Oh dear. Niall Ferguson, author of numerous books on finance and banking, has received an offer he couldn't refuse from the gay mafia.
He made the mistake of attributing the Keynesian formula of borrow and spend and inflate to Keynes's gayness and childlessness. Good lord, man. You should know that you are not allowed to make silly remarks on gays in today's America. Christians, black conservatives: open season. But not gays.
Can't you read? It says right there in the First Amendment that hate speech, as defined by liberal activists, is not a right.
OK. So I'll retreat to the second line of defense. Keynes thought the way he did because he was a Bloomsberry, and wanted to knock down everything that Victorians and Edwardians held dear. All part of the left-wing attack on capitalism and individualism and Christianity. Nothing personal, old chap. I expect that Ferguson had something to say about this in The Abyss: World War I and the End of the First Age of Globalization.
Because the whole point of cultural leftism is to oppose and marginalize the growth and achievement ethic of the capitalist entrepreneur. When you do this you have to replace it with something else, and the Bloomsberries and lefties were happy to oblige. That something else is the administrative welfare state.
But the administrative welfare state creates a problem. It puts the credit system on the moral equivalent of a war footing.
In the old days, a nation's economy would only get into trouble as a result of a war. War credits would upset the balance between debtor and creditor. During the war debtors would benefit as inflation and government borrowing reduced the value of their debts. After the war creditors would benefit as financial assets increased in value. Deflation.
But in the welfare state the government inflates the economy even in peace time. The result is credit booms that end in recession.
That's all very well, but the government still has to keep paying off its supporters through its welfare-state distribution programs.
Under the old gold standard, you took your lumps. If the market crashed then bad debts got liquidated and people started over. Of course, the central bank acted to prevent a liquidity crisis and the collapse of the whole credit system, including both sound and unsound borrowers.
But in the crisis of the Great Depression the political hacks at the Federal Reserve Board didn't understand their job. They allowed banks to fail and allowed the money supply to contract through the knock-on effect of bank failures. This was regarded as a failure of capitalism.
Also, the US government raised taxes and raised government spending during the collapse.
It was Keynes who had the genius to come up with a plausible economic doctrine to prevent a recurrence of the Great Crash. Government would now do what came naturally, and borrow and inflate madly during a recession. That would tide the economy over until business activity recovered.
Probably, Keynes was wrong. Probably the only thing needful to do is to stop systemic bank failures until the panic is over. In other words the government uses its credit to bail out the banks and guarantee deposits until the liquidity crisis passes. Then it's back to business as usual.
It's salutary to look at the lessons of the Crash of 2008. In that case, with the failure of Lehman Brothers, the government did not perform its proper function of preventing systemic bank failures. So you could say that it failed to learn the lesson of the Great Depression.
The policy to prevent systemic bank failure is not a Keynesian innovation. You can see it developed in the classic Lombard Street by Walter Bagehot. That was back in the 19th century.
Really, the danger of Keynesianism is not that Keynes was gay, it is that it is focusing on the wrong thing. The problem is not a lack of stimulus. The problem is to deal with the load of bad debt that appears in a market crash. In the 1929 crash the problem was bad margin credit on stocks and bad farm loans. In the 2008 crash the problem was bad mortgage loans.
So the task for the government during a credit crisis is to deal with the uncertainty -- the lack of "credit" -- caused by the bad debt, the debt that is secured by assets that are no longer worth enough to liquidate the debt without loss and the debt of non-performing debtors. Keynes muddied the waters by focusing attention on the aftermath rather than the crisis itself.
(One of the ways of dealing with the aftermath is with a "bad bank," a government bank that picks up and sequesters all the bad debt so that the players in the credit market can now be confident that their counterparties can be trusted.)
But all that misses the basic point, that modern welfare state governments weaken the credit system because they are always gaming it to pay off their supporters. Who knows when we will be able to deal with that problem?
He made the mistake of attributing the Keynesian formula of borrow and spend and inflate to Keynes's gayness and childlessness. Good lord, man. You should know that you are not allowed to make silly remarks on gays in today's America. Christians, black conservatives: open season. But not gays.
Can't you read? It says right there in the First Amendment that hate speech, as defined by liberal activists, is not a right.
OK. So I'll retreat to the second line of defense. Keynes thought the way he did because he was a Bloomsberry, and wanted to knock down everything that Victorians and Edwardians held dear. All part of the left-wing attack on capitalism and individualism and Christianity. Nothing personal, old chap. I expect that Ferguson had something to say about this in The Abyss: World War I and the End of the First Age of Globalization.
Because the whole point of cultural leftism is to oppose and marginalize the growth and achievement ethic of the capitalist entrepreneur. When you do this you have to replace it with something else, and the Bloomsberries and lefties were happy to oblige. That something else is the administrative welfare state.
But the administrative welfare state creates a problem. It puts the credit system on the moral equivalent of a war footing.
In the old days, a nation's economy would only get into trouble as a result of a war. War credits would upset the balance between debtor and creditor. During the war debtors would benefit as inflation and government borrowing reduced the value of their debts. After the war creditors would benefit as financial assets increased in value. Deflation.
But in the welfare state the government inflates the economy even in peace time. The result is credit booms that end in recession.
That's all very well, but the government still has to keep paying off its supporters through its welfare-state distribution programs.
Under the old gold standard, you took your lumps. If the market crashed then bad debts got liquidated and people started over. Of course, the central bank acted to prevent a liquidity crisis and the collapse of the whole credit system, including both sound and unsound borrowers.
But in the crisis of the Great Depression the political hacks at the Federal Reserve Board didn't understand their job. They allowed banks to fail and allowed the money supply to contract through the knock-on effect of bank failures. This was regarded as a failure of capitalism.
Also, the US government raised taxes and raised government spending during the collapse.
It was Keynes who had the genius to come up with a plausible economic doctrine to prevent a recurrence of the Great Crash. Government would now do what came naturally, and borrow and inflate madly during a recession. That would tide the economy over until business activity recovered.
Probably, Keynes was wrong. Probably the only thing needful to do is to stop systemic bank failures until the panic is over. In other words the government uses its credit to bail out the banks and guarantee deposits until the liquidity crisis passes. Then it's back to business as usual.
It's salutary to look at the lessons of the Crash of 2008. In that case, with the failure of Lehman Brothers, the government did not perform its proper function of preventing systemic bank failures. So you could say that it failed to learn the lesson of the Great Depression.
The policy to prevent systemic bank failure is not a Keynesian innovation. You can see it developed in the classic Lombard Street by Walter Bagehot. That was back in the 19th century.
Really, the danger of Keynesianism is not that Keynes was gay, it is that it is focusing on the wrong thing. The problem is not a lack of stimulus. The problem is to deal with the load of bad debt that appears in a market crash. In the 1929 crash the problem was bad margin credit on stocks and bad farm loans. In the 2008 crash the problem was bad mortgage loans.
So the task for the government during a credit crisis is to deal with the uncertainty -- the lack of "credit" -- caused by the bad debt, the debt that is secured by assets that are no longer worth enough to liquidate the debt without loss and the debt of non-performing debtors. Keynes muddied the waters by focusing attention on the aftermath rather than the crisis itself.
(One of the ways of dealing with the aftermath is with a "bad bank," a government bank that picks up and sequesters all the bad debt so that the players in the credit market can now be confident that their counterparties can be trusted.)
But all that misses the basic point, that modern welfare state governments weaken the credit system because they are always gaming it to pay off their supporters. Who knows when we will be able to deal with that problem?
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