“Keynesian” Myths and Misunderstandings

As an entrepreneur and capitalist, I read this critique of “Keynesianism” by John Mauldin with great interest.   John is a tremendous macro market thinker and someone who I’ve learned a lot from over the years.  In fact, few people have done more to bring macro views to the masses over the last ten years.  He deserves a lot of credit for that.  But I am afraid I disagree with substantial parts of the article he wrote this weekend.  In fact, I think pieces of it are based on important fundamental misunderstandings of the way our monetary system is designed and functions.

First of all, people should be careful with the term “Keynesian” (Wikipedia is not a great source, by the way).  It has developed a pejorative meaning in recent decades in what reeks of political overreach usually repeated by people who clearly have not taken the time to read the General Theory.   At its most basic level, Keynesian economics is a view of the world that states the following:

  • Investment (as in, spending, not consumed for future production and not stock market “investing”) is the primary driver of employment and involuntary unemployment occurs when investment is lacking (for whatever reason).
  • One of the primary drivers of investment is aggregate demand.  In other words, businesses make most of their investment decisions based on the demand they see from their customers.
  • The government can be used at points during the business cycle as a countercyclical tool to stabilize swings in aggregate demand and investment by implementing fiscal and monetary policy.  This means that Keynesians can favor both reduced government policies as well as expansive government policies depending on the state of the business cycle.

Unfortunately, Keynesianism has been boiled down to one simple and egregiously misleading myth:

  • Keynesians favor a permanent government takeover of the means of private production and that means they’re the same as socialists.

This is simply not the case.  A Keynesian can be in favor of large government, small government, monetary policy, fiscal policy and given its central tenet of investment, Keynesians understand the importance of private businesses.  It’s true that many Keynesians engage in their own form of political overreach (generally being in favor of big government all the time), but that doesn’t mean they represent the views of all Keynesians any more than Rothbard represented the views of all Austrians.

Mauldin continues by citing the famous Rogoff and Reinhart paper (a paper which I think is dangerously general in nature) arguing that government debt is necessarily unstable because the private sector controls interest rates:

“Secondly, as has been well documented by Ken Rogoff and Carmen Reinhart, there comes a point at which too much leverage on both private and government debt becomes destructive. There is no exact number or way of knowing when that point will be reached. It arrives when lenders, typically in the private sector, decide that the borrowers (whether private or government) might have some difficulty in paying back the debt and therefore begin to ask for more interest to compensate them for their risks. An overleveraged economy can’t afford the increase in interest rates, and economic contraction ensues. Sometimes the contraction is severe, and sometimes it can be absorbed.”

This is simply not true.  An autonomous currency issuing nation controls the interest rates on its debt.  A nation such as the USA, whose debt is denominated in a currency it can create, can always set the price of its debt.  This should be abundantly clear by now as the Fed has proven that bond traders simply cannot compete with its bottomless barrel of reserves.  If you think the private banking sector can move the Fed off its target rate then you’re simply not working within the realms of reality.  Granted, the Fed doesn’t control the economy or the rate of inflation (which could force the Fed off its target rate), but that’s a policy decision, not one that is imposed on the government by “bond vigilantes”.  Japanese bond traders have been making the same argument for the last 20 years.  Clearly, there are more moving parts here than just “bond vigilantes”.  (Please see here for a more thorough explanation on this point.)

I should also note that this is not necessarily a defense of government spending and government debt.  Government spending and debt could potentially be very destructive.  But there’s no need to create false arguments to make this point.  That’s just more political overreach.

Mauldin goes on to support government spending without actually knowing it:

“I would argue (along, I think, with the “Austrian” economist Hayek and other economic schools) that recessions are not brought on by insufficient consumption but rather by insufficient income. Fiscal and monetary policy should aim to grow incomes over the entire range of the economy, and that is accomplished by increasing production and making it easier for entrepreneurs and businesspeople to provide goods and services. When businesses increase production, they hire more workers and incomes go up.”

My consumption is someone elses’s income.  Therefore, it is a fundamental error to claim that a recession is caused by a lack of income instead of a lack of consumption.  They are two sides of the same coin.   Still, his resolution for boosting incomes is perfectly consistent with a Keynesian view of the world because the government, by definition, is increasing someone’s income when it spends more than it takes in (bear in mind, this can be achieved by lowering taxes OR increasing spending and often occurs endogenously as tax receipts decline or increase with the business cycle).  This is basic accounting.  The government’s deficit is someone’s else’s surplus.  When the government spends more than it brings in in tax revenues then it is increasing the dollar incomes in the non-government sector.  This increases business revenues via the income channel, especially when the funds go straight to business.  After all, one of the main reasons corporate profits are so high is because the government has spent so much more than its income in the last 5 years (again, the Kalecki equation shows this to be true).

Mauldin is dead right when he says this:

“Without income and production, nothing of any economic significance happens. Keynes was correct when he observed that recessions are periods of reduced consumption, but that is a result and not a cause.”

Production is crucial to the economy.  Keynes understood this.  That’s why he focused on investment.  But he also understood that production required consumption.  Again, two sides of the same coin.  Production matters.  So does consumption.  Firms need revenues to generate incomes so they can spend, invest, hire employees, etc.  This is a cornerstone of Keynesian economics.  Keynesian economics is not purely about boosting consumption all the time without the goal of boosting investment and production.

He continues arguing that it’s a “mathematical certainty” that you “can’t spend more than you make”.  This is another error in understanding.  In fact, in a credit based monetary system, households, businesses and even governments are just about always spending more than they make.  Again, a very basic exercise can prove this point.  If Person A spends $100 buying Person B’s widgets and saves that $100 then the total dollar spending is $100.  Total output for the period is $100.  Output = income.  If, in period 2, Person B then saves $50 and spends $50 on dinner from Person C then total income and output have fallen by $50.  If Person B had spent the total $100 then total income and output would have been $100 for period 2.  The same as period 1.  If, however, Person B had spent more than his/her income by borrowing $10 from the bank then he/she has spent more than his/her income and output/income has increased by $10.  This is an overly simplistic view of the credit based monetary system, but two important points should be noted:

1.  You most certainly can spend more than your income and over time private sector debts will inevitably increase just as they always have.  In other words, as the economy grows, production expands and balance sheets improve output, income and credit will likely grow in tandem.   In fact, growth will likely rely on someone spending more than their income over the long-term.


2.  We do not reside in a loanable funds based monetary system where we are all fighting over some limited pool of money.  The money supply, in a credit based monetary system, is elastic and can expand and contract as the supply of loans expands and contracts.   This is called endogenous money because the money supply is expanded endogenously by banks who create it “out of thin air”.   Banks do not compete in some loanable funds market to extend credit to their customers.

Mauldin then makes a similar error when he states the following:

“For those of you who were forced to endure Economics 101, you may remember that Savings = Investment. In any real-world economic system, you have to have savings in order to have investment in order for the economy to grow. “

I guess they don’t teach this until econ 102.  But saving does not necessarily finance investment.  Let’s say I spend $100 on your candy bar and you save that income immediately.  Your saving is $100 if even for the briefest moment.  In other words, your income not consumed is $100.  If you then consume $50 on dinner then you dissave $50 via consumption.  But that dissaving becomes someone else’s saving immediately.  In other words, your saving does not increase aggregate saving because your spending is someone else’s saving.   But let’s say a firm invests $100 in plants and equipment.    The firms has not dissaved.  The firm has invested.  In this case, the firm has $100 in plants and equipment and the seller has $100 in new income.   Indeed, it is often investment that creates saving.  I assure you Keynes understood this point even if he wasn’t technically a trained economist.

I understand John’s frustration with the current economic environment and even the state of what looks like a colossally ignorant government in the USA.  And as an entrepreneur and die hard capitalist I understand the desire to let capitalists and innovators do what they do best by not being chained down by an overly burdensome government.  But this argument against “Keynesianism” is based on a misunderstanding of what “Keynesian economics” actually is, and worse, tries to validate that erroneous position through misunderstandings of basic economics and the structure of our monetary system.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.
Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  • http://www.concertedaction.com Ramanan

    Right, Mauldin’s article has all the wrong things which Keynes debunked in the 30s.

    As Kaldor once said “Keynes’s avowed purpose was to save the capitalist system, not to destroy it”.

  • LVG

    Brilliant piece. Now if only some people would start thinking and trying to understand these points rather than bloviating their personal politics.

  • LVG

    ““Keynes’s avowed purpose was to save the capitalist system, not to destroy it”

    Great quote. Too many people equate Keynes with Marx when in fact, Keynes was a critic of Marx. Marx wanted capitalism to fail and was certain it would. Keynes thought it could succeed, but wanted to save capitalism from its worst enemies – capitalists like John Mauldin who have no idea how the system operates.

  • Brett_2

    I can’t believe John Mauldin quotes:

    “Nothing is more dangerous than a dogmatic worldview – nothing more constraining, more blinding to innovation, more destructive of openness to novelty.”

    before going into his dogmatic and hilariously wrong rant.

  • Suvy

    Keynes really disliked Marx. See this paper here. I’ve also attached a quote from the paper.


    “How can I accept a doctrine which sets up as its bible, above and beyond criticism, an obsolete economic textbook which I know to be not only scientifically erroneous but without interest or application for the modern world? How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeois and the intelligentsia who, with whatever faults, are the quality in life and surely carry the seeds of all human advancement? Even if we need a religion, how can we find it in the turbid rubbish of the Red bookshops? It is hard for an educated, decent, intelligent son of Western Europe to find his ideals here, unless he has first suffered some strange and horrid process of conversion which has changed all his values.”

  • Suvy

    Cullen, Keynes really disliked government debt. Keynes certainly didn’t want government deficits financed with central bank balance sheet expansion and he felt the budget should be balanced most of the time. Keynes also didn’t like freely floating exchange rates (I think this is because he felt it gave central governments too much flexibility, but I don’t know the reason). Keynes wasn’t a fan of bureaucrats and believed that government taxation should be below 25% of GDP.

    It’s not fair to group “Keynesian economics” as Keynes’ economics. Keynes was well to the right of almost all economists today that call themselves “Keynesian”.

  • Suvy

    “This is simply not true. An autonomous currency issuing nation controls the interest rates on its debt. A nation such as the USA, whose debt is denominated in a currency it can create, can always set the price of its debt.”

    Keynes was not a fan of this kind of a monetary system. I can’t emphasize this enough.

  • LVG

    “How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeois and the intelligentsia who, with whatever faults, are the quality in life and surely carry the seeds of all human advancement? ”

    That’s humorous considering that Mauldin’s article is about wealth inequality and Keynes clearly agrees with him that it’s the bourgeios who drive human advancement.

    It makes me wonder if people today have any clue who JM Keynes actually was or if they just spread myths based on something they read on the internet about Keynes and socialism/.

  • Suvy

    I’ve actually read all sorts of stuff by Keynes and read most of his General Theory (although in bits and pieces). Keynes wasn’t a socialist and most of his followers took his stuff way too far. I’d actually argue Keynes was well to the right of Cullen and is well to the right of most of the commenters on this page.

  • http://orcamgroup.com Cullen Roche

    I note that a Keynesian isn’t necessarily in favor of a large government or substantial government debts. In fact, I think you can be totally consistent with Keynesian economics and be in favor of a rather small government.

  • http://orcamgroup.com Cullen Roche

    I would argue that there’s some debate over whether Keynes really understood endogenous money all that well.


    I’ll probably get some pushback on that position, but I don’t think endogenous money was all that well embedded in Keynesian economics until Tobin and Robinson came along many years later….

    I could be wrong though….

  • http://orcamgroup.com Cullen Roche

    Yeah, I think that’s one of the things that a lot of people misunderstand. Keynes is unfairly associated with big government. It’s Marx who people are looking to condemn, but somehow Keynes got thrown into the meat grinder there with him. I guess 100 years of misconception will do that….

  • Suvy

    Fair enough, but Krugman isn’t a follower of Keynes’ economics. Most people in economics (including Krugman) view IS/LM as Keynes’ model. IS/LM was not Keynes’ model and it was a model Keynes explicitly rejected. Keynes view of money and inflation was from a balance sheet perspective. He was basically an old school version of a hedge fund manager and got rich (and went bankrupt several times) trading currencies, commodities, and stocks.


  • Otto Maddox

    The former USSR had plenty of aggregate demand – people stood in long lines everywhere – and not enough aggregate supply.

  • http://orcamgroup.com Cullen Roche

    Yeah, IS/LM is loanable funds based. I got into that scuffle with Krugman a few months back on this point.


  • http://orcamgroup.com Cullen Roche

    That explains why Keynes thought so little of the Soviets:

    “unlike the Webbs, he [sc. Keynes] could never think of Soviet Russia as a serious intellectual resource for Western civilisation. In the 1920s he had said that Marxism and communism had nothing of scientific interest to offer the modern mind. The depression did not alter his view. Russia ‘exhibits the worst example which the world, perhaps, has ever seen of administrative incompetence and of the sacrifice of almost everything that makes life worth living …’; it was a ‘fearful example of the evils of insane and unnecessary haste’; ‘Let Stalin be a terrifying example to all who seek to make experiments.’”

    PS – I think you missed the point about Keynes not only being in favor of higher demand. Keynes was in favor of higher investment via the consumption channel. Keynes understood the importance of production.

  • Suvy

    Take a look at these papers. They are very dense, but I think you’ll agree with most of this stuff. Endogenous money is a pretty old idea btw. I also think Keynes is defining the supply of money as the base money supply. David Glasner has a really good graph of Keynes’ model for the rate of interest in his book.

    There is, however, no such necessity for individuals to decide, con-
    temporaneously with the investment-decisions of the entrepreneurs, how much of their future income they are going to save. To begin with, they do not know what their incomes are going to be, especially if they arise out of profit. But even if they form some preliminary opinion on the matter, in the first place they are under no necessity to make a definite decision (as the investors have to do), in the second place they do not make it at the same time, and in the third place they most undoubtedly do not, as a rule, deplete their existing cash well ahead of their receiving the incomes out of which they propose to save, so as to oblige the investors with ” finance ” at the date when the latter require to be arranging it. Finally, even if they were prepared to borrow against their prospective savings, additional cash could not become available in this way except
    as a result of a change of banking policy. Surely nothing is more certain than that the credit or “finance” required by ex-ante investment is not mainly supplied by ex-ante saving. What part, if any, is played by it, we will consider in a moment”

    “How is it supplied? The entrepreneur when he decides to invest has to be satisfied on two points: firstly, that he can obtain sufficient short-term finance during the period of producing the investment; and secondly, that he can eventually fund his short-term obligations by a long-term issue on satisfactory conditions. Occasionally he may be in a position to use his own resources or to make his long-term issue at once; but this makes no difference to the amount of ” finance ” which has to be found by the market as a whole, but only to the channel through which it reaches the entrepreneur and to the probability that some part of it may be found by the release of cash on the part of himself or the rest of the public. Thus it is convenient to regard the twofold process as the characteristic one”

  • SS

    Can you bookmark this somewhere on the site so that I can source it every time I see someone abusing the word “Keynesian”?

  • Suvy

    Keynes’ views changed over time too. All of the papers I’ve attached were papers that were written after The General Theory. There is a lot of stuff in those papers and they’re all very dense. Here’s another one he wrote for the 1937 QJE (the most interesting IMO although all of them are pretty cool).


  • http://orcamgroup.com Cullen Roche

    Thanks Suvy. Not sure when I’ll have some time to review, but I will definitely archive that stuff and have a look.

    I’m off for the night. Busy morning tomorrow so hopefully this comments section isn’t filled with people calling me a socialist by the time I return in the afternoon. :-)

  • Frederick

    I am sure John Mauldin is a nice guy, but let’s be real – he’s selling to his target audience. Mauldin is a feeder into large hedge funds and asset managers. That’s how he gets most of his compensation. So he’s feeding the 1% exactly the type of stuff they want to hear. And I hate to say it Cullen, but your message, no matter how right it is, will never beat out what sounds like sheer common sense by people like Mauldin.

  • blahblah

    you didn’t even discuss his main point on income inequality. instead, you just bashed a whole bunch of other points. nice work.

  • Suvy

    Well yea…. That was kinda the point of the post, wasn’t it? The post wasn’t about income inequality; it was about misunderstanding and myths with regards to Keynesian economics.

  • InvestorX

    Well, Keynes must be turning in his grave when he sees how today’s high priests of Keynesianism like Krugman have twisted his ideas. But when we speak today of Keynesianism we should mean Krugman and not Keynes himself, because this is how Keynes’ school is implemented nowadays.

  • InvestorX

    “This is simply not true. An autonomous currency issuing nation controls the interest rates on its debt. A nation such as the USA, whose debt is denominated in a currency it can create, can always set the price of its debt. This should be abundantly clear by now as the Fed has proven that bond traders simply cannot compete with its bottomless barrel of reserves. If you think the private banking sector can move the Fed off its target rate then you’re simply not working within the realms of reality.”

    You can argue the bust mechanism, but you cannot argue the simple idea that too much debt/GDP is a burden and that a constantly growing debt/GDP is not sustainable. In the case of public debt/GDP a constantly growing debt/GDP implies a rising share of government in the economy, thus the “socialist” accusations.

  • InvestorX

    “He continues arguing that it’s a “mathematical certainty” that you “can’t spend more than you make”. This is another error in understanding. In fact, in a credit based monetary system, households, businesses and even governments are just about always spending more than they make.”

    Obviously you can do this over the short and medium term, but you cannot do it all the time, constantly. That is why economies used to have the Kondratieff cycle, which today’s “wise men” have decided to fight since 2000, starting with Greenscam.

    One important aspect that Keynes believes in and Mauldin criticizes is the belief that central planning works (Keynes: maybe only during market inefficiencies”, Krugman & Co: always), which is not mentioned in your rebuttal of Mauldin.

    Then your critique of Saving=Investment focuses only on the nominal, “monetary veil” aspects of the problem. Once you start looking at the issues from pure physical point of view, you will start noticing the merits of what he is talking about, e.g. “saving” means physical saving that cannot be printed out of thin air and the latter is a pure distorison of the allocation signals.

    But actually what Mauldin criticizes is the naive notion and fallacy that the rich “save” too much income and thus are a drag on economic growth. He points out that those “savings” are used for investment. Do you disagree with this? The broken window fallacy is another issue built in Keynes work and is worth criticizing a lot.

    Another correct point by Mauldin: “Neo-Keynesian economists are ultimately teenage children who want the pleasure of spending and consuming today rather than thinking about the future.” The quality of spending also matters, but Keynesians see only the quantity.

    And here another ~ correct point from Mauldin: “The “drag on consumer spending” was the result of too much borrowing and a bubble and not the result of an inability to borrow.”

    So yes, you can focus on some of the details he got wrong and it is good to be precise up to the lowest detail level, but you should also point out the big ideas in his essay and acknowledge what he got right (you do on only one point).

  • Mervyn

    If person A gives one hour of financial advice to person B for their gold watch, then total spending is one hour of financial advice for one gold watch. If person B then imparts half an hour of financial advice secrets to person C, whilst Person C serves them dinner, total spending is half an hour of financial advice for dinner.

    Person B still has half an hour of financial secrets that can be exchanged (in fact probably multiple times) for income (or dinner) in the future. Savings represent command of resources that can be used to derive income in the future. Investment represents a collection of resources that together can be used to derive income (hopefully more than the sum of the parts of the resources involved). Not sure how you get the latter without the former – ditto for consumption – unless using credit (which is someone else’s real savings or a banking system’s fractional savings). The contemporaneous question doesn’t matter, they put together someone’s savings real or unreal (i.e commanded via the banking system).

    The point being that Mauldin’s macro statements ring true over real variables. Keynesians need to channel their inner-Shostak (or Sechrest) to better critique Keynes (and neo-Keynesian beliefs which unfairly represent Keynes but fairly represent policy makers).

    p.s. I thought the article was about inequality blame-sharing not the age old debate about “stones into bread”

  • J Thomas

    “But actually what Mauldin criticizes is the naive notion and fallacy that the rich “save” too much income and thus are a drag on economic growth. He points out that those “savings” are used for investment. Do you disagree with this?”

    The question is how much of the savings are used for investment or consumption.

    Sometimes all the savings are used for investment and then I think we’re agreed there’s no problem.

    What if the economy does not provide enough productive investment opportunities? It would be stupid to make unproductive investments. You spend your money to make a product you can’t sell, what good is that?

    So if you can’t find enough good investments, what do you do? You *could* take the money and fill your swimming pool with caviar and take videos of beautiful girls jumping into it. Or you could wait for good investment opportunities….

    What if sometimes not all the savings are invested or consumed either one? Do you think that can ever happen?

  • 2thefuture

    And just when was it …… when ….. “they” were ever for SMALL government?

  • DanH

    Krugman is no Keynes. Don’t be a fool. The people who call Krugman a Keynesian do not know what a Keynesian is.

  • DanH

    We have a monetary economy. Not a barter based metallist economy. You and mauldin clearly don’t get that.

  • Johnny Evers

    If the Fed cannot control inflation, then ultimately then they cannot control the interest rate.
    It is true that government deficit spending is somebody else’s income, but you leave out that government deficit spending is also somebody else’s liability. It must be ‘paid back’ either by the taxpayers or by inflation or by default.

    Advocating expanding deficit spending of any kinds (government and private) is simply not responsible without at the same time spelling out what kinds of limits there are to these. Or, by putting forth some explanations for how we can recover from a credit bing.
    In the same vein, some investing is constructive and some (housing, for one) is not. We don’t appear to have any tools to measure which is positive and which is not.
    We had a financial crash and are experiencing an extended ‘muddle through’ because of foolish and excessive borrowing and because we don’t really know how to deleverage. That’s what should inform our policy discussions today.

  • Old Dog


    Cullen – you are far too complimentary toward Mauldin. He has and continues to do a great disservice to his readers. He misleads using many of the same techniques as Rush.

    He sells fear and makes a fortune doing it.

    If one wants a detailed and in-depth macro view then read Gary Shilling.

  • InvestorX

    No, I fully get that. What you do not get is that the “monetary” economy was supposed to “account for” the real economy, but now things have been turned upside down and this has caused problems.

  • InvestorX

    So what? You want to centrally plan and micro manage how people invest their savings? Maybe people do not want to invest because they overinvested in the previous period, etc.?

  • James

    Haven’t really read Keynes but my understanding of big gov / small gov is that government should build a surplus in times of plenty to use in times of scarcity. Just the opposite of what the Bush / Greenspan years contributed by fueling a runaway business cycle by spending like drunken sailors. Socialism for the rich then is what caused the dept problem we have today not food stamps.

  • Tom Brown

    I think there’s some truth to this. Especially with regard to the concept of aggregate demand (AD). Mauldin says that’s what defines Keynesians, especially when you worry about that in regard to recessions. I think the right wing of the econ universe has largely adopted this view at least in public. One of the groups that’s generally on the right, but DOES think AD is important (and would be offended if you called the Keynesians) especially during recessions (in fact they think a lack of it actually causes unnecessary recessions: at least twice a century) are the MMists…. the impression I get from reading them is they really don’t understand their monetarist and other neo-classical neo-liberal kin on the AD issue RECENTLY… it’s like it’s just become taboo to talk of AD issues in public w/in the last few years. Some groups like RBCers have always denied it, but it seems to have spread. You can’t get a piece in the WSJ anymore if you talk about AD. (I don’t know that that’ true, but that’s the impression I get from reading the MMists).

  • Explorer

    Mauldin has in my view rejected MMT/R, although I haven’t seen anything from him that shows any analysis and a considered opinon.

    Maybe Cullen could write hime a letter by registered mail and ask for his views. I tried an email with a reference to Bill Mitchell’s blog without response.

    Having said that I would say that Mauldin is well worth reading most of the time, but if you accept MMT/R then you will find yourself not accepting his views more often than rarely.

  • Johnny Evers

    Are the wealthy really ‘investing’ their money, or just buying financial securities on the secondary market.

  • J Thomas

    “You want to centrally plan and micro manage how people invest their savings?”

    I don’t have a good proposal for a solution to the problem.

    “So what?”

    “But actually what Mauldin criticizes is the naive notion and fallacy that the rich “save” too much income and thus are a drag on economic growth. He points out that those “savings” are used for investment. Do you disagree with this?”

    It appears that Mauldin claims this can never happen. He claims that all savings are always invested, so that a surplus of savings can never result in reduced demand.

    I believe he’s wrong. Sometimes — not always but sometimes — savers try to save too much, the economy does not have an adequate amount of productive investments lined up to use those savings, and the result is a drag on economic growth. I don’t know what to do about it. It doesn’t make sense for the government to borrow money and spend it and pay interest forever when the people who own the money want to sit on it. It doesn’t make sense to take it away from them just because they refuse to use it. It’s a problem with no obvious solution.

    Do you disagree?

  • Steve W

    Cullen, thanks for posting yet another good piece. It just so happens that last week I read an article on Reason magazine’s site “Forget budget wish lists. A sluggish economy calls for much less federal spending.”

    I felt compelled to post a comment to that article, basically saying that at times, federal spending is helpful, such as in the financial crisis. I even mentioned the Kalecki equation. Predictably, I was called a Keynesian and was told I was wrong.


  • J Thomas

    “Are the wealthy really ‘investing’ their money, or just buying financial securities on the secondary market.”

    Suppose you buy a company’s stock on the NYSE. If the person who sells you the stock then *spends the money*, you have caused hardly any delay in consumption.

    Say you buy stocks, and the person who sold them to you then spends the money on more stock in the same company. You bring in more savings and buy more, and he takes his winnings and buys more too. He brings in more savings and buys stock from you. The price goes up and up. You both make great profits. Then suddenly the company goes bankrupt. Whoever is holding the stock has lost all the money he put into it. The last guy to sell has won a lot. If he then spends the money, he hasn’t delayed the consumption all that much.

    Besides, until the money is witdrawn it’s kept in a money market account and loaned to anybody who qualifies for the loan, so if somebody has a productive investment and needs to borrow money to do it, your money is there for them. And the faster you churn your account the more of your money your broker gets to spend.

    It’s complicated.

  • John_S

    I wish more people would understand that the budget deficit is endogenous as you stated. It basically grows with tax receipts which means that it’s the private sector’s performance which determines the size of the budget deficit.

  • Benedict_Cumberbatch

    You might not understand Keynesian economics if:

    1) You assume Keynesians just want to boost consumption.
    2) You assume Keynesians are socialists.
    3) You assume that Austrian economics has anything remotely useful to say.

  • John Daschbach

    ” but you cannot argue the simple idea that too much debt/GDP is a burden and that a constantly growing debt/GDP is not sustainable.”

    True, you can’t argue that. debt/GDP has units of time. What does that tell us? Nothing really. People who use this measure don’t understand it has no direct bearing on economics.

    Debt service payments are one important flow in the economy. In fact, at the macro level, if debt service payments (a rate) exceed the gains in real productivity (a rate) then debt transfers wealth from the producers to the lenders. If the opposite obtains then the transfer is from the lenders to the producers.

  • GLG34

    It’s funny – if more Republicans understood how obsessed Keynes was with investment they’d probably all be Keynesians. In fact, Peter Drucker and JK Galbraith knew long ago that Keynes was a conservative:

    “Peter Drucker, a conservative admirer of Keynes, viewed him as not merely conservative, but ultraconservative. “He had two basic motivations,” Drucker explained in a 1991 interview with Forbes. “One was to destroy the labor unions and the other was to maintain the free market. Keynes despised the American Keynesians. His whole idea was to have an impotent government that would do nothing but, through tax and spending policies, maintain the equilibrium of the free market. Keynes was the real father of neoconservatism, far more than [economist F.A.] Hayek!”

    John Kenneth Galbraith, whose politics were well to the left of Keynes, not to mention Drucker, agreed with this assessment. “The broad thrust of his efforts, like that of Roosevelt, was conservative; it was to endure that the system would survive,” he wrote. But, Galbraith added, “Such conservatism in the English-speaking countries does not appeal to the truly committed conservative.””


    As Keynes himself explained, “the class war will find me on the side of the educated bourgeoisie.”


    A real Keynesian is a conservative. Not someone in favor of bigger government all the time. The thing modern conservatives hate is what “Keynesian” has become, which is essentially much more socialist than what Keynes himself actually believed.

  • GLG34

    “Keynes often expressed disdain for Soviet Communism. “Red Russia holds too much which is detestable,” he wrote, terming communism “an insult to our intelligence.” Communists, Keynes believed, were people who produced evil in the hope that good may come of it. And he had little respect for Marx, calling him “a poor thinker,” and Das Kapital “an obsolete economic textbook, which I know to be not only scientifically erroneous but without interest or application for the modern world.””

  • GLG34

    The more I think about it the more I think Cullen is actually someone who is very close to the original Keynes. He’s a non-economist, centrist, investor who actually understands how the system works.

    Now, if we could only figure out a way to get you into the US Treasury like Keynes was able to do in Britain.


  • John Daschbach

    How was the “monetary” economy supposed to “account” for the real economy?

    Money simply makes the economy work more smoothly. We can postulate an economy without money in which every transaction involves a contract (I’ll bring you a bushel of apples in the fall for four bushels of potatoes delivered on May 1).

    Money allows the abstraction of the contract system to be part of our “normal” life experience.

    At the macro level, money is just a medium of exchange. It can’t be anything more without violating the First Law of Thermodynamics. But at the micro level, money is both a medium of exchange and a store of value. The inability of most people to abstract from disparate starting points makes this terribly confusing to most people.

  • Tom Brown

    Well for one thing there’s “Keynesians,” “old Keynesians” (which I think are the same as Keynesians), neo-Keynsesians, new Keynesians, and post Keynesians. It’s a wonder anybody knows what one is. :D

    Nick Rowe and Roger Farmer (I think Farmer considers himself to some kind of Keynesian) have a fairly long thread touching on some of that… here’s an entry point:


    … I can’t imagine that Farmer is very liberal though, given that Morgan Warstler seems to be a big fan.

  • John Daschbach

    This kind of low level ideological thinking is perhaps a major source of economic and political problems.

    “some investing is constructive and some (housing, for one) is not.”

    Wow, did someone actually say that? It’s this kind of embracing of ideology and rejection of intelligence that is at the core of our struggles. Food, shelter, and clothing are core requirements for human existence. Housing is then at the very core of real productivity. We may consume housing above the minimum required, but it’s far easier to connect over consumption of housing with a real need (housing) than to connect consumption of non-needed production (e.g. entertainment).

    Once you get beyond sustenance level, all excess productivity (and hence consumption) goes into things which have arbitrary value. If we build machines to produce more things we don’t need (but want) calling this an investment vs consumption has no logical basis.

    Remember, that at the macro level, the integral over all flows at all times has to be zero or you violate the First Law.

  • shawentz

    Cullen, thank you for addressing Mauldin’s most recent piece. I read Mauldin for years when he took a more balanced and analytical approach to the issues. A’las, this is no longer the case…he is simply parroting the political views he wishes to endorse. Not much of what he writes these days are grounded in fundamental analyses.

  • http://www.jacobicapital.com mike hirthler

    i may be wrong ;my guess is not one hedge fund or asset manager is a client of john mauldin. Mauldin himself has admitted to being a horrible investor. he[mauldin] is very good at articulating known macro issues.There is not much value in paying for what is known.
    Guys like mauldin appeal to those looking to confirm their ideologies.As Buffet and Munger point out,this is a very dangerous way to go about making your investment decisions.
    full disclosure:i am an investment manager and i have been very concerned about the macro and total debt issues for most of the past decade or so, for sure these concerns have cost me and my clients some money as we have not had maximum exposure to risk assets.My point is that it is not that i agree or disagree with mauldin,to do so, on either side is a very dangerous approach.

  • John Daschbach

    In the parlance of science, Mauldin is an idiot. It is fine to speculate about an unknown future, but once you reject rational thought in analysis of the past, you are, by definition, an idiot. Why so many people subscribe to the views of a village idiot is an interesting psychological study (actually, decades of PhD dissertations). Why Cullen reposts this is also an interesting study. People rarely repost something by a person less intelligent than they perceive themselves.

  • http://orcamgroup.com Cullen Roche


    If you write one more comment with an ad hominem I will stop publishing your comments. This is a “parlance” I don’t put up with around here. And no, it’s not the “parlance of science”. It’s the parlance of the school yard. I have warned you a number of times already. If you can’t contribute to the conversation without calling people names then I will stop you from contributing because this is a totally unproductive way to converse with people. I won’t warn you again. Thanks.

  • John Daschbach

    Cullen, it’s not ad hominem when you specify the logical nature of the disagreement. In fact it’s distinctly not ad hominem. I clearly stated the basis for my disagreement with Mauldin (see sentence 2 in earlier response). In fact, it’s exactly the opposite of an ad hominem comment. It’s commenting on a specific aspect of the discussion, the unknown future, and reflecting the absolutely true fact that rejecting the data of the past is only possible for an irrational person.

    Mauldin is an idiot in any view of the world that treats facts as sacrosanct. Even idiots say some things which are true. But to confuse this as knowledge is not just a weakness, it’s an admission of intellectual feebleness.

  • http://orcamgroup.com Cullen Roche


    You’re making the comments personal rather than remaining objective. You’re making a sweeping comment about Mauldin’s knowledge. He’s certainly not an “idiot”. He might have a few things wrong here, but that doesn’t make him an “idiot”. And even if you’re convinced that you think he’s an idiot you should really just keep that to yourself and attack his points with facts of your own. Nothing positive comes from this type of personal name calling. It just degrades your point. You write a lot of good comments here that get watered down by your name calling.

    Personally, I don’t provide this forum here so people can be abused and called names. I provide the forum so that productive discourse can take place. If you feel the need to call people names then do it somewhere else. I won’t allow it here.



  • A Jones

    I really enjoyed this post. The comments, not so much.

    I still read comments because I’m always hoping there will be productive discussion. There are a few good ones in here, but most of it is (sorry for the pejorative) mindless drivel with bizarre attacks on Krugman that have no basis in reality and weird mantra-like repetitions of the big gov/small gov false dichotomy.

    I know a lot of people wish Krugman were one-note/illogical/idiotic because that would make it easier to believe the weird things about the world they believe, but the facts just don’t back it up. Sorry, guys.

    And all the big gov/small gov stuff, do you ever stop to consider that the gov is a complex organism? Is big gov just the top line number for you? What if the gov employed a skeleton staff (no massive army or regulators) but had a huge safety-net of transfer payments? Is that big gov? Do you start to see why this issue is a little more subtle than the false dichotomy you portray? Some advocates are for big safety nets without regulation. Some advocates are for big regulation and little to no safety nets. I bet you’d be shocked to discover that these advocates often think such because their favored way of gov is more conducive to their success than the other. Funny how that works. Funny how people who are just advocating for their own self interest are suddenly somehow “wrong” and “idiots” as if there is only one true answer on how gov should be set up and run.

    And on Keynes, my word, just because you don’t believe everything Keynes ever wrote doesn’t mean you’re not a Keynesian. There’s not some litmus test of 100% agreement. I’m on board with his views on investment and ag demand, but think he had a limited understanding of other areas like the endogeneity of the monetary system. He might be right on those other issues, but I don’t think so. It doesn’t mean that I reject the things I do think he got right. I find it hard to believe I have to explain things like this, but such is life, right?

  • http://orcamgroup.com Cullen Roche


  • hangemhi

    Suvy – I believe taxation has averaged 17.4% of GDP in the US for 40 years now. So I’m curious what your point is about the 25% number?

    And on deficits – we have no choice but to have deficits while we’re in a trade deficit. So are you saying Keynes prefers a weak enough dollar to get that into balance or surplus, or a closed economy, or some other solution to our trade deficit?

  • Mark Caplan

    To paraphrase Keynes: Market commentators can remain irrational longer than any sane person can bear repeatedly correcting them.

  • Suvy

    Just a note, endogenous money is a very, very old idea. Endogenous money was ingrained in the British banking school and well before that. Keynes certainly understood the idea and Keynesian economics isn’t Keynes’ economics (ex. IS/LM is Keynesian, but it was a model Keynes explicitly rejected). Keynes was actually rather conservative economically, especially towards the latter end of his career.

  • Happy Swede


    Extremely politicized post by Mauldin in my view, many key conclusions that the author masks as irrefutable facts when they are very much his own ideology-based opinions. Thank god for pragcap and MR.

    Cullen, just one minor issue with an otherwise great, I think you are doing the same mistake as Mauldin in drawing generalized conclusions about “an overly burdensome government” and entreprenurial activity.

    Obiously biased here but check out INSEADS innovation index. Sweden, Denmark and Finland, some of the countries with the highest tax levels in the world, are all top 10. Switzerland on the other hand, with very low taxes, is number 1. Also from a growth perspective Nordic countries has done well relative other developed nations, especially the last decade.

    This leads me to suspect that the size of government is not very important in explaining innovation and growth capability, it is all about the quality of governance. Of course, having a poorly run huge government will lead to big inefficiancies. But having big well-run government is far from a utopia. And you can definitely have a big government and a good environment for entrepreneurs at the same time, I guess you know where skype, spotify, minecraft etc comes from..

  • J Thomas

    OK, but what does it really matter what Keynes thought?

    Like, Darwinism is not much about Darwin — he didn’t understand genetics at all by modern standards What he said is mostly interesting to hbistorians, and to Creationists who treat his work like the holy sacred text of a competing religion.

    If Keynes’s name happened to get attached to some economics ideas, that needn’t have much to do with Keynes. Probably less than Marx has to do with marxism or Freud with freudianism.

    Possibly no more than Mercant had to do with mercantilism. (joke)

  • Johnny Evers

    This is what I mean.
    We’ll start with something you wrote.

    Money simply makes the economy work more smoothly. We can postulate an economy without money in which every transaction involves a contract (I’ll bring you a bushel of apples in the fall for four bushels of potatoes delivered on May 1).

    Explanation: We have an economy today which is based on the buying and selling of those contracts.
    So a house does not represent the value of the construction. A house is a mortgage instrument that creates deposits. You can even leverage that contract 10 times and the Federal Reserve will buy your contract for the full amount.
    And the man trading apples contracts is not interested in apples. So long as apple production goes up, his contract will grow *even more than the value of the apples*. And if the apple grower increases his production, the contract holder reaps most of the benefits.
    He can sell that contract to the holder of the potato contract for deposits that are created to buy and sell these contracts.
    In today’s economy, a man can make more buying and selling apples contracts than he can putting his initial stake into an orchard.

  • wallyfurthermore

    If you take the word ‘investment’ and replace it with ‘flow of money’ it all makes a lot more sense and explains why the production/consumption difference is not very meaningful.
    Modern economics is mainly about the movement of money.

  • J Thomas

    “In today’s economy, a man can make more buying and selling apples contracts than he can putting his initial stake into an orchard.”

    Imagine for a moment that there was a fixed amount of stuff to buy and sell. Then for anybody whose wealth increased, somebody would have to lose. It would be a zero-sum game.

    If people can on average make money buying and selling apples contracts, rather than some winning what others lose, there has to be production somewhere.

    But you talk like the profits are much bigger than the increase in apple production. Is it that the money production is going up, so that people can accumulate money far faster than they can accumulate apples? That would be inflationary if they used their money to buy apples. But so long as they only use it to bid up the prices on apple contracts, it isn’t inflationary….

    Until something changes….

  • J Thomas

    Wally, flow of money is important, but the difference between production and consumption is important too.

    Put it this way — if you’re playing a game of Monopoly, you’ll be interested in the flow of money. But also you’ll care about other things. There’s a big difference between landing on Broadway with a hotel and having to pay rent, versus buying Broadway. That’s kind of like the difference beween consumption and investment.

  • Tom Brown
  • Tom Brown

    … I’ve got one in moderation (basically a list of links to other recent posts on Keynes and Keynsianism by other econ bloggers), and I linked to one comment by Nick Rowe… but that’s a disservice, as it seems that Nick spends about a full 1/3 of this posts these days examining old and new Keynesians, the GT, and especially new Keynesian models. Here’s a good example:


    Also, Cullen makes an excellent point here:

    “Unfortunately, Keynesianism has been boiled down to one simple and egregiously misleading myth:

    Keynesians favor a permanent government takeover of the means of private production and that means they’re the same as socialists.

    This is simply not the case.”

    Whenever I see someone using “Keynesian” as a catch all phrase for the bad guys, I really just write them off at that point. That’s somebody singing to the political choir, building on a and helping to bolster a groundwork of public misunderstanding built up by their political allies. They’re helping to dumb down the public rather than illuminate. The real story is much more interesting.

  • http://orcamgroup.com Cullen Roche

    I’ve read the General Theory pretty carefully. And maybe I am missing the point in the original text, but the key conclusions I came to were the ones I outlined in this post in the first three bullet points. So, when I see someone try to describe a “Keynesian” without emphasizing the importance of investment a big red flag gets raised. All the talk about aggregate demand is important no doubt. But increasing aggregate demand was only a channel by which Keynes wanted to increase investment. So there seems to be this myth in modern macro where everyone thinks that Keynes just wants to boost demand all the time. As if we can just become a country that consumes, consumes, consumes. But that’s not what Keynes believed at all. So I don’t see any of those posts really touching on what it means to be a Keynesian. In fact, not one of them even mentions the word “investment”, which is baffling.

    Modern macroeconomists seem intent to boil theories down to “this or that”. Keynes didn’t think like that. Keynes knew that supply mattered and that it was innovation via investment that advances “the quality in life and surely carry the seeds of all human advancement”. But he also understood that investment was contingent on strong demand. It wasn’t a “this or that” proposition as many modern macroeconomists imply.

  • Johnny Evers

    1. There is more inflation in the system than is reported. The cost of living for the median has, at best, stagnated, even while the wealth of the country as a while has increased. The price of most things should be going down, not up, because of advances in productivity and bringing new workers on line.
    2. If most of that money stays in the system, then the inflationary aspect is lessened.
    3. Maybe if the money can be removed from the wealthy and put to productive use, we won’t have inflation.

  • Tom Brown

    “But that’s not what Keynes believed at all. So I don’t see any of those posts really touching on what it means to be a Keynesian. In fact, not one of them even mentions the word “investment”, which is baffling. ”

    Good point: I don’t recall seeing that either in those posts.

    Maybe the focus on AD in the above happens because of the parallels between the Great Depression of the 1930s, when Keynes did some of his important work, and now in the aftermath of the Great Recession. Recall that to AD believing neo-Classicals, a lack of AD is a culprit in both extraordinary cases. Sumner, for instance says he’s only going to become a monetary crank insisting on more money printing twice a century… the rest of the century he’s a moderate supply sider inflation hawk. Perhaps it’s the present circumstances which color the views of the above posts.

  • Tom Brown

    Cullen, did Keynes invent the liquidity trap concept?

  • http://orcamgroup.com Cullen Roche

    I don’t know of any case of the term being used before Keynes, but here’s the quote from the General Theory:

    after the rate of interest has fallen to a certain level, liquidity-preference may become virtually absolute in the sense that almost everyone prefers cash to holding a debt which yields so low a rate of interest. In this event the monetary authority would have lost effective control over the rate of interest.

    I’ve always understood this to mean something different from the environment we’re in and I don’t think Keynes would have agreed with the way some economists use it today.

    First of all, Keynes says that bonds and money become perfect substitutes and that the central bank has effectively lost control of interest rates. I don’t see this as being the case in the current environment because the Fed clearly has been able to push interest rates lower and long bonds are clearly not perfect substitutes for money. Non-government bonds definitely aren’t.

    Second, most modern macroeconomists use the IS/LM model to portray this concept. But this implies a loanable funds based model of the world. I’ve already expressed my views on that in my debates with Krugman a while back, but I think Keynes would have agreed that the IS/LM model was totally deficient in describing this situation.

    But there’s a lot of debate about this. Keynes has stated at times that he thought the money supply was determined by the central bank and that loanable funds would have applied. But there are also quotes where he expresses an understanding of endogenous money. So I don’t think the answer is very clear. Still, I don’t think Keynes would call this a liquidity trap. I think that Keynes, were he alive today, would have been a strong proponent of endogenous money and would have clearly called this a Balance Sheet Recession because the demand for debt was lacking. There’s no way Keynes could have lived through discussions with Robinson, Minsky and Tobin without understanding and AGREEING with them on this concept. I find that very hard to believe.

  • Tom Brown

    Thanks for the info Cullen!

  • Nils

    Is the General Theory in the public domain yet? I think I got it somewhere as a book, haven’t read it in a while.

    I really resent the lack of nuance. People (in the US especially) have been taught to think in those binary terms, either you are for us or against us. You’re either left or right, pro life or pro choice, pro guns or against guns, pro this, against that you know it. That’s easy for us because we are wired to think in easy categories, but it distorts how the world really works. The best example perhaps is government spending and tax cuts. It’s usually that one side is for more government spending and the other is for tax cuts, even though either will result in more money moving into the private sector.

  • Suvy

    “And on deficits – we have no choice but to have deficits while we’re in a trade deficit. So are you saying Keynes prefers a weak enough dollar to get that into balance or surplus, or a closed economy, or some other solution to our trade deficit?”

    The position that the US finds itself in right now is very similar to the position of the UK in the 30s. Keynes actually did prefer a devaluation to fix that problem. Britain did leave the gold standard and devalue by the way. Here’s the video where Keynes talks about it. I’d prefer something similar (scraping our current monetary system). I do not like current account deficits. It makes no sense for rich countries to borrow from poor countries, but that’s what’s happening in the world right now. I think a variation of Keynes’ Bancor plan could work today too.

    That 25% number is what Keynes said. You can find it in a simple Google search. It was something he wrote to someone in a letter.

  • Suvy

    This is the video I was talking about.

  • Suvy

    The General Theory is actually heavily mathematical. If you pay attention to the footnotes, you’ll see some really crazy stuff. I’ll attach some papers in a bit once I find them. These are papers written about TGT by others.

  • Ashley

    Keynes did call for socialization of investment in his General Theory. Essentially, he thought you could have social fascism when it came to investment and still keep parliamentary democracy.

  • J Thomas

    “The price of most things should be going down, not up, because of advances in productivity and bringing new workers on line.”

    1. If somehow prices started to go down, wouldn’t the Federal Reserve feel it was required to bring prices back up? They have a duty to prevent deflation or too much inflation.

    Besides, lots of the competition in the more-or-less-free markets is not on price. Like, if I want to put together a computer by hand, I have to buy a processor. I can buy one for full price, or I can buy one that has something wrong with it, cheaper. They talk like the cheaper ones are the rejects that didn’t make it through testing, but in practice most of them were designed to be crippled so they could be sold cheaper. A whole lot of electronics is that way. It’s cheaper to design a circuit that can be crippled to various degrees than to design separate circuits with reduced functionality to be sold at a lower price.

    If you were to produce a full-function product at the cheaper price, why would that be a profitable thing? Likely the final customers would assume there was something wrong with it because it was priced at a something-wrong level.

    2. “If most of that money stays in the system, then the inflationary aspect is lessened.”

    Yes. On the other hand, if there’s a lot of unused productive capacity that is not being used because people aren’t spending, then extra spending wouldn’t necessarily result in increased prices. Increased employment, increased production, increased sales, but if marginal cost doesn’t go up, maybe marginal price won’t either?

    3. “Maybe if the money can be removed from the wealthy and put to productive use, we won’t have inflation.”

    But that’s a moral issue. If we take money away from the people who earned it by creating productivity and give it to people who haven’t earned it, how is that moral?

    Besides, everybody knows that all our wealth is because of people who saved instead of spending. It’s saving and investment that creates wealth. If we take money away from people who save it and give it to people who spend, we will have less saving and less investment, production will go down, and we will all be poorer.

    Everybody knows that all our wealth comes from investors and from nowhere else. If investors don’t find good investment opportunities, it’s a cinch anybody else will do worse. Taking money away from the people who earned it is punishing success and rewarding failure. It can never succeed.

    Everybody knows that we need to maximize savings and investment. China saves far more than we do and they outcompete us. Before they had their collapse Japan saved far more than we do and they outcompeted us for awhile.

    You are advocating something that everybody knows is immoral, and everybody knows cannot work. To most people it’s obvious that the government needs to cut its spending so low that it can cut taxes a whole lot and still balance the budget. Eliminate government regulation of business. Eliminate transfer payments. Encourage everybody to save as much as they can. Then we’ll get back on track and the economy will grow fast.

    When you say something that everybody knows is wrong, it’s unlikely you can get them to try it out.

  • GLG34

    That’s ridiculous. Here’s what Keynes really thought about social fascism:

    “Keynes often expressed disdain for Soviet Communism. “Red Russia holds too much which is detestable,” he wrote, terming communism “an insult to our intelligence.” Communists, Keynes believed, were people who produced evil in the hope that good may come of it. And he had little respect for Marx, calling him “a poor thinker,” and Das Kapital “an obsolete economic textbook, which I know to be not only scientifically erroneous but without interest or application for the modern world.”

    Keynes believed that a government could spend at times without it being wasteful. But he was also still very skeptical of a large expansion of government spending.

  • Jerome Berryhill

    “My consumption is someone elses’s income.”

    Your production may become someone else’s income, if you trade it for their production. Your consumption is simply your consumption, and it reduces the amount of goods in the world. As such, it is a bad thing from the perspective of everyone who isn’t you. It is possible to consume without producing, and many people do so, either by their own thefts or those the government performs on their behalf. This may be regarded as income by the thieves, but it provides no income to the producers.

  • Blue Aurora

    Hello folks! I believe this is the first time I’ve commented on Cullen Roche’s blog!

    I’d like to follow up on what Suvy said with regard to The General Theory of Employment, Interest, and Money – J.M. Keynes did have a mathematical model in his 1936 magnum opus, which was intended not only as an evolution of thought building upon A Treatise on Money, but also as a direct response to a 1933 book by Arthur Cecil Pigou: The Theory of Unemployment.

    I’ve found some papers that deal with the mathematical exposition of The General Theory and I’ve shared them in places around the blogosphere. The papers were published in History of Political Economy (which is based in the United States) in 1990 and 1994, and in the History of Economics Review (which is based in Australia) in 1994, 1995, and 1996. I most recently shared them in the following comment on post by Professor Roger Farmer of UCLA, who recently started a blog.


  • Tom Brown

    Hello Blue Aurora,

    Welcome! I think I recognize the name from Glasner’s blog, true? In fact when I alerted David that Rowe and Farmer had a thread going on Keynes, and suggested he might know something about the specific subject (whatever it was: I don’t recall now), I believe he responded that you’d be a better candidate to look into it. Thanks for stopping by.

  • Tom Brown

    Nils, I agree. It really disturbs me to hear “Keynesian” used as a broad pejorative, as if someone was saying “left-wing nonsense.”

  • Tom Brown

    You have what appear to be a lot of good links there… honestly though, they probably go a bit beyond my level of commitment (and ability) to wade through at this point. Perhaps that’s something that Suvy or Cullen will find interesting (and then distill into a few easily digestible bullet points for us lazy people). Ha! ;)

    What’s your background? Are you an economic historian?

  • Tom Brown

    Suvy, check further down (on the next page) for Blue Aurora’s comment: he provides a link to some other links… specifically directed to your comment here I think.

  • Tom Brown

    Cullen, I know very little about Richard Koo, but I know he’s an advocate of the BSR. This post by Mike Sax caught my eye… in relation to your comment above:


    I read through it pretty fast… I didn’t see any direct quotes from Koo that support the assertion made in the title.

  • Tom Brown

    Cullen O/T: one of your sometimes commentators here does occasional guest posts at Marcus Nunes’ site: Benjamin Cole. He did a funny piece on the stability of gold recently (specifically meant as a response to Vincent Cate) and he’s got a new one up on what savers are entitled to:


  • Suvy

    Yea, I told him to post that stuff here. I thought at least one person here would find it interesting.

  • Suvy

    Those are actually pretty good points. Followers twist dead guys’ words/ideas all the time and the followers are almost always more radical than the leaders.

  • Blue Aurora

    Yes, I do visit David Glasner’s blog frequently and I comment on it frequently. And yes, David Glasner did mention me to you in one of his blog-posts – he said that it’s something I would be interested in, IIRC. Don’t you mean “historian of economic thought”? No, I’m not a historian of economics – but I do have an interest in the intellectual history of economics. As to the level of understanding required – well, if you have read the relevant literature (Alfred Marshall, A.C. Pigou, and J.M. Keynes) and mastered differential calculus and integral calculus (i.e. Calculus I and Calculus II), it shouldn’t be hard to grasp – but it does involve a lot of mathematical processing that one might find tedious.

  • Tom Brown

    I’m not a math expert, but I’m OK: linear algebra, calculus and simple differential equations don’t scare me: I’m used to first order vector differential and difference equations with additive noise (that’s the kind of model I work with as a feedback control and tracking filter engineer).

    I probably would find the mathematical processing tedious… if it’s not stuff I’m used to working with i’d probably sigh hard, and put on my thinking cap: but I might be able to slot through..

    But I really don’t have the econ background yet. I have not read the relevant literature you identified. I should probably start there.

  • Suvy

    You’re better fit to understand the stuff Blue Aurora is talking about with your background than with a raw economics background. It’s not even close. Your background is much closer to mine (although I think I’m much younger than you).

  • Blue Aurora


    Thanks for the kind words Suvy, but I’m not the author of those papers. But to put some things into context – J.M. Keynes himself read Mathematics at King’s College, University of Cambridge, did a Fellowship Dissertation in Mathematics (and the subject was Probability, and his Fellowship Dissertation really was a traverse between Mathematics and Philosophy), roughly around the same time he was persuaded by Alfred Marshall to take up the study of Economics. Keynes finished his undergraduate degree in 1904 or 1905, and started doing his fellowship dissertation and getting interested in Economics around the same time.

    He first submitted the manuscript for his Fellowship Dissertation in 1907 – and it got rejected, mainly due to criticisms from Alfred North Whitehead. He tried again a second time a year later, revising the Fellowship Dissertation to address Alfred North Whitehead’s criticisms, and succeeded in becoming a University Fellow this time.

    I believe that he finished approximately three-quarters of the Economics Tripos crafted by Alfred Marshall before deciding that enough was enough. (This would be around 1908 to 1909.) The rest of his understanding of the subject was learned “on-the-job”, when he decided to go work as a civil servant.

    He was also continually revising the Fellowship Dissertation on-and-off, and was still revising it when Britain declared war on Germany in August 1914 – merely a few months after the assassination of Archduke Ferdinand Franz of Austria in June 1914.

    He would finally have time to finish the revisions of his Fellowship Dissertation and turn it into a book only after the First World War ended – it came out in 1921 as A Treatise on Probability.

    What does this all have to do with these articles? Well, my point is that Keynes had more than just a thorough understanding of Mathematics. Keynes also had a solid grasp of what was the state-of-the-art in Economics at the time as he studied under Alfred Marshall himself. (Later associates of Keynes like Roy Harrod and Friedrich Hayek attest to his excellent grasp of the theoretical edifice Alfred Marshall built).

  • J Thomas

    “Your production may become someone else’s income, if you trade it for their production. Your consumption is simply your consumption, and it reduces the amount of goods in the world. As such, it is a bad thing from the perspective of everyone who isn’t you.”

    So if I run a company that makes candy, I’m producing stuff and that’s good. But if anybody eats the candy they’re consuming, and that’s bad for everybody but them. Better if nobody eats the candy and we store it in a warehouse somewhere.

    Isn’t the point of the whole thing to make stuff people want, so they can consume it? Otherwise why bother?

  • Johnny Evers

    1. Reduced prices does not equal deflation. The price of the cost of living generally falls in a growing economy, although in the U.S. this is not happening anymore.
    2. We are assuming that there is unused productivity because people are not spending. Perhaps, but there is unused productivity because people are not being educated, and children are being brought up by single moms and some people would rather not work. Debt solves none of that.
    We also have a mindset that just because we can produce 30 million cars a year, we are under capacity if we only sell 15 million. This is Soviet apparatchik thinking. What if people don’t want cars but need something else.
    3. The moral issue. If you are growing apples and selling them and I take your apples, then that is a crime. But if am growing apples and you are getting rich trading apples contracts, then it’s not immoral to take away your deposits.

  • Jerome Berryhill

    I am not saying that production is bad. I am saying that when people eat your candy, that is consumption. But it is only your income if they pay you for it. If they steal your candy, or if the government steals your candy and gives it to them, you do not gain income as a result. So, their consumption is NOT inevitably your income.

    Division of labor has immense advantages. But those advantages accrue as a result of trade. You make candy, I make clothes, we trade, and both of us are better off. This happens because both of us feel ourselves to be better off. Otherwise, we would not trade. The requirement that I produce what you want to consume keeps me honest. Perhaps I would rather produce poetry, but you will not trade your candy for my poems. The intermediation of honest money in this process serves merely to make it more efficient. But when the government prints money, and distributes it to favored parties, they are able to obtain goods without producing anything of value. I get candy, and you get poems.

  • Johnny Evers

    Agree with that.
    I would maybe refine it somewhat to say that I buy candy with my government check, it is income to the candy maker, but it is also either a cost to the taxpayer or a cost to future taxpayers. If you forget the cost, then you may conclude that deficit spending is always good.
    As you say, trade should produce a good or service on both sides of the transaction to be truly efficient.
    Obviously there are some instances in which one party cannot provide a service or good and the rest of us should take care of them.

  • Jerome Berryhill

    “I would maybe refine it somewhat to say that I buy candy with my government check, it is income to the candy maker, but it is also either a cost to the taxpayer or a cost to future taxpayers.”

    If the government taxed someone to pay for writing your check, then in effect it would have taken his property and given it to you. Which punishes him for being productive, and rewards you for being unproductive.

    If it does not, then you may, if you like, assume that it will at a later date, when the need is less pressing. I find that unlikely. The “debts” the government is incurring will never be paid. Or rather, they will never be paid off. They will be “rolled over”, until they are inflated away or someone ends up holding the bag.

    Whatever Keynes may or may not have believed, at one moment or another, the present reality is that it was his theory, or theories, that provided the rationale for the government “borrowing” that is in the process of destroying our country. His defenders can pout and nuance as much as they like. He remains the man who claimed it would be a good thing for government to pay people to dig holes and fill them up again. Scratch a Keynesian, find a Socialist. Scratch a Socialist, find a thief.

  • Johnny Evers

    Taxation is different from borrowing in two ways.
    Ideally, when you tax me, it is with my consent and generally, in the aggregate, for things that I believe the government can do best.
    The check on taxation is that if you tax too much for the value provided, the taxpayer will rebel.
    Taxation merely circulates money with the consent of the public.
    Borrowing differs in two problematic ways. In the first, the cost of the borrowing is borne by future generations, so the check is very weak.
    In the second, the taxpayer doesn’t have much of a vote in borrowing. Our spending decisions are driven by past legislation. The Medicare legislation from 50 years ago requires more and more borrowing. It’s also interesting that when the voter tries to check borrowing by trying to raise the debt ceiling, he is told that this power should be taken away from him.

  • John Daschbach

    The idea that government borrowing is a cost to be born by future generations is pervasive but wrong. As Milton Friedman clearly explained, at the Federal government macro level, all flows have to be accounted for in the present. Government borrowing at the macro level is no different than taxation. It usually changes the rate of flows in the system which was the basis for Friedman’s dislike of Federal debt. Writing when real interest rates were larger than today, he viewed Federal debt as a hidden tax on the middle, benefiting the wealthy, since he considered the net flow to be to the wealthy holders of Tsy.

    Probably influenced by both overall wealth accumulation in the US and increasing wealth disparity, real interest rates on Tsy are quite reduced from when he was writing. Even with an expansion in the Debt outstanding the real cost to service the debt has dropped. In 1991 servicing Tsy debt held by the public required 3.6% vs GDP. In 2012, with the nominal debt almost 5x, the servicing cost was 1.5% vs GDP.

    The debt ceiling argument is based on a complete lack of understanding of what government debt is. It’s not something that has to be paid back. It’s just one set of flows in the system, and not a very big one at that.

  • http://orcamgroup.com Cullen Roche

    Welcome! Thanks for stopping by. I’ll gladly have a look at the research. I always love a commenter who tries to contribute some knowledge to the forum so thanks. Take care.

  • Jerome Berryhill

    Economics is the science of using math to disguise obvious falsehoods. The government does not bring anything useful into existence. At best, it coordinates the activities of persons, who then bring useful things into existence. But most of current government spending is transfers. This means that the government is seizing valuable goods from the people who produced them, and handing what’s left of those goods to persons who produce nothing, after taking a very healthy cut. The Keynesian notion is that the producer is benefited by having a demand for his goods. But this is only true if the government steals something from someone else to pay him with. In practice, the government uses inflation to steal from all in proportion to their dollar-denominated assets, which includes salaries, by the way. And so, all are plundered, simply so that the government, and its favored cronies, may take their cut.

  • Tom Brown

    There’s a lot of problems with what you’re saying there. You make some sweeping generalizations.

    You say that gov never brings anything useful into existence: how about our gov labs? I can think of a long list of weapons systems, plus highways, damns, bridges. Look up the history of the Sidewinder missile if you want a good example.

    Transfers: if the gov funds itself w/ bond sales, it sells them at a market price to buyers (so they do get something, unlike what you say), and then spends the proceeds, and they don’t necessarily spend on people that produce nothing (examples above).

    “The Keynesian notion is that the producer is benefited by having a demand for his goods.”

    Yes, Keynsians think AD is important. So do monetarists, and a lot of other economists. They don’t think it’s exclusively important though! AS is very important too… and as Cullen pointed out, Keynes himself is very concerned with investment.

    “But this is only true if the government steals something from someone else to pay him with.”

    Not true at all. Fiscal stimulus includes tax breaks. Monetary stimulus includes setting expectations.

    “In practice, the government uses inflation to steal from all in proportion to their dollar-denominated assets”

    Can you explain why inflation at the expected rate is stealing from anyone? Generally inflation above expectations favors debtors and inflation below expectations favors creditors. Inflation at expectations is fairly neutral.

    Take a look at this:
    and then explain to Rowe and Sumner how targeting a zero inflation rate is the non-socialist option.

    “Regarding the “extreme socialists,” I like to sometimes tease conservatives who want really low inflation by pointing out that that they are advocating socialism.” — Scott Sumner

    (Sumner considers himself to be a libertarian BTW)

    “How low do you want the inflation target to go? How big do you want the central bank to be? How big do you want the fluctuations in size of the central bank to be?

    Do you want a central bank that sometimes needs to own all the government bonds, all the commercial bonds, all the shares, all the farmland, all the houses…to keep inflation (or NGDP) on target?

    You probably don’t. (Unless you are some sort of extreme socialist who wants the government-owned central bank to own everything.)” — Nick Rowe

    But is it possible to target 0% inflation w/o being an extreme socialist? Sure: read Miles Kimball or Bill Woolsey… you probably wouldn’t be happy w/ the negative deposit rates or the negative nominal returns on cash that would likely result though. Here’s Bill:


    So who are these guys? Rowe, Sumner, Woolsey and Kimball? Are they Keynesians? Not a one of them.

  • J Thomas

    “I would maybe refine it somewhat to say that I buy candy with my government check, it is income to the candy maker, but it is also either a cost to the taxpayer or a cost to future taxpayers.”

    I want to make up a fanciful scenario to show that it’s more complicated than that.

    Imagine that I have bought an automated factory to make candy. I give it sugar and chocolate and cinnamon and HFCS and cellophane and cardboard etc, and tell it what kind of candy to make, and it makes candy and packages it and prepares it for shipping.

    I am paying for the factory and making a nice profit, and my factory could produce a lot more but I make more money selling it at a rather high price, and at that price I can’t sell more.

    Now somebody from the government comes to me. They want me to make candy for the 50 million poor people who can’t afford candy — the government will give it to them for free. He wants me to sell for just the cost of the sugar and cardboard etc, plus profit. I already have the factory so it won’t cost me much to make the stuff. He wants the packaging to look ugly. Instead of a picture it should be black letters on a white background and it should say something like “Candy For People Who Can’t Afford Anything Good”.

    I of course am very happy to do this. I suggest that for a small additional price I could add something to the candy like maybe cumin so it tastes and smells cheap, so nobody will eat it who can get anything better. He applauds the idea.

    The poor people get to eat candy. I make a bigger profit. The sugar makers get to make more sugar, that they would not have made otherwise because the market wasn’t there. So they can hire more unemployed people to wade in the swamps with machetes cutting down sugar cane. The HFCS sellers get to make more HFCS, that there would not have been a market for otherwise. They pay farmers to make that much extra corn. The chocolate is imported and I don’t want to think about that, maybe it should be candy without chocolate.

    Who loses? If at any step there is a shortage of something then my extra candy drives up the price and reduces the availability of that something. But as long as we’re using renewable resources that otherwise would not have been used because demand is low, I don’t see that anybody loses at all. Poor people get candy, and it doesn’t cost anybody anything real. I don’t lose provided that having poor-people candy doesn’t reduce my sales. The packaging will help keep that from happening, and the cumin will surely help a lot.

    Why does this cost future taxpayers?

  • pliu412

    There is a much cleaner economic T-accounting view in BEA NIPA Table 1.1.5 about GDP and Table 5.1 about Investment and Saving and can be summarized as follows

    Investment (I) = Saving (S)
    Gross Private Investment (GPI) I Gross Private Saving (including CapEx)(GPS)
    – Domestic Investment (DI) I Gross Government Saving (GGS)
    – Rest of the World Investment(RI) I Statistical Discrepancy(SD)
    Gross Government Investment(GGI) |

    I = GPI (DI + RI) + GGI
    S = GPS+ GGS + SD

    In US, RI and GGS are often negative values and most savings are in GPS not in government, but I/GDP or S/GDP ratio is low. Thus, it is not an “effective” economy from a production viewpoint if dividing GDP into two parts: I (investment) for generating gross savings, and CE (consumption/expenditure) for gross production overheads.

    In China, it is an investment-driven economy. I/GDP is much higher than CE/GDP, however, GGS/S ratio is also higher than GPS/S ratio Thus, the wealth is stored in the government, not private. It is hard to become a consumption-based economy.

  • Jerome Berryhill

    “the government will give it to them for free. He wants me to sell for just the cost of the sugar and cardboard etc, plus profit”

    The government is going to give it away for free, and you are going to sell it for cost. So, who is going to pay for it?

  • Jerome Berryhill

    “Can you explain why inflation at the expected rate is stealing from anyone?”

    If you have an asset or income stream which is denominated in dollars, inflation reduces its value. But rather than trace through the whole complicated ball of yarn, let’s try to keep things simple. Can you explain how it is possible to get something for nothing? Because when the government prints money to buy goods, they get something, and they return nothing for it except a promise. Now, the exact nature of that promise is obscure, which is why it is difficult to tell who is getting robbed. But one thing for sure, the government is not promising goods which it currently has in its possession. It is making a promise someone else will have to keep.

  • Tom Brown

    “If you have an asset or income stream which is denominated in dollars, inflation reduces its value.”

    Sure, nominal anything is a function of inflation. That’s why only real prices, wages, etc. ultimately matter, not nominal ones. Our standard of living has improved over that of 1900, even though a loaf of bread costs a lot more.

    And that’s why ultimately inflation doesn’t much matter, provided it’s at an expected rate: then it gets factored into everything, wage increases, prices, interest on loans, interest on deposits, etc.

    Once you have an established inflation rate that everyone is psychologically OK with and expects, then if you change it, you’re going to hurt someone.

    You make it sound like all of us just live off of a pile of cash, which has a fixed nominal return of 0%. Yes, people who have no income and no bank deposit and just live off a pile of cash will be hurt by inflation and helped by deflation. But that’s just because their nominal return is fixed at 0%.

    You’ll notice that in the link I provided above, one of the schemes for targeting 0% inflation is to get rid of cash.

    Even if there was no government spending or borrowing or taxing… the CB would probably target an inflation rate of about 2%. It’s not because they want to steal from people… it’s because that gives the economy a little room above the 0% nominal floor fixed by the existence of cash to account for sticky wages and prices. Somebody can get a real pay cut of 1%, but a nominal raise of 1%. In fact it was Janet Yellen that demonstrated that was a good target to Allan Greenspan way back. I’ll try to dig up the link.

    If 10% inflation were the target, cash would be very unpopular, but I doubt there’d be many other major changes: People would expect raises on the order of 10%. Banks would pay 8% on deposits.

    A lot of it is just psychology. Negative rates of inflation won’t fly because that implies that people will get nominal pay cuts every year in their wage, maybe even when they’re getting real raises. Wages and prices are stickier in the downward direction I think.

    But if you don’t give the market at least 30 years notice before making a big change to the target, then some bond holders or bond issuers are going to be left holding the bag (depending on which way you move it).

  • Blue Aurora

    You’re welcome, Cullen Roche. Actually, I’m not done just yet – could you please send me an e-mail? I would like to give you the PDF attachments of all the articles personally, in case you don’t have access to a university library right now. (The links to the PDF files for the articles in the History of Economics Review are ungated, but the links to the PDF files in History of Political Economy are gated.)

  • Blue Aurora

    Well, the behavioural foundations for The General Theory are Marshallian in nature – as in to say, the market structure is that of pure competition or perfect competition. Here’s the chronological ordering in which the books came out…you should be able to spot the family resemblance in presentation style and appreciate the evolution of thought:

    1.) Principles of Economics by Alfred Marshall
    2.) The Economics of Welfare by Arthur Cecil Pigou
    3.) A Tract on Monetary Reform by John Maynard Keynes
    4.) Industrial Fluctuations by A.C. Pigou
    5.) A Treatise on Money by J.M. Keynes
    6.) The Theory of Unemployment by A.C. Pigou
    7.) The General Theory of Employment, Interest, and Money by J.M. Keynes

    I hope this is helpful, Tom Brown.

  • Tom Brown

    Try clicking on the “About Cullen” link at the bottom.

  • Blue Aurora

    Thanks, Tom Brown. Now, I hope my e-mail went through…

  • Tom Brown

    Here’s someone answering my question on this very topic recently:




    That group over there tend to be more overtly political, on the conservative/libertarian/neo-liberal/supply-sider side of things (not all, but many).

    Why don’t you see if you can convince some of them of your ideas… I’d love to watch! :D

    Especially Sumner: he’s says he’s a “practical libertarian” and is not a big fan of government in general.

  • K-Sam

    This article is wayyy off the mark. Jerome Berryhill, I’m glad you, at least, can ‘scratch’ to reveal the inaccuracies riddled throughout the article and the comments.

    How people can defend theft because those doing it are elected to do so is beyond me.

  • Tom Brown

    You’re aware that every dollar in existence (aside from coins) has both a creditor and a debtor associated with it, right? If we consolidated all balance sheets together, crossing out items which appeared as both a credit and a debt, all our money would be gone, save coins. And even coins are considered an “obligation” of the Tsy, in that they have to buy them back… and if they were to buy them back with anything except coins, then literally every dollar of money in existence would be crossed off our globally aggregated balance sheet. So for money to exist, it means both creditors and debtors must exist. That dollar bill in your hand, makes the Fed a debtor to you… if we are to settle all accounts such that no one either a debtor or creditor or obliged be, then that dollar will have to go back to the Fed (where it will loose it’s value, and can then be shredded) one way or another, and there won’t be more dollars to come along to replace it. A perfect world without debtors, and thus necessarily without a penny of money. You might find this interesting:

  • Johnny Evers

    People really believe that the government can print up a piece of paper and people will work for it and that piece of paper will retain its value.
    The only way money works is if there is a trade of resources on both sides. That’s what money does — it records this trade of resources or labor or service. If there isn’t economic activity on both sides, it collapses.
    I buy my own candy because I perform services for others. If you want to give me free candy and free everything, fine, just realize you are losing my services. And how do you make free candy when the candy laborers realize they can stay home and eat free candy without working.

    Tom, you are making a similar mistake. You are correct in saying that every dollar has an accounting obligation on the other side. But we have a system in which the banks have created debts with no economic activity. And since you hold the debt to be as sacred at the asset, the rest of us must trade our labor and resources for this debt.
    Now JThomas wants to create more debt — government debt — so that poor people can have free candy without being productive. The rest of us must trade our labor and resources for that debt, because it is sacred.

  • http://orcamgroup.com Cullen Roche

    Since when did representative republic become synonymous with “theft”?

  • Jerome Berryhill

    Mr. Roche,

    I confess I cannot tell you exactly when it happened. I’m afraid it was well before the election of Emperor Obama, who regards the laws passed by Congress as a blank slate on which he may write what he will. But the basic idea of a republic is that taxation will be used to fund activities which are in the public interest. When instead the power to tax is used to enrich cronies and favored constituencies, and to punish political enemies, that power has become a tool of thieves, and its use is indeed synonymous with theft. Franklin said it was “a republic, if you can keep it”. Well, we couldn’t, or at least we didn’t. It’s gone now.

  • Jerome Berryhill

    Actually, having given the matter some more thought, 1913, when the 16th amendment was ratified. That is when the power to tax a free people became the power to plunder wealthy individuals.

  • Jerome Berryhill

    You are correct, sir, but the dark art of economics exists in large part to make obscure what should be obvious, that there is no free lunch. To those who suppose that debt is wealth, I ask; why do we need taxes at all? Why can’t the government simply “borrow” all the money it can find a use for?

  • Tom Brown

    “But we have a system in which the banks have created debts with no economic activity.”

    Another way to look at that is that people sold the banks their personal bonds…. and I don’t know how you say there was no economic activity. NGDP was growing along a long established trend line up until 2007/2008. That’s not to say there wasn’t a housing bubble, but the economy is bigger than just the housing sector.

    I may not hold debt as sacred as you think: I’m fine letting bankruptcies and defaults happen, but when there’s more of that than the opposite, and thus a net rise in involuntary unemployment and a net decrease in production, then you should probably re-evaluate policies and see if there’s something that might be exacerbating it. I happen to think there are things the gov/CB can do to prevent and/or break out of an Irving Fisher style debt deflation positive feedback loop: at least mitigate it!

    Remember, if you have a CB, then it has a policy, which means there’s probably an optimal policy for each circumstance. Even if the CB just decided to do what it did yesterday, that’s a policy choice, and it may not suit the situation at hand very well. Same can be said for the gov in general… and that doesn’t necessarily mean more spending.

  • Tom Brown

    Who supposes debt is wealth?

  • Jerome Berryhill

    “and that doesn’t necessarily mean more spending.”

    When has it ever meant anything else?

  • Jerome Berryhill

    “Who supposes debt is wealth?”

    Central banks once held gold in their vaults. Now they hold “bonds” on their asset books. Those government bonds are debt, and the central banks call them assets, which means wealth. So, the central bankers suppose debt is wealth, and so does anyone who supposes the central banks perform a valuable function. Is that clear enough?

  • http://orcamgroup.com Cullen Roche

    I don’t understand what you’re getting at. We have a system that looks increasingly corporatist. But we also have a system that pays more in social benefits than it has in history. So what do you prefer? Do you want the trickle down from the corporations? Or do you want the trickle up from the social benefits? Or do you just not want any of this govt policy? I am trying to figure out what your beef with the system is. It’s certainly not “Keynesianism” that you’re mad at. Keynes likely would have spit up his coffee if he saw how big the US govt is. Keynes wasn’t this “socialist” consumption driven thinker as the myths have come to portray him as. Those stories are told by people who have never read his work and instead decide to conveniently confuse his thinking with Karl Marx, someone who Keynes was critical of.

  • Jerome Berryhill

    “I am trying to figure out what your beef with the system is. It’s certainly not “Keynesianism” that you’re mad at. Keynes likely would have spit up his coffee if he saw how big the US govt is.”

    Marx probably wouldn’t be on board with gay marriage, but Marxists are. And Keynes is dead too, so his views don’t have much to do with what Keynesianism means.

    My original objection was to your statement that your consumption is someone else’s income. This may seem to be true if you are sitting on Wall Street, tracking “capital flows”, but what you seem to miss is that this is only true when trade is free. When people trade because they value what they get more than what they surrender, both parties come out ahead. When “trade” consists of government seizing one man’s assets and handing them to another, there are winners, and there are losers. It appears to me that “economists” like yourself use dollars and other fictions to hide this fact, from others, and possibly from yourselves.

    If the government steals your pig, and gives it to your neighbor, you have been robbed. If it gives you some dollars, you may say that you weren’t robbed, but the neighbor still has your pig. In fact, the dollars merely enable you to hope that you can spread the theft around.

    More than half of government expenditures are now transfer payments. Huge numbers of people who are perfectly capable of working are instead encouraged to remain idle, while the productive few are taxed at ever higher rates. Have you got a beef with that? Or maybe you got handed a pig, and it looks delicious?

  • http://orcamgroup.com Cullen Roche

    We live in a social system which requires some level of govt. And to allow that govt to operate we impose a tax on some income. So yes, part of your income is then used for the purpose of govt spending. My spending is partially govt income for this reason. And govt spending is someone else’s income. I don’t see what’s so controversial there unless you decide to view taxation as “theft”. If you really think you’re being “robbed” then why do you put up with it? Why would you live in a system where you feel “robbed”? I don’t understand that. Do you really feel like the American system “robs” you on a daily basis? Is that how you feel?

    And yes, I am one of those people who gets taxed at “ever higher rates”. So what? This system has given me much. And I am happy to pay into it so that people less fortunate than me can earn an income. What do you expect them to do? Pull themselves up by their boot straps when no corporation will hire them? Do you just expect all of these poor working class people to suddenly tranform themselves into Mark Zuckerberg? Be real man. These people most likely can’t find a job because no one wants to hire them for whatever reason. Should we just let them all die by the side of the road or wander the streets homeless just because Cullen Roche wants to buy some more toys rather than be taxed a little bit more? I say no! I say tax me. I don’t want to hire these people any more than anyone else does. I don’t run a charity. But I am happy to pay into a system that will help reduce some poverty given that I know capitalists can’t eliminate poverty all on their own. I wish it didn’t have to be that way, but if you want a capitalist system in a social system then there’s some level of government social welfare that you need to get used to because the capitalists aren’t going to employ all of these homeless people and letting them die on the side of the road is simply inhumane.

    I don’t know if you’re viewing all of this with a sense of balance. Instead, it sounds like a lot of politics misunderstanding.

  • Johnny Evers

    Yikes. His gay comment was an analogy, not about sexuality but about how you can’t define a school of thought by what the founder thought, but by what today’s people think.
    For example, Keynes believed in government deficits only when needed to juice the economy, but today’s Keynesians believe in deficits all the time. Today’s beliefs are the reality.

  • http://orcamgroup.com Cullen Roche

    I see. I misread. I’ve fixed my comment. Thanks.

    No, today’s Keynesians don’t believe in “deficits all the time”. That’s a generalization made by people who don’t understand what Keynesian economics is and instead prefer to use the term to imply something pejorative. SOME Keynesians are in favor of deficits “all the time”. Not all.

  • John Daschbach

    Wow, the ramblings of a true hateful ideologue! It reflects an almost completely ignorant view of the world, based around lies and the myth that people remain idle when they could be productive.

    In your hate filled world, you apparently find the millions of old and informed people who survive on Social Security and Medicare to be a burden on you. You have been robbed. This is 80% of transfer payments.

    Of course there are those veterans who suck money away from you (stealing your pig).

    Selfish hatred of fellow human beings is the definition of Evil. A lazy person may lack virtue, but selfish hatred is a far greater ethical shortcoming than laziness. The far right takes the seed of evil in every person and for those who lack ethical character magnifies it into a source of political power.

    As Kalecki cogently pointed out, it is about political power.

  • Tom Brown

    Cullen, did Keynes himself describe under what circumstances the government should run a surplus?

  • http://orcamgroup.com Cullen Roche

    Yeah, he was pretty explicit on that:

    “The boom, not the slump, is the right time for austerity”

  • Suvy

    Cullen, did you ever get a chance read those papers? Or the research Blue Aurora was talking about? I promise you that the research Blue Aurora was talking about is worth taking a look at. It will open your eyes.

    Keynes is very interesting to read. I just wish that he was more clear, straightforward, and easier to understand (like Irving Fisher).

  • Suvy

    John, you may not agree with him, but it’s not cool to call someone a hateful ideologue just because you disagree with their political views. He does have a point: the government is skewing the incentives. Is he saying that everyone on government welfare is a bad person? I don’t think he is, but when people go the government first instead of their families and communities for help, that’s a problem. The family and community structure has weakened in some areas of the country. You can’t expect for a great society to stay great if the structure of the community has broken down.

  • http://orcamgroup.com Cullen Roche

    Not yet. He emailed me a bunch more. My reading pile is about 10 feet high and I am slammed with work so I don’t know when I’ll get around to it….

  • Tom Brown
  • Bond Vigilante

    - Mauldin is right. Interest rates are set by Mr. Market, not by a government. If the government determines rates then why did the gov’t raise short interest rates from 2004 up to 2006 ? Or raise long term rates from 1945 up to 1981 ?
    – It’s astonishing to see that a bright guy like Mauldin makes a number of very obvious errors.

  • Bond Vigilante

    Recessions are caused by a reduction of spending (or if you like “Consumption”). And a reduction of spending can be the result of a reduction of income.

  • Tom Brown

    BV, perhaps I’m not getting your meaning, but your 1st sentence doesn’t seem internally consistent to me. Here’s how it reads:

    A doesn’t do X. If A does X then why did A do X that one time? Or why did A do X that other time?

    My response is to say… uh… well, you just two examples of A doing X.

  • Bond Vigilante

    LOL. But why ?

    In 2011, 2012 & 2013 performed “Operation Twist” & “QE”. If the FED controls interest rates then why did rates go lower in 2011 but not in 2013 ?

    The common narrative is that the FED lowers interest rates in a recession and raises them in a recovery. But then why did the FED raise rates in the recession of 1970, 1975 & 1980 ? In those recessions short term rates were higher (!!!) than long term rates.

  • Jerome Berryhill

    Mr. Roche,

    Perhaps my position will be clearer if I point out that it is March, and I am soon going to have to pay those taxes we are discussing. I think my taxes are too high by about 70%. You think that your taxes are OK, you would even be OK with having them higher. I see a simple solution. I will send you a copy of my 1040, and you can reimburse me for 70% of it. Then, we will both be happy with the political system we live under.

    If you are willing to do this, great. Give me your address. If not, it is my sad duty to tell you that I got together with some people I know, and we had a vote on it, and the plan has already been approved. Democratically, I might add, so there is no need for you to get huffy about it. It’s just part of the price you have to pay for being in the same world with a slacker like me. If you would like to cast a vote, you can, but I can tell you right now it won’t make a difference. There are more of us than there are of you. And I am sure you would not want to place your selfish interests above the clearly stated preference of the electorate.

    It has been remarked that a Democracy can last only until the mob learns that it can vote itself other people’s property. I think you are a bit younger than I am, you will live in interesting times.

  • John Daschbach

    Yes, major recessions since the data is reasonable appear drive by a reduction of spending. However, most are preceded by a reduction of employment. Thus, much of the time, reduction in employment appears to precede a reduction in speeding, leading up to a recession, but there are examples where the opposite of the first two factors precedes the recession.

    I would say they are tightly coupled but not possible to separate them in terms of cause and effect.

  • John Daschbach

    No, the basis for this view is hateful. Have you worked out the numbers?

    ca. 10% of Transfer payments go to “Income support” and “Food Support” outside of the elderly, the disabled, and the veterans. That is ca 1.25% of GDP. How many of those people are not truly needy? My experience has been it’s less than 10% of this group that is truly trying to take advantage of the system (which often requires being reasonably clever). So that’s 0.125% of GDP. It’s meaningless economically. Even if you absurdly think it’s 50% who are gaming the system (outside of the elderly, disabled, and veterans), that’s 0.625 % of GDP.

    It’s !@#!$ meaningless to anyone with any economic understanding. No, it’s pure ignorance and hatred! Nothing in our world is more damaging than this ignorance and hatred for fellow human beings. We use 4-6% of GDP for the military and inflicting hurt on other humans. To be opposed to wasting 0.125% of GDP on supporting lazy people and in favor of supporting 5% of GDP to hurt people seems pretty sick to. me.

  • http://orcamgroup.com Cullen Roche

    So, you want me to basically pay a 100% tax rate because you want to live in the USA, but don’t want to pay the taxes that the USA’s elected representatives require you to pay? So, you want all the benefits of living in the modern day USA, but you want someone else to pick up tax tab? That’s an interesting view of the world, I guess. How about I make a counter offer – I get 100% of your annual income and I’ll pay your taxes for you. Better yet, provide me with your means of production so I can own your income source. Then I’ll let you sit on your butt and my income will double or triple while you live on food stamps or whatever pittance I have to pay for you to survive (barely). See how that works? With more income, comes potentially higher taxes. The system you proposed was one where my income stays the same and my tax rate doubles. So it sounds clever, but without giving me the means of production then your example doesn’t really make any sense.

    Basically, what this really boils down to is that you think the govt is too big and you’d like to see it reduced. So, what would you like to see reduced? Would you like to tell all of our elderly people that they don’t get an income any longer? Would you like to take their healthcare away from them at the point in their lives when they most need it? Or is it the poor you dislike? You’d like to take all those people who capitalists won’t hire and throw them out on the streets because you think they’re no good detractors from the social network? Where would you like to make the cuts exactly? I am all ears. I have some of my own ideas as I tend to think the govt is too big also.

  • Jerome Berryhill

    You know, I see your point. I really belong in the Gulag, don’t I?

  • GLG34

    No, what this really boils down to is that this guy and all of his libertarian friends are too selfish to share anything with anyone else. They call themselves “makers” and they call everyone else takers, but they “make” all their money by “taking” from a system which gave them the means to “make” everything they “make” and when they’re asked to pay anything back into that system (or god forbid, help someone who can’t help themself), they revert to what they really are – the ultimate takers.

  • Jerome Berryhill

    I was simply pointing out that whether it is “fair” for some to pay more than others tends to depend upon who is the some and who is the others. Do you have a problem with me joining the slackers? How about if you don’t have to take up all the slack? How about if we raise everyone’s taxes just enough that I can have a comfortable existence without working, and you and a few other guys can just work a little harder? Do you have a problem with that?

    If you do, you had better get over it, because the Left has put together a coalition of the unwilling (to work), and the government, which you appear to think is just a tiny bit overlarge, is about to get quite a bit larger. But don’t worry, it won’t cost anything. At least, not for the majority.

  • Jerome Berryhill

    Hey, man, you’re the one who doesn’t want to share. I’m ready to share everything you’ve got. What have you got?

  • Tom Brown

    “In 2011, 2012 & 2013 performed “Operation Twist” & “QE”. If the FED controls interest rates then why did rates go lower in 2011 but not in 2013 ?”

    I don’t know what the Fed intended to do with Operation Twist or QE, but clearly they never tried to explicitly target a specific maturity specific nominal longer term rate. If they would have they would have told us! (Telling the world does a lot of the work! I.e. why build a doomsday bomb unless you tell the world you have one? (Dr. Strangelove)).

    I don’t know anything about the 1970, 1975 and 1980 cases. But it’s clear that if the Fed wants to target an overnight rate or the IOR rate, it can do so successfully (as it has in recent decades). All nominal rates of course. I have no reason to believe it couldn’t also at least put a hard upper bound on specific longer term nominal rates… since it has a bottomless pocket w/ which to buy what it wants: it’ll win in any fights… (except maybe with another central bank?). But I’m not aware of that experiment taking place…

    If you really want to know why (regarding 1970, 1975 and 1980), unless Cullen wants’ to tackle that one.. .the person I’d ask is Sadowski: he’d good at digging up that kind of data and providing ample references.

    It’s not inconceivable at all to me that a Fed asset buying program (w/ no explicit target: other than a monthly $ amount) could actually result in the yields on bonds rising rather than falling: say in expectation of rising inflation. Id guess it’s pretty hard to predict what would happen in that case. Of course you’ve probably see this chart:

    There is an issue here between nominal and real rates… is that what you’re getting at? If the Fed wants to target a nominal FFR, it does so, but then real rates and inflation float. If it wants to target inflation instead, then if may set the nominal FFR for a series of time periods, but ultimately it will be adjusting the rate “endogenously” to hit the inflation target. So in that sense it loses control over the nominal rate in the long term (e.g. it sets the rate with a rule, like the Taylor Rule). Is that what you’re getting at?

  • http://orcamgroup.com Cullen Roche

    If you want to live on food stamps with your pals while I get to own the means of production of the entire country then hell yeah, sign me up. Since I’m a nice guy I’ll probably even throw in universal healthcare for you and maybe even a charity where you guys can get a free steak dinner once a week. :-)

  • Tom Brown

    Jerome, are you a libertarian? I’d love to see you head over to Sumner’s blog and see if your ideas comport with his ideas of libertarianism. He’s a self-professed libertarian. My guess is you’d agree on some things but have huge differences on many other things. If you do, let me know so I can watch! Who knows… you might even teach him a thing or two! :D

  • Bond Vigilante

    Short term rates were higher than long term rates in 1970, 1975 & 1980:


  • Jerome Berryhill

    One who is charitable with his own money is a philanthropist. One who is charitable with other people’s money is a thief.

    Keynes himself did apparently believe that the government should borrow in the slump and repay in the boom. But modern governments, every one of them, just borrow. Do you see a problem with this, or do you think Keynes was wrong?

  • Bond Vigilante

    And between those 2 recessions short term rates were LOWER than long term rates. “The FED fighting inflation” ???

  • http://orcamgroup.com Cullen Roche

    No, I agree with Keynes. But I also don’t view the government as a thief. I think the government is something we CHOSE to put together to service the public’s needs. It’s far from perfect and I wish I could maintain the roads, fight my own wars, police the neighborhood and keep watch over the bad people, but I can’t do all of that. So I pay into a system that helps do it for me so I can focus on the things I am good at (which isn’t much). I think you’re being a bit unfair with your view that taxation is theft. That sounds like political overreach to me.

  • John Daschbach

    No, the Gulag was one of the great manifestations of selfish evil of all time. Christ, the Buddha, Muhammad, … Pope Francis, all emphasize that the great evil of mankind is selfishness. It was Christ who said “turn the other cheek”, it was Stalin that created the Gulag.

    One side views the world as “how can we make it best for everyone, on average” and he other side “how can I make it best for me”. Very different viewpoints. The far right in the US has thrown in hard for the “best for me” viewpoint. All great religions and all major philosophies (unless you consider the extreme narcissism of Anyn Rand as being an ethically valid philosophy) reject selfishness as a basis for a stable society. Many accept the role of personal selfishness as a motivator (hence the efficient market hypothesis) but it’s been disproven as many times as it’s supported.

    It’s different world views. One side accepts logic and reason and facts and the other side doesn’t and believes that ideology and irrationality are more important for human survival. People on either side of that divide will probably never understand each other.

  • Tom Brown

    You have me at a disadvantage, because I don’t know my 70s economic history that well, but from the Milton Friedman episode of “Free to Choose” (you can see it in youtube), I recall him discussing all kinds of other failed methods to get inflation under control in the 1970s, like wage and price controls. Perhaps those were being used?. Marcus Nunes discusses a similar history here wrt Brazil in the 1990s, and a unique solution they had to eventually put a stop to hyperinflation in 1994.



    Vincent Cate had an interesting document too, but I can’t find it now.

  • Johnny Evers

    It’s not ‘selfishness’ to expect everybody to contribute something to this world.
    It’s not logical to support a welfare system that creates a cycle of dependance.
    It’s patronizing to think that unemployment benefits are a substitute for protecting American jobs.
    It’s one thing to use tax dollars for transfer payments, when the persons taxed can support or reject those payments. It’s another thing to use borrowed money, which puts a contraint on future generations, even if it’s only the inflation constraint.
    The tide may be turning, though. It’s interesting that many doctors are opting out of Obamacare, for example. The government is finding that it can print money for people to use the health care system, but they can’t compel people to accept it, especially when it comes with strings attached.

  • J Thomas

    “the government will give it to them for free. He wants me to sell for just the cost of the sugar and cardboard etc, plus profit”

    ‘The government is going to give it away for free, and you are going to sell it for cost. So, who is going to pay for it?’

    Jerome, you have somehow completely missed the forest for the fallen leaves.

    What does my hypothetical candy cost? It does not cost the economy labor that would otherwise be put to better use — it’s an automated factory. It does not cost raw materials that would otherwise be put to better use — paying demand was satisfied with less of those. Probiding free candy does not reduce demand for my normal candy because I have arranged that bnobody who can pay for real candy will want my free candy. If somebody repackaged free4 candy and tried to sell it, everybody would know it was the bad stuff.

    Usually people figure that there’s a fixed amount of stuff to go around, so anything that poor people get means there’s less stuff left for the rest of us. But in my example, the candy is extra, the sugar and corn syrup etc that goes into it is extra, everybody else has just as much stuff as they would otherwise.

    But as you point out, the government pays me. That means that one way or another *I* wind up with a bigger share of the money, so I can buy a bigger share of the consumer goods or I can do a bigger share of the investment. There is less in the money economy for everybody but me. And the reason that is, is that *I* own the factory. So the government has to pay *me* to use my automated factory.

    If we had some other arrangement, things that are no drain on the economy to make, could be given away for free. The scraps and leavings…. But the way we have it set up, we can’t do that without accidentally hurting you.

    If you owned the automated factory yourself you might like the idea. But you aren’t an owner, you’re somebody who has to work hard for everything you have. Why should somebody else get anything for free, even stuff that’s so bad you don’t want it, when it’s hard for you to get the money together to buy even as much as you did last year?

    I can see it. Probably the system doesn’t have to be this way, but it *is* this way and so just like the owners dump their personal waste products on you, you at least want some chance to pass it on and have somebody you can dump your personal waste products on.

    Because that’s how it is.

  • J Thomas

    “I buy my own candy because I perform services for others. If you want to give me free candy and free everything, fine, just realize you are losing my services.”

    If you feel OK about eating candy with cumin in it, we can put a whole lot of clove in there. Or maybe a bit of cadaverine. For a small extra cost we can turn it into candy that nobody would eat if they could pay for good candy.

    “And how do you make free candy when the candy laborers realize they can stay home and eat free candy without working.”

    I told you, it’s an automated factory. People had to work to build it. Somebody will have to work to build the new one in a few years when this one is obsolete (but not nearly worn out). But the amount of work they did building it has very little to do with how long it runs each day making candy. The variable cost is very very low.

    A hundred years ago we could hardly imagine this sort of thing. Now it’s increasingly becoming real.

  • Tom Brown

    “When has it ever meant anything else?”

    plenty of times: tax cuts, spending cuts, deregulation, regulation, etc.

    re: debt & wealth:
    A financial entity which simultaneously appears on right and left hand sides of balance sheets, is an asset to one party and a liability to another. Bonds in central bank vaults are assets to the Fed. Reserve notes in your hand are assets to you. Bonds are not debt to the Fed, nor is a reserve note a debt to you.

    Whether or not something is an asset or a liability depends on your point of view.

    True, some things are just assets: like houses, US Mint coins, and gold. That doesn’t mean they make the best medium of account though.

    The idea of money arising from debt goes back thousands of years before gold and silver coins were even invented. An IOU is a simple example. Check out anthropologist David Graeber as a reference. He’s a anarchist: you might like him.

    Here’s an interesting take on our current money:

    As for gold as a medium of account, it has it’s problems:




    I think it’s better to have a currency based on a basket of goods rather than just one commodity… especially one that I nor anyone I know really has any use for.

    Why do I want the value of my medium of account to be determined by fashion trends in India, or panicked gold hoarders in France (which contributed to the start of the Great Depression)?

    The fact is gold is way more volatile against stuff I actually use than is desirable. Volatility in an MOA is very bad. It’s better to have a non-volatile currency with a value that is predictable … regardless of whether or not it changes along a well defined path (e.g. ~2% inflation). The more predictable, the more confidence businesses, individuals, and governments have in making long term plans.

    This describes the French gold hoarding back in 1930:

  • Blue Aurora

    Actually Cullen, the “bunch more” I sent to you were the PDF forms of all the articles in the History of Economics Review and History of Political Economy.

  • Jerome Berryhill

    The services you mention are all public goods, which I am happy to pay for. They are also exactly what the government was originally intended to deliver — goods and services which for one reason or another, the private sector cannot readily supply. The founders were aware of the danger of tyranny, the tyranny of the few, and the tyranny of the mob, and they built safeguards against those tyrannies into the system, or tried to. It is my view that those safeguards have failed. The Left has long hated the American experiment, and they devised a plan for its destruction. That plan would not have succeeded, had the Democratic Party not allowed itself to become the vehicle for its advancement. But it has done precisely that, in service to the careers of various politicians. The Democrats probably suppose they control the tiger they ride, but I think they are mistaken. They have split the American electorate into a collection of contending factions, in order to turn them against each other for votes. I was raised to think of myself as an American, and to regard the welfare of the Republic as the goal of politics. That view, which we all took for granted when I was a boy, now looks painfully naive. I now vote the interests of my race, class and sex, just as Americans of the 1840’s voted the interests of their geographic regions and economic systems. I expect a similar outcome.

    Unless you believe that anything the government does is necessarily justified, you must recognize the possibility that the immense powers of government will be used for corrupt ends. It is my view that using the taxing power to provide people with goods that they could easily obtain unassisted is trebly corrupt. It is done to purchase votes, and is thus corrupts its practitioners. It is successful in that attempt, and thus corrupts the electorate. Worst, it has created and sustains a growing class of Americans who believe, perhaps correctly, that they are incapable of living a tolerable life unless their necessities are wrung from their neighbors by force. Whether such a perversion of the taxation power amounts to theft I leave to you. but do you actually suppose such a system is stable? The makers may well content themselves, like the Amish, to live in the shadow of a nation they see as utterly corrupt and wanton. But the takers recognize no master but their own appetites. They will not be content while one stone stands atop another.

  • http://orcamgroup.com Cullen Roche

    I am 100% open-minded to reducing the size of govt. I am not a “big govt” guy. In fact, I was a harsh critic of a lot of the govt’s spending in the last 5 years – things like Cash for Clunkers and the Homebuyers Tax Credit drove me nuts….I view govt with a heavy dose of skepticism. But I don’t see what you’re specifically upset about. What part of our govt would you downsize and get rid of? You seem to agree with me that some level of govt is good and necessary so let’s get to the meat of this discussion – where do we cut the fat? I am 100% open-minded and all ears to hearing thoughts here from you or anyone.

  • Jerome Berryhill


    This comment format gets cramped fast, so I am starting a new one.

    How about the USDA, both DOE’s, 80% of the DOJ, the VA (privatize it), HHS, HUD. You get started on that, and I’m sure I’ll have more by the time you’re finished. Oh, DEA, DHS. NSA. FEMA, FDA, Forest Service, and those asshats who are always threatening to fine someone for digging a hole on his property. EPA, I think they are, the ones that just determined that CO2 should be illegal. Actually, I think they determined that under their reading of laws passed by Congress, CO2 already IS illegal. I can’t wait to see what their resumes look like. Also NOAA, NASA, NLRB, NIH, NSF, I’ll think of some more. Are you glad to be paying Lois Lerner’s salary? How did you like handing 30 billion to the UAW? And if we aren’t going to have any laws against immigration, we may as well cut ICE, although I would rather reform it. I think it might be simpler to list what I would keep. Oh, definitely BATF goes, Treasury, the Fed. Who am I missing?

  • Blue Aurora

    Richard Koo is awesome! You should a copy of Balance Sheet Recession or The Holy Grail of Macroeconomics.