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My parents and grandparents had a healthy contempt for what they called "Educated Fools". When I went to college, I kept a wary eye out for them. I spotted a few at Texas A&M in the early 1960s, but they were the harmless "absent minded professor" type, recognized as experts and fine teachers in one subject and absolute fools about everything else. It is one thing to make Shakespeare meaningful and quite another to put on shoes that match or remember where the car is parked.

But when I went to Cornell University for graduate school, I found another kind of "Educated Fool" - arrogant, overbearing, loud, out of touch with reality and completely devoid of common sense. (Not wanting to be like them is one reason I don't have PhD after my name) That is the type of "Educated Fool" that dictates global economic policy in the 21st century. They cannot or will not (same net effect) understand that their theories and models are absurd. They have driven America and the world to the brink of disaster.

Consumption vs Production As The Driver of Economic Growth

John Mauldin wrote an article entitled "Negative Rates Nail Savers" on his "Thoughts from The Frontline" blog. I encourage you to read it since it gives detail I don't intend to repeat. Here are a couple of excerpts:

Yes, the system is rigged, just not in the way that 99% of the people think it is and not by those they think are doing the rigging. Greed is not the reason for the rigging, nor are any of the other usual “follow the money” reasons. We cannot make a convenient demon out of Wall Street or the big banks and investment banking houses. ... No, the “bad guys” in the story are just Nobel laureates, tenured professors, and other honorable members of the economic academic establishment, what Ken Rogoff calls the “policy community.” ... The economy has been rigged through a process that may have seemed innocent enough at any given point but that quickly put us on a slippery slope as ideological forces captured the ramparts of academic economic science.

Economics has devolved from "science" to faith in dogma that defies common sense and logic. More from Mauldin:

And now we get to the root of the issue. Economics has been divided into religious camps. ...  There are those who are considered orthodox and those who are considered heretics, and there is a priesthood of the believers. When you are anointed as a high priest, you become part of the “policy community.” ... In general, to be accepted as a high priest in the Keynesian economic religious community you have to agree to a certain set of principles contained within their catechism. And one of the most important principles is that consumption is the driver of economy, ...

 Say What??!! Consumption is defined as "the using up of a resource". Using up our resources cannot increase economic activity. In fact, using up our resources will stop all economic activity when the resources are gone. Believing that consumption drives economic activity anywhere but down is absurd.

Consumption must be offset by production and production must exceed consumption if the economy is to grow.

GDP and Measuring Economic Growth

From Investopedia: The gross domestic product (GDP) is one of the primary indicators used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period; you can think of it as the size of the economy.Oct 24, 2016

The Keynesian dogma contends that government spending contributes to GDP and that increasing government spending creates economic growth. It is a relatively new concept. Mauldin's article gives some history. Here is an excerpt:

The argument boiled down to debates between followers of John Maynard Keynes and more conservative economists, either the disciples of Friedrich Hayek and Ludwig von Mises or followers of the classical school of economics. Conservative voices argued that the government’s taxing and spending simply took money from the citizens/taxpayers and put it to work somewhere else, so that it was not really contributing to the true productive economy. Those on the other side (Keynsian) argued that you had to know about the effects of taxes, depreciation, and the myriad forms of government spending in order to understand the economic capacity of the country.


But the issue really came down to the political argument: If you do not include government spending in GDP, the economy will appear to be shrinking in the middle of a war or in a recession, even though the government is spending money hand over fist. From the point of view of politicians who wanted the government to spend more on goods and services (and yes, war), including government spending in GDP made total sense, because you want to be able to tell the citizens the economy is growing. Politicians have been spinning data and news for ages. Whether we’re talking about the results of reading sheep entrails or of dicing modern economic data, the information is spun to make the politician look good.


The controversial decision to include government spending in GDP was a political move made by President Roosevelt and the Democrats, who were in charge during the Great Depression.

The idea that government spending increases GDP is absurd because the government can only spend what it takes away from GDP in taxes. Yet, the fallacy that government spending increases GDP is accepted dogma among the Keynesian cult that dictates economic policy throughout the developed world.

Guaranteed Failure

The combination of these two absurd Keynesian beliefs guarantees that deficit spending to increase consumption will lead to declining private sector GDP and economic depression.

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