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When FDR took over during the Depression, he embraced the relatively new economic theories of a guy named Keynes which came to be known as Keynesian Economics. He used Keynesian Economics to bring us out of the Depression and usher in a new period of Prosperity.
Although I am not an expert of Economics (frankly, most Economists will admit no one is an expert - see Chaos Theory), I think I understand the fundamentals. What I know is - it works.
As I understand it, Keynesian economics says that the Consumer is the basis of any economic system. I figured that much out on my own before I ever learned anything about Econ. It’s common sense! It doesn’t matter how great your product is, if no one can afford to buy it - you’re going broke. If no one wants to but it, you’re going broke (although this gets more into Marketing…).
So, bottom line, the more money the Consumer has to buy products, the more products they will buy. The more products they buy, the more products that companies sell, and the more money the seller (companies) make. The Consumer is the key.
However, Keynesian Econ takes into account that Sellers (companies) tend to be greedy., and the Market tends to be very unstable. Unscrupulous sellers will sell products along with great promises - promises that the product cannot fulfill. However, by the time that is discovered that the product is “bad”, the seller has already made a huge profit and retired. This has happened repeatedly in American history, as evidenced by the terms “snake oil salesman” and “fly by night operation” . These are the result of a Caveat Emptor or “Let the Buyer Beware” policy towards the Free Market. AKA a Laissez-Faire government policy which Libertarian and many Republican politicians advocate. This is also the policy that the USA originally adopted for many, many years. - until so many people were abused by the system that public outcry called for different policies. At which point the US government adopted a Caveat Vendor (“Let the Seller Beware”) policy. In a nutshell, if you sell something and you lie about it, you can be sued by the individual and punished by Government Law.
In other words, sellers have to tell the truth About their products or face consequences. I still can’t understand why some people think this is a bad thing. Except that maybe it’s not explained to them properly.
So, Keynesian Economics says that the Consumer is the base of any Free Market economic system (a “bottom-up” approach). It also says that although Government shouldn’t “control” companies (as in a Marxist system), large companies are at an advantage over individual buyers and should at least be forced to tell the truth - in a Caveat Vendor policy.
There is another aspect to Keynesian Economics. Although many companies may advertise that “government intervention is bad” because they could make more money if they didn’t have to be forced to follow the rules - in times of Recession, the Government can use it’s influence and power to stimulate Consumer buying power. By increasing Consumer buying power, Consumers buy more, which means that companies sell more, and the economy improves. Thus, in Keynesian Economics the government and private businesses have a symbiotic relationship - whether the private businesses wish to acknowledge it or not.
On the other hand, there is the Austrian School of Economics. This school of thought takes advantage of Chaos Theory. Since no one knows everything about economics, no one can construct a “workable” model of economics. Further, previous economic “experiments” cannot be trusted because they were not implemented “correctly”. Therefore, you cannot trust economic models or previous experiments, but you should rely entirely on Logic.
Although they are correct to an extent that economic models are never perfect, models are based on Logic and any new Logic they may apply is also subject to the same flaws. Beyond that, the fact that they reject everything we have learned from experience simply by the dismissive statement “well, you didn’t do it right and give it a real chance” tells me they have a real disconnect with reality.
This is why I call it “Trust Me” economics - they have no real basis for their conclusions, they are simply saying “Trust me, even though it never worked before it will work this time.”
When you really start to look into the “Logic” behind Austrian School economics - it’s nothing more than a justification for Social Darwinism; if you are successful, it’s because you’re better than everyone else. If you are not successful, it’s because you’re lazy and an inferior human being.
Ayn Rand aficionados love the Austrian School - because it gives them justification for grabbing all they can get and not feeling guilty about the Poor - they are poor because they are lazy and decided to be poor. It’s their fault they are poor (evidence Ted Nugent’s recent “ironic” assessment “I drove past 15 Help Wanted signs to pick up my Welfare Check”). Of course, he never had to work 2 jobs at minimum wage to support any children and still perform all the Parental duties. It’s really easy for him to criticize, because he hasn’t walked a mile in their moccasins.
More importantly, we have tried using Austrian School economics under several different names. They Administration had to use different names because it failed so badly.
Nixon tried it. It was called “trickle-down” economics. The idea was that you stimulate and support large companies so that they are successful, and the benefits will “trickle down” to the employees. So, if the companies make more money, they will pay their employees more. “A rising tide lifts all boats”.
Who would have thought that if Stock Holders and CEO’s made more money, they would have kept it for themselves rather than share it with their employees by paying them more? Well, pretty much anyone if they stopped and thought about it.
Since “trickle-down” economics was such a huge failure, they decided to re-market it. Regan re-branded it as “Supply Side” economics. The interesting thing here is that Reagan used (and the Fed Treasury) Keynesian Economics to bring us out of Recession. Once we were out of Recession, he applied Supply Side Economics which drove us into the nasty mess that Bush the First had to deal with. Bush lost because “it’s the economy, stupid!” Clinton applied Keynesian Economics, and brought us out of Recession. We then had a Technology Bubble which drove our economy even higher - but that bubble would not have been possible if Keynesian Economics had not laid the groundwork.
Then, GW Bush took office and applied “Supply-Side” (Trust Me) economics again. And here we are.
I don’t care how smart or Logical you think you are. Every time we tried Keynesian economics, it worked. Every time we tried “Trust Me” economics, it failed - miserably.
Frankly, Keynesian economics makes more “common sense” to me. Common sense tells me that the only people “trickle-down” helps are the rich people who don’t need anymore help. But beyond that, Keynesian economics has worked, every single time. Trickle-down or Supply-Side economics failed, every single time.
Some people want to repeat the mistakes of the past, I prefer to learn from them.
“Supply-side“, “Trickle-down”, “Austrian School” - whatever you call it it’s still “Trust Me” economics. “I can’t prove it, but Trust Me: if you give me all your money it will be good for the economy!”
Yeah, right.
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