Friday, June 23rd, 2017 MST

Keynesian economics debunked in one graph


The entire purpose of modern economics is to obfuscate the truth; to convince the masses to support policies that are contrary to their own interests. In the early twentieth century, economists in the United States realized the opportunity to transform their lot in life from that of dreary academicians to well paid pseudo-celebrities by becoming propagandists for the newly created central banking state. The tools of their trade are a combination of complex jargon and endless mathematical analysis of irrelevant minutia. All designed to get the eyes of the average person to glaze over and relinquish their will to that of the “experts” – because anyone capable of comprehending such a blizzard of terminology must know what they’re talking about, right?

Alfred Marshall once told a fellow economist: 1) Use mathematics as a shorthand language, rather than as an engine of inquiry. 2) Keep to them till you have done. 3) Translate into English. 4) Then illustrate by examples that are important to real life. 5) Burn the mathematics.

So while the Fed sponsored economists are busy solving sets of partial differential equations that prove money printing is good (for them), lets take a look at one of the tenets of Keynesian economics in plain English.

John Maynard Keynes believed that when the private sector economy was struggling, it could be spurred into growth by public sector deficit spending. In other words, by incurring a temporary deficit, private sector growth could be revitalized to the point where the additional tax revenue generated would eliminate the newly created public debt. Keynesian economics predicts a cyclical public deficit – one that rises temporarily, then returns to zero, over and over…

The good news is we no longer have to debate theory. We’ve done the experiment. Nearly 42 years ago the US government formally severed the last remaining link between the dollar and gold and turned over the US economy to the central planners. So how well did Keynesian economics work? The cyclical deficit tells the story: There is none. Our deficit is all structural.

Total federal debt 1971-2013
See? Macroeconomics isn’t that hard after all. In fact it’s mostly common sense. Paul Krugman insists that the economy of a household is fundamentally different than that of a country, but that’s nonsense. To acknowledge otherwise might suggest that we are capable of making our own decisions regarding economic policy – which we are. So with that in mind, answer this question for yourself: What eventually happens to the standard of living of a household that continually lives beyond its means?

8 Responses to “Keynesian economics debunked in one graph”

  1. Bruce

    “Paul Krugman insists that the economy of a household is fundamentally different than that of a country, but that’s nonsense.” The above statement infers the economy is the same as a household. “What eventually happens to the standard of living of a household that continually lives beyond its means?” The question leads the answer to a false and incomplete conclusion. I would ask what a household should do to solve the problem of living beyond its means. I take issue with the premise of your comments and questions. Debating the regulation of money supply, revenues, wealth distribution, financial engineering, trade policy, global economics, capitalism, corporate socialism, political philosophy, nuclear politics, oil politics, and military conflicts; only then can we begin to understand our problems and develop solutions. Without prosperity for all, mass consumption will not catch up to mass production. It is not as simple as you would like me to believe.

    • bill

      It is as simple as Paul says it is. It’s just that a country (government) takes longer to go bankrupt because it has the power to force people to support it; households do not.

  2. CHaile

    Shouldn’t the ‘Y’ axis label be ‘trillions’ instead of ‘millions’?

    • Paul

      When you are dealing with the Federal debt, you are dealing with really large numbers so they do things to make the numbers more manageable. In this case, the units are in “Millions of Dollars,” but on the Y axis you will see that there are millions of the units. So, for example, 16 Mil on the y axis is actually 16 million units x 1 million dollars per unit = 16 trillion dollars.

  3. Coin Monger

    In general terms, you can relate a country’s economy to household economics. Wealthy people are rich because they have managed their assets to acquire significant surplus. I don’t consider someone who supports incredible amounts of debt to be truly wealthy, no matter what the outward appearances might be. Savings compound over time and debt also compounds the other way over time. You don’t have surplus, if you owe it to a lender.

  4. Kurt Moeller

    While the gold standard was eliminated in 1973 by Nixon, the dollar merely shifted from gold to oil by convincing Saudi Arabia and OPEC to only accept dollar payments for oil. Additionally, the dollar is backed by the US military, just ask Sadam, Gadaffi, nearly Assad, and any other middle eastern/central American leader that tries to eliminate ties to the dollar.

    But, we are seeing that even our military cannot continue down that same path and can never force Russia, China, Iran and Syria to play the dollar game anymore.The Ponzi scheme will end and fiat currency like the dollar will collapse, the laws of economics say so. Debt cannot continue to double while production continues to plummet, and eventually there is a breaking point. The FED has done a great job of padding Wall Streets wallets and delaying a debt crisis, but its a house of cards. Just my opinion.

    • Tom

      Actually the gold standard was eliminated by the government, all three branches played a part. You can’t blame Nixon alone.

  5. Colin McFarlane

    To see a cyclical deficit there would need to be a cyclical pattern in either taxation or public spending, or both (out of phase), since the deficit is a function of spending and revenue (taxation). Right-wing governments tend to reduce spending and reduce taxation. Left-wing governments tend to increase spending and increase taxation

    The cycles in revenue and taxation therefore tend to be *in*phase. This means that the deficit reduction part of the Keynesian cycle does not happen; i.e. when times are good the deficit is not reduced because taxation is not raised. Keynesian economics is not an inevitability, it is an active choice. We all need to learn to take pride in our ability to pay tax (i.e. save and reduce the national deficit).


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