Nobel prize winning economist Paul Krugman is, of course, a Keynesian. All economists - or practically all - are now Keynesians. So are all government officials. "We're all Keynesians now," announced Richard Nixon in the '70s.
That is, they all believe that government has to manage the economy - in a macro-economic way.
The theory is simple: when private industry and private consumers drop the ball...the government should pick it up and run with it.
And so the feds are out on the field:
At the Treasury, the boys from Government Sachs are all suited up...shooting some hoops with their pals from Wall Street. Got some investments that went bad? Bring 'em over! The Paulson crew has $700 billion to work with. If you're a major bank or financial institution, and you don't mind playing ball with the Paulson team, you could score some real money.
And over at the Fed, Ben Bernanke is hoping to kick a field goal. He's still got 150 basis points to go in this game. Then, the key Fed rate will be zero. He'll use every one of those points, we guess. And he'll continue lending money to whomever will take it. Want to see an ugly bank balance sheet? Just look at the Fed. The bank - a private bank, by the way - is selling off its safe U.S. government securities in order to take on board the kind of 'assets' that smell like a teenager's gym locker.
And that still leaves the "fiscal stimulus." Yes, dear reader, get ready for it. Big spending projects. Paul Krugman is using his new stature to tell politicians what they want to hear most. This is not the time to be timid about spending money. Keynesian economics requires Congress to run big deficits - to make up for the spending that consumers and business have more sense than to do. 'It's the responsible thing for government to do," he will say. 'And don't worry about the deficit. We'll take care of that later. America is such a big, dynamic, flexible economy...we'll figure out how to deal with the deficit after this crisis is over.'
The Washington Post is now talking openly about something that would have seemed impossibly scary and absurd a few years ago - a $1 trillion deficit.
It's coming, dear reader. It's coming.
Yes, the feds are setting a different kind of trap for modern Americans. Watch out for Caesar's money!
Bill Bonner
for The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by GaryB on 22 October 2008:
Economics is often called the dismal science. But it's an insult to the hard sciences like mathematics, chemistry, physics etc. to call economics a science. It's soft, woolly-headed waffle. Probably because the processes and outcomes that economic theories are applied to involve human behaviour which is chaotic and emotional and driven by fear, greed, and panic.
Comment by Charles Norville on 6 December 2008:
good call - yea economics is a human invention that is like a multi headed hydra, like 'Manopoly' its a game that seems real and exciting until you run out of paper money, ie 'the bank'.
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