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Who is Keynes?
Good old John Maynard. I believe the quote that you were referring to in the newsletter was:
He had others that were just like it. Such as:
Needless to say, Keynes thought very highly of what he did and thought folks should think very highly of what he said. Most economist, if you gathered them all together couldn't reach a conclusion. But Keynes was mentioned in the newsletter for one reason. Mr Bush, our President elect has allowed his advisors to advise him in some sort of Keynesian strategy of tinkering with the economy to save it from itself.
Keynes gained an ear during the Depression when the then Treasury Secretary Andrew mellon suggested that the only way to revive an economy with outrageous inflation was to allow it to liquidate itself. This Liquidationism theory suggested that stocks should be liquidated, along with homes and farms, and that labor should collapse forcing high living to bottom out. People would work harder, living a more moral existence. And as a result of this bottoming, enterprise would pick itself up from the wreck. He based his theory on the revival of the economy following the Civil War that happened without government intervention.
Keynes argued that fine tuning an economy was the only answer to fixing what was wrong. This is largely what our federal government has tried to do repeatedly without success.
Fiscal policy involves forecasting, and by the time forecasting is finished, the machinery of government is not able to move fast enough to do anything with any timeliness. What usually happens is that policy follows the recovery and doesn't do much to fix what has usually ended.
The current spin is that cutting taxes will stimulate the economy fixing the downturn. The only thing that can fix the downturn is the Federal Reserve and Mr Greenspan. Monetary policy has proven itself to be the best adjuster of what is wrong with the economy. And they can do it faster than any other federal institution.
That doesn't mean that taxes aren't out of whack. There are quite a few of them that could use a good looking at, and I am sure that this will happen. But the Congress is somewhat evenly divided, and as I said before, once predictions are updated, new assumptions are made, and revenue projections are adjusted, they still have to figure out what to do, how to do it, and how much to cut.
So despite Keynes thoughts on tinkering with things such as fiscal policy, it is the money supply that will save any future recession, not the tax cut. Mr Bush had better watch what he says and how he treats the Fed. Mr Greenspan already looks ill at ease with the President elect.
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