Wednesday, November 26, 2008

Keynes Reigns, or, A Meltdowner's Nightmare

We won't be posting tomorrow — another reason to give thanks, no doubt — so here is another "twofer" that went to both the Washington Post and the Wall Street Journal in response to their lead articles in this morning's editions. Due to the dreary sameness of the Keynesian approach — there are only so many ways to try and make it not sound like a disaster — very few changes in wording were necessary to adapt the letter to both newspapers.

Mindless adherence to discredited Keynesian economics is beginning to give off a definite stench of decay — to say nothing of highlighting the incredible absurdity of the belief that we can get out of the hole we're in by digging it deeper. ("U.S. Moves to Revive Consumer Lending," Washington Post, 11/26/08, A1, A10) True, if the promised portion of the $800 billion for the "credit markets" is lent for hard consumer assets such as land and housing, the new money will at least be asset backed.

As we've seen with the original $700 billion allocated to salvage the sub-prime mortgage crisis, however, there doesn't appear to be any solid reassurance that the hundreds of billions intended for home mortgages will actually find its way there — or will do so by bailing out Fannie Mae and Freddie Mac, reinforcing and rewarding their substandard lending practices. If the recent past is any guide, the purely inflationary $200 billion for student loans, car loans, and credit card debt will also expand, leaving people about to lose their homes holding the bag. The little add-on for "small business" loans — a good use of credit — seems likely to be ignored.

There is a way out of this mess, and it won't cost the taxpayer anything or increase the federal debt. Based on the good use of credit, that is, extending credit for the purchase of things that generate their own repayment, a program called "Capital Homesteading for Every Citizen" (from the book of the same title) has the potential to turn the economy around dramatically within a very short time. Capital Homesteading demonstrates that credit can be used for good, increasing the aggregate wealth of the economy, instead of passing on our debts to future generations.

Keynesian economics is as bankrupt as the system it is allegedly intended to save. It's about time we (and our leaders) started looking at something realistic instead of exempting ourselves from intellectual influences and slavishly following the ideas of a defunct economist.

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