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SOVEREIGN MAN

Get your hands on the government’s playbook

July 4, 2011
Sofia, Bulgaria

hyperinflation 1 300x177 Get your hands on the governments playbookIn this bubblicious world of trillion dollar deficits, sovereign bailouts, and fiscal stimulus measures of historical proportions, there is one economist whose theories and underlying philosophy underpin the foundation of modern macroeconomics.

His name is John Maynard Keynes, and his most famous work, The General Theory of Employment, Interest and Money (1936) has become the playbook from which politicians and central bankers are making their trillion dollar decisions.

Just about every politician knows the name Keynes. Most would consider themselves “Keynesian” in that they believe in government spending as a means to maintain economic stability. Few have actually read his book. And yet even fewer realize that Keynes was a major advocate of Soviet-style central planning.

Among the many fascist viewpoints in his General Theory, Keynes argued that:

1) A high rate of interest which encourages saving is bad for society.  Consumption and borrowing must be promoted. In fact, high interest rates are to blame for why “the world after several millennia of steady individual saving, is so poor…”

2) Consequently, the government should make money cheap, controlling interest rates with a target level of zero. Further, the government should never deliberately increase rates as inflation will not set in “until unemployment has completely disappeared.”

3) Even if inflation should happen to appear, it’s likely due to the “arbitrary and inequitable distribution of wealth and incomes…” As such, the better solution to control prices and keep the boom going is to simply impose high income and death taxes in order to make a more economically just society.

4) If the boom starts to fade and low interest rates aren’t doing the job, it is the role of the government to step in and ‘invest’ obscene amounts of money to stimulate growth. Only the government is capable of doing this, as “the duty of ordering the current volume of investment cannot safely be left in private hands.”

5) As Keynes favored “a somewhat comprehensive socialization of investment,” he recognized that such complex decisions of investing other people’s money would be “above the heads of the vast mass of more or less illiterate voters.”

6) Not to worry, though, these key decision makers of the state-run economy will have the right “moral position,” so it’s just a question of making sure that the right people are directing the economy.

7) In the event of a crisis, the answer is simple. A government should simply borrow and spend more. In a 1934 article for Redbook magazine entitled “Can America Spend Its Way into Recovery,” Keynes opened with “Why, obviously!”

8 ) If the crisis doesn’t abate after substantial spending an interest rate cuts, Keynes blames these continued problems on not following his advice closely enough: “[A]uthorities of the world have lacked the courage or conviction at each stage of the decline to apply the available remedies in sufficiently drastic doses.”

I could go on, but I don’t want to spoil the ending where the entire global financial system collapses as a result of following these ridiculous policies.

In terms of economic philosophy, very little separated Keynes from Lenin. Keynes even praised Lenin when he wrote, “Let us not belittle these magnificent experiments or refuse to learn from them… the Five Year Plan in Russia, the Corporative state in Italy…”

And yet, this is the man who is held up by world leaders as the architect for economic bliss. Politicians and central bankers are calling his plays almost verbatim– enormous stimulus packages where volume and quantity are all that matter, quality counts for nothing; interest rates at zero; spending your way out of recession; borrowing your way out of debt…

It’s absolutely mind-boggling how modern governments have built such an apparatus to control their economies and run them into the ground. Ironically, each time a crisis occurs, these regulatory agencies, central banks, and executive powers are granted even more authority. This only makes things worse.

Sure enough, in the “Seventh Quarterly Report” that President Obama’s Council of Economic Advisors released on Friday (right before a long weekend, naturally), the numbers show that the administration’s Keynesian stimulus spending has saved 2.4 million jobs at a cost of $666 billion. That’s a total of $278,000 per job, all at taxpayer expense.

In the world of Keynes where debt does matter and inflation doesn’t exist, this number is completely acceptable, right comrades? In the real world, it’s further evidence of how horrific misallocations of capital are bankrupting the economy.

To Keynes, people who work hard to create value cannot be entrusted with their own money. It must be confiscated by politicians for them to invest with the utmost objectivity and expertise, all for the benefit of society as they define in their sole discretion. And if they falter, we must reward them with even more power to tax, print, borrow, and spend.

This is the underlying philosophy of the man whose ideas have driven global macroeconomics for the last 60+ years… and continue to create inflation, bubbles, and economic ruin.

If you want to read more on the subject, I highly recommend a book called Where Keynes Went Wrong by Hunter Lewis. It’s available on Amazon in both print and Kindle edition.

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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  • Diogenese_

     Great article. Keynes is a ludicrous con man, and the only reason the tyrannical politicians got away with pushing his nonsense was the temporary historical ignorance of the people.

     Two of the main ideas of Keynes are the same idea that people with Zero experience in business often have, both of which are systematic wealth destroyers:
    -That labor alone creates value, and all you have to do is labor more to create value. What your laboring on, with, how or why doesn’t matter. And if the customer doesn’t buy your product he’s a jerk.
    -That all you need to do is spend more money or time on factor x and things will work out for the better. What you really need is to increase the difference between the red and the black. You do that with more sales and less spending. Reduce costs per item sold, don’t increase them.

     These two ideas are the exact opposite of the truth.  Labor by itself is more likely to waste wealth than to make it. Making what the customer wants, inexpensively, in interaction with the customer creates wealth. That means the transformation of capital into a good or service the customer will likely buy. This requires a high level of direct evidence based intelligence about ones customer and a similar intelligent investment of ones capital to create the product. You want to spend less money, not more. You want to work smarter to satisfy the customer, not with an attitude of entitlement for ‘doing a lot of work.’

     One of the big secrets of investors like Buffet is “the first key to making money is don’t lose it.” If there are no good investments supported by solid evidence available, the wise investor will simply keep his gold in his safety deposit box for the day there is.

    Keynes confuses employment with economic productivity and blind spending with wise investment. The government thugs want you to think like Keynes, so you will agree to let them waste the money they are taking from you. They will inevitably waste the money on projects that help grow their own power and wealth.

     Saving money and investing it on nothing does in fact help economic productivity, albeit less than truly wise investing. Spending without a high degree of specific evidenced investment intelligence will harm the economy. Purely saving money helps the economy because by not spending your money in trade for scarce capital, you are:
    a. letting other currently active business people have cheaper access to the scarce capital. (such as for example oil, steel,etc for their factories.)
    b. waiting for deflation to increase the buying power of your money. (keep in mind that Gold is money.)

  • dodahman

    great cherries you picked from all his statements, if goal is to discredit him.
    BTW he also said gov’ts should save during the ‘good’ times and only deficit spend during the ‘slow’ or ‘bad’ times. His macro economic views inform most leaders of the world, like it or not. And I saw no attribution of the ‘quotes’. Are they all from the General Theory?
    You must judge his writings with the context of when they were written. Things have changed since then and I suspect he would write something different these days(just as arrogantly, though).

    I truly enjoy reading here.
    Regards…

    • https://plus.google.com/u/0/100711269488721435135/ Baptiste Laurenge

      The issue comes when “the bad times” last decades, US has been in the red ever since a certain George W Bush came to power, and Obama did well to plunge the country more into its debt chasm.

      In my country, France, we didn’t see much “good times” in 40 years, yet the gov continue to spend more and more, each time making the recovery more and more distant.

  • Aeonioshaplo

    You know, I’d think Ludwig von Mises’ “Human Action” would be the most appropriate learning tool against keynes’ gibberish. I’m surprised you haven’t mentioned him yet.

    Personally, as far as keynes quotes go, my favorite is where he claims that inflation can “turn rocks into food”. Back in the real world, of course, inflation (and government redistrobution programs) causes dust bowls which in turn convert food into rocks.

    In fact, Keynes’ beloved communists, following his advice, drained the Aral sea into kazakhstan in an inflation-powered project to grow cotton in the desert. Sure it worked for a while (although not nearly as well as it was reported), till the Aral sea completely dried up anyway, and then on top of that they made the land they irrigated completely unfarmable (salt/fetilizer/pesticide poisoned horribly) probably for at least a century. Admittedly it wasn’t the best farmland to begin with, but at least there was SOME possibility of farming, and it wouldn’t cause your kids to be born with two heads and webbed toes. Now there’s no farming, fishing, or life in general in either kazakhstan or the ‘aral sea’, which ought more correctly be called the ‘aral puddles’ these days.

  • Svte

    Central planning would be socialist.  Corporate control of government is fascist.  That is what most of the Western World economies are, certainly the American one.  Geitner doesn’t control the financial industry, he aids the creation of what they want. Look at his background.  I don’t know how it could be more obvious.  Same with all the regulatory agencies, essentially run by the corporations so things just look like regulations, or that they regulate for their benefit, such as the recent Health Care programs.  Socialist?  Hardly.  Hand outs, not to the population in general, but to the medical industry.  Even the military/industrial complex is more and more run by the industry part of the complex.  

    I suggest reading The Rise of the Fourth Reich, by Jim Marrs.  This is not a diatribe, but a well researched book thick with information from public sources.  Anyone who believes in personal freedom needs to read how it is being replaced by corporate freedom.

    I’d be surprised if the American right wing isn’t secretly happy with virtually everything Obama has done.  The military/industrial complex is happy.  Health industry is getting richer.  The government is ramping up the police state to make it safe for the corporations.  Environmental efforts have been minimized.  There is no planning for post peak oil and the end of cheap energy.  Small business lending by banks has almost vanished.  The only real “printing of money” has gone to the banks to use to speculate.

    In other words, there has been almost no money used for what Keynes suggested.  

    And if you think government regulation is bad, bad, bad, I suggest you read this short history of commercial food, just published:

    http://www.laphamsquarterly.org/essays/death-in-the-pot.php?page=5

    Anyone up for some borax in their burgers?

    • Diogenese_

       The government mandating that every American buy health insurance isn’t central planning? While on paper authors have claimed a stark difference between ‘socialism’ and ‘fascism’, in reality when a government regulates almost every aspect of how business functions they are very close to effective ownership.

       What is Geithner’s background? The only time he wasn’t working for a government agency of some sort was 3 years with Kissinger and some time with the CFI, both of which aren’t exactly free market loving concerns.

       The regulation agencies aren’t run by corporations, they are run by the government. Corporations react to the agencies, not the other way around. Lots of regulations naturally favor the biggest corporations, and those corporations mold themselves to their government environment, while many other corporations, like small brokerages, go out of business.

        There are some regulators who are in a revolving door between government and corporations, yet they are only one part of the business world. Those people are working successfully to mold corporations to do the bidding of the government, but they are a minority of business people, at least for the time being.

      800 billion dollars was spent for the Obama stimulus, for the explicit purpose of building infrastructure to create jobs. That is exactly what Keynes called for, and Keynes theory was the reason Obama’s economic chief,Larry Summers, gave for why they did that:Summers responded by quoting John Maynard Keynes, whose
      economic theory calling for massive government spending became
      identified with Roosevelt’s New Deal and is at the heart of the Obama
      administration’s stimulus plan. http://www.newsweek.com/2009/02/20/the-reeducation-of-larry-summers.html

  • Debris

    yes cherry picking more than a bit, Simon… AND… if indeed ‘hard working people’s money’ goes to their CHILDREN… then, gee… guess Junior doesn’t really NEED to work very hard… does he? the libertarian (whatever that mishmash of self-serving BS is) view never seems to point out the ‘end game’ in all this ‘free man… free to do as I please… f#ck you, peasants…!” stuff… it’s like this… you have a relay race… with the baton being handed off to the next generation… so… with each passing generation, ‘Junior’ has a increasingly LARGE ‘head start’… meaning the whole ”freedom to do as I please with my $” thing becomes complete codswallow… kind of like RIGHT NOW.. when .001% of the population controls over 80% of the wealth… who CARES what the ‘system’ is… that is a red herring, when control is in the hands of an infinitesimal % of the population… ANY system is going to simply be manipulated to their favour… so… Simon’s solution? … take what you can … and run away… leaving the mess for others to deal with… others… such as you’re children/grandchildren ( if you have any… which I do, in fact, have, and strangely enough, tend to consider when making choices re. the future) .. I LIKE ‘Simon’ (whoever he is… IF he is… anonymity is understandable, to a point… in fact a rather easy to define point… the point where someone is asking for my money…) and his info is free… so I read, and certainly agree with MOST of what he writes… but no… there is no solution in running away… Bush has already bought land in South America covering the largest underground fresh water reserve in the world…so… where do ya run TO?? think the Uber-rich .01% somehow don’t KNOW what’s going on? hmmm…

    • http://pulse.yahoo.com/_EKA6IGGXX6BWM7GPXMUO4S52PU X B

      Forgive us for being so self-centered as to want to exclude our wealth from the hands of miscreants who cannot forge a complete sentence, much less a coherent thought beyond: “You have money. I’m going to take it from you if you don’t give it to me now!”

      Why would I not be surprised if you are for “gun control”? It makes perfect sense if you don’t want your victims to be able to fight back.

    • EconLurker

      HAHAHAHAAHAHA.  You’re idiocy is truly amazing!

    • Ben P

      RE: “when .001% of the population controls over 80% of the wealth…”

      You do not seem to be aware of Pareto’s paradox. I believe it is true across all societies that somewhere around 80% of the wealth is owned by about 20% of the population. 

      Redistribution policies in the US have made this ratio worse, not better.

  • Steve

    If it wasn’t Keynes, it would have just been someone else advocating similiar policies. In reality the politicians are just doing what they would have wanted to do anyways. Keynes is only intellectual cover. 

    Much like in the days of european Kings. The Kings wanted to stay Kings so they latched on to “divine right” as an excuse. If some clergymen hadn’t thought of that some other excuse would have been used to justify the same thing.

    • http://www.amazon.com/dp/B006JPC6ZM Krakondack

      True, but it was Keynes who displaced traditional economic thinking, present today in only the Austrian school.  And once an underpinning philosophy is widely seen as discredited, there can be change for the better. 

  • DONNA

    When things were going well, all hailed Keynes, the shit hits the fan because of greed and political sellouts, has nothing to do with Keynes. How fucking dumb, one man wrecked the world”s financial system. LMAO

    • Joe

      When things were going well? OH… you mean before the Federal Reserve?  Or right before the Great Depression which Keynesian-ism created?   Spare me the “greed” speech, it’s all liberals know how to spout.. HFD .. “greed” wrecked the world’s financial system.. LMAO..  

  • http://www.facebook.com/people/Vendor-Xeno/1080204331 Vendor Xeno

    Most of the claims made here are either fallacies or outright false. Far from thinking all high interest was “bad,” it was Keynes concepts of reducing the extremes of the boom and bust cycle that helped create modern monetary policy, namely the methods the Federal Reserve uses to adjust interest rates.

    “even if inflation should appear, ” Keynes understood inflation to be inevitable in and except cases of the often even less desirable deflation. That phrase alone entirely misrepresents macroeconomics and Keynes. Likewise, Keynes didn’t advocate a blindly higher tax policy. Taxes were increased and reduced as a reaction to the business cycle. Again, Simon Black either clearly hasn’t read Keynes or is intentionally misrepresenting him.

    “it is the role of the government to step in and ‘invest’ obscene amounts of money to stimulate growth.” What makes them “obscene?” Keynes didn’t use that word, nor did he ever set a level that was necessarily high. Here we see a classic example of a “weasel” word, where a poor thinker like Black uses an arbitrarily assigned adjective to, sans reason, condemn an idea (while again blatantly misrepresenting it.)

    Keynes never set a target interest rate of zero; that’s flat out false. Saying we can “learn” even from Lenin’s failures is irrelevant, an attempt at ad hom by association. I could go on but it should be sadly apparently that Simon Black is an uneducated, irrational and dishonest boob who either has no idea what he’s talking about or is actively lying about the information he’s pretending to represent. Don’t read this idiot, read some actual Keynes. Then maybe read some follow up and learn how Keynes ideas, even those being employed, have been improved on. Don’t be another loud mouthed, useless blowhard like Black here.

    • http://openid-provider.appspot.com/nineforty Garbagemin Franklin

      You and Keynes have it backwards… Cheap money and state intervention are the cause and not the cure of the boom/bust cycle.

      Inflation is inevitable under our current (necessarily corrupt) money monopoly. Keynes’ theory is a tacit cover for this injustice. Deflation is only bad within this debt-based economy because the system relies on endless exponentially increasing consumption. Since this is impossible, Keynesians economics inevitably leads to what we’re seeing now: debt, wars and massive wealth inequality.

      But I don’t think Keynes advocated the kind of insane debt that we’re seeing today. I call the current deficit-promoting idiots “credit card Keynesians”.

      Keynes’ idea of saving surpluses in good times and then spending them in the bad times sounds nice… But it’s completely unrealistic, since as a rule government surpluses are quickly destroyed through new spending or tax cuts.

    • Diogenese_

      If your arguments are tautologies and after accusing someone of ad hominem you call them boob, idiot, loud mouthed, blowhard, than you might be a liberal.

  • Watt th. Dickens

    Where’s the anti-keynes? The end of times is near!

    Who will help the poor billioniares?

  • harrydweeks

    Keynes, Stalin , Lenin , Hitler, Mosillini……. all those great Central Planners ….. Ya.. We’ve seen how successful they were.    

  • alphadave

    This is not a fair representation of Keynes.   It would have been better if you had quoted Keynes and not used emotional arguments.  I also think it is an exaggeration to say that our politicians are following Keynesian ideas.  Yes, deficit spending is Keynesian, but I think even Keynes would not have approved of the way our economy has been “managed” over the past 20 years.  The problems have been created more as a result of (liberal and wrong-headed free market) ideology and incompetence than Keynesian thinking.

    • Diogenese_

       Central planners of every type, from communists to progressives to Keynesiacs, after each inevitable failure say the same thing: ‘the  politicians carried out our theory wrong, next time we will get better politicians and they will do it right.’ Keynesianism was refuted by Hayek, and the fact of high unemployment stagflation in the 70′s, which Keynes claimed couldn’t happen.

  • Scipio235

    I recently finished what I think to be the ultimate refutation of Keynes (and indeed 21st century society generally) – Eric Robert Morse’s “Juggernaut”.  “Juggernaut” is well worth the 600+ pages, or only the intro and compendium if that’s all you have time for.  Would be curious to know if any other readers have come across it, and if so, what do you think?

  • Fabian Hug

    The problem with these intellectuals is that they serve as ideology feeders for our masters. Then their ideas, good or bad, are used like statistics; take the sentences that supports your agenda and ignore the rest (as you wrote, nobody reads them anyway). That’s why I’m not so inclined to criticize the intellectual but the jerk who’s referring to him. The other day, on a blog that was talking about why don’t create jobs, I remarked that we are still running on technological discoveries that date from a century ago. Your Iphone is nothing more than an improvement (albeit huge) from the computer defined by Von Neumann. It’s also funny to see that all great economists’ ideas date from that period. I think our civilization is simply getting old. 

  • Brian

    The “true” fathers of modern economic THOUGHT (as opposed to socialist-fascist-syndicalist wishful thinking) were von Mises and Hayek. The “grandfathers” were Smith, Ricardo, Bastiat, Malthus, and Marshall.

  • Brian

    Keynes may have been a LOUSY economist, but he was a pretty good prophet: he predicted that future leaders will carry out the economic theories of past crackpot economists of whom they are only vaguely aware.

    Everyone of these donkeys cites Keynes, but NONE have read “The General Theory”; they cite Marx, but NONE have actually read “Das Kapital”.

  • http://twitter.com/synchroexpert synchroexpert

    While I definitely don’t agree with Keynes’ principles of economics, I think the larger issue isn’t which camp of economics you play in, or even which type of government you want to run, it’s much simpler than that.

    If you look at the two “real” opposing parties in the U.S., you have corporatists and you have socialists. The thing is, if you ran a capitalist system with people of integrity it works great, likewise, a socialist model run by people of integrity would also likely run fine. Where the wrench hits the engine is the point where people are gaming the system. The free market isn’t free if you have corporatist favortism. Neither is socialism effective when you have an “elite” group who have more than everyone else. The fundamental flaw is one of character.

    I’ve watched things closely from a cultural perspective since the 1980′s and what I’ve seen is neurotic and sociopathic behavior go from an interesting talk show focus, to being glorified. Essentially, the archetype of the “hero” was replaced with the archetype of the “villain”.

    The mafia back in the early part of the 20th century, while undeniably criminal understood well, the value of a moral society. They routinely made contributions to orphanages, schools, churches and other pillars of the community. This is because they knew that in order to “game” the system, they had to keep it running.

    Our current criminals, mainly white collar politicians, lobbyists and bankers are so greedy that they destroy the system to suck it dry. And even at the individual level, collapsible morals are the common accepted standard. This creates chaos, and we are heading for it very rapidly now.

    Really, there should have been indictments instead of bailouts. What happened to usury laws? fiduciary responsibility?

  • Holzer

    The really important thing is that the end of WW2, WAS the proof that Keynes was all wet and always has been.

    American consumption did NOT increase until AFTER the war’s end and the economic uncertainties and govt interventions ceased!

    Ergo, America recovered only AFTER govt stopped its profligate war machine spending.

    It is still a HUGE myth propounded by criminal govt that WARS are good for economies. We only had full employment because all those NOT drafted away from their otherwise productive activity, were replaced by those who stayed home building the war machine.

    Robert Higgs explains all this extremely well, and with charts, in his CSpan book presentation:

    Mr. Higgs talks about his book Against Leviathan: Government Power and a Free Society, published by The Independent Institute. The author described his views of the mismanagement of the economy in relation to foreign wars, social security and political leadership, including criticism of the Food and Drug Administration and the Patriot Act. After his presentation, Mr. Higgs answers questions from members of the audience.

    http://www.c-spanvideo.org/program/175885-1

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