Mis-Keyne-ceptions...

OK that was a very weak pun. I notice a lot of posts on various blogger sites decrying Keynesian economics as the cause for the financial mess the world finds itself in. Clearly they don't understand Keynesian economics or how we got where we are.

I am not going to waste too much of your time explaining it, there are many excellent sources of info on his theories, including Wikipedia.

However here is a breif summary, Keynes believed in a fairly well-regulated and Liberal form of capitalism. He believed that Government policy should be used to temper the more rabid and blood-thirsty aspects of free-wheeling capitalism and it should also be used to further equality in society.

Left to it's own devices Capitalism would devour the weaker members of society.

The free-wheeling Twenties which burst into the climax of the Great Depression proved him right and Governments embraced his principles.

However in the late 1970's Keynesian economics started to be abandoned by Western Governments, most notably Margaret Thatcher and Ronald Reagan. They fell under the spell of Milton Friedman, the anti-Keynes. He was a monetarist. His creed was a belief in the free market and it's self correcting mechanism, as well trust in man's greed as a force for progress.

His mantra was less or no Government intervention and regulation, back to the free-market days of the roaring twenties when the Rich and Powerful had very little to impede their wealth accumulation.

The period from 1979 to 2009 was pure monetarism in many countries. Even in Europe which was more Keynesian, they fell under the spell of monetarism- allowing banks, financiers, hedge funds and traders (AKA gamblers) free reign from regulation. An odd combination of rich social programs and reduction in taxation and regulation which inevitably leads to disaster- as it has done in The UK, Greece, Ireland etc.

Obviously it didn't work. Expecting people to self-regulate based on enlightened self-interest was as likely to succeed as Communism was, which was based on working for the general good. Both were flawed philosophies, except one failed before the other.

Iceland which followed Friedman's teachings slavishly is bankrupt, Sweden which rejected them has fared pretty well.

In the US there have been many cases of Hedge Fund managers reaping Billion Dollar pay checks for taking huge, unregulated bets and then when they lost the bet- the US tax payer ponied up the whole cost (via the $120 Billion AIG bail-out) leaving their fortunes and those of their high net worth clients 100% intact.

This is exactly the opposite of what should have happened. Free-market economics dictate that if you lose, you lose big and without intervention. What happened (under Monetarist Bush) was the exact opposite. The big players were not allowed to lose. Their deposits were protected, their institutions flooded with free money.

THAT IS NOT KEYNESIAN ECONOMICS.

Keynesian economics is being attempted now in the US, but the country is too bankrupt from the failed Monetarist experiment.

I am not trying to put-down Friedman. He had some interesting views on liberty and on the anti-drug war. However his faith in greed alone being the best motivating drive for mankind was IMVHO erroneous.....

Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.
John Maynard Keynes