Deathbed of Keynesian Economics Will Be in U.K … The U.K. has produced notable economists over the years, but John Maynard Keynes, the guru of government intervention, was one of truly global significance. So it may be fitting that the U.K. will also become the deathbed of Keynesian economics. Britain has been following the mainstream prescriptions of his followers more than any developed nation. It has cut interest rates, pumped up government spending, printed money like crazy, and nationalized almost half the banking industry … At some point soon, even the most loyal disciples of Keynes will have to admit defeat, and accept that a radical change of direction is needed. – Bloomberg/Matthew Lynn
Dominant Social Theme: Keynes is wrong, very wrong. What we need is technocratic austerity.
Free-Market Analysis: As the West's rolling depression drags on, some good things are happening including the gradual devaluation of the reputation of John Maynard Keynes. Now, Bloomberg columnist Matthew Lynn has penned an encouraging opinion piece criticizing the great British economist.
It is surprisingly strong for an article that appears on Bloomberg. He predicts the death of Keynes's reputation because his Fabian proscriptions don't work and statist monetary stimulation is a dead end.
So far, so good. But then unfortunately, he calls for a kind of IMF-style austerity as the antidote. And thus we are left with the conclusion that this perspective is one more dominant social theme in the making. First promote Keynes and then promote the opposite. From socialism to faux-austerity.
The state itself is the operative element – the most important facility. Bloomberg, after all, is an agent of Money Power and the top elites realize their goals via mercantilism. So long as the state itself is regarded as the main actor, the larger manipulation evolves and global government continues to be realized. Out of chaos … order. Here's more:
The public debate about the state of the British economy was enlivened last week by a brawl between economists. On Feb. 14, a group that included the former Bank of England policy makers Tim Besley, Howard Davies, Charles Goodhart and John Vickers published a letter to the Sunday Times calling on the government of Prime Minister Gordon Brown to control the ballooning deficit. If it didn't, the stability of the economic recovery would be threatened, and there would be a run on the pound, they warned.
That brought a stinging response from the Keynesians, who are urging the U.K. to spend its way out of recession. Nobel laureates Joseph Stiglitz and Robert Solow were among the signatories to letters written by a group of 67 economists insisting that deficit spending was the only way to salvage the economy. The letters, published in the Financial Times, argued that a "a sharp shock" now "would be positively dangerous."
… So who is right, and who is wrong? It's a debate that matters to the rest of the world. After all, if demand management doesn't work here, it won't work anywhere. The U.K. has been in Keynes overdrive for the past 18 months. The budget deficit is already more than 12 percent of gross domestic product, on a par with Greece. And while the Greeks are cutting spending, the British deficit is widening.
Figures for January showed another fiscal blowout. At the same time, interest rates have been slashed to 0.5 percent. And the pound has slumped in value, which is supposed to boost demand for British goods, and help close the trade gap. Just about everything possible has been done to encourage consumption. The results have been miserable.
Retail sales excluding gasoline in January fell 1.2 percent from the previous month, twice as much as economists forecast. The number of people receiving unemployment benefits jumped to 1.64 million in January, the highest level since April 1997. The yield on U.K. government debt is now higher than on Spanish or Italian bonds, a sure sign that investors are losing faith in the country's ability to pay its debts. The inflation rate has also accelerated to 3.5 percent. In reality, Britain has the worst of all possible worlds: a stagnant economy, a crippling budget deficit and rising prices.
This is strong stuff … and it gets better still. Cleverly, Lynn combats a potential Keynesian response by anticipating it. He points out that Keynesians will argue that monopoly fiat money printing had made things much better. And then this: "If it's not working, that just proves the stimulus should be even larger … It is the argument quacks always push: If the medicine isn't working, increase the dosage."
Too bad that Lynn eventually feels the need to propose a solution. What is necessary he tells us, is a "total" shift in policy. Government (it is always government officials) must pare the deficit, raise interest rates and cut taxes.
The part about cutting taxes is not strictly speaking part of the IMF recipe but nonetheless, the acting agent is government and the solution is for government to reverse destructive policies.
One can see the same sort of arguments being made in the US. The Tea Party in particular, that used to call for the abolition or at least significant diminishment of the role of the Federal Reserve, is now almost totally focused on the US deficit and tax reduction.
It is encouraging to see Keynesian nostrums challenged and exposed but the range of solutions is still being severely limited in the mainstream, elite-operated press. Real progress would involve challenging the more substantive problem of money creation itself.
We see encouraging signs that elite information management is gradually losing momentum but there is still a long way to go. Hopefully, what we call the Internet Reformation will take us there.