Looking through economic history, there has been a perpetual cycle of highs and lows, times of economic prosperity and struggle. There have been decades of growth expansions followed by equally charged downturns and pain. These fluctuations each have their own contributors and factors, but one thing that has been certain is that they occur. This cycle noticed in economies that favor capitalist practices has been happening for so long that an economist by the name of John Maynard Keynes noticed it and published works on it in 1936. Before this time, the prevailing approach was effectively just dealing with it. While that may sound relatively harsh and can be very situationally unfortunate, the flawed policies and procedures that have come from Keynes theory have only amplified what would have been looked at as normal as the ebbs and flows of ocean tides.
Unfortunately for Keynes, he catches a lot of the flak for our modern economic problems, though the reality is that his theory is misunderstood and incorrectly implemented. Keynes theory is not full proof; there are parts of it that time has shown to be incorrect, but that doesn't mean his works in total are just thrown out. The two main pillars of Keynes theory that are applied today are the claim that unemployment and inflation hold an inverse relationship. Through that, simultaneous inflation and increases in unemployment (also known as stagflation) is not possible, at least in short time spans. If economic times are bad, borrowing money and investing borrowed money in sectors like public works are going to stimulate the economy. It will create jobs and provide a service whose outcome will benefit the economy as a whole.
This makes sense at face value. Remember that inflation is simply an expansion of the money supply. Breaking this down to a simple economy, imagine you live in a very small town with dirt roads. The roads make it difficult to travel effectively; it tears up everyone's vehicles and it restricts potential expansion as semis can't drive on them. The town gets together and decides to go to the neighboring city and ask for a loan, which the city obliges. From the perspective of the small town,there has been massive inflation through the creation of this credit. The money supply has expanded. The city uses this money to pave roads that connect to the paved roads of neighboring cities and highways. The economy can now thrive in ways that it has not before, from aspects as small as the townspeople having lower car maintenance costs all the way through the ability to travel to other towns for jobs, as well as the commerce that accompanies semis being able to travel through the town.
The key point of the example above is that the money was used for activities that will increase the economic capabilities as a whole, ultimately providing a return greater than the interest on the loan. Say the interest on the loan was 5%, so long as economic capabilities from works completed increase capabilities by greater than 5%, the small town will come out ahead. The town's leaders have to be disciplined enough to pay the debt back and understand they only get to realize the difference between the loan interest rate and the increase in productivity until the loan is paid off. But once it is paid, the increases in living standards and prosperity would be monumental, comparatively speaking. This was Keyne’s idea behind his theory. Inflationary economic policy is inverse to unemployment because the money being used has been used for economically stimulating activities.
Connecting back to the business cycle, the ups and downs mentioned at the beginning of this article, Keynes recognized them, and in short, his entire theory was based on one simple idea. If we continue to see these business cycles occur, we know a free market left to its own operation will have good times. We can ease some of the bad through stimulus spending at the expense of the good times. Yes, maybe the good times won't be quite as good and prosperous in the short term, but ultimately, the bad times won't be near as bad, and we will exist in an economy where standards of living continuously trend upward. That takes us to where we are today. This theory has been completely drug through the mud and bastardized, depending on the context in which it is discussed. It is absolutely praised and held on a pedestal when times are bad and politicians are looking for a way out. Then, when times are “good” no politician wants to be the one to bring out the bill. I say good in quotations because we have been eating away at ourselves through lies and deceptive politics for so long that the majority of the populace doesn't know what truly good economic times look like.
If Keynes were alive to see the application of his work he would be disgusted. The Federal Government and Federal Reserve have abused his ideas and put us in the detrimental economic position we are in. Every opportunity they have had to borrow money they have on the back of this theory while never holding up the repayment end. We are not spending the money on initiatives that actually boost the economy and provide a return. Recent examples would be the pandemic stimulus checks. All that did was give people a $1500 allowance once. What did they do with it? They spent the money on Asian manufactured goods, we sent all the money to them. Even the money that did stay in the United States didn’t help. We are a service nation; we don’t actually make anything anymore. Let's go back to our simple economy. Say the town that borrowed that money gave all the townspeople a check, like our country has done. There was no investment, no infrastructure, and nothing of value was actually built, all the people just spent the money as they normally would on car repair, fast food, and bingo night. They're simply passing around dollars without producing anything of value. Once all the money is spent and the market normalizes to the newly injected cash, what is the town left with? They still have busted cars, they still have broken roads, and they still have no resources that are boosting the efficiency and capabilities of the economy. On top of that, they have a bill to pay now. That is what the United States politicians do and have been doing for a very long time now. They take it one step further, and when they need to pay that bill to the next town over, they previously would go find another town to borrow from to pay back the previous town. Now, instead, they do something much worse. They “borrow” money from a lender that is a part of the government and has a bank account with zero balance but unlimited lending power.
As a country we are in a state of fiscal insolvency. The rest of the world is seeing what we are doing and they are taking action to hedge their financial health away from the United States and the U.S. dollar. National debt, corporate debt, student loan debt, long-term debt (vehicles and houses), credit card debt are all at or equal all-time highs while delinquency rates are right there with them. The number of working people holding multiple jobs, inflation, rent to income ratios, the list goes on and on all at all time highs. Worse than inflation adjusted Great Depression numbers, worse than the 2008 housing collapse numbers, and every other economic tragedy in between. Every scope, lens, direction, or angle used to evaluate the economy shows we are not healthy. That is not what politicians and, in effect, the media wants you to think. They obviously don’t want crisis. But they have no way out, the traditional method of “stimulating” (which is actually just kicking the financial crisis can down the road) the economy via money printing isn't working any more. We have no money and we have no stuff. Simultaneously, our government size and spending continue to increase. This is why the US national debt ceiling was removed until January 2025. Even with that, we still see threats of government shutdowns because they can't agree on what to spend their no limit credit card on. The changes that need to be made are as significant and catastrophic as the economic situation we find ourselves in.
All hope is not completely lost. The likelihood of America itself completely collapsing and ceasing to exist is effectively zero. These problems will impact those currently in or close to retirement with no time to recover and those on fixed incomes. It is unfortunate and it will be blamed on capitalism, though that is not the case at all. It is the crony and corrupt system that gets the label of capitalism that is the problem, but that's an article for another day. Positioning yourself in a place that has to withstand these problems is simple in concept but can prove to be difficult in practice. Effectively stay out of the U.S. dollar. If you have the means, putting your wealth in commodities and assets can, at the very least, allow you to maintain your wealth if not increase it. Just knowing exactly where to put said wealth can be difficult. For example, buying shares of oil companies may be a safe place to hold your wealth. But if you do not do your homework and invest in an overleveraged company that defaults, it doesn't matter how well oil does if that company no longer exists. I urge anyone who is uncertain to find an investor, advisor, or consultant worth their salt. Give them a listen, evaluate what they say, and maybe even compare them to alternative resources. Make sure you feel confident and comfortable in your economic future. Einstein would certainly consider our politicians and leaders economically and fiscally insane, as they've done the same thing over and over again for decades now, yet expect different results.
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