That any schoolkid could predict eliminating
feedback and consequences will lead to a series of disastrously poor
choices by speculators and imprudent borrowers doesn’t register
with the Keynesian Cargo Cult.
The Keynesian Cargo Cult’s ability to
print and squander money is insignificant next to the power of
Diminishing Returns. By now we all know two things about the
Keynesian Cargo Cult’s religion:
1. It has failed to conjure up the recovery its
sadly devoted believers insist is “just around the corner if we
only borrow and squander more money” because…
2. Its main tenet–that the problem is “lack
of aggregate demand,” i.e. people will buy more stuff made in China
and corporations will open more stores to sell the stuff made in
China–if only it was dirt-cheap to borrow more money–is
completely, utterly, painfully false.
The central premise of the Keynesian Cargo
Cult is that this mechanism of making it cheap and easy to borrow
money will work a kind of magic that can only be manifested by
dancing around a fire at night waving dead chickens and chanting
“humba-humba.” The Keynesian cargo Cult calls this magic
“animal spirits.”
Unfortunately, waving dead chickens while
dancing around a fire doesn’t do anything in the real world, and
neither does making it cheap and easy to borrow more money.It
turns out that prudent people have no interest in borrowing more
money, even at low rates of interest, and imprudent people are happy
to do so but will stop paying the loan as soon as something untoward
occurs in their finances. The cheap, easy-to-get loans default and
either the banks who made the loans collapse or the taxpayers have to
bail out the banks who foolishly lent money to imprudent borrowers at
super-low rates of interest.
Corporations, meanwhile, look at the real risks
of expanding business in a debt-saturated economy distorted by
Keynesian Cargo Cult policies and realize that gambling capital on
the possibility that waving dead chickens and chanting “humba-humba”
will actually increase profits is a truly stupid bet, so they borrow
the nearly-free money and invest it in various carry trades overseas
that return a virtually risk-free return, thanks to the nearly-free
cost of borrowing mountains of money from the Cargo Cult.
The Keynesian Cargo Cult is stubbornly blind
to the two key dynamics of the real-world economy: diminishing
returns and the S-Curve. Diminishing returns result when a
system’s ability to produce an economically valuable output
declines.
Higher
education is a good example: tuition has soared $1,100% while the
output (value of a college degree) has declined precipitously. A
recent major study,Academically
Adrift: Limited Learning on College Campuses, concluded that
“American higher education is characterized by limited or no
learning for a large proportion of students.”
‘Academically
Adrift’: The News Gets Worse and Worse (The Chronicle of
Higher Education)
Meanwhile, student loans exceed $1 trillion,
only 37% of freshmen at four-year colleges graduate in four years
(58% finally graduate in six years), and 53% of recent college
graduates under the age of 25 are unemployed or doing work they could
have done without going to college–retail clerks, waiting tables,
etc.
The Keynesian Cargo Cult solution to the
diminishing returns is to provide more debt to students, making them
into debt-serfs for life. The cruel stupidity and immorality
of the Keynesian Cargo Cult knows no bounds because they refuse to
accept the reality that diminishing returns cannot be fixed by more
debt and more squandering of good money after bad.
The
truth is the failed cartel of higher education has to be leapfrogged
and left in the dustbin of history: here’s a model that lowers
costs by 90% and aligns the output with the real economy: The
Nearly Free University and The Emerging Economy.
The
Fatal Disease of the Status Quo: Diminishing Returns (May 1,
2013)
The Keynesian Cargo Cult’s solution allows
no feedback from the real world, and allows no mechanism to
discipline the imprudent borrower/speculator. If imprudent
borrowers take on too much debt, the Keynesian Cargo Cult’s
solution is to offer them more credit at rates they can
afford–near-0% if necessary.
If a speculator borrows money and loses it in a
high-risk gamble, the Keynesian Cargo Cult’s solution is to force
the taxpayer to make good the gambler’s losses and then give the
speculator more nearly-free money to continue gambling.
This “solution” works the first time
around, less well the second time around, and triggers a collapse the
third time around. This lifecycle is called the S-Curve:
The Keynesian Cargo Cult inflated one credit
bubble in the 1990s, another in the 2000s, and by an extraordinary
expansion of credit and lowering interest rates to near-zero has
managed to Beat the Devil and inflate a third credit bubble in the
2010s.
That any schoolkid could predict waving dead
chickens and eliminating feedback and consequences will lead to a
series of disastrously poor choices by speculators and imprudent
borrowers doesn’t register with the Keynesian Cargo Cult. But
since the Keynesian Cargo Cult is headed by a Nobel Prize academic
economist, the Cargo Cult members effusively praise the Emperor’s
fine (and nonexistent) robe.
You poor, dumb, deluded fools. You’ve
destroyed our economy, our values and our ability to deal with
reality. Your faith is as boundless and disconnected from
the real world as your policies.
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