KEYNESIAN CRISIS
It’s hard to know if events are closing in on America, or if today’s circumstances are the normal ups and downs of life on earth. When I was a kid in high school, we had the end of the Korean War, communists, atomic bombs, Russian spies and Joe McCarthy. My history teacher spent the entire semester denouncing Joe McCarthy. I didn’t pay much attention to any of it.
Nowadays, the commies are back and the country has split into two bitter factions. Today, social issues and big government are the main themes that stoke hatred. All of this is probably not too different from past problems, but for one thing. This is the era in which we will get the verdict on the economic philosophies of John Maynard Keynes. As you know, Keynes advocated government intervention in the economy to rectify recessions or depressions. He argued that the government should create and spend large amounts of money to stimulate the economy in a slowdown. Then when things got heated, the government could withdraw the excess purchasing media it had previously created.
We may be at that juncture now. Can we stop quantitative easing (QE) and government programs that act as stimulus measures? The odds are against it. In fact, stopping QE could kill the economy. We have today’s onerous levels of inflation because we’ve gone full-Keynesianism in this century. It looks like we are going to find it impossible to stop inflating. Keynes was a smart guy, but not smart enough to see that it would be impossible to repeal loose money policies without causing a crash.
Is this a bigger issue than what we’ve experienced in the past? Well it’s not bigger than our wars. However, it’s synonymous with our world dominance of the past 75 years and it can wreak havoc with our markets and our prosperity. It looks like the Keynesian formula won’t work and runaway inflation is now entirely possible.
