Keynesianism Is A Mystical Religion That Believes Paying Taxes To Government Makes You Richer Because The Government Is Wise

I came across this post today at Mises.org by William Anderson, reposted at EPJ, about Tax Day. It’s important to read in its entirety, then I’ll explain how it relates to mystic religion.

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April 15 is here and we are required to do the following: tell the government our income and send much of it to Washington.

Austrian-school economists are likely to tell you this is a bad thing and that taxes and government spending lower our living standards. In other words, the more government we are required to finance, the poorer we will be. According to the Austrians, economies grow through capital investments reflecting time preferences of individuals. Furthermore, Austrians actually claim that individual savings lead to economic growth. The more we pay in taxes, the less money we have for capital investment and saving. In other words, the more taxes we pay, the less we have for the building blocks of economic growth.

However, disciples of John Maynard Keynes, like Paul Krugman and others, take a rather different view. For them, wealth is achieved by spending, which creates economic growth. When consumers don’t spend enough, government rescues the economy by upping its spending. Because of this, should government raise taxes, it actually stimulates the economy more than individuals can do through their own spending. We could allow people to spend their money as they see fit. But, it’s better to be on the safe side and tax as much of it as possible, instead.

The Keynesian “Balanced Budget Multiplier” makes it all possible. It is a version of 2 + 2 = 5. The tax-fueled magic is explained as follows:

  • All spending has a “multiplier” effect. Spending increases the incomes of others, who then spend their increased income, and the pattern continues indefinitely.
  • Individual savings, according to Keynesians, are “leakages” from the system, and if not offset by equal “injections” via government spending or increased exports, the “multiplier” then works in reverse, pulling the economy into recession.
  • Government tax increases, however, have two-fold positive net effects. First, government spends new tax revenues, which quickly multiplies and creates new jobs. Second, by reducing individual incomes, people must spend larger percentages of their incomes to uphold their present standard of living. (The famed Keynesian “multiplier” equals 1 over the savings rate, so the less we save, the greater the multiplier.)

The “logic” of the balanced-budget multiplier differs from the logic of taxation and spending in Denmark. There, individuals pay most of their income in taxes, but supposedly receive marvelous government services that are more valuable to them than what they would have purchased on their own had high tax rates not existed.

Instead, the “Balanced-Budget” multiplier creates wealth by destroying savings. Austrians obviously disagree, and the “reality gap” between Austrians and Keynesians is widened. Austrians emphasize savings, capital accumulation, market prices and market interest rates, profits, losses, with entrepreneurs making decisions in an uncertain climate under the umbrella of economic calculation.

Keynesians promise an easy way out. Just give money to the government, which will spend and spend, and the spending multiplies prosperity. Interestingly, modern intellectuals will tell you that Keynesianism is “real world,” while Austrian economics is “pie in the sky.”

On April 15, Keynesians will contribute to growing prosperity by sending more money to Washington. However, Austrians likely will have a different take.

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So, we are supposed to believe, according to Keynesian economics, that being robbed means we are becoming wealthier. That government spending is somehow magical because when politicians spend the same money on their own stuff, such as killing people or giving billions to Israeli or Arab despots, it somehow creates prosperity, whereas when you spend that money on what you actually want, it makes you poorer.

So I’m in the middle now of Volume I of Murray Rothbard’s An Austrian Perspective on the History of Economic Thought. It’s such a well written book and so fantastically organized, it’s a pleasure to read. Rothbard writes like the Rambam in terms of organization, though Rothbard is more verbose. It is impossible to be more succinct than Maimonides, unless you’re Rashi, but Rambam was clearer than Rashi most of the time. Maybe I’m the first one to make that comparison.

Anyway, Rothbard writes about the history of a town in Germany where a guy named Bockelson decided Jesus wanted everything collectivized and to each according to his need etc. Sound familiar? And that everyone was going to be forcibly converted to his brand of Christianity called something or other. Anabaptism maybe? I don’t care enough to double check.

He ended up getting sieged along with his followers while everyone was starving because the division of labor broke down, as it always does in forced communism. Rothbard writes the following about Bockelson, towards the end, after he had already declared himself king and everyone was starving to death.

It is not surprising that the deluded masses of Munster began to grumble at being forced to live in abject poverty while the king and his courtiers lived in extreme luxury on the proceeds of their confiscated belongings. And so Bockelson had to beam them some propaganda to explain the new system. The explanation was this: it was all right for Bockelson to live in pomp and luxury because he was already completely dead to the world and the flesh. Since he was dead to the world, in a deep sense his luxury didn’t count. In the style of every guru who has ever lived in luxury among his credulous followers, he explained that for him material objects had no value. How such ‘logic’ can ever fool anyone passes understanding.

And then I realized, the Keynesian nonsense ‘logic’ that giving your money to politicians and bureaucrats makes you richer, is the same exact thing. All western society has been indoctrinated into a religion that essentially preaches the government as King Bockelson. Bockelson can live in luxury while the his people starve because Bockelson is beyond the flesh.

And Washington can live in luxury while its subjects are forced to pay the taxes that Washington consumes, because giving Washington money makes the people richer, since Washington is beyond the flesh. Spending makes you richer. Savings makes you poorer. The more money politicians have, the better off everyone is. The richer Bockelson is, the better off his people are.

It’s the same religion. Keynesianism and insane early protestant Christian messianic communism.

PSEUDO SCIENCE What do Climate Scientists and Keynesian Economists have in common?

As record low temperatures blast the United States for the second year in a row, the theories behind global warming look stupider by the day. There’s only so much of this freezing cold weather that global warming enthusiasts can shrug off before looking like real idiots.

What about the science behind it? It makes about as much sense as Keynesian Voodoo. Not because it doesn’t have its own system of inner logic, but because climatology and mainstream economics based on econometric equations are trying to use math in order predict the behavior of humans, which is inherently impossible.

The economy is governed by human action, which does not fit into mathematical models. Logical necessities can be deduced from given facts based on the axiom of human action and the basic observation that resources are finite, but that’s it. Beyond that, trying to predict anything with certainty is impossible, not because it’s really really hard to do and we just haven’t figured out how yet, but the nature of human action not following the cause and effect rules of physics makes it impossible intrinsically.

So where does climatology fit in? Climatology tries to measure and predict a system that is chaotic. It is governed by the Butterfly Effect, which means that the flap of a butterfly’s wings on one side of the world can cause a hurricane on the other. Given the Butterfly Effect, then kal vachomer (a fortiori), the action-movement of a human pinky in California can also create a typhoon in Australia, or create a really cold winter in the US.

So at bottom, human action governs the climate as well as the economy, be it one step more removed, which makes it even less predictable.

Sure, it sort of makes sense that carbon dioxide is a greenhouse gas and that the more greenhouse gas the hotter the planet in a positive feedback loop. But when you’re dealing with the Butterfly Effect and an entire planetary system, to simplify the global climate down to such simplistic principles is about as effective as asking your local econometrician which stocks to buy.

It’s all voodoo, pseudo science. Following the forms of science but not getting any real laws.

Here’s Richard Feynman on this issue. Love that man.

I Don’t Want to Cover the Gaza War. Let’s Cover Big Macs.

Yesterday I came across one of the stupidest Jerusalem Post articles I have ever read. From start to finish, it is so completely filled with nonsense that even I was a bit shocked. If this doesn’t confirm to you that empirical econometrics is nothing but soothsaying astrological voodoo tarot reading drivel, and that calling an economist is akin to phoning the psychic hotline, then nothing will.

I present to you the conclusion, based on the “Big Mac Index” that the shekel is “6.9% too strong” because a Big Mac in Israel is 6.9% more expensive than a Big Mac in the US.

Here are two paragraphs from this diuretic gem:

The idea, according to the newspaper, is this: The price of a Big Mac captures a lot of what’s going on in a given economy, from labor to rent to the price of produce. Since Big Macs are just about the same in most countries, they should, according to the economic theory of purchasing power parity, cost about the same when converted into the same currency.

“Since a Big Mac costs 48 kroner ($7.76) in Norway and only $4.80 in America, the kroner is overvalued by 62 percent according to this lighthearted, protein-rich analysis, making it the most puffed-up currency in the index,” The Economist offered by way of example.

Let’s leave aside the futility of imaginary indexes and the unfounded assumptions that they are based on. Let’s just examine the pure illogic of the statement “If X is more expensive in Y currency by Z%, then Y currency is Z% too strong.”

If one day you buy a pack of gum for 5 shekels, and the next day that same pack of gum costs 10 shekels, did your currency strengthen, or weaken? Obviously, it weakened by 100%. So how on Earth can one make a claim that if something is more expensive in shekels than in dollars, that this shows that the shekel is strong? If anything it shows that the shekels is weak.

I’ll say it again. If it costs more money to buy the same stuff, it shows a weakness in the money and a strength in the stuff, not the other way around. It is such simple logic, I’m at a loss to explain it any more simply.

But nevermind that. The entire method with which this soothsaying economist came to this conclusion is the same as astrology. Making a statement that Big Macs “should be the same price everywhere” is the same thing as saying “When Capricorn intersects Jupiter and invades Aquarius at an angle perpendicular to Virgo while Pisces is giving birth to Cancer and Sagittarius is in a drunken brawl with Leo after accusing the latter of stealing his girlfriend, you should be expecting to choke on a raisin at 3:00am on September 28th.”

Big Macs neither should, nor should not be the same price anywhere. Big Macs in different locations are different goods. A Big Mac in Manhattan is different from a Big Mac in Wyoming. A Big Mac in Wyoming is cheaper. The prices of Big Macs have no special constancy regardless of location any more than real estate does. Just look at the $50 homes you can buy in Detroit these days.

The price of a Big Mac is determined by two things, and two things only. Supply of Big Macs, and demand for Big Macs. Not the cost of making a Big Mac, not the greed of the McDonald’s franchise owner, not the price of Big Macs anywhere else in the world. Only the supply of Big Macs in a given location, and the demand for Big Macs in that given location.

If the average price of a Big Mac in the US is 6.9% lower than the price of a Big Mac in Israel, that only means one of two things. Either the supply of Big Macs in relation to the demand in the US is 6.9% larger than in Israel, or the demand for Big Macs in relation to the supply in Israel is 6.9% higher than the US, or a combination of the two factors, yielding a market-clearing price 6.9% higher than the market-clearing price in America.

That’s it. That’s all it says. It does not say anything about the shekel, and it certainly does not say that the shekel is “too strong“.

Then why write this nonsense, that besides not having any scientific basis, the conclusion even based on dumb premises is flipped on its head?

It’s because economists work for governments and central banks. Governments need money to fight wars. If they can get in your head that the currency they control is “too strong” then they can print more and use it to fight more wars.

 

Does public “investment” crowd out the private sector? OF COURSE IT DOES!

There is one rule of thumb I always use in trying to tell the difference between an econometrician and an economist. Or, in other words, a Keynesian versus an Austrian economist. That is, Keynesian arguments are generally devoid of any soul or feeling, and treat economics like a laboratory science where if you mix the right chemicals in the right proportions, you’ll have the desired effect. Often their arguments deny the most basic common sense principles using fancy econometric language and quite frankly make me feel like an idiot for even having to defend absolutely fundamental economic realities that even 5 year old children can grasp with ease.

It’s even worse than that actually. It pains me, a punk kid with no degree, to go up against a published PhD and claim that what he’s saying is below the level of a 5 year old with basic common sense, but say it I must, because it’s the truth. It scares me to no end, really, that when the SHTF, people will turn to these authoritarians for answers that will enslave us all.

In my very first economics class when I was a pisher little high school senior, my teacher Mrs. Holcman taught us that economics is, by definition, the study of “scarcity and choice”. Meaning, there is a limited amount of resources on the planet, and economics is the study of choosing between those scarce resources. Presumably, consumers should choose between them in the most efficient and productive way so as to produce the most possible wealth from those resources and raise the standard of living of the human race. What I’m saying here is not rocket science. If a five year old has one dollar and in front of him are a chocolate bar and a toy, and he can only choose one, he understands the reality of scarcity and choice.

Then came the Keynesians and claimed, first, that while economics is about scarcity and choice, it is not the goal of economics to figure out how to best use scarce resources. It doesn’t matter how efficiently they are used at all. They can simply be wasted and aggregate demand for them being equal, everything should turn out the same.

But they claim something even worse than that. They claim that, essentially, there is really no such thing as scarcity at all. The world is an endless pit of resources and we do not even have to choose.

See this article by Yanis Varoufakis. I’ve mentioned him before as a slippery Keynesian who is at first not recognizable as such, and today I’ve figured out why. It’s because he writes with such soul. He has real emotional conviction, and this does not fit into my rule of thumb in searching for a lack of soul to spot Keynesian reasoning. So I was fooled for a while.

The Keynesian Orwellian phraseology for “there is no such thing as scarcity” is “public investment does not crowd out private investment”. He calls the belief that public investment crowds out private investment childish. This is mindboggling and scary.

We are to believe that simply because money put somewhere is put there by government instead of a private person, that simply because the label of the money is different, it is therefore infinite? If public money does not crowd out the private sector, then an infinite amount of public money can be spent without any effect. Essentially, money does grows on trees, as long as it’s the government spending it instead of a private person.

It doesn’t matter what money is labeled and who spends it. If you spend it on one thing, you cannot spend it on the other. It doesn’t matter what sector you are in. Everything crowds out everything, because there is only a finite amount of money and wealth on this planet.

Economics is the study of SCARCITY and CHOICE. That means by definition that if you choose one resource, you cannot choose the other. Government is not a god that can override this human limitation. Varoufakis and other Keynesians want us to believe that government is a god that can provide manna from heaven.

The question is, do you want government choosing where to put resources, or do you want private people choosing where to put resources?

Torah Economics: Austrian or Keynesian?

Most people today, even Jews (especially Jews) see Judaism as a religion rather than a national regime. The Jewish nation was not designed by God in order to roam the world and do strange rituals and not eat pork and take off Saturdays. We were designed to be a nation that lived in a certain place under a certain constitution. This constitution is the Torah, and it includes economic law as well as religious law. The question is, is Keynesianism, inflationism, and central bankism consistent with Torah Law?

The Mishnah, codified in the year 200 and the basis for the Jewish oral law, states in Perek HaZahav (the Gold chapter) of tractate Bava Metziah, in the very  first line of that chapter, “Gold buys silver. Silver does not buy gold.”

The statement if read on the surface is quite incomprehensible. Look at the commentaries through the centuries though, and it becomes clear. Gold buys silver means that if someone exchanges gold for silver, the silver becomes his once the gold leaves his hand and enters the hand of the other person. This is regardless of where the silver actually is at the time the gold changes hands. “Gold buys silver” means that the mere act of transferring gold from one hand to another automatically transfers the silver.

But silver does not buy gold. This does not mean that one cannot acquire gold by paying in silver for it. It means that silver does not automatically, by virtue of the fact that silver has changed hands, acquire gold. In order for silver to acquire gold, not only does the silver have to change hands. The gold does as well. The fact that the gold changed hands indicates that both parties agreed to the transfer.

In the case of gold buying silver, there was no need for a clear indication by both parties that they wanted the transfer. The fact that only gold was traded is enough. In the case of silver buying gold, both the parties must agree, and any one party can back out of the agreement before both metals transfer places.

Why is this? Because in Jewish law, there are two types of transactions. There is a barter transaction (Torat Chalifin – the law of exchange) and there is also a monetary transaction (Torat Damim – the law of money). Gold in Jewish law is not considered money. It is considered a commodity, which is higher than money and is more easily transacted. Silver, on the other hand, is considered “damim” or money. In order for a monetary transaction to be completed, both sides must agree by transferring the money for the commodity on both sides. In order for a barter transaction to be completed, the seller need only accept the commodity, and the transaction is completed even before the good is exchanged for the commodity.

This is the basis of Jewish monetary law. Where does paper money come in to the equation? In a Jewish economic regime, no king or president or political leader of the Jews would have the authority to demonetize silver, or de-commoditize gold. Fiat money would still be allowed to exist, but it would be forbidden by Jewish law to affect the status of gold as a commodity or silver as money.

If people chose to use fiat government money, they could. But if they didn’t want to, they wouldn’t have to. A Jewish economic regime would have competing moneys, and the money with the most value would be the one that was most used. If the government decided to print more bills, they could, but the citizens would be able to resist the theft lawfully.

This is how a Jewish state can and should function. This is how it will eventually function. And the world will follow our lead and free humanity from government fiat money Keynesian tyranny. After all, the power to print money is no power at all when the citizens are not under any compulsion to actually use it.

Competing currencies was first proposed by Hayek, one of the fathers of the Austrian School of Economics.

Yanis Varoufakis and Economic Morality in the Eurozone

I ran into a rather amazing find last week when I heard an Australian radio interview with a Greek economist named Yanis Varoufakis on the topic of the insanity in the Eurozone. Aside from having an awesome name, Dr. Varoufakis is sharp, articulate, and a contrarian. He was saying things I generally agree with but with an angle I hadn’t heard before, and what he said made a lot of sense.

You can listen to the interview here. It really is worth the time. The gist is this: Varoufakis holds that the entire structure of the bailout and so-called austerity is twisted. Greece’s debt keeps going up, so the austerity isn’t working obviously. The reason it isn’t working is that the bankrupt Greek state keeps borrowing money from the EFSF bailout fund to repay the ECB on bonds they bought from Greece to support Greek debt when no one else was buying those bonds. So in repaying the ECB via money from the EFSF, the ECB makes $800 million, and the Greek government goes deeper into debt.

Read that again, and you’ll see that the bailout fund is actually serving to drive Greece deeper into debt while letting the ECB profit off of it, and Greece is only “privileged” to continue this rape if it keeps it’s “austerity” which isn’t balancing its budget anyway.

That is why, says Dr. Varoufakis, the way things are going, the Eurozone will disintegrate entirely, as this domino effect will hit the rest of the PIIGS and the EU will self destruct along with the Eurozone.

Varoufakis’ solution is simple: Europeanize every bank in the Eurozone and have the ECB issue bonds in their name that people will buy. So you don’t have Spanish banks anymore – you have Eurobanks in Spain. The ECB issues bonds and becomes the switchboard, everything goes through the ECB, and now totally centralized, they can navigate forward. Wow does that sound Keynesian.

Varoufakis helped shed the light for me on the nature of this “bailout” and that’s why I like him, but he’s a Keynesian, and doesn’t realize that Keynesianism got us into this mess in the first place. Another example: I read another article he wrote about how Greece can’t be Argentina, which defaulted a decade ago, devalued its currency, and then rebounded. Greece, says Varoufakis, cannot be Argentina because Greece has no currency to devalue. He’s right, but the point is this:

Devaluing a currency, he says, is beneficial for any nation in debt, because it allows the nation to get out of debt. Well sure, a State can get out of debt by pillaging the value of its citizen’s savings and destroying its peoples’ wealth and paying debt back in garbage. They call that “devaluing a currency” in Orwellian language. What it really means is STEALING from citizenry. One day a government spends too much money so it decides to make your money worthless so it can pay back in worthless junk. Sounds great.

Varoufakis, for a Keynesian, is very smart, but he is a Keynesian nonetheless. He’s an economic tactician, recommending tactical moves to get out of a crisis without understanding the real, root cause of it all – a MORAL cause. Maybe Europeanizing everything and having the ECB issue bonds will technically get Europe out of debt in a mega Keynesian centralized way. But everyone will be dirt poor if it succeeds, because it means that the ECB will steal the value of every Euro in Europe by printing it into oblivion to pay the bonds it issues for the rest of Europe.

Why the circuitous Orwellian route of “ECB Bonds”? Just tell it like it is. Steal value from European savers. Just take it. Have the ECB issue bonds and then print the money to pay for them. Why not just do it more directly? Have the Eurozone completely centralized and pass a law that every Eurozone bank account has to give X% of their savings to pay the Euro debt. Just steal the money outright instead of printing it into oblivion.

So Varoufakis’ solution is basically: If European governments don’t get their act together and steal much more money much more quickly from the people, then the Eurozone will collapse.

Well OK. But the root cause of it all is the very fact that you allow a government to print money.

My solution? Get rid of the Eurozone and privatize money. Let people use what they want to use, and the best money will have the most value.

Never again will a government be able to simply steal your money by printing it.

Much like Leftists here in Israel who keep trying to find the perfect way to make peace, who do not realize that peace talks are inherently immoral if they give up Jewish land as a precondition, economic Leftists, or Keynesians, do not realize that the inherent structure of the system of currency backed by force is immoral and must be torn down. Israel leftists will never find peace beyond theft of Jewish land. Keynesians will never find economic solutions beyond theft either.

Stop hiring people to dig holes and refill them

It was a few months ago when I heard some guy, I think it was Jessie Jackson’s son actually, say that he supported the “outright hiring of 10 million people” or however many unemployed there were at the time. Hiring them to do what, exactly? To all go dig holes and refill them? And then I heard this interview with Congresswoman Maxine Waters (or is it Senatress) that Obama has to be “bold” and “stimulate” the economy with “1 trillion dollars”.

So I suppose that with the magic trillion bucks he’s going to hire the 10 million unemployed to go dig him some holes and refill them thereby stimulating the economy and making us a fully employed country.

What’s a trillion divided by 10 million? 10 thousand bucks a hole-digger? That’s not enough. They’ll be poor. They won’t be able to buy enough food with the holes they dig and refill. Maybe we should make them dig twice as many holes and refill them so they’ll be more productive, and then we can double the “stimulus” to $2 trillion and they’ll be at minimum wage. (Which itself is a government mandate.)

This is obviously the more ludicrous side of the whole issue. The more mundane is that whenever people ask Ron Paul what will happen to the economy when all those government workers he wants to fire go unemployed and the jobless rate spikes and where does the trillion dollar spending cut go, they’re asking as if by the very act of spending one trillion dollars, the government is creating wealth. No, they’re not digging holes and refilling them. They’re just stamping forms and filing them. But that’s

PRETTY

DAMN

CLOSE.

When you cut them away, the trillion dollars used to pay them to stamp those forms gets freed for people who use the money to create things that people actually need.

But the journalists can’t stomach that fact. They think that if you shrink the government, unemployment goes up, and that’s all that matters.

The truth is, every overpaid and useless government employee is on welfare. He’s wasting his time and the country’s time, and eating up your money. So we may as well stop the nonsense, stop hiring them to dig their holes and just tell them they’re on welfare. Stop the Orwellian nonsense.

The point of a job is not to influence the unemployment rate. The point of a job is to produce wealth that people need – emotional wealth, psychological wealth, spiritual wealth, or physical wealth. If you’re not doing that, you’re on welfare.