Highlights from "Where Keynes Went Wrong..." (Lewis)
This Is Fine
I recently found myself in a thrift shop perusing the used book section, where I stumbled upon this gem below.
I’d never heard of this text, but its title - “Where Keynes Went Wrong: And Why World Governments Keep Creating Inflation, Bubbles, and Busts” - resonated with me. The book’s author, Hunter Lewis, a graduate of Harvard University and co-founder of “Cambridge Associates, LLC, a global investment firm whose clients include leading research universities, charitable organizations, and families”, is quite critical of Keynes’ work.
Maynard James Keenan John Maynard Keynes (I stole that from an article I read in Death+Taxes, a magazine that I used to write for years ago) was a British economist who believed that, in healthy economies, people should spend more than they save; that “governments should increase spending and lower taxes when faced with a recession in order to create jobs and boost consumer buying power”; and that, essentially, boom and bust cycles shouldn’t happen because governments should spend endlessly whenever the market goes belly up.
Critics of Keynes, including Lewis, often state how the application of Keynesian economic theory has led to (hyper)inflation, greater volatility in the system, and higher degrees of moral hazard. In “Where Keynes Went Wrong…”, Lewis dismantles the arguments made by Keynes and his followers point by point, as he illustrates how we’ve come to find ourselves in the financial mess that we are in today.
Below are some highlights from the text.
Keynes (and Lewis) on the Stock Market as a Casino
Keynes felt that the worst aspect of the stock market was the “casino” atmosphere. However, Lewis reports that
“Keynes became rich through his investments. This was neither incidental nor accidental. He wanted very much to be rich, worked assiduously at it, lost everything once and nearly everything again with the onset of the Great Depression, but recovered each time and died a multimillionaire in today’s money” (p. 38)
Maybe Keynes was so into money printing because he just wanted to pump his own bags.
Oddly enough, though, in one of Keynes’ better known works, General Theory, he states,
“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation” (qtd. in Lewis, p. 51).
Lewis takes Keynes’ thought above one step further:
“Under these circumstances, capital will not only be misallocated. Average citizens will also lose faith in the system…the social system will unravel, no one will want to work, and everyone will want to gamble” (p. 51).
No one will want to work, and everyone will want to gamble.
Hits home, doesn’t it? We can thank Keynesians, their utopian ideals, and the massive bubbles they’ve blown for our current state of affairs. We’ve now hit the point of delusion where most of us think we are geniuses because of how much money our assets are currently worth. We are not geniuses, though. We just happen to hold hard assets that are currently being valued at higher rates in dollars (or other fiat currencies). To paraphrase Raoul Pal, the numerators (hard assets) aren’t increasing in value; the denominators (dollars) are decreasing in value.
This is fine, right? One of my students’s brothers, a medical doctor, wants to stop practicing medicine to start trading NFTs full-time. Seems like the type of thing someone might opt do when they totally aren’t speculating inside of a bubble, no? The stock market, as well as the price of houses and other hard assets always go up, right? Totally. Let’s move on to the next section.
Collapse
The Soviet Union had a lot of “experts” managing its economy toward the end of its existence. What most people don’t realize about “experts” is that
“All human beings, even so-called experts, are mostly in the dark about the future” (Lewis, p. 48).
Lewis continues,
“As Oysten Dahle, a Norwegian oil executive, said about the Soviet Union, ‘[It] collapsed because it did not allow [market] prices to tell the economic truth’” (p. 90).
This same type of collapse is likely coming to the U.S.. According to Balaji Srinivasan, the U.S. will enter a period of “American anarchy” in which the country is unbundled and then rebundled, kind of like how music was unbundled from CDs and rebundled onto Spotify or like how the Soviet Union unbundled and then rebundled into smaller nation-states. You can listen to Srinivasan’s ideas in more depth here.
Lewis claims that, in the 1980s (the era of Reagan and Thatcher),
Keynes began to be seen as a “false prophet, one whose recommendations had led the world to the brink of economic ruin” (p. 94).
By the 1990s, the Keynesian economic philosophy-induced cycles of bubbles and crashes had begun, and we are still living in the age of these cycles. Each bubble and crash seems to get larger and larger. Now, this is great news if you are really good at timing the market - selling high and buying low - but fairly shitty news if you are everyone else. And my guess is that these bubbles have a lot to do with the mental health crisis that we currently face here in the U.S.. But our leaders keep telling us everything will be alright, right? Keynes was good at talking the same type of game.
Keynes, the Smooth-Talking Rhetor
Keynes was apparently quite the persuasive orator. During the 1930s and 1940s, few economists wanted to debate Keynes because they knew that he could talk and that he represented Cambridge University, the then “world center of economics” (Lewis, p. 263).
Lewis states,
“Lord Macmillan, chair of the British government’s 1930 Committee on Finance and Industry, told Keynes, after listening to him for six and a half hours straight on day, that ‘We hardly noticed the lapse of time when you are speaking’” (p. 263).
Lewis continues,
“Henry Morgenthau, US secretary of Treasury, wrote in his diary that ‘[Keynes is] one of the fellows that just knows all the answers’” (p. 264).
Lewis also cites Robert Skidelsky, who suggested that
“[Keynes’] ‘true greatness’ lay in his rhetoric, ‘using that words in the classic sense of the ‘art of persuasion’.’” (p. 265).
In short, Keynes seemed to be something of a smooth-talking charlatan or a used car salesman with elite-level academic pedigree. In contrast to Keynes’ rhetoric, Lewis discusses how Keynes frequently misused and misunderstood (manipulated is probably the better word) math. So, if Keynes’ economic philosophy got us into this mess, wouldn’t the antithesis of it be the thing to get us out? Enter Satoshi Nakamoto, inventor of Bitcoin.
And yet some of the “experts” among us don’t like Bitcoin.
Krugman, a Modern Day Keynes
Lewis states,
“Paul Krugman, Nobel Prize winning economist and fervent Keynesian, agrees that it should be possible to avert slumps, and if necessary to cure them, by running the government’s printing press to reduce interest rates, and thereby to increase the demand for loans” (p. 104).
Paully Kru Kru also feels that the world is “plagued by ‘excess’ savings” (p. 128). Yes, that’s right. Paul Krugman doesn’t like the idea that people save money, much like Keynes didn’t.
Keynes actually felt that people didn’t need to save money; he felt that
“the economy can be cooled by taxation without jeopardizing investment” (Lewis, p. 23).
Lewis also claimed that Keynes felt that
“if the government raises taxes and runs a budget surplus, it will itself become a principal economic saver” (p. 23).
In other words, the government - the same entity that is now about $27T in debt - will save for you. Lol.
As I mentioned, DJ Paully K also doesn’t like the idea of boom and bust cycles, just as Keynes didn’t (Lewis). He likes a world where corporations never really have to pay for their bad practices and where moral hazard can just run rampant.
Lewis claims that both Keynes and Krugman also really like(d) the word “probably”. That’s cute, right? Like massive government invention in markets probably won’t lead to the rich getting richer and the poor getting poorer, all the while eroding the middle class, which probably won’t lead to populism. Or like massive government invention probably won’t fragilize the system to a point where cheap credit is the only tool we have to hold it up.
And just as Keynes did, when you get it wrong, well, you just kind of throw your hands in the air and give some sort of half-hearted intelligentsia-approved answer.
Oh man, it didn’t go as Summers et al. predicted?! Who would’ve thought that?!
Of course you got inflation wrong, Paul. You got it wrong because you’re a fucking clown, a clown of the same ilk as Keynes. You’re just making this shit up as you go along. Go fuck your whole self. People get hurt because of academics like you. Doers suffer as a result of thinkers like you.
[Frank comes to]
Wait…what happened? I blacked out.
Lewis’ Closing Thoughts on Keynes
“In a little bookshop in Beijing, tucked away on the ninth floor of an office and residential building, one can find the complete works of Mao, all laid out in spanking new editions with colorful wrappers. A small band of true believers repair to the shop. Sales are even up a bit with the Crash of 2008. Perhaps this store, appropriately named ‘Utopia,’ also treasures and propagates the works of Karl Marx.
One day in the future, there may be such a store devoted to Keynes. His words will no longer carry much weight in the wider world, but in this place his complete works will be beautifully presented and his name discussed in hushed and reverential tones.
Let us hope that we do not have to wait too long for Keynes to join Mao and Marx and other faded and false utopians.”
Before offering my closing thoughts on Keynesianism, I will state that I think it is both okay and good to have ideals (and social safety nets) for society. I’ve read Marx’s writing, and some of his ideas in and of themselves aren’t necessarily bad; some, theoretically, are very good. But let us always remember that Marx was a thinker and not a doer, just like our buddies Keynes and Krugman. I actually spent some time working on what some might call a perfectly Marxist or communist co-op in Venezuela, and it was one of the most incredible and enlightening experiences I’ve ever had. I believe that social ideals can be achieved or social “utopias” can be created, but that these things usually happen on smaller scales, in situations in which people are educated and take part in voting on decisions that the governing body makes. This is a part of the reason I’m such a fan of DAOs, but more on that in a future edition of the newsletter.
Based on what I’ve read from and about Keynes, he seemed to believe that we should simply trust that the Federal government has it all under control. This is petrifying to me. I heard that same type of talk when I lived in Venezuela, and take a look at the shape that that country is in right now. So, please tell me if you would like the unelected bureaucrat below making critical decisions about your finances.
That’s Saule Omarova, the person Biden selected for comptroller of the currency.
“Imagine what would it be like if instead of being just a public option for deposit banking, this would be actually the full transition; in other words, there will be no more private bank deposit accounts, and all of the deposit accounts will be held directly at the Fed.” -Saule Omarova
My favorite part about this is that she says that “there will be no more private bank deposit accounts” yet she says that all deposits will be held by the Fed, a private bank. And toward the end of the video, she hypothesizes about the way that central banks will be able to “take money away from people’s accounts”. You read that correctly. She would like for the Fed to have the power to take money out of your account when it sees fit to do so. If you think the end game here isn’t about taking the power out of your hands, your brain is broken. You should read up on her and be aware of what she’s trying to do. She’s a fucking psychopath.
My Closing Thoughts on Keynesianism
The Keynesian idea that governments should spend to help alleviate a potential catastrophic financial crisis is not in and of itself a bad one. However, when this is the only tool the government uses to stave off crises - and no difficult decisions get made by those at the helm - we create cycles of crises. As I mentioned earlier, this has been the pattern since Reagan and Thatcher ushered in neoliberalism, a period when Americans, in efforts to keep up with the Joneses, became credit-seeking fiends, and as Raoul Pal said in a recent interview, the Asian debt crisis of 1997 was probably the last chance we had to allow for the boom and bust cycle to take place without significant government intervention. It’s now too late to allow for the the boom and bust cycle to occur without the bust resulting in global financial collapse. So, now we’ve placed it all in the hands of the “experts”, the same “experts” that got us into this mess. This is fine, right?
In an earlier piece that I wrote, I discussed how Keynes argued that we should pay down our debt when times are good, financially speaking. We don’t do that, though. And we are far past our ability to do that now. We need to print money just to service our national debt. And so now we enter the Fourth Turning, and we watch power shift from those who hold fiat currency to those who hold digital assets. Digital assets will be the new hinge on which the macroeconomic world swings. Keynesian economic philosophy run amok has brought us to the current rubicon that we now have to cross. The old system and the gerontocracy that both props it up and that we prop it up for will likely see its day before this decade is out, and this is when we likely see the concept of the nation-state and its antiquated economic philosophies like Keynesianism truly challenged and truly fail.
I write the words above with great disappointment, because it has been painful to come to the realization that the people who were supposed to be the adults in the room - the ones who were supposed to make hard decisions - weren’t and didn’t. And now they just clown around pretending they have the answers, applying band-aid after band-aid, only temporarily making things “better”. (I recognize that it is, in a way, not right to use the word “they” in this paragraph, as we are all complicit on different levels. I have only kept the word “they” in because I feel like I’m just learning about and processing the philosophies and circumstances that have led us to this point.)
The digital asset system has been birthed out of necessity. It’s the only way that I can see out of this mess, as it’s only a matter of time before our current system - the equivalent of a full-blown alcoholic, incoherently drunk on cheap credit - begins to realize that more alcohol isn’t the cure.
Best,
Frank
Twitter: @frankcorva
“I’ve abandoned free market principles to save the free market system.” -President George W. Bush
“We shall not grow wiser before we learn that much that we have done was very foolish.” -F.A. Hayek
