WEBVTT

NOTE Introduction to Economics: Part 6

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Nine and a half years, there's other things, and some spots didn't correlate.

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So they're trying to look for explanations, and the major, the dominant, in the 20th century of course, the dominant one is when they moved one.

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Something isn't within the market, something within capitalism causes this.

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Causes a stationary period where there's money supply increases, prices increase, increased productive activity, everybody's happy.

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And all of a sudden, bingo, there's a collapse, there's a bankruptcy, there's unemployment, prices fall,

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and this is a terrible thing, and the government should step in and iron it out, which is the usual conclusion.

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So one of the indictments of free market capitalism is it causes business cycles, it causes inflation and unemployment, and all the rest of it.

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And I would say most economists today still hold this one for another.

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The Keynesian variant, which we might go into, is that what happens is that the market economy doesn't spend enough, and because of that recession, and therefore it spends too much in inflations, and therefore you have to have something outside of the system which can correct this.

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And of course, that's good old Papa's government.

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So when we're gone out of the machine, which comes in

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and corrects everything, if people spend too much, absorb,

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there's a great Pansian phrase which I love, particularly,

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sop up excess purchasing power.

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Like the bounty of bitter pick-up in nutrition.

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And if the people out there don't spend enough,

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you're pumping spending in, in order to get the juices going.

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So that's the government, as I say, steps in as the corrector of all this.

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In the Keynesian theory, by the way, the Keynes had no theory of the business cycle.

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It didn't say why there's underspinning and overspinning.

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At one point, he said investment increases because of animal spirits.

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And then it decreases with animal spirits, I guess, collapse.

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So at any rate, so there's no theory of the business cycle.

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We don't know what caused the business cycle, but we do know inflation caused by overspending, depression caused by underspending, therefore the government has dropped it almost to pump spending in and softened it up.

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The way I have the metaphor I like to use to explain the Canadian doctrine is that the government is sort of like the wheel of a car, the economy is the car, the economy is going around this tightrope or this very narrow ledge.

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One side is the abyss of the pressing, the other side is the other abyss of the quagmire, the mountain cliff or whatever, inflation.

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And even though the Keynesians, at least non-leftist Keynesians, moderate Keynesians or Keynesians will admit,

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the free market works very well in the microsphere, the sphere I've been talking about before,

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the supply and demand intersecting and clearing the market and all that.

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That's great, they said, free market is good micro, but macro is total chaos.

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The only collaborating process in the macrosphere is nothing which will keep the economy and even keel.

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And therefore we need the government to adjust it, come in, fix everything up.

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As a matter of fact, I won't go into that, because every macro textbook has a click of this upon you, so I think I won't go into this.

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Millions of words have been written about, lots of equations, but the essence of it is very subtle.

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You find the essence of all this stuff, and you kind of fade to the core. It's quite simple.

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One thing is, when Keynes' general theory came out, I went to college about six years after Keynes' general theory came out,

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nobody understood what the hell I was saying. I mean, nobody.

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I mean, because it seemed very peculiar. On one page he said,

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the key to my thought of the savings always equals investment. Always, always equals investment. Key.

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Two pages later he said that Kiedemann thought that savings are always different from investment.

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Well, I mean, how do you grapple with this?

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So, since Keynes had already established a reputation as a big shot,

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as a distinguished intellectual and economist,

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therefore he couldn't be wrong, he couldn't be absurd or whatever.

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There must be something deep in the new jargon that he created,

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all sorts of new phrases, marginal capacity to consume, multiply, and all that.

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And the older economists, so the guys fell prone and forgot it, the younger economists were emerging in graduate school, young professors said, aha, this is it, and they started figuring out what the master of math, sure of heart that the master was right.

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If you read the introduction of Samuelson's most famous Keynesian, I guess, around, I think it was his foundation in economic analysis, I believe, or also his first edition of the economics textbook.

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He said what a great joy it was, what a wonderful thing to be under 35 when Keynesian general theory came out.

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He was young enough to appreciate this great revelation, this great truth, which emerged upon the world.

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So, it took about, I would say about 10, well, more than 10, 15 years before the Keynesians figured out what he was saying to try to rationalize this and make it consistent.

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As soon as they did that, again, the whole Keynesian theory began to collapse around the edges, as soon as it was fairly clear to them what he said.

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They're still arguing about what Keynes really meant.

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There are conservatives that think Keynes didn't really mean what the Keynesians said he meant.

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I personally think he didn't mean it if he meant anything at all, because the Keynesians...

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The only person who might be doing any sense whatsoever out of this mishmash is total muck.

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There are no Keynesian diagrams in the General Theory. You won't find a diagram in it.

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It's just a little verbiage, incoherent verbiage.

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An interesting thing is Keynesian is a good writer. Qua writer, he's very good.

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When you get to the General Theory, I think incoherence was the one that was incoherent in the language.

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How old was he when he wrote it?

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Well, he was pretty, he was fairly elderly at that point. He died in 1945, I think, so he was sort of 36. I guess he was 50s, 60s, something like that, 60s, something like that.

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At any rate, the thing is Keynesian cross, instead of having price on the y-axis and quantity on the x-axis, something different happens.

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Now you've got dollars on both axes, each one being national income or whatever.

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Spending, yeah, it's the same stuff, it's just slightly variations.

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Does anybody know about the gross national product?

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Eh?

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Gross national product, is that Keynes' idea?

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Yeah.

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Well, the statistician discovered a little bit before that,

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but Keynes needed the concepts in order to develop the theory.

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You can believe in the gross national product

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without being Keynesian, but you can't be Keynesian

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without believing in gross national products,

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but that way, the national income and the whole approach.

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So the axes are the same, key thing, millions of dollars

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or whatever, millions of francs or whatever.

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The axes are identical, so this is 100, that's 100, the same distance.

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So since the axes are identical, you then have a 45 degree angle, which is also identical.

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So this is 100, 100, so the coordinates are 100, 100, 200, 200, whatever, going on up.

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So this 45 degree line then becomes national income, or gross national product,

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And whatever variance makes any difference.

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Let's say national income, let's say people receive, how much will people spend?

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A person gets $10,000 all year and spends maybe less, maybe more, somewhere fluctuating around there.

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There's no particular law you can think of to equilibrate spending in the accounts of the same well, you know, they spend less, they'll save it, they spend more, they're going to debt, whatever.

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King's trying to get the theory of a macro-optimum here, macro-equilibrium, so to speak.

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The theory was that expenditures out of income

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will have a certain function.

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Expenditures have a certain function of income.

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And it's a function shaped like so.

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It's flatter.

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The expenditure function is flatter than the natural income function,

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which is just called y for some unknown reason.

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They couldn't call it i, because i is already

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taken for investment, a symbol for investment.

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because they made it lie.

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So now, this is not self-evident, to say the very least.

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I mean, if you're looking for a thicker expenditure

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to function bank, if, for example, people received last year

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$500 billion, they'll probably spend around $500 billion,

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maybe less, maybe more, let's say less.

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But whatever, there's no reason to assume

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it would be spending much more than income

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and to keep going from the left at some point,

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and much less than income to keep going right at some point.

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There's much more likely to be something

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There's some zone around here, right?

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There's no reason, if you look at it sort of rationally,

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there's no reason to think there's any kind of point there.

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And how King's got to the point, we'll see as he envelops us.

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So then you have, this is income expenditure.

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And he said, well, if income is higher than this point,

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let's say it's, I don't know, $300 billion, isn't it?

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But if income is higher than this, people spend less.

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And as you keep going, as income keeps going up,

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you spend less and less.

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What happens to the money, by the way?

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As Randall would say, blank out.

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The money, the Keynesian phrase, leaks out of the economy.

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So it disappears.

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Now, one Keynesian uses the term bathtub, it's like a leaky bathtub, it's got money pouring in, a whole bunch of money leaks out, therefore it's not around the fuel economy, it leaks.

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Alright, so, this leaky engine, Keynes called savings, savings is the thing that leaks out.

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Now, the only possible center you make out of this is to say people just pile their money out and hoard it, the old fashioned concept of hoarding, it just happens there, they have the dollar bills or the gold coins that they just keep in there, on the floorboards, but that's supposed to happen in order to keep going.

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So you have this concept of leakage, and then you have, the economy is down here,

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if you have, let's say, $100 billion nationally, now people spend $200 billion.

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Where do they get the money from? How do you have a situation?

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Consider yourself, if people are getting, receiving a payment of $100 billion,

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they spend $200 billion. Where the hell do they get the money?

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Supposing from under the floorboards, some from heaven, again, as I say, blank out.

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So, the only sets they had, the Keynesians who worked out these diagrams, the only set they had was this.

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They said, well, Keynes is thinking about two different things.

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He was looking at a time dimension, and he said as follows.

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Let's say national income is $500 billion here.

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So if you look at it as a time dimension, day one, year one, whatever you want to call it,

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Some time periods, like year one.

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Income is $500 billion.

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It's this expenditure is $400 billion.

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The rest of it leaks out.

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The rest of it's piled up in hoards.

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It's gone to the floorboards or whatever.

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So that means that since expenditure equals income,

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this is the other part of the thing.

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How can it be the same?

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Well, it's the same as follows.

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and the way to build that up.

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I spend $0.30 for a newspaper.

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Let's talk about how both parties benefit.

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If you don't concentrate on the newspaper,

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let's talk about the money.

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Here's me.

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I spend my expenditure, small e, equal to $0.30.

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And then, the news dealer's income in a gross sense,

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the money coming in, in his pocket, is $0.30, small y.

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So, expenditure, every time anybody spends any money, my expenditure is, by definition, equal to his income and determines it.

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The expenditure of the money is the act of force, we're looking at the money.

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So, I spend the 30 cents, he gets it, my 30 cents I spend is exactly equal to his 30 cents that he gets it,

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except he drops it down a grade of the Ring-O-Lang or something, which is rare.

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So, therefore, expenditure is identical with income and also determines income.

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This is the act of force if you're looking at money income, OK?

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So, OK, fine.

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Then what they do is they aggregate

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to a whole economic system.

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Every person in the economy spends money

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over a certain time period a year.

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So this is called capital E, which

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is the sum of all the small e's.

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And capital Y is the sum of all the small y's.

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And therefore, capital E has got to be identical to capital Y.

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and I've got to determine it.

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All right.

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I mean, all of this, I think, is true.

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I don't know what it gets you, particularly,

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which might be interesting for statistical purposes.

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So the people spend during the year $500 billion.

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They have income.

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They spend $400 billion.

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What happens to the $400 billion?

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That becomes income.

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In other words, expenditure of the active force.

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You spend $400 billion.

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National income is $400 billion.

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What happened with the other $100 billion leaked away?

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So this means that year two, the next year, income is $400 billion.

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In other words, the only thing that makes sense out of this

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Kane saying on one page, expenditure always equals income.

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The next page, the expenditure is always different from income.

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Let's look at it at a different time limit.

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And what he was saying was, this year's expenditure

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determines next year's income.

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This month's expenditure determines next month's income.

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So you have a ratchet effect.

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Income is $500, 100 weeks away somewhere.

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So the next year, income is only $400.

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So you're now down to $400.

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And then you have a free will decision by the masses.

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How much do you spend out of $400?

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When you look at it as a function of income,

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according to the postulate, it's not proven.

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This postulate of expenditures like this,

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this is now down to $350.

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So, expense is $350, year three, income is $350, this is here, and a couple of years

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so you get back to $300 of the equilibrium.

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At $300, whatever that is, year five or something, expenditure is $300, income is $300,

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and expenditure will again be $300.

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And there you are, you're in equilibrium national income.

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The thing is Keynesian macroeconomic.

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So, if on the other hand you start from below that, if you're here at $100 billion, $250 billion on the side, the income is $150 billion, this is year one, this is four year one in the right case, the income is $150 billion.

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How much do people spend? They spend $250,000. Where do they get the money from? They take it out of the leek, or whatever, out of the leaky bathtub.

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They take it out of boards, they take it out of the mattress. They spend $250,000.

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If they can spend an extra $100,000 now, why can't they spend an extra $100,000 and they spend $450,000 or $500,000 back in year two of it?

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It means you're saying, why is expenditure supposed to be a flat function of income?

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Good question. I don't know.

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This is absolute garbage, aren't I?

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Well, I will try to explain how he gets to this. Each step is garbage.

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Inclusion is garbage, and each step is garbage.

216
00:16:49.320 --> 00:16:52.320
There's no need to try and understand him, actually, because of his godly.

217
00:16:52.320 --> 00:16:54.320
No, I think you should understand him.

218
00:16:54.320 --> 00:16:56.320
The point is, we argue with these people all the time.

219
00:16:56.320 --> 00:16:58.320
We don't understand what their terms would mean.

220
00:16:58.320 --> 00:17:02.320
Yeah, we don't understand how to get to what the basis of the whole thing is.

221
00:17:02.320 --> 00:17:10.320
So, the next year, I mean, next year too, then, income is equal to expenditure.

222
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In other words, look at a little algebra here.

223
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Expenditure sub n is equal to and determines y sub n plus y.

224
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And then out of that, you make your free will decision

225
00:17:23.600 --> 00:17:25.320
how much to spend.

226
00:17:25.320 --> 00:17:32.160
So you're getting down, yeah, so this is now 250 up here.

227
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People spend 280.

228
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Expenditure is still high on income, but less so.

229
00:17:37.160 --> 00:17:39.360
They're taking some more out of the floorboards

230
00:17:39.360 --> 00:17:54.360
And finally, year four or five, you get to 300 again, where this is 300, that's 300, this is 300, and there you are, equilibrium, national income.

231
00:17:54.360 --> 00:18:06.360
Aside from the leakage part, it's obviously insane. People do not do this in practice, they don't have a statistic that shows an income, national income of 300 billion, people spend 500 billion next year.

232
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They ain't got the money.

233
00:18:08.360 --> 00:18:13.360
Aside from that, how could this thing ever change?

234
00:18:13.360 --> 00:18:15.360
How could this change here?

235
00:18:15.360 --> 00:18:17.360
With supply and demand, you know how things change.

236
00:18:17.360 --> 00:18:19.360
The prices, the equilibrium prices change.

237
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Either with supply change or demand change.

238
00:18:21.360 --> 00:18:23.360
There's only one function, expenditure and income.

239
00:18:23.360 --> 00:18:25.360
How the hell do you ever get out of this?

240
00:18:25.360 --> 00:18:27.360
That's an interesting point.

241
00:18:27.360 --> 00:18:30.360
I don't think, if there is such a function, you can ever get out of it.

242
00:18:30.360 --> 00:18:33.360
I actually think I'm supposed to say this thing forever.

243
00:18:33.360 --> 00:18:35.360
All right, so...

244
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When you get it, it's even going to be constant, though.

245
00:18:37.360 --> 00:18:38.360
Huh?

246
00:18:38.360 --> 00:18:40.360
I mean, when you get it, it's even going to be constant.

247
00:18:40.360 --> 00:18:42.360
They have to prove, I'm going to prove a couple of things.

248
00:18:42.360 --> 00:18:44.360
They have to prove that it's stable function.

249
00:18:44.360 --> 00:18:47.360
If it's function, it should be in some sense stable.

250
00:18:47.360 --> 00:18:49.360
They also have to prove that it's flat, like that.

251
00:18:49.360 --> 00:18:52.360
Neither is self-evident, neither is true.

252
00:18:52.360 --> 00:18:53.360
Okay?

253
00:18:53.360 --> 00:18:54.360
I'm getting to them.

254
00:18:54.360 --> 00:18:59.360
I'm exploring more and more of this insanity to keep on with this.

255
00:18:59.360 --> 00:19:03.360
Sorry, I'm lost. Where does the hundred go?

256
00:19:03.360 --> 00:19:08.360
Okay, it's somewhere. Does it ever read here?

257
00:19:08.360 --> 00:19:12.360
Well, it could read here or over here, if you're down here somehow.

258
00:19:12.360 --> 00:19:15.360
They don't explain it. You have to just say explain.

259
00:19:15.360 --> 00:19:16.360
It's gone.

260
00:19:16.360 --> 00:19:20.360
You're not supposed to ask that question.

261
00:19:20.360 --> 00:19:23.360
You have to look at it rationally, I mean.

262
00:19:23.360 --> 00:19:26.360
Okay, it's just as long as I can be lost.

263
00:19:26.360 --> 00:19:28.360
The math inspires you to smoke it.

264
00:19:28.360 --> 00:19:33.360
If you could spend the extra hundred over there, why can't you spend it over here?

265
00:19:33.360 --> 00:19:35.360
That's another question Apple has asked.

266
00:19:35.360 --> 00:19:39.360
Because it's a fixed function, it's a determined function in some way.

267
00:19:39.360 --> 00:19:41.360
Why is it a determined function? Well, we'll see why they think of it that way.

268
00:19:41.360 --> 00:19:44.360
Well, if this on the right is true, then how do you ever get to the left?

269
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Who knows?

270
00:19:46.360 --> 00:19:49.360
I don't think anybody can ever get out of here.

271
00:19:49.360 --> 00:19:50.360
What's in there?

272
00:19:50.360 --> 00:19:53.360
Well, they have to assume a change in the function, which they do.

273
00:19:53.360 --> 00:20:04.360
It's very peculiar because you only have one function, one independent thing. Supply and demand have two things going on. Supply and demand, we're talking about intersection. There's only one thing going on, it's a very odd kind of concept.

274
00:20:04.360 --> 00:20:21.360
And the other thing is that whilst it may well be true that because of reporting purposes and collection of data, that in fact you've got the time delay there, but nevertheless, at the moment I spend a buck on something, the other person receives it. So there's no delay inherent in the transaction.

275
00:20:21.360 --> 00:20:36.360
Well, it's cool, a Robertsonian day, V.H. Roberts, an interesting guy, he was a king tater, but anyway, he had a concept of time periods as abstract days, a day defined as you get income, you can't spend it until tomorrow.

276
00:20:36.360 --> 00:20:48.360
So he talked in terms of day, but if you take a day one, day two, it looks pretty ridiculous. It's sort of an abstract thing where obviously it doesn't happen. The real world is spending money, getting money all the time.

277
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And now it's still Keynesian, even though Keynesian has been sort of pretty deaf from the next op, and very confused, it's still explaining this.

278
00:21:30.360 --> 00:21:35.360
Goldberg is an advisor, an economic advisor to our Prime Minister.

279
00:21:37.360 --> 00:21:39.360
He took an office as garbage too, but it's like...

280
00:21:39.360 --> 00:21:43.360
Okay, anyway, he's also a Keynesian, tumbling everything out, he doesn't stress it.

281
00:21:43.360 --> 00:21:50.360
One form today, I think, was the article a little while ago on Keynes and Schumpeter, something like Schumpeter.

282
00:21:50.360 --> 00:21:53.360
Yeah, Schumpeter. Yeah, it was Peter Drucker who did that.

283
00:21:53.360 --> 00:21:57.360
I wasn't too good on it. I thought Drucker was pushing Schumpeter for the wrong reasons.

284
00:21:57.360 --> 00:22:01.360
It was an interesting article, I didn't buy it.

285
00:22:01.360 --> 00:22:08.360
Anyway, so let's assume this is correct for a minute.

286
00:22:08.360 --> 00:22:10.360
Let's assume there is an equal equilibrium.

287
00:22:10.360 --> 00:22:32.360
Production is one-to-one correlation with the national income, and employment is one-to-one correlation with production.

288
00:22:32.360 --> 00:22:45.160
So that, the higher the national income, the more the production, the higher the employment,

289
00:22:45.160 --> 00:22:48.960
the lower the national income, the lower the production, the lower the unemployment, severe

290
00:22:48.960 --> 00:22:51.760
unemployment problems, the lower the national income.

291
00:22:51.760 --> 00:22:57.720
If you look at that, you look at this thing, it seems to be total garbage.

292
00:22:57.720 --> 00:23:01.560
National income has gone up for ten-fold in the last hundred years or something, employment

293
00:23:01.560 --> 00:23:04.560
are the same. There's no difference in employment.

294
00:23:04.560 --> 00:23:06.560
Why shouldn't employment have anything to do with national income?

295
00:23:06.560 --> 00:23:08.560
What's going on here?

296
00:23:08.560 --> 00:23:11.560
Even production is hardly going to have a one-to-one correlation with that.

297
00:23:11.560 --> 00:23:13.560
It's just spending.

298
00:23:13.560 --> 00:23:16.560
So a couple of hidden assumptions here, which are a clicker.

299
00:23:16.560 --> 00:23:24.560
It took until 1950, a whole series of equations for

300
00:23:24.560 --> 00:23:27.560
Franco Mugagliani, a distinguished Italian-American Keynesian,

301
00:23:27.560 --> 00:23:30.560
to come out and figure out how Keynes gets to this thing

302
00:23:30.560 --> 00:23:37.560
where employment depends on national income, where the lower the national income, the more unemployment.

303
00:23:37.560 --> 00:23:42.560
And the hidden assumption there, the clicker on the arm, which is one of the beginnings of this,

304
00:23:42.560 --> 00:23:47.560
at least the retreat from Keynesianism among the high theorists, okay,

305
00:23:47.560 --> 00:23:52.560
they looked at this thing and they finally understood the whole equation of how they all fit together and they come to God.

306
00:23:52.560 --> 00:23:55.560
He's assuming rigid wage rates downward.

307
00:23:55.560 --> 00:24:04.560
Aha! The reception is, which is, Britain in those days was fairly accurate in the sense that wage rates can only go up, they can't fall.

308
00:24:04.560 --> 00:24:13.560
Why can't they fall? Well, listen to the institutional reasons. Unions, government minimum wage laws, unemployment insurance, all these things keep wages from falling.

309
00:24:13.560 --> 00:24:18.560
Wage rates are fixed downward. Aha! Now we can only make some sense out of some of this stuff.

310
00:24:18.560 --> 00:24:33.560
Namely, that if naturally on the 300 billion, there's a big deflation, let's say the money supply is cut in half, and prices and wages are cut in half more or less.

311
00:24:33.560 --> 00:24:39.560
Everybody should be more or less in the same position. There shouldn't be any big problem after the transition period.

312
00:24:39.560 --> 00:24:48.560
But, if wage rates remain the same as they were when money and prices and everything else were doubled, then of course you have a real problem, because unemployment is a function of wage rates.

313
00:24:48.560 --> 00:24:59.560
So that, if demand for labor, so to speak, is cut in half, and wage rates stay at the original level, then you do have very heavy unemployment.

314
00:24:59.560 --> 00:25:04.560
It has nothing to do with the free market. It has nothing to do with the alleged need of the free market for the steering wheel.

315
00:25:04.560 --> 00:25:10.560
The Wage Rate is rigid downward by exogenous union and government forces.

316
00:25:10.560 --> 00:25:15.560
If Keynes had admitted that from the very beginning, it would have been a very different story.

317
00:25:15.560 --> 00:25:20.560
What it means is the onus of unemployment rests on the government rather than on the free market.

318
00:25:20.560 --> 00:25:24.560
It took a lot, let's say 15 years, to realize this is a hidden assumption.

319
00:25:24.560 --> 00:25:27.560
Even then, they weren't very happy about the Keynes Deal.

320
00:25:27.560 --> 00:25:32.560
So it's tucked under some kind of limbo there, corollary.

321
00:25:32.560 --> 00:25:39.560
OK, so rigid wage rates downward become a key to this, the unemployment problems.

322
00:25:39.560 --> 00:25:52.560
So, and it became pretty evident that the whole Keynesian trick was to solve the pressures by creating inflation,

323
00:25:52.560 --> 00:25:54.560
by creating increasing money supply, by increasing prices.

324
00:25:54.560 --> 00:26:00.560
So it was a trick in unions and the workers in accepting lower real wage rates while the money rate rates were made the same.

325
00:26:00.560 --> 00:26:07.560
The essence of political Keynesianism, it's a whole bunch of trickery, it's duplicity on a mammoth scale.

326
00:26:07.560 --> 00:26:12.560
It's people who claim they love the working classes and each time they're inflating prices higher than wage rates,

327
00:26:12.560 --> 00:26:15.560
so the real wage rates, in terms of purchasing power, go down.

328
00:26:15.560 --> 00:26:21.560
So the unemployment problem is unsolved, they're very tricky, it's a roundabout fashion.

329
00:26:21.560 --> 00:26:29.560
OK, so that's the political essence of Keynesianism, underneath a little camouflage.

330
00:26:29.560 --> 00:26:31.560
I'll continue on with a little theory here.

331
00:26:39.000 --> 00:26:42.520
Well, first of all, one of the things that happened was he said that the Keynesians in the 1930s said,

332
00:26:42.520 --> 00:26:45.600
well, the economy is mired here, we're finished, et cetera, et cetera.

333
00:26:45.600 --> 00:26:48.240
You have to have mammoth government spending to what?

334
00:26:48.240 --> 00:26:50.400
Increase, let's drop it this way.

335
00:26:55.360 --> 00:26:58.600
I'll continue on with this thing.

336
00:26:58.600 --> 00:27:06.600
Income, expenditure, there's some line here, there's some full employment line,

337
00:27:06.600 --> 00:27:10.600
magic full employment line, which is somewhere, say here.

338
00:27:10.600 --> 00:27:16.600
This is the line at which unemployment is wiped out if you keep increasing national income.

339
00:27:16.600 --> 00:27:21.600
If expenditure is such that the intersection point below the full employment line

340
00:27:21.600 --> 00:27:25.600
you have permanent depression, there's no way the free market economy can get out of it.

341
00:27:25.600 --> 00:27:27.600
No wonder it's called the bankruptcy machine.

342
00:27:46.600 --> 00:27:48.600
No wonder it's called the bankruptcy machine.

343
00:27:55.600 --> 00:28:02.600
If you're in a depression, you assume it must be to the right of where we are now, so you pump in a lot of spending.

344
00:28:02.600 --> 00:28:13.600
If, on the other hand, this is a case in which I'm not very strong on inflation, I couldn't really, I'm not very keen on analyzing it, in terms of the depression.

345
00:28:13.600 --> 00:28:20.600
But the, if you're in a depression, you assume it must be to the right of where we are now, so you pump in a lot of spending.

346
00:28:20.600 --> 00:28:39.600
But if the expenditure line is flat, if the intersection point is, say, 600 million, that means that there's inflation.

347
00:28:39.600 --> 00:28:45.600
This causes inflation. If you're the right of the full employment line of inflation, left of the full employment line of depression is permanent.

348
00:28:45.600 --> 00:28:52.160
We're stuck, we're mired in this evil expenditure fluctuating with no selfie collaborator as the micro-sphere apps.

349
00:28:52.160 --> 00:28:59.040
Therefore, government gone out of the machine comes in, pumps in spending, or takes an app, stop, stop, our excess purchasing power.

350
00:28:59.040 --> 00:29:03.440
And does what? Well, destroys it, burns it, who knows.

351
00:29:03.440 --> 00:29:07.600
So, okay, where does the government get the money from?

352
00:29:07.600 --> 00:29:10.560
Essentially, that's blackout, also.

353
00:29:10.560 --> 00:29:19.560
Government spends it, it creates, by deficits, and it has also an inflation, it has surpluses.

354
00:29:19.560 --> 00:29:25.560
The original Keynesians were kind of cute about this, they said, well, they said, we have a business cycle of something like this.

355
00:29:25.560 --> 00:29:28.560
Old fuddy-duddy reactionaries are in favor of balanced budget.

356
00:29:28.560 --> 00:29:32.560
Well, we are in favor of balanced budget, too, just we're not limited to the concept of the year.

357
00:29:32.560 --> 00:29:35.560
We believe in balanced budget on the entire cycle.

358
00:29:35.560 --> 00:29:45.560
Four years of depression, we spend money, we have deficits, then it's four years of retention, we have surpluses, which stuff up the old deficits.

359
00:29:45.560 --> 00:29:52.560
So over an eight or ten year period, we have a balanced budget, right? This is called the concept of a cyclically balanced budget.

360
00:29:52.560 --> 00:29:59.560
What's happened to the concept of a cyclically balanced budget? It's now the old Orwell memory hole. Nobody talks about it.

361
00:29:59.560 --> 00:30:04.560
No Keynesian textbooks write about it, because obviously there ain't no balanced budget.

362
00:30:04.560 --> 00:30:08.560
There's either a very big deficit or a slightly less big deficit.

363
00:30:08.560 --> 00:30:10.560
So the concept of a surplus is going awesome.

364
00:30:10.560 --> 00:30:12.560
Nobody talks about budget surplus anymore.

365
00:30:12.560 --> 00:30:14.560
You don't check at a flight show about budget surplus.

366
00:30:14.560 --> 00:30:18.560
You check it by slightly reducing the deficit.

367
00:30:18.560 --> 00:30:23.560
I thought of that.

368
00:30:23.560 --> 00:30:28.400
Now, how do they get at this thing?

369
00:30:28.400 --> 00:30:31.000
How do they arrive at this flat function?

370
00:30:31.000 --> 00:30:33.200
There are two things they have to support in some way.

371
00:30:33.200 --> 00:30:35.120
The expenditure function is flat, and therefore

372
00:30:35.120 --> 00:30:37.200
has an intersection of one point.

373
00:30:37.200 --> 00:30:40.600
And on the stables, you can even talk about it.

374
00:30:40.600 --> 00:30:42.760
Well, the first thing that happened with Keynesians

375
00:30:42.760 --> 00:30:45.120
came in about 1945 with Simon Kuznets,

376
00:30:45.120 --> 00:30:46.960
who's not one of my favorite economists,

377
00:30:46.960 --> 00:30:49.800
who's sort of an establishment statistician.

378
00:30:49.800 --> 00:30:52.640
He said, well, gee, if you look at it over time,

379
00:30:52.640 --> 00:30:56.120
Over the last 150-year period, consumption doesn't go like this.

380
00:30:56.120 --> 00:30:59.320
National income increases, expenditure doesn't go like that.

381
00:30:59.320 --> 00:31:01.400
Expenditure is more or less the same proportion

382
00:31:01.400 --> 00:31:02.900
of the national income as it always was.

383
00:31:02.900 --> 00:31:08.240
Therefore, expenditure function rises secondarily in the long run.

384
00:31:08.240 --> 00:31:09.560
Keynesians say, yeah, you're right.

385
00:31:09.560 --> 00:31:12.840
Over a long period, expenditure keeps rising to meet income.

386
00:31:12.840 --> 00:31:15.600
And therefore, you don't have a 100-year depression.

387
00:31:15.600 --> 00:31:17.400
It's only 20 years, something like that.

388
00:31:17.400 --> 00:31:19.720
It's the first big concession of Keynesians.

389
00:31:19.720 --> 00:31:20.760
OK, yeah.

390
00:31:20.760 --> 00:31:24.660
Maybe we can get out of this now for 20 years.

391
00:31:24.660 --> 00:31:26.160
Anyway, how do they get to this thing?

392
00:31:26.160 --> 00:31:31.160
They get to this expenditure function as follows.

393
00:31:31.160 --> 00:31:33.160
I think in the history of economic thoughts,

394
00:31:33.160 --> 00:31:38.660
it might be the biggest single collection of fallacies.

395
00:31:38.660 --> 00:31:40.660
They're tough to really judge it with this.

396
00:31:44.160 --> 00:31:46.160
You have this allegedly fine expenditure function.

397
00:31:46.160 --> 00:31:47.660
You might have had it as follows.

398
00:31:47.660 --> 00:31:50.660
Well, expenditure consists of two kinds of expenditure.

399
00:31:50.660 --> 00:31:57.660
There's investment and there's consumption, right?

400
00:31:57.660 --> 00:32:02.660
Investment is on capital goods and lower consumption of consumer goods.

401
00:32:02.660 --> 00:32:07.660
Consumption is about 90% of investment, 95, 80, whatever it is.

402
00:32:07.660 --> 00:32:12.660
And investment pays at no theory investment.

403
00:32:12.660 --> 00:32:15.660
Investment is free-flowing. It's animal spirits. It's free will.

404
00:32:15.660 --> 00:32:19.660
Investment is free will. It's voluble. It's cookie.

405
00:32:19.660 --> 00:32:24.660
It's rookie, it's whatever, booms and busts, there's no determined law of investment.

406
00:32:24.660 --> 00:32:29.660
Consumption, however, is different. Consumption is fixed and determined, like so.

407
00:32:29.660 --> 00:32:34.660
Flat, intersecting at certain points.

408
00:32:34.660 --> 00:32:36.660
Is there another one where there are arbitrary assumptions?

409
00:32:36.660 --> 00:32:39.660
Yeah, well we're going back beyond the arbitrary assumption of expenditure function.

410
00:32:39.660 --> 00:32:42.660
They don't talk about expenditure function, they talk about consumption function.

411
00:32:42.660 --> 00:32:44.660
But this is essentially what they're saying.

412
00:32:44.660 --> 00:32:48.660
They're saying that expenditure function, which can be broken down into two parts,

413
00:32:48.660 --> 00:32:54.660
Investment, which is constant here, because it's not a function, it's free will.

414
00:32:54.660 --> 00:33:00.660
And consumption, which is determined passive, because consumers are determined passive jerks or whatever.

415
00:33:00.660 --> 00:33:05.660
And they have this kind of a function. Stable, consumption function.

416
00:33:05.660 --> 00:33:12.660
If supply and demand is a famous phrase for microeconomics, the famous phrase for Keynesian is consumption function.

417
00:33:12.660 --> 00:33:21.660
So, consumption function is flat-ish and it's stable, why is it flat and stable?

418
00:33:21.660 --> 00:33:28.660
And by the way, what happens then is, investment is free will, consumption is passive determined.

419
00:33:28.660 --> 00:33:32.660
And what else is free will in the world? Government. Government expenditure is very free will.

420
00:33:32.660 --> 00:33:40.660
They got free will out of the yang-yang. So government then steps in and supplies the efficient expenditure.

421
00:33:40.660 --> 00:33:46.660
Therefore, government spending is honorary investment, specifically the same thing as investment, because it's free will.

422
00:33:46.660 --> 00:33:53.660
Consumers are passing the term, investors are free will, but volatile and sort of undependable, and government is free will and rational.

423
00:33:53.660 --> 00:33:58.660
And that steps in and corrects these flaws of the free market.

424
00:33:58.660 --> 00:33:59.660
Good thing too.

425
00:33:59.660 --> 00:34:00.660
Yes, absolutely.

426
00:34:00.660 --> 00:34:03.660
I mean, where would we be without it?

427
00:34:03.660 --> 00:34:06.660
Where would we be, right?

428
00:34:06.660 --> 00:34:11.660
OK, so, how do they get this consumption function, the c plus i and all that?

429
00:34:11.660 --> 00:34:18.660
Well, the stability, well, the shape of the consumption, I mean,

430
00:34:18.660 --> 00:34:21.660
the key to this thing is it has to have an intersection point.

431
00:34:21.660 --> 00:34:24.660
If it doesn't have an intersection point, the whole thing washes out.

432
00:34:24.660 --> 00:34:26.660
They got it from budget studies.

433
00:34:26.660 --> 00:34:29.660
It's a very interesting methodological leap.

434
00:34:29.660 --> 00:34:34.660
1935 or 1936, the Department of Labor had a budget study.

435
00:34:34.660 --> 00:34:40.860
What they did is they investigated people's incomes and their consumption.

436
00:34:40.860 --> 00:34:45.660
And they found out, not, I think, unsurprisingly, this has nothing to do with national income.

437
00:34:45.660 --> 00:34:48.380
These are people's income, groups of people.

438
00:34:48.380 --> 00:35:02.260
They found out that if you go up, if this is income classes, this is, as you have this national income,

439
00:35:02.260 --> 00:35:17.260
Let's say this is income here, this is consumption here, that if your wealthy people tend to spend a much lower proportion of income than poor people.

440
00:35:17.260 --> 00:35:31.260
In other words, have something like this, this is the 45 degree line again, have something like people who make a, let's say David Rockefeller,

441
00:35:31.260 --> 00:35:38.260
Income is $50 million a year. It doesn't spend a lot on consumption. It spends maybe $10 million on consumption. $40 million he saves or invests.

442
00:35:38.260 --> 00:35:47.260
So you have, then, a much lower consumption rate, consumption proportion, and in middle classes it's closer to the line.

443
00:35:47.260 --> 00:35:53.260
And something like that. And then you get to poor people, you find that lower income people spend more than they take in.

444
00:35:53.260 --> 00:35:57.260
So somebody makes $2,000 a year, he spends $6,000.

445
00:35:57.260 --> 00:35:58.860
You have this kind of a function.

446
00:35:58.860 --> 00:36:02.900
If you're dealing with income classes within the same period,

447
00:36:02.900 --> 00:36:05.740
same year, therefore, they said, see,

448
00:36:05.740 --> 00:36:07.620
that's the consumption function.

449
00:36:07.620 --> 00:36:11.220
Now, some of the many things wrong with this.

450
00:36:11.220 --> 00:36:13.780
One is, these are not dealing with national income,

451
00:36:13.780 --> 00:36:15.700
they're dealing with groups of people

452
00:36:15.700 --> 00:36:17.900
within the same national income.

453
00:36:17.900 --> 00:36:20.900
It's a very entirely different thing.

454
00:36:20.900 --> 00:36:24.220
It's true that a rich person might spend less,

455
00:36:24.220 --> 00:36:25.340
consume less than a poor person.

456
00:36:25.340 --> 00:36:31.340
So it doesn't mean that if everybody is richer, everybody will spend, will consume less than before.

457
00:36:31.340 --> 00:36:33.340
Two totally different things.

458
00:36:33.340 --> 00:36:38.340
This whole thing gives you one point on this graph. It doesn't give you the whole graph.

459
00:36:38.340 --> 00:36:41.340
So that's one big problem. It doesn't establish a damn thing.

460
00:36:41.340 --> 00:36:48.340
Secondly, a Milton Friedman point. Actually, Milton Friedman was probably his biggest contribution to economics.

461
00:36:48.340 --> 00:36:52.340
His so-called permanent consumption function.

462
00:36:52.340 --> 00:36:59.340
He said, look, people don't spend money, but they consider how much they consume out of their current income.

463
00:36:59.340 --> 00:37:04.340
They don't only consider their current income, they consider what their income was two years ago and will be two years from now.

464
00:37:04.340 --> 00:37:08.340
Supposing you have a best-selling author, for example, Irving Wallace.

465
00:37:08.340 --> 00:37:11.340
Let's say he writes a top novel every five years.

466
00:37:11.340 --> 00:37:16.340
If he gets one million dollars one year, he's not going to spend all of it that year.

467
00:37:16.340 --> 00:37:20.340
He's going to allocate it over a five-year period.

468
00:37:20.340 --> 00:37:28.340
If you catch Irving Wallace in his flush year, he'll be spending way below his income.

469
00:37:28.340 --> 00:37:33.340
The other hand, if you catch him in the year when he's making zero and spending $500,000 a year, he's here somewhere.

470
00:37:33.340 --> 00:37:43.340
It's a distorted picture. If you take a five-year period, take these same income groups and take their income over a five-year period, you've got a very different statistic.

471
00:37:43.340 --> 00:37:51.340
So Friedman essentially did that and found out, lo and behold, that if you do that, everything changes.

472
00:37:51.340 --> 00:37:58.340
And so this budget study thing shifts from this to something like that.

473
00:37:58.340 --> 00:38:03.340
So the people who really have low incomes for five years spend less.

474
00:38:03.340 --> 00:38:06.340
Where the hell do they get the money from? Of course, that's another interesting question.

475
00:38:06.340 --> 00:38:12.340
If you're really poor, you don't have $2 million in a little floorboards, and you don't get permanent credit either.

476
00:38:12.340 --> 00:38:20.340
You can get some credit from friends, neighbors, or store keepers, but pretty soon it washes out and you keep getting some income.

477
00:38:20.340 --> 00:38:27.340
The whole thing, when you start directing it to a simple permanent income, you get a consumption function like this, much more intelligent, and there's no intersection point.

478
00:38:27.340 --> 00:38:35.340
The intersection point washes out, Keynesianism is wiped out on that basis alone, plus, you know, perhaps there's other things we're talking about.

479
00:38:35.340 --> 00:38:42.340
And plus the fact it doesn't really pertain to national income changes.

480
00:38:42.340 --> 00:38:48.340
So that takes care of the flatness. What about the stability? How do they get the stability? Why should it be stable?

481
00:38:48.340 --> 00:38:56.340
They get that from this. For 30 years or so you take national income.

482
00:38:56.340 --> 00:39:04.340
OK, this is one of the big, this is sort of like a walk-case in many ways, like a walking mathematical fallacy.

483
00:39:04.340 --> 00:39:13.340
A statistical fallacy. Take, this is over a different year, take income, national income and consumption and plot them, OK?

484
00:39:13.340 --> 00:39:23.340
And you get something like, something like that. It's all around the same amount.

485
00:39:23.340 --> 00:39:27.980
The same amount, the deviation, the variation around the correlation is very small.

486
00:39:27.980 --> 00:39:32.860
If, on the other hand, your plot naturally come with saving or investment,

487
00:39:32.860 --> 00:39:38.820
you get a much bigger variation, something like that.

488
00:39:38.820 --> 00:39:44.380
The conclusion was that consumption is a very stable function when it comes to the very small variance around it,

489
00:39:44.380 --> 00:39:49.060
where its investment or saving is very volatile and free will.

490
00:39:49.060 --> 00:39:56.060
It's really best to follow them if you will, because the correlation is, the variance around them is much greater.

491
00:39:57.060 --> 00:40:04.060
The trick here, the gimmick involved is, if you take something and correlate it with 95% of itself, you get a very high correlation.

492
00:40:06.060 --> 00:40:13.060
It looks very stable. It doesn't really mean a damn thing. If on the other hand you correlate something with 5% of itself, you get a lot of variance.

493
00:40:13.060 --> 00:40:18.060
Looks like it's unstable. That is the hooker. That's the key to the key function.

494
00:40:18.060 --> 00:40:21.040
They correlate something with 90% of the stuff that looks stable.

495
00:40:21.040 --> 00:40:24.100
Correlate with 5% or 10% of the stuff that looks unstable.

496
00:40:24.100 --> 00:40:31.440
So my little satiric thing, which I have in my common state,

497
00:40:31.440 --> 00:40:34.420
reducing this reductio ad absurdum is as follows.

498
00:40:34.420 --> 00:40:37.380
Why only have an investment cost of the sum?

499
00:40:37.380 --> 00:40:42.420
Those aren't the only things which make up a national income, right?

500
00:40:42.420 --> 00:41:00.420
Take national income, and is equal to income of Brooklyn, V, plus income of every other place except Brooklyn, called V for everybody.

501
00:41:00.420 --> 00:41:09.420
So, and you correlate the two things. If you correlate national income with all income except Brooklyn, this is about 99% of that.

502
00:41:09.420 --> 00:41:18.420
If you correlate national income with everything except Brooklyn, you've got to vary it to something like that.

503
00:41:18.420 --> 00:41:22.420
Very high correlations, no variation around, it's invisible.

504
00:41:22.420 --> 00:41:32.420
If on the other hand you correlate national income with Brooklyn income, there's a lot of variation all over the place.

505
00:41:32.420 --> 00:41:36.420
So you can therefore conclude that Brooklyn is the key.

506
00:41:36.420 --> 00:41:39.420
Okay, not investment, how about investment?

507
00:41:39.420 --> 00:41:48.420
The multiplier, the investment is equal to, you can't even invest in a specific subject, this is 95, this is 5.

508
00:41:48.420 --> 00:41:52.420
The multiplier is 20, this is the famous Keynesian multiplier.

509
00:41:52.420 --> 00:41:56.420
The conclusion was, if you increase investment, and government spending, remember, is the same as investment.

510
00:41:56.420 --> 00:42:00.420
It's honorary investment, it's an increase, I actually look at my tiny fold.

511
00:42:00.420 --> 00:42:03.420
This was the original, heady days in early Keynesianism.

512
00:42:03.420 --> 00:42:08.420
I think we have a much more powerful multiply. In Brooklyn, we have a hundredfold increase.

513
00:42:08.420 --> 00:42:13.420
If you give $10 to every American in Brooklyn, you have a $2 trillion increase in actually.

514
00:42:13.420 --> 00:42:18.420
This is a multiplier effect. It's a stable multiplier.

515
00:42:18.420 --> 00:42:23.420
I think you should pull out Murray Roth.

516
00:42:23.420 --> 00:42:28.420
I did. That's the punch line. You're stepping on my punch line.

517
00:42:28.420 --> 00:42:38.420
So, Brooklyn is a volatile, free will, free willed people, volatile, free willing, everybody else is a schnook without their passive determinant.

518
00:42:38.420 --> 00:42:44.420
And of course, as you said, the conclusion of the whole thing is that the Rothbard multiply is much more powerful.

519
00:42:44.420 --> 00:42:51.420
If you take natural income equals Rothbard income because everybody else except Rothbard.

520
00:42:51.420 --> 00:42:55.420
...correlate them...

521
00:42:55.420 --> 00:43:01.420
...prove that this correlation between national income and everybody else's income is very stable, you can't see any difference...

522
00:43:01.420 --> 00:43:05.420
...correlate MY income and national income, there's almost no correlation at all...

523
00:43:05.420 --> 00:43:11.420
...therefore I have free will, I'm volatile, I mean everybody else is schnucky, passive and determined...

524
00:43:11.420 --> 00:43:15.420
...give me one buck and I'll, you know, refashion the universe...

525
00:43:15.420 --> 00:43:19.420
...national income will go up by two, three trillion dollars...

526
00:43:19.420 --> 00:43:21.420
Just we give you a million, right?

527
00:43:21.420 --> 00:43:23.420
Right, exactly.

528
00:43:23.420 --> 00:43:25.420
Give me money, and all good things will come of it.

529
00:43:25.420 --> 00:43:27.420
You've clearly solved the problem.

530
00:43:27.420 --> 00:43:29.420
This is what Trudeau wants.

531
00:43:29.420 --> 00:43:31.420
What's that?

532
00:43:31.420 --> 00:43:33.420
This is what Trudeau wants.

533
00:43:33.420 --> 00:43:35.420
And the Keynesians cannot rebut this.

534
00:43:35.420 --> 00:43:37.420
This is a reductive absurd of Keynesianism.

535
00:43:37.420 --> 00:43:39.420
There's no way they're going to counter this.

536
00:43:39.420 --> 00:43:41.420
It's like, wow, it's ridiculous.

537
00:43:41.420 --> 00:43:43.420
You're going to need that.

538
00:43:43.420 --> 00:43:45.420
So, anyway,

539
00:43:45.420 --> 00:43:55.420
At any rate, I think it's pretty clear this time, this whole thing is one big, gigantic scam.

540
00:44:00.420 --> 00:44:07.420
The question then becomes, if the government is supposed to pump in deficits during the recession

541
00:44:07.420 --> 00:44:14.420
and take out, sump up our purchasing card, boom, first place, how do they arrange the deficits?

542
00:44:14.420 --> 00:44:18.420
What about Keynesian deficits? Well, Keynesians themselves say it doesn't make any difference to just have a deficit.

543
00:44:18.420 --> 00:44:21.420
But it came pretty clear that people are sort of semi-Keynesian.

544
00:44:21.420 --> 00:44:25.420
Whether it makes a certain amount of difference here, if you...

545
00:44:25.420 --> 00:44:32.420
If you borrow money from... If the government borrows money from capitalists or public,

546
00:44:32.420 --> 00:44:36.420
it's true the government will spend say $100 million, but it might be offset by $100 million,

547
00:44:36.420 --> 00:44:40.420
not spent by these other people. They could have spent money. They could have had their own multiplier.

548
00:45:10.420 --> 00:45:17.820
And then Keynesians are separated into several categories.

549
00:45:17.820 --> 00:45:20.860
Most people think that Keynesians are less liberal, but that's not necessarily true.

550
00:45:20.860 --> 00:45:24.460
As a matter of fact, the people who brought us the Ford administration, the Nixon administration,

551
00:45:24.460 --> 00:45:28.820
and now most of the Reagan administration are Keynesians, they're conservative Keynesians.

552
00:45:28.820 --> 00:45:34.260
So it's a different aspect of the same doctrine.

553
00:45:34.260 --> 00:45:35.260
So how does this work?

554
00:45:35.260 --> 00:45:49.260
Now, let's say you have your, to the left of the full employment line, you're 200 and you're supposed to be 300, so the desideratum is you want a government deficit of $100 billion to put you up to the line.