The problem is execution. Keynes advocated raising interest rates during periods of economic expansion, which drains reserves from the banking system, and "un-prints" money. The second half of Keynsian policy, which no one does, is the part that would restore purchasing power that is diluted in the first half, and protect savers when the velocity of money rises.

As I remarked elsewhere, it appears to me that the flaw with Keynesian policy is human, rather than mechanical. Those who see big government -- even totalitarianism -- in Keynes's ideas are absolutely right. The human problem with Keynesian fiscal policy is that in a democracy, the voters will reward their leaders for performing the first half of Keynesian intervention but punish them for performing the second -- and they will especially reward their leaders for general deficit spending cloaked as "Keynesian". Not only is this a recipe for growth of government, it also implies that Keynesianism can only work if the managers of the economy are insulated entirely from the short-term wishes of the people -- a totalitarian system.