The end of the unholy marriage of political greed with faulty economics nears. Politicians, eager to expand their power and wealth, quickly saw the advantages of Keynesian economics. After seventy years of increasing economic witchcraft, the world is cracking. Politicians have succeeded beyond their wildest dreams. They have gained control (and ownership) of the economy and created great personal wealth for themselves in the process.
All of this is coming to an end. Tyler Durden explains:
The standard Keynesian narrative that “Households and countries are not spending because they can’t borrow the funds to do so, and the best way to revive growth, the argument goes, is to find ways to get the money flowing again.” is not working. In fact, former IMF Director Raghuram Rajan points out, today’s economic troubles are not simply the result of inadequate demand but the result, equally, of a distorted supply side as technology and foreign competition means that “advanced economies were losing their ability to grow by making useful things.” Detailing his view of the mistakes of the Keynesian dream, Rajan notes “The growth that these countries engineered, with its dependence on borrowing, proved unsustainable.”
It is the distortions on the supply side that have created the current problem. For at least fifty years politicians have papered over each downturn. The result has been to mitigate the severity of each slump, but doing so by propping up companies, prices and investments that should have adjusted. Instead, these distortions were enabled and continued in the system. After decades of such economic interventions, the misallocation of labor and capital has crippled the economy’s ability to function. Small costs avoided have built into a massive cost directly ahead.
Durden summarizes the choice ahead:
The industrial countries have a choice. They can act as if all is well except that their consumers are in a funk and so what John Maynard Keynes called “animal spirits” must be revived through stimulus measures. Or they can treat the crisis as a wake-up call and move to fix all that has been papered over in the last few decades and thus put themselves in a better position to take advantage of coming opportunities. For better or worse, the narrative that persuades these countries’ governments and publics will determine their futures — and that of the global economy.
Political greed is a given. There is no hope of changing that. The Constitution held it in check for a while. When the Progressive Movement, aided by