Keynesian economics and a twenty-five-hundred page health-care dossier proves a point: Life is simple, it's people who complicate. kxl

Most of you need to do more homework. Many of the so-called "facts" spouted in these comments are utter nonsense.

Since classrooms can no longer be trusted not to distort historical facts to further political agendas, I recommend you spend some time in your libraries with simple little books chock full of facts. They're called "almanacs." For each year they show the federal budget, tax rates, actual tax revenues and outlays, and legislation affecting all of these. They also have elections and office holders for both federal and state legislative bodies as well as top administrative offices.

If you load a couple of decades' worth of this data in a spreadsheet, you'll see what I saw twenty years go. You might also realize that Democratic economic theory has shifted dramatically to the left since the 1960's. Jack Kennedy's economic policy was equally as supply-side as Reagan's and it was equally successful. It was Carter's "share the wealth" goals that broke the economic engine of America--just like Obama is doing now.

But both could only accomplish that with Democrats heavily dominating both Senate and House which were intent on increasing tax rates beyond what the American public could tolerate.

These macroeconomic theories are bunk because they leave out consideration of the fundamentals. These fundamentals have held true for every economy since at least the middle ages, whether run by kings, feudal lords, native village chiefs, or presidents of socialist dictatorships or democracies.

One, if you take too much of what people earn, they will stop earning by going on the "dole" or moving away or going underground. Two, the size of the economic "pie" is never fixed--it's either growing or shrinking. Keynes' macro theory completely leaves out the affects of taxation levels. It also ignores that most people are smart enough to realize when they're being robbed or cheated.

Even a 3-year-old will react if he "earns" two pennies and you come along and "take" one of them away. I dare you to test that.

The government cannot "fix" the size of the pie in order to share "too much" of it without causing shrinkage. That is, if it tries to share too much of my hard-earned wealth, I'm leaving. Bye-bye. Then your economy shrinks. We only have to look at the collapsed Soviet and Chinese economies of 20 years ago to see that Obama-Pelosi-Reid-onomics will follow the Soviet and Chinese "controlled" economies.

In fact, you only have to look at California over the last five years to see where OPR-onomics is taking us. That is simply because overtaxed economies fail--just like the pre-revolution economies of France (when Louis lost his head), Britain (King Charles lost his head, King George lost America, King John was forced to sign the Magna Carta), and all of the European countries that followed similar patterns.

The great waves of immigrants to America were driven by the economies they were running from and not the one they were running toward. Or simply look at Mexico.

From the "kingdom" of Maximilian to modern corrupt governments and drug lords, the Mexican economy has been burdened to the point that it has never thrived. Not for any period in 200 years. That's not because the Mexican people are lazy or stupid. It's because they never band together to "throw the bums out."

Keynesian or any other economic or monetary policies or manipulations cannot overcome the basics that make economic activity grow or shrink.

Too much theft through corruption or too much taxation by governments destroys individual economic drive. Period. No amount of monetary manipulation can convince people to work for nothing--or next to nothing.

The American Revolution was due solely to overtaxation and corruption. If you don't believe that, you need to read the correspondence among the founding fathers. They also did not include in the constitution the "right" of the federal government to levy taxes--not even to fund General Washington's army. They debated the issue and felt strongly enough that it was a "Pandora's box" that should not be opened even a crack, they decided to deny the federal government they were creating the right to levy taxes--even though they knew they would soon be facing the mightiest army the world had ever seen.

The liberal Supreme Court that "overrode" the Constitution did us a disservice and danced on the graves of our founding fathers. Please note that we had no recessions or depressions throughout the 1800's. Why? When was the federal income tax first enacted? We've had nothing but boom and bust every since.

What do we do now? I suggest we switch to a national sales tax (not on foods or medicines) that is the same for everyone. That will eliminate the overhead cost of running the IRS (at $20 Bil each year as of 20 years ago), lobbying costs to businesses trying to sway politicians for "tax breaks," accounting costs of businesses and individuals so that more people can be hired to produce goods or services instead of counting the beans for the government and looking for loopholes, ad infinitum.

I predict that if such a thing is ever accomplished, we'll see another 100 years of economic growth without boom or bust.

"Absolute power [to tax] corrupts absolutely." Always.

Poor Monty’s commentary: Stop and think! What important factor did Keynes leave out from his all two simple explanation of what caused or lengthened the great depression, that is people cutting back on spending their money, or this so called “hoarding”?

Answer: Keynes fails to answer the question of Why people significantly cut back their spending during the Great Depression. As was said in the “Matrix Reloaded” movie, “Why” is all important because knowing “Why” gives a person power and not knowing the “Why” or Why’s of a thing means not having the power to find the correct solution to a problem.

So what makes people either increase or decrease their spending? What makes a person in the private sector or a person in a business increase or decrease their spending?

It is so simple that I should not even have to say it, but I feel compelled to say it because people are being brainwashed into a new government dependent mode of thinking that is blocking all too many minds from thinking and reasoning critically; people increase their spending when they feel that the status of their own personal economic situation is either good or getting better and people rightly begin to decrease their spending when the opposite seems true to them.

Poor Monty’s commentary: Stop and think! If government spending on a massive scale, either by direct spending or by inflating a country's currency (inflation) could create real and sustaining wealth creation (and create worthwhile jobs), then how is it that we still have any economic problems at all?

Since the 1930’s we have experienced many serious economic recessions and downturns in the United States, and many people are saying that the current recession or downturn which started in or around 2007 or 2008 is the beginning of another Great Depression or that, at a minimum, it could turn from a recession into another world wide Great Depression.

So how is this even possible when the governments of the world have so completely adopted the Keynesian economic philosophy and model as fact, and have followed his advice so completely? The US government has, in recent years, greatly expanded the money supply (inflation), and has greatly increased government spending and yet our economy continues to lose jobs and lose wealth. So how is this possible? Why is this happening and what is the correct answer to this very important “Why”?

It is so simple. Read about Japan's lost decade, where the government of Japan tried to fix their troubled economy by dumping billions of dollars (paper and electronic money created out thin air) into their economy.

Japan tried a separate bail out type, stimulus type, helicopter drops of money into their economy and in Japan it did not do any good to their economy except to lengthen their recession from the normal year or two to a recession of over a decade!

In economic circles, this recession within Japan’s economy, which lasted over a decade, is called “The Lost Decade”.

And read books about the Great Depression of the 1930’s, and such books as “Roosevelt’s Follies”, or “The Forgotten Man” or “The Great Depression” will explain in detail the incontrovertible proof that: Socialism and big government solutions to problems, government bailouts of businesses, and government’s outright take over of businesses, government make work type programs like Roosevelt’s WPA program, high taxes, excessive and burdensome over regulation of people and of businesses, inflation (government expanding the money supply and creating money out of thin air) all make people who have the capacity to produce and the capacity to create wealth and create jobs nervous!

These types of unnecessary and damaging government interventions cause people both rich and poor, employer and employee, to slow their production down and cause them to take a very defensive position towards protecting the little wealth they have from further loss.

Then governments who are manned by power hungry people who for the most part just want more and more control over people cry, “Our economy is in trouble, we need more government spending to jump start our economy”. And then more paper currency (or electronic money, or money which is nothing more than numbers in a banks computer) is created or printed out of thin air and then this money is dumped into the economy in order to bring the economy out of its recession / depression and this in turn causes the need for more taxation and more re-distribution of wealth and more regulation of people and upon businesses.

Then, the very people who do know how to produce wealth will further retrench themselves into their defensive “Protect what you have mode of thinking”, causing more and more job loss and more and more loss of wealth. And this in turn causes more and more people who do not know how to create wealth or jobs, the common man who simply works for his wage, to spend less and less as he or she retrenches himself into his defensive position.

This is exemplified in the statement “I’ve just got to hold on to what I have as best as I can and wait for things to get better”. And then this decrease in consumer consumption causes more businesses to experience lost revenue and causes the socialists (Political leaders who believe in the fantasy of Keynesian Economics) in government to cry for more of the same policies which have created these problems in the first place.

And this all goes on and on, until some kind of balance is achieved in the economy, but this balance where things stop getting worse but where things don’t get appreciably better, will not be at a country’s true optimum level of production (job and wealth creation).

Instead this level of economic job and wealth production at that time will be at the country's “Good enough for now in these times” level, and will not appreciably improve until the damaging government interventionist policies are removed, or at least reduced enough so that the profit motive or the “What’s in it for me” motive can cause the people within the country who know how to create and to produce jobs and wealth to want to put their labor and their capital at risk again.

And this natural cycle of recovery is not shortened by government interventionist policies, rather it is greatly lengthened by it and the histories of all the world, including the history of Japan’s lost decade and the histories of America’s Great Depression prove it.

Governments do not create wealth, and when they take more wealth from people than they need to in order to fulfill only their legal or legitimate and limited roll then this taking of wealth begins to be seen for what it is and that is theft.

And it is this very theft of freedom and property from people which causes the speed of an economies recovery to slow down and or to keep it from recovering at all! The end.

Moderator,

I like kxl better than 55489.

To, again, anon54931: I'm a national reporter and columnist. I don't call myself a conservative one or a liberal one. I call myself a fact-finding one.

To anon54931: Where do you get the figure that middle-class workers in Canada work 200 hours more annually than the wealthy do? Do the business owners there punch a time clock?

To anon54024: Let me help you understand.

President Roosevelt followed an understanding of Keynesian economics, but he was more driven by his own experimentation, as he said. He had a "Brains Trust" in his administration, made of academia. And the President and his Brains Trust came up with a jobs program under the Works Progress Administration (WPA) in 1935, creating federal jobs for infrastructural projects, replacing the Federal Emergency Relief Administration (FERA) of 1933, which created welfare and zapped the spirit of the unemployed who quit looking for work and instead settled on government nurturing. In effect, a government patch over government patch. When has that ever worked?

The two programs profoundly changed the American work ethic. They caused an abandoning of self reliance to government reliance, like the extended unemployment compensation of today.

At first glance, the New Deal's works program seemed a solution to unemployment. But in government laundering, nothing comes out in the wash. Some of the built WPA public works projects added value, but many dismally built projects of the WPA, also mockingly known as Workers Piddling Around, had to be torn down and rebuilt. The works program wasn't a mending, after all. High unemployment remained high unemployment.

Stop and think. Government creates nothing with the exception of more problems, very rarely solutions. Who paid for the WPA government laborers? The taxpayers of course, which means they had less money to spend on goods like coats, washing machines and refrigerators.

When consumer demand drops, production drops. Businesses either lay off workers or go out of business. Don't forget, the WPA laborers were paying extraordinarily high taxes too, and so were the business owners, who paid $700,000 in taxes for every $900,000 profit.

WPA was all of a tempting carrot, a tight leash, a whip, and far worse, Roosevelt's work program used the federal laborers. Two dollars per paycheck was taken from the laborers to fund Democrat campaigns. Roosevelt then tossed a few extra dollars their way, if the laborers campaigned for his reelection in 1936.

Something good though seemed to be peeking out of the workers program. By late 1935, unemployment from a previous high of 25 percent dropped below 15 percent, just in time for the 1936 presidential election.

Roosevelt magically created 300,000 WPA jobs, sure to gain sympathy for the New Deal, reduce unemployment, and gain votes for FDR. Soon after the election, the 300,000 WPA jobs vanished.

By 1939, unemployment had climbed back up to nearly 21 percent. At the time, the United States ranked 13th in the world in economic recovery.

Though unemployment dropped to near 2 percent in World War II, statistics reveal that both consumer consumption and the production of domestic goods remained low.

The United States didn't pull out of the depression until after World War II and after Roosevelt died, when President Truman became friendlier toward the private sector, and the American economy resumed doing its thing.

The poor stay poor and the rich gets richer -- what a grand idea. In a free-market economy in a free society people have the choice to become whatever they want. It's up to their ambition, absent Keynesian economics.

Yet utopian Keynesian economics only functions in some twisted manner in a tyranny. Even John Maynard Keynes knew that just a little too much government interference creates uncertainty, a rod in the spokes of a free-wheeling economy.

He indeed warned President Roosevelt of that outcome. The President didn't listen. Since when has any government limited itself to small doses of stimulus to spark a fledgling economy.

Government limiting itself is not in its nature. Eventually it wants control. Does that sound familiar? Economics is certainly complex - I know, I study it all the time - but like everything in life its principals are simple, for those who have a simple aptitude.

Great article. A++

#23: Starvation may have been the threat used to force people into factories and bring about the industrial revolution, but we clearly don't need to operate on those principles anymore.

Did you know that 50 percent of wealth is inherited, and 25 percent is won through 'lucky' speculation? And remember that most of that wealth stagnates.

Sure, there's the odd famous, hyper-rich philanthropist like Bill Gates (and I'm not belittling his example in any way). But in general, it's the poor who spend their welfare checks and keep the economy from stagnating. The rich sponge up wealth and keep it with unfair tax breaks.

The trickle-down theory has never proven true, you know.

Where I'm from, in Canada, the wealthiest 1 percent of the population controls 25 percent of the country's wealth. Yet the average middle class wage earner works 200 more hours a year, and makes less than a decade ago. And American income inequality is a good deal more extreme even than ours.

Are the lower classes just lazy? That's like saying muslims are just terrorists. Your viewpoint is so skewed and biased toward te stereotype that I wonder if you have any education at all, aside from your happy-happy Bible.

I don't believe that the ability to afford health care, education, nutritious food, housing, and respect should depend on what name you were born into or upon 'luck'. If we could overcome our own greed and recognize that it is possible for us all to share and still have enough, we could stop the re-shaping of society through income inequality and perhaps approach some level of trust for one another.

Work is social, and it's proven by studies that work means more to people than earning money alone. "Laziness" is not what we need to eliminate, it's greed and the quick-fix creation of unstable employment positions.

Regarding FDR´s spending on stimulus to get America out of the depression of the 1930s and 40s. Is it known if the infrastructure improvements were valued at a net gain or a net loss?

It would seem to me that if valued at a net gain, then this would prove that the basic concept of Keynse has worked.

Comments welcome!

What is the definition of wealth in Keynesean terms?

From what I have read of Keynes (The General Theory of Employment, Interest and Money), national wealth is defined (functionally) as a nation of consumers willing and able to consume -- but I could be wrong. Please help a poor public-educated observer understand what national wealth is by 21st century (post-classical) standards.

Hey - anon24225. What if there is no war to generate government demand and it is left up to the unwilling or timid consumer? Private sector spends money for economic gain. Government spends money for political gain. What if certain sectors of the country cannot benefit from government stimulus?

No. 23. *Exactly.* Thank you for reminding me.

Just look at the failure of Nixon, Carter, and FDR. FDR's stimulus failed, unemployment didn't change much for seven years. We can also look at the failure of the Bush Stimulus!

It doesn't work for one major reason: the money government spends comes from the very source it's trying to fix - the people... Redistribution of wealth doesn't create wealth, it only changes who has the money...

I know that this will bring a firestorm, but if you apply God's economics to our society, you will find that all of man's attempts to deal with social and economic issues, fails miserably. The intrinsic law of loving God and serving each other totally obliterates the ugly traits of a fallen humanity, i.e., hate, greed, lust. Wealth is not a problem, if it is come by honestly, and used to help others. I would rather see a wealthy person give freely to help those in need, rather than the government stealing it from the wealthy to redistribute to those who think that "a welfare state" owes them a comfortable life. It is amazing how quickly you can get a person to work, when their stomach is rubbing against their spine! Those that are incapable of working, need to be assisted; those that refuse to work, ought to suffer hunger pains.

The only problem with "Laissez-faire" is that you must have severe enough consequences for abusing the system, or the system will be abused. Integrity is lost in our society; if a person thinks they can cheat the system, and only pay a small price if they get caught, they will cheat the system! If there are no absolute standards for right and wrong, then who cares about getting caught?

We are a consumer-driven society because sex and violence sells. Planned obsolescence was introduced to force us to continually spend our resources on goods that don't last. Don't save up for a "rainy day", because the government will guarantee that you'll always have sunny days! Yeah, Right!

So let's have a rousing war and get out of this mess... the Government can ration everything and in a few years all will be better.

Your views are just a Keynesian joke ...

Keynesian economic theory is based on the rash assumption that wealth is a fixed quantity. wealth, however, can be created. let me use this anecdote. say there's 2 people. one of them creates something- let's say they're a farmer. they can raise livestock, and grow vegetables.

the other person is not a farmer, and cannot sustain himself without the farmer's help. the farmer requires something to trade for his food. the other person could build a house, or make clothing, etc. and each thing he creates has its own value. money is only symbolic of the value of something else- it holds no value itself, which explains the idea of inflation. if more money is added to the economy without more *value*, measured in goods and services, that money only serves to devalue existing money. taking money from those who have earned it and giving to those who have not (redistribution) causes inflation because no value exists where it's being relocated to. also, it provides less of an incentive to have a large sum of it- because those who do will get it taken from them without receiving anything in return. without a reason to have that position, they will cease to employ others under them, causing unemployment to skyrocket.

keynes suggested that if more demand than supply exists, there should be a tax to decrease demand.

on the other hand, supply side theory proposes a different course. reducing tax on the supplier, increasing potential supply (hence the name supply side).

this allows room for the creation of more wealth, as is natural in laissez faire capitalism. stagnation of wealth only matters if no more wealth is being created by producers- money does not have a circular flow unless the economy has stagnated.

economic regulation should only exist to prevent taking advantage of the government for the purpose of your own personal gain. the intervention of government in the economy is the only reason for any major economic disaster, including the great depression. "robber barons" only existed because they were helped by the government.

and i leave you with a quote from John Maynard Keynes that sums up his position- the polar opposite of mine.

"Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all." - John Maynard Keynes

I'm not so confident on the WWII comments, however in world war *one* (where a treaty of Versailles was signed the year after the armistice), the American lending to Germany was really quite like a global stimulus. It basically went (my understanding goes) that by the US giving money to Germany, Germany could afford to pay some nations she owed, who could then pay their own lenders. This created a cycle by which America did eventually end up getting all of its money back, not just from Germany but from other nations also. It really was a clever piece of economics.

Just so you have a few facts straight about WWII. The treaty of Versialles, was written to bankrupt Germany, so that American corporations could come in and purchase the country for nothing. Rockefeller, actually sold the fuel additive needed for the Luftwafer to bomb Britain. Henry Ford adored Hitler and GM sold him engines and technology. Also do not forget that Preston Bush, helped the Thyssen corporation make purchases that otherwise would have been impossible.

So before you start writing, do a little research. Just so you know I am 23 and never went to university but even I have found this info, and this is just a scratch of the surface.

It seems to me that our cash has been spent on goods from "other" countries (imports) without the resulting payment of wages to our labor pool. This reminds me of the old time barber who "bled" people in order to lower fever. We have "bled" our currency to China and to Saudi Arabia. Fix that Mr. Keynes!

If you're looking for "proof" that an economic theory like Keynes' can work, then you'll never find it. Economics cannot be truly tested in a scientific manner - you can never establish a control group - so "proof" is not really forthcoming. Even if the current usage of Keynes' ideas work, it's still not really proof. Economies can be influenced by too many things, sometimes from very obscure sources, and as is typical with economies - chaos abounds.

In today's economy, currency wealth of individual/business consumerism forms the foundation for world economic wealth. The degree of separation between the amounts of currency distributed to each individual is not accounted for in modern economic theory. Some countries have attempted to address the issue of individual distributed monetary inequality with varying results, but there still remains great inequalities in many of these countries. The root of this vexing economic problem lies in assumption that the holders of the pools of currency, which are controlled by major economic institutions e.g large corporations, governments, banks, other financial lending businesses, will operate egaltarily with a minimum of regulation. The assumption of egalitarianism for profit across the full spectrum of the public has never been part of the economic history of the world. But that doesn't mean that we shouldn't try. 21st Century humans are evolutionarily capable of it. Past attempts, such as Sweden, come close, but fails in the long run because taxes limit personal/business accumulation of currency. The current pseudoism that "the market should/will regulate itself" has proven that egalitarianism has been left out of economic action on the marco scale. A true turn to build in egalitarianism into economic policy should be the foundation of any new economic efforts world wide. Large degrees of currency separation between the populace lie at the root of most social problems inflicting our world today. We need a new model, neither Keynesian nor Austrian.

The "pragmatic" redistribution of wealth theory here is insulting and degrading to the poor. It's basically saying the poor are too stupid to save money, so spending it will boost the economy. (That's all fine and good if they were purchasing U.S. made goods). At some point the poor are going to realize how the government views them and why it's important for a segment of our population to remain poor.

No, it was not the spending of military goods during WWII that pulled us out of the Great Depression. Is was the sole fact that the good 'ol USA was the only industrialized nation left untouched by the war in an infrastructure and manufacturing sense.

The world came to us for the recovery because we were the only ones capable at the time to rebuild the world.

The world bought our goods; we enjoyed a great economic boom, built the interstate, the middle class expanded, the Great Society polices created, etc.

Now, the world has caught up in the last twenty years and we must shrink our spending to a degree or be crushed under the budgets and entitlements created in the past. Unfortunately, Obama will not bring that change.

What was WWII? It was a government spending program of a magnitude never seen before. It broke the back of the depression. The country devoted itself to defense and military (paid by the government).

After the war the industries created by the government defense spending converted to consumer goods (cars, appliances, etc.) to meet the pent up demand of the American people giving birth to a golden economic age that crashed and burned with Reaganomics and GWB. Maybe the bailout is not big enough.

Boom/bust was also a feature of the Golden age of Keynes, only less severe than it's malevolent neo-liberal counterpart.

neither explain why crises occur....

I agree that the article is a good and simple brief introductory definition of Keynesian economics.

I do not agree with the oft-repeated nonsense that Roosevelt's programs would not have allowed our citizens to dig themselves out of the Great Depression (--as opposed to what has not been done to date regarding the present Depression, and the mini-depression created by Reagan--) without the advent of WWII. It is clear that FDR's Government WPA, CCC, etc., ignited a rebirth of art, science, theater (also cinema), knowledge of and appreciation of American culture and history--and allowed opportunities (i.e., Hope with Foundation)for many previously excluded economic and ethnic groups in our nation. We would have lost WWII without the abilities developed by these "interventionist" Programs.

A nation requires a government which serves its citizens to survive--and to thrive. Otherwise, we might as well have anarchy--a form of which is the "cycles" cited by academic economists and privileged politicians. It was the greed of the Robber-Barons, Bankers, and the very closed tier of the most wealthy and socially and politically connected individuals who caused the Great Depression in this country and the Depression--and, yes, it is a Depression-which is currently tormenting the working class. I also must point out that Obama and all the rest speak of a middle class that does not exist. Someone who has an income--not including assets other than current, liquid income of $250K plus has no relationship to the median income of around $50K for a family of 4. Nor does it speak to those who make much less than that, i.e., The People.

Capitalism without strict regulation will destroy any nation--including ours--and the real culprit, fundamentally, is that old enemy of any democratic country--COLONIALISM--what we mistakenly call Immigration, Out-sourcing, etc. Economists of any ilk--Keynesian or otherwise--have not faced this fact. If Obama doesn't, our country will not survive with any ghost of our fundamental values and promise. We cut police, fire and we spend tens of millions on Colonialists. Colonialism is the twin of Genocide and no friend to any democratic, regulated capitalistic, just Nation--ours.

Keynesian economics is a joke. The notion that saving money for tomorrow is a bad thing is illogical. If you want to learn about real economics, study Austrian economics.

Keynesian economics have never worked. Never has this theory been able to rescue any foundering economy. Yet its detractors will argue that it "hasn't been tried", or "the Government didn't spend enough". So don't expect its proponents to come up with any success stories.

An utter failure everywhere. And Keynesian economics didn't get us out of the Great Depression. (economics 101) Hitler and Hirohito did. FDR made our economy worse.

24112: Obviously, the people that hoarded the money were the people who had some money to hoard. Elaborate on the idea that about how this theory makes it easier for banks. I fail to see how a bank is a required component of a Keynes transaction.

The Depression caused what is now known as a "liquidity trap", where the price of money is 0% interest and still no demand. GOVERNMENT came in and spent on work projects and then the war....that in turned created demand for goods and services which got up out of the depression: conclusion: Keynesian Economics works! and they can explain the real world conditions of the economy better then classical economics.

Who hoarded money? The banks, it's called interest and credit. Keynesian economics makes the banks hoard money even easier, and hides inflation till the money finally hits the poor.

There is no proof it ever works.

Poor stays poor, rich gets richer, grand idea.

I really like this article on Keynesian economics, it is short and to the point. Exactly what I needed to get a general understanding of the main ideas of this theory. thanx!