According to Keynes and his followers the cause of the Great Depression and why it lasted so long was due to not enough government intervention.
Keynes’s ideas and teaching are still here, and even after being proven deficient and wrong over and over again, they are still strong. People still believes in it and that’s why Keynes must die.
We started off with the topic of the Great Depression because it was the time when Keynes profited from fear and doubt to impose his views and ideas, because people were starting to show frustration regarding capitalism. People bought what he sold, and till our days, we have to battle against the damage he has inflicted not only in the United States but in several other countries.
What Really Caused The Great Depression?
Analyzing the causes in extreme detail is something require far more words, but in order to simplify everything and make it easier to digest and understand why Keynes was wrong we need to talk about Murray Rothbard and his book America’s Great Depression.
According to this incredible book we can understand that this sad and problematic period in history was caused by privileged Central Banks instead of too little government intervention. To the contrary, the ‘fixes’ focused on increasing government’s intervention simply worsened the situation.
The Perfect Excuse For Bigger Government:
But you can easily guess what kind of policy appeals more to governments and of course it is Keynes, because it makes people afraid of free markets by linking them directly to depression (similarly to the arguments used against the gold-standard by FIAT money supporters) and prosperity and progress to increase government intervention and spending.
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Nothing But More Damage:
We will stick to America in order to show our examples of how Keynesian policies have done nothing but damage to the economy.
For the purpose of bringing you a better experience, let’s understand Keynesian economics in layman’s terms:
According to Keynes it is possible to boost a country’s economy by borrowing money and then using it, in order to create a stimulus. According to the same school of thought, the money would find its own way to the people’s wallet, which they would spend afterwards. Thus every dollar spent is a dollar earned by someone else.
This is, in a nutshell, Keynesian Economics. It can sound well in theory, but the administrations that have applied them have proven otherwise… but why?
The fundamental error of why this theory doesn’t work and will never do is because it doesn’t take into account that the government, in order to inject money into the economy, first needs to take it out.
So, if they don’t work how come governments keep applying them? It is simple: this spending benefits those who receive it. We have several examples: financial institutions bailouts, unemployment benefits, the funding of ‘special projects’, etc.
The Danger of Borrowing:
All in all, Keynesian Economics do nothing for increasing productivity and the GPD, they simply benefit those who receive the ‘free’ money. They are the unique winners with this type of policies.
The defenders argument that the benefit resides in the fact that it increases consumer spending and reduces the amount of money sitting idle. Again, it sounds nice in theory but in practice it violates a basic trait of economy: savings are also considered an investment.
And as you can easily guess, when the government wants to give money to someone else (be it for a bailout, unemployment benefits, welfare, etc.) they take it from another individual who is not spending it. This is done by using two mechanisms well-known by most citizens: taxation and borrowing.
Brutal taxation is bad, but we all can tell what the effects are. However, when we talk about the government borrowing money then the effects are no easy to recognize by the average Joe.
To put it in layman’s terms:
When the government decides to borrow money it doesn’t do it like an average citizens who goes to the bank and request a loan, instead it issues debt which equals to selling marketable securities. They borrow money through this way with the promise of giving it back plus a bit extra.
Moreover, what makes it worse is that the government is always hungry for more money, thus creating a gigantic demand. And if you know a little bit about economics then you must know that the law of supply and demand will also apply here by elevating interest rates.
This rise in interest rates hurt the economy because it makes harder for businesses – especially small ones – to develop and grow. And at the same time it affects employment, because businesses and entrepreneurs are a source jobs, but with such a hostile environment it becomes harder for them to develop and launch their ideas.
Final Words:
This is just an overview on how harmful Keynesian policies are. With a debt of over $20 trillion USD we can see how deep into the problem we are. Economy keeps getting weaker, and unless we decide to finally let Keynes die this situation won’t get any better.
