The Keynesian School of Economics Leads to Violence

We are seeing the end game played out over and over in different cultures all over the world. There is one thread of similarity. All of them have practiced Keynesian economics for decades. The belief that more government spending and bigger government to solve society ills has degenerated into a stagnant economy with no growth and in many parts of the world it’s unsafe to walk down the street.

Riots have taken place in “civilized” first world countries. Spain, Italy, Greece, even France and England. Unemployment in some of them is over 20%, and for younger people that have never been hired it can be significantly higher. Even in America, we have seen mini-riots with the Occupy Wall Street crowd and in places like Wisconsin and Ohio that have tried to undo years of bad economic policy. The Arab spring was caused more by economics than it was anything else. An educated populace had no place to work, and no underlying economy to create jobs.

If you don’t understand the technical differences between the Keynesians and the Classical economic principles, you surely have heard iconic words and seen them practiced. You just didn’t realize it. “Prime the pump”, “government stimulus”, “government investment” are typical phrases used to easily translate Keynesian policies. This is just government allocating its resources to different projects. Governments cannot invest. They are not bound by the same constraints as private business.

Classical economics principles rely on the private sector to jumpstart and drive economic growth. Instead of spending money to prime the pump, they adjust tax policy and regulatory policy to change the incentives in the broader economy. Businesses, and people respond to those incentives. Because classical economists see most government spending as relatively useless, they are called “heartless”. The fresh water economists would slash government spending. Since most government spending is on social welfare, the politicians and bureaucracies that benefit from that spending go on a vicious attack.

The problem is that eventually the socialist/Keynesian school runs out of other people’s money to spend. They can’t raise taxes high enough, and the market forces them to pay ever higher interest rates to access public markets. When governments increase spending, businesses cut back. The net present value tables always catch up to them.

At this point in the cycle, they generally have created a situation where there are haves and have nots. Forced to cut spending on the people that receive a government check, those people riot. In Rome, Italy the streets are becoming unsafe.

The killings were “an offence to the Eternal City” and risked turning the Italian capital into “an immense favela where shoot-outs happen as they did in the Wild West,” said La Stampa, one of the country’s most respected daily newspapers. “In one year, Rome seems to have spun out of control.”
The violence has spread from the graffiti-clad sink estates on the outskirts of the city to the tourist-friendly piazzas and cobbled streets of the centre.
Last year there were two murders and seven kneecappings in Prati, one of the city’s most upmarket areas, lying not far from the Vatican.

Many of the killings have been well organised hits carried out in broad daylight, with few of the culprits caught, spreading fear and trepidation among the city’s nearly four million inhabitants

There doesn’t seem to be a transitional period for this base human behavior to occur. One day things are fine, the next you fear for your life.

When Keynesian economics are practiced, poverty and lower standards of living take hold. I have spoken with college students that spent time in Spain. Every evening people would be scouring city dumpsters looking for morsels to eat. When Oprah visited middle class people in BelgiumDenmark she asked, “Where’s all your stuff?”. The answer is they don’t have any stuff. They can’t afford it.

When governments ramp up their debt loads and ramp up the amount they spend on government programs, there is only one outcome. Eventually the merry go round stops. People get off and look at each other. Some have enjoyed the ride. They either built a business and got rich, or they used crony capitalism to insulate themselves and are well off. The rest of the poor saps are stuck with nothing. They have to survive, so basic human survival instincts take over.

That is the danger of accumulating so much debt. We are starting to see it played out in various economies throughout the world. Unless America changes it’s ways, or we get a huge upsurge in economic growth that will placate the debt for the short run, we are on the same miserable trail to nowhere.

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  • Out66

    Another common thread is, that all the economies in trouble use money. They also have something else in common… it is the use of the flush toilets. Therefore, the solution lies in classical economics and outhouses. 

    • Voyager

      There are countries that use money and flush toilets that aren’t going down said toilet, thus the correlation does not hold.

      That those said-same countries are the ones not built on Keynesian welfare states reinforces the author’s primary point.

    • Ignore the trolls, especially the incoherent ones…

  • I agree with you, but I don’t know if people who disagree with you will be swayed by this (maybe by what you linked to). Also, “it’s” is not the possessive of “it.”

    • glad you agree, and sorry for the typo.  I edit the stuff myself.  Majored in marketing and then MBA, not english!

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  • Greg in Denver

    “Progressive-ism always leads to Death”, my standard refrain for years now that I have come to understand how those with “Best Intentions” but are amoral and corrupt make policy.

    One must deal with the depth of depravity that is to be a progressive to understand it must NECESSARILY be so, death is always the result, sometimes in the tens of millions.

    How can it be that the policies of the few lead to such a situation, i.e. North Korea?  We will watch the devolution of society for the next decade or so, then Islamofacism will beckon, then that will fail and the “One Strong Man” theory for salvation will again appear (as is it ever left the Russian mindset).   Are we again to repeat the loss of the Roman Republic, who is Cincinnatus?  Again, progressives deal in death while they “believe” they are so superior and moral – yet are the lowest of the low and without any morals.

  • Robert Burke

    I have two sons that received Business/Economics degrees from, respectively, UC Santa Barbara and Chapman University.  Neither sons was ever told the difference between Keynes and Austrian schools of thought regarding the economy.  

    Whenever I’ve tried to tell them the difference, they don’t want to know.  (As a divorced father, I tried to pull them out of California… but the courts slammed-dunked me.

    The cats must teach the cats… to love cats.

    • By the way, Austrian School is different in many respects from the Chicago School.  Chicago School uses much more data and math.

      • Rick Caird

        But, Milton Friedman pointed out the flaw in Keynesian economics: TANSTAAFL.  Keynesian economics is based on the belief there is such a thing.

  • Davesc

    Also, in 2nd paragraph, it should be “undo”rather than “undue.” You will be more persuasive if you doublecheck your spellchecker. Whatever you studied, errors like these interrupt people’s ability to follow your train of thought, and lead them to wonder whether there are not also errors in your argument.

  • Jrdeware

    Funny how this guy is depicting spain with few hobbos  scouring the trash to find food, while his own country ,the USA, has something like 40 million people surviving on food coupon, not to mention the hord of ex-middle class homeless in LA sneaking behind department store and fast food restaurant to grab vegies in the bins!!I totally agree with his healthy disgust of socialism, but describing Europe as total chaos and unsafe is utterly hypocrite, considering that until a few months ago, murder was the number one cause of death in the USA, and social mobility is lower than those so called socialist country in Europe.
    As for his analysis of Keynes, it cannot be honest since he is in  fact comparing actually keynes with socialism! And by default, its analysis suggest that Austrian economics means having bank cheating the market and bankrupting the economy:  the whole idea of free market  is to have capital allocated more efficiently in the economy, not in ending up in jaguar and brothel money in the end of a few Bank CEO’s.

    So between two credit swaps why don’t you read that will expalin pretty much what free market is about and why it is not what he thinks that is: The wealth of nations adam smith.This is the reason why so many people don’t trust conservative, they try to explain economics to people with sensionalism and chauvinism, which of course doesn’t work…

    • BLBeamer

      Murder has never been the number one reason for deaths in the US. Ever.  There may be 40 million people using food stamps (no idea if the figure is right or not), but no way is the fattest country in the history of the world having over 10% of its population “surviving” on food stamps.

      Based on your post I’m guessing English is not your native language and that you don’t live in the US.  I suggest you check your credulity on US statistics and seek out more diverse sources.

      Your comment that Austrian economics means “bank cheating the market and bankrupting the economy” tells me you do not understand Austrian economics but that you think that the US government has been operating under Austrian principles.

      I think I am in danger of internal organ damage from laughing so hard.

  • theBuckWheat

    There are two fundamentally opposed means whereby
    man, requiring sustenance, is impelled to obtain the necessary
    means for satisfying his desires. These are work and
    robbery, one’s own labor and the forcible appropriation of
    the labor of others. . . . I propose . . . to call one’s own
    labor and the equivalent exchange of one’s own labor for
    the labor of others “the economic means” for the satisfaction
    of needs, while the unrequited appropriation of the
    labor of others will be called the “political means. . . . The
    state is an organization of the political means. (pp. 24–27)

    Franz Oppenheimer, The State (New York: Vanguard Press,
    1914) as quoted by Murray Rothbard in Man, Economy and State, page 1122 of the PDF edition.  See: http://www.mises.org/books/mespm.pdfMe: Socialism is the morally bankrupt ideology that claims society would be better if everyone lived at the expense of everyone else.  Christians and Jews should easily know how this must violate the Commandments that forbid coveting and theft, apart from it being the lie that it is.  Further, it can only be imposed by compulsion and coercion, meaning simply the implied thread of deadly force. 

    Keynes put forth his theory in an attempt to help support secular Utopia.  His beef with the economy of his day was the notion that people were poor because they could not borrow sufficient money.  If government made money so inexpensive by depressing the interest that banks could charge, people could borrow enough to become prosperous.  In doing so, Keynes implies that government has control over the value of money and its value over time.  He also claims control over the wealth and total future income of every citizen.  In short, Keynes, through government, claims ownership of everyone’s wealth and income. 

    When combined with taxes on wealth and incomes, government inflation via money printing is the grandest scheme of theft in all human history.  If Madoff was evil, Keynes and those  who support his theory are even more so.

  • Anonymous

    “There are two fundamentally opposed means whereby
    man, requiring sustenance, is impelled to obtain the necessary
    means for satisfying his desires. These are work and
    robbery, one’s own labor and the forcible appropriation of
    the labor of others. . . . I propose . . . to call one’s own
    labor and the equivalent exchange of one’s own labor for
    the labor of others “the economic means” for the satisfaction
    of needs, while the unrequited appropriation of the
    labor of others will be called the “political means. . . . The
    state is an organization of the political means. (pp. 24–27)”

    Franz Oppenheimer, The State (New York: Vanguard Press,
    1914) as quoted by Murray Rothbard in Man, Economy and State, page 1122 of the PDF edition.  See: http://www.mises.org/books/mespm.pdf

    Me: Socialism is the morally bankrupt ideology that claims society would be better if everyone lived at the expense of everyone else.  Christians and Jews should easily know how this must violate the Commandments that forbid coveting and theft, apart from it being the lie that it is.  Further, it can only be imposed by compulsion and coercion, meaning simply the implied thread of deadly force. 

    Keynes put forth his theory in an attempt to help support secular Utopia.  His beef with the economy of his day was the notion that people were poor because they could not borrow sufficient money.  If government made money so inexpensive by depressing the interest that banks could charge, people could borrow enough to become prosperous.  In doing so, Keynes implies that government has control over the value of money and its value over time.  He also claims control over the wealth and total future income of every citizen.  In short, Keynes, through government, claims ownership of everyone’s wealth and income. 

    When combined with taxes on wealth and incomes, government inflation via money printing is the grandest scheme of theft in all human history.  If Madoff was evil, Keynes and those  who support his theory are even more so.

  • Wilbur Post

    It’s the modern “Ant and the Grasshopper” fable – it’s what happens when there are no ants left, just grasshoppers.

  • Anonymous

    Everything in Denmark is very expensive. They are not poor by any means, they just pay a lot for basic things. I go there in business quite a lot, and rent a room in the UK to a Danish friend.

    A beer in a bar or restaurant even in provincial Esbjerg is equivalent to US$8 or more. On an overnight stay in the UK I spend up to £20 (US$30 or so) of my allowance; anywhere in Scandanavia I often spend all £50 (over US$75), for a two-course meal with a couple of beers in both cases. In Denmark a battered old car probably US$6,500 and upward (another Danish friend was astonished when I bought a top-spec, 9-year-old, 93,000-mile Ford (Mercury) Cougar V6 in great condition for £1700 – about US$2,500 at that time. At home his wreck of a VW Golf (Rabbit) was worth about 40,000 Kroner, US$6,000, with a lot more miles and needing a lot more attention. This is in two countries only an overnight ferry ride apart (so no great natural barriers to price competition).

    Why is Denmark, and indeed the whole of Scandanavia, so expensive? Tax. New cars are taxed. Imports are taxed heavily too, even if they are very old. Beer is taxed even more than it is here in the UK. So people are actually pretty poor, despite high earnings. They have less freedom, as the government decides what they spend on with the tax regime.

  • D1st

    Jeez, correct your typos before you post. Is proofreading dead? “Undue” for “undo”? “Society” for “social”?

    • thanks. will correct. I was up at 5am, and wasn’t an English major. Rapped it out on my computer, gave it a few looks and posted. Had a meeting at 730am, and another at 1230 with phone calls in between.

      Hope you liked the sentiment of the post and the typos didn’t scare you away.

  • Anonymous

    Coming to a population center near you. Are you ready? Civilization is a very thin veneer, self preservation runs very deep, in most sane people. I am not so sure about libtards, I am not sure they are sane.

  • The other night, a couple of fruitcakes from Food Network going dumpster diving and “freegan-ing” with typical New Yorkers. I think the point was they were going to cater a huge banquet just with food scavenged from dumpsters behind supermarkets, and gleanings left behind at “pick-your-own” farms. Not sure where these farms were so close to NYC, but that’s not the point.
    Anyway, these two, I think every 2nd or 3rd line they uttered was some sort of shocked dismay about how much perfectly good food was going to waste when there’s children starving somewhere, same old line. Reading this it occurs to me – do they bother to ask themselves exactly WHY =we= have so much food we’re throwing it away by the ton, yet even in what one would think is a modern Western nation like Spain, scavengers are starving and coming up empty? Why is our trash more bountiful than their production? Food for thought….

  • John Ware

    Jeffrey, your point is made in earnest, but you come to the conclusion in a flawed way. Most of these countries have democracies, yes, but the application of these democracies, their systems of representation, wealth/tax redistribution, and many other variables also add up to where they presently find themselves. Yes, they may have been Keynsian, but there are tons of other variables – some correlated, but just as many not – that have lead them to their denouement.

    I have had the great opportunity to live and work in many of these countries the last forty years. Much of the time in the last 20 years, I have held senior positions in firms which required me to communicate and work with specific city, regional and national governments. When you see the inner workings of how these governments operate, being “Keysian” is the least of their problems…

    • I think that the common thread is that they use Keynesian economic principles as evidenced by the response to the debt crisis. “Raise Taxes and Cut Spending” is the remedy. Very Keynesian. Not, cut taxes and regulation along with cuts in spending which would be a non-Keynesian classical solution. All the EU countries believe in big government as a way out.

  • Billsuks3

    Is there any college “Macro Economics” course that is NOT based almost entirely on Keynes? 

    • Sure. Greg Mankiw teaches basic econ at Harvard, not Keynesian. University of Chicago teaches plenty of non Keynesian macro. So does Stanford. George Mason is not a Keynesian dept. Auburn has an Austrian bent.

  • $MACRO Jeff, I’m no big fan of Keynes, but I can’t let this vicious piece of propaganda go unchallenged. If you’re going to make statements like “The Keynesian School of Economics Leads to Violence,” you’d damn well better have some *solid* evidence – peer-reviewed *data* and *models* – to back up your claim. Where is the *evidence*, Jeff?

    • I can only point to the riots in Greece, the Arab Spring, the riots in France, the riots in England, Occupy Wall Street, the riots in Wisconsin, as evidence.

  • GoldStandard

    “Keynesian” economics is so much more than just stimulus and government.  That’s really more a form of vulgar Keynesianism practiced by ignorant politicians and shoddy economists, even ones that might have been awarded a nobel prize.  It was really about refuting established economic principles (the classical economists from Cantillon, Say, Smith, Ricardo to the 19th century economists like Menger, Boehm-Bawerk, Jevons, et al), ranging from scarcity to money and the nature of business cycles.  His ideas were not new, but rather rehashed fables that had been long discredited.

    He tries (and fails) to discredit Say’s Law, and uses that as the basis for his whole body of thought.  Thus, it is from lack of consumer want, and inflexibility of market prices, that general gluts occur.  And further, for Keynes money wasn’t a commodity, a good like any other, with special unique characteristics that facilitated its use as a money.  All exchange is in fact barter, money being just the common good all will trade for.  He saw money quite differently.

    His neglect for the structure of production and his dismissal of the role of interest insetting investment levels are a fundamental aspects of his thought.  Capital was homogenous and fixed, investment was investment regardless its nature, and labor the only input that mattered.  (Thus the “general theory” of EMPLOYMENT, interest, and money.)  Thus, buying for example of (dollar equivalent number of) pizza ovens was the same as buying a bulldozer as far as the economy was concerned.  And investment was based on “derived demand” for investment goods based on consumer demand.

    He was an inflationist, and even argued long before the general theory for European countries to inflate their way out of WW1 debt.  In fact, he argued that war was good for an economy, as were make work projects (“building pyramids”).

    To get to all the government intervention it is first necessary to understand the why of intervention.  And, chicago school, supply-siders, and others associated more with a “right wing” view point are every bit as much in the Keynesian camp in terms of interventionist policies.  The classical view of free markets in all goods, especially money, is not theirs.  

  • Daxtonbrown

    I am writing a book on Biflationary Depression and am finishing a review of the history of Rome debasing its currency – Keynesianism well before Keynes. Rome ended up in civil wars for  centuries as it’s 95% silver coins became 1% silver..
    I also wrote “Surviving Civil War II”, which explains that we are again in a civil war over slavery, the indentured debt bondage of our children to the collapsing welfare state. So yes indeed, Keynesianism leads to violence. http://www.futurnamics.com/civilwar.php

  • Anonymous

    Thatcher’s take down of income inequality arguments is classic.

  • Anonymous

    One problem with socialism is that it’s boffo if you’re the first generation or two (and you are completely devoid of foresight).  When the mathematical impossibility of it hits home, it’s someone else’s problem and you’re comfortably in the ground.

    If you could jump off a building but make it so it’s your grandchildren who hit the sidewalk instead of you… wow!  It would feel like flying!

  • Thanks very much for the Thatcher clip! One day the British will donate a bust of her to the American president and that president will display it proudly in the Oval Office.

    • Maybe like the bust of Winston Churchill in the White House. Oh, wait, Obama returned that.

      • I think the new president should issue exactly ONE apology.    That would be to the British people asking them to forgive the disrespect shown them by the previous President returning the bust of Winston Churchill, and promise that, if returned,  to display it in a place of honor forever.

        I can’t say in polite company what I thought when I heard we had returned such a precious gift from the British peoples.

  • Anonymous

    People who initiate social programs commit their children and grandchildren to increasing degrees of serfdom.  It is a form of “progressive feudalism”.

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  • Paul_Pace99

    It isn’t Kenesian economics that is evil, it is all the JEWS who are manipulating it! If the West is ever to get back to where it was, they need to hunt down jooz on the streets!

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