Ancient Egypt was doubly fortunate and doubtless owed to this its fabled wealth, in that it possessed two activities, namely pyramid building as well as the search for precious metals, the fruits of which, since they could not serve the needs of man by being consumed, did not stale with abundance. The Middle Ages built cathedrals and sang dirges. Two pyramids, two masses for the dead, are twice as good as one; but not so two railways from London to York.You read that right: John Maynard Keynes thought that the building of the pyramids, e.g. the deliberate wasting of labor and resources, was in large part responsible for the wealth of ancient Egypt. You'd think that it would be obvious to any reasonably intelligent person that rampant waste would have a deleterious effect on an economy. You'd also think that a modern, advanced nation like the United States would have progressed beyond the primitive mentality of such an ancient civilization to the point that building gargantuan monuments for the deification of political leaders would seem like a preposterous idea. But you'd be wrong. More than a few have fallen for this kind of fallacy. In fact, a great many people will claim in all seriousness that a hurricane or a war help the economy by creating demand for repairs or weaponry. By this logic, we could all get rich by paying foreign armies to blow up our cities so that we could rebuild them. Evacuated beforehand, of course; otherwise, it would just be ridiculous. There are some (apparently quite brilliant) people who somehow manage to intuitively grasp the idea that the destruction of resources is not a good idea if one has a mind for increasing overall wealth. I trust that my reader is one of them. But somehow the idea of a central bank (e.g. a Federal Reserve) manipulating interest rates to keep an economy growing still makes sense to these folks, or at least confuses them enough that they can't be sure. The simple reality is that in doing so, the Fed is just instigating the building of pyramids by roundabout means. Let's take a look at it. Suppose that a business entity has looked into making a business venture in the interest of making a profit. This is one of those peculiar tendencies that businesses have. Plans are drawn up, and estimates are made of costs and profit. If there is a profit to be made, the plan will be undertaken and the business will make money, assuming they have planned and executed their plan well. The business has undertaken a constructive activity. If there is no profit, the venture will probably not be undertaken. Why? Because in the present business environment, in the real-world, open market as it stands, this activity is destructive of wealth, as reflected in profit and loss. A business that wants to grow wealth does not undertake destructive activities. Accounting helps with this estimation. Pretty simple. Now, enter our meddlesome central banker. He toggles the interest rate down a notch. Suddenly, the financing costs of business plans go down. A lot of those unprofitable plans look profitable. They are undertaken in the "new" business environment. See what is going on here? In the real world, these activities were known to be destructive. In the phony world distorted by central bankers, they look profitable. Central banks do nothing but monkey with accounting. They inflict Enron accounting on a national scale, with the net result that Enron-like activities are undertaken on a national scale. They look at an unprofitable, wealth-destructive situation, and think that they can render it otherwise in the real world by fudging the accounting. It doesn't take a rocket scientist to recognize that pretty much any artificial "stimulus" is pretty much the same thing: an attempt to render an unprofitable, wealth-destructive activity profitable on paper so that people will undertake it. Phony accounting cannot render any activity materially profitable in the real world. It cannot change reality. I do not think that this is a tremendously difficult concept to understand, yet apparently one can still manage to land a Nobel Prize by articulating ideas which fly in the face of such obvious common sense. How in the world is it that so many "smart" people become Keynesian, central banking apologists? I smell a conspiracy...
Thursday, June 11, 2009
Keynes Kwote of the Day
I rant and rave all too frequently about just how stupid Keynesian economic theory is, but I thought that for once I'd let the man speak for himself: