Monday, March 18, 2013

If Keynes were still with us??

I tell ya, this morning's Washington Post Op-Ed by E.J. Dionne is one piece of work---the malarkey is so thick you can cut with a knife. Partisanship, as I stated here, is a most blinding affliction. But rather than penning a lengthy open letter to Mr. Dionne, I'll simply address one of his points. My counterpoint should be instructive to those who, like Mr. Dionne, love to invoke the late John Maynard Keynes when justifying present fiscal policy. He states:
Through it all, Keynesian economics kept our economy humming while widely shared prosperity created the sense of national solidarity that a world role required.

So, if Mr. Dionne is right, if indeed Keynesianism kept our economy humming from WWII on (not my position by the way), why would he advocate abandoning it at a time when our economy is anything but humming?

He wrote;
And do conservatives who say they favor American greatness think they are strengthening our nation and its ability to shape events abroad with an ongoing budget stalemate created by their refusal to reach agreement with President Obama on a deal that combines spending cuts and new taxes? Would they rather waste the next three years than make any further concessions to a president the voters just reelected?

Here was Keynes---from The Collected Writings of John Maynard Keynes (London: Macmillan, Cambridge University Press, 1972)---on how wealth creation (as opposed to wealth taxation) might increase the national income, and how "a reduction of taxation will run a better chance than an increase of balancing the budget." In other words, here was Keynes himself in stark opposition to the sorts of proposals recently put forth by the Obama administration:
When, on the contrary, I show, a little elaborately, as in the ensuing chapter, that to create wealth will increase the national income and that a large proportion of any increase in the national income will accrue to an Exchequer, amongst whose largest outgoings is the payment of incomes to those who are unemployed and whose receipts are a proportion of the incomes of those who are occupied...

Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget. For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more--and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.

Interesting! So Keynes clearly would've counseled against raising taxes during the slowest recovery on record. Of course he would've been against government spending cuts as well. He maintained that the boom, not the bust, was the time to cut spending. The problem being, as we've witnessed, that legitimate spending cuts are anathema to career crony-ridden politicians, regardless of whether the economy is booming or busting, or whether they call themselves Keynesians. 

Better, therefore, to spend within our means, regardless...


  1. Your Comments Marty, as a financial advisor your extreme right wing politics do you no favors with people such as myself who are decidedly more progressive. It is fine to hold whatever views you want to but if you want your blog to be in part an advertisement for your services I would think you would not want to alienate customers such as myself. my current advisor may be conservative in his political views but I don't know exactly since he focuses our discussions on how to deal with whatever situations are happening in the world. He spends no time on political discussion . Every time I read your blog I do not regret moving my account. unless you are running for office I suggest you dispense with the political rhetoric. Robert Ford

  2. Martin L. MazorraMarch 20, 2013 at 6:33 AM

    Hi Robert,

    Hope all is well with you and your family! It’s been a long time...

    RE: your issue with my “extreme” politics. Really?? I guess you should know that I’ve been blasted by readers from both sides of the political aisle. It seems the folks whom I would consider “hard right” at times find me, too far left, or at least too moderate. The ones I would consider “hard left”, you might call them “progressives”, tend to hit me hard once in a while with comments like yours.

    I find it interesting that the column you found offensive was one where I point out that even Keynes—the man whose principals have been embraced, in action, by politicians from both major parties (make no mistake, most Republican politicians, while they may not admit it, have proven to be hard-core Keynesians)—would not have advocated either side’s present policy. Perhaps you read Dionne’s column where he lauded Presidents of the past, who, in my estimation were in many ways utter disasters, and didn’t appreciate my labeling it “malarkey”. You might dig beneath the claims he makes and see if you still don’t agree with my characterization – I’d be happy to refer you to some literature.

    I think, Robert, where you and I part ways (you’ll correct me if I’m wrong), is that I find politicians–on both sides of the aisle—to be a most disgusting lot.

    I do appreciate your advice regarding the content of my blog, and while much of what I write is market related (you inspired me to take a look and it appears that roughly ½ to 2/3rds have been investment-related) I am compelled to ask my readers to look a little below the rhetoric and consider a free-market perspective. And in my view, a free market is a beautiful thing for long-term investors. Therefore, promoting that ideology in my free moments is, I believe, consistent with my vocation...

    Here are some links to past blogs that I suspect would not label me “hard right”, by most peoples’ standards. Take care, Marty