Does Quantitative Easing Benefit the 99% or the 1%?

Forget Competing Theories … What Do the Facts Say about Quantitative Easing?

Paul Krugman says that QE, expansive monetary policy and inflation help the little guy (the 99%) and hurt the big banks (the 1%).

Of course, followers of the Austrian school of economics dispute this argument – and say that it is only the big boys who benefit from easy money.

As hedge fund manager Mark Spitznagel argues in the Wall Street Journal, in an article entitled “How the Fed Favors The 1%”:

The relentless expansion of credit by the Fed creates artificial disparities based on political privilege and economic power. [We have repeatedly pointed out that Fed policy increases inequality.]David Hume, the 18th-century Scottish philosopher, pointed out that when money is inserted into the economy (from a government printing press or, as in Hume’s time, the importation of gold and silver), it is not distributed evenly but “confined to the coffers of a few persons, who immediately seek to employ it to advantage.”

In the 20th century, the economists of the Austrian school built upon this fact as their central monetary tenet. Ludwig von Mises and his students demonstrated how an increase in money supply is beneficial to those who get it first and is detrimental to those who get it last. Monetary inflation is a process, not a static effect. To think of it only in terms of aggregate price levels (which is all Fed Chairman Ben Bernanke seems capable of) is to ignore this pernicious process and the imbalance and economic dislocation that it creates.

As Mises protégé Murray Rothbard explained, monetary inflation is akin to counterfeiting, which necessitates that some benefit and others don’t. After all, if everyone counterfeited in proportion to their wealth, there would be no real economic benefit to anyone. [Remember, even Keynes himself – and Ben Bernanake – said that inflation is a stealth tax.] Similarly, the expansion of credit is uneven in the economy, which results in wealth redistribution. To borrow a visual from another Mises student, Friedrich von Hayek, the Fed’s money creation does not flow evenly like water into a tank, but rather oozes like honey into a saucer, dolloping one area first and only then very slowly dribbling to the rest.

The Fed doesn’t expand the money supply by uniformly dropping cash from helicopters over the hapless masses. Rather, it directs capital transfers to the largest banks (whether by overpaying them for their financial assets or by lending to them on the cheap), minimizes their borrowing costs, and lowers their reserve requirements. All of these actions result in immediate handouts to the financial elite first, with the hope that they will subsequently unleash this fresh capital onto the unsuspecting markets, raising demand and prices wherever they do.”


The Fed is transferring immense wealth from the middle class to the most affluent, from the least privileged to the most privileged. This coercive redistribution has been a far more egregious source of disparity than the president’s presumption of tax unfairness ….


Before we start down the path of arguing about the merits of redistributing wealth to benefit the many, why not first stop redistributing it to the most privileged?”

And Ben Bernanke himself said in 1988 that quantitative easing doesn’t work. As Ed Yardley notes:

Two economists, Seth B. Carpenter and Selva Demiralp, recently posted a discussion paper on the Federal Reserve Board’s website, titled “Money, Reserves, and the Transmission of Monetary Policy: Does the Money Multiplier Exist?” [Here’s the link.]

[The study states:] “In the absence of a multiplier, open market operations, which simply change reserve balances, do not directly affect lending behavior at the aggregate level. Put differently, if the quantity of reserves is relevant for the transmission of monetary policy, a different mechanism must be found. The argument against the textbook money multiplier is not new. For example, Bernanke and Blinder (1988) and Kashyap and Stein (1995) note that the bank lending channel is not operative if banks have access to external sources of funding. The appendix illustrates these relationships with a simple model. This paper provides institutional and empirical evidence that the money multiplier and the associated narrow bank lending channel are not relevant for analyzing the United States.”

Did you catch that? Bernanke knew back in 1988 that quantitative easing doesn’t work. Yet, in recent years, he has been one of the biggest proponents of the notion that if all else fails to revive economic growth and avert deflation, QE will work.

Indeed, Fed policy itself has killed the money multiplier by paying interest on excess reserves. And a large percentage of the bailout money went to foreign banks (and see this). And so did most of money from the second round of quantitative easing.

Forget Theory … What Do the Facts Show?

But let’s forget ivory the tower theories of either neo-Keynesians like Krugman or Austrians … and look at the evidence.


[The] Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry.

Similarly, former Secretary of Labor Robert Reich points out that quantitative easing won’t help the economy, but will simply fuel a new round of mergers and acquisitions:

A debate is being played out in the Fed about whether it should return to so-called “quantitative easing” — buying more mortgage-backed securities, Treasury bills, and other bonds — in order to lower the cost of capital still further.

The sad reality is that cheaper money won’t work. Individuals aren’t borrowing because they’re still under a huge debt load. And as their homes drop in value and their jobs and wages continue to disappear, they’re not in a position to borrow. Small businesses aren’t borrowing because they have no reason to expand. Retail business is down, construction is down, even manufacturing suppliers are losing ground.

That leaves large corporations. They’ll be happy to borrow more at even lower rates than now — even though they’re already sitting on mountains of money.

But this big-business borrowing won’t create new jobs. To the contrary, large corporations have been investing their cash to pare back their payrolls. They’ve been buying new factories and facilities abroad (China, Brazil, India), and new labor-replacing software at home.

If Bernanke and company make it even cheaper to borrow, they’ll be unleashing a third corporate strategy for creating more profits but fewer jobs — mergers and acquisitions.

The Guardian notes:

Quantitative easing (QE) … have contributed to social unrest by exacerbating inequality, according to one City economist.

As the Bank of England considers unleashing a fresh round of QE, Dhaval Joshi, of BCA Research, argues the approach of creating electronic money pushes up share prices and profits without feeding through to wages.

“The evidence suggests that QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it,” Joshi says in a new report.

He points out that real wages – adjusted for inflation – have fallen in both the US and UK, where QE has been a key tool for boosting growth. In Germany, meanwhile, where there has been no quantitative easing, real wages have risen.

Yves Smith reports that quantitative easing didn’t really help the Japanese economy, only big Japanese companies:

A few days ago, we noted:

When an economy is very slack, cheaper money is not going to induce much in the way of real economy activity.

Unless you are a financial firm, the level of interest rates is a secondary or tertiary consideration in your decision to borrow. You will be interested in borrowing only if you first, perceive a business need (usually an opportunity). The next question is whether it can be addressed profitably, and the cost of funds is almost always not a significant % of total project costs (although availability of funding can be a big constraint)…..

So cheaper money will operate primarily via their impact on asset values. That of course helps financial firms, and perhaps the Fed hopes the wealth effect will induce more spending. But that’s been the movie of the last 20+ years, and Japan pre its crisis, of having the officialdom rely on asset price inflation to induce more consumer spending, and we know how both ended.

Tyler Cowen points to a Bank of Japan paper by Hiroshi Ugai, which looks at Japan’s experience with quantitative easing from 2001 to 2006. Key findings:

….these macroeconomic analyses verify that because of the QEP, the premiums on market funds raised by financial institutions carrying substantial non-performing loans (NPLs) shrank to the extent that they no longer reflected credit rating differentials. This observation implies that the QEP was effective in maintaining financial system stability and an accommodative monetary environment by removing financial institutions’ funding uncertainties, and by averting further deterioration of economic and price developments resulting from corporations’ uncertainty about future funding.

Granted the positive above effects of preventing further deterioration of the economy reviewed above, many of the macroeconomic analyses conclude that the QEP’s effects in raising aggregate demand and prices were limited. In particular, when verified empirically taking into account the fact that the monetary policy regime changed under the zero bound constraint of interest rates, the effects from increasing the monetary base were not detected or smaller, if anything, than during periods when there was no zero bound constraint.

Yves here, This is an important conclusion, and is consistent with the warnings the Japanese gave to the US during the financial crisis, which were uncharacteristically blunt. Conventional wisdom here is that Japan’s fiscal and monetary stimulus during the bust was too slow in coming and not sufficiently large. The Japanese instead believe, strongly, that their policy mistake was not cleaning up the banks. As we’ve noted, that’s also consistent with an IMF study of 124 banking crises:

Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.

Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions’ liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery. Of course, the caveat to these findings is that a counterfactual to the crisis resolution cannot be observed and therefore it is difficult to speculate how a crisis would unfold in absence of such policies. Better institutions are, however, uniformly positively associated with faster recovery.

But (to put it charitably) the Fed sees the world through a bank-centric lens, so surely what is good for its charges must be good for the rest of us, right? So if the economy continues to weaken, the odds that the Fed will resort to it as a remedy will rise, despite the evidence that it at best treats symptoms rather than the underlying pathology.

And remember, the Fed is providing enormous subsidies to the big banks with both interest rate spreads and interest on excess reserves. Neither program helps the little guy.

And see this.

QE Doesn’t Do Much But Goose the Stock Market

We’ve previously noted:

The stated purpose of quantitative easing was to drive down interest rates on U.S. treasury bonds.

But as U.S. News and World Reported noted last month:

By now, you’ve probably heard that the Fed is purchasing $600 billion in treasuries in hopes that it will push interest rates even lower, spur lending, and help jump-start the economy. Two years ago, the Fed set the federal funds rate (the interest rate at which banks lend to each other) to virtually zero, and this second round of quantitative easing–commonly referred to as QE2–is one of the few tools it has left to help boost economic growth. In spite of all this, a funny thing has happened. Treasury yields have actually risen since the Fed’s announcement.

The following charts from Doug Short update this trend:

treasuries FFR since 2007 Quantitative Easing Rounds 1 and 2 Hurt the Economy ... Bernanke Proposes Round 3

treasuries 30 yr mortgage since 2010 Quantitative Easing Rounds 1 and 2 Hurt the Economy ... Bernanke Proposes Round 3

treasury yield percent change since 101104 Quantitative Easing Rounds 1 and 2 Hurt the Economy ... Bernanke Proposes Round 3


Of course, rather than admit that the Fed is failing at driving down rates, rising rates are now being heralded as a sign of success. As the New York Times reported Monday:

The trouble is [rates] they have risen since it was formally announced in November, leaving many in the markets puzzled about the value of the Fed’s bond-buying program.


But the biggest reason for the rise in interest rates was probably that the economy was, at last, growing faster. And that’s good news.

“Rates have risen for the reasons we were hoping for: investors are more optimistic about the recovery,” said Mr. Sack. “It is a good sign.”

Last November, after it started to become apparent that rates were moving in the wrong direction, Bernanke pulled a bait-and-switch, defending quantitative easing on other grounds:

This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

As former chief Merrill Lynch economist David Rosenberg writes today:

So the Fed Chairman seems non-plussed that Treasury yields have shot up and that the mortgage rates and car loan rates have done likewise, even though he said this back in early November in his op-ed piece in the Washington Post, regarding the need for lower long-term yields:

“For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment.”

But the Fed Chairman is at least getting what he wants in the equity market. Recall what he said back then — “higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

So now the Fed has added a third mandate to its charter:

1. Full employment
2. Low and stable inflation
3. Higher equity valuation

The real question we should be asking is why Ben didn’t add this third policy objective back in 2007 and save us from a whole lot of pain over the next 18 months?

And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.

Indeed, leading economic consulting firm Trim Tabs (25% of the top 50 hedge funds in the world use TrimTabs’ research for market timing) wrote on Wednesday:

The Federal Reserve’s quantitative easing programs have helped stock market participants, financial institutions, and large companies but have done little to address the structural problems of the economy, according to TrimTabs Investment Research.

“Quantitative easing is supposed to produce stronger economic growth and lower unemployment,” said Madeline Schnapp, Director of Macroeconomic Research at TrimTabs. “While QE1 and QE2 have worked wonders on the stock market, their impact on GDP and jobs has been anemic at best.”

Similarly, Ambrose Evans-Pritchard writes today:

The Fed no longer even denies that the purpose of its latest blast of bond purchases, or QE2, is to drive up Wall Street, perhaps because it has so signally failed to achieve its other purpose of driving down borrowing costs.

Unfortunately, a rising stock market doesn’t help the average American as much as you might assume.

Quantitative Easing Drives Up Food Prices

Quantitative easing creams the little guy by driving up food prices. Graham Summers points out that food prices have also skyrocketed [during both rounds of quantitative easing]:

In case you’ve missed it, food riots are spreading throughout the developing world Already Tunisia, Algeria, Oman, and even Laos are experiencing riots and protests due to soaring food prices.

As Abdolreza Abbassian, chief economist at the UN’s Food and Agriculture Organization (FAO), put it, “We are entering a danger territory.”

Indeed, these situations left people literally starving… AND dead from the riots.

And why is this happening?

A perfect storm of increased demand, bad harvests from key exporters (Argentina, Russia, Australia and Canada, but most of all, the Fed’s money pumping. If you don’t believe me, have a look at the below chart:

[Summers shows the share price of Elements Rogers International Commodity Agriculture ETN as a proxy for food prices generally.]

As you can see, it wasn’t until the Fed announced its QE lite program that agricultural commodities exploded above long-term resistance. And in case there was any doubt, QE 2 sent them absolutely stratospheric.

This isn’t really unexpected.

David Einhorn warned:

It is quite likely that QE2 will slow the economy by raising food and energy prices [because it is easier to generate these price increases]. [These price hikes] would act as a tax on consumers and businesses.

Karl Denninger wrote:

We have a Federal Reserve that, in the last two years, has printed and debased the currency of this nation by more than 100%, taking their balance sheet from $800 billion to more than $2 trillion. They now threaten, today, to do even more of that. This has resulted in insane price ramps in soft commodities ….

(“soft commodities” means food crops).

As the Wall Street Journal, Tyler Durden, the Economic Policy Journal and others note, inflation in food prices isn’t limited to developing nations, but is coming to the U.S.

You Can’t Fix a Leaking Pool by Flooding It With More Water

We’ve noted that Keynesian economics cannot work when the economy has major structural defects which have not been addressed:

Keynes implemented his New Deal stimulus at the same time that Glass-Steagall and many other measures were implemented to plug the holes in a corrupt financial system. The gaming of the financial system was decreased somewhat, the amount of funny business which the powers-that-be could engage in was reined in to some extent.As such, the economy had a chance to recover (even with the massive stimulus of World War II, unless some basic level of trust had been restored in the economy, the economy would not have recovered).

Today, however, Bernanke … and the rest of the boys haven’t fixed any of the major structural defects in the economy. So even if Keynesianism were the answer, it cannot work without the implementation of structural reforms to the financial system.

A little extra water in the plumbing can’t fix pipes that have been corroded and are thoroughly rotten. The government hasn’t even tried to replace the leaking sections of pipe in our economy.

Quantitative easing can’t patch a financial system with giant holes in it.

One thing is for sure: stimulus would do a lot more good if it went directly to the people, instead of to the big banks who gather around the monetary spigot to siphon it off for their own benefit.

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  • Great article, GW; thank you.

    Yes, this latest manipulation is fundamentally criminal fraud because it’s framed as “good” for the public when the facts show it was about the worst thing imaginable to do for the 99%.

    The world’s biggest civics and economics lesson continues.

    Americans will pass this class when they understand the public good is served by creating debt-free money instead of increasing and unpayable aggregate debt borrowed from the banksters. Related and importantly, the fraud is only possible with liars in politics and corporate media because either party could communicate and stop our debt slavery.

    • ‘debt-free money.’ But under even well-functioning fractional reserve banking, that’s a contradiction in terms. Money is debt: that’s where it comes from.

      Now, if you’re advocating a radical shift to credit clearing-based money, I’m right with you. Not arguing the point at all. But let’s be honest about what we’re talking about.

      And that shift is entirely outside the capacity of the current political system to produce. It’s going to have to start from the bottom up. Big things have small beginnings.

  • Heisenberg

    Krugman is doing an AMA (Ask me anything) on reddit, Monday May 1. I’m guessing he will avoid any difficult questions, which is unfortunate because having him address this would be great.

    Thank you for the post.

  • QE is pointless, it does not introduce new money into the economy.

    Central banks are collateral constrained and cannot leverage/offer unsecured loans without ceding their ability to validate collateral … to be central banks.

    New monies are lent into existence by finance which can only profit by way of leverage. Unfortunately, industrial socialism does not offer remunerative enterprises to lend to. Consequently, there is no inflation. The only lending opportunities are finance ponzi schemes (which is finance pointlessly lending to itself).

    The Fed and other central banks are irrelevant. Worth of money is determined at gas pumps all over the world by billions of motorists filling their tanks: swapping currency on demand for a physical commodity. Priced in crude, currencies/dollars are worth something: that is petro-currencies are hard.

    Prices are increasing wherever fuel is embedded. The reason for fuel price increases is imbalance between petroleum supply and consumption. This is now driven by credit. Fuel prices have increased 600% since dollar-peak oil in 1998. Meeting the cost of fuel has overstretched the credit system even as credit pushes the price. Supply of fuel is constrained by the simple fact that decades of waste have exhausted affordable fuels: our waste-based infrastructure including credit simply cannot function with the expensive fuels. This is because vehicular waste does not show any return.

    Meanwhile, our precious infrastructure has been designed and built solely to waste fuel: the economy cannot afford to waste any longer. What is underway is market jettisoning wasteful enterprises that do not offer a return to the users: automobiles, sprawl, airlines, overseas supply chains, industrial agriculture, ultimately all industrial enterprises as none of these can pay their own way.

    There is nothing the central banks or other administrators can do to keep the process from proceeding to its conclusion. It is too late for the Eurozone: the opportunities to restructure their economy away from fuel waste ended with the Greek charade.

    Now, Greece is down the drain with Spain to follow. Next comes France and other core economies.

    Repeat: there is nothing any of these countries can do to reverse the process that is underway right now: the long-term consequence of waste of capital/natural resources for zero return. The only solution is stringent conservation: not 0.05 percent as is fashionable but 50% now with more cuts within years: get rid of the cars. Alternative: bankruptcy. After France comes Japan and China.

  • Rob

    “But (to put it charitably) the Fed sees the world through a bank-centric lens…”

    This sums up one of (the many) problems with the FED. Stated more conventionally, “when the only tool in your tool box is a hammer, every problem looks like a nail.” What compounds this problem is that when the hammer does work, they never reach the conclusion that the reason it didn’t work is because problem wasn’t a nail, no the conclusion is always that the hammer wasn’t big enough.

    “We’ve noted that Keynesian economics cannot work when the economy has major structural defects”

    True. Which is ironic that Keynesians don’t even fully understand the tenants of the theories they advocate. Keynesian principles of “stimulus” are predicated on an otherwise healthy (low and sustainable debt loading) economy and structurally sound – neither of which exist to day. Keynesian “stimulus” is promoted as a tool to bridge across downturns in “the business cycle” (whether or not that is even useful or true is debatable). But the problem is this isn’t a “business cycle downturn” we’re dealing with, it’s a crisis that is a result of unsound and unsustainable economic policies and structural unsoundness. The environment for Keynesian stimulus doesn’t even exist in the first place so we first have to fix what is broken to even get to a point where a debate on Keynesian stimulus would even be relevant.

    Another problem with Keynesianism (or at least they way it’s proponents argue) is an obsession with consumptive economic activity. Keynesianism apparently doesn’t distinguish between “economic growth”as a function of increasing productive capacity or a function of consumption activity. The problem with this, is increased consumptive activity doesn’t really increase the general wealth of the society – it simply adds more activity pushing the limits of whatever your productive capacity is. Eventually you run into that limit. The way you increase economic and social wealth is by increasing the actual productive capacity. Economic growth is usually more limited by it’s productive capacity rather than it’s consumptive capacity. But “stimulating” growth in productive capacity is hard whereas “stimulating” growth in consumption is (generally) easy – especially when it is *debt fueled consumption*.

    Now you might say that, well, if you aren’t fully utilizing your productive capacity, then stimulating consumption isn’t a bad thing. The problem is this – if it’s debt fueled consumption, it is consumption enabled with _someone else’s_ productive capacity (the creditor) rather than your own productive capacity. You will still then, at some future time, have to cut back your own consumption (without cutting back your production) to pay off that debt. And “printing” fueled consumption is really just a different form of debt as it places a “debt” on yourself repaid by a devalued currency (and net worth as a result).

    Which brings up another related shortsightedness of Keynesianism. It does not, apparently, distinguish between debt for investment for growth in productive capacity versus debt to fuel consumption. The difference is that investment debt (should) pays for itself out of increased productivity. Debt for consumption must be paid out of reduced future consumption to make available the “excess production” to pay off that debt. That is money spent on investment is returned through increased production whereas money spent on consumption is just gone. With investment you repay the debt out of the money that investment returns. With consumptive debt, you have to forgo future consumption out of future production to pay off the debt. But people tend to be disinclined to _ever_ consume less than they produce (especially when it means consuming less than they have become accustomed to consuming *) in order to pay off debt.

    * – this is what is happening in places like Greece and the US in their inability to cut their “standard of living” (unsustainable debt fueled consumption they have grown accustomed to) in order to cut back consumption (aka the vilified “austerity”) to make the funds available to pay off the debt. And then there are the Keynesians who advocate for _increased_ consumption as if you can pay off debt by increasing consumption rather than increasing production. The false assumption is that increased consumption increases production – the fallacy is that it doesn’t if that consumption if fueled by debt rather than actual production. Which is exactly what we see – “economic activity” goes up while the stimulus is being consumed and then falls back off once the stimulus has been all consumed. that’s because it was just debt fueled consumption, ie consumption bought on credit _without_ backing by _real_ production, duh.

    And generally, people _want_ to engage in economic activity: consuming, buying, producing, selling, etc. You don’t have to “stimulate” people to do what they already want to do. Generally you just have to get out of the way and let people do what they already want to do. Often, if people aren’t, it’s because they feel it is unwise or there is nothing to be gained in doing so. This is especially the case now. Businesses aren’t hiring not because they don’t have money, it’s because they don’t see a need to increase productivity to produce more stuff that won’t sell. Banks aren’t lending not because they don’t have money, it’s because either they don’t see an upside, interest rates too low, or they see too much risk of default. People aren’t consuming not because they don’t have money but because they are using every penny to deleverage themselves out from under the crushing debt they are already buried under as a result of the debt fueled consumption they had previously engaged in. And now we have Keynesians saying, sorry, you can’t be allowed to dig yourself out of debt rather than engaging in yet more debt fueled consumption, and we’ll get government to spend you into more debt if we have too. People aren’t consuming because they DON’T WANT MORE DEBT but Keynesians are bound and determined to thwart them and force more debt on them with debt fueled government spending.

    There are only two fundamental forms of economic activity: production and consumption. You cannot consume what is not produced and everything that is consumed must be produced. There are also two time shifted conversions between consumption and production. There is investment and there is debt. Investment is production today that is applied toward increased future consumption – converting today’s production that is not consumed into future consumption. For example, using today’s production to build tools and factories instead of producing goods and services for today’s consumption so that future production capacity is greater to enable greater future consumption. Debt is consuming today out of future production – converting your consumption today that has not been produced by you today into future production by you that is not consumed by you. Now, I did say all that is consumed must be produced. So someone else had to produce that which you consumed but did not produce. That means that someone else consumed less than they produced to provide you with that which you consumed and that someone is going to want to consume what was produced at a later date – that is “debt”. This is the time conversion – you will then need to consume less in the future than you produce at a future date to provide for (repay) that someone else’s consumption at that later date.

    When you see things in these terms, it is obvious you simply cannot consume your way into future prosperity – debt fueled consumption today only converts into future slavery, that is working to produce to provide for (*REPAY*) someone else’s consumption, regardless of whether you call it “stimulus” or “growth policies”. The only way you can “grow” an economy in any meaningful way vis a vis “prosperity” is by growing PRODUCTION, *NOT* by growing consumption in the absence of production. The thing is, debt fueled consumption has NOT increased _production_ and is why things are broken. Yet more continued spending on debt fueled consumption is not going to grow real production any more than it already has not grown real production.

    I like to think of Keynesianism in terms of thermodynamics vis a vis “self-fueled” machines or “perpetual motion machines”. Thermodynamics tells us there is no such thing. If such a claim is made, it is not accounting for *all* the energy consumed. Find the unaccounted energy and you debunk the claim. The claim may even sound compelling and may even be feasible to construct the device. But the simple thermodynamic reality is that there is energy being consumed from somewhere to make it go. The same is true for Keynesianism. The argument may sound compelling that you can create “self-fueled” economic growth without cost, but somewhere there are (or will be) economic costs to fuel whatever benefit is gained by artificial means. Identify those economic costs or consumed economic resources that are not accounted for by the theory and you debunk the Keynesian claims. But ignoring those unaccounted for economic costs and consequences, same as with any charlatan making such claims of seemingly “free lunches”, is a Keynesian’s stock in trade.

    A couple books that are my personal favorites that explain this:
    How an Economy Grows and Why It Crashes (Peter D. Schiff)
    Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics (Henry Hazlitt)

  • Jeffrey Burns w

    excellent read! For more readings on the Federal reserve, Ben Bernanke and quantitative easy check out more article at