I just read a parody of Keynesian economics as a mental illness sent by a friend. Yeah, other than politics he's a great guy. My response follows. The parody, which should be read -or skimmed first, is in the lower section.
I know it's foolish but I have to answer you.
(see parody of Keynesian economics below)
Have you heard of something called the great depression. It came right after a long economic bubble, not unlike what we experienced in two parts from 1996 to 2006. The President at the beginning, Herbert Hoover was an engineer, a damn good one, but didn't understand economics too well. So he said we should hunker down and let the "panic" it was called then, just take it's course and self correct, only it didn't. Then when the country was in danger of social unrest a man named Roosevelt initiated deficit spending based on Keynesian principles and slowly there was some recovery. Then before the recovery was complete, he tried to cut back on spending to lower the deficit, so in 1937 the market and economy took another drop.
We were headed into what could have been decades long economic stagnation, or worse some kind of revolution, possibly the overthrow of capitalism which was not providing sustenance to a majority of the people. At about that time other countries in the world were suffering from economic boom bust cycles, and a few even suffering more. Some of these countries were seduced by leaders who promised a way out by ignoring the little niceties of civilized society like refraining from aggressive military expansion. These countries, by spending great sums on armaments engaged in a de facto stimulus program that put people to work. Their leaders were cheered, some at giant rallies where not a single person objected to what they were doing.
Ironically, the threat from these countries to the U.S. was exactly what our economy needed. Where the misguided fiscal conservatives would never have approved major public works, when these were in the form of building bombers and tanks it was accepted. And then when we were actually thrust into war, all limits were gone. The share of government spending that had doubled to 20% of the GDP in the early new deal, was increase to a whopping 52% of GDP, all spent by government, big government, powerful government that used socialist policies such as rationing to make sure the the small amount of goods such as gasoline and food were allocated by need rather than wealth.
This big government stimulus worked so well that we not only won the war, we were on our way to the longest sustained economic boom in history. We educated a generation of young people who never would have gotten close to a university. We built an elaborate interstate highway system that connected a vast country. Partisan politics found a solid center core of agreement, whether in fighting the cold war, ending racial discrimination, or providing for expansion of real income of the working class of the country.
It was this vital center of political life that sustained the greatest era of our history. The two men who faced off in 1960, Richard Nixon and John Kennedy where both patriots and statesmen, Kennedy who reached out to the "evil empire" to form a bond with Khrushchev that allowed us to sidestep the near Armageddon of the Cuban Missile Crisis, and Nixon who was able to open the door to China which broke the back of a unified international communist movement. As for depth of their personal friendship, it was expressed in an exchange of letters between Jackie Kennedy to Nixon on display at the Nixon Library.
This country has serious problem, that will never be addressed, much less solved in our current partisan climate. This is exacerbated by the reduction to parody of the complex issues of the day. Eventually, such humor take the place of understanding, as exemplified in the close of this one, where Paul Krugman, the single most strident early voice decrying the impending collapse of the real estate market among other insights, is reduced a a punch line. So there is no need to try to read, research or even think about his positions, as he simply becomes a joke. And since those who share this thinking are all laughing, it seems to be true.
Sorry my friend. This little piece is not funny. It is sad, even tragic. All the more so, since so many in our country don't even know why.
Here's the viral email that I received:
Can A Virulent Strain Of Keynesianism Actually Be Cured?
Breakthrough: Science Offers New Hope for Keynesians
Medical research suggests faith in stimulus caused by virus.
“Keynesianism costs America more than schizophrenia and depression put together.”
By FRANKLIN RAUD
Staff Reporter of THE WALL STREET CHRONICLE
July 6, 2011; Page A1
BOSTON – Researchers funded by the National Institutes of Health have found evidence that a retrovirus that has been linked to schizophrenia and multiple sclerosis may also cause Keynesianism. The discovery raises hopes that a cure may be found for this economy-destroying disease.
“The breakthrough was realizing that schizophrenia and Keynesianism have many of the same symptoms,” said Dr. Charles Rivers of the Harvard School of Medicine. “For example, both conditions cause delusions. A schizophrenic may think that the CIA is trying to kill him, while many Keynesian believe that government spending stimulates the economy.”
The suspected pathogen is known as human endogenous retrovirus W, or HERV-W. It was first identified in 2001 by researchers at Johns Hopkins University. Since then, high concentrations of HERV-W have been detected in the brain fluids of sufferers of schizophrenia, bipolar disorder, MS, and now Keynesianism.
“Like schizophrenics, Keynesians are reality proof,” noted Dr. Vishnu Krishnamurti of Massachusetts General Hospital. “Evidence, no matter how compelling to healthy people, does not affect their beliefs. A schizophrenic’s driver’s license may say, ‘John Smith’, but this will not shake the patient’s certainty that he is really Napoleon. Similarly, if you read Christina Roemer’s article in the July 3rd edition of The New York Times, you will notice that the same economist that predicted that spending $862 billion on ‘stimulus’ would keep unemployment from exceeding 8% is now saying that we should raise taxes to avoid spending cuts. It’s sad.”
A Costly Disease
While it is known that schizophrenia affects about 1% of the adult population, and that 19% of Americans will suffer from depression at some point in their lives, there are no good statistics on the incidence of Keynesianism. This may be because, unlike other mental illnesses, Keynesianism produces symptoms only if it strikes someone in a position of power. However, despite this atypical pattern, Keynesianism costs America more than schizophrenia and depression put together.
“The cost of schizophrenia in the United States in 2002 was estimated to be $62.7 billion,” explained Harvard’s Dr. Rivers. “This included direct treatment expenses, additional law enforcement costs, and lost productivity. A 2003 study put the economic impact of depression at $83 billion per year. Accordingly, a plausible 2011 cost estimate for the two diseases combined would be $180 billion.” He continued, “In contrast, from 2008 through 2010, Keynesianism cost the nation over $1 trillion for stimulus alone. And, this does not count the immense toll that Keynesian policies have taken on the overall economy.”
Many infectious diseases simmer for years in small populations of “carriers”, only to surge into the general population in the form of epidemics.
“Like schizophrenia, Keynesianism profoundly impairs a sufferer’s capacity to deal with reality,” noted Massachusetts General’s Dr. Krishnamurti. “Accordingly, the long-term reservoir for this disease must be a group that is not required to deal with the real world. Right now, the signs point to academia, particularly the economics departments at major Ivy League universities.”
The last major epidemic of Keynesianism broke out in the late 1960s, raged throughout the 1970s, and was not fully contained until the end of 1982. The human and economic cost of this episode was incalculable.
After 1982, Keynesianism lay dormant for 18 years, until a small outbreak in 2001 that took the form of $300 and $600 rebate checks mailed out to most American households. The disease then slowly took hold in Washington until it exploded in a tidal wave of stimulus spending, $152 billion in 2008 and another $862 billion in 2009. In terms of its toll on economic growth and total employment, the current epidemic of Keynesianism is by far the worst on record. Its devastation rivals that wrought by the Black Death in the 14th century.
No One Is Immune
One reason that Keynesianism is so debilitating is that the disease afflicts both Democrats and Republicans. For example, many Republicans who derided Obama’s stimulus spending turned around and supported a two percentage point cut in Social Security taxes because it would “put money in people’s pockets”. This tax cut, which took effect on January 1, 2011, provided no supply-side benefit whatsoever.
“Like schizophrenia, Keynesianism causes sufferers to see things that aren’t there, and to not see things that are there,” observed Dr. Sigmund Schadenfreude, a psychiatrist in private practice in Washington, DC. “A Keynesian can look at a BLS report that shows that total employment went down by 3.1 million from January 2009 to June 2010, and see 3.5 million jobs ‘created or saved’. Similarly, economic growth can decline from 3.1% in 4Q2010 to 1.9% in 1Q2011 and Keynesians won’t notice this at all.”
Was Keynes a Keynesian?
There is some debate over whether John Maynard Keynes himself suffered from Keynesianism. Because he died in 1946, it is not possible to test his brain fluids for the presence of the HERV-W virus. However, Keynes’ advocacy of government borrowing and spending as a remedy for the Great Depression is not, in and of itself, proof that he was insane.
Under the classic gold standard of the time, the size of the monetary base was limited by the physical supply of gold. Accordingly, if a liquidity panic, such as the one that occurred in 1930, caused people to attempt to “save” by increasing their holdings of base money, this would, in fact, cause aggregate demand to fall. If, in such a case, savers were willing to hold newly issued government debt in lieu of base money, then the money could be returned to circulation and aggregate demand would rise.
Of course, the substitution of government bonds for base money that Keynes advocated did not require that the government spend money on unproductive activities, such as paying people to dig holes and fill them in again. It would have been just as effective for the government to issue bonds and buy up riskier assets, which could, at the time, have been purchased at very attractive prices.
While it is not clear that Keynes’ economic program could have actually worked as he envisioned, it was not completely insane like present-day Keynesian policies. Accordingly, we may never know whether Lord Keynes himself was the first Keynesian.
Hope for a Cure?
The identification of the infectious agent that causes Keynesianism creates the possibility of controlling the spread of this affliction, an effective treatment, or even a vaccine. Research continues.
“We don’t know yet exactly how Keynesianism is spread,” said Harvard’s Dr. Rivers. “However, it certainly makes sense to avoid contact with known carriers, like Paul Krugman.”