Brains Not Included

Cracked Up, Whacked Out and Completely Out of Control

Keynesian Kooks – Why Keynesian Theory Doesn’t Work

KeynesianWhose Theory is This?

Keynesian Theory was developed by John Maynard Keynes, a man who would eventually have the royal title of Duke bestowed upon him in England.  Born in 1883, he came to prominence as an economist and philosopher around the time of The Great Depression. 

 His theories were adopted by the government in England in the late 1930’s and were eventually adopted by the Americans towards the end of World War II.  Essentially he believed that government could and should control capital in order to abate the swings in unemployment that can be typical in capitalist economic systems.

His theory basically states that high rates of savings by the population should be discouraged because those rates of savings hamper growth.  He also believed that supply drove demand not the other way around.

One of his largest critics was Milton Friedman who believed there were some basic flaws in Keynes theory.  One of the things that bothered Friedman the most was that much of Keynes economic themes were based on his feelings or his philosophy and had very little to do with actual mathimatical formulaic proof.

Friedman actually disproved Keynes theory that supply created demand and proved mathematically the opposite was in fact true.

What is the Keynesian Theory of Economics?

Simply put, Keynesian theory states that government can place capital more efficiently than the private sector.  When government controls capital and directs its placement through taxation and heavy regulation or through deficit spending, then swings in economic cycles are flattened and full employment is brought into equilibrium for long periods of time.

It further hypothesizes that high savings rates are unsafe and destabilize the economy and that only low savings rates and high rates of spending by the population can sustain growth and fuel stable economic cycles. 

Therefore, when the public is saving in large numbers, the government must encourage spending through regulation and if government cannot encourage spending then it should tax heavily in order to put the saved money to work in the economy.

Why Keynesian Theory is Still a Theory

Keynesian Theory is still a theory because it’s never been proven to work.  While America embraced Keynesian Theory in the lat 70’s under Nixon and Carter, the British were quickly squeezing the vestiges of this failed theory out of their government.

Theories remain theories until they are proven at which time they receive the title of Rule or Law.  We don’t call it a law because the theory’s concepts have failed time and again.  If it worked we would call it a Keynesian’s Law or the Keynesian Rule.

Milton FriedmanCommon Sense Shows Us the Way

Think about the two basic tenants of Keynesian Theory.  1.)  That saving is bad and; 2. )  That capital in the hands of a few (the government) is better than the profit motive of capital in the hands of many.

Instinctively we know that having savings is good.  ‘Save for a rainy day’… ‘Neither a beggar or a borrower be’…  ‘Waste not, want not’…  All of these wise old sayings are telling us something.  SAVE FOR A RAINY DAY!  Saving is a good thing.

Next lets take a look at human nature.  How good would a person have to be if you put millions, billions or even trillions of dollars in their hands and said, this doesn’t belong to you but you have complete control over it? 

Now the rules say this person can’t use their emotions in deciding what to do with the money and they can’t let their personal opinions play on their decisions, but…  How does this person or these few people in control that kind of money keep their own human nature in check? 

They don’t, just look at the Marxist utopia that should have bloomed from the Bolshevik revolution.  Instead of Utopia we got the USSR.  Socialism and Communism are the end result of basic Keynesian Theory.

Friedman Got It Right

Milton Friedman used mathematics to prove his economic theories and to disprove Keynesian Theory.  While Keynesian approached economics from the viewpoint of philosophy first and mathematics second, Friedman comes at from the other side.

While the Keynesian experiment was all the rage in Europe and was being put into practice in the U.S.A., Friedman was being decried by his piers for his opposition to this ‘enlightened’ economic theory. 

But, armed with the mathematical facts and penchant for philosophy himself, Friedman was able to write one of the greatest books of all times.  Capitalism and Freedom is a must read for anyone that wants to understand why Capitalism works and how it creates freedom.

We can try Keynes ideas one more time, but doesn’t make more since to turn to the logical rules that are proven and documented for us by Friedman?  Capitalism may give us some ups and downs in our economy, but it is still the worlds last best chance for strong free societies where people have an opportunity to live free from tyranny and where people are free to live their lives as they see fit!

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Me and Dennis Miller!

dennis-millerSo when I’m wrong I admit it.  My buddies were right.  You know the ones, the ‘angry’ guys that I just couldn’t understand!  Yes, those guys, the ones with no brains and I can’t beat them up verbally.  Now I think those guys could beat me up with half their brains tied behind their backs.

I was the one on the band wagon first!  I can make that claim and back it up!  I bought the book!  🙂  I saw our President Elect back when he was a Senator speaking from the same steps Lincoln spoke from in Gettysburg. 

It was a moving and eloquent speech that got me thinking  …hmmm….. could I vote Democrat?

Then I read the book Audacity of Hope, and the answer was an emphatic YES!  I could vote for a Dem.  But then the election started.  Barak moved way left, even left of Hillary, then he swung right again.  He was a swinging sea-saw of words and ideas.  I lost who the man was.

Then the right started screaming and the campaign was in full out, tear down the walls, scorched earth, America be Damned mode!  I have to admit, I rail against the cacophony from the political extremes on both sides but I got caught up in them anyway.

Now it looks like Barak is the Barak of Audacity of Hope.  He may be the man that I originally said I would vote for and I’m now sorry I didn’t.  I apologize.

I am in the Dennis Miller camp now.  I support the President Elect fully and I need him to be the kind of President that makes me want to vote for him and nobody else for a second term!  I pray for him and our nation.

As for his recent picks for his cabinet, I am becoming increasingly happy.  His choice of Hillary was a very astute political move.  She is no dove that is for sure.  And, with this pick he has removed one of his most powerful left leaning rivals from the Senate.  Pretty smart move if you ask me.

His softening stance on when and how to pull out of Iraq and on when to or when NOT to raise taxes is also encouraging.  Next election I’ll go with my initial gut reaction on who to vote for and then maybe I won’t have to eat so much crow!  LOL

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It’s Not Worth It!

I sit here and reflect on my weekend and I wonder how a fun filled evening could end so explosively.  Our political system has pushed good people to the edge.  As I’ve said in a previous post, when our politicians can get a grandson to besmirch his grandfather in order to make his political point relevant, we’ve lost something in what used to be a uniquely civil American discourse.

I’ll not go into the details of my situation, but suffice to say that it rattled me so much that it still weighs heavily on my mind two full days after the event.  The differences in the political beliefs of most Americans I believe to be very small.  However, the harangue from the extremes on our left and our right keep even the most sensible among us gripped in a life or death struggle to have our ideas accepted.

Reading Audacity of Hope by Barak Obama gives one a sense of a man that is reasonable and somewhere in the middle.  However watching his campaign and how he is drawn to the far left by Nancy Pelosi and Harry Reed is scary.  His politics are not those espoused in the book.

However, looking at the “Maverick” (quoted with some sarcasm) of the Senate, John McCain, we see the same thing.  The far right of the party would not support him therefore he had to move farther away from the center in order to garner the support of his party if he is to have any chance of being elected.

So we are governed by the extremes.  We receive our news and media from the extremes and those of us who work hard and agree somewhat are painted with a broad brush by our detractors as being part of the extreme.  It doesn’t matter whether you are just slightly to the left or slightly to the right.  Lean one way and you are a Socialist/Communist or lean the other and you are an Intolerant Conservative/Fascist.

In this political season we have two men that I feel are truly like a lot of America.  They are slightly to the left or right of center.  There truly is not much difference between the two.  The left and the right have painted their differences in extreme ways. 

The bottom line is this, my vote goes to the person that will stay out of my wallet first and then stay out of my bedroom second.  That vote then would be for McCain.  I will go to the voting booth and I will cast my vote.  Like many proud Americans before me, I will cast my vote for the American I feel is most deserving and who would serve the best.

For those who say that this choice makes me a fascist or intolerant, I say to you that you then are the one that is intolerant.  Does your vote for Obama make you a socialist or communist.  I say no!  It makes you an American and like most Americans you have made your choice as well.

Let’s all remember that many men and women have served and died for us to make our own choice.  They’ve served so that you and I could vote and so that we can express ourselves in a free and civil way.  Let’s not belittle their service by continuing a discourse that pits Friends against one another. 

While this election is important it is not the end all and be all to life.  When we begin to allow the media and the politicians to gain control over our relationships and how we treat each other, we give up a little of what makes our nation great.  I for one say go and vote!  Vote for whoever you want, write in Mickey Mouse if you have to.  Then stand up and be proud.

Be proud of yourself, your choice and the freedom of others to choose.  Be proud that you haven’t allowed the best efforts of the politicians and the talking heads to ruin your relationships.  Be proud of your friends and respect their choice, in the end we will all need each other and if we allow politics to tear us apart then we are truly weak and deserve what we get in our elected officials.

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Creating The Socialist National Bank of Amerika

How much is enough?  Well, how about another $250 Billion!  That’s BILLION with a ‘B’!  So we’ve poured billions and billions into this bailout with no end in site. 

Obama seems to see the bailout and the economy as a way to make political hay.  His answer is to tax more and spend more.  My questions to Senator Obama are:  How does taking more money out of my pocket and giving it to others help the situation? ……and…..  How does spending MORE money and creating larger government bureaucracy help? 

Isn’t our problem that a liberal government has been to involved in making policy like the Community Reinvestment Act that forced banks to make bad loans?  Isn’t the problem also that through our ‘social engineering’ strategies, government spends way to much money?  I say yes, that is the problem. 

For those that would point to the war and say we spent to much there, I say you are correct.  But, be honest about why you say that, you wouldn’t save that money.  You just want it to poor into other government programs.

McCain is a different story.  He doesn’t have a clue about how the economy works.  He seems to be walking lock step with what Paulson and Bernanke are recommending and he has no original ideas of his own.  To his credit he wants to freeze spending, but to his discredit he has suggested drastic cuts in spending.

Conservatives and Republicans in general are way to far to the other side of this issue.  There needs to be some SERIOUS regulation of banks and investment banking operations.  There needs to be oversight to make sure that these organizations are taking advantage of the public.

Both sides have it wrong.  Seems like we are ruled by the extreme left and the extreme right and the only candidates we get that are in the middle don’t have the backbone to make a stand against the extremes on both sides!  We need someone in the middle to say enough!  and stand up to both the left and the right.

Sorry, back to the subject at hand…..

So Paulson decides he’s going to take $250,000,000 and ‘invest’ in America’s banks.  Now we have the ‘socialization’ of the American Banking System and neither candidate ….let me say that again…. NEITHER CANDIDATE! has said anything about it!

And who gets the largest portion of that money, 9 of the nations largest banking institutions!  I would love to see the ‘formula’ where they figured that one out.

One last thing and I’ll close; I just read the U.S. Constitution.  Funny thing is I didn’t see anywhere in there where the Federal Government was given the power to own bank stocks.  Can someone help me out with this?  Please, I’m just sure my head is going to pop right off of my shoulders!

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Bingo! There is a Plan

McCain is getting hammered by the press, by the Dems and by the conservatives.  His egregious mistake?  He mentioned that he would take $300 Billion and buy up all the bad loans and then reset those loans to make them affordable for the homeowners.

Now everybody is hammering him for his plan.  Let me just say this, AT LEAST HE HAS A PLAN!.  He’s not playing the Paulson/Bernanke game and just shooting in the dark.  He’s looked at the problem and said; ‘hey, if the real problem is bad mortgages clogging the system, then let’s get them out of the system.’

BINGO!  If that is the problem, then remove the problem.  What Paulson and Bernanke have done is said they’ve identified the cancer, they see the tumor and it’s in the gut.  BUT, we have to go through the foot, up the leg, through the groin and then maybe we can get to the problem area. 

McCain says, hey I see the tumor, let’s go in there and pluck it out!

I for one do not relish the thought of sitting around over the next three years while the current plan slowly weeds these bad mortgages out of the system.  Furthermore, can someone telll me where the authority was given to Paulson to invest our $700 Billion into bank stocks? ….both good and bad companies…..

So now the Fed is in the business of being a stock holder in America’s banks?  What, are we turning into United Socialist State of AmeriKa?

Look, I’m in the mortgage business so I see this stuff every day.  I’ve seen the bad players and I’ve fought against the predatory lenders.  I’ve watched our stock market and bond markets slowly detach themselves from one another and now they are completely working as opposing forces instead of working in unison.

There is a huge problem out there and at lease McCain has a fix.  It may be unpalatable to those of us who play by the rules and pay our bills on time, but what is the alternative?  The alternative is what we are dealing with right now ….or worse!  Let’s just swallow this one last BAD bite and be done with it.

The more I think about it, the more I’m beginning to think McCain is on to something.

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A Head On Collision

Many people don’t like it when politicians argue and accuse.  They wish for a more story-book setting where we all get along and nobody slings mud.

Well it’s time to to wake up!  Our political history has been fraught with conflict.  Today’s political environment is much tamer that our past.  Remember the days of Burr and Jefferson.  The days when you could win a senate seat by winning a duel?  The days when a fist fight was likely to break out just outside the doors of congress?

Yes, the arguments flowing over the airwaves in today’s public discourse are much tamer and are very necessary.  The Press has always been ‘in the tank’ for one candidate or the other and the only way to get the public to wake up and look at both candidates evenly is to sling a little mud.

This campaign season is no different.  This year we have two virtual unknowns, one is a VP candidate and other is a Presidential candidate.  However the press has vetted the VP candidate much harder than the other sides Presidential choice.  This was the complaint of his opponents in his primary and it is still the complaint today.

Finally, the Republicans have got the message.  They must sling a little muck and get a little dirty to wake up the electorate.  Nobody wants to get dirty but it’s tough to stay clean when your opponent constantly slings mud, obvuscates the truth and is never questioned by the press.

Kudos to McCain for finally getting it!  I believe in no small part, this change in strategy is due to the popularity amoung the base for his VP candidate.  Hopefully the attacks will keep coming because there is so much the electorate doesn’t know about the Democratic nominee.

1.  Did you know that John McCain DID lead the way on the attempt to regulate Fannie Mae and Freddie Mac, the two main causes of our current economic crisis?

2.  Did you know that one of the largest contributors to the Obama campaign were these two organizations?

3.  Did you know that is was the Democrat party that blocked tighter regulation of Fannie and Freddie as far back as 1995.  Even President Clinton stated in a recent interview that he wanted tighter regulation of Fannie and Freddie but he was blocked by his own party?

4.  Did you know that Barney Frank, the lead Democrat on the committee in charge of overseeing banking regulation stated that there was no problem with Fannie and Freddie and accused the republicans of tyring to squelch affordable housing?  (Why is this man still in charge of that committee, he should be castigated with all the CEO’s that went along with this crap!)

5.  Did you know that Senator Obama had a chance to vote for heavier regulations and chose to vote present instead?

There is a lot to know about this man who appears to have become the defacto leader of our great nation.  With early voting going on all around the country and with people and corporations with their hands outstretched and willing to vote for the politician that will give them the most, it is time for a little mud slinging. 

It is time for the electorate to wake up and for Obama to answer the hard questions.  Then maybe we can all have the information that we need to make an informed decision about who our next leader will be.

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