How Stimulus Destroys An Economy

The concept of stimulus as it is practiced today began with John Maynard Keynes’s General Theory of Employment, Interest and Money. Keynes is frequently described as a greateconomist and by some even the greatest
economist who ever lived.

He was in fact of great mathematician but in no
way was he an economist. He had no clear
understanding of markets and held the same
naive beliefs about markets as do countless
uneducated and wishful thinking members of
the general public.

The most common naive belief about free markets is that when a business or industry becomes unprofitable absolutely nothing will emerge to take its place. Free markets provide an optimum in income and production for members of all income classes. Even though there is a 100% chance better and stronger businesses and industries will emerge, allowing that to happen
requires a leap of faith, because there is absolutely no sign that new enterprises will spring up
and generate new and greater economic opportunities. So, initiatives to have government save
what is failing abound. Businesses which fail do so for good reasons.

The one thing Keynes got right in his work was the necessity of complete objectivity in
implementing stimulus plans. This was Keynes’s straw man concept. This was his name for a
totally objective, non-political person to be in charge. Does nature provide this type of
individual. If you find just on example in all of history, please advise me who that person was or
is.

If total objectivity is necessary with fiscal stimulus, it is also necessary in monetary stimulus.
Both styles of stimulus are hashed out politically. Both monetary and fiscal stimulus serve as
political tools. What are politicians going to do when they believe increasing government
spending is good for the economy? Beginning with the Reagan administration stimulus is now
applied no matter what.

Any stimulus program requires an economic forecast. Please provide a list of forecasts by
credentialed economists that turned out to be more accurate than those of the same numbers of
astrologers. When you find a few, which you won’t, I will rethink my view of forecasts by
economists. If any stimulus plan is to be implemented, is a good forecast unnecessary? If a good
forecast is not possible, is there any reason an economy needs to be stimulated even in a case
where a macroeconomic theory calls for one. Should stimulus be applied even though no one hasany idea as to what will happen next? You decide. I have already decided. Show me where I am
misguided. Should congress apply stimulus, just in case the economy gets weak when no one is
looking?

Monetary theory had already been debunked as an economic remedy prior to the 70s. I still
remember a professor from that era explaining to the class that monetary policy had great
promise but in actual practice, it produced no worthwhile results. Monetary theory was
rediscovered and has reemerged as a political tool after the turn of the century.

Today both fiscal and monetary stimulus are political tools. Both are used to reward powerful
interests which support the essence of politicians who administer favors as a means of gaining
and retaining power. Both are very effective in that regard and are used for that purpose.

The effect of both is to create a huge income gap between the working poor and the wealthy.

Who benefits from stimulus? The beneficiaries of stimulus are the parties with enough political
power convince congress to spend in support of what they have to offer.

After forty plus consecutive years of stimulus, resources in the United States are allocated
grossly inefficiently. The economic viability of the poor and lower middle class have been
destroyed. So, the economy is collapsing. Since the free market system has been replaced by
stimulus inspired socialism where benefits go to the top, there is no way the economy will
recover from the severe depression we are entering.

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The Central Planning Depression

 

The kind of Depression the United States is entering is permanent. There will be no free market recovery because the free market system has been replaced with central economic planning. Recessions in a free market system are short and temporary. There is no free market so there will be no recovery. So, once a recession begins an all out depression will occur ensue. More central economic planning will be initiated on the hope that central economic planning will generate an economic rebound. In a centrally planned economy a natural recovery will not occur.

The cause of the depression is the practice of using political power to determine economic outcomes.  All kinds of theories based on fancy statistics and presumed numerical relationships will be tried and retried. What Fantasy Free Economics does is provide the genuine reasons for economic phenomena in terms of what causes the occurrence of the statistics on which sophisticated economics rely. In mainstream economics, one number causes another. One number alone does not cause another. The cause is always explainable in terms of human behavior in just a sentence.

Americans believe government solutions not the free market system is what causes economic growth. This misguided approach is the cause of the severe depression the global economy is entering into. Widespread prosperity or even well being is not possible when the system that completely causes prosperity is eliminated. That is what has happened. The state of being in a depression will be impossible for the economy to recover from given that the only path to recovery is being rejected.

I am not saying an economic recovery is completely impossible. Even economists who call themselves free market economists are offering no free market solutions or good advice. To return to free market influences it is necessary to repeal laws, close and rein in government agencies. The practice of using legislation to rig and control markets would have to be eliminated. These things are not being done, suggested or even considered. When citizens of a country are rejecting the only available path to higher living standards, there is no where for a country to go down.

The western world understands the self correcting nature of the business cycle theory. It is out with the old and in with the new. A recession is a natural resetting when resources have become inefficiently allocated. When recessions are avoided through central economic planning, the reason and causes for the recession continue to worsen. In time, even though an economy grows to new highs in terms of GDP, the income distribution between different income classes widens and continue to widen.  This is because political power rather than price, determines who gets what in the economy. It is natural then that the wealthy become more wealthy during central economic planning because they are the ones with most of the political power.

What the United States is experiencing now is similar the situation in place within the Old Soviet Union when it finally collapsed. That is the natural outcome of a system of central economic planning. Without free market influences that type of outcome is normal. Based on our economic policies and the mentality of those who have taken charge, failure is the only possible outcome.

The truth is a hard sell. Fantasy Free Economics gains readers one at a time. Major search engines simply do not list blogs which disagree with their political agenda. As long as folks share the link to this blog and others speaking out against the grain, the truth will at least trickle into the public consciousness.

 

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