February 27, 2009

Keynes, Marx, The Weimar, and Obama

Who was worse for the ideals of freedom - Karl Marx or John Maynard Keynes? Karl Marx was responsible for the dark cloud of communism that enveloped a large part of the globe, and descended millions into the dark tyrannies of Stalin, Mao, Castro, Chavez et. al. On the other hand, Keynes brought a deficit mentality, and a socialist supporting mantra to the field of economics.

Clearly Marx was the worse scourge for the world. But for America, the answer is a bit different. Marxism, communism was never a serious contender for American hearts and minds. But socialism, statism and government meddling are all clearly deemed acceptable. And by many, they are believed to be the right thing to do - including President Obama.

Keynes was more dangerous to American prosperity. Yes Mr. President - that argument should be over. The problem is your belief system was on the losing side of the evidence.

Here's the flaw with Keynesian thinking; government priming the pump by putting more money into the economy can only do so by taking money out of the economy (taxing). It's robbing Peter to pay Paul.

This prime-the-pump approach could only work if the government already had a stored surplus of cash - a rainy day fund - stored and ready to unleash into the economy. Such is not the case here. It's SO not the case here.

The government has another way to do this pump cash - borrowing. It can borrow money from banks - in this case though, crowding out the very people/businesses the banks should be lending to in the current liquidity crisis. There's only so much cash that can be lent.

So couldn't the government borrow from foreign banks? Yes, up to a point. Given the soaring debt levels in America, the end of that gravy train is fast approaching. Besides, many foreign banks have their own countries' woes to solve. Not to mention the fact foreign borrowing puts America even further into external debtor nation status - an unsustainable choice in the long run.

The last option is to just print more money and then the government can spend all it wants. That has it's own set of disasters waiting to befall the country. History has examples to warn us:

Perhaps it's already started.

Is it time to start panicking? Maybe. If any country can take a vicious economic hit and come out the other end it's the United States of America. But the worry is that maybe enough people won't see the need to come out the other end until it's too late.

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