April 12, 2013

Failings of Keynes and Politicians.

In order for Keynesian Economics to work we need politicians with intestinal fortitude willing to do what is right for the long-term viability of the economy. Often what is right is a bitter pill to swallow and temporarily may upset the politicians voter base.

Part of our misconception about golds' value results from a poor track record of implementing Keynesian Economics. The public and politicians only hear about Keynesian Economics when the economy turns downward. Economists may talk about it at other times, however the rest of us, including our political leaders, don't listen.

It is when an economy is in a recession or near depression when the market debates whether the government should intervene and stimulate. When is the last time you heard a drum beat from politicians saying we need to restrain an overheated economy by paying down debt previously created to stimulate? Yes, there are a few articles and/or speeches by economic professors sending out messages that we need to apply economic brakes; however these few are ignored by the public and those in Washington.

The primary objective of a politician is to keep his job and get elected to an even more powerful job. This does not normally occur by being an advocate of a slower economy. Our elected officials are very happy to use deficit spending to buy votes. Further, they are more than willing to put added pressure on the Federal Reserve not to raise interest rates and increase money supply to accomplish their personal political objectives.

The most memorable time in recent history when the Federal Reserve applied major pressure on reducing consumer demand was in the late 1970's and early 1980's when the money was contracted and short-term interest rates rose  above 20%. The result was a major recession and a real estate and savings and loan crisis. That was over thirty years ago.

I can see why economists are not fond of politicians. The later do not listen well.

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