Krugman's Clones: Conservatives Who Hate the Free Market and Hate the Rich Even More

Gary North

May 25, 2012

This was posted yesterday, in response to a video talk by a rich Keynesian entrepreneur who says tax cuts will not create jobs.

It is consumers who create demand and therefore jobs. The rich are globalists. They don't give a rip about the neighborhood or your town or your county. Why should they? "To whom much is given, much is required." Doesn't work that way in reality. Creating jobs in China or Mexico does nothing for main street USA where you live. Your neighbor is out of work. He is on unemployment. He ain't spending. Your Lowe's store closes. Fewer jobs. More crime. Despair. Divorces. Suicides. If I were hugely wealthy, I would not even live in this country. I'd start a business in NZ and own an estate there.

http://www.garynorth.com/members/forum/openthread.cfm?forum=25&threadID=28662

I am aware of the fact that Keynesianism is the default setting for virtually all Americans who have been through the public school system. I am beginning to think that it is the default setting for almost everyone in the West.

The site member begins with straight Keynesianism: "It is consumers who create demand and therefore jobs. The rich are globalists." This is the very heart of Keynes's economics. He began his analysis with the consumer. He assumed that the consumer had come out of nowhere, ready to consume, yet for some reason he was unable to consume. Keynes blamed the refusal of capitalists to invest, to employ unemployed people. He called on the government to borrow money and hire people. Everything centered on increasing demand.

This is what is called demand-side economics. All Keynesianism is demand-side economics.

Keynesianism offers very bad economic analysis. The correct approach is to begin with the producer. This is supply-side economics. All free market economics begins with supply-side principles.

There is no consumption without production. It is not the free market's fault that some people refuse to work at prevailing wages. That was where Keynes was wrong. There is government interference with pricing. Prices are not allowed to fall and clear the market: match supply and demand.

Consumption must begin with production. There are no free lunches.

When someone buys something from me, he benefits me as a seller. When I buy something from another person, my purchase benefits him. But the central fact is not my purchase. It is rather the production that gave me the money to make the purchase.

Consumption begins with production. There are no free lunches.

The producer has to estimate what some future customer will be willing to pay for the particular product that the producer plans to produce. The producer is governed by a concept of future demand, but this demand must be registered in the free market by somebody who has something to exchange. In other words, the producer looks into the future and attempts to estimate what another future producer will be willing to pay him for the output of his land, time, and labor.

A customer is a buyer only because he has already satisfied the demand of another customer, who was also a producer. A customer is a productive person, or the beneficiary of a productive person who has given him money. He is in possession of a valuable economic resource, and this resource is available to him only by means of his prior production. So, the consumer is in fact a prior producer. The production that he has already brought to the market and found a customer to purchase has enabled him to exchange his output for money. He is a consumer only because he has already been a successful producer.

This means that every producer who produces for a free market does so in the hope that he will persuade another producer to part with money that he has earned in a competitive marketplace. Every producer should plan carefully in order to be able to meet the demand of a future producer, which he calls a customer. The customer is a productive individual who has demonstrated his ability to meet the demand of another productive individual.

All of this hinges on production. Consumption is secondary to production, because consumption is only possible in the voluntary market because of prior production. Or, as free-market economist like to say, there ain't no such thing as a free lunch. A consumer had to produce something of value to another producer, who exchanged money or some other asset for the privilege of buying the producer's output.

This is supply-side economics. It is opposed to Keynesian economics.

PARETO'S LAW

In every economic system, the productive minority of 20% produces 80% of the wealth of the society.

The middle-class likes to think of itself as productive, but the middle class is productive only in so far as it has been enabled to be productive by the capital, vision, courage, and the willingness to bear uncertainty that has been shown by the most productive 20%. This is Pareto's law, and there are very few cases in life where it is violated over a long period of time.

Members of the productive 20% at the top of the social pyramid, in whatever field we are talking about, are the producers of the overwhelming majority of the wealth that is created by the members of that pyramid. The 20/80 law is not violated very often.

So, the middle class is not the source of most wealth. It benefits from the productivity of the most productive 20%. The middle class likes to think of itself as the heart, mind, and soul of the production process. It is not.

Anyone who says that the middle class is the heart of wealth-creation is implicitly saying that capitalism is either morally wrong or else technically flawed. He is saying that, for some reason, which no one understands, 20% of the producers have in some way stolen the wealth of the middle class. This is standard socialist economics. This is the justification for the progressive, meaning graduated, income tax. This is the justification for every plan to stick a gun in a rich man's belly and demand he fork over a higher percentage of his wealth or income than is paid by the guy with the badge and the gun. This is the system known as modern democracy. This is the system in which two wolves and a sheep vote on what to have for dinner.

This outlook is extremely popular. The only trouble is, every time the voters elect a reform government which has promised to redistribute wealth in a more equal fashion, the new government simply lines its pockets with the wealth of the victims. It helps to replace the old 20% with a new 20%. The reformers never alter the Pareto distribution, except in some cases to make it even more unequal.

The free market distributes wealth, which means money, but which also means capital of many kinds, in terms of the productivity of everyone in the society. It is to the benefit of all participants in the society to have everyone producing on a cost-efficient basis. Unemployment of resources of any kind is a liability. It means that some people are not enabled to maximize their production. It is to the benefit of the very rich and the very poor and everyone in between to have a high employment.

Ideally, everybody can be a producer, and everybody is paid the value of whatever he has produced. Competition in a free market maximizes production by paying every participant what he is worth. Supply and demand sort out the correct payments. This is basic to free-market economic theory, and it is denied overwhelmingly by people who call themselves free marketers.

Rich men do not make middle-class people poorer than they would otherwise have been. With the productivity of rich men, the middle class is middle class rather than lower class.

The middle class resents this conclusion. This is why Keynesianism resonates with them. They think the government should take from the rich and give to the middle class.

The poor think the same of the middle class.

And so it goes, down to the poorest man in the poorest village in India. "I'm poor because those evil, greedy bastards are rich." Ludwig von Mises called this the Montaigne fallacy. It is universal.

WHY KEYNES CONQUERED

The reason why Keynesianism is so popular is because it appeals to envy (destroy the rich) and jealousy (steal from the rich). It appeals to the deep-seated desire of a man who is not highly productive to vote into office someone who will send out officials with badges and guns to steal the wealth of the most productive members of society. Keynes offered the voters what they wanted, and he offered the politicians what they wanted.

This is why it is virtually impossible today for the conservative movement to triumph over the Keynesians. Keynesian envy is in the hearts and minds of virtually all the voters, and that includes the Tea Party people. Keynesianism is almost universal, and Keynesian Tea Party members who think they are free marketers are in fact defenders of people with guns and badges who are out to steal from the productive members of society.

I have no idea how this is going to be reversed, other than the preaching of pastors against envy and jealousy, which pastors do not have the courage to do, because they have pro-Keynesian members of the congregation. We rarely hear sermons on the great evil of envy: the desire to pull down a superior. I cannot remember even one. We do hear sermons against covetousness, but never in the context of the welfare state.

Keynesianism has burdened the conservative movement ever since the mid-1940s. It is why there are so few Austrian economists. The built-in Keynesianism of modern social philosophy is almost universal: "Blame the rich!" That is why a reform of the present system, apart from complete bankruptcy of the federal government, is unlikely.

John Maynard Keynes gave the public what it wanted. Voters want a justification for stealing the wealth of rich people who got rich through their own productivity.

The envy and jealousy of the masses against the productive members of society who have given society most of its wealth is so widespread that we cannot reverse the modern welfare state. The voters want their goodies, and they are going to elect politicians who promise to give them these goodies at somebody else's expense. The voters will be disappointed. They are going to get what they deserve good and hard.

This is a matter of ethics. There are rival laws at stake. One is this: "Thou shalt not steal." The other is this: "Thou shalt not steal, except by majority vote." Keynes is the premier economist of the second position.