Keynesianism in Three Charts

By Professor Doom

    

     In public school, I was trained to think fiat currency, creating money out of slips of paper, was an excellent thing. I was trained to think that “a little” inflation was actually good for the economy. I was trained to think great quantities of money printing was a great thing, since everyone got a share of the money.

“There is no god but fiat, and Keynes is its prophet.”

--I joke, it’s not taught that blatantly in school.

     The branch of economics that preaches this stuff is Keynesianism; when Nixon severed the dollar from gold in 1971, making it explicitly a fiat currency, he said “I am now a Keynesian in economics.”

     Keynesianism was the only form of economics I was ever told about in school and it was presented as the best thing ever, without flaw. It wasn’t until I developed the initiative to study on my own that I learned that there are, in fact, several economic schools of thought. While many believe that economics is comparable to mathematics in rigor, it is not, not even remotely. It really is just a collection of theories representing a certain point of view. 

     It’s very insidious to only teach one form of economics in school, because it prevents people from even thinking about the possibility that there may be another way…I can’t help but compare this to NewSpeak from 1984, a language developed to keep people from even expressing the concept of freedom, the better to keep them under control.

     There are other forms of economics, and, of course, none represent the absolute truth. While all versions have weaknesses, one can still judge them by comparing how well they predict outcomes from economic behavior. My personal favorite school of economic thought is Austrian. Unlike Keynesianism, it doesn’t promise utopia from centrally planned economies…while it takes courage to accept that utopia is impossible, I like Austrian economics because it just seems to do better with predictions.

      These predictions are borne out through empirical observation. On the other hand, Keynesianism seems to ignore empirical evidence and push on regardless of what people endure from it.

“As late as 1989, in the 13th edition of his best-selling college textbook "Economics," Paul Samuelson wrote, "The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive."

--note the USSR totally collapsed in 1991, revealing an infrastructure that in many cases had not been upgraded since the communists took over in 1917, despite over 70 years of textbooks saying how economically great communism was, and implying that the US would likewise be better off economically with socialist policies and centrally planned economies.

      While Keynesianism, for example, predicted incredible economic power from USSR’s centrally planned economy right up until the point the USSR collapsed, Austrian economics from the get-go said the USSR was economically doomed…and it never shifted this prediction, even when bogus reports claimed the USSR was really, really, economically powerful, year after year. Good predictions, and courage of its convictions…I like that. Despite this, Keynesian fiat systems and centrally planned economies still devastate much of the world.

     What has Austrian economics done lately? Well, nothing, since no government, certainly not the U.S., practices Austrian economics. Instead, despite the many colossal failures of Keynesianism, our government practices Keynesianism. A few recent charts really hit home how well Keynesian predictions work, as opposed to Austrian.

     First, Keynesianism predicts that money printing will help everyone, while Austrian economics says the money printing really only helps the people at the top, with first access to the new money. Money printing has been outright furious the last few years, making it a bit easier to claim that what we’re seeing in the economy the last few years is being influenced by the extreme creation of currency. 

     Let’s see how that’s working out in real estate:

     Housing sales in general have been falling, except in one category. Hmm, the high end houses, the ones the people at the top can buy with their hot money, are appreciating in value. The low end houses are dropping. Basically all schools of economics agree that increased prices generally come from increased demand…the people at the top are getting the new money to buy houses, causing those prices to rise. The people at the bottom? Not so much.

     Ok, well, that’s just housing. Keynesianism predicts that massive currency creation will really help the economy, and that help lifts all boats. Again, Austrian economics says the “growth” is really just part of boom/bust cycles created by fiat money, and doesn’t really help most people anyway. Let’s see what happens:

 

 

     Hmm, again. Sure looks like the folks that don't get the hot money first really don’t benefit much. Since the last few years have been the worst in US history for GDP growth despite the Keynesian prediction of great growth from printing, we once again are seeing a wealth transfer from the poorest to the richest. Note how things started to even out as soon as Nixon went full fiat, and now we’re having a total blowout, with everything going to the top. Way to go, fiat currency!

     Let’s tie things back to education. Austrian economics predicts that pouring government money into higher education will do little for education…it’ll just raise the price of education. We all know tuition has risen dramatically in the last few decades. Keynesianism, of course, preaches that all government spending is good.  Heck, Paul Krugman (chief spokesmodel for Keynesianism) even advocated government spending on space defenses against a space alien invasion that might never come, since he thinks it would be great for the economy. Anyway, Let’s see how government spending on higher education is working out for the students:

 

 

     Hmm, the students are getting deeper and deeper into debt, and aren’t making any more money at all. I know what I’m showing here won’t be universally accepted, there are lots and lots of fans of Keynesianism…it could hardly be otherwise, since that’s the religion taught in schools. Nevertheless it’s tough to look at chart after chart and still keep that faith.

     If the American people ever allow private banks to control the issue of their  currency, first by inflation, then by deflation, the banks…will deprive the people of  all property until their children wake-up homeless on the continent their fathers conquered…. – Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809)

      Jefferson is much maligned nowadays (“he owned slaves!”), but it doesn’t take much to see that the fiat currency system is closing in on the end game Jefferson foresaw. Our fiat system has plundered all the wealth from the current lower and middle classes, and is now transferring wealth from the future lower and middle classes via student loans. Our children are starting out life so deep in debt that they’ll never be able to purchase homes, or even pay off their debts. They will, as Jefferson says, one day wake up homeless…but still in debt, since student loans can not be removed even via bankruptcy. People with gray hair are finding their social security checks being garnished to pay student loans now…that’s very scary.

     I prefer empirical results for making my decisions…mathematical training is like that. So, I have to reject Keynesianism, and favor Austrian thought, until something better presents itself. I know I’m mostly just preaching to the choir here, nothing I’ve said above will shake the faith of true believers in Keynesianism, but if the simple charts and brief discussion above can in but one mind plant a seed of doubt about the wisdom of using a fiat currency system, I’ll call this post a success. 

     Blog posts are cheap, after all.

www.professorconfess.blogspot.com

Students Fail After College

By Professor Doom

     I’ve often cited Academically Adrift, which shows that much of higher education is bogus: most students go their whole college career without being able to read or write in any significant amount. The authors of that book have produced a sequel of sorts, Aspiring Adults Adrift: Tentative Transitions of College Graduates, looking at how well college graduates do after wasting years in higher education.

      It isn’t pretty, although I can’t help but suspect the authors candy-coat things more than a little, for whatever reason. Let’s take a look at what the authors have to say:

“We learned that while it certainly still pays to go to college, even with the high costs and debts students often assume,…”

    

      If this were Wikipedia, I’d be putting [citation needed] on this. The authors just sort of put that out there, although I certainly have my doubts that it “still pays to go to college”, at least for most degrees, at most institutions. Their study doesn’t seem to support their assertion here…and the authors should probably take a look at some of my more recent posts on the criminality of community college.

“…two years after graduation 23 percent of those in the labor market were either unemployed or underemployed (working fewer than 20 hours per week or in jobs where the majority of workers had not completed even a year of college)…”

     This is actually very interesting, and devastating depending on who you want to believe. See, the government claims that unemployment is only around 6.1%, while pretty much every independent researcher says “real unemployment” is closer to 20%, if not more. This book accidentally just confirms what everyone knows about unemployment, namely that it’s far more than 6.1%. I mean, if new college graduate unemployment is over 20%, one hardly expects anything better from any other demographic. The authors continue:

“…less than half had full-time jobs that paid $30,000 or more per year….”

    Wait, I thought college was supposed to lead to those high paying jobs riding unicorns around all day, and where you opened up the faucet in the executive washroom and money poured out? A student can easily go $100,000 into debt for a college degree now. When you factor in paying annual interest on that debt, we’ve got more than half of students making far less than a janitor…and yet the authors began by saying it still pays (a word that implies money) to go to college? Hmm, why do I get the feeling they were pressured into putting as positive a spin as possible on this study?

     Continuing on:

“…74 percent reported receiving continued financial assistance from parents.”

     Ouch. How can someone look at that statistic of college graduates and say “it still pays” to get a college education? Most people, you give them $100,000, and they don’t need continued financial assistance four years later, not if they have an ounce of sense and decent health. If 74% of college graduates still need financial assistance, what’s that degree for?

“…Two years after graduation, 36 percent of our respondents reported never reading a newspaper in print or online or doing so only once a month; 39 percent reported discussing politics at similarly low frequencies….”

     Now this is just a follow-up of the first book. Part of higher education is developing a taste for knowledge. I promise you, 30 years ago, I found math textbooks incomprehensible, and a dull read even when I could understand them. But now, I can actually appreciate when a math book is beautifully written, and read such books even when I’m not forced to by my professor (or job requirement).

     But Academically Adrift shows students no longer get that option in higher education. Since they don’t read or write in their college courses, they get no chance to appreciate reading, or writing. So it follows pretty clearly that, once out of college, they’re certainly not going to be reading (and probably not writing either, beyond texting).

     Then again, it’s possible that the study was just not measuring properly. Mainstream print media is a horrible joke, and if the study’s “online” news sources were just restricted to mainstream’s online representatives (eg, cnn.com), then these graduates were probably better off not reading. If online news sources doesn’t include the ever more relevant (and often more accurate) “alternative” news, then this statistic isn’t so meaningful.

     I reckon I’m being too kind, however. I’m inclined to believe that most people, including college graduates, don’t do much reading.

“…After all, the average full-time four-year college student in this country spends only about an hour per day studying alone and overall spends less time on academics than students attending college in Europe. Students in U.S. colleges rarely take courses that ask them to read more than 40 pages per week or write more than 20 pages per semester….”

     These are mostly results from the first book, but it sure bears repeating. Once you understand the system, one can easily get an accredited college degree for about 5 minutes of work a day, over the course of 4 years, at many of the bogus—but fully accredited!--schools that litter the US landscape. Unlike the authors, I make no assertion that such a degree is valuable, however, and the authors’ own study shows in blazing technicolor that it is not.

“…it becomes increasingly inappropriate to blame students for their lack of commitment and focus….”

     Absolutely, in many cases, the students are not to blame for getting bogus educations…how could they possibly know what a legitimate higher education is? It’s like locking 4 year olds in a candy store and then complaining that the little kids aren’t eating a healthy diet.

      The authors neglect to ask who’s locking the kids in the candy store. Dropping the allegory, let me say instead that the authors never consider college administration’s role in all the bogus college “work.”

 Instead, colleges, which have often focused more on delivering improved social amenities to students rather than high-quality academic programs, must bear a good deal of responsibility for the low levels of student performance…”

     Absolutely, once again, the colleges, and by colleges I mean college administrators, bear the blame for offering bogus educations. Unlike many online mainstream media outlets, the article here allows comments. That’s great, because comments allow for clarifications of things said in the article (probably why mainstream sites often don’t allow comments…). Allow me to present a selection from the comments section explaining why colleges offer so many bogus courses, since you won’t get that explanation from the book:

Setting high standards for students and demanding performance to pass your course carries a high price. There will be no credit…in the Dean's office since invariably, high standards produce many more student complaints. The majority of faculty set modest standards to avoid the headaches, so the few who are demanding and require performance to pass are always under the microscope…They must reward demanding teachers, rather than punish them.

     --I’m hardly the only person to note that any professor who gives coursework comparable to what he had to do in college will simply be punished. Punished. I often use that word in describing what happened to me for having integrity. One witness can be discarded, but how many times have I quoted others in academia using that same word? Let’s look at another post:

And yet, if professional educators make attempts to reinstate high academic standards, we are invariably punished for doing so… Everywhere the professional educators look, we are surrounded by incentives to do everything BUT improve academic standards.

     ---Isn’t it funny how often “if we have standards, we’ll be punished” comes up when faculty explain what’s going on in higher education?

I was not asked to return...This is despite the fact that a small minority of my students described me as one of the best teachers they'd ever had. I was demanding…I wrote tests that expected the students to have attended the classes and studied the material. The ogre that I was, 15% of the grade was based on the simple act of reading the material and showing up in class… 

     ---It isn’t simply punishment that’s the problem, faculty that insist on having any sort of integrity will be removed.

     Because faculty are punished and eliminated for offering legitimate courses, they really don’t have much choice but to offer bogus coursework. I hope the authors will read the comments and maybe start studying the obvious reason colleges don’t ask anything of students. I recommend they look at the administrators who are doing the punishing and elimination, but far be it from me to suggest a topic for research.

     In the meantime, of course, we’ll just keep cranking out bogus degrees for bogus coursework, and the authors will show their conclusions that (gasp!) bogus degrees really aren’t worth anything…

www.professorconfess.blogspot.com