Keynesian Black Holes

The previous post suggests that the US economy may be in a Keynesian black hole. Many other countries around the world are also likely to be in Keynesian black holes. The danger is that the larger black holes will cannibalize smaller ones, leading to a supernova explosion and an orgy of wars which are being seen around the globe.

An economic black hole is defined as an economy which consumes more than it produces, leading to wealth destruction rather than wealth accumulation as in a normal economy. A Keynesian black hole is a black hole created by the pursuit of Keynesian economic policies. The phase transition to a Keynesian black hole occurs as an economy moves through the Keynesian singularity where the Keynesian multiplier is infinite.

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Fiscal Stimulus of Consumption

The global financial crisis (GFC) has been in temporary recess since its break in 2008, but has recently metastasized into a more dangerous form. Extreme real-time experiments are being forced on many economies without sufficient scientific justification. The extreme measures, apart from constant fiscal stimulus, now including negative interest rates and banning or restricting the use of cash, have been designed and implemented, in Europe, Japan and elsewhere, to prevent saving and force spending, and also to protect a flawed financial system. The slow recovery from the GFC has been blamed on insufficient consumer spending.

As a past US Secretary of the Treasury and now a Harvard professor, Summers (2011), has said and has repeated on several occasions:

…the central irony of financial crises is that they’re caused by too much borrowing, too much confidence and too much spending and they’re solved by more confidence, more borrowing and more spending.

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Corporate Socialism and Hollowing of America

Most people understand and assume that government income redistribution, where higher incomes are taxed and transferred to those with lower incomes, is a way of achieving greater income equality. But few people are aware of the extent of corporate socialism which is defined here as the transfer of capital, by government to corporations.

In the heat of the GFC, corporate socialism was blatant as there was no need to hide the fact that financial corporations needed to be saved by the government’s injecting trillions of dollars into them to maintain liquidity and solvency of the financial system. The income inequality created by corporate socialism was equally blatant, making billionaires of executives such as Lloyd Blankfein (in July 2015), CEO of Goldman Sachs, a bank which was central to the fraudulent dealings of subprime mortgage derivatives triggering the GFC.

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Creeping American Socialism

The previous post discussed the influence of pluralism in economic policy. As an historical summary of the cognitive dissonance, it suffices to observe the policy circus: the free-market capitalism in the early twentieth century was blamed for the Great Depression; it gave way to Keynesian socialism after the Second World War (WW2) then back to deregulated market capitalism and monetarism since the stagflation of 1970s; and more recently back to renewed Keynesian government intervention since the global financial crisis (GFC) which started in 2008. With each circuit of theoretical favoritism, the structure of the US economy evolved with mutating blends of policy pluralism, but generally with increasing socialism.

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Pluralism of Cognitive Dissonance

Pluralism is the enemy of science. At any given time, science deals only with a single most correct theory in any particular domain, not with multiple incorrect theories. There is a huge difference between evaluating many new ideas and the uncritical tolerance of many inconsistent ideas, which is what economic pluralism really is. Economists usually criticize each other privately and avoid open confrontation in public, giving a misleading impression of the unity of economics. The global financial crisis (GFC) has been seen (e.g. Economist, 2009) as a failure of the dismal science of economics, because mainstream economics is assumed to be science, with all its mathematical models and statistical analyses.

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Posted in Econoclasm, Economics, Science | 7 Comments