Saturday, March 20, 2010

Life in 21st Century America

The ancient Chinese curse said that "may you live in interesting times." We are living in interesting times right now and there is no doubt that it will get more interesting in the years ahead.

The origins of our "interesting times" began in the 1930s with the economic theory of economist John Maynard Keynes which has become dogma in all American political and economic thought.

Keynes thought that consumer spending was the key to economic prosperity and that savings was a threat to economic health. His theory led to the push to make the United States a consumer economy with more than 70 per cent of economic activity coming from consumer spending.

But Keynes had it wrong. Consumer spending is made possible by savings, investment and hard work. Not the other way around.

And there was also the Philips curve from economist William Phillips. He saw a direct positive correlation between higher inflation and higher employment. So policy makers set about creating inflation and devaluing the US dollar. Another bogus economic theory.

But everyone loved these theories because it gave them what they wanted. Politicians could spend even more money that didn't belong to them. Consumers could enjoy a standard of living they couldn't afford. And the financial industry could earn huge money by selling debt to people who couldn't pay it back.

Never before had so many people been so happily engaged in acts of larceny and legerdemain!

As time wore on, more and more people lived at someone else's expense. Lobbying and lawyering became lucrative professions. Bankers and brokers became respected professionals.

Every imperfection in society became a call for new legislation. Every traffic accident became an opportunity for wealth redistribution.

And if there is anyone still solvent in America in the 21st century, it's not the fault of the banks. They invented subprime loans and other products so that even jobless people could get themselves into debt.

The bankers also helped insolvent governments hide their debt (Greece and Goldman Sachs) so that they could borrow even more.

As long as people thought they were getting something for nothing, everyone was happy. But now that they are getting nothing for something, there is a revolt stirring among the masses.

Half the US states are insolvent. Nearly all of them are planning to increase taxes while cutting back on government services.

And the country as a whole is in bad shape too. Even if America taxed 100 per cent of all household wealth, it would not be enough to put its balance sheet in the black.

And on top of it all, taxpayers are being asked to pay for losses at the bankers' casino. And pay interest on money spent years ago.....

Until now, everyone was borrowing money that would have to be repaid sometime in the future. But today is the tomorrow that no one worried about yesterday.

And with the status quo and entrenched interests in our two-party political system, it means that the sort of change needed is unlikely to come easily. The politicians will keep doing what they've been doing until the whole system just quits working.


  1. Tony D'Altorio, you are dead right about everything! Keynes was completely wrong about everything, I mean who in their right mand could buy into Keynesianism or even the two-party dictatorship?

    Keynesianism deters people from savings but with the low interest savings rates, can you blame people for not saving? They're not even rewarded for savings.

    This is one of the best blog sites I've seen in a long time. Keep up the great work and I suggest watching this video on the post-crisis consumer.

    Please keep up the good work!

  2. Thanks for your kind words, Andrew.